Main Engine Cut Off - T+241: ULA on the Market

Starting point is 00:00:00 Hello and welcome to Main Engine Cutoff, I am Anthony Colangelo and I want to kick around a story that Eric Berger had last week. He's got three sources saying that United Launch Alliance is being shopped around the market to find a potential buyer of the company. As a little background, the United Launch Alliance is a joint venture between Boeing and Lockheed Martin. They fly the Atlas, Delta series of rockets, and soon Vulcan. Obviously huge players in the U.S. Department of Defense launch market here in the U.S., the U.S. Department of Defense launch market here in the U.S., but also they just sold almost 40 launch vehicles to Amazon to fly Project Kuiper satellites up over the next several years. And

Starting point is 00:00:52 we'll dive into the Amazon side of this as well. I just want to kick around a couple ideas and thoughts around who may be purchasing United Launch Alliance if this does come to fruition. And I guess that's the first spot to start, is that this is not a for sure thing right it has not been disclosed publicly eric burger got these sources uh from his own network and uh this stuff could fall apart and frequently does fall apart so nothing may ever come of this you know um it is interesting that it's being shopped around it's not terribly surprising that it's being shopped around. It's not terribly surprising that it's being shopped around, especially as over the years, we've seen interest in ULA kind of wax and wane from the parent companies. Boeing's gone through some rough times recently. Lockheed, less so. Lockheed's in a much better position overall, I would say. terms of the launch side, they've been more interested in launch than Boeing over the years. Not only here in ULA, Lockheed was the one going out and selling Atlas 5 launch commercially.

Starting point is 00:01:58 They also have invested in interesting companies like Rocket Lab, AVL. So there's an interesting difference between the two. But certainly it's a good time to shop it around if you're not so interested in launch. This is kind of the last couple of years of ULA being a serious section of the market, right? SpaceX has certainly got the run of the place commercially of late and NASA science missions of late. But ULA is currently sitting in the top slot on the National Security Space Launch Program that we talked about last week on the show. They've got 60% of the launches in phase three uh blue origins not flying new glenn yet area and six is still having trouble coming online so the the new era of the bigger launch vehicles um obviously starship relativity's turn are still a ways off as well in terms of huge commercial market uh players but for right now, ULA has kind of got the run on the place on anything that's not SpaceX. So while Amazon did buy a bunch of launches from Arianespace and Blue Origin, they bought a ton of launches from ULA and they're the ones that

Starting point is 00:02:57 are probably going to fly sooner than the other ones just based on what we're looking at in the market generally right now. So if you're looking for a time to sell this section of your business, it's a pretty good time to. They're in a really good spot or in a very attractive position that someone might be interested in. So what's interesting is the history here. If you go back to 2015, in September 2015, Aerojet Rocketdyne made an offer to buy ULA for about $2 billion, and it never happened. So I think Boeing and Lockheed, they were not interested at the time. This was a weird time for Aerojet as well. So this was about a year on from ULA selecting Blue Origin to supply BE-4 engines for Vulcan rather than the AR-1 engine from Aerojet Rocketdyne for that service. So Aerojet made an offer to buy ULA and I guess,

Starting point is 00:03:47 you know, turn that vehicle into an AR-1 machine. And that didn't come to fruition. So whether it was the price wasn't right or something else was happening there behind the scenes, that never came about. And here we are just a couple years later, Aerojet Rocketdyne has been acquired by L3 Harris for $4.7 billion. So now they're going into the L3 ecosystem and Vulcan getting pretty close to flying with the BE-4 engine, Aero 1, not really ever seen again after that time a couple years ago. Now, at the time, Aerojet said that their bid started at $2 billion, but would go higher if their due diligence that they would do shows that it should have gone higher. And here's Aerojet being purchased for $4.7 billion on $2.3 billion of annual revenue.

