Launch Merger Not Yet Cleared for Takeoff

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  Space News Business

Launch Merger Not Yet Cleared for Takeoff

By MICHAEL FABEY & JEREMY SINGER
Space News Staff Writer
posted: 22 May 2006
01:13 pm ET


A string of recent developments should help clear the way for the proposed merger of Boeing’s and Lockheed Martin’s rocket-making divisions, but U.S. regulatory authorities are seeking additional assurances from the companies before they will approve the deal, analysts said.

The proposed joint venture, called United Launch Alliance (ULA), would combine the government-launch operations of Boeing Co., Chicago, and Lockheed Martin Corp. , Bethesda, Md. Officials of both companies say it will bring in $1.5 billion to $2 billion and save the government between $100 million and $150 million each year .

In recent weeks, analysts say the deal cleared three potential hurdles :

– One satellite maker, Northrop Grumman, has dropped its opposition to the year-old proposal. Executives from Northrop worried that the merged firm would be able to package satellites with launches in ways that would hurt Northrop’s government satellite business . Northrop officials said April 20 that those concerns would be taken care of by a consent decree or some other legal means before the merger became official.

– A lawsuit filed by potential launch competitor Space Exploration Technologies Corp. seeking to block the merger was dismissed for the second time May 12.

– The U.S. Justice Department announced May 15 a $615 million settlement with Boeing over ethics violations, some of which were related to the theft of Lockheed Martin proprietary information during a 1998 satellite-launch competition.

Nevertheless, a spokesman for the U.S. Federal Trade Commission, which is reviewing the merger in consultation with the Pentagon, said no decision has been reached and declined to comment further.

The sheer complexity of the ULA proposal could be one of the major reasons for the drawn-out review.

“There are probably more moving parts to the negotiations than in the rockets themselves,” said Brett Lambert, managing partner for the Densmore Group consulting firm based here. “It’s one thing to start a joint venture from scratch, and another thing to scratch two single ventures and push them together.”

But the Federal Trade Commission also is putting new conditions on the merger, analysts say.

For example, the agency wants ULA to retain the engineering expertise necessary to develop a heavy-lift variant of Lockheed Martin’s Atlas 5 rocket, should the government need it. Currently, only Boeing has orders for the heavy-lift variant of its launcher, dubbed the Delta 4.

That requirement, plus government-sought guarantees of pension funding for ULA employees, could reduce the economic incentives behind the merger.

“Those pension guarantees involve serious money,” said Loren Thompson, a defense analyst with the Lexington Institute, a think tank here.

Thompson said U.S. government policy has shifted since the merger was proposed last May.

“The government wanted this merger and asked Lockheed and Boeing to go through with it,” he said. “The problem is that the government proponents who wanted this are no longer around. Those in the government who are reviewing this now are asking for commitments the company would prefer not to do.”

At least one analyst said the advertised savings associated with ULA may have been illusory anyway. Lockheed and Boeing officials never pinpointed exactly how the merged units would do the job of launching government satellites more cheaply, said John Edwards, an industry analyst for Forecast International, Newtown, Conn.

Boeing and Lockheed officials continue to assert that the merger is the best way to give the government access to space for the best price.

Lockheed spokesman Tom Jurkowsky denied suggestions that the company was ready to walk away from the deal. Boeing spokesman Dan Beck said his company is still committed to making the merger work.

But Jurkowsky said that after Lockheed’s April 27 board meeting, company leaders started to look at the delay’s effect on launch tempo and employee morale.

“It’s a concern to us,” he said. “It’s not fair.”

Comments: mfabey@defensenews.com, jsinger@space.com.