President Obama recently threw open America’s space programme to private companies – announcing a 6% increase in NASA’s five-year budget to $100bn. After years of keeping space travel the strict preserve of government, private space groups will now be encouraged to build and operate spacecraft of their own.
This is massive opportunity for us as investors. For the first time ever it will provide big business with the necessary funding, expertise and guaranteed work to transform the space industry in the same fashion as the airline sector took-off after the second world war.
Back then the military flew most planes, but private companies eventually started operating aircraft – especially when they got a guaranteed customer in the US government to deliver air mail. And that’s what NASA would be: a cast-iron income stream, loaded up to the tune of $6bn to transport astronauts back and forth to the ISS.
What’s more it isn’t just America splashing out big bucks on the industry. There is Russia, the European Space Agency, China (who have already conducted a space-walk), Japan, India and even the Middle East entering the fray. True, they may not yet rely on private enterprise, but this will come eventually as more space operations are outsourced rather than locked away behind government doors.
The start of a new Space Race
How long before you and I get to take a trip beyond the Earth’s atmosphere? Well we will have a while to wait yet. As it stands, the Russian Space Agency is the only carrier providing transport, courtesy of spare seats. And neither is it exactly cheap, since the price for a flight brokered by Space Adventures to the ISS aboard a Soyuz spacecraft is around $20m–$35m per trip. However this vast expense is coming down fast as technology improves and more competition comes on stream.
One early pioneer offering space flights is Virgin Galactic, whose SpaceShipTwo was unveiled in California in December by Richard Branson. The sleek, black and white 18-metre long vessel is capable of taking six passengers and two pilots for a brief trip above the atmosphere. About 13,000 people have already registered to pay a deposit and some want to pay the full $200,000 upfront to bag a place on one of the maiden flights. After blasting up high enough to achieve weightlessness, and see the curvature of the Earth, passengers will glide back down to Earth. Flights will take off from New Mexico, with Sweden and Abu Dhabi to follow.
Another leading buccaneer is Benson Space led by rocket entrepreneur Jim Benson. His spaceship is designed to hold up to six passengers along with the crew and will be based on the NASA shuttle model.
Aerospace giant Lockheed Martin also recently announced plans to supply an improved version of its Atlas V rocket to a space entrepreneur planning a privately operated, orbiting hotel to house intrepid adventurers. These industrial titans will race against each other to launch the first commercial space flights, in a rerun of the space race that caught the imagination of Americans and Russians during the Cold War.
And this not just about tourism. Virgin are betting that payloads of metal and silicone will be just as profitable as human cargo. The Virgin mother ship (the large spacecraft that carries the smaller rocket plane to about 15km before boosting it a further 95km into space) will also be capable of using ground-launched rockets to fire small scientific and commercial satellites into orbital space at a tenth of the cost of existing Nasa missions.
So how big is the opportunity?
Well according to The Space Report 2009, the worldwide industry was worth $257bn in 2008. This was split 67% commercial infrastructure and satellite services, with the rest being from government spending. In comparison, the entire UK space sector contributes £6.5bn to the domestic economy, supporting around 68,000 direct and indirect jobs. However I suspect in 40 years time, the global space industry will be whole lot bigger.
And with the recent discovery of water on Mars and the moon, there is now a very real chance that these planets could be used as staging posts for bolder missions out into the wider universe..
How to cash in
Ok how can we profit from space travel?
Well the leading private companies include aerospace giants Boeing and Lockheed Martin. Boeing is the prime contractor for the ISS – which was developed in a partnership among the US, Russia, Japan, Canada, and the European Space Agency – whilst Lockheed Martin is another of NASA’s largest and longstanding contractors.
Although I like both of these quality businesses, I believe there are better options in smaller and pure-play providers. One is SpaceX (the shares are not publicly listed though), which already has its Falcon rocket and Dragon capsule, and others include Bigelow Aerospace and Sierra Nevada (SpaceDev subsidiary). Bigelow is another firm developing a commercial space hotel.
However my favourite play on the new Space Race – and one I’ve been following for some time – has already signed a $1.9bn contract with NASA to resupply the ISS until 2015.
It’s a company I recently recommended to subscribers of my Precision Guided Investments newsletter.