Constellation’s Demise Will Cost ATK $650M in Backlog

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PARIS — Alliant Techsystems Inc. (ATK), which has perhaps more to lose in NASA’s proposed redirection than any other company, on Feb. 4 said it is counting on stiff congressional opposition to help limit the damage from U.S. President Barack Obama’s decision to cancel the Ares rocket.

In a conference call with investors, ATK Chief Financial Officer John Shroyer spelled out how much Ares’ cancellation would cost ATK — some $650 million would be removed from the company’s backlog — and said Ares and the rest of the Constellation program can only be terminated with congressional approval.

“As a reminder, Congress passed language, which the president signed, which prevents NASA from re-directing funds away from the Constellation and shuttle programs,” Shroyer said. “We expect this will be a very significant debate in the months to come.”

Minneapolis-based ATK is prime contractor for the Ares 1 rocket’s first stage, which is derived from the ATK-built reusable solid-rocket boosters on the U.S. space shuttle, which will be retired this year. It also provides motors to the Orion crew-transport capsule as a subcontractor to Lockheed Martin.

As did Bethesda, Md.-based Lockheed Martin, ATK lost no time in expressing disappointment over NASA’s Feb. 1 announcement that Ares and Orion and the rest of the Constellation program were to be terminated. Both companies issued statements questioning the logic of the Obama administration’s proposed  2011 NASA budget.

In the Feb. 4 conference call, ATK Chairman Ronald R. Fogleman, a retired U.S. Air Force general, said NASA’s decision to scrap Ares and to count on a commercial space sector capable of launching astronauts is overly risky.

“ATK has the only man-rated stack in the game at this point,” Fogleman said of the Ares 1, which in October made an inaugural test flight. “We have seen over the years that when you try to man-rate something it’s not an easy task. It’s very expensive. Given the track record that we’ve seen from the folks that are in the commercial business, we think there’s a long way to achieve anything that comes close to what we already have.”

ATK’s Space Systems division is already reeling from the shuttle’s expected retirement, from the end of Minuteman 3 ballistic-missile program and from the U.S. Defense Department’s decision to terminate the Kinetic Energy Interceptor in-flight missile-defense system.

For the nine months ending Jan. 3, the Space Systems division reported a 12 percent decline in revenue, to $1.04 billion. But the division’s operating profit margin improved to 12 percent from 10.9 percent for the same period a year earlier.

Shroyer said ATK expects about $500 million in NASA contracts in 2010, with $100 million from the remaining work on the shuttle and the remaining $400 million for Ares and Orion work as part of the Constellation program.

NASA’s proposed 2011 budget, released Feb. 1, includes $2.5 billion in funding to close out existing Constellation-related work, plus $600 million in reserves in case the shuttle’s retirement takes longer than expected.

Any extension of the shuttle’s operations would generate some $25 million in revenue every three months for ATK, Shroyer said. He said ATK is unable to quantify how much of the $2.5 billion in Constellation-closeout fees it might receive.

ATK’s two other divisions, Armaments Systems and Mission Systems, both reported strong revenue growth for the nine months ending Jan. 3. The company’s total revenue for the period of $3.56 billion is a 7 percent increase over the same period a year ago. The company-wide operating profit margin for the nine months was 11.3 percent, compared to 10.5 percent the previous year.