The Pentagon wants to put a new GPS satellite in space -- and must pick between SpaceX and United Launch Alliance to Get it there. IMAGE SOURCE: Getty Images.
Continue Reading Below
Whom would you bet on: David, or Goliath? SpaceX, or Boeing (NYSE: BA) and Lockheed Martin (NYSE: LMT)?
At long last, the U.S. Air Force hopes to put these two contenders -- SpaceX in the role of David, and Boeing and Lockheed's United Launch Alliance wearing Goliath's sandals -- in a head-to-head competition next month. As announced earlier this month, the USAF has just issued a request for proposals to launch its next GPS III communications satellite into orbit. And unlike the last time one of these contracts went up for bid, both SpaceX and ULA are expected to compete.
A bit of history
Historically, the launching of "national security" payloads -- large, expensive, complex and sensitive satellites crucial to the military's ability to operate globally -- has been the domain of ULA, and for good reason. As the Air Force remarked in its announcement, "under the previous phase 1 strategy, United Launch Alliance (ULA) was the only certified launch provider." (Emphasis added.)
That changed in May 2015, however, when the Air Force certified SpaceX's Falcon 9 launch vehicle as capable to launch these payloads. This decision opened up contracts for the next nine GPS III launches to competitive bidding by both ULA and SpaceX. Or at least it should have. In fact, because of a legislative quirk that temporarily restricted ULA's ability to use Russian-made rocket engines on national security launches, ULA declared itself unable to bid on the first GPS III delivery in the series.
SpaceX then handily beat out the only other bidder (to this date, still unidentified) on the contract. What's more, it wasn't even a close decision. The Air Force reportedly marveled at SpaceX's bid of $82.7 million to launch the satellite, a bid that was apparently "40% less" than the Air Force had expected to pay.
Once more, with feeling
In contrast to the last round, both SpaceX and ULA are expected to bid on GPS III this time. And this sets up a real cage match of a contract showdown.
In one corner stands SpaceX, the Wal-Mart of space launch, offering "always low prices" to its customers -- with the added excitement of not knowing if the launch will turn into a spectacular fireball. In the other corner is ULA, which has conducted at least 109 straight space launches without mishap -- and may have hit 110 by the time you read this. (ULA has another launch scheduled for Friday, August 19).
If SpaceX's challenge is establishing a long record of success in a short period of time, then ULA's Achilles' heel is price. By its own admission, ULA is incapable of launching a satellite into orbit for anything less than $164 million -- twice SpaceX's price.
According to the Air Force, it's going to pick a winner while seeking "a balance between mission success/operational needs, and lowering launch costs." But in the end, the choice must still come down to picking ULA for its reliability, or SpaceX for its low price.
If ULA wins this contest, it will mean price is not dispositive in the Air Force's decision-making -- or at the very least, that the Air Force wants to wait and see SpaceX execute its first GPS contract (launch window: May 2018), before risking a switch from proven provider ULA.
On the other hand, if the Air Force goes ahead and picks SpaceX this time, then the situation for ULA starts looking really grim, really fast. This would mean that price is the deciding factor. And if SpaceX starts developing a record of success with Air Force launches, that will remove any valid reason to award future contracts to ULA, unless it can find a way to drastically reduce launch costs. That could force United Launch Alliance out of the military space launch business, and deal a serious blow to the profitability of both Boeing's and Lockheed Martin's space divisions.
One way or the other, we should know the answer soon. Both companies' bids are due by Sept. 19, with the Air Force's decision to follow shortly thereafter.
A secret billion-dollar stock opportunity The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Fool contributorRich 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. 301 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.