With no objections from the U.S. Department of Defense (DoD), United Technologies Corp. completed its $700 million purchase of The Boeing Co.‘s Rocketdyne unit, both Boeing and United Technologies announced last week.

The net result of the deal is that Pratt & Whitney Space Propulsion, a division of United Technologies, now sits as the largest supplier of propulsion systems in the United States. The fact that the DoD did not oppose the deal is “a de facto recognition of the need to consolidate in this space, not dissimilar to” Boeing and Lockheed Martin combining their government launch services businesses to form the United Launch Alliance organization (SN, May 9, p. 1), Brett Lambert, executive vice president of strategy, ventures and development at DFI International, told Satellite News. “You can only force competition so far when you are buying so few items.”

For Boeing, the move is another step in its business shift to becoming focused primarily on systems integration. However, Boeing will maintain its relationship with Pratt & Whitney, as the Rocketdyne unit supplies the first stages of the Delta 2 and Delta 4 rockets as well as the main engine for NASA’s space shuttle. Pratt & Whitney already supplies the upper stage engine used in the Delta 4, as well as Lockheed Martin’s Atlas 5 rocket. Pratt & Whitney also supplies turbo pumps for the space shuttle’s main stage and partners with NPO Energomash in the RD Amross joint venture, which supplies the main Atlas 5 engine.

“We still have a strong working relationship with [Pratt & Whitney] and we will continue that relationship, but in a supplier capacity now,” Fernando Vivanco, Boeing spokesman, told Satellite News. Vivanco declined to discuss any specific arrangements made between Pratt & Whitney and Boeing with regard to pricing for future Delta rocket components but said during the course of negotiating the sale, “a lot of those discussions took place.”

No Changes Yet For Rocketdyne

For the moment, the acquisition will have minimal impact on Rocketdyne’s operations, Pratt & Whitney spokesman John Mitchell said. “We are going to continue with the way it is,” he said, referring to Pratt & Whitney’s plans to keep the current Rocketdyne facilities and its employee base intact. As part of the acquisition, Pratt & Whitney will absorb about 3,000 Rocketdyne employees, who will be combined with the 800 Pratt & Whitney personnel. “The idea is the winning combination is there and we are going to move forward with it.”

More Consolidation Coming

With this acquisition, the likelihood of a blockbuster deal in the propulsion industry and the space/satellite component industry in general seems unlikely, but that is not to say more consolidation will not happen as business in the components side of the industry picks up in the coming years.

The Pratt & Whitney acquisition “is a recognition of how the market has played out, particularly the commercial market, and the consolidation of…component suppliers was frankly inevitable,” Lambert said. “As Boeing moves toward a systems integration and systems operation growth strategy, manufacturing the Delta components didn’t necessarily fit [in their current business plan] as neatly as in its previous vision 10 years ago when they began to vertically integrate all of these launch and satellite components businesses.”

For the satellite/space components industry at large, “I think there can still be some consolidation,” Lambert said. “It will probably occur under the level of the Rocketdyne/Pratt & Whitney deal at the component manufacturers level, but I think there is quite a bit of consolidation among the companies that are providing components not just to the launch industry but to the satellite industry in general. There is still a lot of consolidation and savings that can be done and I think it will continue for the next few years.”

Lambert did not name any specific companies he believes are ripe for acquisition, but in general, any company that has “suffered” under the slowdown in the commercial space launch industry and has less than $200 million in revenues “is a prime target for private equity funds to do investments,” he said.

“There is a lot of looking, but there hasn’t been a lot of buying,” Lambert said. “I would expect the buying to being to pick up in the third and fourth quarters of this year, because I think we will start to see a little bit of a rebound on some of the commercial activity,” with satellite operators beginning the replenishment of aging satellites. “I think [replenishment] will initiate the rebound in the commercial business.”

–Gregory Twachtman

(Fernando Vivanco, Boeing, 562/797-4582; Brett Lambert, DFI International, 202/452-6900; John Mitchell, Pratt & Whitney Rocketdyne, 818/586-4564)