SpaceX Explosion Benefits a Rival Now, but Clouds Future for Both

NEW YORK (The Deal) -- Orbital ATK (OA) might be the short-term beneficiary of a weekend explosion of a Space Exploration Technologies rocket that was headed to the International Space Station.

But fallout from this most recent crash and others before it could hinder Orbital ATK's longer-term efforts to gain share in the launch business, while complicating the outlook for other companies that rely on these rockets.

Overall, there have been three similar missions that have failed in the past few months, thinning critical supply lines to the International Space Station.


SPACEX FOUNDER ELON MUSK

In the near-term, SpaceX's crash could benefit Orbital ATK, as the two primary competitors for a new contract to continue ferrying goods to the space station have now had similar issues and their "respective track records are more equal," Cowen & Co. analyst Gautam Khanna said.

The setbacks could also lead to extra launches under the existing deal, which could help investors get a firmer feel for 2017 earnings.

Some in the aerospace community also think that the weekend crash is a sign that SpaceX is overextending itself as it pushes to master what would be breakthrough technologies such as reusable first-stage rockets. If SpaceX is forced to devote more resources to its fundamental launch business and away from research and development, Orbital ATK and other incumbents would gain more time to develop their own versions of these technologies.

The crash could also delay the initial demonstration flight of SpaceX's ultra-heavy lift rocket, the Falcon Heavy, past its company's end-of-year target. And it is an unwelcome black eye for SpaceX just after the company had won Air Force certification to use its Falcon 9 rocket to launch national security satellites.

But the explosions are a clear reminder that traveling to space is still a dicey undertaking and could cause the National Aeronautics and Space Administration to award contracts to continue to supply the space station to more than just two vendors. Spreading the contract to more vendors would help NASA to mitigate risk, but it would also eat into the potential profitability of the business for Orbital ATK and others.

That contract was expected to be worth $400 million to $500 million annually.

Every contract and every launch is important because there is too much launch capacity chasing what remains a limited amount of business.

Advisory firm AlixPartners estimates that the world has more than double the number of launch operators than what the market can support, the result of subsidies provided by governments that consider domestic access to space a national priority.

Addressing that potential glut was a key argument for why Orbital Sciences and Alliant Techsystems merged: combining launch and satellite components into one vertically integrated firm that would be able to bring down overall costs and win more business.

The explosion is also likely to be a setback for satellite operators such as Iridium Communications (IRDM), Orbcomm (ORBC) and ViaSat (VSAT), which have cargo missions booked on either the Falcon 9 or the upcoming Falcon Heavy.

Raymond James analyst Chris Quilty estimated that SpaceX investigations and corrective actions could take four to six months, with commercial launches potentially further delayed if SpaceX, as expected, gives priority to NASA space station missions once service is restored.

Astronaut Scott Kelly, who is orbiting Earth aboard the space station, on Sunday said via Twitter that he had watched the ill-fated Falcon 9 launch from above, commenting "space is hard."

Indeed. And given the uncertainty, investing in space-based companies can be nearly as challenging as the science itself.

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