Boeing & Lockheed Merge Rocket Divisions
After nearly 15 months of off-and-on negotiations, Lockheed Martin Corp. and Boeing Co. said on May 3, 2005 that they will merge their struggling government rocket businesses. The companies said they expect the joint venture to generate $1.5 billion to $2 billion in revenue per year from the government and save it $100 million to $150 million a year. The firms have a similar joint venture to manage the day-to-day operations of NASA’s space shuttle program.
The deal must be approved by the Pentagon and U.S. and international regulatory agencies. If approved, it is expected to close by the end of the year (in fact, it closed in October 2006)…
The joint venture – to be known as the United Launch Alliance – will end a bitter two-year legal battle between the Pentagon’s largest contractors in which Lockheed accused Boeing of cheating to win rocket launch work. It also eliminates competition in a market that includes launching weather satellites for the National Oceanic and Atmospheric Administration, science satellites for NASA, spy satellites for the National Security Agency and communications satellites for the Air Force.
Both Boeing’s Delta rockets and Lockheed’s Atlas rockets will continue to be produced at Boeing’s Decatur, AL facility, while Lockheed’s Denver, CO office will serve as the headquarters and house the engineering and administrative functions. The combination will require some layoffs, but from the government’s perspective it’s critical to maintain the two separate launch technologies and hardware families. “Should there be a problem with either,” said Jeffrey D. MacLauchlan, Lockheed’s Vice President of Financial Strategies, “the other is available as a backup resource.”
Lockheed and Boeing also agreed to drop countersuits over a 1990s rocket launch competition wherein Boeing has now admitted that some of its employees had proprietary Lockheed information. Those 2003 revelations prompted a lawsuit from Lockheed, a criminal investigations that has led to two indictments so far, a 20-month launch suspension from the Air Force, and the transfer of seven rocket launches worth about $1 billion total to Lockheed.
Wahington Post, May 3, 2005: Boeing, Lockheed Join Rocket Divisions
DECEMBER 2005 UPDATE: A Reuters article on December 20, 2005 notes that:
“Both companies had hoped to finalize the venture by year’s end, but it is still being reviewed by the U.S. Federal Trade Commission and the Defense Department, dimming the chances for its completion this year.”
Meanwhile, The National Taxpayers Union remains unhappy with the merger. The source of the problem? The government’s EELV program:
The source of the problem, Gessing contends, was that from the EELV’s very inception in 1995, the two firms appeared “to have significantly underbid” to secure the initial contracts. Subsidies such as “assured access payments” soon followed, yet it became clear that Lockheed and Boeing would experience perpetual losses on EELV. The latest arrangement would give the two companies a sole-source “sustainment capability” contract – an indication, in NTU’s view, that “competition is giving way to permanent taxpayer subsidies.”
OCTOBER 2006 UPDATE: The US FTC approved the merger in October 2006, subject to certain mutually-agreed conditions.
JANUARY 2007 UPDATE: See DID’s coverage of future EELV-related contracts: “EELV Contracts: After the Merger“