Starting point is 00:04:37 ULA is probably in a similar range. General ballpark seems to be about that size of a purchase price if this does actually happen. So just to give you a real good sense of size, they are similar size. So let's just run through the list of people that might be interested in buying ULA and kick around some ideas around each of them. So starting with the parent companies, you know, I don't think Boeing would be interested in buying out Lockheed's side. Boeing's had their times recently through all sorts of different things

Starting point is 00:05:10 going wrong there. They don't seem particularly interested in launch. I don't really see that being likely. I do see it going the other way. If anything, I would see Lockheed buying out Boeing's side and having a little more freedom to not have to deal with this kind of dual parenting of the company, which has always put them in a weird spot. You know, even CEO Tory Bruno sometimes went out and talked about vision for the future, but he's not completely in charge of that vision for the future because there is this structure where both sides have to agree on the general roadmap and kind of find the common denominator of what they're both interested in investing in. And that has, from the outside at least, appeared to kind of hamstring the company itself in being able to

Starting point is 00:05:49 drive its own future and invest in newer and innovative ideas that might put them in a different section of the market. So that is something that if Lockheed did have interest in going back heavy into the commercial launch side of the industry. You know, with the new era of Vulcan here, maybe they want to buy it all in-house. They've got ties to ABL and Rocket Lab already, so maybe they're seeing what they could do in launch, and this feels like the right time to buy Boeing out and reform around some sort of future vision. I could see that being the case, but it still doesn't seem like the most likely option in my eye. If anything, I would say maybe if Lockheed is interested in that, this is the

Starting point is 00:06:32 right time. And I'm not just saying this because I have a prediction in the off-nominal universe that Lockheed would buy Rocket Lab this year, but maybe this is the right time to sell ULA to somebody who's interested in buying it and getting in more serious position with ABL or Rocket Lab that you already have a line in on. You know, and as I remarked to Jake, like this is kind of like a sports management situation. You kind of send that veteran player off to make their championship run towards the end of their career, but you're getting some new draft picks and some fresh upstarts to rebuild around.

Starting point is 00:07:04 If you're if you giving me the two scenarios for Lockheed Martin, I kind of feel like they might lean towards that ladder and let ULA go off and do its own thing somewhere else. But, you know, I wouldn't be shocked if ULA was purchased out by Lockheed Martin entirely. Now, just to keep it focused on that kind of military-industrial complex side of things, L3 Harris, I mentioned, bought Aerojet Rocketdyne or is in the process of acquiring them. I wouldn't be shocked if L3 Harris bought ULA. You know, maybe they see a lane here to buy Aerojet Rocketdyne, buy ULA. It would be funny to jam them together, given their recent history of ULA turning away from the AR-1 engine, turning away from the solid rocket boosters to go

Starting point is 00:07:45 with Northrop Grumman solid rocket boosters. But Aerojet still does make the upper stage engine for Vulcan. They just sold a ton of RL-10s to ULA to use as the upper stage. So, you know, there is some parts of the company that still work together and maintain, you know, working relationships. So does L3Harris have a desire to take both of these companies and create a new launch services wing that contains both of them? Maybe there is something where they maybe look in the future to drop the Northrop Grumman solids and move back to Zerodent Rocketdyne, bring it all in-house again, slowly move in that direction overall. That could be the case. Or maybe L3 just wants to continue growing. Their name's L3 Harris. They

Starting point is 00:08:26 keep acquiring companies and tacking on bits of name here. So they are a huge defense contractor. If they want to keep growing their business, ULA is certainly an attractive entity to do that because they not only have a bunch of launches already manifested, they've got that huge part of phase three or phase two, and they've got a hand in, I think I said phase three earlier. I meant phase two then, but they're certainly looking towards phase three on the ULA side. Uh, so, um, if L3 wants to continue to grow that section of their, of their business, this is a great way to do that as well. And, you know, I don't think there would be a problem with Aerojet Rocketdyne ULA being merged into one company. Um, but there's always that ever-present uh interesting problem of would this be allowed to go through i think this would

Starting point is 00:09:10 more than uh any of the other ones especially in this case right it's not like um ula is going from not owned by a military industrial complex contractor to that this would be a new thing right they're owned by boeing and Lockheed right now. So it's maybe less of a worry than it would be in other cases where one of these kind of contractors buying a company. But that's certainly something to worry about from the L3 side. I wouldn't see something like Northrop Grumman being interested in ULA. Northrop has kind of been off and on with launch services over the years in terms of their commercial fit. They obviously have a big propulsion business in the defense side.

