- Summary: Lockheed Martin Corp. (LMT) won the NASA Orion Space Shuttle replacement contract potentially valued at more than $8.1b, surprising a team led by Northrop Grumman Corp. (NOC) and including Boeing Co. (BA), who had been considered the front-runners due to their extensive experience with manned space programs. With NASA dictating many design and performance specifications, the choice apparently hinged primarily on which contractor had the strongest implementation plans; NASA apparently had greater confidence in LMT's procedural controls and capacity to meet budget as well as schedule requirements. This vaults Lockheed into the lead for civilian space efforts following the anticipated retirement of the Space Shuttle fleet. Northrop and Boeing each said they intend to continue to compete for future contracts. Lockheed said the project will generate as many as 2,300 jobs, which could prompt a secondary loss for Boeing; some of its engineers could be lured away to work on the endeavor.
- Comment on related stocks/ETFs: LMT's recent strength, in contrast to the relative weakness of its competitors, seem to indicate that the markets share NASA's penchant for Lockheed over the Boeing/Northrop group. The PowerShares Aerospace & Defense ETF (PPA) offers a balanced exposure to the industry, although LMT has substantially outperformed it as it has its rivals. Jeffery Saul declares aerospace one of his "bull industries." Lockheed's previous effort to build a Shuttle replacement, the X-33, was canned in 2001 due to technological and cost problems. Not mentioned in the WSJ article, Orbital Sciences Corp. (ORB) will be designing the Orion's escape system. ORB was up sharply in late-afternoon trading Thursday. LMT shares jumped initially, but then dropped hard. Could this be a case of, "buy the rumour sell the news?" Trading over the next week should tell the story.
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