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One Small Step For NASA, A Giant Leap For Boeing

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About: The Boeing Company (BA), SPACE, Includes: AJRD, LMT, NOC
by: Cestrian Capital Research
Summary

Boeing and United Launch Alliance are due to fly their next NASA Commercial Crew test not earlier than December 17.

Boeing could use an unqualified win - both commercially and technically.

Space is a great theater in which to demonstrate success - many will be looking to Boeing to deliver.

Disclaimer: This article is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this article is not an offer to sell or buy any securities. Nothing in it is intended to be investment advice and it should not be relied upon to make investment decisions. Cestrian Capital Research Inc or its employees or the author of this article or related persons may have a position in any investments mentioned in this article. Any opinions or probabilities expressed in this report are those of the author as of the article date of publication and are subject to change without notice.

NASA Commercial Crew Program - A Quick Backgrounder

Prior to 2011, when NASA wanted to send astronauts to the International Space Station, they sent them up in the 'Space Shuttle' (the spacecraft formally known as the Space Transportation System). During the financial crisis, the Obama administration cancelled the Shuttle program and also cancelled its replacement vehicle program. Cut a long story short, this led to two consequences:

1) Privately-owned launch companies such as SpaceX (SPACE), Northrop Grumman (NYSE:NOC), and United Launch Alliance (a JV between Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT)) stepped into the breach as regards uncrewed launches of satellites and of cargo resupply missions to the space station. This has worked out pretty well. Most Americans would, if asked, expect these missions to be operated by for-profit corporations with the government as the customer. That way ought to lie price competition and efficiency. And that's pretty much what has happened. We've posted previously about the cost-down impact of SpaceX and others.

2) But, when American astronauts need to get to the space station, they have to fly in a Russian Soyuz capsule, atop a Russian rocket, launched from Kazakhstan (which leases the launch site to the Russian state). Given who in fact won the space race in 1969, this is an odd turn of events - particularly given the increasing tensions between East and West right now. In addition, although the Russian hardware has been reliable to date, the systems are ageing. Now, most Americans would not be all that happy about these arrangements.

So, in September 2014, NASA awarded contracts to BA and to SpaceX under the "Commercial Crew" moniker. In each case, the provider is expected to build and operate the spacecraft and booster to deliver NASA astronauts to the space station. Now, NASA has always contracted out all or part of the design and build of spacecraft - you can trace that all the way back to the start of the original Space Race. What's unusual here is the "and operate" part. BA and SPACE are responsible for lighting the rocket and flying the capsule to the ISS, there to rendezvous and dock.

Progress So Far

Like absolutely every spaceflight project ever, the program is late. However, progress is being made by both vendors. SPACE has flown an uncrewed capsule to the ISS, docked, and flown it home to Earth safely; it has also conducted one successful abort test (and one so unsuccessful that they utterly destroyed a capsule). BA has conducted one partly-successful abort test (involving two of three expected parachutes) and is now about to conduct their first "orbital flight test" (you can track this on Twitter under #OFT). This involves lighting a fire under a ULA Atlas V rocket (which, in this configuration, includes rocket motors from Aerojet Rocketdyne (AJRD) - see our coverage of this stock here), separating the Starliner capsule, whipping it around Earth orbit a couple times, lining it up to rendezvous with the ISS, and parking it there for a while before departing. Again, it will be uncrewed.

Boeing Needs A Win

You don't need us to tell you that BA has been embattled of late. The company has, in our view, a hill to climb to re-establish technical and commercial supremacy. It has to prove it can innovate beyond generational improvements, in contrast to the 737 situation; prove it can handle grownup contractual relationships, in contrast to the GBSD nuclear missile situation, and prove it can return to its market-darling status.

Space is always a flagship for nations and commercial providers alike, so BA has an opportunity here to raise its head and energize its staff, customers, shareholders, and supporters.

We'll report back once the flight test is complete. We remain at Neutral on Boeing whilst the uncertainties around the 737 program work their way out.

Graphic: Where US Astronauts Currently Depart Planet Earth. (Source: Google)

Disclosure: I am/we are long NOC, AJRD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are long AJRD and NOC on a personal account basis.