Rocket science didn't get its reputation as difficult stuff for nothing. The expense and technical hurdles involved in building and launching rockets has limited competition in this area to just a few players. For the U.S. government, the only go-to outfits in rockets are currently Lockheed Martin (NYSE:LMT) and Boeing (NYSE:BA).
There has long been no love lost between the two defense rivals, but competition in the rocket area took an ugly turn when the U.S. Air Force determined in 2003 that Boeing had stolen secrets from Lockheed in order to win contracts. That finding led the USAF to strip Boeing of $1 billion in rocket deals and ban the aerospace giant from participation in bids for government contracts for 20 months. For its part, Lockheed slapped Boeing with a civil lawsuit.
Now, however, Lockheed is mending fences with its former rival. Lockheed will drop its suit against Boeing and the two defense companies will form a joint venture for U.S. government business under the name United Launch Alliance. The partnership will act as the sole provider of rocket launches to the government. Lockheed and Boeing were quick to note that the alliance would provide Uncle Sam with costs savings amounting to $100 million to $150 million annually.
For Boeing and Lockheed, the alliance does not actually change competitive dynamics much, however. The Air Force had already announced that it planned to divide up its launch contracts equally between the companies in order to maintain two domestic rocket builders. And even with government support, the rocket business has reportedly delivered fairly dismal returns, in large part because a commercial market has failed to develop.
Still, if the alliance goes through, the two firms likely will be able to achieve some cost efficiencies by eliminating unnecessary duplication. While that won't cause either Lockheed or Boeing's earnings to blast off, at least rockets won't be a drag on results.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
