Lockheed Pulls Out of Russian J.V.

As reported in this morning’s Kommersant (Коммерсантъ):

The Lockheed Martin Corp. announced yesterday that it will withdraw from the Russian-American joint venture that markets Russian Proton rockets. The company cited the rising prices being demanded by the rockets maker, the Khrunichev State Space Research Center, and a number of unfulfilled obligations of the center, as the motivation for its decision. In the 11 years of its existence, the International Launch Services sold 37 Proton rockets for a total of $2.5 billion.

Lockheed Martin said yesterday that Space Transport Inc., a company registered in the Virgin Islands, would be the purchaser of its shares in ILS as well as Lockheed Khrunichev Energia International. A source in the Russian space industry said that Space Transport was being launched as a temporary holder of the assets Lockheed is selling. Eventually, those assets will be bought by Khrunichev, apparently with Vneshtorgbank acting as creditor. The value of the deal was estimated by the source as about $150 million. He added that the ILS would remain as a company registered in the United States and would also market Khrunichev’s new Angara rocket in the future. Lockheed Martin will sell its Atlas rockets through its Lockheed Martin Commercial Launch Services.

ILS has 11 open contracts for launches with a value of $500 million. At the center, they told Kommersant yesterday that they expect orders to increase. Analysts also predict that the industry will have a healthy growth rate in the next several years. Vitaly Davydov, deputy head of Roscosmos, the Russian space agency, predicted recently that Russian rockets account for 40 percent of the world market. Roscosmos press secretary Igor Panarin commented to Kommersant yesterday that “Lockheed Martin’s decision will not affect Russian interests in launch services in the least. On the contrary, it will strengthen bilateral relations between Russia and the U.S. in the space field.” Khrunichev press secretary Alexander Bobrenev concurred, saying that “The Russian side will continue marketing the Proton and Angara carrier rockets. We are capable of meeting our obligations to our clients.”

A Lockheed Martin spokesman told Kommersant that that ending its partnership with Khrunichev was a purely business decision and does not affect its joint ventures with other Russian enterprises, such as Energomash. “Our collaboration with them [Khrunichev] was very fruitful and we still have projects that we will possibly work on jointly in the future,” the spokesman said.

Kommersant has learned that Lockheed informed Khrunichev of its intentions to pull out of the joint business in May. The official explanation for the move is a change in Lockheed’s marketing strategy. “After analyzing conditions on the world market, we decided to concentrate on launches of satellites with masses of 4.5-6.5 tons,” ILS president Dr. Mark Albrecht said in June. In essence, that means that Lockheed has decided to leave the commercial market in favor of more profitable state orders. Boeing made the same decision in 2003. Of the 11 Proton launches in the last three years only five of them were heavier then 4.5 tons.

Another source at Lockheed said that the company disagreed with Khrunichev’s decision to raise the price of the rockets by 15 percent, to $45-50 million each, to pay for the services of an intermediary to conclude contracts with ILS. ILS also received 15 percent of every contract. Another source of contention was $68 million that Lockheed paid in 1999 under an agreement to market the new Angara rocket. The first launch of that rocket was to take place in 2003, but now plans call for the first launch in 2010. “Lockheed Martin will consider its investment in the purchase of the marketing rights to the Angara and include them in the cost of its package in ILS and LKEI,” a source said.