Financial documents raise questions about AR1 engine’s readiness
Publicly, the venerable US rocket engine company Aerojet Rocketdyne maintains that it is committed to finishing development of its powerful new AR1 engine by 2019. By meeting this deadline, company officials say, they will provide an all-American engine in time for use by United Launch Alliance's next-generation rocket.
However, a review of recent financial US Securities and Exchange Commission filings by Aerojet reveals that, even as it says progress is being made toward completing the AR1 rocket engine, the company is spending substantially less money developing it.
Based on 10-K and 10-Q filings from 2016 and 2017, Aerojet had been spending more than $25 million per quarter during the first half of 2016. Funding levels, which include money from the US Air Force, Aerojet, and United Launch Alliance, rose during the second half of 2016 and peaked in the first quarter of 2017, when the company invested $36.6 million. This is consistent with the normal development curve of a new rocket engine, when large amounts of funding are needed for research, development, and testing.
However, during the last two quarters of 2017, funding plummeted. The company spent just $8.2 million in the third quarter of last year and $9 million in the fourth quarter. Under terms of an agreement with the US Air Force, the federal government was to provide two-thirds of the funding for this AR1 development, with Aerojet providing the final third. In the last two quarters of 2017, it is not clear whether Aerojet met its one-third cost share obligation.
In response to a question about these falling expenditures, Aerojet offered the following statement from the company's Vice President and Chief Communications Officer, Steve Warren. “Aerojet Rocketdyne has invested more than $110 million in the AR1 engine," he said. "We are committed to delivering an engine in 2019, and continue to believe AR1 represents the nation's lowest risk, lowest cost and fastest path to breaking the Air Force’s dependence on Russian technology for America’s most important national security missions.”
It is not clear why Aerojet would slash spending on the AR1 engine even as it was in the midst of a heated competition with Blue Origin, and its BE-4 engine, to provide engines for United Launch Alliance's Vulcan rocket. At stake is a steady stream of contracts for engines to be used for national security launches throughout the 2020s.
The funding levels dropped, coincidentally or not, at the same time it became increasingly clear the AR1 engine had fallen behind the BE-4 in development. During the second quarter of 2017, at the request of Congress, Marshall Space Flight Center performed a secretive study of the AR1 and BE-4 engines to determine which of them would be ready for use sooner. That study reportedly found that Blue Origin engine was about two years ahead of the AR1.
Blue Origin was also the first company to put hardware on a test stand. In October of last year, Blue Origin hot fired a full-scale BE-4 engine at 50-percent power for three seconds. Since then it has continued a regime of testing the engine at its West Texas facilities. Even as Blue Origin was making this demonstrable progress, Aerojet was pulling back financially on its engine.
Reduced cost share
In recent months, Aerojet has also sought an increased share of federal funding for the AR1 engine. Presently, the company is negotiating with the Air Force to reduce its share of the AR1 development costs from one-third to one-sixth. The Air Force has not made a decision on whether to increase its investment in the AR1 engine.
In 2014, the chief executive Aerojet's parent company, Gencorp, said it would take $800 million to $1 billion to develop the AR1 engine. Then-CEO Scott Seymour anticipated multiple customers for the new engine, saying, "We really believe with the AR1 approach, we have a multitude of applications for the engine." But those customers have yet to emerge.
Of this estimated $800 million to $1 billion needed for the AR1 engine's development, only a fraction has been spent. According to the financial documents, the US Air Force, Aerojet, and United Launch Alliance have spent $245.6 million on AR1 research and development through the end of of 2017. That only a fraction of AR1's anticipated development costs have been paid, and Aerojet's decreased investment in recent quarters, raises serious questions about whether the AR1 engine will be ready next year—or any time soon.
Meanwhile, the chief executive of United Launch Alliance has publicly said his company is confidently targeting mid-2020 for the maiden launch of the Vulcan rocket. This would seem to leave the BE-4 engine, which has largely been financed by investments from Amazon's Jeff Bezos into his Blue Origin company rather than the federal government, as the only suitable motor for the new vehicle.
To that end, the recently passed National Defense Authorization Act allows the Air Force to terminate funding for other rocket propulsion systems when “the Secretary of the Air Force certifies to the congressional defense committees that a successful full-scale test of a domestic rocket engine has occurred.” Three sources interpreted this to Ars as a provision that could allow the Air Force to end its support for the AR1, if it so desires.