Shares of Orbital Sciences Corp. (NYSE: ORB) were down 17% yesterday after the company’s Antares rocket exploded in a ball of flames just 11 seconds after takeoff on Tuesday evening.
Fortunately, no astronauts were aboard the unmanned rocket, and no personnel were harmed in the explosion, but the losses were great regardless.
In addition to the loss of the $50 million Antares rocket and significant damage to the launching pad, $200 million in cargo making its way to the International Space Station (ISS) was also destroyed.
Thank heavens for insurance!
Here’s a piece of the devastation NASATV was able to capture:
Until Tuesday evening, Orbital had a nearly flawless record with its Antares program. The Antares rocket had launched on four previous missions, all without a hiccup.
Tuesday’s launch was the first to try a slightly more powerful version of the rocket: the Antares 130. This rocket was nearly identical to previous versions but featured a newly reworked main engine and an enhanced upper stage engine.
It would be difficult to attribute the cause of the explosion to the upper stage, as the engine never even had a chance to go off. And if you watch a video of the failed launch, the initial explosion definitely seems to happen at the first (lower) stage of the rocket.
Pointing Fingers
If we had to guess, the most likely culprit of the explosion is one of Aerojet Rocketdyne’s two AJ-26 engines used in the first stage of Antares.
Not only is the AJ-26 a refurbished version of Soviet engines dating all the way back to the Cold War, but in May, an AJ-26 engine failed 30 seconds into a test firing.
It’s important to keep in mind, though, that this is all just speculation for the time being. There could be countless other causes for the failure.
An investigation is currently underway, and it may take some time before Orbital can figure out what went wrong. In regards to the AJ-26 engine, Frank Culbertson of Orbital’s Advanced Programs Group has said:
“We didn’t see any anomalies or anything that would indicate there were problems with the engine. We don’t know whether the engine was involved at all or not. These were extensively tested, are very robust and rugged, and go through extensive testing at Stennis before they are installed on the rocket.”
Of course, people are going to point fingers regardless, which is why Orbital wasn’t the only stock to take a beating following the botched launch.
GenCorp Inc. (NYSE: GY) is the owner of Aerojet Rocketdyne, and it fell 7% on Wednesday due to its connection with the AJ-26 program.
Sell, Sell, Sell?
While Tuesday’s failure of the Antares program has people selling in droves, a more rational and opportunistic mindset might be in order.
The real questions to consider here are a) does the loss of one Antares rocket decrease Orbital’s value by 17%, and b) does the possibility of AJ-26 as a culprit warrant a 7% sell-off of GenCorp?
In the case of GenCorp, the answer is a clear no, even when you assume the absolute worst.
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Let’s just say we knew with 100% certainty that GenCorp’s AJ-26 engine was the cause of the Antares launch failure. Let’s also assume Orbital stops using AJ-26 engines when it starts the Antares program back up again. Finally, let’s say Orbital does not go with one of GenCorp’s other propulsion systems as an alternative when it launches the next Antares rocket.
If GenCorp were to completely lose its place in the Antares program, the effect on the company would be practically nothing. In fact, it might even be positive.
According to GenCorp’s latest 10-Q, Antares was the only program that lost the company money in its most recent quarter. In other words, GenCorp’s ability to drive the bottom line does not depend on Antares in the slightest.
GenCorp happens to be highly diversified across many different aerospace and defense programs. Many of these programs are classified, but some of GenCorp’s largest programs include Terminal High Altitude Area Defense missiles (THAAD), Atlas V rocket launches, and RL-10 propulsion systems.
ISS resupply missions happen only a few times every year. These go off just about every other day:
In the case of Orbital, things get a little trickier. The company is fully insured for the losses it incurred on Tuesday, but there is no guaranteed time range for how long it will take the Antares program to start up again.
Orbital’s launch programs account for around a third of the company’s revenue, so it could definitely take a hit from a delay in launches. It all depends on how quickly Orbital figures out what went wrong and how quickly it can fix the problem.
In the long run, though, this is a clear buying opportunity. Over the last 30 years, Orbital has had a 95% success rate on a total of 284 launches. Over the last 10 years, including today, it’s had a 96% success rate.
The failure of Tuesday’s launch is but a blip in Orbital’s remarkable history. Remember, this isn’t exactly easy work; it’s literal rocket science, and failures do happen.
The important thing to remember is that Orbital has proven itself capable of keeping these failures to a minimum over the last three decades.
Until next time,
Jason Stutman
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