Lockheed Martin’s Aerojet Rocketdyne deal helps it compete with SpaceX

The four RS-25 engines are to fly on the first flight of NASA’s SLS missile, at the company’s facility at NASA’s Stennis Space Center.

Aerojet Rocketdyne

Lockheed Martin plans to buy Aerojet Rocketdyne for $ 4.6 billion, a deal that adds rocket and spacecraft propulsion to the defense contractor as it competes against Elon Musk and Blue Origin’s SpaceX. of Jeff Bezos in the growing space industry.

The Aerojet Rocketdyne business is divided between defense and space, with approximately 60% of its sales to the former and 40% to the latter.

“In the short term, the benefit to Lockheed Martin is in favor of defense … and then you buy something optional in the space markets along the way, ideally to become more competitive and defend your position,” Canaccord analyst told CNBC Genuity, Ken Herbert.

Lockheed Martin is Aerojet’s largest customer, accounting for approximately 33% of its sales. The United Launch Alliance, or ULA, still accounts for 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 for [Lockheed Martin] and a larger investment in space. The acquisition should complement their space launch business at the United Launch Alliance, increase their hypersonic propulsion capabilities and could impact their battlefield and tactical missile business, “he wrote in a statement on Monday. investors, Bank of America analyst Ron Epstein.

Herbert also highlighted the benefits of vertical integration as a catalyst for Lockheed Martin, which acquired Aerojet Rocketdyne. While aerospace companies have historically had extensive supplier networks, Herbert pointed out that SpaceX and Blue Origin have managed to build as much interior as possible to reduce costs.

“Perhaps from the government, [Lockheed Martin is thinking] there we need to be more vertically integrated to compete better over time against these companies entering our market, which demonstrates real cost savings through their vertical integration, ”Herbert said.

Lockheed Martin recently highlighted SpaceX as a major competitor, shortly after the private company faced ULA in the Pentagon’s latest billion-dollar award in launch contracts.

“I saw SpaceX as an emerging threat [and] they are more than an emerging threat right now, “Lockheed Martin’s chief financial officer Ken Possenriede told the company’s third-quarter conference call in October.

“But … of the recent competitions we had with them, we were actually pleased with the result that ULA landed in relation to SpaceX,” Possenriede added. “In the future, we’re confident that we certainly have mission-capable skills, but we also believe we now have a price point that’s compelling to customers that will allow ULA to get its fair share of awards over SpaceX.”

A Falcon 9 rocket launches the company’s 14th Starlink mission on October 18, 2020.


While Herbert expects Aerojet Rocketdyne’s missile defense and hypersonic weapons programs to give a boost, his space business has been on the brink of space economy growth, as identified by CNBC PRO in November. The company’s declining advantage in the space industry was exemplified in 2018, when longtime ULA customer chose Blue Origin’s BE-4 engine over Aerojet’s AR1 to power the upcoming Vulcan rocket.

But Lockheed Martin will add more key spacecraft through Aerojet Rocketdyne, which builds the RS-25 engine for NASA’s space launch system, the RL10C-X engine for ULA’s Vulcan missile top stage, and the small spacecraft control Boeing Starliner crew capsules, as well as NASA and ULA missions.

Jefferies analyst Greg Konrad noted the similarity between Lockheed Martin buying Aerojet Rocketdyne and Northrop Grumman’s $ 7.8 billion acquisition of missile maker Orbital ATK in 2018. Both transactions represent a top defense contractor expanding. coverage area by acquiring a company specializing in rocket propulsion and space.

“We do not expect any problems with the completion of the transaction. There will probably be a similar process as Northrop Grumman went through Orbital ATK, with some return from key customers such as Raytheon and Boeing,” Konrad wrote.

The agreement will be concluded in the second half of 2021, with analysts stressing regulatory approval as one of the main risks to the transaction. Read more analysis of the Aerojet Rocketdyne business here.

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