Russia owns a piece of the International Space Station -- and it wants the U.S. to get off of it.
By now, you're probably familiar with the broad outlines of this story. It began in May, with Russian Deputy Prime Minister Dmitry Rogozin:
- declaring that Russia would no longer sell America's space launch company, United Launch Alliance (ULA), the RD-180 rocket engines it needs to power its Atlas V rockets,
- threatening to deny U.S. astronauts passage aboard Russian rockets to the ISS,
- and announcing a desire to ban these astronauts access to the ISS entirely (a threat of doubtful legality).
Soon after, Air Force Undersecretary Eric Fanning promised to initiate a public-private partnership to develop a new rocket engine to replace the RD-180.
Congress moved swiftly to fund the initiative, with the U.S. Senate Armed Services Committee approving $100 million in funding to develop an alternative, liquid-fueled rocket engine to replace Russia's RD-180, and the House Appropriations Committee going them one better -- recommending $220 million be allocated to new rocket development. And in an amazing exhibition of true "public-private partnership," Lockheed Martin (NYSE:LMT), which along with Boeing (NYSE:BA) runs ULA, announced it has already signed contracts with "several" American rocket companies to begin working up "next-generation liquid oxygen/hydrocarbon first stage propulsion concepts" to replace the RD-180.
In no time at all, America was off to the races. If all went well, said Lockheed Martin, it could have a working rocket engine built -- and a rocket ship built to carry it -- by 2019... and maybe even sooner.
And then, disaster struck.
On June 17, the Obama Administration released a statement opposing passage of H.R. 4870, the House Resolution that authorized spending $220 million to get America's new rocket engine off the ground. Complaining that these funds had been "unrequested" by the White House, and that "such a program would take eight years to field," the administration argued that the rocket engine Lockheed Martin has promised to build "would not reduce our reliance on Russian engines for at least a decade."
Complicating matters further, Russia appears to realize it has overplayed its hand as well. In just the past several days, Russian President Putin has called for an extension of the cease-fire between government and rebel forces in Ukraine (if you recall, this whole mess got started when the U.S. sanctioned Russia -- and Deputy PM Rogozin personally, in retaliation for Russian meddling in Ukraine). The Russian president has also instructed his country's parliament to rescind a March resolution authorizing military intervention in Ukraine, attempting to ratchet down tensions with the West.
ULA, meanwhile, says it's continuing to receive shipments of RD-180 rocket engines that it already has under contract from its Russian supplier. So far, says ULA, everything is still "business as usual."
What it means to investors
This is clearly good news for the Defense Department, which may no longer fear an immediate cut-off of its access to the RD-180. For investors, however, the situation has just become "clear as mud."
Will the presidents of Russia and the U.S. reach some sort of "space detente?" Will Russia convince ULA to keep buying its engines, in exchange for the U.S. promising not to develop an alternative?
Such a scenario could derail Lockheed Martin's negotiations with its "multiple" rocket engine suppliers -- a list that we believe includes names such as Alliant TechSystems, Orbital Sciences, and GenCorp.. Billions of dollars' worth of development work -- and billions more in revenues from the sale of new, non-Russian-made engines -- are at stake.
Your Foolish takeaway
Personally, I hope that's not the way things play out -- and I don't think it's how they will play out. While President Obama's rejection of spending $220 million to fund an RD-180 replacement is worrisome, I don't believe this genie can be stuffed back into the bottle so easily.
In threatening to cut off our supply of RD-180 engines, and deny U.S. astronauts passage to the space station itself, Russia highlighted the folly of depending on an oftentimes hostile foreign government for America's access to space. This situation simply cannot stand -- and it won't.
Proof? At the same time as it objected to the cost of replacing the RD-180 with a new, American-made engine, the Obama administration emphasized its commitment to "promptly reducing our reliance on Russian technology," and assured Congress that "the Administration is evaluating several cost-effective options ... that will drive innovation, stimulate the industrial base, and reduce costs through competition."
In short, while this story of America's response to the RD-180 crisis continues to throw new twists and turns at us, it's not over yet. Stay tuned.