Exclusive: Pentagon official cites concern about business outlook for ULAReuters
By Andrea Shalal September 11, 2015 5:13 PM
United Launch Alliance launches an Atlas V rocket with an United States Air Force OTV-4 onboard from Cape Canaveral Air Force Station, Florida, May 20, 2015. REUTERS/Michael BrownWASHINGTON (Reuters) - A senior Pentagon official on Friday expressed concerns about Aerojet Rocketdyne Holding Inc’s reported $2 billion bid for United Launch Alliance (ULA), a 50-50 rocket launch venture of Lockheed Martin Corp and Boeing Co, and said the deal would require a careful review.
Aerojet Rocketdyne, which makes rocket engines, submitted the cash bid to buy ULA, the sole provider of launch services for U.S. military and spy satellites, in early August, sources familiar with the matter told Reuters on Tuesday.
Officials at Lockheed, Boeing, Aerojet and ULA have declined to comment on the bid, which caught many by surprise. Wall Street bankers and industry executives also question whether the reported price tag overstates the value of ULA, and may have been a tactic to open negotiations with Aerojet Rocketdyne.
The U.S. Defense Department would undertake a detailed review if the deal proceeds, looking at any financial liabilities, potential impact to the supply chain, projected research funding levels and other issues, said the official, who asked not to be named since the offer has not been publicly announced.
“The government would be very engaged in trying to understand that business case,” said the official, offering the Defense Department's first public comments on the bid. The official said the Pentagon's view was "more negative."
"We're hoping that we’ve been too conservative," the official said.
The proposal was "unsettling," the official said, given the U.S. government's current dependence on ULA to launch U.S. spy and military satellites into orbit, and recent launch failures involving three other companies, including privately held Space Exploration Technologies, or SpaceX, which is cleared to start competing with ULA for big satellite launches.
Any change in ownership and the resulting expected efforts to consolidate personnel, infrastructure and facilities, could jeopardize ULA's flawless launch record, analysts said.
ULA has held a monopoly on launches of large U.S. military and spy satellites since its creation in 2006, logging 99 consecutive successful launches, and it still has a large backlog for now.
But the company's revenues face mounting pressure in coming years, given a slowdown in orders from the U.S. government, its main customer; the advent of cheaper launches from SpaceX; and the Air Force's plan to phase out $1 billion in annual launch support payments to ULA.
Analysts forecast that ULA's earnings are likely to drop to around $300 million a year from about $480 million as orders decline, reducing the payout to Lockheed and Boeing.
The company is trying to reel in more commercial launches, but faces difficult competition in an overcrowded field that is "overdue" for consolidation, said David Wireman, managing director of consultancy AlixPartners.
A congressional ban on use of Russian-built RD-180 rocket engines for military and spy satellite launches has further complicated the company's outlook.
ULA this year announced plans to develop a new U.S.-powered rocket that could better compete with SpaceX, but that effort will require about $1 billion in investment.
ULA hopes to use a new engine being developed by Blue Origin, which is owned by Jeff Bezos, founder of Amazon.com, but is also continuing to work with Aerojet Rocketdyne, which is working on a separate engine called AR-1.
Lockheed and Boeing are funding the development effort on a quarter-by-quarter basis, reflecting their own concerns about ULA's future business outlook and whether U.S. lawmakers will allow ULA to use more of its existing stock of Russian engines.
Aerojet officials argue that it would be cheaper to integrate its new AR-1 engine into ULA's existing Atlas 5 rocket than building a new rocket and engine, but space experts caution that such integration efforts can also be difficult and costly.
"This is truly rocket science," the defense official said.
(Additional reporting by Mike Stone in New York; Editing by Jonathan Oatis)
http://news.yahoo.com/exclusive-pentagon-official-cites-concern-business-outlook-ula-211810321--finance.html
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