Lockheed Wins $3.9 Billion Contract For Lunar Craft

Lockheed Martin Corp., the world's largest defense company, won a $3.9 billion NASA contract to build a spacecraft that will return U.S. astronauts to the moon, beating a Northrop Grumman Corp.-led team.

The win, announced by NASA yesterday at a Washington press conference, gives Bethesda, Maryland-based Lockheed its first lead role in U.S. manned space flight. The decision is a setback for Los Angeles-based Northrop, which had been given the edge by some analysts because of its longer history on manned space programs.

"Northrop wanted to be the prime contractor in manned space so this is a blow for them," said Robert Stallard, a New York- based analyst with Banc of America Securities. "It does put Lockheed's space franchise in the driver's seat for the next couple decades. Lockheed has done pretty well." He rates both stocks "neutral" and doesn't own any.

The new craft, called Orion, is the centerpiece of the National Aeronautics and Space Administration's $122 billion effort to return to the moon as early as 2018. The contract is valued at about $3.9 billion through September 2013 for two craft and the total may reach $8.15 billion by 2019 if more are ordered, NASA said.

Lockheed's team includes navigation and guidance-systems maker Honeywell International Inc.; booster-rocket maker Orbital Sciences Corp. and the Hamilton Sundstrand unit of United Technologies Corp., which makes space suits, life support and power management systems.

Lockheed will "definitely" achieve first manned spaceflight by 2013, a year ahead of schedule, said John Karas, Lockheed's vice president of space exploration.

Shares of Lockheed rose $1.55 to $84.15 in extended trading after the announcement. They closed at $82.60 in New York Stock Exchange composite trading.

Before yesterday's win, Lockheed's primary experience with manned space flight was a joint venture with Boeing Co. which helps maintain the space shuttle fleet. Lockheed also is the maker of Atlas rockets and the unmanned Viking Mars lander.

Northrop worked with Boeing on a bid for the Orion project, making that team the favorite to win the contract, five analysts surveyed by Bloomberg News said before the announcement. Northrop and Chicago-based Boeing have dominated manned space flight since the 1960s. Boeing made the space shuttle and much of the Apollo Saturn V rocket. Northrop made the first lunar module used 37 years ago to put the first man on the moon.

"We thought that Northrop and Boeing were in a better position to win this," Paul Nisbet, a Newport, Rhode Island- based analyst with JSA Research Inc., said in an interview. "It was a good one for Lockheed."

Doug Cooke, the NASA official in charge of making the selection, said at the press conference he couldn't provide exact details on the difference between the bids because the teams haven't been briefed yet.

"The competition was fierce and both proposals were strong," Mr. Cooke said.

Northrop's earlier experience may not pertain to the new craft, said Scott Horowitz, NASA's associate administrator for the exploration systems mission directorate.

"It's been 30 years since anyone built a human rated spacecraft," he said. "This is a new generation of engineers."

Northrop is "clearly disappointed" by the decision, spokesman Brooks McKinney said. The company still sees a role for itself in the manned space program, he said.

"There will be launch vehicles, lunar landers, a lot of opportunities down the road," he said. "We have to pick up and move on."

Lockheed overcame a rocky history with NASA to win. Marco Caceres, a Fairfax, Virginia-based space industry analyst with Teal Group, projected Lockheed would lose, in part because of its earlier failure to develop a space plane to replace the shuttle.

Lockheed won NASA's X-33 program in 1996 to design a space plane which would have been launched from a standing position without using multiple stages or fall-away rocket motors. A composite liquid hydrogen fuel tank for the craft failed during testing in 1999, and the program was canceled in 2001 after NASA spent $912 million.

It appears work on propulsion and materials for that failed effort may have helped Lockheed prevail in Orion, Mr. Caceres said.

"Lockheed is the one that has done the more recent research and development, so that may be the deciding factor," he said.

The contract covers delivery of two spacecraft: one cargo version and one for crew, Mr. Cooke said. Options for additional production valued at as much as $3.5 billion and potential engineering awards of $750 million would give the project a combined total value of $8.15 billion through 2019, he said.

Lockheed had experience with support for shuttle maintenance and developed 10 robotic capsules used by NASA since the Apollo missions, Mr. Karas said.

"We may not have had the lead role with the shuttle, but as far as its external tank or the services we provide, we have thousands of people who work on human space flight everyday," Mr. Karas said.

Lockheed expects about 2,000 people will work on Orion, with about one third coming from existing NASA programs that are winding down, and the rest being new hires, he said.

The award means "hundreds of millions" in revenue for Hamilton Sundstrand over the life of the project, said Robert LeDuc, president of Hamilton Sundstrand's flight systems unit.