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U.S. Air Force Claims Big Savings on EELV Block Buy

A ULA Delta 4 Heavy rocket lofts a satellite for the U.S. National Reconnaissance Office in August. In a $530 million EELV contract modification announcement in December, the U.S. Air Force listed five rocket configurations including the Delta 4 Heavy, which uses three rocket cores in a side-by-side configuration. Credit: ULA photo

WASHINGTON — United Launch Alliance (ULA) and the U.S. Air Force have come to contractual terms for the first batch of rockets in a long-awaited bulk purchase that the service said forms the core of its strategy for saving money on a program whose soaring costs once made it a lightning rod for criticism.

Setting the stage for the upcoming competitive phase of the Evolved Expendable Launch Vehicle (EELV) program, Denver-based ULA and the Air Force claim the new contracting structure has already saved taxpayers billions of dollars. 

The Air Force in 2013 announced three contracts with ULA whose total combined value is just under $2.6 billion, including an initial $1 billion order in June to support seven EELV missions. In December, the Air Force announced a $530 million contract modification “for fiscal 2014 through fiscal 2017 launch vehicle production services and options for that associated launch capability for fiscal 2015 through fiscal 2019.” 

The December announcement listed five rocket configurations including a Delta 4 Heavy, which uses three rocket cores in a side-by-side configuration, meaning that together the contracts cover 14 of the 36 EELV rocket cores anticipated in the multiyear block buy.

Also included in ULA’s current Air Force contract portfolio is a one-year deal worth nearly $1 billion, announced in October, for so-called EELV Launch Capability. This is the latest in a series of contracts ULA gets on an annual basis to cover services not necessarily associated with a given launch, and which have been branded as a subsidy by ULA’s prospective competitors.

The block buy is part of the Air Force’s two-pronged strategy for reducing EELV costs, the other being the introduction of competition in U.S. national security launches. ULA has had that business almost entirely to itself since it was created in 2006 by the merger of the U.S. government launch businesses of Lockheed Martin and Boeing.

The Air Force plan entails buying the 36 rocket cores from ULA on a sole-source basis. An additional 14 missions will be awarded competitively, giving upstarts like Space Exploration Technologies Corp. of Hawthorne, Calif., a crack at the market.  

Buying in bulk is a tried and true method for reducing unit costs. To give an example, ULA in 2010 quoted prices for an Atlas 5 launch to NASA that ranged from $104 million to $334 million. Company officials in early 2011 said uncertainty about how many rockets the Air Force would commit to buying accounted for the wide variance in the NASA proposal. A large Air Force commitment, ULA officials said, would drive the actual costs to NASA toward the lower end of the scale.

“This contract stabilizes the U.S. launch industrial base while saving a substantial amount of taxpayer money and setting the program up for competition going forward,” Capt. Adam Gregory, a spokesman for the secretary of the Air Force, said in a Jan. 15 email. “The contract is the largest component of the EELV initiatives that have saved $4.4 billion in total program cost since the President submitted the FY2012 Budget to Congress in February 2011.”

Adding up the Numbers

A complete accounting of where claimed savings are coming from was not immediately available, however, in part because the Air Force and ULA do not disclose EELV program costs on a per-rocket basis. A review of Air Force budget planning documents dating back to 2011, meanwhile, shows some anticipated decline in EELV spending, but not nearly $4.4 billion worth.

Complicating the picture is the fact that anticipated EELV budgets tend to ebb and flow as the number of expected launches in any given year changes. 

Moreover, a significant portion of the EELV budget is classified. According to budget documents leaked last year by National Security Agency contractor-turned-whistleblower Edward Snowden and reported by The Washington Post, the U.S. National Reconnaissance Office, which buys and operates the nation’s classified spy satellites, requested $1.3 billion for launch services in 2013. 

Since 2012, a Trend of Declining Costs

Unclassified budget documents indicate that the Air Force’s share of the EELV budget in 2013 and 2014 wound up being a combined $782 million less than was anticipated when the service submitted its 2012 spending plan. Each year’s spending plan includes five-year projections for each program.

For example, the Air Force’s 2012 future-years plan anticipated the EELV program would need more than $2 billion in 2014. But the service’s actual request for 2014 was considerably less, at $1.88 billion, and Congress appropriated just $1.51 billion.

ULA cited the cut of nearly $370 million from the 2014 request as an indication that program costs are coming down significantly. 

The “reduction in the omnibus bill shows the benefits associated with an efficient procurement approach and contract incentive structures to deliver real, near-term savings without sacrificing the reliability our customers have come to expect,” ULA spokeswoman Jessica Rye said in a Jan. 16 email. 

Additionally, the out-year projections accompanying the 2014 request show an anticipated decline in EELV spending of $937 million from 2015-2017 compared with the projections in the 2012 and 2013 requests. 

But projecting future-year budgets is like predicting the weather — the further out one goes, the less reliable the estimates become. Moreover, future savings — or cost growth — can vary widely depending on which year’s projections are used as the baseline. For example, the out-year EELV cost projections in the 2012 request were dramatically higher than the previous year’s request. 

Michael Gass, ULA’s president and chief executive, said the Defense Department is buying the company’s rockets on a scale and timeline that minimizes inventory and ordering costs.

This “brings significant value to our customer and helps realize the cost savings ULA continues to achieve in consolidating the Atlas and Delta systems,” Gass said in an email Jan. 13. “The contract provides the proper incentives to enable continued cost reductions while balancing risk to ensure continued mission success for these critical national missions.”

SpaceX Weighs in with its Own Estimates

SpaceX, meanwhile, which is awaiting Air Force certification of its Falcon 9 v1.1 rocket to carry national security payloads, believes it can save taxpayers about $1 billion a year from 2015-2017.

SpaceX, which likely will be competing against ULA — and perhaps others — for the 14 missions that the Air Force is putting up for grabs, is calling for the service to eliminate the contracting structure under which ULA receives two separate lines of funding: One for launch vehicles and related services; and the EELV Launch Capability funding.  

“SpaceX expects the billion dollar plus fixed payment subsidy (aka the ELC) to ULA to be phased out over time, as that is obviously contrary to fair and open competition,” Elon Musk, the company’s chief executive, said in an email.

The Air Force is expected to begin awards for the competitively bid launches in 2015 for missions launching in 2017.

Follow Mike on Twitter at @Gruss_SN

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