Wi th Northrop Grumman now satisfied that its concerns about the proposed merger of the Boeing and Lockheed Martin government launch-services units are being addressed, it is high time that the U.S. Federal Trade Commission approved the deal.
While lingering distaste for monopolies among some in the U.S. government is probably behind this protracted delay in ruling on(ULA), putting off the inevitable is just counterproductive. The government and its contractors have much soul-searching to do about the nation’s future space transportation strategy, and the first step in that process is shedding the baggage of the past.
A merger along the lines of the ULA was encouraged by the U.S. Air Force, the principal affected party, and when Boeing and Lockheed Martin announced an agreement to form the joint venture last May their expectation was that it would be approved by the end of the year. They appeared to be erring on the conservative side when they set a March 31 deadline for closing the deal, but because the government is moving so slowly they had to agree to stick to its terms after that date passed.
Northrop Grumman raised concerns about how its government satellite unit would be treated by ULA, since Boeing and Lockheed also compete in that business. But Northrop Grumman Space Technology President Alexis Livanos said April 20 he was satisfied that steps are being taken to ensure that all makers of government satellites will receive equitable treatment by ULA.
The government’s drawn-out review, meanwhile, has introduced an element of uncertainty for everybody involved. Lockheed Martin is showing signs of restiveness, indicating April 25 that its board would review the deal , which ought to make Boeing nervous. If ULA somehow unravels, Lockheed presumably would proceed with a potentially devastating lawsuit against Boeing for improperly using Lockheed proprietary information during a 1998 Defense Department launch-services competition.
ULA will not fundamentally affect competition in U.S. military launch services because for all intents and purposes there is none. The Air Force did away with competition last year when it divvied up its latest batch of Evolved Expendable Launch Vehicle (EELV) contracts evenly between Boeing’s4 and Lockheed Martin’s Atlas 5 rockets.
The Air Force did so because it saw no other choice in the matter: the service already was paying both companies additional money to keep their production lines open, and it was appearing increasingly likely that should one of them gain the upper hand in terms of market share the other would simply quit the launch business altogether. Such a development would run afoul of U.S. policy, which calls for maintaining two sources of EELV rockets at least until the end of the decade.
The policy is set to be revisited then because there are growing doubts that it represents the best use of government resources. Space access is not something the Pentagon can afford to lose, but in an era of increasingly strained budgets EELV dual sourcing might not be a sustainable option for hedging the risks.
U.S. defense authorities recognized that back when they established the EELV program in the early 1990s. The idea was to make the best of the situation by creating a single modular family of rockets that would use the same basic hardware elements to launch all but the smallest military payloads. That would eliminate the inefficiencies inherent in having separate production lines and overhead cost structures for three different classes of launchers.
It was only the false promise of the commercial launch market that convinced the Air Force — along with everybody else — that it could have the best of both worlds: the low unit costs associated with high production rates and the flexibility, innovation, bargaining power and redundancy that come from having two sources of rockets.
When the sky-high projections of commercial launch demand proved to be fantasy, the Air Force got saddled with the overhead for two rocket production lines, with neither operating anywhere near optimum capacity. It is an untenable situation, and barring an infusion of cash that the Air Force is not going to get, something has to change.
As a solution, ULA leaves much to be desired. One of the primary justifications for maintaining two EELV families in defiance of economic logic is that it ensures uninterrupted space access even if one is grounded for an extended period. That argument is flawed, however, since the Delta 4 and Atlas 5 share critical hardware whose failure would ground both. It will be weakened further by ULA’s planned work-force consolidation, which raises the specter of a labor dispute halting all launch activity. That was clear after a recent Boeing strike delayed Delta launches.
And the claim by Boeing and Lockheed Martin that ULA will save the government $100 million to $150 million a year seems dubious. It might save some money, but defense industry mergers rarely, if ever, live up to their promises of big taxpayer savings.
Nevertheless, for now, there is no alternative to ULA because the Air Force can neither afford two EELV providers, nor is it prepared to allow one to go by the wayside. By continuing to drag its feet on approving ULA, the government is running a serious risk of allowing this deal to fall apart.
ULA is a shotgun marriage, to be sure, but it also represents a step back toward reality. Once it is established, planners in government and industry can and must begin devising a more sustainable long-term strategy for space access that is reliable, affordable and always available.