DARPA Places a Big Bet on a Small Rocket-Maker

By Markets Fool.com

DARPA wants to build A SPACE "PLANE." Vector Space volunteers to help it traverse the last mile into orbit. IMAGE SOURCE:DARPA.

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DARPA wantsa new space shuttle.It'sgetting close to building one. And in fact, it just got a little bit closer.

Last month, in a little-noticed press release, privately held Vector Space Systems confirmed that it has won $2.5 million worth of contracts from the Defense Advanced Research Projects Agency (DARPA) and the National Aeronautics andSpace Administration (NASA). Through these contracts, Vector -- which hasn't even begun operations yet, although it has begun collecting clients -- aims to play a major part in the designing of DARPA's XS-1 Experimental Spaceplane -- and potentially, in new NASA projects as well.

As Vector explains, the contracts break down as follows: First, Vector will tweak its first-stage "Vector-R" rocket for use as a second-stage rocket on DARPA's spaceplane. Second, Vector will develop a smaller "advanced prototype" Vector-R upper stage -- this time for NASA.

Success in both efforts should accelerate Vector's progress toward building "a fully functional two-stage flight test vehicle" for itself, as well as advancing DARPA's and NASA's respective objectives. Flight testing to prove is slated to begin late next year.

Back up a second. Remind me: What is a "spaceplane"?

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NASA, as you'll recall, retired the space shuttle in 2011 -- partially because of concerns over the vessel's safety, but also over concerns for its cost. DARPA's XS-1 Spaceplane project aims to address both of these concerns by developing a new "drone" spacecraft that will fly to the verge of space under its own power and there launch a smaller onboard rocket to boost satellite payloads the last few miles into actual orbit. That accomplished, XS-1 will land back on Earth like an airplane (or space shuttle), refuel, reload, and be ready to launch a new payload within 24 hours.

In fact, DARPA is targeting turnaround times and consistency of operation that would permit XS-1 to launch "10 times in 10 days."

As an unmanned drone, XS-1 would allay concerns about the safety of live cargo. And with launches taking place daily, rather than just a few times a year, the cost of building XS-1 would be spread out among so many deliveries as to dramatically decrease the cost of space launch -- perhaps to as little as $5 million for a two-ton cargo.

So far, three industry teams have been hired to work on prototyping a spaceplane for DARPA: Boeing(NYSE: BA), working in collaboration with Jeff Bezos'Blue Origin;Northrop Grumman(NYSE: NOC), working with Sir Richard Branson's Virgin Galactic; and privately held Masten Space Systems, working with also-privateXCOR Aerospace. (XCOR, however, appears to be in the process of shuttering its Lynx spaceplane project, and may be on its way out.)

And Vector-R? What's that?

Vector describes its new Vector-R launch vehicle as "the world's only launch vehicle dedicated to servicing the micro satellite market by providing a dedicated 50kg launch mass to orbit." Comprising a "carbon fiber airframe, lightweight pressurized propulsion systems and an agile modern avionics system," Vector-R targets the fast-growing market for launching very small satellites, rapidly and at low cost -- and leaves Boeing, Lockheed Martin, Airbus, and SpaceX to duke it out over the market for launching larger satellites.

In its final form as a "fully functional two-stage" rocket, Vector-R will be the vehicle Vector uses to launch microsatellites into space. In the meantime, in between time, Jim Cantrell, CEO of Vector Space, says Vector-R's first-stage engine will be designed "platform agnostic" for its role as the spaceplane's delivery rocket.

That is to say, regardless of whether DARPA ultimately chooses a prototype spaceplane from the Boeing team, from Northrop, or from Masten, Vector's rocket will launch equally well from any of them.

What does it mean for investors?

Experts estimate that by 2020, companies could be launching as many as 500 such "microsatellites" annually. At launch prices ranging from $250,000 per launch (CubeCab) to $1.5 million (Vector) to $10 million (Virgin Galactic), that implies an annual market size of up to $5 billion -- a market in which Vector is targeting a 12% share.

Vector clearly has its eye on becoming a key player in this emerging market. At the same time, through its contract with DARPA, it's demonstrating a willingness to cooperate with (and profit from) many of the larger companies working on DARPA's new spaceplane -- and through its contract with NASA, an interest in working for the government directly as well.

When you get right down to it, it doesn't really matter where the money is coming from. As long as the checks clear, Vector will take it.

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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. 282 out of more than 75,000 rated members.

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