Sunday, December 31, 2017

Sole U.S. Producer of a Vital Rocket Propellant Meets Competition: Huntsman family paid a premium when they gained control of American Pacific, confident they could continue charging premium prices

Under the leadership of Jon Huntsman Sr., the Huntsman family has assembled a global chemical-making empire. Shown, Jon Huntsman Sr. looked on after a ribbon-cutting ceremony at the University of Utah in 2015.

The Wall Street Journal
By Andy Pasztor
Updated Dec. 29, 2017 11:29 p.m. ET

An American Pacific Corp. plant—the only domestic producer of a key compound used in tactical missiles, nuclear-tipped rockets and civilian boosters—has been embroiled in pricing and policy controversies for three decades.

After a 1988 explosion at a predecessor company’s plant near Henderson, Nev., killed two people and injured more than 300, the Pentagon agreed to have ammonium-perchlorate production moved to a more isolated site in Utah.

By the late 1990s, federal officials gave the green light for that facility to become the only U.S. source of the compound, an essential oxidizer for solid rocket motors.

Volume dropped sharply after the end of the Cold War and declined further during Pentagon budget tightening under President Barack Obama. Despite various ownership changes, however, the company continued to enjoy hefty margins as a sole-source producer.

The latest dispute follows a roughly fivefold increase in prices over a decade, according to the plant’s largest customer. But it also reflects a fundamental business miscalculation by the investment vehicle for the prominent Huntsman clan, which acquired control of the company in 2015.

Under the leadership of Jon Huntsman Sr. , the family assembled a global chemical-making empire and members became civic and philanthropic leaders in Utah.

Jon Jr., a former Utah governor and GOP presidential candidate, currently serves as U.S. ambassador to Russia.

When the family gained control of American Pacific from a private-equity group, it paid a premium including money set aside for environmental cleanup. The Huntsmans, according to people familiar with their thinking, felt confident they could continue charging premium prices for a product deemed essential by every branch of the U.S. armed services.

But things went sour quickly. The new owners didn’t take into account the increasingly competitive landscape, particularly for rocket propulsion, prompted by the rise of commercial space companies, such as Elon Musk’s Space Exploration Technologies Corp.

The Huntsman team also realized too late the extent of the bad blood between their company and its biggest customer, Orbital ATK Inc., which demanded deep price cuts in exchange for signing multiyear agreements.

An impasse over pricing has provided an opening for less-expensive foreign supplies. But Paul Huntsman, American Pacific’s chairman and another son of Jon Sr., highlights the legacy of reliance on U.S. supplies. “Domestically produced fuel,” he said, “has successfully supported our national security and space supremacy for the last 70 years.”

A Pentagon spokesman said the military prefers to “maintain a U.S. industrial capability” for ammonium perchlorate but “continues to explore many mitigation options in an effort to find the most cost-effective” solution.

As the debate heats up, American Pacific supporters are campaigning for help from Pentagon brass and advisers in the West Wing of the White House to guarantee future prices and volumes. A French joint venture seeking to expand its foothold in the U.S. oxidizer market is advocating a compromise, according to industry officials involved in the discussions. The proposed solution envisions reserving some sole-source domestic contracts, but opening up other military and civilian business to international competition.

Original article can be found here ➤

Orbital ATK's Antares rocket sits on the 0A launch pad at the NASA Wallops Island flight facility in Wallops Island, Virginia, on November 10.

The Wall Street Journal
By Andy Pasztor
December 29, 2017 2:11 p.m. ET

Orbital ATK Inc. has sparked national security concerns among White House officials by shifting to foreign purchases of an essential chemical the company and other Pentagon contractors use to power U.S. missiles and rockets.

Orbital ATK is seeking to remain competitive in the fast-changing aerospace industry partly through its acquisition of more than one million pounds of low-priced ammonium perchlorate from a French joint venture of Safran SA and Airbus SE in the past year.

In behind-the-scenes clashes, high-ranking trade, military and space advisers to President Donald Trump have voiced opposition to Orbital’s purchase as part of company cost-cutting initiatives, according to industry and government officials familiar with the details.

The propellant is available at a higher price from a sole domestic source, closely held American Pacific Corp., controlled by Utah’s billionaire Huntsman family, which founded multinational chemical powerhouse Huntsman Corp. Low sales volume and high fixed costs have made the company vulnerable to less-expensive competitors. 

The material is a vital oxidizer that controls how quickly and with what power solid rocket motors burn. It is used in everything from missiles carried under the wings of Air Force fighters to the largest, nuclear-tipped missiles buried in silos or hidden beneath the seas aboard Navy submarines.

A handout photo made available by NASA shows the Orbital ATK Antares rocket, with the Cygnus spacecraft onboard as it launched from NASA's Wallops Flight Facility in Wallops Island, Virginia, on November 12.

The National Aeronautics and Space Administration also relies on ammonium perchlorate for its next-generation rockets, called SLS, eventually slated to take astronauts to Mars.

The French imports are intended to be part of a test to determine, among other things, whether NASA will permit the foreign material to be put into those rockets.

