Proposed Launch Alliance Seen as Precedent Setting

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  Space News Business

Proposed Launch Alliance Seen as Precedent Setting

By MICHAEL FABEY

posted: 24 October 2005
11:38 am ET


More is riding on how the U.S. government handles the proposed marriage of the space rocket divisions of Boeing and Lockheed Martin than how the military and civilian agencies launch their satellites .

Many industry analysts see the proposed deal as a merger to monopoly, and if the government rubber-stamps the arrangement, it will send a message that such deals are acceptable.

In a time of shrinking U.S. defense budgets and tougher markets, more businesses could try for similar arrangements — cutting down competition for military work and taking away the leverage that such competition would give Pentagon program managers to negotiate deals, according to analysts.

And once the union is complete, it could prove financially, logistically and operationally difficult to dissolve, observers say.

“It takes the ability and decision for the down-select out of the hands of the Air Force,” one former Pentagon official said.

Engineering and administrative work for the United Launch Alliance joint venture would be combined at Lockheed Martin Space Systems in Denver. Most assembly and integration work would be done at Boeing’s manufacturing and assembly plant in Decatur, Ala.

The move was pushed by the U.S. Air Force, which hopes to save money while preserving two sources of rockets for launching military payloads.

Boeing and Lockheed Martin officials expect the joint venture to bring in annual revenues of $1.5 billion to $2 billion. The officials say the move would save the government between $100 million and $150 million a year, but declined to pinpoint where they believe the savings would come from.

As soon as the proposed deal was announced in May, analysts differed on whether the merger would be a monopoly.

Pierre Chao, a defense industry analyst at the Center for Strategic and International Studies, a Washington think tank, said it was, and that it could be a road map for other contractor deals, especially in shipbuilding, aircraft development and other businesses that are asset-intensive, low volume and require lots of capital.

But Loren Thompson of the Lexington Institute, a defense think tank and consulting firm, said the rocket business represents a special case, and any decision in that industry would not necessarily bleed over into other deals.

Other companies in the space realm, though, worry that regulators might be too short-sighted in their review by concentrating solely on the impact of the merger on the launching of rockets.

Officials with Northrop Grumman, Los Angeles, point out that Boeing and Lockheed also compete in satellite work. Northrop worries that one “unintended consequence” of the merger is that it could give the satellite divisions of Boeing and Lockheed Martin an edge in gaining contracts.