Call it strike two for Lockheed Martin (LMT 0.05%).
Last month, the biggest name in aerospace and defense suffered a big hit to its reputation (and potential profits). The U.S. Pentagon rejected Lockheed Martin's bid to build armored Joint Light Tactical Vehicles for the Army, a potential $30 billion project. Just a few weeks later, we have now learned that Lockheed Martin is shut out of a second, $14 billion project -- one that by all rights it should have won.
Introducing Commercial Resupply Services 2 -- the Sequel
The contract in question, dubbed Commercial Resupply Services 2 (CRS-2), is the follow-on contract to 2008's Commercial Resupply Services contract that NASA awarded to Orbital Sciences and SpaceX. Initially valued at $3.5 billion, that contract was later upgraded to $6.2 billion to pay for space missions to ferry supplies to the International Space Station (ISS) through 2017.
Running from 2018 to 2024, the successor contract will stretch seven years in length and be worth as much as $14 billion to the companies picked to perform it. At last report, Boeing and Sierra Nevada Corporation, as well as SpaceX and Orbital ATK, the successor to Orbital Sciences, were all still in the running to perform CRS-2. Yet despite being at least as big a name in space as any of these others, Lockheed has been eliminated from the competition.
Second time's (not) the charm
And in fact, this is the second time in a row Lockheed Martin has fumbled the CRS spaceball. In 2008, Boeing and Lockheed teamed up with virtual unknown PlanetSpace (according to S&P Capital IQ, it's a privately owned company based in Chicago) to bid on CRS. Naming PlanetSpace the "prime contractor" -- perhaps in hopes of winning "small business" points in the scoring of the bids -- didn't work for Lockheed, though, and its bid was rejected.
Now, Lockheed has been nixed for a second time after offering NASA a complex solution to the relatively simple operation of shuttling supplies from Point A to Point B.
Stick to your knitting
As a story in The Denver Post explains, Lockheed Martin bid a three-part solution to CRS-2. First, its Jupiter reusable spacecraft would launch into orbit, carrying an Exoliner cargo container. Then, Jupiter would deploy a "long robotic arm." This arm would push Exoliner into docking with ISS.
Reportedly, Lockheed's rationale for offering this three-part solution was to get NASA to finance Lockheed's development of new technology for reusable rockets and a new "space tug" spacecraft. "Jupiter" would be that tug, and it would remain in orbit to conduct further work after its initial supply run. Jupiter also would use its space arm to operate on malfunctioning satellites and nudge them into proper orbit if they go off course.
All of these are groundbreaking ideas, certainly. But they added to the cost of Lockheed Martin's proposal, and NASA apparently balked at that cost. Instead, NASA seems to have decided to go with bidders that mostly stuck to their knitting, proposing to simply launch a supply capsule into orbit and dock it with ISS -- no space tugs required.
Which of the four remaining finalists will win the contract? We should find out in November.
Where are the savings?
Before closing today's column, I want to address one final detail of the Commercial Resupply Services 2 contract. By all accounts, NASA's purpose in setting up the CRS program was to save money for taxpayers by offloading mundane supply milk runs to the ISS to private contractors who could perform the job affordably. According to The Wall Street Journal, NASA expects to use CRS-2 to send 20 or more tons of supplies to ISS annually from 2018 to 2024. That's 40,000 pounds per year, times seven years, equals 280,000 pounds of supplies.
At NASA's widely publicized price of "$10,000 a pound" to launch anything into Earth orbit, such a project should cost U.S. taxpayers $2.8 billion. Instead, it's going to cost $14 billion under CRS-2.
So, what's the moral of this story? There are actually two.
In losing out on the CRS contracts for the second time in a row, Lockheed Martin has reproved to us the maxim that "Space is hard." At the same time, NASA's projected spending on CRS-2 proves false the nearly-as-widespread belief that it costs "only" $10,000 to send a pound of payload into orbit. Turns out, it may cost as much as five times that.
To cut down on that cost, could it be time to build a space elevator? Maybe.