ULA Deal Cleared, but Not Final

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  Space News Business

ULA Deal Cleared, but Not Final

By COLIN CLARK and LON RAINS
Space News Staff Writers
posted: 09 October 2006
03:27 pm ET


WASHINGTON — While the U.S. Federal Trade Commission (FTC) has finally cleared United Launch Alliance deal to go forward — with conditions — Boeing and Lockheed Martin still face a mountain of work before the merger of their launch manufacturing and services businesses can be finalized.

“There are over 100 documents to be signed,” Lockheed Martin spokesman Tom Jurkowsky said Oct 6. With the creation of a new company involved, those documents cover a wide range of topics including all aspects of operations, banking, real estate holdings, employee benefits, personnel and myriad other issues, Jurkowsky said.

Boeing spokesman Dan Beck acknowledged in an e-mail Oct. 6 that one major issue facing Boeing that needs to be resolved before the deal is finalized is that the company still does not have any signed contracts with the U.S. Air Force for what is known as Buy 3 of the Evolved Expendable Launch Vehicle (EELV) program.

Boeing sells the Delta launch vehicle, and Lockheed Martin, the Atlas. New versions of those vehicles were developed jointly by the companies and the Air Force in the 1990s under the EELV program.

While the Air Force originally was seeking only one new family of launchers in the EELV competition, it later decided to keep both companies in the business thinking that the booming commercial launch market would give both companies plenty of business and allow the U.S. government to benefit from higher production rates, lower prices and competition between two providers.

When the commercial launch market collapsed in the late 1990s, the government’s launch costs instead went up and both companies complained that was not enough overall business to keep two companies in the market.

The FTC announced Oct. 4 that it was reluctantly clearing the deal to go forward largely because of national security concerns raised by the U.S. Department of Defense, particularly the Air Force, and despite strong concerns that the deal is anti-competitive and represents the creation of a monopoly.

To mitigate the anticompetitive nature of the deal, the FTC directed the new United Launch Alliance (ULA) company to:

  • Cooperate on equivalent terms with all providers of government space vehicles;
  • Provide equal consideration and support to all launch services providers when seeking any U.S. government delivery in orbit contract; and
  • Safeguard competitively sensitive information obtained from other space vehicle and launch services providers.

Industry and government sources said those conditions appeared to be designed to satisfy the concerns of companies that had filed complaints with the FTC about the deal. Northrop Grumman, which manufactures satellites for military and civil government customers had sought assurances that it would not be put at a disadvantage by ULA when it was bidding against the satellite manufacturing units of Lockheed Martin and Boeing, which both sell satellites to government users. Satellite contracts are frequently sold as delivery-on-orbit contracts, which means the manufacturer has to negotiate a launch price with the launch service provider. Northrop Grumman had sought assurances that it would get the same kind of pricing from ULA as Boeing and Lockheed Martin.

“As we have stated in the past, Northrop Grumman is not fundamentally opposed to the proposed United Launch Alliance joint venture,” Northrop Grumman said in a statement Oct. 3. “We have, from the beginning, been concerned about the anticompetitive effect that ULA could have on the satellite and space vehicle businesses. The FTC has just published its proposed Consent Order in this matter and while we anticipate that it will adequately address our concerns, we are still in the process of reviewing it.”

One of the conditions is also intended to make sure the ULA deal does not prevent new launch companies from entering the market for launching government satellites. One company that has that ambition is Space Exploration Technologies Corp. (SpaceX).

“It’s obvious from the letters exchanged between the FTC and the Department of Defense that both agencies clearly acknowledged that the merger is anticompetitive,” said Larry Williams, vice president for international and government affairs for SpaceX. “However, instead of addressing the enormous, tax-payer funded subsidies, the FTC instead chose to rely on the Defense Department’s commitments to address this issue with changes to the EELV acquisition strategy. We would like to accept at face value the Defense Department’s assurances that they have given to the FTC and the Hill that they genuinely intend take the appropriate steps to ensure that emerging competitors such as SpaceX are given an opportunity to compete on a fair and level playing field, and we look forward to working with the Air Force to this effect.”

Documents made public at the time of the press release announcing the conditions FTC was imposing on the deal, showed how much consternation there was on the part of the government.

“The competition that would be lost is significant, and the economic benefits that may materialize are unlikely to trump the transaction’s harm to competition. That being said, we are mindful of the fact that the transaction may produce non-economic benefits that could further the missions of the Department of Defense and other government customers,” Michael R. Moiseyev, assistant director of the FTC’s Bureau of Competition, wrote in a July 6 letter to Pentagon Deputy General Counsel Douglas Larson.

The FTC was not the only place where there was ambivalence about the deal. In an Aug. 15, 2005, letter to FTC Chairman Deborah Platt Majoris, Undersecretary of Defense Kenneth Krieg wrote: “Although the parties assert that the joint venture would generate significant savings for the Department of Defense, our careful review of those savings leads us to conclude that the cost savings, while attractive, are not adequate to support the loss of competition. The transaction does, however, present very unique national security benefits that in the Department’s analysis clearly outweigh the loss of competition.”

Jurkowsky said the companies still believe the deal will save the government about $150 million a year.

Because of all the issues that remain to be resolved, Jurkowsky said it is uncertain how long closure of the deal would take and that no layoffs or major changes for employees are likely to take place in the short term. “Our timetable is to try to get to a date with Boeing as soon as we can. We are not sure how long will take,” Jurkowksy said. “We also have to make sure that we do not do anything that will affect mission success.”