Boeing and SpaceX Can Save NASA Millions, Heres How

In September, NASA chose Boeing and Space Exploration Technologies, or SpaceX, for the assignment and awarded contracts worth $4.2 billion to Boeing and $2.6 billion to SpaceX for the purpose of ferrying US astronauts to and from the International space Station. While the deal price may not be sizable for Boeing, which reported $90 billion revenue in 2014, the contract is strategic as commercial space travel is a huge area of interest among corporations. Boeing had once revolutionized commercial air travel with its wide-body planes -- it could do the same with commercial space travel for all we know.

Here's a close look at this futuristic deal and what's in it for Boeing investors.

Source: Boeing.

Ongoing developmentsNASA's award is a revival of its Commercial Crew Program, or CCP, aimed at building space craft to transport crew and cargo to the ISS. The program got stalled in 2011, and since then, NASA has had to rely on Russia's Soyuz spacecraft at a huge cost: Russian Federal Space Agency, or Roscosmos, charges NASA $70 million per seat. With the strained diplomatic relationship between the two countries, this dependence is becoming awkward.

Boeing will develop CST-100 and SpaceX, Dragon 2 (the upgraded version of the original Dragon cargo spacecraft) with NASA funds. Both companies would carry out extensive tests, including pilot crewed missions, and are gunning for 2017 launch.

The machines will be designed keeping in mind the re-usability factor. Normally, spacecraft land in the ocean and cannot be reused. But with propulsive landing, these rockets will be able to land on hard surfaces. Boeing claims that the CST-100 can be reused up to 10 times.

The businessThe spacecraft will be able to accommodate seven passengers and typically support a crew size of four on the way to the ISS. A spacecraft could also be kept attached to the ISS and used in case of an emergency. The companies will charge NASA $58 million per seat, 17% less than Roscosmos.

NASA has guaranteed that both companies will get at least two fully packed flights to the ISS with options for up to six from 2017 through 2019. Assuming all six options are utilized, the revenue potential from the program is $2.4 billion over three years for each company.

Interestingly, the Boeing spacecraft would have a tourist seat for space enthusiasts. Boeing Commercial CCP manager John Mulholland had told Reuters that the price for this coveted ticket would be close to what the Russian space agency charges to fly tourists to the ISS -- around $52 million for a 10-day trip. SpaceX also wants to accommodate tourists, but hasn't yet divulged its plans.

Takeaways for Boeing investorsThe value of the contract may not excite shareholders. Christian Mayes, industrials analyst at Edward Jones, told Reuters that Boeing derives less than 10% of its total revenue from the space and network businesses, and a $4.2 billion contract over multiple years "is not going to move the needle." The same can be said about the prospective $2.4 billion revenue that Boeing is expected to make from operating the spacecraft through 2019.

But while the program doesn't add significantly to Boeing's revenue prospects, it's unlikely to be a drain on the company's resources, either. It's true that Boeing will have to absorb any cost overruns and delays, but the company is confident that its margins in the space and network businesses will not take a hit. This business had an operating margin of 9% in 2014. Analysts told Reuters: "The taxi project appears to be well within Boeing's core space capabilities, which suggests it will not have trouble meeting its cost and schedule targets."

Looking into the crystal ballThese are baby steps into an area that could become a flourishing industry. With time, more and more such flights could be carried out, and the opportunity might make a big difference to Boeing in the future. According to a 2011 Forbes report, "This program would be profitable even if it only served the needs of NASA, and other revenue sources are available. Cargo transportation, servicing satellites and leasing the spacecraft to other countries would all add incremental revenue."

The prospects of space tourism are also very exciting. Soon, Richard Branson-owned Virgin Galactic's suborbital SpaceShipTwo will open space to ordinary people. The company has already signed up more than 600 people at a price of $250,000 per seat!

So, possibilities are immense, and even the sky is not the limit!

The article Boeing and SpaceX Can Save NASA Millions, Heres How originally appeared on Fool.com.

ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.