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Commercialization

The Four Amigos and The Future of Competition in Space Commerce

By Keith Cowing
NASA Watch
September 8, 2015
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The Four Amigos and The Future of Competition in Space Commerce

Aerojet makes $2 billion offer for Lockheed-Boeing joint venture: sources, Reuters
“Aerojet Rocketdyne Holdings Inc has submitted a $2 billion offer to buy United Launch Alliance (ULA), a spacecraft launch services provider that is a joint venture of Lockheed Martin Corp and Boeing Co, according to sources familiar with the matter. Aerojet Rocketdyne board member Warren Lichtenstein, the chairman and chief executive of Steel Partners LLC, approached ULA President Tory Bruno and senior Lockheed and Boeing executives about the bid in early August, the sources said. Aerojet Rocketdyne spokesman Glenn Mahone said the company would not comment on any negotiations that it was involved in with any company. Lockheed declined comment. No immediate comment was available from Boeing.”
Keith’s note: But Aerojet Rocketdyne will not own Boeing’s or Lockheed Martin’s rockets, will they? This is like buying a travel booking agency – not an airline – or a manufacturer. Can Aerojet Rocketdyne really expect to turn a multi-billion dollar profit selling someone else’s rockets? And if they are getting Boeing and Lockheed Martin’s rocket factories as part of the offer – is $2 billion even a real number? There seems to be a zero missing. Or are these companies really that uncertain of making a profit from commercial launch vehicles that they want to walk away from a half century of launching rockets for pennies on the dollar?
But wait: the same Aerojet Rocketdyne/Boeing/Lockheed Martin/Orbital ATK crowd (aka “The Four Amigos” in industry circles) is also building SLS – and ULA was always a sanctioned monopoly (until SpaceX showed up and spoiled that party). Everyone seems to be hedging their bets these days via acquisitions and consolidations – instead of trying to build newer and better rockets that actually do things more cheaply/efficiently – except SpaceX, I guess. Wait … there’s more: Blue Origin has an engine agreement deal with ULA. Jeff Bezos likes to buy things.
I smell an anti-trust lawsuit in the distance and/or a tech giant free for all. Or both. And if you thought that the previous congressional hearings on the whole ULA/SpaceX thing were fun …
Stay tuned.

NASA Watch founder, Explorers Club Fellow, ex-NASA, Away Teams, Journalist, Space & Astrobiology, Lapsed climber.

20 responses to “The Four Amigos and The Future of Competition in Space Commerce”

  1. DTARS says:
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    ????

    • John Gardi says:
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      DTARS:

      Okay, okay, I’ll post, for cryin’ out loud! 😉

      Folks:

      Aside from what Kieth says on the corporate front, why couldn’t Aerojet Rocketdyne leverage their rocket engine know-how and design/build their own launch vehicle?

      I’m not sure how the numbers parse out, but weren’t Falcon 9 and Dragon developed for a total of about $700 million? If it has been done before, it can be done again!

      So, they’d need a thrust frame, tanks, inter-stages, fairings and launch infrastructure, all of which are known quantities or, like the fairings, can be purchased on the open market.

      Aerojet Rocketdyne has played it safe limiting their business model to selling rocket engines to paying customers. They have thus avoided the risks and responsibilities on launch day.

      Now that they can see very important sales diminishing in the coming years, they are choosing the least risky route to change the game in their favor… by buying the company that chose another company’s product over theirs.

      Wimps!

      tinker

      • Tannia Ling says:
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        It’s not clear that SpaceX really developed everything for $700M. Their numbers are notoriously foggy. It also took them 8 years to get to the first Falcon 9 launch. Developing new rockets is not trivial.
        You hit the nail on the head by saying “they are choosing the least risky route” Aerojet Rocketdyne is part of Aerojet Rocketdyne Holdings, a public company. As such they have a responsibility to their shareholders to create the most value, not to create new risk. If buying a new rocket rather than designing a new rocket is the answer to creating value, then this is what I would expect them to do. In fact, as a shareholder I would question WHY Aerojet would build a new rocket, since it is not clear that the market can support Delta IV, Atlas V, Antares, Falcon 9, Ariane 5, Ariane 6, and the various Russian rockets.

        Elon had the luxury of taking on the risk of designing a new rocket because SpaceX was funded primarily by his own capital and by venture capitalists who understood and accepted the risk.
        Elon is a visionary and as a space enthusiast, I aplaud him for it. But not all space companies are in it for the vision. Most are in it just to make a buck, just like Ford or GE.

        • John Gardi says:
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          Tannia:

          Some very good points on why AR would choose the ‘safe path’ forward.

          As Kieth points out, $2 billion seems an awful small amount to outright buy a company that builds and launches three different rockets.

          tinker

          • cranky_innkeeper says:
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            The bid starts at $2B, and goes up with due diligence.

            Kill Vulcan and Delta, and re-engine Atlas and finish up Atlas Heavy would go a long way to save costs.

          • Jeff2Space says:
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            Vulcan is essentially Atlas V with new engines. The problem is, the engines will have different specs than the Russian RD-180 that they will replace, so this change will force other modifications to the launch vehicle to be needed. ULA could have called the new vehicle Atlas VI, but Vulcan sounds better for marketing purposes, don’t you think? 😉

          • EtOH says:
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            Well, the Vulcan was also to be methane/oxygen, and have a recoverable engine pod. So it’s guaranteed to be different with the kerosene/oxygen AR-1, but would they keep the engine pod idea? Given that the AR-1 is much closer to the RD-180 than blue origin’s BE-4, will they just update the Atlas V design instead? If so, it’s hard to see how they could remain competitive long-term.

