Given cost overruns, Boeing might pass on space station today

Tuesday, May 2, 2000


HUNTSVILLE, Ala. -- It was the kind of careless mistake that is not supposed to happen.

Believing two crates were empty, a Boeing worker earlier this year put them into a Dumpster outside the space station manufacturing building here at NASA's Marshall Space Flight Center.

The crates each contained a lightweight, beach-ball-sized tank designed to hold a high-pressure air mixture for the airlock of the International Space Station (ISS). A search failed to recover them, and -- although a design change meant the tanks would never be used -- Boeing has agreed to reimburse NASA, if asked, the estimated $750,000 replacement cost.

The incident is a metaphor for the problem-plagued program that is more than two years behind schedule and for Boeing's difficulties as prime station contractor to NASA.

Boeing's cost overruns have reached nearly $1 billion. It has forfeited much of the potential profit it could have made from performance bonuses.

And Boeing President Harry Stonecipher has even questioned whether it makes good business sense for the company to be the station's prime contractor, according to people who have heard Stonecipher talk about the station.

Stonecipher declined to be interviewed for this story.

But one company official said Stonecipher's point is that Boeing's business focus has changed since it was picked by NASA in 1994 to be the prime contractor for the space station.

"We are not making much profit on the station," said the Boeing official who asked not to be quoted by name. "We have a lot of people tied up on a contract that even if we perform it's not a big money maker for the company.

"Look at our other contracts that these smart people could be working on that have much more potential."

About 4,000 Boeing workers are involved directly in the space station work at sites around the country. Most are in Huntsville, Florida and in Southern California.

But because of the cost overruns on Boeing's nearly $10 billion space station contract from NASA, the company will likely receive only $75.4 million of the $203 million in performance bonuses set aside for managing costs, NASA said in February. Boeing also has received only about 60 percent of $203 million available for overall good contract management, though it could still receive an additional $28 million if it meets certain technical requirements.

Boeing does not break out the financial performance of the many programs in its main business units. So industry analysts who closely follow Boeing can only make an educated guess about the kinds of returns the company is making on its space station work.

"Clearly, this is one program that is probably not carrying its own weight," said analyst Peter Jacobs of the Regan MacKenzie Group in Seattle. "Boeing is probably not losing money, but given the resources and capital they have put into this, it probably doesn't make sense from a value-added perspective. . . .

"Given what Boeing knows now, it's probably safe to say this is not a program Boeing would have undertaken," said Jacobs.

The station, an orbiting laboratory that will eventually be the size of one and a half football fields, is more than two years behind schedule and will not be completed until September 2005, assuming NASA's latest assembly schedule doesn't slip even more.

A Russian-built element now in orbit is running out of power because of bad batteries. Bad weather at the Kennedy Space Center prevented NASA from launching a shuttle mission last week that would have brought fresh batteries to the fledgling station. The shuttle also was to nudge the station into a higher orbit until a critical Russian service module is finally launched in July.

That shuttle mission has been rescheduled for May 18. Meanwhile, the station continues to lose nearly 2 miles of altitude a week and will have to dip into a limited on-board fuel reserve to boost its orbit until the shuttle arrives.

Blame the cash-strapped Russians, one of the 16 international partners, for much of the two-year delay. The Russians have been late launching the service module that will be the early living quarters for construction astronauts during assembly. The service module will also provide a permanent propulsion system to keep the station from falling out of orbit and burning up in the Earth's atmosphere.

Russian delays have cost NASA an estimated $3 billion.

John Pike, director of space policy for the Federation of American Scientists in Washington, D.C., said problems should be expected on such a massive and complex effort, one much more difficult than the Apollo moon landing.

He described the space station as "the biggest construction project since the Pyramids."

The first two elements have circled the Earth nearly 10,000 times since they were launched. One is a connecting node called Unity made by Boeing at its space station manufacturing building here in Huntsville. It was carried into orbit by a shuttle in December 1998 and astronauts attached it to a Russian-built module called Zarya that had been sent into space several weeks earlier.

Unlike the much-delayed service module, Zarya was built with U.S. money under contract for Boeing.

The Russian service module was supposed to go up early last year. It wasn't ready, even though NASA's original station assembly schedule called for it to be in orbit by early 1998, a couple months after the first two elements.

Russia's Proton rocket, which will carry the service module into orbit, also failed twice in 1999, furthering the delays. The rocket was grounded until design changes could be made. In February, a Proton successfully placed a satellite into orbit, but two more tests are planned before it carries the all-important service module to the station in July.

If that mission is a success, the first astronauts will begin living in the service module in October. Three-man work crews will be rotated until assembly is complete.

Without the Russian service module, astronauts might not be able to live continuously on the station until the Boeing-built habitat module is launched to complete station assembly in September 2005.

The 28-foot-by-14-foot habitat module is one of four U.S. pressurized segments that Boeing built under its NASA contract. The node is already in orbit. A laboratory module is at Kennedy undergoing tests and is scheduled to be launched next January. And a Boeing-built airlock is still here in Boeing/Huntville's space station manufacturing building. It is nearly completed and is supposed to be transported to Kennedy in July for launch next May.

The habitat module is also still here. But it is only a hollow aluminum shell. NASA issued a stop-work order on the module a couple of years ago while it explored the idea of roomier accommodations called Transhab, an inflatable module NASA had hoped to finance with private contractors who would then rent out its space to NASA. It didn't happen.

Mark Stephenson, head of Boeing's space station work here in Huntsville, said NASA could give the order next month for Boeing to pick up work again on the habitat module.

It's almost impossible to imagine Boeing not being involved in a project such as the International Space Station.

The company's space roots go deep. In the same building here at Marshall Space Flight Center where Boeing has manufactured all the pressurized U.S. modules for station, an earlier generation of Boeing workers built the first stage of the mighty Saturn 5 rocket that carried U.S. astronauts to the moon.

"This is an important program to us. The Boeing name plate is going to be on the space station," said Joe Mills, Boeing's deputy space station manager in Houston in an echo of the company's stated goal of being a leader in the space business.

But Mills also knows that times have changed for Boeing.

"ISS does fit the category of providing value to the company," Mills said. "Are the returns what we would like them to be? No. We would like to have better returns. But we do recognize the realities of doing business with the government. Even Harry (Stonecipher) has stated, and I've been in meetings with him where this has come up, that if we could get returns in the 8 to 10 percent range, that would be a reasonable return for a government program."

Mills pointed out that the NASA contract has generated sales for Boeing of about a billion dollars a year.

"That's a lot of money that flows to the corporation," Mills said. "Even though the rate of return may not be exactly what we want, whether it is 5 or 6 percent of that, it is still profit. Those are bottom-line dollars."

That may be, but Stonecipher has told people within the company that if NASA were looking for a prime contractor today for the space station, Boeing might pass.

Said the Boeing official who asked not to be quoted by name:

"Now that the company has a different focus -- creating value -- we have to be careful in government business not to sign up on long-term contracts that are not going to be very profitable for us and can't create value."

P-I reporter James Wallace can be reached at 206-448-8040 or [email protected]

© 1998-2000 Seattle Post-Intelligencer.
All rights reserved.