DAILY File Photo|
A Delta IV rocket leaves the Decatur Boeing facility. The plant was a key factor in attracting the United Launch Alliance to Decatur.
Close call for rocket venture
It almost didnít happen; Decatur plant had role
By Eric Fleischauer DAILY Business Writer
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The Pentagon's assertion that Decatur has "the world's most modern rocket manufacturing plant" was one of several factors that persuaded the Federal Trade Commission to approve the United Launch Alliance.
But recently released FTC documents indicate the merger came close to being blocked.
When Lockheed Martin Corp. and Boeing Co. proposed the ULA in May 2005, it looked like a laydown. The FTC documents suggest it was anything but.
The Air Force had already expressed general support for the concept, a joint venture that would consolidate production of Boeing's Delta satellite-launch rockets and Lockheed's Atlas series, when the companies formally proposed it.
Boeing and Lockheed officials predicted federal approval by December 2005. Politicians announced excitedly that the venture, which would make the Decatur Boeing plant on Red Hat Road the sole production facility for all government satellite-launch vehicles, would add hundreds to the Decatur work force.
But 2005 ended and still no word. Boeing and Lockheed spokesmen read from a script that expressed optimism, but gave neither details nor a revised
timeline. The FTC ruled in favor of the venture, subject to public comment, Oct. 3. It imposed several conditions, including substantial oversight by the Pentagon and a requirement that ULA not use its monopoly to discriminate against other satellite producers.
The decision was unanimous, but one of the five commissioners wrote that she arrived at her decision reluctantly, and solely due to the national security issues.
As late as July 6, though, FTC staff were prepared to recommend against the consolidation of the only two Evolved Expendable Launch Vehicle programs, notwithstanding Pentagon support.
In a letter of that date, Michael R. Moiseyev, assistant director of the ULA's bureau of competition, was blunt:
"In short, the joint venture unambiguously will create a monopoly in the market for medium and heavy launch services for the U.S. government. Monopolies almost always lead to higher prices, lower quality and inferior service. ... Here, the competition that would be lost is significant, and the economic benefits that may materialize are unlikely to trump the transaction's harm to competition."
The main benefit touted by Lockheed and Boeing was that the venture would save the government about $150 million a year. Moiseyev was skeptical about the claim and said, "It is unlikely that a significant portion of the savings would be passed on to government customers."
In an Aug. 15 letter, the Pentagon agreed with almost every concern the FTC raised. It for the first time went into detail, however, about the national security issues that Decatur's plant serves.
Undersecretary of Defense Kenneth J. Krieg expressed skepticism on the Boeing-Lockheed claims of financial savings.
"The most negative view of the creation of ULA is that it will almost certainly have an adverse effect on competition, including higher prices over the long term," Krieg said, "as well as a diminution in innovation and responsiveness."
Even assuming those negatives, however, Krieg said the merger "present(s) very unique national security benefits."
The war in Iraq demonstrates the importance of a robust satellite program, according to Krieg's letter.
Precision-guided missiles rely on satellite transmissions, and 67 percent of the missiles used in Iraq are precision-guided.
That compares to 9 percent in the Gulf War, less than 1 percent in the Vietnam War and zero percent in World War II and the Korean War.
The significance of this increased use of missiles relying on satellites is evident in the increased destructive power. To hit a 60-by-100-foot building, the military had to make 3,024 sorties in World War II, 550 in Korea, 44 in Vietnam, eight in the Gulf War and one in Iraq.
Satellites have numerous military applications, the report said. Among them: Navigation. Strategic and tactical communication. Intelligence. Surveillance. Reconnaissance. Weather forecasting. Environmental monitoring. Battlespace characterization.
"The entire warfighting effort," the report said, "takes place under the protective umbrella of timely and accurate space-based missile warning reporting for land and sea based missile defense. All of these satellite systems, providing the support today's warfighter needs, require EELV to reach orbit."
According to the report, launch reliability decreases with low launch rates, a problem plaguing Lockheed and Boeing due to the unexpectedly slow commercial demand for EELVs.
"At current launch rates for the Delta IV and Atlas V systems, the launch rate for each team is in the zone where the failure rate is statistically unacceptable," Krieg said.
Launch failures are disastrous for two reasons. One, the satellites — which cost up to $1 billion — are many times more expensive than the rockets that are supposed to put them into orbit.
From a national security standpoint, though, the delays caused by a launch failure are the gravest problem.
Krieg said, on average, it takes a launch supplier seven months to recover from a launch failure. Krieg described that as "an unacceptably long vulnerability for national security." With ULA, Krieg said, the Pentagon could immediately switch to the other rocket series without negotiating new contracts.
He said the ULA would also allow for a common interface, making the rockets more interchangeable and providing "mutual back-up capability."
Especially in wartime, the need for satellite replacement — and thus launch capability — can be urgent.
"Each satellite is a critical node in its network," Krieg wrote, "and the national security space missions are very sensitive to satellite outages."
Krieg said he was concerned that formation of the ULA would result in the loss of experienced launch workers if some did not want to relocate, for example, from Denver to Decatur. To address this risk, he said, "It is our understanding that the companies will provide retention incentives for key and critical employees to relocate."
One of the incentives for Boeing to enter the ULA was a contractual promise by Lockheed that it would drop a lawsuit accusing Boeing of stealing thousands of proprietary documents regarding its Atlas program.
The Air Force took the allegations seriously, penalizing Boeing by suspending its launches for 20 months and shifting several of its launch contracts to Lockheed.
Ironically, the Pentagon sees information sharing between the two companies as one of the main benefits of the ULA.
"It allows for the incorporation of new manufacturing techniques such as the new friction stir welding techniques (used in Decatur) from the Delta family into the Atlas production process," explained Krieg.
"A single pool of talent," he wrote, "may ... infuse each launch vehicle design with the technical improvements and innovation of its former competitor. ULA's ability to bring the best manufacturing techniques of each company into the Decatur, Alabama, plant should increase manufacturing reliability."
Krieg's arguments apparently won over the FTC. Absent an unexpected snag, the ULA is coming to town.
What is ULA? The United Launch Alliance is a proposed joint venture between competitors Boeing Co. and Lockheed Martin Corp. that combines the two companies' production of satellite-launch rockets. What does it mean for Decatur? If approved, the Boeing Co. plant on Red Hat Road, which employs 630, would add an estimated 250 Lockheed employees. All would become employees of ULA. What comes next? The Federal Trade Commission, at the urging of the Pentagon, gave preliminary approval to ULA on Oct. 3. After allowing 30 days for public comment, the FTC is expected to finalize the order.
— Eric Fleischauer
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