Down to Earth

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Down to Earth
Ron Ramos with cutout of Space Shuttle nozzle at Rocketdyne’s facility in Chatsworth.

It’s no mystery why the parent company of Canoga Park’s Pratt & Whitney Rocketdyne wants to sell the rocket engine maker: The business has shrunk along with the federal government’s appetite for space travel.

But the bigger mystery, as rumors spread of a sale that could be announced within days, is this: Who would buy it – and why?

Actually, some analysts believe a buyer might be less interested in the company’s core business – building rocket engines that can send huge payloads into space – and more interested in emerging Rocketdyne technologies in the solar, oil and natural gas industries.

The demand for those technologies is expected to grow to half of its business in the years ahead, while the orders for rocket engines continue to shrink.

“Rocketdyne is past its time in many ways,” said Marco Caceres, director of space studies at Fairfax, Va., aerospace research firm Teal Group Corp. “There’s no program that’s obviously going to provide a sure market for what Rocketdyne does.”

Company executives acknowledged that the end of the Space Shuttle program was a blow. But they said it’s not fatal. Rocketdyne had sales last year of $750 million, down from $900 million 15 years ago when the shuttle was flying regularly. About 1,500 workers are still employed in Canoga Park and at a plant in Chatsworth, down from 8,600 in 1990, and 900 others across the United States.

About 30 percent of the company’s orders still come from NASA for rocket engine development. But executives don’t expect that business will ever grow back to its peak days of the Apollo and shuttle programs.

“Human spaceflight isn’t going to be a big, growing business in the future. Only NASA does that and NASA has a flat budget,” said Ron Ramos, Rocketdyne’s vice president of exploration and missile defense.

But the company has been preparing for that. For decades, Rocketdyne has been developing other technologies – including tiny engines that steer missiles, solar energy systems, and equipment for oil and gas production. Executives hope those businesses will mean growth for Rocketdyne and investments from a new owner.

However, many of the company’s energy-related technologies are still in development and the energy business now accounts for only about 5 percent of total revenue.

Mike Blades, a senior aerospace analyst with Mountain View research firm Frost & Sullivan, said those new technologies, along with Rocketdyne’s rocket engine business, could be compelling for a big aerospace and defense contractor. Rocketdyne, according to Blades, could help a buyer win military and government launch contracts, and tap new commercial markets.

“There’s going to be this big move in aerospace and defense to diversify outside of the military contracts,” he said. “If they see something they think is going to put them over the top in a commercial market, they won’t hesitate. To me, that makes Rocketdyne even more attractive.”

Launch pad

United Technologies, a Hartford, Conn., conglomerate, announced in March that it would sell Rocketdyne and a handful of other subsidiaries as part of a plan to finance the acquisition of Charlotte, N.C., aerospace supplier Goodrich Corp.

United Technologies executives said in April that the company was in final negotiations on the Rocketdyne sale and expected a deal to close by June 30.

Obviously, that deadline passed. Industry watchers now expect a deal will be announced in coming weeks. As far as who might be buying, analysts have speculated about companies big and small, from Orbital Sciences Corp. in Dulles, Va., and Alliant Techsystems Inc. in Arlington, Va., to Blue Origin LLC, a Kent, Wash., startup funded by billionaire Amazon.com founder Jeff Bezos.

A United Technologies spokesman declined to comment.

Whoever buys Rocketdyne will acquire a company with a deep history in space exploration and expertise in building powerful, liquid-fueled rocket engines.

The company developed the engines that launched the first American astronaut into space, sent Apollo astronauts to the moon and that powered all 135 flights of the Space Shuttle. It also built the power-supply system for the International Space Station.

But a buyer will also get a company with a small but growing portfolio of energy technologies. Those account for just a small part of Rocketdyne’s revenue today, but could bring in 50 percent of the company’s revenue by 2020, said John Vilja, the company’s vice president of innovation, strategy and growth.

“While propulsion is flat, the energy side is really where we can see growth,” he said.

Rocketdyne is furthest along in the solar market. Its molten salt technology, originally developed by predecessor company Atomics International, allows heat from a solar-thermal power plant to be stored and used to produce electricity at night.

Santa Monica’s SolarReserve LLC is using Rocketdyne’s technology in a solar-thermal power plant under construction in Tonopah, Nev.

The company has also developed a process that converts coal into gas more efficiently and cheaply than other systems. In February, Rocketdyne inked a deal to help build a coal gasification plant in China’s Henan Province. Critical parts of the plant, Vilja said, are cooled with much the same technology that’s used to chill rocket engine nozzles that otherwise would burn up.

The company’s engineers are also working on compact rocket engines that could be deployed in deep underground wells to produce steam that forces out oil and gas.

What’s more, Rocketdyne is experimenting with small rocket engines designed to produce powerful sound waves that would crack oil- and gas-bearing rocks – using sound waves to replace the water and chemicals in the controversial process known as “fracking.”

“It’s a very loud engine on a stick that would be able to break rock layers,” Vilja said.

Not far along

Those and other experimental technologies aren’t far along, Vilja acknowledged, in part because of a lack of money. Rocketdyne has received some funding from the Department of Energy, but investment from United Technologies has been minimal.

“They’re banking money to buy Goodrich,” he said. “We haven’t been getting a lot of corporate investment. A new buyer could definitely accelerate these technologies to market.”

While the new technologies and Rocketdyne’s missile-steering systems are a bigger part of the business today than ever, the majority of the company’s business is still in making rocket engines for NASA and for United Launch Alliance, a joint venture of Lockheed Martin Corp. of Bethesda, Md., and Boeing Co. of Chicago that launches government and military satellites.

“Most buyers don’t value something that isn’t established yet,” Vilja said. “In propulsion, we’re still the No. 1 supplier. In the energy world, we’re still growing into it.”

David Rowlett, an analyst at T. Rowe Price in Baltimore who follows United Technologies, said whoever buys Rocketdyne will almost certainly be interested in rockets, not in a small and largely experimental portfolio of energy technologies.

He suggested a potential buyer could be Alliant Techsystems, an aerospace and defense contractor that makes solid-fuel rocket engines used in missiles and formerly in the Space Shuttle’s booster rockets.

“They have the solid rocket fuel business, so if they got Rocketdyne, they could have both,” Rowlett said. “Maybe there’s some kind of synergy there. But I don’t expect this to command some big valuation or draw a lot of bidders.”

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