Markets
BA

United Launch Alliance and SpaceX Win Space Force Rocket Launch Contracts

President Trump announced the creation of a Space Force in 2019. Four months later, this newly constituted sixth branch of the U.S. Armed Forces launched its first mission, an "Advanced Extremely High Frequency" communications satellite carried atop a United Launch Alliance (ULA) Atlas V rocket.

There's just one problem: ULA -- a joint venture between Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT) -- is planning to retire the Atlas V, perhaps as early as next year. So who will launch satellites and spaceships for the Space Force going forward? 

We finally know the answer to that question.

United States Space Force Logo with Earth, stars, and a satellite in the background

ULA and SpaceX are now the preferred carriers of the U.S. Space Force. Image source: United States Space Force.

Space Day at the Department of Defense

Space Force announced earlier this month that it had chosen two space companies to build its rockets going forward: ULA and SpaceX.

In twin contracts announced on the defense department's daily digest of contract awards -- dubbed "Phase 2 Procurement contracts" -- the Space Force awarded ULA subsidiary United Launch Services $337 million, and SpaceX $316 million "for launch service procurements supporting launches planned between fiscal 2022 through fiscal 2027." 

The specific rockets the companies will use to launch future payloads were not identified, but as we know from the competition leading up to these awards, ULA offered Space Force a new "Vulcan" rocket that it's developing to replace its Atlas V. SpaceX bid multiple rocket platforms: its workhorse Falcon 9, the new Falcon Heavy (currently the most powerful operational rocket on the planet), and also its still-in-development Starship -- which could soon become the newest biggest rocket on the planet.

Specific contracts to purchase these rockets will be announced in the period from fiscal 2020 through fiscal 2024 -- each precedes its respective launch by about two to three years. And consistent with that timeline, Space Force announced its first three missions right away:

ULA will launch U.S. Space Force mission 51, or "USSF-51", and also "USSF-106," in Q2 2022 and Q4 2022, respectively. Then SpaceX will launch USSF-67, also in Q4 2022. 

What it means for Boeing, Lockheed, and SpaceX ...

Future launches, says Space Force, should be worth about $1 billion a year to the winners, which sounds just about right. If you figure that the three launches already announced average out to $218 million each, and multiply that by the 25 launch missions Space Force plans over the period from 2022 to 2027, then this works out to about $5.5 billion spent over just under six years' time -- almost "$1 billion a year" on the nose.

How will the money be divvied up? Space Force notes that, going forward, ULA will be allocated 60% of the upcoming contracts, and SpaceX the remaining 40% -- so about $3.3 billion for Boeing and Lockheed, combined, and $2.2 billion for SpaceX alone. 

According to data compiled by S&P Global Market Intelligence, this single series of contract awards should therefore backstop about half of ULA's $1.2 billion annual revenue stream over the next five-plus years. SpaceX -- which has a much larger commercial business than ULA does -- can count on Space Force money equivalent to about two times its $1.1 billion in annual revenue.

... and what it means for Northrop Grumman and Blue Origin

That's great news for the winners -- but what about the losers?

Both Northrop Grumman (NYSE: NOC) and Blue Origin also bid for Phase 2 Procurement contracts, with Northrop offering to develop an "OmegA" mega-rocket, and Blue Origin a "New Glenn" rocket. For these companies, though, Space Force's decision could be devastating.

On the one hand, neither Northrop Grumman nor Blue Origin won any Phase 2 launch contracts -- and so neither Northrop nor Blue will get any part of the $5.5 billion in contracts awarded. Worse, both companies had won government subsidies to develop rockets with which to bid for Phase 2 contracts, with Northrop winning $792 million to continue developing OmegA, and Blue Origin $500 million for its work on New Glenn. Now the Air Force plans to terminate that development funding. For both companies, the money spigot will be shut off. 

Of course, both companies are still technically permitted to bid for the next round of launch contracts ("Phase 3 Procurement," presumably to be awarded in 2026 or 2027). But unless they can find six or seven more years' worth of funding (from commercial buyers for Northrop's OmegA, or Jeff Bezos's checkbook for Blue Origin), they may have no rockets to offer by the time Phase 3 rolls around.

Barring a miracle, it looks like Space Force's decision this month has confirmed an oligopoly in space launch. Going forward, the future of space launch will reside with ULA and SpaceX -- and no one else.

10 stocks we like better than Boeing
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Boeing wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of August 1, 2020

 

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

In This Story

BA LMT NOC

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More