The four RS-25 engines were scheduled to fly on the maiden flight of NASA’s SLS rocket, at the company’s facility at NASA’s Stennis Space Center.
Aerojet Rocketdyne
Lockheed Martin plans to buy Aerojet Rocketdyne for a $ 4.6 billion share value, a deal that will add rocket engines and spacecraft propulsion assets to the defense contractor as it competes with the likes of Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin in the growing space industry.
Aerojet Rocketdyne’s business is split between defense and aerospace, with approximately 60% of sales sold to the former and 40% to the latter.
“In the short term, the advantage for Lockheed Martin is on the defense side … and then you buy some optionality in the space markets further up, to ideally become more competitive and defend your position,” Canaccord Genuity analyst Ken Herbert told CNBC.
Lockheed Martin is Aerojet’s largest customer, accounting for approximately 33% of sales. United Launch Alliance, or ULA, makes up an additional 10% of Aerojet’s sales – an additional addition to Lockheed Martin, which owns a 50% stake in ULA as a joint venture with Boeing.
“This is clearly a vertical integration game [Lockheed Martin] and a greater investment in space. The acquisition should complement their space launch operations at United Launch Alliance, enhance their hypersonic propulsion capabilities, and could impact their battlefield and tactical missile operations, ” Bank of America analyst Ron Epstein wrote in a note. to investors on Monday.
Herbert also pointed to the benefits of vertical integration as a catalyst for Lockheed Martin’s acquisition of Aerojet Rocketdyne. While aerospace companies have traditionally had broad networks of suppliers, Herbert pointed out that SpaceX and Blue Origin have managed to build as much in-house as possible to keep costs down.
“Maybe on the side of the government, [Lockheed Martin is thinking] that’s where we need to be more vertically integrated to better compete over time with these companies entering our market that are showing real cost savings through their vertical integration, ”said Herbert.
Lockheed Martin recently highlighted SpaceX as a major competitor, shortly after the private company agreed with ULA in the Pentagon’s latest award of billions in launch contracts.
“We’ve seen SpaceX as an emerging threat [and] they are more than an emerging threat right now, ”Ken Possenriede, CFO of Lockheed Martin, said at the October third quarter earnings conference call.
“But … from the recent games we’ve had with them, we’re actually pleased with the result of where ULA landed versus SpaceX,” added Possenriede. “Going forward, we are confident that we will certainly have the mission capabilities, but we also think we now have a price that is attractive to customers, allowing ULA to get a fair share of the pricing through SpaceX.”
A Falcon 9 missile launches the company’s 14th Starlink mission on October 18, 2020.
SpaceX
While Herbert expects Aerojet to boost Rocketdyne’s missile defense and hypersonic weapons programs, his space company has been on the sidelines of much of the growth in the space economy, as identified by CNBC PRO in November. The company’s diminished lead in the aerospace industry was illustrated in 2018, when a longtime customer ULA chose Blue Origin’s BE-4 engine over Aerojet’s AR1 to power the upcoming Vulcan rocket.
But Lockheed Martin will add several key aerospace products through Aerojet Rocketdyne, which is building the RS-25 engine for NASA’s Space Launch System, the RL10C-X engine for the upper stage of ULA’s Vulcan rocket, and the thrusters for small spacecraft used by Boeing’s Starliner crew capsules and NASA and ULA missions.
Jefferies analyst Greg Konrad noted the similarity between Lockheed Martin buying Aerojet Rocketdyne and Northrop Grumman’s acquisition of missile maker Orbital ATK for $ 7.8 billion in 2018. Both deals represent a leading defense contractor expanding its reach by acquiring a company. take that specializes in rocket propulsion and aerospace.
“We do not expect any issues closing the deal. There will likely be a similar process if Northrop Grumman went ahead with Orbital ATK, with likely some backlash from key customers such as Raytheon and Boeing,” Konrad wrote.
The deal is expected to close in the second half of 2021, with analysts viewing regulatory approval as one of the key risks to the transaction. Read more analysis of Aerojet Rocketdyne’s business here.
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