Boeing considers merger options for Rocketdyne unit.

The future of Rocketdyne Propulsion & Power, the San Fernando Valley's largest remaining industrial employer, could include it becoming the centerpiece of a merger resulting in the leading rocket engine manufacturer in the world.

The Boeing Company, which owns Rocketdyne, is examining how much competitors may be willing to pay for the division, which employs some 3,000 people in the San Fernando Valley.

According to employees, Rocketdyne management has said there has been no decision to sell the division but workers have also been told the consideration of a sale is part of Chicago-based Boeing's ongoing effort to evaluate its business strategy.

The possible sale is one element in discussions that have occurred over the past several years between the three major rocket engine manufacturers, which include Rocketdyne, Sacramento-based GenCorp Inc.'s Aerojet division and Hartford, Conn.-based United Technologies Corp.'s Pratt & Whitney subsidiary.

The likelihood of consolidation in the space launcher propulsion sector received a new impetus when Byron Wood, general manager of Rocketdyne, spoke in July before a conference on propulsion engineering co-sponsored by the American Institute of Aeronautics and Astronautics.

At the conference, Wood, a veteran of four decades at Rocketdyne who worked on the engines that sent American astronauts to the moon, said the three main players need to "reinvent themselves now" and that a single "national propulsion company" may be the best response to the current slim market for launch services.

Wood's comments have sparked speculation by industry analysts that Boeing and United Technologies are discussing a sale of Rocketdyne to Pratt & Whitney, or the potential for a joint venture. Boeing officials declined to comment in depth on the matter.

"It is a suggestion that he raised, it's not the first time that's happened, and it may be raised again, (but) I'm not seeing any additional comment on it from anyone else in the business," Rocketdyne spokesman John Mitchell said last week.

Mitchell and other Boeing officials declined to comment at all on the possibility of negotiations, as did officials from Pratt & Whitney and Aerojet.

Aerospace experts, however, said that given the expected continuing decline in government and commercial space launches over the next decade, consolidation in the propulsion sector would make economic sense.

"Given the way the launch market is, both commercial, civil, and military, there probably isn't enough business there for three companies to survive and make a whole lot of money," said Marco Caceres, an analyst with the Fairfax, Va.-based Teal Group Corp., an aerospace consulting firm. "Our forecasts are very stagnant for the next five years, so if somebody wanted to exit the market right now this would be the time. Five years in the future nobody's going to be making a ton of money if there are still three competitors."

Fewer payloads

Just over 1,200 payloads--including satellites and manned missions--are currently proposed for launch over the next decade, down 14 percent from approximately 1,400 proposed payloads as of 2003, studies show.

About half of the proposed payloads are of American origin, and of those, 60 percent would be funded by the U.S. government and 37 percent as commercial ventures. Another 21 percent of the total is of European origin, 14 percent are from Asian/Pacific Rim countries, and almost 10 percent are of Russian origin. Along with the United States, Europe, Russia, Japan, China, and India all have or are developing space launch vehicles and rocket engines.

"Things are difficult because in addition to the domestic suppliers (in the U.S.) there is also a fair amount of global competition," said Ion B. Kutler, chairman of Jefferies Quarterdeck, a Los Angeles-based investment banking firm specializing in aerospace and defense companies. "You will see further consolidation in this industry, a combination of transactions and people just downsizing out of the business."

Currently, Rocketdyne builds the RS-68 engine for Boeing's Delta IV booster, while Pratt & Whitney reconditions Russian-built RD-180 engines for the competing Atlas V booster, built by Bethesda, Md.-based Lockheed Martin Corp.

Both rockets were developed through the Defense Department's Evolved Expendable Launch Vehicle, or EELV, program. The initial flights of both vehicles, priced at about $75 million each, carried communication satellites.

The rockets can be used for military, civil, and commercial satellites, and could provide the launch vehicle for a rearmed spacecraft to replace the space shuttle.

Pratt & Whitney also builds the RL-10 upper stage engine at its West Palm Beach, Fla., plant, and many analysts suggest a combination of Rocketdyne's RS-68 and Pratt's RL-10 lines would give a consolidated company an excellent group of products.

"If (Boeing) could get a really good price from United Technologies they might let it go," said Jerry Grey, a Princeton University aerospace engineering professor and policy director for the AIAA.

"But the most likely way to go would be a new company that would pick up technology from both," Grey said. "It could be set up as a new joint venture, and both United Technologies and Boeing would own big chunks of it."

Previous attempts

Aerojet, which manufactures its own designs, announced a joint venture with Pratt & Whitney in 2000, but that proposal fell through.

The possibility of consolidation in the engine sector is also playing out against the backdrop that Congress will require the Defense Department to drop, or "down-select," one of the two boosters programs.

A study of the possible impact of such a decision is expected before the end of the year, Air Force officials said.

Delays by Pratt & Whitney in opening a domestic production line for the RD-180 could lead to the Atlas V being redesigned for an American-built engine, analysts said.

"The question they've got to be looking at on this propulsion thing is, are they going to re-engine the Atlas V?" said John Pike, director of Alexandria, Va.-based GlobalSecurity, a defense policy group.

Pike suggested that whatever discussions are underway, a merger and acquisition or joint venture may have to await the results of the November presidential election.

"Things may be on hold until they figure out who the commander-in-chief is going to be," Pike said.

If he is elected, it is unclear what changes, if any, Sen. John Kerry would make in procurement policy for the DUD and NASA from what is current under the Bush Administration. Although President Bush has announced his support for a renewed lunar exploration program, decisions on actual designs are years away.

The Defense Department wants to retain the competitive launch vehicles for military satellites, officers said.