Over the weekend, SpaceX crashed another rocket. But this story isn't about that.
SpaceX's third attempt to reland a rocket on a drone barge at sea ended in a fireball Sunday when one leg of the descending rocketship collapsed after landing. It was a disappointment, of course, but as SpaceX has repeatedly pointed out, it learns a little bit more about the process of landing spaceships from each failure -- and from each success.
Speaking of which, SpaceX achieved a huge success last week when NASA named it, along with publicly traded space rival Orbital ATK (NYSE:OA) and new entry Sierra Nevada Corporation, triplet winners of its "CRS-2" contract.
FedEx -- to space
When NASA absolutely positively has to get a package to the International Space Station overnight, it does so through one of its CRS missions. Short for "Commercial Resupply Services," CRS began in 2008 when NASA awarded SpaceX and Orbital ATK $3.5 billion to perform a series of 20 unmanned space launches of supplies to ISS. This "CRS-1" contract was later extended to cover resupply missions running through 2017, and its value increased to $6.2 billion.
Since then, NASA has progressively whittled down the field of new contractors eligible to perform these missions, eliminating first Lockheed Martin (NYSE:LMT), and later Boeing (NYSE:BA), from the field. Although Boeing and Lockheed are arguably America's two leading space tech companies, for various reasons, neither one made it into the final round on CRS-2. Instead, NASA decided to stick with its two incumbent providers, SpaceX and Orbital ATK, and to add a third winner in the form of privately held Sierra Nevada.
What they won
According to NASA's contracts announcement, these three companies will perform ISS resupply missions from 2019 through 2024. Each winner will perform "a minimum" of six cargo resupply missions to ISS at fixed prices, beginning in late 2019.
Those specific prices have not been set and "will depend on which mission types are ordered." NASA did note, however, that the total cost of resupply missions will max out at $14 billion, covering all missions "from 2016 through 2024." This figure therefore appears to include both the 18 resupply missions covered by CRS-2, as well as at least some of the missions yet to be conducted under the extension of CRS-1.
What it means to investors
Let's do some back-of-the-napkin calculating. If you subtract the $2.7 billion "re-up" value of the CRS-1 extension from the newly stated price of $14 billion, then NASA's 18 CRS-2 missions will probably cost taxpayers about $11.3 billion total -- or roughly $628 million apiece.
Now, NASA defends the CRS concept as having incubated "a growing array of private companies competing to make getting to space easier and more affordable." And it certainly started out that way. The original allotment of 20 missions was priced at "only" $3.5 billion / 20 missions = $175 million each. That compared pretty favorably to United Launch Alliance missions by Boeing and Lockheed that were costing taxpayers $400 million and up.
But the latest batch of CRS-2 missions will apparently cost three-and-a-half times more per mission than the first batch. Indeed, at $628 million per mission, CRS-2 could cost even more than Boeing and Lockheed used to charge. This raises the question of whether costs are spinning out of control, and whether NASA truly is saving money by farming out ISS resupply work to for-profit companies.
For the time being, CRS-2 looks like a very lucrative project for SpaceX, Orbital ATK, and Sierra Nevada. But unless the promised savings materialize -- and soon -- there's a real question as to how much longer those profits can be sustained.