ATK Exec Hints at Antares Engine Selection in Endorsing Orbital’s Failure Recovery Plan

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PARIS — Alliant Techsystems (ATK) Chief Executive Mark W. DeYoung on Nov. 19 said there are no near-term liquid-propulsion alternatives to Russian engines for U.S. rockets.

In a conference call with investors to explain why ATK still believes in its planned merger with Orbital Sciences Corp. despite the Oct. 28 failure of Orbital’s Antares rocket, DeYoung said his company continues to hunt for rockets to use ATK’s solid-propulsion systems. But for liquid propulsion, he said, Russia is unavoidable for now.

“As much as the country may desire to have an alternative propulsion system which does not rely on Russian liquid propulsion, there are no solutions available that I am aware of in the near term” that could replace “the solutions which are being used right now, which are Russian-based engines.”

Arlington, Virginia-based ATK conducted an in-depth review of Orbital’s post-Antares-failure recovery plan, which includes finding replacement rockets to launch one or two cargo modules to the international space station to fulfill the terms of Orbital’s contract with NASA.

Orbital has also said it would scrap its current Russian-origin AJ26 first-stage Antares engine for an unnamed alternative that will be in service in late 2016.

Neither DeYoung nor ATK Chief Financial Officer Neil S. Cohen identified the replacement engine, but their comments suggested that Dulles, Virginia-based Orbital has in fact selected a Russian engine to replace the AJ26, which has been tentatively implicated in the Antares failure.

Cohen said ATK’s review of Orbital’s recovery program included an “assessment of customer and political risks” associated with Orbital’s future Antares plans, using a phrase normally associated with purchases from nations with unstable political regimes or with tense relations with the United States.

Cohen said the ATK review also “stress-tested” Orbital’s assumptions about the availability and cost of third-party rockets for launching one or two space station cargo missions, and about replacing the AJ26 with a new engine.

ATK’s board of directors concluded that Orbital has correctly assessed the risks and costs of its Antares recovery plan in concluding that its effect on the company’s revenue and profit in 2015 will not be substantial.

Cohen said ATK also agreed with Orbital that the likelihood of Orbital winning a follow-on space station supply contract with NASA has not been reduced because of the Antares failure and will not suffer from the change in engine.

He said Orbital’s recovery plan includes “key milestones and deliverables that can be monitored in the coming weeks” before ATK and Orbital shareholders vote on the merger of Orbital with ATK’s Aerospace and Defense division.

The companies agreed to postpone the planned Dec. 9 shareholder vote to Jan. 27 to allow time to assess the deal after the Antares failure.

The merger involves ATK’s spinning off of its Sporting Goods division into a new company, called Vista Outdoor. ATK’s Aerospace and Defense group would then merge with Orbital, with the combined company becoming a wholly owned ATK subsidiary.

The two companies said the transaction is expected to close in February.

Orbital’s stock fell dramatically following the Antares failure, which destroyed an Orbital-built module carrying supplies to the international space station under a services contract with NASA.

But since then the stock has recovered and as of Nov. 19 was marginally up from where it traded on the eve of the April 28 merger announcement.

For reasons unrelated to the Antares rocket failure, ATK’s stock has also had a rocky 2014 and at the stock market’s close Nov. 19 was down 18 percent since the Orbital deal was announced.

Without disclosing many details, Orbital Chief Executive David W. Thompson assured investors in a Nov. 17 statement that the company would fulfill the NASA supply contract by launching space station cargo on one or two launches provided by third parties without “material adverse financial changes in 2015 or future years.” Thompson will become chief executive of the newly named Orbital ATK.

While Orbital officials had expressed confidence immediately after the failure that the merger plans remained intact, ATK had been more circumspect, saying it wanted to evaluate the consequences in detail.