FTC Approves Creation of United Launch Alliance

WASHINGTON -- The U.S. Federal Trade Commission (FTC) voted 5-0 Oct. 3 to approve the proposed merger of the government launch services businesses of Boeing and Lockheed Martin. In its consent decree, the commission imposed three conditions on the deal.

Boeing sells the Delta launch vehicle, and Lockheed Martin, the Atlas. Once the deal is finalized after the two companies comply with the consent decree, they will finalize a 50-50 joint venture that will consolidate the production, engineering, test and launch operations associated with U.S. government launches of both rockets.

The FTC said in a press release that its consent decree directs the new United Launch Alliance (ULA) company to:

- Cooperate on equivalent terms with all providers of government space vehicles;

- Provide equal consideration and support to all launch services providers when seeking any U.S. government delivery in orbit contract; and

- Safeguard competitively sensitive information obtained from other space vehicle and launch services providers.

Industry and government sources said those conditions appeared to be designed to satisfy the concerns of companies that had filed complaints with the FTC about the deal. Northrop Grumman, which manufactures satellites for military and civil government customers had sought assurances that it would not be put at a disadvantage by ULA when it was bidding against the satellite manufacturing units of Lockheed Martin and Boeing, which both sell satellites to government users. Satellite contracts are frequently sold as delivery-on-orbit contracts, which means the manufacturer has to negotiate a launch price with the launch service provider. Northrop Grumman had sought assurances that it would get the same kind of pricing from ULA as Boeing and Lockheed Martin.

"As we have stated in the past, Northrop Grumman is not fundamentally opposed to the proposed United Launch Alliance joint venture," Northrop Grumman said in a statement Oct. 3. "We have, from the beginning, been concerned about the anticompetitive effect that ULA could have on the satellite and space vehicle businesses. The FTC has just published its proposed Consent Order in this matter and while we anticipate that it will adequately address our concerns, we are still in the process of reviewing it."

Space Exploration Technologies (SpaceX) of El Segundo, Calif., had asked the FTC in October 2005 to reject the merger or, failing that, at least require Boeing and Lockheed Martin to accept a consent decree relinquishing their virtual lock on Air Force launch business.

"While it obviously protects big satellite makers like Northrop, it appears to do very little to ensure free and fair competition in the launch vehicle market," said Elon Musk, president and chief executive officer of SpaceX.

SpaceX is developing a launch vehicle dubbed the Falcon 9 that it intends to use to compete for business launching satellites built for the U.S. government.

Lockheed Martin and Boeing have insisted that by combining their Atlas and Delta businesses they will be able to reduce the cost of meeting the national security and civil expendable launch vehicle needs of the U.S. government.

The FTC press release made clear the commission's concerns about competition, saying the joint venture would violate antitrust laws and "is likely to cause significant anticompetitive harm." But the FTC said the Pentagon concluded that "the unique national security benefits from the joint venture would exceed any anticompetitive harm."

The FTC release also said the Pentagon believed that "ULA will improve launch vehicle reliability through a single work force that will benefit from an increased launch tempo and because ULA will integrate Boeing's and Lockheed Martin's complementary technologies."

The Pentagon made clear its support for the deal in spite of any reduction in competition. "The merger between Lockheed Martin and Boeing presents very unique national security benefits that, in the department's analysis, clearly outweighs the loss of competition. For that reason, we have concluded that the joint venture offers advantages over the status quo," Pentagon spokeswoman Cheryl Irwin said Oct. 3.

Boeing spokesman Dan Beck said the company "expects that the remaining requirements will be successfully resolved to enable the transaction to be completed and ULA operations to begin."

A number of hurdles remain to be overcome, Beck said. Boeing and Lockheed still have to go about creating the business, setting up accounting systems and all else that goes with creation of a large company.

"There are some details relating to Buy 3 of EELV [Evolved Expendable Launch Vehicle] that we need to work out with the Air Force, and we are in continual discussions with them on those," Beck said. He declined to elaborate on what those issues were. He added that Boeing hoped to "get this going as quickly as possible."

Maj. Regina Winchester, a spokeswoman for the Air Force, said Oct. 3 that EELV Buy 3 was set up to function independently of ULA.

The FTC decision is subject to public comment for 30 days.

The value of each company's investment in the ULA is valued at "more than $530.7 million," the FTC said in its press release.

Once the deal is formally closed Michael Gass, vice president and general manager of Lockheed Martin Space Transportation, will become ULA's president and chief executive officer. Dan Collins, vice president of Boeing Expendable Launch Systems, will serve as chief operating officer. Each company will be able to appoint three directors to a six-member board of directors.

ULA headquarters will be in Denver with most engineering and administrative activities consolidated at Lockheed Martin's Space Systems Company facilities. Major assembly and integration operations will be located primarily at Boeing's manufacturing and assembly facility in Decatur, Ala. As part of the joint venture, the companies' launch facilities at Cape Canaveral Air Force Station in Florida and Vandenberg Air Force Base in California will provide flexibility for meeting launch requirements on East and West coasts.

ULA is expected to have about 3,800 employees at sites in Colorado, Alabama, Florida, California and Texas, according to a Lockheed Martin press release.

Following the closing of ULA, Boeing and Lockheed Martin have agreed to dismiss all civil litigation against each other related to a previous competition for launches under the Air Force EELV program.

Jeremy Singer contributed to this report from Boston.