Boeing and Lockheed Martin announced May 2 the formation of a joint venture that unites the production, engineering, test and launch operations associated with U.S. government launches of Boeing Delta 4 and Lockheed Martin Atlas 5 rockets. While the joint venture is aimed at the government launch services market, its formation could potentially open the door for Boeing to return to the commercial launch services market, industry observers said.

The new organization, dubbed United Launch Alliance, is structured as a 50-50 joint venture that combines services provided separately by Boeing Integrated Defense Systems’ Expendable Launch System division with Lockheed Martin’s Space Systems Co. The headquarters of the alliance will be located in Denver, CO, and the major assembly and integration operations will be conducted out of Boeing’s manufacturing and assembly facility in Decatur, AL. Lockheed Martin and Boeing each will cover 50 percent of the costs and share 50 percent of the revenues generated by United Launch Alliance, regardless of which launcher is used to fulfill a government contract, Boeing spokesman Walt Rice told Satellite News.

Rice noted that discussions have taken place between the two companies on the formation of a government launch services joint venture several times throughout the past couple of years, but the timing for forming the joint partnership at this time was just right.

“When you look at the overall market, the current budget constraints and the U.S. Air Force‘s intended acquisition strategy for [the third round of launch awards under the EELV contract], it just made sense at this time to do it,” Rice said. The two rocket families were developed under the Air Force’s Evolved Expendable Launch Vehicle contract.

Industry observers generally viewed the joint venture as a positive.

“I think for the companies it definitely was a smart move,” Troy Thrash, division director for space and telecommunications at Futron Corp., told Satellite News. “It was somewhat inevitable that there was going to be a down select to one, so I think they were both hedging their bets. What this does is really push off any sort of immediate to near term need to do the down select because it does save the Air Force some money annually.”

Boeing and Lockheed Martin said the United Launch Alliance would save the government between $100 million and $150 million annually. Rice said that figure was based on “estimated cost savings based on reduced infrastructure costs, synergies between the two companies that can be achieved and reduced overhead.” He added that the Air Force also would save money by having to deal with a single contractor. Thrash noted, however, that while the money looks large on paper, the total amount the Air Force will save equals the cost of two-thirds to one full launch per year.

“I think it is a good move for the Air Force and the government overall,” Brett Lambert, executive vice president at DFI International told Satellite News. “Time will tell, dependent on how the commercial market rebounds, whether it makes sense for the companies in the long run. It puts a lot of things behind them that were causing distractions, and I think they will get some efficiencies in sales and marketing. So in that sense, I think it is good for the customer.”

The companies notified the Air Force of their intentions before the joint venture was publicly announced, Rice said. “We feel like they understand it, but they also support it,” he said.

The U.S. Air Force did not offer any specific reaction to the joint venture.

“The Air Force continues to support efficient and innovative access to space,” Maj. Karen Finn, a spokeswoman for the Air Force, said in a prepared statement. “Providing reliable space launch of national security space at reduced cost to the nation also is critical. We understand that the Lockheed Martin and Boeing agreement is subject to government and regulatory approvals and the Air Force is looking forward to the final outcome.”

If all the regulatory hurdles are cleared, United Launch Alliance could be up and running by the end of the year, according to Jeff MacLauchlan, Lockheed Martin’s vice president of financial strategies.

“The regulatory approvals are really the key closing condition,” MacLauchlan told Defense Daily, sister publication to Satellite News. Until the deal closes, the companies will continue to operate independently and plan to respond to the Air Force’s EELV requirements with independent proposals, he added.

The merger will face both U.S. and European Union (EU) approval processes. On the U.S. side, the Hart-Scott-Rudino Act requires government notification of mergers worth more than $15 million. Companies must file with the Federal Trade Commission and the Department of Justice, providing the government with 30 days in which it can block the transaction or request a more detailed review, which can in turn extend the merger process. If no further information is requested, the merger can proceed.

“The other dimension of the process is whether the EU will elect to review the transaction,” MacLauchlan said. Since the merger leaves does not affected the commercial portions of the launch business, the EU might not see the need to review it, he suggested. “Conversely, they may have some questions,” he said. “That process is a little bit less defined.”

New Commercial Opportunities?

While the new joint venture is aimed at the U.S. government launch services market, the efficiencies realized certainly could trickle down into the commercial launch market, analysts said.

For Boeing, it could potentially mean a return to its Delta 4 to the commercial market. The first Delta 4 rocket, launched Nov. 20, 2002, carried a commercial payload, the Eutelsat W5 satellite. That also was the last time Boeing launched a commercial payload into space. Since then, the Delta 4 has carried two Air Force payloads into space and performed a demonstration launch of its Delta 4 Heavy rocket.

For the time being, the Delta program will remain focused on the government launch market.

“Right now, our Delta 4 team is concentrating on providing the U.S. government with the most capable launch vehicle they can,” Rice said. “That is our main focus now. If there is any change, there will be a change driven by market dynamics.”

And those dynamics do not look like they will shift in a way that will open the Delta 4 to commercial launches anytime soon.

The formation of the United Launch Alliance opens the door for the Delta 4 to return to the commercial launch market “if the commercial market gets a little better than it is today,” Thrash said. “From everything that I have seen and our own forecasts, what we see is the commercial market to remain flat for a while. Unless that turns around, and I do not necessarily see that happening in the near term, I don’t know that there is any reason for [Boeing] to get back into [the commercial launch market].”

For Lockheed Martin, how the efficiencies gained through this alliance translate to savings on its commercial operations are not as clear.

Fran Slimmer, spokeswoman for International Launch Services (ILS), which markets the Lockheed Martin-built Atlas 5 , declined to comment on how the United Launch Alliance will affect ILS operations.

Lockheed Martin spokesman Jeff Adams told Satellite News that the Lockheed Marin is looking to gain efficiencies across the board for its launch vehicle manufacturing business, but did not have any immediate information available on whether those efficiencies would translate to lower costs for the Atlas 5 in the commercial market.

–Gregory Twachtman and Sharon Weinberger (Walt Rice, Boeing, 314/234-2149; Brett Lambert, DFI International 202/452-6904 Troy Thrash, Futron, 301/347-3420; Jeff Adams, Lockheed Martin, 301/897-6308; Karen Finn, U.S. Air Force, 703/693-9089)