"Orbital Sciences' third contracted resupply mission to the International Space Station was not successful today."
-- NASA
Photo: NASA.
To say the least. Six seconds into a planned mission to resupply the International Space Station, an Antares rocket built by Orbital Sciences (OA) carrying a Cygnus space capsule loaded with some two and a half tons of supplies (but no crew) exploded just after liftoff Tuesday night. The disaster, which Orbital and NASA seem to have jointly agreed to term a "mishap" started with a small explosion toward the lower half of the spacecraft, then turned quickly into a fireball that engulfed the entire craft, which then crashed back down upon its launch site.
As Orbital soon advised, damage was limited to property across the "south end of Wallops Island" near Pad 0A of the Mid-Atlantic Regional Spaceport at NASA's Wallops Flight Facility in Virginia. (No human casualties were reported.) Damage to Orbital stock was at least as widespread, with shares falling 15% in early Wednesday trading. But will that damage last?
That's what investors want to know. What, exactly, does this single "mishap" portend for Orbital Sciences stock?
Early analysis
Late Tuesday, Orbital Executive Vice President Frank Culbertson was tapped to give the obligatory "it is far too early to know the details of what happened" statement. According to Culbertson, the company will now "conduct a thorough investigation immediately to determine the cause of this failure and what steps can be taken to avoid a repeat of this incident. As soon as we understand the cause we will begin the necessary work to return to flight to support our customers and the nation's space program."
To date, Orbital has successfully made only two of its contracted eight Commercial Resupply Services runs to ISS. According to Orbital's most recent 10-K filing with the SEC, however, Orbital has already recognized $1.3 billion worth of revenues out of the $1.9 billion contract. This suggests that Orbital may have jumped the gun on recognizing that revenue, should NASA become upset with its performance -- a prospect that may worry investors.
NASA, though, is standing by its man, insisting it will "continue to move forward toward the next attempt once we fully understand today's mishap," and pointing out that "Orbital has demonstrated extraordinary capabilities in its first two missions to the station earlier this year, and we know they can replicate that success." This suggests that the risk of Tuesday's disaster derailing the contract is minimal.
Meanwhile, Orbital also notes in its 10-K that its "practice is generally to procure insurance policies that we believe would indemnify us for satellite and launch success incentive fees or contract milestones that are not earned and for performance refund obligations." According to CNBC, the CRS-3 mission, which blew up over Wallops Tuesday, was insured to the tune of about $48 million. So again, the presence of an insurance contract should lend some comfort to investors, and some assurance that Orbital will not suffer a heavy financial blow from its "mishap."
Collateral damage
Another stock taking damage from Orbital's mishap Wednesday is ATK (NYSE: ATK), another space-tech firm, and one currently in the process of finalizing a $5 billion "merger of equals" with Orbital to form a new firm to be called "Orbital ATK."
ATK's association with Orbital cost the former a 5% haircut in share price Wednesday, as investors priced in the risk to the merger going to completion, and the further risk that ATK, once combined with Orbital, may suffer loss of NASA revenues through cancellation of the CRS contract.
Is this good news for anybody?
So the disaster over Wallops makes for bad news for owners of Orbital Sciences stock, and of ATK's as well. But if Wednesday's disaster was good news for anyone at all, it has to be for Elon Musk's SpaceX. As you may recall, SpaceX beat out Orbital to win the bulk of International Space Station Commercial Resupply Services Contracts -- 12 of the 20 planned missions -- back in 2008.
SpaceX suffered a black eye of its own in August, however, when an experimental version of its Falcon 9 "reusable" rocket was auto-destructed after suffering a sensor-failure in flight. Now that Orbital has suffered a mishap of its own -- and on a vehicle supposedly ready for prime time -- it seems the two firms are probably back on par in NASA's estimation of their relative reliability. Indeed, given that SpaceX's accident occurred on an experimental vehicle, rather than Orbital's supposedly ready-for-prime-time Antares -- and didn't cost NASA a payload when it blew up either -- the logical conclusion investors should draw from Tuesday's dust-up is...
