Aerojet, Pratt & Whitney Rocketdyne To Combine Under $550 Million Deal

by

SAN FRANCISCO — Consolidation among U.S. propulsion industry heavyweights may be reaching its conclusion with GenCorp Inc.’s plan announced July 23 to purchase United Technologies Corp.’s Pratt & Whitney Rocketdyne for $550 million. If approved by federal regulators, the deal would leave two major competitors in the U.S. propulsion industry and create a single U.S. vendor of liquid-rocket engines by combining GenCorp’s Aerojet with rival Pratt & Whitney Rocketdyne.

Julie Van Kleeck, Aerojet’s vice president of space and launch systems, said the deal, if approved, will bring value to GenCorp and enhance its business prospects. Aerojet and Pratt & Whitney Rocketdyne are complementary, without significant overlap in their product lines, she said.

Through Aerojet, GenCorp produces monopropellant and bipropellant systems for rockets, satellites and other spacecraft. The firm’s main liquid propulsion product is the AJ-26, a converted Soviet-era engine it supplies to Dulles, Va.-based Orbital Sciences Corp. for its Antares medium-lift rocket. In contrast, Pratt & Whitney Rocketdyne is known for constructing large liquid engines, and supplies key propulsion systems for the United Launch Alliance Atlas and Delta launch vehicles. Pratt & Whitney Rocketdyne also is under contract to provide the core engines for NASA’s heavy-lift Space Launch System currently under development. Space Exploration Technologies Corp. also produces large liquid rockets. However, those engines are designed exclusively to power the firm’s own spacecraft.

In recent years, top U.S. Air Force, NASA and National Reconnaissance Organization officials have decried the high costs of U.S. launch vehicles, while rocket builders have complained that weak and fluctuating demand for their products prevented them from achieving economies of scale and threatened the smaller firms that supply rocket components. GenCorp’s acquisition of Pratt & Whitney Rocketdyne “could not come at a better time,” said Jim McAleese, founder of the consulting firm McAleese and Associates. The U.S. Defense Department is publicly encouraging targeted consolidation of excess capacity to strengthen the health of the supplier base, he added.

That type of consolidation is particularly important in an industry like propulsion that requires unique expertise and enormous capital investments but shows no signs of growth in the immediate future, McAleese said. Launch vehicle sales are expected to remain flat in the coming years and could fall if mandatory federal spending cuts take effect at the end of the year, or if congressional leaders agree on a package of deficit reduction measures to stave off those cuts, he added. The mandatory federal spending cuts on the horizon stem from the Budget Control Act of 2011 and the failure of a congressional committee to reach agreement last year on alternative deficit reduction measures.

“It’s clear that the launch industry is facing a lot of stress with changes in large programs and fewer new programs,” Van Kleeck said. She added, however, that GenCorp’s plan to acquire Pratt & Whitney Rocketdyne was not a sign of consolidation in the launch industry but was a reaction to the changing market. “While there is consolidation taking place, there is also expansion,” she said, adding that new firms are entering the market to compete for space launch contracts. “It’s the beginning of a new era.”

Aerojet is expected to continue to play a leading role in the solid-rocket business along with its primary rival for that work, Minneapolis-based Alliant Techsystems (ATK), industry officials said. The two firms focus primarily on different segments of the market with Aerojet producing many tactical propulsion systems and ATK often building larger, strategic rockets. They note, however, that each firm is making moves to expand its position in the launch industry. ATK has joined forces with Europe’s Astrium to compete for NASA contracts to supply rockets to carry cargo and crew to the international space station. Aerojet is working with Huntsville, Ala.-based Teledyne Brown to develop large liquid-rocket engines for NASA’s Space Launch System and the Air Force Evolved Expendable Launch Vehicle program.

In spite of all the changes taking place in the launch market, Loren Thompson, chief executive of the Lexington Institute, said United Technologies’ decision to sell Canoga Park, Calif.-based Pratt & Whitney Rocketdyne was driven primarily by the need to finance its $16.5 billion acquisition of Goodrich Corp. United Technologies planned initially to finance a large portion of that acquisition by issuing additional stock, but when shareholders balked at the idea the firm agreed to sell assets instead.

GenCorp said it expects to complete its acquisition of Pratt & Whitney Rocketdyne in the first half of 2013 if federal regulators approve the merger. The Goodrich deal closed July 26.

GenCorp also announced July 23 the hiring of Pratt & Whitney veteran Warren M. Boley Jr. to take over as president of Aerojet effective Aug. 20. He succeeds Scott Seymour, who has been running Aerojet since January 2010 in addition to serving as GenCorp chief executive. Boley spent 27 years at Pratt & Whitney and served as president of the company’s Military Engines Division. Most recently, he ran his own company, Boley Tool and Machine Works Inc., in East Peoria, Ill.

 

RELATED ARTICLE

Aerojet’s Parent Company Bids $550 Million for Rival Rocketdyne