The United Launch Alliance Atlas V rocket with NASA's Magnetospheric Multiscale (MMS) spacecraft onboard launches from the Air Force Station Space Launch Complex 41 on March 12, 2015 in Cape Canaveral, Fla.
Photograph by NASA/Getty Images
By Clay Dillow
December 10, 2015

In declining to bid on a U.S. Air Force space launch contract last month, a joint venture between Boeing (“BA”) and Lockheed Martin (“LMT”) blamed a Congressional ban on the import of Russian-made rocket engines. Sen. John McCain—one of the chief proponents of that ban—isn’t buying it.

Sen. McCain sent Defense Secretary Ash Carter a characteristically tersely-worded letter yesterday that accused the joint venture of manufacturing reasons for why it couldn’t compete for the launch. He described it as an effort to compel Congress to lift the ban on Russian engines.

McCain asked the Defense Department to halt regular subsidy payments made to the company to offset maintenance and infrastructure costs pending a review of its cost accounting systems. He also wants officials to evaluate the various assertions made by the partnership, known as United Launch Alliance (ULA), which until recently owned a monopoly on all Pentagon space launches.

“These assertions have major implications for both the DoD and the Congress, especially the clearly-established legislative priority to eliminate the DoD’s reliance on Russian-made rocket engines and whether the DoD should continue paying ULA a nearly $1 billion annual subsidy whether it actually launches satellites under the program or even chooses to compete for those launches,” McCain writes in the letter.

A quick backgrounder: Until Elon Musk’s SpaceX was certified to launch national security missions aboard its Falcon 9 rocket earlier this year, ULA was the Pentagon’s sole source of space launch services for national security satellites. ULA’s workhorse rocket, the Atlas V, requires a Russian-made engine known as the RD-180 to power its first stage. When Russia annexed Crimea in March of last year, Congress leveled a slew of economic sanctions against Russia, among them a ban on the import of Russian rocket engines for national security-related launches (commercial and scientific missions do not fall under the ban).

The ban exempted five RD-180 engines that were already on-order and paid for at the time the ban went into effect, offering ULA some flexibility in its launch manifest. But a home-grown RD-180 replacement engine sought by the U.S. Air Force won’t be ready until 2019 at the earliest. In the meantime, ULA is more or less grounded without more RD-180s to power its Atlas V rockets.

These circumstances have coalesced around ULA at a time when the Air Force has been trying to cultivate an expanded industrial base for space launch services. More competitors bidding on its launch contracts will drive down the cost of launch, the reasoning goes. It would also provide an important redundancy should technical issues or some other unforeseen event ground one of its launch partners.

By declining to bid on the launch–the first for which rival SpaceX was eligible to compete–ULA effectively cedes the contract to SpaceX, now the only company bidding for the business (the Air Force will formally award the contract early next year). Two factors drove the company’s decision to withdraw from the competition, according to ULA representatives. First, the company doesn’t have the correct contract accounting mechanisms in place to complete a compliant bid under the Air Force’s competitive bidding process. But the larger reason, company execs say, is that the company’s remaining stock of RD-180 engines has already been committed to other missions.

In his letter, McCain takes issue with both assertions, variously referring to them as “specious,” “dubious,” and “manufactured.” The Senator suggests that by declining to bid on the launch ULA is intentionally thwarting efforts to create competition in the launch market. The idea, McCain suggests, is to compel Congress to ease its sanctions and let ULA purchase the Russian rocket engines it wants.

“ULA’s use of these tactics is unacceptable,” McCain writes. “It artificially created a need for relief from legislative restrictions on its ability to continue using RD-180.”

McCain’s major beef with ULA centers on its assigning of some of its remaining RD-180s to commercial missions not impacted by the ban. “Instead of setting those engines aside for national security launches, ULA rushed to assign them to non-national security launches that are unrestricted in their use of Russian engines,” McCain writes. “Put simply, there was no compelling reason to re-purpose DoD engines other than to attempt to compel Congress to award the Russian military-industrial base by easing sanctions targeted at Vladimir Putin and his cronies.”

A letter is only a letter, but one from the powerful chairman of the Senate Armed Services Committee could make a tangible impact on ULA. From the Defense Secretary, McCain wants an explanation—“with reference to source contractual documents”—as to when exactly ULA began assigning those Russian engines away from national security missions, and whether it was necessary to do so. He also wants an audit of ULA’s contractual accounting practices, and wants to withhold additional subsidy payments to the company—which stack up to nearly $1 billion annually—until he gets it.

ULA declined to comment for this story. The Defense Department did not respond to requests for comment.

For more on the commercial space launch industry, watch this Fortune video.


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