Daniel Murphy
Chairman and Chief Executive Officer
Alliant
Techsystems
A
lliantTechsystems (ATK) expects its sales to nearly double in 2008, from $2.1 billion to $4.1 billion, due in part to a $1.8 billion NASA contract won earlier this year to develop the main stage of the space agency’s planned Ares 1 crew launch vehicle.
Since ATK builds the space shuttle solid-rocket boosters on which the Ares main stage is based, that contract award did not exactly come as a surprise. But with the shuttle fleet retiring in 2010, ATK is counting on additional gains in the NASA space exploration arena to replace that lost revenue and sustain its growth into the future. The company is keeping a close eye on legislation that would provide $1 billion in emergency funding to NASA next year to help it recoup costs associated with the Space Shuttle Columbia accident.
While ATK recently lost the competition to build the Ares 1 upper stage, the company has high hopes for NASA’s heavy-lift Ares 5 launcher that is expected to follow, according to Daniel Murphy, the retired U.S. Navy admiral who took the helm of Minneapolis-based ATK in 2003. Satellites and other launch vehicles also figure into ATK’s growth plans.
So do acquisitions, and Murphy intends to use ATK’s strong cash position – about $260 million in free cash flow this year – to add small- to medium-sized companies to ATK’s ammunition, launch and mission systems operating groups. He’s also in the hunt for something substantially larger.
Murphy spoke recently with a small group of reporters, including Space News staff writer Brian Berger, at ATK’s Washington office.
Where does NASA rank in terms of your Capitol Hill lobbying priorities
?
Right at the top.
When I go over to the Hill, I talk to every one of the key decision makers to voice an industry opinion on why this $1 billion reconstitution approved by the Senate and under consideration by the House is so essential to the space exploration program. Without it, NASA will continue to incur substantially more risk than it
historically has accepted. As a case in point, I tell them about ATK losing the Ares 1 upper-stage
competition to Boeing on cost when we beat them in all other categories. This is the paradigm we are forcing NASA into. I’m not saying Boeing’s proposal was not absolutely satisfactory. But it’s just startling that suddenly
cost, which was not even in the request for proposals
as one of the top considerations,
trumped the rest. To me, that’s an indication of funding risk.
How did ATK, which prides itself on being low cost, get |underbid
?
The only way to explain the price difference is a much more generous Boeing investment in the program than we can afford. Generally speaking, if we are competing on an even playing field with one of the giants in the industry and our solution is the same as theirs, we’re never going to win
because they have deep pockets. It’s very much a part of how companies win. A $100 million investment for a $60 billion company is quite a bit different than a $100 million investment for a $4 billion company. But this is what drives our innovation. It forces us to come up with a different approach.
How does the Ares upper-stage loss affect your NASA prospects?
I believe we are in a very strong position going forward into the Ares 5 program. I don’t think this loss has hurt us a bit.
I would guess that most in industry would have protested the award. But that’s not us.
Is ATK serious about moving into the launch services business?
We’ve invested $30 million in developing our own small launcher and we started that initiative two years before Operationally Responsive Space meant anything. We saw it coming. There is going to be a new market for small satellites. But what’s the point of building an inexpensive small satellite if you have to spend $100 million to launch it on a Delta 2?
This is a two-part solution. One is the launch vehicle and the other is the small satellite itself. So we acquired Swales Aerospace earlier in the year to gain that foothold in small satellite development and manufacturing and we are using our own solid propulsion heritage to develop the launch vehicle capability.
What lift capability and price point are you shooting for?
Less than $25 million per launch, all in, for about 900 kilograms to low Earth orbit. The current price for the low end is probably between $35 million and $45 million.
When will ATK start marketing a small launcher
?
We are years away from that. We are taking a crawl, walk, run approach. We are somewhere between
crawl and walk at the moment. A year-plus ago we launched our first suborbital prototype rocket and next June we will launch our second suborbital with a NASA payload, the Hypersonic Boundary Layer Experiment. We gave NASA a heck of a deal – which is free – because we need to earn our spurs in this area.
How do you compare ATK’s approach to that of other companies seeking to offer low-cost launches?
You’ve got companies run by entrepreneurs who have invested hundreds of millions of dollars of their own. So I get asked “how do you think for $30 million to $100 million you are going to do that?” And I answer “because we own in our inventory billions of dollars of product that’s already been paid for.” By stitching together our entire family of motors, from the Star
kick motors that help satellites reach their final orbits
to the reusable solid-rocket motors being used for the space shuttle, we expect to be able to compete.
Keep in mind that none of these new commercial companies have been successful yet. I’m sure they will in the end. They’re no dummies. But these guys have to start from scratch, whereas we’ve already got 60-70 percent of the capability we need in our historical kit.
What’s your long-term strategy for the launch business?
Our long-range plan is to enter every step of the market assuming success in the prior step. We are not going to go to a medium-lift Delta 2 equivalent until we have really nailed down this first stage and proven our ability to do it.
Orbital Sciences is developing the Taurus 2 as a Delta 2 alternative. Are you concerned about
entering that market too late?
I don’t think it’s ever too late because what we will do is come in with a more attractive price point. And if we can’t do it, Orbital will own the market. And I do not envision that we will be ready to compete in that area for a number of years. We’re closely aligned with Orbital. We provide all the propulsion for them. This is a major step for them and I wish them well.
Is ATK in the hunt for acquisitions?
Yes. I have challenged all three of ATK’s group presidents to identify acquisition targets under $500 million that would help grow their part of the company. In parallel, we are examining a large acquisition that would form a fourth lane to the company. By large, I mean in the $2 billion-plus range. Ideally, it would be very much based on what we do now, but serve a very different market. We are very, very highly sensitive to the federal government.
Can you be more specific?
ATK is looking hard at six to eight
potential targets. You won’t see us buying an electronics company. You probably won’t see us buying a sensor company. It will be something different and possibly a bit unexpected. Preferably it will have a significant international content.
Why is the international aspect
so important to ATK?
Only 7
percent of our sales are international. Yet there is an entire overseas market that we don’t have exposure to in commercial aviation or satellites because of U.S. export control policy. The International Traffic in Arms Regulations (ITAR) restrictions
on satellite technology are killing the aerospace industry. You cannot sell anything to do with satellites to anybody overseas. In order to get into the international satellite market you have to have your development offshore. We came close to acquiring a really good company and in the end the board decided not to sell. That company’s Canadian. But we are looking hard at Europe; we are looking hard at Canada.
What opportunities
do you see in foreign satellite sales?
Right now what’s happening internationally, outside of Europe, is that small, developing nations such as Malaysia and Thailand have decided it’s imperative for
national esteem to have their own satellites. So there is a growing, very significant international market for small simple satellites. We can’t participate in that now because of ITAR restrictions.
