Profile | Leonard R. Dest, Chief Executive, RD Amross

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RD Amross LLC is one of the more improbable enterprises ever created in the aerospace industry. Situated at the heart of what both the United States and Russia view as strategic national industrial sectors, the 50-50 joint venture between Pratt & Whitney Rocketdyne of Canoga Park, Calif., and NPO Energomash of Khimki, Russia, sells one of Russia’s proudest aerospace achievements, the RD-180 rocket engine, to United Launch Alliance (ULA) for integration into ULA’s Atlas 5 rocket, where it serves as the main-stage engine.

RD Amross has been doing this for 10 years under a 101-engine, $1 billion contract. Despite many industry predictions that the setup was certain to collapse under political pressure of one kind or another, RD Amross is halfway through the contract and has never been in better health, according to Leonard R. Dest, who a year ago became the company’s chief executive. Dest, a former executive with commercial launch-services provider International Launch Services and with telecommunications satellite builder Hughes before its purchase by Boeing, says RD Amross has been able to demonstrate its value to Russia — particularly during the recent financial crises in that country — and to ULA’s principal customer, the U.S. Air Force.

The recent proof is that in 2010, RD Amross will become a certified U.S. government contractor, a status that invites more government oversight and examination of the company’s supply chain.

Dest spoke recently with Space News staff writer Peter B. de Selding.

What is the ownership structure of RD Amross?

It is a 50-50 joint venture formed in 1997 between Pratt & Whitney of the United States and Energomash of Russia, the manufacturer of the RD-180 engine. Energomash is majority-owned by the Russian state, but around 20 percent of its equity is owned by non-Russian-government entities.

Energomash has recently been reconfirmed as a stand-alone company that has been recognized by Russian Prime Minister Vladimir Putin as a priority aerospace and defense company for the Russian government.

How would you evaluate the performance of ULA and RD Amross on the RD-180 engine contract?

Like any contract, it has had its challenges, but it’s been pretty good. In 2010, we will be delivering the 50th engine under the contract. Twenty-five of the RD-180s have successfully operated on Atlas vehicles — 19 on Atlas 5 and six for Atlas 3 launches. The 25th was the recent launch of Intelsat’s IS-14 commercial telecommunications satellite.

ULA has, I believe, 23 engines in storage at its facility after three engines were delivered in November. In fact, according to the original contract, we are somewhat behind in our delivery schedule, but it’s not substantial.

What does the contract stipulate?

Four engine deliveries per year. We expect to deliver six in 2010 and five in 2011, which will get us back on the schedule. Energomash is capable of delivering up to eight RD-180 engines per year with no added capital expenditure.

Has the U.S. relationship with RD Amross suffered over the years given the ups and downs of U.S.-Russian political relations?

Not from what I have seen. In fact, in 2010, RD Amross will become a fully compliant government supplier and contractor under U.S. government acquisition rules. This will give the U.S. government more oversight into our business. The new administration in Washington has been positive with respect to our business, and at this point we see an improved climate between the two nations.

How will things differ for RD Amross once you are certified as a fully compliant U.S. government supplier?

Under U.S. law we now deliver a commercial product. In 2010, when we are certified under government acquisition regulations, we will have more review of our manufacturing and quality control and other aspects of our business. There will be a lot more reviews. In September and again in December, we had U.S. Air Force visits to Russia to review the RD-180 supply situation, and that sort of review will become more common. So in 2010 we are transforming the company, after 13 years of existence, into a U.S. government-certified supplier.

How do you read this change in status?

We take it as a sign that both ULA and the Air Force are sufficiently comfortable with the RD-180 and with Energomash to put us under the same regulatory regime as other U.S. government contractors.

Will this new regime force you to incur new costs and to revisit the 101-engine contract terms?

Yes, it will increase our cost structure and we will be adding staff to be compliant with the new rules.

Are there any active plans to produce the RD-180 in the United States ?

The ability to produce certain key engine components in the United States has been demonstrated. In 2008 the decision was made not to proceed with full production and we see nothing in the current U.S. Air Force funding profile that would indicate a change in this position. The U.S. Air Force is fully aware of the fact that the longer we go before implementing a production capacity in the United States, the more likely it is that the capability will diminish as people retire and so forth. Again, the comfort level with the current situation is sufficiently high that this is not viewed as an immediate priority.

Have deliveries been affected by the sudden inflation in Russia in 2007 and the supply-chain issues that disrupted other aerospace hardware manufacturers?

Energomash and its partners were not immune, and in this regard the U.S. Air Force and ULA both have been extremely good customers in making prepayments for long-lead purchases of strategic materials. The situation now is that we have a solid supply chain. ULA has had the foresight to do what was needed to keep the supply chain well-oiled. That has allowed us to avoid some of the serious problems we have seen at other companies.

But were you obliged to modify the engine-delivery contract?

Yes, it was renegotiated out of necessity to reflect the high inflation in Russia in 2007 and 2008. We are in final negotiations on the modified contract, and we expect the parties to sign it in 2010. The other event affecting Russian industry was the financial collapse of late 2008. The Russian government had to cover the cash requirements of companies when the lending system froze up. That necessitated working with Energomash to permit advance cash payments to keep the system functioning, and ULA was very supportive in this.

Has repayment by Energomash and its suppliers been on schedule?

Yes, we have been advised that all the loans have been repaid. New investment by the Russian government has been of great help here too. No aerospace company is in what I would call a robust position, but we are now as healthy as we have ever been, and I expect that to continue in 2010 as long as we continue to execute well on the ULA contract.

So Energomash was able to avoid the problems affecting Sea Launch Co., which uses a Russian-Ukrainian launch system and recently filed for Chapter 11 bankruptcy protection?

Yes. Sea Launch highlighted the inflation-related supply-chain problems in Russia. Sea Launch is very dependent on Russian infrastructure and Russian-Ukrainian relations. It has had difficulties that others have been able to avoid because of strong government-industry partnerships — the Soyuz rocket is used for the international space station and is being prepared for use by European governments from Europe’s launch base, the Proton rocket has had commercial and Russian federal government support, and the RD-180 has the Atlas 5 program.

Would you say a commercial launch industry limited mainly to two vehicles — ILS’s Proton and Arianespace’s Ariane 5 — is sufficient over the long term?

There are certainly benefits to having launch suppliers with robust manifests that permit them to launch frequently. Is two the right number? That’s difficult to judge. Proton has demonstrated that it is able to recover quickly from a launch failure, and Ariane 5 has maintained a reputation for quality. Obviously from the RD Amross point of view it would be ideal to have a U.S. vehicle in the mix, but I don’t see that happening in the immediate future.

And for the two main service providers, a duopoly is almost as good as a monopoly.

What are the growth possibilities for RD Amross?

We know that NASA is reassessing its future launch-vehicle requirements, and the idea of using a modified Atlas 5 as a space station cargo-supply vehicle, and potentially man-rating the Atlas 5, is occasionally discussed. Obviously no decision has been made, but the RD-180 engine is derived from the RD-170 that powered Russia’s Buran space shuttle. Buran never became operational but the engine was qualified. We have been discussing with ULA what it would take to man-rate the RD-180 for potential NASA missions.

We have also been permitted by our shareholders to bid for other programs as they arise. For example, we were involved in a bid of the RD-180 to supply Orbital Sciences’ Taurus 2 rocket. We were not the winning bidder, but we did compete for that work.