New York City, New York – (StockNewsDesk) – 08/23/2014 — Seen as an underdog, despite its massive size and financial resources, Boeing Co. has completed a key step in its commercial venture to fly astronauts to the International Space Station, revealed in a Boeing News Release.
Following the contentious disputes between Russia and the US over Russian incursions into Ukraine, an escalating battle of sanctions has broken out. It was Russia’s job to ferry astronauts to the International Space Station, but political developments have made it necessary for NASA to find an alternative.
Boeing was the first to complete a review of its design appropriate to NASA specifications. Although a modest step, it is a necessary ingredient in the battle to put together a winning bid. In fact, it was the only company to complete this step, according to NASA’s timeline. Its competitors for this contract include Elon Musk’s Space Exploration Technologies Corp. (SpaceX) and SNC.
For Boeing, winning this contract is more about proving its engineering benefits rather than anything with a big effect on its bottom line. For the other companies, winning this contract is integral to survival, as they came into creation to fill the void left by NASA’s diminishing budget.
Boeing Space Taxi Model
After severe budget cuts that significantly reduced NASA’s budget, the agency was reliant on Russia to bring US astronauts to the International Space Station. This arrangement worked fine for all parties, until Putin retaliated against US sanctions by barring US astronauts from traveling on Russian rockets. Critics of NASA’s budget cuts were feeling vindicated after the breakdown of Russia and US relations.
Although these bidders were already working to develop plans and prototypes for NASA, this has increased the intensity and urgency of their efforts. SpaceX has successfully tested a reusable rocket that the company claims is superior to current disposable models, as it is cheaper, safer, and more effective.
NASA is expected to approve two of the designs submitted by the bidders sometime in September. Boeing has been the first to submit its completed design review of what it is calling its Commercial Crew Integrated Capability (CCiCap) program. SpaceX and Sierra Nevada have been granted extensions to complete, submit, and review their designs by the end of May 2015. Another company, whose intentions remain mysterious, is Blue Origin, founded and funded by Jeff Bezos of Amazon.com.Boeing is touting its successful submission and favorable feedback from NASA during the review process. Due to this news, most are pegging it as the surprise favorite to win the contract. It goes without saying that one of Boeing’s advantages as a government contractor for decades is knowing how to win these contracts from government agencies. The institutional advantage and wide network of connections gives it a leg up.
In contrast, Musk has complained about the laborious and bureaucratic labyrinth that needs to be navigated to win business from the government. His perspective is that the company with the best engineered product should win the contract. However, NASA insists the competition will be about the technical merits, and Boeing passed the test with flying colors.
While competitors are scrambling to complete their designs, Boeing reports that the cargo module is 96% complete and the crew module is 85% complete. Until their designs are submitted, it is not possible to know how far along its competitors are. Boeing believes it will be able to have a completed vehicle ready for testing by 2017 and it would use the Atlas 5 rocket designed by Lockheed Martin and Boeing.
Boeing has catapulted into the lead, surprising many in the aerospace community. It has placed the pressure on the upstarts who are competing with the company for this important contract. Of course, the difference is that winning this contract could ensure the survival of these entities while, for Boeing this will not have much of a material impact.
Stock Price Impact
As noted above, winning or losing this contract will not impact its earnings at all. Instead, the company sees this as a way to lure top engineering talent. In the process, it would reestablish its credentials as the premier aerospace engineering company in the world by winning a big NASA contract. This would give it the responsibility to transport astronauts to the International Space Station. Additionally, many of Boeing’s best engineers have been leaving the company to work for the startups in the field, and Boeing hopes to reverse this loss of talent.
Despite this positive news, it had little impact on the stock price. Here is the six months, daily chart:
The stock has been range bound for much of 2014 after a spectacular run higher over the last 5 years. The company has experienced higher than expected demand from new orders from surging airlines, but it finds itself struggling to meet this demand, depressing its stock price. In the next few months, whether Boeing can take out its all time high around 140 set in January will be determined by its ability to meet this demand and increase production capabilities.