Antitrust Probe Is Latest Challenge to ULA’s Government Market Dominance

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WASHINGTON — A U.S. federal antitrust probe of the nation’s biggest rocket manufacturer over its exclusivity agreement with an engine supplier comes amid continuing consolidation of the propulsion industry and government efforts to spur competition in satellite launching services.

The U.S. Federal Trade Commission (FTC) is investigating whether United Launch Alliance (ULA) ran afoul of antitrust laws with its exclusivity arrangement with RD AMROSS, the U.S.-Russian joint venture that makes the RD-180 engine that powers ULA’s Atlas 5 rocket. The probe, begun in April, likely was triggered by complaints from Orbital Sciences Corp., which was rebuffed in its attempts to acquire the Russian-manufactured RD-180 for its Antares rocket.

An April 22 memo from FTC Secretary Donald S. Hall authorized investigators to use “any and all compulsory processes available” to determine whether ULA, RD AMROSS or any of their joint venture partners violated antitrust laws “by monopolizing, attempting to monopolize, or otherwise restraining competition in the provision of space launch services, including entering or maintaining an exclusive agreement relating to the supply of propulsion systems for space launch services.”

FTC spokesman Mitchell Katz declined to comment. News of the FTC investigation was first reported by Reuters.  

A complicating factor is the fact that engine maker Aerojet, which supplies the Russian-built AJ-26 engine currently used for Antares, which successfully debuted earlier this year, has just been cleared by the FTC to buy domestic rival Pratt & Whitney Rocketdyne, a partner in RD AMROSS along with NPO Energomash of Moscow. The merger, approved with reservations June 10 by the FTC, leaves the United States with just one merchant supplier of liquid-fueled rocket engines.

Meanwhile, the U.S. Department of Defense is seeking to nurture competition in the lucrative market for launching national security payloads, which currently is the near-exclusive province of Denver-based ULA, a Boeing-Lockheed Martin joint venture. Seeking to put its launch manifest for roughly the next decade under contract, the Pentagon recently approved plans to order up to 36 rocket cores from ULA on a sole-source basis while setting aside 14 missions for competition, presumably giving newcomers like Orbital and Space Exploration Technologies Corp. (SpaceX) a crack at the market.

ULA’s relationship with RD AMROSS dates back to the mid-1990s, when Bethesda, Md.-based Lockheed Martin helped fund the RD-180’s development for its new line of Atlas rockets. Lockheed Martin and Chicago-based Boeing merged their competing rocket businesses in 2006, creating a virtual monopoly in the U.S. government launch market over the objections of prospective new market entrants like SpaceX and Orbital. The rationale for allowing the merger was that the U.S. government market for launching large satellites was not big enough to support two competitors following the late 1990s collapse of the commercial market.

In a statement to SpaceNews, ULA spokeswoman Jessica Rye said, “United Launch Alliance has and will continue to fully cooperate with the FTC and to provide requested data. ULA’s contracts to purchase the RD-180 engine are lawful, pro-competitive and designed to provide the most reliable launch vehicle possible for critical U.S. Government missions. Because this is an ongoing investigation, it would be inappropriate for us to comment on specifics.”

According to an undated white paper obtained by SpaceNews, Orbital of Dulles, Va., has approached Pratt & Whitney Rocketdyne and RD AMROSS multiple times since 2008 about purchasing RD-180 engines for the Antares rocket. Antares’ current AJ-26 first-stage engine is an Aerojet-refurbished version of the Soviet-era NK-33 engine that has been out of production since the 1970s.   

Because of the limited supply of AJ-26 engines, Orbital has been looking for an alternative kerosene-fueled engine as a long-term replacement. Orbital is under contract with NASA to launch eight resupply missions to the international space station — each Antares uses two of the engines — but has broader ambitions for Antares. 

Orbital officials have previously stated that the NK-33/AJ-26 stockpile is sufficient to support 18 Antares missions. 

Ironically, RD AMROSS offered the RD-180 for Antares, then called Taurus 2, when it was still being designed, only to lose out to Sacramento, Calif.-based Aerojet with the AJ-26. In a 2010 interview with SpaceNews, Leonard Dest, who at the time was chief executive of RD AMROSS of Cocoa Beach, Fla., said, “We have also been permitted by our shareholders to bid for other programs as they arise. For example, we were involved in a bid of the RD-180 to supply Orbital Sciences’ Taurus 2 rocket. We were not the winning bidder, but we did compete for that work.”

Orbital’s white paper, currently making the rounds in Washington, outlined the company’s attempts to procure the RD-180.

“Since 2008, Orbital has attempted to purchase RD-180 engines, because they are in active production, enjoy a strong legacy of successful launches, and are well suited to meet the technical requirements for the Antares launcher,” the white paper states. “Unfortunately, every attempt made by Orbital to buy RD-180 engines has been blocked by unfair methods of competition that unlawfully restrain trade. Recently, the Federal Trade Commission opened an investigation into the RD-180 ‘Exclusive Agreement’ between ULA and RD-AMROSS and is investigating the impact of that agreement on competition in the space launch market.”

According to the white paper, ULA’s exclusivity agreement with RD AMROSS was signed in 1996 and was supposed to last for 10  years. “Senior officials at both Pratt & Whitney Rocketdyne and RD-AMROSS, however, assured Orbital, that the agreement had expired in 2006, more than two years before Orbital’s discussions with RD-AMROSS began,” the paper states. 

In June 2009, according to the Orbital white paper, RD AMROSS went to its board of directors with a proposal to sell RD-180 engines to Orbital. “Orbital was informed that ULA continued to claim that direct sales to Orbital of the RD-180 engine were not permitted because of continuing exclusivity arrangements,” the paper states. “In 2010, after Orbital’s discussions with RD-AMROSS were terminated, ULA formally extended the expired Exclusive Agreement until 2016.”

Orbital approached ULA directly in early 2012 with a framework outlining Orbital’s proposed procurement RD-180s, the white paper states. “ULA did not respond to the proposal, other than to inform Orbital that ULA would have no further discussions with Orbital on the RD-180. Later in the year, the Exclusive Agreement was extended again until 2018,” the Orbital white paper states.

Orbital spokesman Barron Beneski said June 13 that Orbital remains interested in RD-180 as an eventual replacement for the NK-33/AJ-26 engines.

“Right now the only engine that is technically suitable, available for export and is in production is the RD-180,” Beneski said. “We continue to examine what other options there might be, but for right now … the RD-180 is the one that meets those three criteria.”

Beneski declined to identify any of the other options Orbital is examining. But the Orbital white paper says that Orbital explored other Energomash engines, including the RD-181, a single-thrust-chamber variant of the RD-180. Energomash has not obtained Russian government approval for the export of technical data Orbital would need to fully evaluate the engine’s suitability. 

Industry sources said Orbital also has approached SpaceX about buying the Merlin engines the Hawthorne, Calif.-based company manufactures in-house for its Falcon 9 rockets, but was rebuffed.