By now, it's common knowledge: SpaceX wants to revolutionize American spaceflight with the use of reusable rockets. That's pretty cool, but as it turns out, there's also still plenty of money to be made in disposable rockets.
Specifically, there's still a healthy market for "Evolved Expendable Launch Vehicles" -- Pentagon-speak for rockets that shoot satellites into space, then fall back to Earth and burn up in the atmosphere (as opposed to landing safely on a rocket pad or drone barge for refueling and relaunch).
Big business for a small start-up
Evolved Expendable Launch Vehicle, or EELV, is big business for companies like Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT), which together make up the United Launch Alliance that currently does the bulk of America's space launch business. To cite just one example, a single EELV contract awarded to ULA in June 2013 promised to pay the space oligopoly $1.1 billion for use of Lockheed Martin's big Atlas V rockets and Boeing's even bigger Delta IVs for space launches.
SpaceX wants in on this racket, too, though; it recently won certification from both NASA and the U.S. Air Force to bid its own rockets to take government satellites into space. The company has been hard at work developing a bigger, better version of its Falcon 9 rocket, dubbed the Falcon Heavy, for use on the government's larger space launch missions. And last week, in a little-noticed contract award, the U.S. Air Force awarded SpaceX $33.7 million to assist with its efforts to develop a "Raptor rocket propulsion system prototype" for use on the Falcon Heavy.
Introducing the Raptor
Raptor is SpaceX's next-generation engine. Powered by a mixture of liquid methane and liquid oxygen, and designed to produce six times the thrust of SpaceX's current-generation Merlin engines, multiple Raptor engines will eventually power both the lower and upper stages of SpaceX's next generation of rockets, including the "heavy" and "super heavy" lift vehicles designed to compete with ULA's Atlas and Delta offerings. Naturally, this has the Pentagon very interested, as it offers another alternative to the use of Russian-made RD-180 engines that currently do the bulk of the work sending ULA Atlas V rockets into space.
While to date, SpaceX has developed Raptor entirely with its own funds, going forward, the Pentagon is offering to share the cost of development with SpaceX along roughly a 1:2 ratio, with DoD anteing up $1 toward development costs for every $2 SpaceX invests.
Door No. 2
While the Pentagon offered SpaceX some support, it offered even more money to one of SpaceX's rivals: Orbital ATK (NYSE:OA). Simultaneously with the Raptor contract's announcement, the Pentagon awarded Orbital $47 million to support development of:
- a GEM 63XL "strap-on" solid rocket motor (used to supplement a core engine's power at liftoff).
- a Common Booster Segment (CBS) solid rocket motor (the core itself).
- an Extendable Nozzle for Blue Origin's BE-3U upper stage engine.
All three of these pieces of equipment, says the Pentagon, "are intended for use on an Orbital ATK next generation launch vehicle." Additionally, the GEM 63XL strap-on solid rocket motor could be used to give added oomph to the new "Vulcan" launch vehicle being developed by ULA to replace its current workhorse, the Lockheed Atlas V.
Curiously, in contrast to the deal worked out with SpaceX, the government seems to be bearing much more of the cost of developing Orbital ATK's engines. DoD says it may eventually invest as much as $180.2 million, but that would require Orbital ATK to invest only $124.8 million of its own funds.
What it means to investors
Congress recently threw Boeing and Lockheed a lifeline when it lifted the ban on ULA's use of Russian RD-180 rocket engines on national security space launches. This last-minute decision prevented a situation in which only SpaceX would have a rocket capable of performing such missions -- which would have essentially turned SpaceX into a sole-source provider.
Regardless, the decision to allocate new funds to Orbital ATK and to SpaceX last week suggests Congress's move was a one-time reprieve aimed at keeping ULA in the running on space launch contracts until it finds a new way to get its rockets into orbit -- sans Russian rocket engines. Ultimately, the military's endgame is still to develop an American-made engine, eliminate our reliance on the RD-180, and cut Russia's Energomash out of the loop.
This lends at least some assurance to investors in SpaceX, and in Orbital ATK, Aerojet Rocketdyne, and even to Jeff Bezos' Blue Origin, that their efforts to build an RD-180 alternative will not go unrewarded. The RD-180 is going away. All that remains to be seen is which other company( or companies) will succeed in building the engine that replaces it.
Fool contributor 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. 245 out of more than 75,000 rated members.
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