United Launch Alliance Gains Regulatory Clearance For Takeoff

The U.S. Federal Trade Commission (FTC) Oct. 3 granted anti-trust clearance to the United Launch Alliance (ULA), a joint venture that will combine the government launch operations of Boeing Co. and Lockheed Martin Corp.

The clearance remains subject to compliance with a consent order that both parties have approved and which will govern certain activities of the ULA, Boeing and Lockheed Martin upon closing of the transaction, Boeing said. The approval is the final step in the government’s regulatory process, but the transaction still awaits its completion. Lockheed spokesman Tom Jurkowsky said "we’re very pleased with the decision on Tuesday, and that was obviously a first step. We want to move the ball forward, and to do that we needed that decision by the FTC." He explained that before closing, both companies’ lawyers have to review "100-plus documents that need to be signed [which] cover a whole range of ULA’s operations, including banking, employee benefits, real-estate holdings, et cetera. That said, our objective is to set a date for closing" though he declined to suggest any timetable for completion.

ULA will be an equal partnership combining separate services currently performed by each Boeing Integrated Defense Systems’ Expendable Launch Systems division and Lockheed Martin’s Space Systems Company. Michael Gass, vice president and general manager of Lockheed Martin Space Transportation, will become president and CEO of the ULA. Dan Collins, vice president of Boeing Expendable Launch Systems, will serve as COO. Each company will appoint three members to a board of directors.

The ULA was created in May 2005 when Boeing and Lockheed Martin entered into an agreement to create a joint venture to combine the production, engineering, test and launch operations associated with U.S. government launches of Boeing Delta and Lockheed Martin Atlas rockets. The joint venture is intended to reduce the cost of expendable launch vehicles used for critical national security and NASA missions.

Under the agreement, both Boeing’s Delta and Lockheed’s Atlas rockets will still be produced by the alliance, with the U.S. Air Force as its primary customer.

Any separately negotiated but outstanding launch contracts for the companies will be assumed by the ULA, Jurkowsky said.

"Be it a Delta or Atlas, it will be transferred or novated to ULA," he said, with novation being stipulated in the Federal Aquisition Regulation, or FAR. "The government has to agree to that in advance, which of course they’ve done."

The primary obstacle to the merger was its creation of a virtual monopoly. Concern was expressed within both the U.S. Department of Defense and FTC about eliminating competition in still another segment of a military market which has seen defense-industry consolidation since the 1990s. Private-sector players Northrop Grumman and Space Exploration Technologies also raised issues about fair competition after the proposed venture, and the nonpartisan watchdog Project on Government Oversight (POGO) warned of a bad deal for taxpayers.

Jennifer Gore, POGO’s communications director, said "we feel there ought to be competition in defense contracts. We’ve gone before Congress in the past about this. We think it will reduce competition, slow innovation and create a monopoly in the space-launch industry. I hear that there’s a concern in the FTC that they won’t be able to regulate it properly. How do we know that costs are being held down? The concern is just the fact that we don’t know. Without saying that it’s guaranteed not to, we all know that in capitalism when there are fewer competitors it’s less likely that costs will be held down. That said, it’s obvious it’s going to go forward. There’s very little political will to prevent it from going forward."

Lockheed’s Jurkowsky said that cost savings from the ULA is anticipated to save $150 million a year, and that "as far as innovation is concerned, I don’t mean to be flip, but [Boeing's and Lockheed's personnel] are very smart and indeed rocket scientists. I dare to say there won’t be any lack of creativity in the labor force to make up ULA."

He added that among mandatory conditions outlined in the consent order is the stipulation that when either Boeing or Lockheed contract to deliver a government satellite, the ULA must cooperate on equivalent terms with all providers of space vehicles.

"They can’t favor the satellite of Lockheed or Boeing during any satellite procurement," Jurkowsky said. "These concerns were addressed from the Air Force to the [Department of Defense] and FTC. The whole review was complex and extensive, with all financial technical issues reviewed, including the economic relations between the companies."

Throughout an estimated three-year consolidation period, the joint venture is expected to represent a total of approximately 3,800 jobs distributed between ULA’s headquarters near Denver, the launch facilities in Capa Canaveral, Fla., and other facilities in Alabama, California and Texas. Overall, it is expected that between 500 and 600 jobs will be reduced, though not immediately and "only occur after a measured transition process that doesn’t risk mission success for cost savings."

- J.J. McCoy

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