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« Out Of The Closet | Main | Kinky »

Northrop Grumman Buys Scaled

I was going to post some thoughts on the acquisition (which was really just an increase in equity from a minority to a hundred percent), but before I had an opportunity to do so, Jon Goff must have channeled me. A "skunkworks for NG" was exactly what I thought when I heard the news.

There will probably be more tomorrow. Dennis Poulos was the only NG person at the conference, and he was only there on Thursday (and he's probably not a spokesman for the company on the issue). Alex Tai had little to say about it (with regard to implications for SpaceShipTwo) yesterday, other than that he thought it was a good (even great) thing, and that it was "Northrop's story, not his," to tell.

But I think that this points out that the nature of this business is much more complex than many would like to make it, and it's not simply the "Big Bad, Small Good" template that many like to think, and that the line between New Space and Old Space has never been as sharp as many thought, and it's becoming progressively blurrier. As Jon says, the Boeings and Northrop Grummans, and Lockheed Martins are recognizing that the new century brings new business realities, and it's particularly worth considering, in light of the Apollo anniversary last week, that the old space age is over, and the new effectively begun, despite Mike Griffin's attempt to resurrect Apollo, which seems likely to fail.

I have always swum in both seas, and have often had former colleagues at Boeing (now fairly high in management) tell me that they're interested in this new business, but it's not obvious how to break in, other than watch, and observe, and when something succeeds, to acquire it. And of course, they didn't need to tell me that, because it's obvious, from a business sense. They're simply too risk averse, by the nature of their being large publicly-held corporations, and their existing business relationships, to do things like this from scratch on their own, and that's not a criticism, just a statement of fact. They have to be so, because they have a fiduciary responsibility to their stockholders, many of whom are pensioners, to not take big gambles with the company's money, on new but uncertain markets and business lines.

The fact that such acquisitions are now occurring is to me a sign of the transition of the old age to the new. When we really know that it's real will be when one of them buys one of the new companies, born in this age, such as XCOR.

[Update a while later]

I should make one other point. This acquisition really has very little to do with space. SpaceShipTwo may be one of Scaled's most well-known current projects, but they're first and foremost an aircraft company, and that's the bulk of their activities. I think that NG saw this as an aviation, or aerospace acquisition. To the degree that it helped them on the space side at all, that would just be gravy.

Posted by Rand Simberg at July 22, 2007 11:16 AM
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unfortunately, the SpaceShipTwo is not the best approach for a COMMERCIAL suborbital vehicle, despite it's the big brother of the successful SpaceShipOne (that was an experimental vehicle)

however, that story clearly shows the #1 law of all business: when a product/service become (or is close to be) PROFITABLE the big companies "eat" it

that happens everyday in the internet business with market's monsters like Google and Microsoft that buy everything good they see around and the same is going to happen with the commercial suborbital flights that need hundreds million$ of investments

only big companies like Northrop Grummans, Virgin and EADS-Astrium have (or can find) that money, so, they will eat the full market and no space (in both meanings) will be for small "cents & website" space companies

Posted by Gaetano Marano at July 22, 2007 11:52 AM

The $64 question IMO is does Burt come with the package and what kind of control does he retain?

Posted by Mike Puckett at July 22, 2007 11:53 AM

Mike - From what I understand Burt will run the new wholly owned company and will have both autonomy and presumably an infusion of cash.

Posted by Mark R. Whittington at July 22, 2007 11:59 AM

probably he will cooperate in the project or will have a PR job, but I doubt NG has a lack of engineers to develop the vehicle...

Posted by Gaetano Marano at July 22, 2007 12:01 PM

Mark,

companies that invest hundreds dollar$ always wants a 100% control... also, the Scaled Composite Logo/Company will soon disappear and the first test vehicles will have the NG logo alone

Posted by Gaetano Marano at July 22, 2007 12:09 PM

Gaetano, I've deleted the spam username and URL from your comments. It is off topic. If you persist, you will be banned.

Posted by Rand Simberg at July 22, 2007 12:20 PM

Marano, not Morano

Posted by at July 22, 2007 12:20 PM

I do believe my links are not "spam" but useful info about new ideas... :) (that some my like)
also I've used the signature exactly to avoid to post off topic comments (that's better than use the "anonymous" signature I see several times here and in other blogs)

Posted by at July 22, 2007 12:26 PM

I don't care what you think. This is not a public bulletin board for you to tell us your ideas. It is a discussion section of a blog (my blog) for comments pertaining to the posting that it's within.

Posted by Rand Simberg at July 22, 2007 12:46 PM

you're 100% right, Rand, so I stop posting here

Posted by at July 22, 2007 12:51 PM

unfortunately, the SpaceShipTwo is not the best approach for a COMMERCIAL suborbital vehicle, despite it's the big brother of the successful SpaceShipOne (that was an experimental vehicle)

Eh, we'll see what survives. I don't think it's fruitful to talk about best approaches, but worthwhile to talk about viable approaches. Spaceship Two could be viable and apparently, some big players agree.

Posted by Karl Hallowell at July 22, 2007 12:57 PM

I'm not asking you to stop posting here (or even to stop posting your name, or the URL to your top-level web site, or even the URL to something that has something to do with the topic). I'm asking you to stop spamming (that is, putting up multiple comments with a username/URL that has nothing to do with the subject, just to get my readers and Google to pay attention to it).

