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Wednesday, August 30, 2006

Investing in Space: The Final Frontier

Stock Tickers: NOC, BA, LMT, ATK, TXT, UTX, SPDV, SPAB

In about 24 hours, we should know the design and award contracts for NASA's multi-billion dollar new launch and capsule design wins to take manned-flights to the International Space Station and then to the moon again. The new capsule (leaked name is 'Orion') is going to carry crews of up to 6 persons to the International Space Station and will then take 4 to the moon. This design will end up being (as of today's claims anyway) the basis of designs that will ultimately take manned-flights to Mars. The first piloted mission is scheduled for September of 2014, which will be 4 years after the phase-out and retiring of our space shuttle fleet that is designed on 1970's and early 1980's technology.

A team led by Northrup Grumman (NOC) and Boeing (BA) is competing against Lockheed Martin (LMT) to build Orion that may be in the $18 billion in the initial design phase alone. In the NOC-BA team Northrup Grumman is involved in the earth orbital designs that will be for earth orbits and space station docking and Boeing will lead the design for the craft and systems needed for the next manned-flight to the moon. Lockheed Martin (LMT) already received over $1 Billion for its failed X-33 design, but it is still in the bidding process for this contract award.

This award is just under two weeks after NASA awarded private SpaceX and Rocketplane-Kistler a nearly $500 million split contract to demonstrate delivery and return of cargo to the International Space Station, known as the Commercial Orbital Transportation Services (called 'COTS'). Both SpaceDev (SPDV-OTC) and SPACEHAB (SPAB) were in the bidding for that lower-cost contract, but it went to the SpaceX and Rocketplane-Kistler teams.

The Government Accounting Office has already warned against awarding this contract without any formal plans. You can see their report HERE. While this will be a huge win for the winning team, there are other companies that will likely benefit from this as well.

Alliant Techsystems' (ATK) unit ATK Thiokol is also still involved in booster rockets, and particularly part of the Ares 1 launch booster for crews and the Ares 5 will consist of ATK's 5 segment solid rocket boosters. Before the company benefited from so many bullets and munitions orders recently it used to be heavily reliant on set space shuttle booster rocket launches, so any launch delays put the company's EPS and top-line at risk in any given quarter.

United Technologies' (UTX) Pratt & Whitney unit is involved on the engine design and Textron (TXT) is in the hunt for the replaceable heat shield design win. There are probably dozens of other sub-contractors that may benefit, but these are the ones known out of the immediate information we could find.

So far from the available data it feels as though the Northrup Grumman and Boeing team is set up to better win the business as a joint and diversified effort, particularly after the prior X-33 blunder from Lockheed Martin. We just have to remember that the government doesn't always do what makes sense, so it may not be fair to try to formally predict who will win the contract.

If they have an extra seat for me on the next flight, you might not get a steady flow of usual reports for a few days or weeks.

Please understand that this is based on numerous data points and there could easily be some errors or discrepancies. The information could have also changed with no notification.

Jon C. Ogg
August 30, 2006
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