SpaceX’s Successful Abandonment Test Expands Lead Over Boeing
It was truly a sight to see.
Last Sunday, SpaceX launched the latest of a seemingly endless stream of Falcon 9 rockets, this time with a state-of-the-art Crew Dragon space capsule. About 90 seconds after the start of the flight, this capsule fired a byte of its own rockets – the SuperDraco thrusters – emerging from the main body of the rocket.
Ten seconds later, the main body of the rocket exploded – on purpose.
Once again, with feeling
Sunday’s test flight marked a redemptive moment for SpaceX. Barely nine months earlier, the company had been saddened to see its experimental “Crew Dragon” spacecraft, which had successfully flown to the International Space Station and back in March, explode on a ground stand during an engine abandonment test preparatory to a second flight.
This unexpected “anomaly” delayed SpaceX’s next scheduled mission to the ISS – “Demo-2” – in which SpaceX planned to send a pair of astronauts aboard a Crew Dragon to the space station year round. last.
But with its success in the even more complex, high-stakes flight abort test – which tested the performance of the same engines, but in mid-flight – SpaceX is now back on track and progressing again towards its goal of to become the first company launch American astronauts into space since the shutdown of the space shuttle program in 2011.
But here’s the curious thing about this space race. In 2014, NASA hired SpaceX and Boeing to do essentially the same tasks: developing a spacecraft capable of safely transporting astronauts to the ISS and back, flight testing that spacecraft, and, assuming everything goes. well, to performat least two and up to six crewed missions to the space station“(each) over a period of several years.
In compensation for this work, NASA agreed to pay SpaceX $ 2.6 billion – and to pay Boeing $ 4.2 billion..
Now both of those numbers have since increased. According to the latest report, SpaceX is expected to earn nearly $ 3.1 billion for its work on the Commercial Crew Program – and Boeing $ 5.1 billion. But one fact remains the same:
For doing essentially the same work as SpaceX, Boeing is paid over 60% more.
Even more intriguing
And it is curious. Granted, in 2014, NASA might have been willing to pay Boeing a premium for its superior reliability track record. At the time, Boeing (or more precisely the United Launch Alliance joint venture with which it shared Lockheed Martin) had the best track record by far, with 100% mission success over a period of almost 100 consecutive launches, while SpaceX had only launched a handful of times.
But today, the situation seems almost reversed. As of mid-January, SpaceX has now racked up an impressive reliability record – 51 consecutive successful launches and almost as many rocket landings (a feat no other company on Earth has managed to match).
In contrast, while ULA increased its record for successful rocket launches to 136, Boeing’s Starliner spacecraft felt a key test last month, when it missed its insertion target, and failed to rendezvous with the space station.
As a result, today it looks like NASA is actually paying Boeing more money for worse results than SpaceX produces.
The result for investors
Granted, Boeing still plans to get back on track. It is not yet certain whether NASA will force Boeing to repeat its unmanned Starliner test flight before proceeding with a manned attempt, which would delay the latter. But I’d bet Boeing will solve its problems – eventually. Starliner may eventually reach the ISS months or even years after SpaceX arrives – but it will.
The most important question for investors is whether by the time Boeing arrives its slowness (compared to SpaceX) will be so embarrassing that NASA will have to refuse to pay Boeing a premium for future space missions. If we consider that Boeing’s space business (“defense, space and security”) is already by far the least profitable of Boeing’s three main business divisions (with operating profit margins of less than 7%, according to the data S&P Global Market Intelligence), I suspect that Boeing could hardly afford the loss of any premium payment that NASA throws.
One can imagine that if things continue as they go and SpaceX widens its lead over Boeing in the commercial crew space race, Boeing could even decide to exit the space segment altogether, rather than limp in second place.
Be careful, I personally don’t expect this to happen. Even a 7% profit margin is always something, and as long as Boeing’s space division remains at least somewhat profitable, there is no need to immediately throw it out the airlock (so to speak). But it’s a possibility – and one worth watching for anyone investing in Boeing stocks.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.