American Pacific charges roughly twice as much per pound for the compound as its overseas competitor, setting up a conflict between “Buy American” principles championed by the Trump administration and military and NASA program managers intent on squeezing the most out of every acquisition dollar.

The issue also heralds a broader debate over erosion of U.S. defense suppliers and the aerospace industrial base. With an administration-wide report on the general health of second- and third-tier suppliers due in the spring, one senior White House official considers American Pacific’s escalating financial problems “an excellent example of the need to ensure domestic capabilities” amid a dwindling number of homegrown subcontractors.

Above all, White House advisers are stepping up scrutiny due to worries about outsourcing such a vital product to a foreign venture. “It’s imperative that all government agencies are acting in concert with the goal of ensuring a reliable U.S. supply,” according to Peter Navarro, a top trade adviser to Mr. Trump, who is leading the charge against Orbital ATK.

As the leading U.S. maker of solid rocket motors, Orbital ATK currently consumes about half the domestic supplies of ammonium perchlorate. Management has told federal officials that at a time when the company is demanding price cuts from subcontractors and sharply scaling back its own production costs and personnel, it wants to avoid paying monopolistic prices to American Pacific. The solid rocket motor business has shrunk in the past two decades, with many industry officials anticipating more consolidation.

An Orbital ATK spokeswoman said, “We constantly seek and evaluate ways to reduce costs in our supply chain while also mitigating program risk.” Because higher prices for the oxidizer threaten to add tens of millions of dollars to each SLS launch, she said, Orbital ATK “will continue to work with our customers on the most affordable ways to help them achieve their goals.”

Confronted with White House criticism and accelerating drops in demand, American Pacific is appealing to patriotism. “We firmly believe that the Trump administration will not allow imported rocket fuel that is subsidized and subject to control by a foreign government to power our nation’s missile defense, nuclear deterrent and critical space missions,” said Paul Huntsman, American Pacific’s chairman.

American Pacific has repeatedly told federal officials it needs minimum, multi-year purchase guarantees to operate efficiently and lock in plans to stay afloat. Such arguments are backed by Scott Pace, a senior aide to Vice President Mike Pence and the top staffer at the White House Space Council.

Mr. Pace expressed concerns to Orbital, American Pacific and administration officials at meetings earlier this year about looking overseas for the oxidizer, according to some of the participants. Through a spokeswoman, Mr. Pace earlier this month said the council “hasn’t made any policy recommendations to the President” about the topic.

An American Pacific plant in Cedar City, Utah, turns out more than four dozen, slightly different variations of the compound needed for the full range of Pentagon applications. Supporters contend foreign supplies wouldn’t be able meet all of those specific requirements and will entail substantial testing costs to certify a new source.

Orbital ATK continues to study the possibility of building its own ammonium perchlorate plant and counters that the necessary testing can be done gradually, preserving ultimate savings.

The prospect of a second supplier—whether overseas or domestic—has ramifications as the Trump administration prepares to spend tens of billions of additional dollars to ramp up production of conventional armaments and expand U.S. missile-defense capabilities. All of those weapon systems will depend on ammonium perchlorate.

A Defense Department spokesman said Pentagon leaders are exploring a range of options, “including development of a second U.S. source to provide competition and to ensure security of supply for this vitally important material.” Estimates range up to several hundred million dollars to build a new plant and thoroughly test the output.

Inside NASA, officials are essentially treading water on the issue while waiting for confirmation of a permanent  administrator.  An agency spokesman released a statement saying “NASA supports efforts to buy American products but depends on Orbital ATK to make decisions” in order to “maintain a reliable supplier base.”

Original article can be found here ➤


Anonymous said...

F the Huntsman family. This is a global economy, get onboard or get the F out.

Anonymous said...

If the Dump Administration wants to buy American, then it has to build up American competition instead of relying on monopolies that perpetuate high costs. Stop bowing down to the Huntsman insider lobbyists! Smells like the swamp is getting deeper.

Anonymous said...

In its wisdom there was a time when there were two makers and they were both in Henderson NV. In the late 80's the American Pacific (Pepcon) plant blew up in a spectacular explosion. I had visited the company two weeks before and the plant manager said that he would not want to be around in if it exploded. There is a raw video.

Anonymous said...

Used to be called Morton Thiokol which was found responsible after its solid fuel rocket on the Challenger blew up.

Anonymous said...

A friend in the mil-biz recounted a story about a test pilot friend that made a "Pepcon run" after extricating himself from the test aircraft he'd just crashed exploded. I failed to ask him at the time what a "Pepcon run" was and have wondered about the origin of the phrase ever since. Now I know...

Anonymous said...

When you create a monopoly, expect monopoly pricing.

Just what did they expect I wonder, Liberal pricing with shared profits....what a hoot!

Anonymous said...

I would prefer to see U.S. tax dollars spent in the U.S. rather than in France if at all possible. Also, human lives depend on the quality of the various fuel products American Pacific produces (in some cases). I think Orbital ATK should be more responsible.