SpaceX dominates space launch, but Northrop and Lockheed still have a future in space

SpaceX began 2023 with an ambitious goal: flipping the calendar to 2024 to launch its Falcon 9 reusable rockets, Falcon Heavys, and test starships 100 times. Achieving this equates to a substantial 64% year-on-year increase. SpaceX launch rate compared to last year’s 61.

Now, Elon Musk is famous for making big promises that don’t always work out as planned. Currently, as of August 25, SpaceX has actually conducted 58 launches. (So ​​66% of the year complete, only 58% of the way to the target.)

But before anyone complains about SpaceX’s slow launch, consider: So far this year, SpaceX’s two biggest rivals, Europe’s Ariane (a subsidiary Airbus (edc -1.69%)) and America’s United Launch Alliance (a joint venture between Boeing (Ba -0.28%) And Lockheed Martin (LMD -0.04%)) launched exactly twice and once.

In short, while 58 launches puts SpaceX behind its goal, it still has a comfortable lead over its competitors. At this point, it’s clear that Musk’s space start-up has become the world’s dominant private rocket company. But that’s OK for investors in said competitors.

Northrop and Lockheed: Still in the Space Race

Older, more established space companies, longer in the tooth than SpaceX and perhaps a bit slower, can’t keep pace with the upstart in terms of launches. But they still play a role in space: building satellites.

A few years ago, you probably heard about how the US Space Force was developing a new missile tracking system in space. Consisting of „surveillance layers” (for missile detection) and „transportation layers” (for relaying information about missile launches), this „Pervasive Warfighter Space Architecture,” or PWSA, system taps multiple defense contractors to build satellites for each layer.

SpaceX and L3 Harris (LHX 0.17%) It won the top honors for the Tracking Layer, while Lockheed Martin and privately held York Space Systems won the awards for the Transportation Layer. Subsequent awards saw L3Harris retain its monitoring tier contract Northrop Grumman (NOC 0.58%) SpaceX was chosen to replace it in this role. Last year the contract to build 126 „Tranche 1” transport layer satellites was split between Northrop, Lockheed and York — leaving SpaceX out in the cold.

As time goes by, SpaceX seems to be falling further and further behind in this competition, while Northrop and Lockheed are picking up the pace.

$1.5 billion to Northrop and Lockheed

Last week, in fact, the Space Force (technically the Space Development Agency Inside (Space Force) announced that it has selected Northrop and Lockheed to build the next 72 „beta” satellites for its missile detection system. Each company has been tapped to build 36 transport layer satellites for Tranche 2 of PWSA.

Interestingly, the prices These two institutions were provided for different missions. Northrop Grumman was awarded a $733 million contract for 36 satellites ($20.4 million per satellite). Lockheed, however, received $816 million per satellite — $22.7 million, or 11% more — to do the same thing.

It’s not very fair for Northrop, but even the numbers may even out over time. Space tracker SpaceNews reports that Lockheed Martin has won contracts to build 88 satellites to date in both the observation and transport layers, but Northrop Grumman has won the most contracts at 92 (4.5%).

What is the future?

Plus, the Space Force isn’t even done awarding contracts!

According to Space News, a large missile detection satellite contract is still to be awarded for 100 „Alpha” Tranche 2 transport layer satellites. And at an average cost of $21 million per satellite, it could be worth an additional $2.1 billion to the winner(s).

What does the future hold for space investors?

Now, what should space investors take away from all of the above? A couple of points jump out. First, SpaceX’s ultra-low-cost rockets helped the company establish itself as a dominant force in space launches.

SpaceX has built itself into a giant business in space-based communications with its 4,600-satellite (12,000-in-operation) Starlink Internet system — which also has military applications.

That’s great news for SpaceX, but the Pentagon doesn’t want to depend on just one contractor for space, no matter how cheap it works. As a result, these Space Force contracts are expanding to allow SpaceX to specialize in launching rockets, while other companies such as Northrop Grumman and Lockheed Martin have won more satellite work.

At the same time, even on satellites, the Pentagon seems willing to pay some contractors (Lockheed) more to do the same work as other contractors (Northrop) in order to maintain competition among the many defense contractors. That makes sense if the Pentagon’s goal is to keep multiple companies healthy and outbidding each other in the long run.

In the short term, this means that defense contractors will not need to compete Absolutely At the price when bidding for contracts. This would allow higher profit margins for those who win the contracts, as long as the Pentagon is willing to award contracts to even the highest bidders.

Bad news for taxpayers, perhaps. But that’s very good news if you own shares of Lockheed Martin.