Elon Musk’s SpaceX Fights for Military Market Access

There’s a custom in Washington that U.S. defense contractors don’t talk trash about their competitors, at least not in public. After fiercely competing for multibillion-dollar Pentagon contracts, the winner often placates the loser with a piece of the action. When Lockheed Martin (LMT) was awarded the contract to build the F-22 fighter jet, it hired Northrop Grumman (NOC) to build the plane’s radar. Boeing (BA) won the contract to build the Air Force’s KC-46 tanker plane and asked Northrop and Raytheon (RTN) to contribute key components. Everyone ends up happy. It’s how it’s always been done.

Elon Musk couldn’t care less how it’s always been done. The chief executive officer of the fledgling rocket maker Space Exploration Technologies—SpaceX for short—is seeking to break into the $68 billion Pentagon satellite launch market. But Musk, better known as the prickly, detail-obsessed CEO of his other company, Tesla Motors (TSLA), isn’t bothering with niceties to help ease his way into the club. Instead, in a series of visits to the capital this year, he’s blasted the defense establishment, saying he can build better rockets for less money than traditional aerospace companies and accusing the military of illegally shunning bids by outsiders—namely, him.

SpaceX, based in Hawthorne, Calif., has already shown itself to be a serious contender in space. In 2012 it became the first private company to dock an unmanned supply ship at the International Space Station. It’s one of several companies developing vehicles for NASA that are capable of transporting astronauts to the orbiting lab, with the goal of ending the U.S. reliance on Russia for those rides. In 2013, Musk won a battle with Jeff Bezos’s rocket company, Blue Origin, to lease an historic Kennedy Space Center launchpad in Florida. Yet the Pentagon hasn’t approved SpaceX for lucrative military work.

Which explains why Musk is becoming a familiar presence in D.C., where he and a small army of lobbyists are pressing SpaceX’s case—and taking shots at the competition. In March, Musk told members of Congress that the government should be wary of the exclusive contract for satellite rocket launches it awarded to United Launch Alliance (ULA), a joint venture of Lockheed and Boeing. He pointed out that ULA’s rockets use engines made in Russia. “In light of international events, this seems like the wrong time to send hundreds of millions of dollars to the Kremlin,” he told reporters at the National Press Club on April 25. Three days later, SpaceX sued the Air Force in federal court, accusing the service of creating a satellite launch monopoly.

Photograph by Red Huber/Orlando Sentinel/MCT/Getty Images

Musk is aiming to force the Pentagon to reverse its contract with ULA to launch 36 military satellites. ULA says it costs about $225 million to put a satellite in space. SpaceX says its Falcon 9 rocket can do it for about $100 million per launch. “SpaceX is not saying that these launches should be awarded to us,” Musk said at the press club. “If we compete and lose, that’s fine, but why were they not even competed? That just doesn’t make sense.” ULA CEO Michael Gass says no company at any price can compete with its record of 68 successful launches in a row.

“Elon Musk is a genuine outsider,” says Loren Thompson, an analyst with the Lexington Institute, a defense research group, and a consultant to companies including Lockheed. “He is a disruptive influence who will probably change the way business is done in the space sector.”

The acrimony between SpaceX and the defense establishment intensified in May, amid the crisis in Ukraine, when Russia announced it would no longer export rocket engines to the U.S. for military launches, leaving ULA without an important supplier. Russian Deputy Prime Minister Dmitry Rogozin also said his country will withdraw cooperation from the space station after 2020.

ULA says Russia’s announcement won’t affect the Pentagon contract because it has a two-year supply of engines on hand and one of the company’s two rocket designs doesn’t rely on the Russian manufacturer, NPO Energomash. Nonetheless, ULA all but blamed Musk’s public remarks for Russia’s decision to stop selling to the U.S. “It affirms that SpaceX’s irresponsible actions have created unnecessary distractions, threatened U.S. military satellite operations, and undermined our future relationship with the International Space Station,” spokeswoman Jessica Rye said in an e-mail. SpaceX spokesman John Taylor declined to comment on Musk’s relationship with rival corporations.

Musk has a penchant for picking fights with competitors or anyone else who gets in his way. He ridiculed New Jersey Governor Chris Christie after the state declared in March it wouldn’t allow Tesla to sell electric cars directly to the public. “The rationale given for the regulation change that requires auto companies to sell through dealers is that it ensures ‘consumer protection,’ ” Musk wrote on a company blog. “If you believe this, Gov. Christie has a bridge closure he wants to sell you!” Last September he told SpaceNews that he didn’t believe Bezos’s Blue Origin was capable of building a manned spacecraft within five years. “Frankly, I think we are more likely to discover unicorns dancing in the flame duct,” he said. Blue Origin declined to comment.

Defense companies, however, aren’t accustomed to public spats such as this, says Jim Maser, a former SpaceX president and former vice president of Rancho Cordova (Calif.)-based GenCorp (GY), which owns Aerojet Rocketdyne, a maker of rocket engines. “The traditional organizations are trying to learn quickly and trying to adapt,” he says. “I don’t know how it’s going to play out, but it’s certainly entertaining.”

James Thurber, director of the Center for Congressional and Presidential Studies at American University in D.C., cautions that Musk’s confrontational approach could make him an outcast in Washington. “When you start pushing big boys around, people may not get mad, but they’ll get even,” Thurber says. “Doors will close, and it will make it much more difficult for him.” This doesn’t appear to worry Musk. Unlike other defense companies, SpaceX can afford to make a few enemies, says Jeff Foust, a senior analyst at Futron, a consulting company specializing in aerospace and technology. SpaceX builds its own rockets, engines, and spacecraft, and doesn’t need to link up with other major contractors. “Among the big aerospace companies, the company you’re competing against today you might be partnering with tomorrow,” Foust says. “SpaceX isn’t like that. They’re not jeopardizing any conceivable business relationship that they might have.”

Plus, Musk’s tough-guy approach may be working. Already, the billionaire’s efforts to open the rocket market and cut government costs have gotten the attention of influential lawmakers, including Senate Majority Whip Richard Durbin, an Illinois Democrat and chairman of the appropriations defense subcommittee. “He built a company that’s now a credible company,” Durbin says. “There ought to be more competition.”

And even as Musk presses on with his lawsuit against the Air Force, the Pentagon is spending about $60 million to certify SpaceX for satellite launches, a first step toward allowing the company to compete for contracts. “We’ve got folks busting their butt to get SpaceX certified, despite what everything in the media seems to say,” says Lieutenant General Charles Davis.

The Air Force is evaluating three SpaceX launches to see if the company warrants certification. If it passes, Musk’s demands to be taken seriously in the Pentagon will be harder to ignore. “Depending on what the court rules or what sort of settlement he reaches, the Air Force may decide, ‘Yes, we have to do business with him,’ ” says Foust, the defense analyst. “They may not like him personally, but if he delivers, they’ll have to accept that.”

29 May 2014 | 11:03 pm – Source: businessweek.com

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