          • Jeff2Space says:
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            I doubt we’ll see the recoverable engine pod on initial iteration of Vulcan, but time will tell. And yes, some of the required changes are due to the switch from kerosene to methane, but they’ll surely reuse as much of the Atlas V tooling for the tanks as they can. Vulcan will be much closer to Atlas V than to Delta IV (which is the more expensive of the two current EELVs).

          • DTARS says:
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            What’s the value of the block buy alone?

        • Jeff2Space says:
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          ULA will be phasing out both Delta IV and Atlas V. Delta IV will be phased out because it is the most expensive of the two EELVs and they’re anticipating that Falcon 9 will start to eat into the launch awards they’re currently receiving from DOD. Atlas V will be phased out due to the ongoing political problems sourcing Russian RD-180 engines.

          Since slapping different engines on Atlas V is such a big change, which will have ripple effects throughout the design, ULA is essentially designing a new launch vehicle, which they will call Vulcan.

          So, there really won’t be a “new” launch vehicle from Aerojet Rocketdyne, aside from Vulcan which ULA is already in the process of developing.

        • numbers_guy101 says:
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          The numbers are well known.

          Development, including establishing manufacturing, launch & mission capabilities-

          Falcon 9 NASA paid $228M
          Falcon 9 SpaceX put in $113M

          Dragon (cargo version) NASA paid $222
          Dragon (cargo version) SpaceX put in $110
          Total =$673M

          Government Management (civil servants, etc.) was about $30M atop the prior.

          This is well documented. (Above parsed; also adjusted to 2015$)

          See these reports and their tables:

          Commercial Cargo Market Assessment Report, 2011
          http://www.nasa.gov/sites/d

          NASA IG Report, June 2013
          http://oig.nasa.gov/audits/

          GAO 11-692T

          • John Gardi says:
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            #Guy:

            Thanks for the clarification of my estimate. It makes my case for AR being wimps for not developing their own LV. 🙂

            tinker

          • Patrick Bane says:
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            Unfortunately these numbers do not reflect the overall investment to get a Falcon 9 in order for flight. There was an immense amount of money poured into Falcon 1, Merlin engine development & and the infrastructural launch complex cost that fed into Falcon 9. Falcon 9 was not developed for $700M, I assure you that.

            And for “wimp” allegations… That’s a pretty sardonic tone to suggest, considering AR literally built the rocket engine industry in the U.S., not to mention have been responsible for every manned US mission to space & powered multiple Mars rovers. Companies buy companies to make strategic investments in their future, it’s called doing business. Do you not think that every big successful corporation out there hasn’t done the same? If you don’t, you’re ignorant.

            If you think developing a whole new launcher from scratch is the answer, then I would suggest you do some research. Space business is evolutionary at best, the revolutionary changes are made ancillary to the main launch projects (ie: additive manufacturing, materials development, etc). The most successful endeavors are typically the ones built on the knowledge base and hardware of prior generation technology. It’s literally been the timeline history of all NASA vehicles. Heck, even SpaceX’s engines are built upon the same design framework of 1960/70’s era engines (insert RS-27).

            Sorry, but you don’t just go out and build a new vehicle to compete, when there exist architectures that optimally do the same task. The investment is typically exorbitant and the risk of failure is high (just ask Orbital and SpaceX) – rockets aren’t easy, the smallest of oversight can lead to disastrous consequences. Vetting those detailed risks via a known commodity (Atlas / Delta) with high mission assurance profiles, is what you call wise, not wimpy!

          • Riley 1066 says:
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            So Elon Musk is a corporate welfare recipient?

            Sounds like NASA owns more of the Falcon and Dragon than he does.

      • numbers_guy101 says:
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        Yes on the $700M-see full comment below.

  2. Odyssey2020 says:
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    I’m sure the fix is in no matter who owns what. They’ve got the most lobbyists so they’ll get the most contracts.

    Congress with throw SpaceX a few bones every now and then just to keep the rest of us happy.

  3. Jeff2Space says:
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    This couldn’t possibly have anything to do with ULA intending to use engines developed by Blue Origin in their “next generation” Vulcan launch vehicle, could it?

    In case the ASCII text doesn’t convey it well, yes, that is sarcasm. By purchasing ULA, Aerojet Rocketdyne could insure that their engines are used in Vulcan.

  4. Jeff Havens says:
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    Question — If AJ succeeds in this acquisition, will it give AJ more of a say about SLS? Granted, AJ is the provider for both the RL-10 and the J2-X.. I just wonder if this in part is a play to revive the J2-X program.

  5. numbers_guy101 says:
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    Ok, what are we missing here? Something, a small little fact, or some as yet unpublished event that has not hit the street yet, which would have this bid make sense…

    • Todd Austin says:
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      ULA was created and made sense to Boeing and LockMart because the government was paying them $1B/year just to be there to build rockets. Without those payments, which the gov’t has flatly stated will stop, the business case for ULA is a lot weaker, thus the strong push to cut costs there.

      ULA is telegraphing their uncertainty about this whole new enterprise by funding Vulcan development on a quarter-by-quarter basis. AJ can see that, would like to expand into rocket building to protect their engine business, and hopes to catch ULA when they’d be just as happy to sell up and get back to selling airplanes and military hardware (and the occasional spacecraft).

      The military is also stating flatly that commercial competition is the way forward whenever possible. SpaceX’s efforts demonstrate that launch is an area where competition will obtain. ULA is in no position to compete and it will cost them a pretty penny to move to that place.

      Let’s think of ULA like AOL – once the darling of the market and so big it could buy up Time-Warner, it’s now a rounding error on a balance sheet. Boeing & LockMart may see this as a chance to make some quick cash on a subsidiary that has value today, but may have very little tomorrow if it can’t get Vulcan into the sky quickly. Selling up would trade high risk for certain cash, if “only” $2B.