Pentagon Flexible on Rocket Engine Acquisition Strategy

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HUNTSVILLE, Alabama — U.S. Defense Department officials would prefer that industry share the cost of developing a new rocket main engine, but are well aware of the possibility that companies will not be able to justify a substantial investment amid uncertainty about the future payoff.

Frank Kendall, the Pentagon’s top acquisition official, suggested he remains flexible on the U.S. Air Force’s engine acquisition strategy in recognition of the fact that companies need to recoup their investment and make a profit.

“What we’ve asked industry to do is, [tell us] what it would take to close the business case for them,” Kendall said during a press briefing Aug. 12 at the Space and Missile Defense Symposium here. “We’re open minded about the business deal as long as we get guarantees that we will have launch capabilities at a certain point in time.”

Congress mandated last year that the Defense Department develop a domestic propulsion system that would be ready to replace the Atlas 5’s RD-180 main engine by 2019. The Atlas 5, built by Denver-based United Launch Alliance, launches most U.S. national security satellites, but the future availability of its main engine is in doubt following the deterioration in U.S.-Russian relations.

Earlier this summer, the Air Force released a draft request for proposals for a new American-made engine that says industry would be expected to cover at least one-third of the development costs.

But industry’s ability or willingness to make that commitment depends, like any other investment, on the business case.

Several industry officials outlined it this way: If developing a rocket main engine costs $800 million-$1 billion, and the Air Force is willing to pay as much as two-thirds of that, the engine provider is still on the hook for $260 million to $350 million. Given current and projected U.S. government launch rates, it could be eight years before the provider is able to recoup that investment and turn a profit, these sources said.

Kendall reiterated that the Pentagon’s preferred model is to help close the engine maker’s business case rather than simply underwrite the entire engine development cost. But he acknowledged that what’s preferable is not always feasible.

“In that case,” he said, “we’ll look at funding an engine as [government furnished equipment] to launch providers.”

Kendall’s remarks echo concerns about the engine acquisition strategy that have been brewing for months.

“My fear is what happens if there’s only one” bidder” to develop the new engine, Gen. John Hyten, commander of Air Force Space Command, told reporters in April in Washington. “Then how do you maintain the competition then going into the future?”

Lt. Gen. Samuel Greaves, commander of the Air Force’s Space and Missile Systems Center, said July 31 that the service is willing to cover the full cost of a new rocket engine if the business case does not close.

“If the time comes and the business case is closing, and no one wants to make the investment in the launch service approach, we then make the decision to off-ramp and go do it organically,” he said. “But we must pursue competition where it exists.”

ULA announced in September that its first choice for a replacement rocket engine is the BE-4, a liquid-natural-gas fueled engine that cannot be used on the Atlas 5 as currently designed. Blue Origin of Kent, Washington, the secretive company owned by Amazon.com founder Jeff Bezos, is developing that engine using its own funds.

Meanwhile, Sacramento, California-based Aerojet Rocketdyne has stepped up its internal investment in the AR1, components of which have been developed in part with government funding. ULA has a contract with Aerojet to retain the AR1 as a backup in case the BE-4 effort falters.

“If industry’s going to invest, there needs to be a customer there at the end of the day,” Kendall said.

ULA Chief Executive Tory Bruno has said that given projected U.S. government launch demand, the company is counting on commercial work to help close the business case for its proposed Vulcan rocket, which would be powered by the BE-4. But counting on the commercial market can be risky. In the 1990s, the Air Force elected to support development of two new rockets, including the Atlas 5, in anticipation of robust commercial demand that never materialized, leaving the service with two production lines to support and not enough demand to keep both running efficiently.