Bad news for Russia today: Roscosmos's days of being able to charge $70.7 million a head for ferrying U.S. astronauts to the International Space Station will soon come to an end.
But for Boeing (NYSE:BA) and SpaceX, it's nothing but good news. On Tuesday, NASA awarded these two companies contracts to build Commercial Crew transports to return America to space. Sometime in 2017, NASA expects both companies to begin launching astronauts into orbit.
On Tuesday at 4 p.m., NASA made the announcement. The Commercial Crew Program will be performed by America's biggest space firm -- that would be Boeing -- and by one of its smallest, SpaceX. Boeing will build CST-100 space capsules for the mission, while SpaceX will do the work with its new Dragon V2 crew capsule.
As NASA Administrator Charlie Bolden put it: "Thanks to the leadership of President Obama, the hard work of our NASA and industry teams, and support from Congress, today we are one step closer to launching our astronauts from U.S. soil on American spacecraft and ending the nation's sole reliance on Russia by 2017. Turning over low-Earth orbit transportation to private industry will also allow NASA to focus on an even more ambitious mission -- sending humans to Mars."
What NASA's news means to investors
Given the recent tensions over Ukraine, that's key for America -- removing the reliance on Russian rockets to get our astronauts out to the ISS. But what does it mean for today's NASA contract winners?
Although two companies "won" the contract, the race didn't end in a tie, exactly. According to NASA, Boeing's $4.2 billion contract for Commercial Crew transport is about 61.5% bigger than the $2.6 billion award that SpaceX won. Yet, according to NASA, both companies will be performing the same tasks for these vastly different sums. By 2017, each Commercial Crew contract winner will:
- Conduct "at least one crewed flight test per company with at least one NASA astronaut aboard to verify the fully integrated rocket and spacecraft system can launch, maneuver in orbit, and dock to the space station."
- Prove that all systems aboard its respective spacecraft "perform as expected."
- "Once each company's test program has been completed successfully and its system achieves NASA certification, each contractor will conduct at least two, and as many as six, crewed missions to the space station."
By all accounts, then, Boeing and SpaceX will be doing the same work for NASA -- yet Boeing will be paid 61.5% more for its work than will SpaceX. In pure dollar terms, therefore, it's possible that Elon Musk fans will view today's announcement as unfair to SpaceX.
But perhaps they shouldn't.
Caveats and provisos
Key to why Boeing's larger award might not necessarily be a good thing for Boeing are three little words contained in NASA's news release: "maximum potential value." As in, the most Boeing might make off of the Commercial Crew contract is $4.2 billion, and the most SpaceX might earn is $2.6 billion.
There's no guarantee that NASA will hire Boeing (or SpaceX, for that matter) to run the full complement of six space missions each. One (or both) spaceships could fail to perform as promised, for example. Or one spaceship may simply prove to be a better bargain for NASA.
If we assume that the contract values derive directly from the prices that Boeing and SpaceX bid for the work, it seems SpaceX is offering to send astronauts into space for much, much less money than Boeing requires. This suggests that -- unless SpaceX has lowballed NASA on its bid -- Boeing may need to cut costs dramatically in order to remain price competitive with SpaceX going forward.
Long story short? Boeing won the first leg of this race, claiming a prize 61.5% bigger than SpaceX's. But as the Commercial Crew contract evolves from a sprint into a marathon, SpaceX's cheaper spaceship gives it the advantage to win more and more contracts in the future.
Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.