Boeing’s Starliner – Is it time to spin it off? |

The Boeing Starliner finally had its first crewed flight today, joining Space-X as a supplier of lift to the International Space Station for NASA. The good news is that the launch was successful, and the astronauts are safely in orbit. The bad news is that this should have happened seven years ago! The contract to carry passengers to the space station was initially signed in 2014, a decade ago, expecting results within three years. NASA chose two firms to compete and have independent systems, so that in the event of a problem with one, the other company’s product would still be available. Boeing’s Starliner capsule is launched atop the Atlas V rocket, produced by United Launch Alliance, a joint venture between Boeing and Lockheed Market, who produce the aging Atlas V. The capsule from Boeing has more manual flying capabilities than the Space-X Dragon, which has more advanced automation for tasks like docking. It is likely that we will see the astronauts “hand fly” the capsule in a manual docking with the space station tomorrow, just like project Gemini in the 1960s. The Atlas rocket family dates back to the origins of the space program in the 1950s and 1960s. The latest version of the Atlas V uses a Russian engine in one of its stages, and is being phased out, to be replaced with the new Vulcan Centaur rocket from United Launch Alliance. The cost per launch of an Atlas V is about twice the cost of launching a SpaceX Falcon 9 launch, leaving the Boeing offering uncompetitive from a price standpoint. The SpaceX products are also partially re-useable, unlike the older Atlas rockets. Since one of the reasons for having two competing systems was to reduce risk that Russia could shut the US out of the space station because the US had no working rockets. But the Atlas V uses a Russian engine, and that translates to supply chain risk, although the last 16 launches appear to be fully supplied. Can we really call this launch a success? We can, in the respect that it worked. But we cannot call the program a success knowing that it is 7 years behind schedule, and nearly twice the cost of a competitor that has 25 times the manned space flight experience and is already successfully carrying passengers to and from the International Space Station. The Starliner program is not financially transparent at Boeing, being a part of the defense business unit. But two things are known, neither of which bodes well. First, the contract was fixed price, and second, a project that moves out to the right by multiple years is virtually guaranteed cost overruns. Time is money, and supporting delayed programs is expensive, as costs continue and revenues lag. It is likely that the Starliner program is losing money hand over fist. The Bottom Line Space is an entrepreneurial opportunity, as Blue Origin and SpaceX have demonstrated. There is a lot of private equity money in the market that sees potential opportunities in space. The obvious solution is for Boeing and Lockheed Martin to spin out their joint venture and sell to a private equity company. The culture at defense giants isn’t as innovative as an entrepreneurial venture, and this joint venture, perennially late, needs a kick in the pants. We believe that a spin-off might be the best solution for Boeing, which itself is bleeding cash and needs to acquire supplier Spirit AeroSystems and has plenty of other areas that it needs to correct that will also require cash. With this modest success, Boeing now has demonstrated value for its launch joint venture, because it works. In our view, it is time to spin it off.

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