Partnership With Boeing In Doubt

Lockheed Martin CFO Chris Kubasik dropped a bombshell Tuesday, when he revealed that the company's board would review the business case for the United Launch Alliance -- the proposed partnership with aerospace rival Boeing for satellite launch contracts -- and what's more, they may decide to spike the entire deal.

Reuters reports Kubasik's announcement hinges on Lockheed's mounting frustration with an antitrust review of the proposed joint venture, as well as concessions required for the deal to move forward -- such as limits on profit margins and investment levels that lawyers for the Federal Trade Commission are trying to impose on both sides of the deal.

"I think there is a possibility that Lockheed could decide not to go forward with the venture," said Loren Thompson of the Arlington, VA-based military research group The Lexington Institute. "They're sending a signal that they're running out of patience."

A source familiar with the situation at ULA told Reuters that "very recently," government lawyers told Boeing and Lockheed they wanted the two companies to invest a large amount of money to fund the venture into the next decade -- just as it appeared the FTC was within weeks of approving the deal. 

Industry insiders believe that Lockheed's frustrations are echoed by higher-ups at Boeing, as well officials inside the Pentagon -- which had earlier given its conditional approval to the deal, based on its interest to have two launch vehicles available to.

Kubasik's counterpart at Boeing, chief financial officer James Bell, said in a Wednesday conference call that while the deal was taking longer than expected... it should be completed by the end of June, at the latest.

Boeing arguably has a lot more at stake with ULA pressing forward than Lockheed does. Crippled by a machinists strike last year and still struggling on its commercial aerospace side as well, Boeing has yet to launch a government satellite this year... and if ULA falls apart, is more likely to cede government launch business to Lockheed, than the other way around.

That would seem to put the FTC -- which is concerned with claims by smaller rocket companies that any joint venture between the two largest aerospace companies, even a limited one, represents a monopoly -- in a hard spot. Approve the deal, and risk just such a monopoly... and if the deal falls through, run the risk of Lockheed having all but a lock on government satellite launches.

Analysts believe it is still in both company's best interests to see ULA become reality.

"Lockheed is trying to close the deal," said defense consultant Jim McAleese, adding the promise of a stable revenue source still made too much sense for both companies to risk losing the deal. "They're warning that it's time to reach closure, approve ULA and get back to the business of launching rockets."

In comments made after Kubasik's announcement, Lockheed spokesman Tom Jurkowsky said it was appropriate for the board to review the business case for the venture -- although Lockheed still believed it would be in everyone's best interest.

"We feel it's appropriate for the board to review and discuss matters such as the impact of the delay on safety, workforce morale, the status of the business case for the joint venture, and the process for closure," he said.

FMI: www.lockheed-martin.com, www.boeing.com