Why Defense Giant Northrop Just Paid $8 Billion For Space Company Orbital ATKHere are 3 things this aerospace mega-deal tells us about the future of space exploration and nuclear weapons.
Popular Mechanics
By Joe Pappalardo
GettyOn Monday morning, the space and defense industry woke up to the news that defense giant Northrop Grumman intends to buy aerospace/missile company Orbital ATK in a $7.8 billion deal. The industry reaction is, in a word, whoa.
There is more at stake here than a business takeover story. Northrop is trying to capitalize on global trends that run the gamut from inspiring to disconcerting.
To unpack this deal, you have to start with the players. Orbital ATK has a current contract to supply the International Space Station with cargo by launching its Antares rocket and Cygnus capsule from Wallops Island, VA. The firm also has a comfortable niche making rockets and missiles for the Pentagon. Meanwhile, Northrop Grumman's idea of a niche is building a new stealth bomber to replace the B-2—it won the B-21 bomber program last year. They play big, and they often win. But the big defense contractor is not that strong in the thing that Orbital has: space rockets and missile motors.
Northrop GrummanSo, as Grumman's chief executive pointed out on an investor call on Monday, there "is not a lot of overlap" between the two companies. Like two puzzle pieces, they fit together—which is all fine and good. But that alone doesn't mean motivate a company to plunk down $8 billion to buy a firm. Northrop wanted Orbitals proven expertise, and wanted it now. But why?
Space is the Place
Getty NASAVery few companies in the world can claim an ability to launch spacecraft and show off NASA contracts (and space station runs) to prove it, and Northrop would own one of them if this deal goes through. While there are scores of companies scrambling for space launch work after SpaceX shattered the status quo, Orbital ATK's contract to supply ISS was part of that initial wave of disruptors, though it has been overshadowed by SpaceX's ferocious pace and ambitions in manned spaceflight. These are not unproven upstarts in space launch.
Why does Northrop care? Because space is the place to make money. There is a new wave of launches coming, with smaller, better satellites going to orbit via an array of new rockets. Some of these small sats will be launched from the air, via airplanes, and more will be lofted by smaller rockets. However, the big companies in this space see a future in which large rockets will launch several sats at one time. Northrop Grumman sees a huge opportunity, but has to act fast to have a seat at the table.
Couldn't Northrop just sink $8 billion into its own company and build up a space business in-house? Well, one thing you can't do just by throwing money around is creating your own proven launch provider. You need time and expertise to show the industry you're reliable. You need a relationship at a launch site. If you're Grumman, the fastest way in is to buy up that experience from the market, and that lead to Orbital ATK.
It's good news for space geeks. But it's bad news for space geeks who fear the militarization of space. This is also a sign that space is a new domain of war, and an space arms race of sorts has already begun. "We can no longer treat space as a permissive environment," Bush said on the call. "The rather rapid advance of some of our potential adversaries is quite concerning."
Nukes, Nukes, Nukes
There's a new contract kicking around the Pentagon, and it's a game-changer. America's ICBMs are operating long past their expiration dates and need to be replaced. The effort to do so will cost more than $80 billion when you include the new missile, refurbished launch centers, and support work.
Intercontinental ballistic missiles are space rockets. They loft warheads higher than ISS flies. Northrop is eager to win this contract and buying a proven space launch company gives them an immediate selling point to use against their rival for the contract, Boeing. Compared to that possible payday, an $8 billion purchase doesn't seem so big.
There's also the flip side: missile defense. With North Korea lighting off long-range missiles and marching toward the development of an ICBM that could hit the west coast of the American mainland, you can expect the U.S. to open its purse strings for more missile defense work. Orbital has a nice foothold here. Its website crows that the company is "the sole provider of interceptor boosters for the U.S. Missile Defense Agency's Ground-based Midcourse Defense (GMD) segment designed to intercept and destroy long-range enemy missiles." Things get a little awkward here, as Orbital has a contract with Northrop rival Boeing to provide these components. Orbital also supplies target vehicles that serve as stand-ins for enemy missiles during testing and verification of missile defense systems.
South Korean newscaster showing distance from North Korea to Guam with Musudan intermediate range ballistic missile. Getty Jung Yeon-jeGrumman now has a seat at the table of this growing sector. Grumman's advanced sensors and Orbital's launch experience could make a competitive combination.
Smarter Missiles and Satellites
The dynamic here might be: Grumman has the sensors, while Orbital has the hardware. That fits nicely with a new trend forming, one that blurs the line between missiles and drones.
If a missile can fly to a target, circle above for hours, use sensors to track a target, and then strike at just the right time…is it a drone? These days, ordnance is getting smarter and smarter. Orbital ATK makes a large portfolio of missiles, from small shoulder-fired tank killers on up. So we see here another way that Grumman can improve Orbital ATK's products and make them more relevant in the 21st century battlefield. Grumman's sensor work is cutting-edge and trusted by the Pentagon.
The same can be said for satellites. Grumman is a major supplier of advanced sat sensors used by the U.S. government. Orbital ATK builds satellites and, more recently, has gotten into the budding industry of in-space satellite servicing. Future bids on NASA and national security satellites and commercial sat life extension will be fearsome with these two entities joined at the hip.
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