As Boeing Struggles To Fix Its Airliner Business, Elon Musk Is Eating Its Lunch In Space


Chronic delays and billions in overruns have set back the company’s space programs while nimbler rivals pose a longer-term threat.

For embattled Boeing, one thing that went right last year was NASA’s Artemis I mission. The aerospace giant’s Space Launch System, the most powerful rocket yet to fly, propelled a mannequin-filled crew vehicle to the moon and back in a dry run for a return of Americans to the lunar surface.

Sure, the Space Launch System was four years behind schedule and came in at a 30% higher cost than the $9 billion initially budgeted to develop it. But Jim Chilton claims it as a win for Boeing’s space division, which he’s headed since 2016. “Last year we tasted a lot of success,” he told Forbes. His highlights include an unmanned test flight of Boeing’s Starliner capsule, which docked at the International Space Station as Boeing seeks to prove it can fulfill a NASA contract to ferry astronauts and cargo back and forth to the outpost, and the launch of the first two of a new class of software-defined commercial communications satellites that Boeing developed.

But like the Space Launch System, Chilton’s successes come with asterisks: they were both also years behind schedule, and Boeing has booked almost $1 billion in anticipated losses on the NASA ferry program, known as Commercial Crew, since 2019, when a software flaw resulted in the first test flight failing to make it to the space station, an embarrassing L for Boeing.

Meanwhile, the other company in the Commercial Crew program, Elon Musk’s SpaceX, has completed five flights to the space station since 2020 and last year was awarded a contract for eight more. SpaceX also knocked Boeing off its longtime perch as NASA’s second-largest contractor based on annual spending, raking in $2 billion from the agency in fiscal 2022. (No. 1 is Caltech, which runs NASA’s Jet Propulsion Lab.)

Over the past three years, Boeing’s top executives have been focused on resuscitating the company’s airliner business following the deadly crash of two new 737 MAX jets and the cratering of air travel during the coronavirus pandemic. That’s left them with little attention span or financial resources to address deep problems in the company’s Defense and Space division, which is heavy on declining legacy programs dating back to the Cold War and new ones which it underbid to win. Through the first three quarters of 2022, Boeing Defense and Space racked up $3.65 billion in operating losses.

On the space side, observers say Boeing has struggled to adapt to a new universe of brash startups, led by SpaceX, that are making cheaper, smaller satellites for deployment in low-Earth orbit, sapping demand for the expensive, bus-size satellites that have been the bread and butter for Boeing and other established manufacturers.

SpaceX is also leading a wave of new rocketmakers that are launching those payloads into orbit at lower prices.

Boeing’s rocket joint venture with Lockheed Martin, United Launch Alliance, which once had a lock on sending large satellites into space for the U.S. government, has lost a big share of the market to SpaceX, with Jeff Bezos’ Blue Origin preparing to enter the fray. Last year, SpaceX staged an eye-popping 61 launches to orbit its Starlink satellites and payloads for commercial and government customers. The Boeing-Lockheed Martin team logged eight.

Boeing “built their space business for a world that no longer exists,” said Chad Anderson, managing partner of the venture capital firm Space Capital.

In November, Boeing said it would collapse Defense and Space’s eight business units into four, with space lumped into a segment with munitions and maritime undersea systems. Chilton, who will step aside in February to become a senior advisor, said the reorganization will cut the number of senior executives and drive decision-making and resources to the team level.

New competition could also threaten the Space Launch System, Boeing’s cash cow. Nicknamed the “Senate Launch System” for its origins in 2010 as a pork-barrel program to preserve jobs with the Space Shuttle winding down, NASA procured the rocket with “cost-plus” contracts – totaling $13.8 billion for Boeing so far – which means the contractor is guaranteed its expenses will be covered, plus a profit. Critics say that’s encouraged cost overruns. NASA’s inspector general has pegged the cost of a single Artemis launch at $4.1 billion, which he characterized last year as “unsustainable,” with total spending on the program projected to top $90 billion by 2025. For reference, NASA’s budget this year is $25 billion.

“This is a sucking chest wound on NASA and their ability to actually advance planetary science and lunar programs,” said Chris Quilty, founder of the space -focused financial services firm Quilty Analytics.

