SpaceX Swipes Boeing's Military Space Shuttle Business

The scoreboard this month reads Boeing (NYSE: BA) -- 5: SpaceX -- 1.* So why is SpaceX grinning, and Boeing is groaning?

On Sept. 7, Boeing's X-37B military "drone" space shuttle lifted off from Cape Canaveral on its fifth mission for the U.S. Air Force. (What mission would that be, you ask? Top Secret). But for the first time ever, Boeing -- which built the X-37B -- didn't have a hand in actually launching the spacecraft it built.

This could be the beginning of a bad trend for Boeing.

Meet the X-37 robotic space shuttle. Boeing built it -- and Boeing just lost a chance to launch it. Image source: NASA.

Winning before beginning (to compete)

You see, in all previous launches, X-37B had lifted off aboard Atlas 5 launchers operated by Boeing and its partner in United Launch Systems, Lockheed Martin (NYSE: LMT). For this month's launch, however, the U.S. Air Force awarded the X-37B launch contract to SpaceX.

Now, that news in and of itself isn't a total shock. SpaceX and United Launch Alliance have been butting heads for several months now -- ever since the Air Force certified SpaceX to launch payloads for it, in fact. In one notable clash, in May 2016, SpaceX bid against the Boeing-Lockheed joint venture for the right to launch a GPS satellite for the Air Force. SpaceX bid $82.7 million, or "40% less" than the best price the Air Force had hoped to extract from ULA -- and won the contract. Chances are, if both SpaceX and ULA had entered similar bids to launch X-37B, the result would have been the same.

What was really curious about this contract, though, is that ULA apparently wasn't offered a chance to compete at all. In a published statement, United Launch Alliance asserted that "ULA did not have the opportunity to bid for the Air Force's fifth X-37B Orbital Test Vehicle (OTV) mission." 

Now, when asked by Reuters, the Air Force declined to confirm Boeing's story that the Air Force awarded the contract to SpaceX without soliciting other bids. But assuming the story is true, that would mean that SpaceX did not really "beat" ULA in winning this contract. Given that ULA and SpaceX are the only two space launch companies certified to launch national security missions, and given that ULA was not allowed to bid, the X-37B contract would have gone to SpaceX by default.

What it means for Boeing (and Lockheed Martin)

The big question is "why?" According to the Air Force, the main reason it has certified both SpaceX and ULA to launch USAF payloads is to ensure the service has "flexible and responsive launch options" to choose from when launching its satellites. (A secondary objective, almost certainly, is to lower its launch costs by forcing SpaceX and ULA to compete on price). But if that's what the Air Force wants to accomplish, then why would it not invite ULA to bid for the X-37B contract?

Was it because the Air Force already knows that ULA cannot compete with SpaceX on price? Or does the answer perhaps lie in ULA's creative use of the phrase "did not have the opportunity?" Parsed one way, what ULA might really have been saying was that it didn't have the opportunity -- i.e. ability -- to match SpaceX's prices, and so decided not to bid at all.

Either way, as more than one dozen Air Force space launch contracts, come up for bid between now and 2019, the outlook doesn't look good for Boeing and Lockheed. Whether the Air Force is rejecting the possibility of ULA being able to compete with SpaceX out of hand, or whether ULA is recusing itself, either way, it looks like a lot of money could slip through ULA's fingers -- and into SpaceX's pocket instead.

*By the way, following its successful launch of X-37B this month, SpaceX successfully relanded its Falcon 9 launcher back at Cape Canaveral -- its 16th such successful landing of a used rocket. So the scorecard for landing reusable rockets now stands at SpaceX -- 16: Boeing and Lockheed Martin -- 0.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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