Can France Succeed Where Boeing and Lockheed Martin Failed?

By Markets Fool.com


Atlas V is United Launch Alliance's workhorse -- but cheap it is not. Image source: NASA.

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A funny thing happened at United Launch Alliance last week.

Brett Tobey, VP of engineering at the Boeing and Lockheed Martin joint venture,was speaking at his alma mater, the University of Colorado. There, he happened to mention that "the best" price at which ULA can offer to launch a satellite is "$125 million or twice that number. Add in the capabilities cost, it [exceeds] $200 million." And according to Tobey, unless ULA can "figure out how to bid these things much lower cost," it's going to have a hard time winning space launch work when competing against SpaceX.

Hours later, it was Tobey who was out of a job.


SpaceX prices are out of this world. In a good way. Image source: SpaceX.

Hear no evil, speak no evil
ULA head Tory Bruno quickly disavowed Tobey's comments. And the fact that ULA got mad at one of its employees for pointing out that it charges more than SpaceX (SpaceX's own price list shows a $61 million launch cost) isn't particularly surprising. But as we learned earlier this month, the situation for ULA is even worse than what Tobey described.

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It's not just SpaceX that is underpricing ULA. France is, too-- and the situation's getting worse, not better.

Over in France, local rocket-maker Airbus Safran Launchers (ASL) has confirmed it's developing a new rocket, dubbed the Ariane 6, that will cost as little as $77 million per launch. That's not quite "SpaceX-cheap," but if Tobey's comments are accurate, it's still about two-thirds cheaper than ULA's cheapest price. What's more, in a bid to further integrate operations and reduce costs, ASL's two parent companies, Airbus and Safran, last month bid to acquirea controlling interest in ASL's primary customer, Arianespace.

As The Wall Street Journal explains, ASL currently owns 39% of Arianespace. France's government space agency Centre National D'etudes Spatiales (CNES) owns a further 35%, and the balance of Arianespace's shares are owned "by various partners involved in the Arianerocket program." Airbus and Safran have bid to acquire CNES's shares, giving them joint majority control over 74% of Arianespace.

Sue now or forever hold your peace
ASL's move mirrors what happened at Boeing and Lockheed Martin in 1995, when the two aerospace titans -- both of which built and launched rockets for the U.S. government -- teamed up to form United Launch Alliance. That move ended price competition on government space launches in the U.S. (at least until SpaceX showed up), and allowed Boeing and Lockheed to integrate their operations vertically, cutting costs and maximizing profits. In a sense, then, what ASL wants to do with Arianespace is just leveling the playing field.

Even so, the European Commission, an antimonopoly regulator,has raised objections to the deal, pointing out that once it's controlled by ASL, Arianespace would probably only buy ASL-built rockets, regardless of price. There's a risk, therefore, that the Commission may file suit to block the deal -- but I don't think it's a huge risk.

Why not? According to the Journal, the Commission's main worries are that ASL acquiring control over Arianespace will "hamper innovation and drive up prices in the satellite and launch-service markets." But in fact, the opposite is more likely.

After all, the Journalitself points out that "creating Airbus Safran Launchers was intended to gain cost efficiencies to compete more nimbly." This, says Airbus CEO Thomas Enders, is essential because "we're losing precious time against the competition, and that competition is a global competition."

What it means to investors
That reference to "time" is curious. It's been more than 20 years since Boeing and Lockheed set up United Launch Alliance -- but you didn't see ASL and Arianespace scrambling to engineer a merger back then. In contrast, it's been only six yearssince SpaceX launched its first rocket, and barely two years since SpaceX put its first satellite in space. Looking at that timeline, you don't need three guesses to figure out which "global competition" ASL is worried about.

The moral of this story? Brett Tobey may be out of a job, but he told the truth. United Launch Alliance is no longer the company to beat in space launch. That company is SpaceX.


Ariane 6. The rocket(s) with which ASL hopes to beat SpaceX. Image source: Airbus Safran Launchers.

The article Can France Succeed Where Boeing and Lockheed Martin Failed? originally appeared on Fool.com.

Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 288 out of more than 75,000 rated members.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.