Will Boeing and Northrop earn $82 billion from NASA?

Sthe pace is tough – as space investors like to point out – and it can be especially difficult for space companies to make a profit in a crowded market where customers are limited and competition abounds.

In 2006, in order to minimize competition and price wars in the space sector, Boeing (NYSE:BA) tied up with a rival Lockheed Martin (NYSE: LMT) form a joint venture to launch rockets into space. By joining forces in a United Launch Alliance, or ULA, Boeing and Lockheed aimed to ensure that their space businesses would remain profitable – as they would no longer compete for contracts.

This plan worked out pretty well until SpaceX arrived on the scene and launched a price war against ULA itself. Now it looks like Boeing has decided to form another big alliance in order to minimize competition in at least one sector of the space market: deep space.

A staggering number

Late last month, NASA announced a new contract opportunity for space companies, indicating that it planned to issue calls for tenders for exploration, production and exploitation (EPOC) work on at least five – and possibly as many as 20 – upcoming launches of its new Space Launch System Mega Rocket.

Initially, the contract will cover launch services on the five lunar missions designated Artemis V through Artemis IX. Thereafter, NASA may need support for five more Artemis launches (X to XIV), which would extend the contract term until around 2036. It’s even possible to add 10 more missions within the same time frame for Artemis V-XIV missions.

Add them up, and that’s potentially 20 Artemis launches. And considering that in a recent report to Congress, NASA Inspector General Paul Martin estimated the cost of producing and launching SLS at $4.1 billion per mission, the potential value total of these 20 planned launches is breathtaking:

$82 billion. With a capital B.

Keep your friends close and your rivals closer

It’s a plot money – and plenty of incentive for a big defense contractor like Boeing to do everything in their power to earn at least a slice of the pie. Perhaps that’s why no sooner had NASA’s EPOC solicitation come out than Boeing announced it would be teaming up with a rival to bid on the contract: Northrop Grumman (NYSE:NOC).

In fact, “offer” may be too weak a word to describe what’s going on here because, as SpaceNews reported last month, from the get-go, this contract will essentially be in Boeing’s bag. This $82 billion space contract will be “effectively sole-sourced” to Deep Space Transport LLC – the name of the new joint venture between Boeing and Northrop.

To some extent, that makes sense. After all, the rocket that will be used on EPOC – the Space Launch System (SLS) – is built primarily by Boeing, and the solid booster rockets that help get SLS off the ground are made by Northrop. Although in theory other companies could build these rockets for NASA, in practice the space agency believes that “to have [someone other than Boeing] manufacturing the core stage and upper exploration stage can take up to 10 years and at a “double cost” to taxpayers. NASA similarly argues that it would take a company other than Northrop up to nine years to learn the ropes of building SLS’s solid rocket boosters.

So basically, NASA is arguing that the exclusive procurement of this potentially $82 billion contract is actually a cost-cutting measure.

What this means for Boeing and Northrop

I guess it could work like that. After all, NASA says its goal here is to reduce the cost of the SLS by 50% or more – presumably by guaranteeing Deep Space Transport LLC economies of scale that will allow them to build up to 20 cheaper SLS rockets. NASA Associate Administrator for Space Operations Kathy Lueders even suggested she would like to cut costs to “between $1 billion and $1.5 billion” per mission, which would be something like $20 billion or $30 billion. dollars spread over 30 missions. (She admitted, by the way, that “we have a bit of a way to go” before that happens).

In the meantime, it looks like Boeing and Northrop Grumman have put themselves in a good position to capture $82 billion of taxpayers’ money by teaming up and helping NASA explore deep space. And even if that doesn’t work out, and in the worst case, what if NASA manages to reduce that cost to just $20 billion or $30 billion?

That’s still a lot of money for Boeing and Northrop – and they won’t even have to compete with anyone to earn it.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

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