Starting point is 00:09:50 They do still sell a good amount of launch vehicles. Antares is on the chopping block, but they do have this new partnership with Firefly where they're working on what is effectively a Firefly beta as a first stage for Antares. So they are kind of leaning in that Firefly direction, and I don't see them being interested in something like ULA. And certainly there are other companies in the similar sphere, Raytheon and whatnot, that are just kind of the same category in my mind of like, you know, boring typical defense contractor stuff that might happen, and I wouldn't be entirely shocked. It would be less enthusing than some other options we'll talk about. But certainly those are potentials. There is a potential for private equity to be interested in this kind of market as well. You know, we've seen Firefly get

Starting point is 00:10:35 bought up by private equity, AE, industrial partners. There's been a couple of different holding companies over the past couple of years acquiring different sets of space companies. You know, I don't know if I was, obviously, I don't do private equity, so maybe my opinion doesn't really matter here. I don't know that I would jam Firefly and ULA together in a room and say, figure it out, come up with something amazing. So I don't really think it would be AE Industrial Partners. They probably got their launch bucket full with Firefly at the moment.

Starting point is 00:11:08 But there certainly could be another private equity player that wants to get into this. And, you know, in their mind, maybe they see, well, we'll acquire ULA now, while they are kind of one of the two options in this bigger end of the market that are actively flying. And we'll see if we can, you know, beat out the rest of the market by sheer first mover, second mover advantage before all these new players get going? Can we kind of stifle out the competition by unleashing ULA from the Boeing-Lockheed joint partnership kind of thing and seeing what they can do as their own entity with a little bit of funding to boost that and say, Tori Bruno and team, you've been under this hierarchy for years.

Starting point is 00:11:45 If we gave you a blank check here, what would you do? And could you make a sufficiently strong run for a commercial market under that circumstance? That's a definite possibility that private equity might be interested in that kind of thing. But still not the most fun option. Most fun option would be that Amazon is interested in buying ULA. It is weird. And I've kind of, over the past couple of days, gone back and forth on whether this is something that we would see. But Amazon just bought 38 Vulcan launch vehicles over the next 5, 10 years or whatever it is for Project Kuiper.

Starting point is 00:12:24 And they certainly got insight into the company during those negotiations. They bought some launch vehicles from Blue Origin, some new Glenn flights, they bought some Ariane 6 flights, they bought 38 Vulcan flights. So they have a lot of insight into this market at the moment. They've got relationships with these companies now. And there are reasons that i think this makes sense and reasons that i think this does not make sense but let's just kind of randomly go through them as a sheer dollar amount let's just look at that first right amazon bought 38 flights on vulcan and these flights are the biggest variant of vulcan. They have six solid rocket boosters. So I don't know

Starting point is 00:13:05 if we know a price for that launch vehicle yet, but let's just conservatively say, and this is a way underestimate if I'm, if I've kind of read the tea leaves enough on pricing, but let's just for easy math, say it's a hundred million dollars. And again, I think that's super conservative. It's probably much more than that, but even at $100 million per flight, a fully loaded Vulcan flight, six solid rocket boosters, right there, that's almost $4 billion. It's almost one Aerojet Rocketdyne of cost for the launch vehicles themselves. In addition to that, Amazon was going to be kicking in money to help ULA bump up their infrastructure to support as many flights as they're going to need for in money to help ULA bump up their infrastructure to support as many flights

Starting point is 00:13:45 as they're going to need for Project Kuiper. So they're going to be building additional ground support hardware, additional, what is it, the crawler that would get the vehicles out to the pad so that they can have a dual flow of Vulcans down at Cape Canaveral. I think it was another building to process a second Vulcan as well. So there's all this additional investment that could total a billion dollars pretty quickly. So if you're sitting there, if you're Amazon, you're sitting there, you're looking at committing $5 billion over to ULA over the next five, 10 years. And to buy them is either $5 billion or even $6, $7 billion, something in that range. It starts to look kind of attractive. Why don't we just buy the company? Then we get the run of the place. It's no longer just a cash

Starting point is 00:14:32 off our books, but it's an asset that we have and there's going to be revenue coming in elsewhere. We've got these DOD contracts right now. We've got some hopefully contracted out to us in a couple of years. We could sell our launch vehicles to other places. There's potential to make money there and not just, you know, take $5 billion and flush it down the drain on launch services for right now. And then, you know, that's just the first set of Project Kuiper. They're going to have more satellites to fly in the future to replenish the Constellation. So not to mention what they're going to need 10 years from now in terms of launch. It starts at the scale that Amazon's operating at. And the fact that they bought the most vehicles from ULA

