Airbus (NASDAQOTH: EADSY) is entering the race to build reusable rockets. But it may be too late.
Continue Reading Below
On Thursday last week, Airbus joint venture ArianeGroup (nee Airbus Safran Launchers) announced plans to develop an engine to power a new class of reusable rockets.
We don't know a whole lot about the new engine just yet, much less about whatever rocket it will power. But here's what we do know:
- Dubbed "Prometheus," the new engine is expected to be ready for testing in 2020 and could begin flying missions by 2030.
- It will cost at least $91 million to develop.
- Instead of liquid oxygen and liquid hydrogen, Prometheus will utilize a mixture of LOx and liquid methane for fuel, providing about 225,000 pounds of thrust at sea level.
- The engine will be reusable over the course of somewhere between five and 10 launches and will cost no more than $1.1 million per unit to produce, which would be just one-tenth the cost of the new single-use Vulcain 2.1 engine that ArianeGroup is developing to power its upcoming Ariane 6 rocket.
Thus, Prometheus promises to deal a one-two punch to ArianeGroup's space-launch cost, which is currently at least 20% cheaper per ton of payload than launches conducted by Boeing (NYSE: BA)-Lockheed Martin (NYSE: LMT) joint venture United Launch Alliance -- but nearly twice as expensive as what SpaceX charges. By recovering and reusing an engine after launch, ArianeGroup will be able to save the cost of building entirely new engines from scratch after each launch. At the same time, ArianeGroup plans to cut the absolute cost of the engine by 90%.
Gimme five (to 10 launches) up high -- but down low, too slow?
Continue Reading Below
All of this sounds like very good news for ArianeGroup, which owns a 74% supermajority of its primary customer, rocket launcher Arianespace. It's good news for ArianeGroup's two 50-50 owners, Airbus and Safran S.A. (NASDAQOTH: SAFRY), and marginally better news for Airbus in particular. While both Airbus and Safran own 37% of Arianespace directly, Airbus controls an additional 4% stake in ArianeGroup through its subsidiaries and so would reap a proportionately greater benefit from Prometheus' cost savings.
There's just one problem, though, which should temper investors' enthusiasm for Airbus' and Safran's abilities to profit from a cheaper, and reusable, Prometheus engine: SpaceX got there first.
SpaceX steals ArianeGroup's thunder
On Friday last week -- just one day after ArianeGroup's announcement -- Airbus, Boeing, and Lockheed Martin rival SpaceX landed a reusable rocket back on Earth. Then it landed another on Sunday. In fact, SpaceX has now successfully launched and relanded rockets 13 times since first accomplishing the feat back in December 2015. What's more, SpaceX has reused two of those rockets, relaunching and relanding them back on Earth a second time. It's done so twice -- first in March 2017, and then again with Friday's launch and landing of a rocket that already had made a trip to space back in January.
In fact, SpaceX has gotten so good at launching and landing first-stage engines that it's moved on to recovering other rocket parts from its launches -- a $6 million rocket nose cone in April, for example. It's also succeeded in launching, recovering, and relaunching a Dragon cargo capsule. And with each successful reuse of a rocket part, SpaceX drives its costs down a little bit further, undercutting the prices that Boeing and Lockheed Martin must charge for their rocket launches, and undercutting Airbus' prized space subsidiary as well.
So what's the upshot for investors?
Relative to SpaceX's successes, ArianeGroup's proud announcement that it has begun planning to build a reusable rocket -- and won't be ready to use it for another 13 years -- kind of pales in comparison. Sad to say, ArianeGroup is coming to this game 15 years too late. By the time 2030 rolls around, ArianeGroup might not even be in business anymore.
10 stocks we like better than Airbus
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Airbus wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of June 5, 2017