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Boeing-Lockheed JV Opts Out of Space Launch Competition

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The joint venture between Lockheed Martin Corp. LMT and The Boeing Co. BA - United Launch Alliance ("ULA") - recently opted out of the U.S. Air Force's (USAF) space launch competition citing inability to buy the required number of Russia-made RD-180 engines.

Air Force Rocket Contest

This competitive bidding is for the launch of Air Force-run GPS-3 satellite in 2016. While it is USAF's first in a decade, the bidding is also the first of the nine upcoming ones. After having relied on multi-year deals with ULA for sending sensitive military and intelligence devices into orbit, Pentagon initiated bids this year spurred by the need to curb launch costs which generally average around $200 million.

The Congress banned rocket engines made in Russia in order to phase out their use completely by 2019 and encourage the development of U.S.-made ones. Thus, SpaceX is the sole bidder and the final contract award is anticipated to be in Mar 2016 unless some pro-ULA Congressmen vote to defer the deal in the absence of a second bidder.

SpaceX had filed a lawsuit alleging ULA of having monopoly on its deals with Pentagon and argued in favor of its economically viable space rockets. Later, the suit was settled in Jan 2015 as Pentagon signed a deal with SpaceX in May 2015. However, one of the Falcon 9 rockets built by SpaceX blew up during launch.

Why Boeing's Team backed out ?

ULA had to drop out of the contest as it failed to get Pentagon's permission to buy RD-180 engines.

Two other factors also held back ULA from participating. One of the clauses in the contract specified that the "lowest price, technically acceptable" deal will be selected. Even though ULA offers superior quality, SpaceX has an edge in terms of price. Additionally, the contract asks the bidders to separate funds received from the Air Force for operating launch facilities from the bid, which ULA failed to do.

ULA's Other Space Deals

ULA and SpaceX are also competing for Pentagon's funding to develop the U.S.-made replacement of Russian RD-180 since funding will be awarded to two or more projects by the end of 2015.

Recently, ULA won a modification contract worth $373.3 million from the USAF to provide launch vehicle production services to National Reconnaissance Office ("NRO") rockets. (Read: Boeing-Lockheed JV Wins $373 Million Modification Contract )

Zacks Rank

Boeing currently carries a Zacks Rank #2 (Buy). Some other stocks worth considering are Leidos Holdings, Inc. LDOS and General Dynamics Corporation GD . While Leidos sports a Zacks Rank #1 (Strong Buy), General Dynamics has the same Zacks Rank as Boeing.

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BOEING CO (BA): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

LEIDOS HOLDINGS (LDOS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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