Starting point is 00:15:10 in that initial announcement of launch contracts, it's not an incredible jump to make to go from where they are to why don't we just buy them. And Amazon is an infrastructure company. They've got an online storefront, but they also run half the internet infrastructure. They own planes. They've got these deals with Rivian for these new delivery trucks. They've got their own delivery fleet. They are an infrastructure company when it comes down to it. And if they see this space constellation sector of, you know, what's coming up in their, you know, interesting

Starting point is 00:15:46 line items in the future as a huge part of that infrastructure, securing access to that is also a huge thing that they would be interested in. So, you know, for the company that owns everything, one of everything, and looking at their future, if this is where it's going, it would make sense to ensure that that capability is there and that you are not kind of at the, uh, at the, uh, at exposed really to what a competitor might want to impose on you. So it might make sense to own your own company that's capable of a similar level of, uh, capacity. And that's not even to mention the fact that, you know, Amazon has had eyes on department of defense contracts over the past couple years there was a huge thing on the uh you know on the jedi contract that they went back and forth microsoft and a bunch of stuff but they have

Starting point is 00:16:34 not been you know completely like dod free over there for the years so maybe they see well this does give us some additional lobbying power it gives us some additional ties to the DoD. There's just a lot of interesting stuff to consider there. And Amazon is a company that's already committing about this amount of money towards ULA and knowing what their ambitions tend to be overall. It's kind of interesting. And a lot of people say, well, what about Jeff Bezos? What about Blue Origin? Number one, Blue Origin is as likely to buy ULA as SpaceX is or as I am. There's no way that they are buying ULA. I don't see that existing in any world that is close to reality. And people say, all right, well, then Jeff Bezos owns two companies. And

Starting point is 00:17:16 it's like, well, yeah, whatever. He doesn't really have that kind of power at Amazon anymore. I'm sure he does to some extent, but he's not as involved in Amazon anymore. And Amazon themselves, you know, if Blue Origin were to buy ULA, that provides no benefit to Amazon because there's a huge firewall between those parts of the companies. Amazon still would have to buy services from Blue Origin. So that doesn't really benefit Amazon's Project Kuiper at all. So I think the most direct way to benefit that would be for Project Kuiper executives to do some math on an app again and say, oh, we're kind of spending one ULA on ULA. Why don't we just spend that one ULA worth of money on having ULA instead of just paying them that money over the next five or 10 years?

Starting point is 00:17:58 So, you know, interesting times. I think that, again, I go back and forth whether I think that's likely or not. If you catch me every 30 minutes, I'll probably tell you the opposite answer. So I'm pretty up in the air on that. We'll see as more news comes out about this. If it does indeed come to pass that they are being acquired, whoever's acquiring them, it's going to make an interesting couple of weeks of show. So I'm sure we'll talk about it more in hopefully the near future, but it's probably going to

Starting point is 00:18:23 be a while. Let's be real. Before I get out of here for the day, I want to say thank you to everyone who supports Main Engine Cutoff over at mainenginecutoff.com slash support. There are 856 of you supporting the show every single month. I'm so thankful for your support. I've also re-indexed the way that I'm doing the Patreon accounting here, changed a couple settings on Patreon to adopt some of the newer things they offer. Mostly, like, subscription billing for all people, so whenever you sign up

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Starting point is 00:19:07 you feel like you should be, send me an email and we'll sort it out. But this episode of Manage a Cutoff was produced by 35 executive producers. I'm also randomizing these names now to make it a little bit more fun to see where in the list you will fall. So be prepared for a new list of names here. Ready for it? Thanks to Matt, Russell, Pat, Warren, Lee, Chris, Frank, Joel, Lars from Agile Space, George, Benjamin, Pat from KC, Tim, David, Ashnott, Moritz, Steve, Eunice, Tyler, Bob, Don, Aerospace, Rob, Theo, and Violet, the Astrogators at SCE, David, Chris, Fred, Simon, Andrew, Jan, Donald, SmallSpark Space Systems, Ryan, and four anonymous executive producers. Thank you all so much for your support, for dealing with my long-winded run-up there, too.

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Main Engine Cut Off - T+241: ULA on the Market

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