SpaceX started off 2023 with an ambitious goal: to launch its fleet of Falcon 9 reusable rockets, Falcon Heavies, and experimental Starships 100 times before the calendar flipped to 2024. Succeeding in this would equal a substantial 64% year-over-year increase in the rate of SpaceX launches, compared to last year's 61.
Now, Elon Musk is pretty famous for making big promises that don't always work out quite as planned. At present, as of Aug. 25, SpaceX has actually conducted 58 launches. (So with 66% of the year complete, it's only 58% of the distance to the goal.)
But before anyone complains about SpaceX launching too slowly, consider: So far this year, SpaceX's two biggest rivals, Europe's Ariane (a subsidiary of Airbus(OTC: EADSY)) and America's United Launch Alliance (a joint venture between Boeing(NYSE: BA) and Lockheed Martin(NYSE: LMT)) have launched precisely twice and once.
In short, even though the 58 launches put SpaceX behind its target, it still maintains a comfortable lead over its rivals. At this point, it's obvious that Musk's space start-up has evolved into the world's dominant private launch company. But for investors in said rivals, that's OK.
Northrop and Lockheed: Still in the space race
Older, more established space companies, longer in the tooth than SpaceX and perhaps a bit less nimble, may not be able to keep pace with the upstart in terms of launch cadence. But they still have a role to play in space: building satellites.
A few years back, you may have heard about how the U.S. Space Force was building a new missile tracking system in space. Comprising both "tracking layers" (for missile detection) and "transport layers" (for relaying information about missile launches), this "Proliferated Warfighter Space Architecture," or PWSA, system would tap multiple defense contractors to build the satellites for each layer.
SpaceX and L3Harris(NYSE: LHX) won the first awards for the tracking layer, while Lockheed Martin and privately held York Space Systems won awards for the transport layer. Subsequent awards saw L3Harris retain its tracking layer contract, while Northrop Grumman(NYSE: NOC) was chosen to replace SpaceX in this role. And last year a contract to build 126 "Tranche 1" transport layer satellites was split among Northrop, Lockheed, and York -- with SpaceX left out in the cold.
As time goes on, it seems SpaceX is falling further and further behind in this contest, while Northrop and Lockheed are picking up speed.
$1.5 billion for Northrop and Lockheed
Just last week, in fact, the Space Force (technically the Space Development Agency within the Space Force) announced that it had picked Northrop and Lockheed to build the next 72 "beta" satellites in its missile detection system. Each company was tapped to build 36 transport layer satellites for Tranche 2 of the PWSA.
Curiously, the pricesthese two companies were awarded for their work differ. Northrop Grumman was awarded a contract worth $733 million for 36 satellites ($20.4 million per satellite). Lockheed, though, got $816 million -- $22.7 million, or 11% more, per satellite -- to do the exact same thing.
That doesn't sound quite fair to Northrop, but over time the numbers may even out. As space watcher SpaceNews recapped, across both tracking and transport layers, to date Lockheed Martin has won contracts to build 88 satellites, but Northrop Grumman has won contracts for 92 (4.5%) more.
What the future holds
Plus, the Space Force isn't even done handing out contracts!
According to Space News, there is still at least one more big missile detection satellite contract still to be awarded, for 100 "alpha" Tranche 2 transport layer satellites. And at an average per-satellite cost of $21 million, that one could be worth an additional $2.1 billion to the winner(s).
What the future holds for space investors
Now, what should space investors take away from all of the above? A couple points jump out. First, SpaceX's ultra-low-cost rockets have helped the company build itself into the dominant force in space launch.
SpaceX has also built itself a gigantic business in space-based communications with its 4,600-satellites (going on 12,000) Starlink internet system -- which also has military applications.
This is great news for SpaceX, but the Pentagon probably doesn't want to get too dependent on just one contractor in space, no matter how inexpensively it does the work. Thus it appears that these Space Force contracts are getting spread around so as to effectively have SpaceX specialize in launching rockets, while other companies such as Northrop Grumman and Lockheed Martin win more satellite work.
At the same time, even in satellites, the Pentagon seems willing to pay some contractors (Lockheed) more money to do the same work as other contractors (Northrop) are doing, in order to maintain competition among multiple defense contractors. That makes sense if the Pentagon's goal is to keep multiple companies healthy and bidding against each other over the long term.
In the short term, what this means is that defense contractors won't necessarily need to compete entirely on price when bidding for contracts. So long as the Pentagon is willing to award contracts even to more expensive bids, this should permit fatter profit margins for those who win contracts.
Bad news for taxpayers, perhaps. But it's pretty good news if you own shares of Lockheed Martin.
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