Editorial
There were several defining themes in 2015, but none matched the drama and intrigue surrounding United Launch Alliance, the Boeing-Lockheed Martin joint venture that once monopolized the U.S. government launch market but now finds itself in a potentially suffocating squeeze between a competitive challenge from upstart SpaceX and a congressional ban on the Russian-made engine that powers its most versatile and economical rocket.
The latest act took place in mid-November, when ULA announced it did not bid on a GPS 3 satellite launching contract, effectively ceding what was to be the U.S. Air Force’s first competitively awarded launch in more than a decade to its arch nemesis.
The attention-grabbing move was not a huge sacrifice given that ULA would have been hard pressed to win the contract under any circumstances; it cannot match SpaceX’s prices, and GPS launches fit well within the envelope of the latter’s Falcon 9 rocket. It was a tactical withdrawal by a company with a bigger prize in mind: a competitive playing field that’s more to its liking, most significantly including relief from the Russian engine ban that threatens to sideline its workhorse Atlas 5 rocket.
Currently ULA has only four RD-180 engines available for the competitive phase of the Air Force’s satellite launching program, which is only a fraction of what the company needs to stay in the game over the long term. ULA has designed a new rocket dubbed Vulcan that features a U.S.-made engine, but this vehicle will not be available until around 2021, assuming the project gets funded — which is by no means a given.
Explaining its no-bid decision in a press statement, ULA cited the engine ban and a procurement structure that it said was tilted in favor of SpaceX.
As a rationale, the engine ban was valid only by virtue of ULA’s puzzling decision, cited when the company threatened not to bid for the contract back in early October, to allocate five RD-180s that previously were deemed exempt from the ban to nonmilitary missions. The ban does not extend to civil and commercial missions.
Moreover, by mid-November it had become clear that Congress would pass defense authorization legislation making four additional engines available for competition. That bill was finalized Nov. 10, presented to the president a week later and signed into law Nov. 25.
Another issue cited by ULA was a requirement that it certify that none of its existing Air Force business could be leveraged to support its bid. ULA said it did not have the accounting system in place to comply with that requirement, and that modifying its system accordingly would have thrown it out of compliance with its existing Air Force contracts.
Whatever the merit of that argument, it’s noteworthy that it emerged only after the bidding had closed. In previously threatening not to bid, ULA focused on the engine ban. Moreover, federal procurements tend to be an iterative process involving a lot of back and forth between buyer and bidder. Did ULA not raise this issue during that process? Were its concerns ignored?
ULA’s other complaint might best explain its no-bid decision, although it doesn’t necessarily flag a deficiency in the Air Force’s process. The procurement’s so-called lowest-cost technically acceptable structure, ULA said, shortchanges other factors such as reliability, past performance and schedule certainty. In other words, it effectively neutralizes ULA’s competitive strengths.
Whether future competitive launch procurements should be structured this way might depend on the mission. While GPS provides absolutely critical military and civilian capabilities, the constellation is very robust, meaning the Air Force can take on a bit more risk with a single GPS satellite than it might with a billion-dollar intelligence or missile warning satellite.
One lawmaker who’s not buying ULA’s explanation is Sen. John McCain (R-Ariz.), a longtime company critic who, as chairman of the Senate Armed Services Committee, saw to it that the latest defense bill provides only very limited relief from the RD-180 ban. In a letter to colleagues on the Senate Appropriations Committee, who are considering providing broader relief in an omnibus spending bill for 2016, Mr. McCain accused ULA of seeking to “manufacture a crisis by prematurely diminishing its stockpile of engines” available for military competitions.
In a subsequent letter to U.S. Defense Secretary Ashton Carter, Mr. McCain reiterated that concern and disputed, with strong supporting arguments, each of ULA’s stated reasons for not bidding. Appropriately, Mr. McCain demanded that ULA’s maneuvers be subjected to rigorous Defense Department scrutiny.
It is of course for ULA to decide whether it bids for any given contract, although as Mr. McCain implied, the government isn’t paying the company nearly $1 billion for overhead costs each year — the senator branded it a subsidy — to have it sit out competitions. Mr. McCain also has a point, based on Senate protocol, in appealing to appropriators not to undo the terms of the engine ban crafted by his committee.
But the hard truth is that if ULA is to remain competitive in the U.S. government launch market — and policymakers in Washington are firm on the requirement to have at least two providers — it is going to need more Russian engines than currently available, whether or not a U.S. alternative is ready to fly by the end of the decade. How many more is not clear, but four — or even nine, should ULA find a way to reallocate the five exempted engines to the military market — is not sufficient. To their credit, senior members of the Senate Appropriations Committee are asking the Pentagon for clarity on that matter. But as much as Mr. McCain wants to avoid “year-over-year re-litigation” of the issue, his position, however principled, is most likely going to make that necessary.