Posted by Rand Simberg at July 22, 2007 01:27 PM

Hi Rand,

Yes, as I noted on a thread below this acquisition is probably just part of Northrop-Grummanís long range Uumanned Aerial Vehicle strategy, not some dive by NG into space tourism. Northrop-Grumman purchased Teledyne Ryan in 2000 to acquire its Global Hawk system which is built here in San Diego. And Northrop-Grumman original investment in Scaled Composites in 2003 was motivate to strengthen NGís business model.

Since that initial investment the two firms have been working on developing a version of the Proteus called the Model 395 for a USAF competition for a new generation of Unmanned Aerial Vehicles. If awarded this contract will dwarf any potential revenue streams from SpaceshipTwo. Scaled Composites expertise will also be critical for developing the new generation of NG Global Hawk which requires a major increase in its performance to meet USAF needs, and enhancing performance is an area Scaled Composites built its reputation on. So it's difficult to see them this being anything beyond a continuation of the motivation for the original purchase of their interest in Scaled Composite.

Also this is not the first time Scaled Composites has been sold. Burt Rutan sold it to Beechcraft in 1985 and then bought it back in 1988 after the expected sales for Starship 2000 failed to materialize. Also if I recall Wyman-Gordon owned Scaled Composites for a while.

The only connection SpaceshipOne/SpaceshipTwo might be if NG is looking at applying the technology to sub-orbital missions of military interest. The key will be how much of the design's IP is owned by Scaled Composites, how much by Paul Allenís Vulcan and how much by Virgin Galactic. And if Paul Allen and Richard Branson want their tourist vehicle linked to a military system. And also what USAF missions a manned system like SpaceShipTwo would be suited for. But yes, looking at this just from a business perspective, not a space policy one, it has little to do with space tourism, It mostly about the aviation business.

Posted by Thomas Matula at July 22, 2007 01:34 PM

Interesting.
I'm sure the buzz will be all over Northrop Grumman on Monday morning. Rutan just (last week or so) gave a lecture at NG. It was on future space innovation and development. It was pretty good: he didn't come over as half the you-know-what he often seems to be.

As the article mentions, NG has been a party to SC for years (NG's Pegasus and SCs' Proteus to name two endeavors). Rutan's shop is a leader in the areas of innovative problem solving, rapid prototyping and advanced/clever composite structure design. The SC acquisition should match well with NG (especially Integrated Systems) and the moves they have been making internally for the past few months. Its almost enough to make me want to move back to California.

Posted by SMSgt Mac at July 22, 2007 05:41 PM

Who did they buy the other 60% from? Was it a VC firm, or Burt himself?

Can anyone speak to this?

Posted by Ferris Valyn at July 22, 2007 08:57 PM

Rutan gets 90% of his revenue from military contracts, many subcontracted via NG. I don't see how this deal will change any of that.

And NG will be delighted to keep developing SS2 for as long as Branson keeps writing checks.

Posted by Adrasteia at July 22, 2007 09:13 PM

Rutan gets 90% of his revenue from military contracts, many subcontracted via NG. I don't see how this deal will change any of that.

And NG will be delighted to keep developing SS2 for as long as Branson keeps writing checks.

Posted by Adrasteia at July 22, 2007 09:14 PM

Adrasteia

Yep, Burt has always run Scaled Composites as a business, not as a new space company. As long as the money flows he will build SpaceshipTwo and/or any other rocket someone will pay him to build.

As for who NG bought from, if I recall it was Burt Rutan and a group of investors that bought Scaled composites from the Wyman-Gordon about a decade ago or so. Burt Rutan has sold Scaled Composites at least twice before and then bought it back. It will be interesting to see if it stays sold this time :-)

Posted by Thomas Matula at July 23, 2007 12:49 AM

He's like a mini Kerry Packer.

Posted by Adrasteia at July 23, 2007 03:44 AM

I suspect Rand hit it on the head with the update; my guess is this is all about lightweight, high-endurance drones. The space stuff is incidental to the deal...

Posted by Mike Earl at July 23, 2007 07:47 AM

"They're simply too risk averse, by the nature of their being large publicly-held corporations"

RIP Scaled Composites. If NG owned Scaled before SS1 existed, I wonder if we'd have been left with an unclaimed X-Prize. I see the executives of NG laughing at the absurdity of the project and ordering their acquired department to kill any aspirations of working on such a vehicle with no profit potential. Get back to work on those UAV drones!

Posted by anon at July 23, 2007 08:19 AM

If NG owned Scaled before SS1 existed, I wonder if we'd have been left with an unclaimed X-Prize.

I can't imagine why you would wonder such an absurd thing.

I see the executives of NG laughing at the absurdity of the project and ordering their acquired department to kill any aspirations of working on such a vehicle with no profit potential..

Ah, I see. You are operating under the delusion that Scaled payed for SpaceShipOne.

No, they were hired to do it. Northrop would have taken the job as well, if Paul Allen had been willing to pay them for it.

Posted by Rand Simberg at July 23, 2007 08:24 AM

Rand,

Exactly. And if I recalled, didn't Paul ALlen also give Burt Rutan and the other contractors the $10 million prize as a "bonus" for winning it? Plus there has been the follow-up contract for $250 million (and climbing) from Richard Branson for SpaceshipTwo. All in all not a bad return for a contractor. Yes, Northrop would have taken it, as well as Raytheon or even Orbital Sciences.

"Cash makes no enemies" as Willaim Shanter's character used to say in the "Barbary Coast".

Posted by Thomas Matula at July 23, 2007 08:39 AM


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