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CAGW Criticizes Subsidies for Satellite Launches

For Immediate Release Daytime : Jessica Shoemaker (202) 467-5318
January 9, 2006 Evening :  Tom Finnigan  (202) 253-3852

 

Boeing-Lockheed Merger Could Corner Market, Cost Taxpayers 

(Washington, D.C.) - Citizens Against Government Waste (CAGW) today criticized the Air Force’s plan to grant a multimillion annual subsidy through sole-source contracts for heavy satellite launches to United Launch Alliance (ULA), a joint venture between Boeing and Lockheed Martin.  The Wall Street Journal reported yesterday that the Department of Defense (DOD) has conditionally approved the plan; final approval rests with the Federal Trade Commission (FTC).  The companies are now jointly negotiating for the third round of launches under the $32 billion Evolved Expendable Launch Vehicle (EELV) program, which will cover 23 missions lasting through 2011 and beyond. 

“The Air Force policy is tantamount to a government bailout,” CAGW President Tom Schatz said.  “It is a multimillion subsidy to an entity that is effectively insulated from competition.”

The ULA will provide launch services for the Air Force and for some missions of the National Oceanic Atmospheric Administration, the National Aeronautics and Space Administration, and the National Security Agency.  Boeing and Lockheed Martin will continue competing for private launches.  The FTC has questioned the companies’ claim that consolidation will save $100 million to $150 million per year and in December 2005 told both companies it needed more time to review the proposal.  The EELV program was implemented in 1995 to give the federal government “assured access” to space by keeping two domestic providers viable.  The first round of contracts was awarded to the same companies in 1998 with the expectation that a strong commercial launching market would emerge.  However, the government has assumed an increasing share of the risk and cost of the launching operations.  If approved, the ULA will benefit from $650 million in government subsidies for infrastructure and about $100 million per launch.  Furthermore, there is no legal requirement for the Air Force to consider additional bidders that may emerge before 2011. 

   A July 2005 report from the Government Accountability Office referred to the DOD’s space system acquisition efforts as “dismal,” and noted that EELV’s unit cost has grown 81 percent.  During the first round of bidding seven years go, Boeing illegally obtained proprietary information from Lockheed Martin.  The resulting investigation and suspension cost taxpayers $230 million.  The new plan would allow contractors to divide costs between cost-plus “capability” contracts and fixed-price “services” contracts.

“The contracts’ structure obscures the true cost to taxpayers and rewards scandalous behavior with lucrative long-term deals.  To encourage innovation and keep down costs, the Air Force should revert to price-competitive acquisitions and widen the playing field to new competitors,” Schatz concluded.    

Citizens Against Government Waste is the nation's largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.

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