SpaceX, meanwhile, is developing a reusable heavy rocket, Starship, to fulfill Musk’s vision of colonizing Mars. NASA has given SpaceX a fixed-price contract to build a lunar lander variant for Artemis III that would rendezvous with the Lockheed-built Orion crew vehicle above the moon and take astronauts down to the surface. Many space exploration advocates believe that Starship will be able to do the same job as Boeing’s Space Launch System for a sharply lower price and keep NASA on a path to return to the moon and prepare to send astronauts to Mars.

Boeing has a history in spaceflight going back to the first moon landing, but it bulked up its space business in a big way through acquisitions in the late 1990s, including Space Shuttle maker Rockwell’s space operations and McDonnell Douglas, whose Delta rockets were a workhorse for Pentagon launches. When Boeing completed the acquisition of Hughes Electronics’ satellite manufacturing business in 2000, it boasted the deal made it the world’s largest space company, with space-related annual revenue of nearly $10 billion.

But by 2016, revenue in its Network & Space Systems division, which also included some terrestrial businesses, had declined to $7 billion. Since a 2017 reorganization that lumped space programs together with more defense assets, it’s become more difficult to track Boeing’s fortunes in space. The company declined to discuss financial details with Forbes.

Boeing’s satellite business started to fade in the second half of the last decade, with publicly reported deliveries, which peaked at ten in 2012, falling to zero in 2020. Orders have dropped industrywide for big geosynchronous telecom satellites amid the “cord-cutting” that has hurt the direct-to-home TV business, while new players have begun building constellations of hundreds of small satellites in low-Earth orbit to provide broadband service like SpaceX’s Starlink, OneWeb, Telesat and Amazon’s Project Kuiper.

The disruption has extended to the defense satellite market, which has long been dominated by Boeing and Lockheed. The Pentagon operates about two-dozen major geostationary satellites for communications and surveillance. Their exact positions are well-known, making it likely they’d all be knocked out on the first day of a shooting war, said Quilty. The Pentagon’s Space Development Agency is working to bring many of those capabilities down to low-Earth orbit by building a dispersed constellation of small satellites, called the National Defense Space Architecture (NDSA), aiming to make it more expensive to shoot one down with a missile than to build and launch a replacement. The Space Development Agency hasn’t disclosed an exact number they plan to launch but Quilty expects there will be about a thousand of them.

Boeing hasn’t been blind to the smallsat threat. It bought manufacturer Millennium Space Systems in 2018. While Millennium last year delivered two satellites to the U.S. Space Force, it has failed to get a piece of the first two tranches of NDSA, in which $4.3 billion in contracts have been awarded for 194 smallsats.

Chilton said Boeing may have been hurt by its reluctance to split development costs with the military. That suggests Millennium didn’t have anything off the shelf that met NDSA’s requirements and was hoping the Pentagon would cover its R&D, said Quilty.

The move to smaller satellites “is a fundamental threat to Boeing’s defense and intel business that they need to adjust to,” Quilty said.

The door isn’t closed. Borrowing a page from the tech industry, the Pentagon is pursuing a spiral development model in which it will order new batches of satellites every couple of years and seek improvements in each one, so Boeing could still get in on future rounds.

And if it can move nimbly, the growing commercial space economy could provide Boeing with new places to plant its flag. With the space station — which Boeing is contracted to maintain — scheduled to be retired in 2030, NASA has awarded funding to three teams designing for-profit space stations to be used by private industry and the government. Boeing is part of one: the Blue Origin-led Orbital Reef project.

Boeing is also looking forward in the first quarter to the first flight of the heavy Vulcan Centaur rocket, a project of its launch joint venture with Lockheed Martin that’s powered by Blue Origin’s new methane-fueled BE-4 engine. In a sign of how rising space activity can lift all boats, the joint venture expects its launch tempo to more than double to over 20 a year thanks to Amazon, which has booked 38 flights on Vulcan and nine on the joint venture’s older Atlas V to launch its Kuiper broadband satellite constellation.

As for the Space Launch System, Chilton argues that it’s no more expensive on an inflation-adjusted basis than the Space Shuttle in its early days, and it still has strong bipartisan support in Congress. Starship and Blue Origin’s New Glenn may pose a threat down the line, but for now, the Space Launch System is the only rocket flying that can carry Artemis’ heavy payloads beyond Earth orbit.

“I think it has some legs,” Chilton says. “If in ten years or 20 years they are so good that there’s no need for an SLS, you know, maybe for us business-wise that’s bad, but maybe that’s good for the world.”


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