U.S. Air Force has awarded three American corporate giants with contracts worth $2 billion in a bid to develop propulsion systems in the country. The Pentagon deal, formally known as Launch Services Agreement, could help U.S. stop using foreign launch systems such as Russia’s RD-180 rocket engine.
Blue Origin, Northrop Grumman NOC and United Launch Alliance have been appointed to develop an Evolved Expendable Launch Vehicle (EELV) each. According to a CNBC report, Blue Origin will receive $500 million to develop its New Glenn rocket, Northrop Grumman will receive $792 million for its OmegA rocket and United Launch Alliance (ULA) is slated to get $967 million to work on its Vulcan Centaur rocket. The funds are part of cost-sharing arrangements, also known as Other Transaction Agreements.
The success of these projects will give United States unrestricted access to space. In fact, such access will allow American companies to explore space entrepreneurship and generate robust revenues through ventures like space tourism.
As this development makes the prospects better for the U.S. aerospace industry, it is advisable to add a few stocks from this industry to your watch-list.
Key Goal of New Launch Systems
The Air Force will eventually narrow down the companies from three to two. These two companies will compete for national security launches from fiscal 2020, a report by Defense News cited.
At present, the Air Force uses SpaceX and ULA’s propulsion systems. ULA, which is a joint venture of Lockheed Martin (LMT - Free Report) and Boeing (BA - Free Report) , has been a launch provider for the Pentagon for quite some time, putting to use its Atlas and Titan rockets. SpaceX joined the league in 2016 with its Falcon 9 rocket, ending ULA’s domination in the area of military propulsion projects.
The public-private partnership for new EELV systems will help the United States not only to distance itself from relying on foreign propulsion systems but also to hasten its national security space launch requirements.
“Leveraging domestic commercial space launch systems is good for the Air Force, and a revitalized commercial launch industry is good for the taxpayer,” Heather Wilson, Secretary of the Air Force, said.
The EELV systems have launched 72 national security strategy missions since 2013 using Delta IV and Atlas V propulsion vehicles, according to a Geospatial World report.
How the Industry is Expected to Benefit
The Trump administration’s goal to make United States Space Force a new military branch by fiscal 2020, with an aim to have this specialized unit prepare for extraterrestrial wars, is perhaps the center of Pentagon’s push to take control of space accessibility.
The U.S. government’s steps in this regard give aerospace giants an opportunity to focus more on space tourism. Commercial space flights are being developed by Blue Origin, SpaceX and Virgin Galactic among others to take advantage of the huge customer base that is willing to pay for a trip to space.
As the new domestic propulsion systems come into use from fiscal 2020 and development of reusable rockets brings down the expenses of space flight, the aerospace segment is expected to see rapid revenue growth.
According to Morgan Stanley, global space industry revenues are expected to increase to $1.1 trillion or more by 2040. Bank of America Merrill Lynch also predicts along the same lines, citing that the space industry could be worth $2.7 trillion in the next three decades.
Stocks in Focus
FLIR Systems, Inc. (FLIR - Free Report) is a leader in advanced sensors and integrated sensor systems that find widespread use in commercial, government, industrial and consumer markets globally. The company develops everything from consumer-use thermal camera smart phone accessories to highly advanced aircraft-mounted imaging systems for military and search and rescue applications. FLIR carries a Zacks Rank #2 (Buy). The company’s shares have gained 18.4% year to date and its earnings are expected to grow 18% in 2018.
Teledyne Technologies Incorporated (TDY - Free Report) caters to an array of consumer markets including aerospace and defense. Teledyne’s strategy focuses in growth in core markets of instrumentation, digital imaging, aerospace and defense electronics and engineered systems. The company carries a Zacks Rank #3 (Hold) and its earnings are anticipated to grow 29.1% for the current year. Teledyne’s shares have gained 21.4% since the beginning of the year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Wesco Aircraft Holdings, Inc. (WAIR - Free Report) offers supply chain management services to the global aerospace industry. The company has a Zacks Rank #3 and its shares have gained 43.9% year to date. Wesco Aircraft’s earnings could grow 33.9% in 2018 .
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