It's official, folks: We have a budget. On Friday, President Obama signed into law a $1.15 trillion government spending bill that grants tax breaks to businesses and low-income families, postpones (yet another) controversial Obamacare provision -- and of particular importance to government contractors Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT), permits their United Launch Alliance joint venture to buy Russian rocket engines.
The RD-180 rocket engine in question is the one that United Launch Alliance uses to power its Atlas V launch vehicle -- which in turn, ULA uses to launch U.S. national security satellites into orbit. Without these engines, Atlas V can't fly, and without Atlas V, ULA can't bid on government national security contracts worth $70 billion over the next 15 years.
Up until last week, it was looking like ULA would have to exit this market and give privately held SpaceX a de facto monopoly over vital government space launches. In fact, ULA had already admitted that a shortage of RD-180 rocket engines forced it to bow out of a competition to launch Air Force GPS III satellites into space.
Does it matter?
It matters -- big time. According to the new law, the Air Force is now authorized to award satellite launch contracts to any company certified to launch them, "regardless of the country of origin of the rocket engine that will be used on its launch vehicle, in order to ensure robust competition and continued assured access to space."
That's a clear reference to the monopoly position that Congress' previous law had put SpaceX in -- and a clear indication that Congress does not intend to let that monopoly continue. Henceforth, ULA will be permitted to buy Russian rocket engines, to install them on Atlas V rockets, and to bid these rockets on national security satellite missions.
In short, SpaceX -- only recently permitted to compete in a space heretofore monopolized by ULA -- still has to compete if it wants to dethrone its rival. For its part, ULA is back in the hunt for tens of billions of dollars' worth of contracts. Whether it can win those contracts remains an open question, of course. By and large, SpaceX rockets are cheaper that ULA's Atlas Vs -- but ULA's Atlas has the superior safety record. Now, it becomes a question of what USAF values more: cheapness or reliability.
ULA will be betting on the latter.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 309 out of more than 75,000 rated members.
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