With Alliant deal, Orbital surges out of Elon Musk's shadow in space race

WASHINGTON – Orbital Sciences Corp. looked like an also-ran in the space race two years ago, eclipsed by billionaire Elon Musk's start-up venture.

Orbital was trading near its five-year low while Musk's closely held Space Exploration Technologies Corp., or SpaceX, made history in May 2012 by docking a cargo ship at the International Space Station.

On Tuesday, Orbital's stock soared on plans to combine with Alliant Techsystems Inc.'s aerospace and defense businesses, tripling revenue and uniting two longtime launch partners. Alliant helps power the Antares rocket, key to Orbital's growth in the estimated $7 billion market for building and launching midsize satellites and spacecraft.

"We're still not going to be a $30-billion-level company, but we'll be well-positioned in bringing the right combination of innovation and affordability," David Thompson, chairman and chief executive of Orbital, said in a phone interview Tuesday.

Thompson, 60, will be CEO of the new company, which will be created by year's end in a $5 billion, all-stock deal. Orbital shares surged 17 percent Tuesday to close at $30.96, the biggest gain in more than 11 years. They fell back 5 percent Wednesday to $29.40. The shares, which sank to a five-year low in June 2012, have surged 75 percent in the past year, reflecting the company's success in reaching the space station.

Unlike SpaceX, Orbital has no plans to jump into the riskier businesses of ferrying astronauts to the station or launching big military and spy satellites.

"There's the Goldilocks effect here," Thompson said last month at the company's headquarters in Dulles, Va. "You can fail by not reaching far enough, and you can also sometimes stumble by reaching too far."

The midsize missions accounted for roughly $350 million, or more than a quarter of Orbital's sales, last year. By the end of the decade, they may generate $1 billion, Thompson said.

Thompson said he doesn't regret losing the opportunity to develop a commercial crew program for NASA. The agency instead has funded efforts by several companies to develop spacecraft capable of carrying astronauts — including SpaceX, Boeing and Blue Origin, a Kent, Wash.-based company founded by Jeff Bezos, CEO of Amazon.com.

"In retrospect, I think it's actually probably been a good thing," Thompson said. "It's allowed us to really focus within the human spaceflight market on the cargo program and make sure we're doing a good thing there without also pulling resources away from our communications satellites and our military work."

Orbital didn't meet the criteria to compete for the large Pentagon satellite launches, said Barron Beneski, a company spokesman. A joint venture of Lockheed Martin and Boeing dominates that $70 billion market, and Hawthorne, Calif.-based SpaceX on April 28 sued the military to try to break into the business.

Thompson's focus is on the Antares rocket, which at 132 feet is as tall as a 13-story building and carries medium-sized payloads of up to 14,000 pounds to low-Earth orbit. Antares successfully launched the Cygnus craft to the space station in September 2013 under a demonstration flight. The vehicle made its first official supply run in January 2014.

Orbital's next launch to the space station is June 6. The cargo deliveries are part of a $1.9 billion contract for eight resupply missions to the space station.

NASA is considering extending the contract for as long as two years, the agency said. Thompson told investors on April 17 that an extension might mean as many as four additional supply missions.

Orbital had $1.4 billion in sales last year, while Alliant's aerospace and defense groups generated $3.1 billion in revenue. The new company, which will be called Orbital ATK Inc., combines Orbital's missile-defense systems and Alliant's tactical missiles. From Alliant will also come its expertise in manufacturing ammunition for the U.S. military. Alliant's other business, including its commercial ammunition and rifles, will be a separate company.

The merger isn't a departure from Orbital's conservative approach to business, said Chris Quilty, an analyst with Raymond James in St. Petersburg, Fla., which owns more than 1 percent of the company's shares.

Alliant and Orbital have worked together for 25 years and have similar corporate cultures, said Quilty, who has described Thompson as somewhat of an "anti-Elon Musk."