Northrop Grumman Goes All-In on Space Tow Trucks

Five years ago, Orbital ATK announced plans to build a single "Mission Extension Vehicle" to help other companies' satellites live in orbit around Earth a bit longer. Five years later, this single spaceship has evolved into an entire new division for Northrop Grumman (NYSE: NOC), the company that bought Orbital ATK in 2018.

They call it "Space Logistics," and one day, it could grow into an entire fleet of space tow trucks circling Earth, keeping the world's satellites in tip-top shape.

Northrop Grumman MEV-1 spaceship -- the world's first operational space tow truck.

Space Logistics' MEV-1 in orbit -- the world's first working space tow truck. Image source: Northrop Grumman.

Baby steps to build a space business

Northrop's first big success with MEV took place in February last year, when the company's MEV-1 spaceship docked with an Intelsat telecommunications satellite. MEV will continue to provide guidance and propulsion functions to keep the satellite in service through 2025, then tug the satellite into a "decaying" orbit where it will burn up in Earth's atmosphere.

Northrop's fee for adding five years to the service life of a 20-year-old satellite that cost $300 million to build, and tens of millions more to launch: Just $65 million.

One year later, a second Northrop spaceship -- the MEV-2 -- duplicated MEV-1's feat when it docked with a second Intelsat satellite, also for a five-year mission (although Northrop hasn't said whether it will charge the same price, less, or more for the service). Both MEV-1 and MEV-2 are in theory capable of docking with and supporting multiple satellites over their lifetimes, collecting revenue for each year of service they add until the MEV's own fuel runs out.

What comes next

In the meantime, Northrop is already improving its space tow truck capabilities in two ways: in-orbit satellite repair, and point-to-point delivery of replacement engines.

As the company announced last month, the Defense Advanced Research Projects Agency -- DARPA, the Pentagon's "mad scientists" division -- has hired Northrop Grumman to be its primary contractor on the Robotic Servicing of Geosynchronous Satellites (RSGS) program. Under this contract, Northrop will build a "Mission Robotic Vehicle" to demonstrate its ability to inspect, repair, and upgrade satellites in orbit, and to assemble structures in orbit as well, in addition to simply towing satellites from orbit to orbit, as the MEVs are already doing.

MRV will be an evolution of Northrop's basic MEV design, supplemented with a "robotic payload" equipped with "two dexterous robotic manipulator arms" developed for DARPA by the U.S. Naval Research Laboratory.

Separately, Northrop is developing an MRV equipped with three "Mission Extension Pods" (MEP). This vessel's mission will be to visit a defunct satellite, attach an MEP to it to perform the same guidance and propulsion functions that the MEV pioneered, then move on to a second satellite, and then a third -- adding effectively six years of service life to each satellite it visits. (And in fact, customers seem to be lining up for the service. Northrop says it already has six customers signed up to receive MEPs for their satellites.)

At $13 million per year per MEP deployed, you can see how the revenue will add up for Northrop Grumman's space business, already the company's fastest growing division according to data from S&P Global Market Intelligence. Northrop certainly recognizes the possibilities, and now says it's intent upon building an entire "fleet of commercial servicing vehicles in GEO that can address most any servicing need" for its space customers.

The best news for Northrop Grumman investors

And here's the best part: For the time being at least, it looks like Northrop Grumman has this space market all to itself. Originally, you see, DARPA had planned to partner with space firm Maxar Technologies (NYSE: MAXR) on the RSGS program, but in 2019 Maxar inexplicably withdrew from its contract -- leaving RSGS up for grabs, and permitting Northrop to swoop in and snap up the contract. (Maxar is, however, still working to develop a space tow truck capability for NASA.)

Speaking of which, Lockheed Martin (NYSE: LMT) once floated the idea of getting NASA to pay it to develop a space tow truck prototype in 2015, but NASA declined to pay for it. Instead, Lockheed is now investing (alongside Northrop Grumman) in a start-up called Orbit Fab, which wants to develop a space fuel truck for satellites running low on fuel).

While competition is forming up, for the time being Northrop Grumman looks to be in control of this market -- effectively a monopolist in space tow trucks. For shareholders of this mighty defense contractor, that's very good news indeed.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and MAXAR TECHNOLOGIES LTD. The Motley Fool has a disclosure policy.

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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