PARIS — Aerojet Rocketdyne looks at SpaceX to its left and Blue Origin to its right and concludes: Freed of our Old Space/defense contractor fetters, many required by legislation, we could be like them.
But it’s a long process, as company Chief Financial Officer Paul R. Lundstrom has been telling investors.
The company is in the middle of a six-year Competitive Improvement Program whose goal is to shed up to $235 million in annual costs — no mean feat for a business with total revenue of $1.8 billion.
It is in the front lines of the annual battle in the U.S. Congress over funding for NASA’s Space Launch System (SLS), which this year so far has accounted for 16% of Aerojet Rocketdyne’s revenue.
SpaceX’s Falcon Heavy rocket, meanwhile, is years behind schedule but may make its inaugural flight this year. If successful, the SLS/Falcon Heavy comparisons may not favor SLS from a U.S. taxpayer perspective.
Aerojet Rocketdyne is competing with Blue Origin, financed by Amazon founder Jeff Bezos, to replace the Russian RD-180 rocket as the main-stage engine for the United Launch Alliance’s Atlas 5 vehicle.
Blue Origin’s BE-4 has been developed with Bezos’s money. Aerojet Rocketdyne’s AR1 is under development with assistance from the U.S. Air Force.
Lundstrom says the media make too much of the AR1-BE-4 competition’s importance to Aerojet Rocketdyne. Because this is not a business that the company now has — unlike the Atlas 5 strap-on booster work, recently lost to Orbital ATK — a win over Blue Origin would be pure upside.
“This is not a make or break for Aerojet Rocketdyne,” Lundstrom said in a June presentation to investors. “I mean, I would love to have it. It’d be tons of volume for many, many years but this is not a make or break. It gets so much press that I think there’s a pretty significant misconception that, ‘Oh my gosh, if AR1 doesn’t go our way, we’re in big trouble.’ That’s absolutely not true.”
Beyond the specific programs, Lundstrom said companies like Aerojet Rocketdyne operate under rules set years ago that neither SpaceX nor Blue Origin need worry about.
Here’s how he put it during an Aug. 9 investor presentation:
Old school, but not by choice
“SpaceX, rightfully so, gets a lot of press. I would say they do a very good job marketing as well. But with commercial entrants into the aerospace and defense market, the rocket business in particular, it’s not just SpaceX. It’s Blue Origin as well and there’s a couple of others; it’s put pressure on some of the old-school, legacy aerospace and defense companies because they don’t bring with them all the decades of cost baggage, frankly.
“They don’t have pension plans, they don’t have environmental liabilities, they don’t necessarily have the infrastructure that is typically required to be a DOD contractor – CAS [Cost Accounting Standards], TINA [Truth in Negotiations Act] compliance, FAR [Federal Acquisition Regulations] compliance — all that stuff they don’t bring with them. And so that’s put pressure on aerospace defense companies like Aerojet Rocketdyne, and we’ve responded.
“You look at what we launched back in 2015, the Competitive Improvement Program. I wouldn’t say that was a direct response to SpaceX and Blue Origin, but it’s certainly helped to move it along.
“The goal is, look, we have to be as competitive as we possibly can be. We have to continue to work to take cost out of the structure. And that’s what we’re doing with the CIP. You look at a business our size, last year I mentioned, we were $1.8 billion. Over the next few years we’re going to take $240 million of cost out of the system. That’s incredible.
“The goal being we’re trying to make ourselves as competitive as we can be within the confines of being a DOD contractor so we can continue to win work going forward.
AR1 vs Blue Origin BE-4
“The RD-180 is a Russian-built engine and it’s the booster engine for the Atlas 5. So today if you look at U.S. DOD national security missions, we’re using Russian engines for those missions.
“Back [in] 2014 when Russia invaded Crimea, there was a congressional mandate that came out that basically said: Look, enough. We can no longer rely on Russian-built engines for U.S. national security missions. So there’s essentially a mandate in place that says, by the time you get to 2019 you have to be using U.S.-built products.
“So it kicks off this competition. The Aerojet Rocketdyne AR1 was designed to be a direct replacement to the RD-180. What that means is, with as a little cost as possible, that engine can directly replace the RD-180, which means the same launch vehicle, same pad, same infrastructure and the same propellant — liquid oxygen/ kerosene fuel booster.
‘Contrast that with the Blue Origin option; it’s a completely new system. It’s also a new engine but it’s a liquid oxygen/methane, which means you need a brand new launch vehicle, you need a new launch pad, you need new infrastructure.
“The goal of the AR1 program was to do this in a very tight cost envelope without a whole bunch of incremental investment required: no new launch vehicle, no new launch pad and you can use the existing Atlas launch vehicle to power these national security missions. With Blue Origin, everything is going to be new.
“How do I handicap it? At this point the press would suggest that Blue Origin and their BE-4 is the heir apparent. If that’s the case and that’s ULA’s and the Air Force’s decision, that’s fine. We support them, they’re fantastic customers, we want them to be successful, we want to partner with them.
“I would independently just say: Who’s going to pay for the launch vehicle and the pad? All that’s incremental cost. Someone is going to have to pay for it. And if getting off that Russian engine by 2019 is the objective, how are we going to meet that schedule if no one is working on that new launch vehicle or all that infrastructure? It’s going to be interesting.
“It looks like the BE-4 is the heir apparent, but we stand by, ready as the backup engine. If we’re selected, which we would love to be, we’ll move forward and hopefully help the U.S. with those missions for many years to come.
Development, then production; Who pays?
“If you look at a rocket engine production program, particularly one that is going to be used for DoD, you need a certified rocket factory. We have one; not everyone does. I’ll just say it like that. So we could produce the AR1 today. Not everybody can do that.
“How difficult is it to do a full-on production program? It’s extremely difficult. I mean we’ve been doing that since the 1950s with the launch of the U.S. space program. Not everybody has. And I’ll just say there are years and years of standard work. Learning and legacy really does help on a run rate production program. Experience matters.”