Firefly Launches, Northrop Grumman Cheers

By Rich Smith – MOTLEY FOOL

KEY POINTS

Firefly Aerospace rang in October with a mostly successful test flight of its Alpha rocketship.

Northrop Grumman is depending on Firefly to produce new "Miranda" engines to power Northrop's newest rockets.

Good news for Firefly (which isn't public) is, therefore, good news for Northrop Grumman (which is).

Good news for Firefly Aerospace is good news for Northrop Grumman.

Firefly Aerospace is on a roll.

At 3:01 a.m. ET on Oct. 1, Firefly successfully launched its FLTA002 "Alpha" rocket into orbit, deploying three satellites as its payload and claiming 100% mission success on its second attempt to reach orbit.

Not everyone agrees that the mission was 100% successful. Critics point out that Firefly's satellite payloads ended up in suboptimal orbits, so they fell back to Earth faster than planned. But even if you call the mission only "mostly successful," Firefly seems ready to take first place among the new breed of small rocket launching companies in at least one respect: With a 1-ton payload capacity to Low Earth Orbit (LEO), its Alpha rocket offers a more robust alternative to Virgin Orbit's (NASDAQ: VORB) LauncherOne, with its 500 kg capacity, or Rocket Lab's (NASDAQ: RKLB) Electron rocket, which can carry 320 kg to LEO.

And that's not all. Just hours before the mission launched, the company landed a $17.6 million U.S. Space Force contract to launch a "rapid response" mission in 2023, proving it can prep and launch a small satellite into orbit with just 24 hours' notice. (Between now and then, Space News reports that Firefly will conduct a second launch, this time of a Venture Class satellite for NASA, later this year). All of the above is great news for Firefly Aerospace -- a veritable phoenix story of a once-bankrupt company coming back to life.

But Firefly's success may be even more important to another company entirely: Northrop Grumman 

As you may recall, Northrop Grumman has run into some roadblocks with its space program. No sooner had Northrop purchased rocket maker Orbital Sciences and merged it into Northrop's new "Space Systems" division ($10.6 billion in annual revenues now, or about 30% of all Northrop's revenues, according to data from S&P Global Market Intelligence), than Russia invaded Ukraine, causing two problems. First, Russia was supplying RD-181 engines for Northrop's rocket, and under America's sanctions regime, those engines could no longer be imported from Russia. And second, Ukraine was building Antares' entire first stage -- which was hard to do while being shelled by Russia.

Without those engines and without those rockets, Northrop would have a hard time performing its multibillion-dollar NASA contract to resupply the International Space Station by rocket.

Northrop announced its solution to both problems in August when it "joined forces" with Firefly Aerospace to "provide an American-built first-stage upgrade for the Antares rocket and a new medium launch vehicle [MLV] to serve commercial, civil and national security space launch markets."

Now, the "Reaver" engines that lifted Firefly's rocket to orbit last week were not the same engines Northrop will use on either the Antares 330 or the MLV. Firefly will develop new "Miranda" engines for these purposes. Regardless, the fact that Firefly has successfully developed one set of engines, and a rocket to carry them, argues in favor of the company's ability to develop even bigger, better engines and rockets for Northrop in the future.

What it means for Northrop Grumman

So basically, last week's launch was a step in the right direction for both Firefly and Northrop. For Firefly, the test flight advances the company toward commercial viability and keeps it on track to launch a planned six commercial missions in 2023 -- and to double that launch rate to 12 in 2024. It also positions Firefly to follow its space rivals into the IPO market, potentially via a SPAC transaction, should its majority shareholder, private equity firm AE Industrial Partners, so desire.

For Northrop -- which perhaps not coincidentally received its first upgrade on Wall Street in more than two months this week -- Firefly's success validates the defense giant's decision to bet on a start-up. Going forward, Northrop Grumman investors will want to keep a close eye on Firefly's success as it evolves from "Reaver" to the "Miranda" engines that Northrop needs for its new rocket ships.

Any setbacks for Firefly will imperil revenue streams at Northrop's space division -- which, remember, amount to 30% of Northrop's business. But the more progress Firefly makes, the more secure Northrop's space business will become.