Standoff over Crimea could hurt Colorado space industry

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Photo: Atlas V Rocket ULAOngoing tensions between the U.S. and Russia over Crimea could hurt a Colorado-based aerospace company that relies on Russia for a key part to manufacture rockets provided to the U.S. military.

The U.S. and Russia may start to negotiate a diplomatic solution to the crisis in Crimea, a region in Ukraine, but Congress is still considering further sanctions on Russia to penalize it for invading another sovereign country. And, Crimea is only the latest in a series of aggressive moves by Russia’s military, which have resulted in an increasingly rocky relationship between the U.S. and Russia.

That could spell big trouble for Colorado-based rocket supplier United Launch Alliance (ULA), a joint venture between Lockheed Martin and Boeing that launches most of the defense and intelligence satellites in the U.S.

One of the two rockets it produces, the Atlas V, uses engines and parts that are produced in Russia. The U.S. reliance on Russian engines, called the RD-180, has recently come under scrutiny by U.S. Secretary of Defense Chuck Hagel, who ordered a review.

Marco Caceres, a space industry analyst with the Teal Group based in the D.C. area, says Hagel's review is meant to analyze how dependent the U.S. military is on Russian resources and whether it's necessary.

In the end, the Department of Defense will weigh if it makes sense to depend on Russia for military equipment, some of which Caceres says is used for spy missions.

Another potential threat to ULA's business could come from Russia itself. Russia's space agency is considering ending its supply of rocket engines to the U.S., according to a Russian newspaper report. And industry-watchers are speculating that Russia could stop selling the engines to the U.S. as part of sanctions over Crimea, although to this point, Russia and the U.S. have only placed sanctions on individuals, not on whole industries.

Even if Russia doesn't act first, ULA faces challenges at home over its economic relationship with Russia.

Elon Musk, the head of ULA's main competitor SpaceX, in March lobbied a Senate subcommittee saying that in part because of the standoff over Crimea the U.S. should stop using the Atlas V altogether.

"There is absolutely zero dependence on Russia with this rocket,” Musk said in prepared testimony. “To state the obvious, the same cannot be said of ULA."

In response to an interview request from CPR, a spokesperson from ULA wrote in an email that the company maintains a 2-3 year supply of the engines it uses for the Atlas V rocket. And, the company says it has, "developed significant engineering and manufacturing capability which ultimately demonstrated the capability to co-produce the RD-180 domestically."

According to a report in Aviation Week, "If Russia were to hold the RD-180 hostage, the Defense Department estimates it would need $1 billion over five years to establish production on U.S. soil."

Caceres says that after the 2-3 year time frame, it's not as clear how ULA could continue making the Atlas V rockets. He says this could ultimately lead to ULA falling apart altogether because the venture is a partnership between two companies, Lockheed and Boeing. If one company cannot produce its flagship product, the other company may decide to go out on its own.