Beam the money up Scottie
Defense: $17.4bn U.S. Space Force Budget Request
The DoD budget for Space systems continues to grow at a healthy clip. The $2bn boost in funding requested for the U.S. Space Force in FY22 also proves the newest branch of the U.S. military is here to stay. NOC and LMT are well-positioned to benefit from increased DoD spending on Space programs.
USSF Accounts for Majority of DoD Space Funding
Pentagon spending on Space systems is on the rise. According to its recently released FY22 budget request, the DoD is seeking $16.7bn for Space Based systems. While this $16.7bn cuts across the Defense Department, the bulk consists of investment funds requested for the U.S. Space Force (USSF). The USSF has requested $14.1bn in FY22 to develop and procure Space systems. We note the topline USSF request of $17.4bn in FY22 includes additional Operations and & Maintenance spending.
DoD Requests $16.7bn for Space Based Systems in FY22
The Pentagon is requesting $16.7bn for Space Based systems in its FY22 budget request. The requested funding supports spacecraft, launch vehicles, command and control systems, and ground terminals. This year’s request is up $1.2bn over the FY21 request of $15.5bn, reflecting 8% growth.
Space Recognized as a Warfighting Domain
Underpinning the growth in funding for DoD Space systems is the Pentagon’s recognition that Space is now a “warfighting domain critical to the Nation’s security, economic prosperity, and scientific knowledge.” Adversaries are aggressively looking to exploit the U.S. military’s reliance on Space. According to the Department, “this vital national interest can no longer be taken for granted. It must be secured.”
Space Based Systems Funding Request Growing at 15% CAGR
As DoD thinking on Space has evolved, its budgets have followed suit. Funding for Space Based systems has grown at a 15% CAGR since FY16. Currently, requested funding for Space systems represents 7% of the total DoD investment budget request, compared to 4% in FY16.
U.S. Space Force Is Here to Stay
Despite some early speculation that the Biden administration would reassess the U.S. Space Force (USSF) minted by its predecessor, the White House confirmed its support for the USSF in February 2021. The President’s FY22 budget request reaffirms this commitment. $17.4bn is requested for the USSF in FY22, a $2bn increase from $15.4bn in FY21. Funding priorities for the USSF include missile warning and missile tracking; position, navigation, and timing (PNT); command and control; and assured access to Space.
Classified RDT&E Funding up $817mn
The USSF budget request is heavily weighted toward R&D. $11.3bn in R&D funding is requested in FY22, up $726mn from FY21. The increase is driven by classified programs, which grew $817mn to $4.5bn in FY22. We note Northrop Grumman (NOC) expects classified Space programs to drive higher growth for the company. It would not surprise us to see NOC capture some of this additional classified funding.
Unclassified RDT&E Funding is Flat
The USSF is requesting $6.8bn in unclassified R&D funding in FY22, down $91mn from FY21. The largest development efforts include the Next-Generation Overhead Persistent Infrared (OPIR) system, Global Positioning System Enterprise, and various Satellite Communications (SATCOM) projects.
- Next-Generation OPIR: $2.5bn in R&D funding is requested for the Next-Generation OPIR system – a new Space-based missile warning system that will replace the current Space Based Infrared System (SBIRS). R&D is up $132mn from FY21 enacted levels. LMT and NOC have been awarded prime contracts for the program.
- GPS Enterprise: The FY22 USSF budget also requests $1.1bn in R&D funds for the Global Positioning System Enterprise, which includes satellites, command and control, and user equipment. Although the FY22 R&D request for GPS systems is relatively flat, funding for GPS user equipment increased by $53mn ($381mn in FY21 v. $434mn in FY22), which should benefit LHX and RTX. The USSF is also requesting $601mn in Procurement funding for two GPS III satellites, compared to $598mn in FY21.
- SATCOM: $848mn in R&D funding is requested for various SATCOM development projects, up $108mn from FY21. This includes $160mn for the Evolved Strategic SATCOM (ESS) program, up $89mn over FY21 levels. BA, LMT and NOC are developing ESS prototypes. The final design will replace the current Advanced Extremely High Frequency (AEHF) system.
USSF Procurement Funding up $500mn
The Space Force is requesting $2.8bn in FY22 Procurement funding, up $456mn compared to FY21 enacted levels. This increase is driven by an additional $341mn requested for five National Security Space Launch (NSSL) vehicles. The total request for NSSL procurement in FY22 is $1.3bn. NSSL primes include ULA (LMT and BA) and SpaceX.
Space Primes Aligned to USSF Priorities
The traditional national security Space primes are well-aligned to the USSF’s priority areas. LMT has capability in each area and is likely to benefit from positions on Next-Gen OPIR, GPS III, NSSL and SATCOM programs. NOC also stands to benefit from increases to Next-Gen OPIR and SATCOM funding. RTX is also competing for the Next-Gen OPIR sensor payload.
Emerging Space Programs to Watch
We also highlight a few additional Space opportunities to watch. Although funding requests for these efforts are relatively small today, each saw a significant increase over FY21 levels and may continue to evolve into larger efforts over time.
- Deep Space Advanced Radar Capability (DARC): The USSF is requesting $123mn to develop a ground-based Space Domain Awareness (SDA) radar that can track deep Space objects. The FY22 request is $90mn above the FY21 enacted funding level. The USSF intends to issue an RFP later in 2021 for prototype proposals.
- Rocket Cargo: The Air Force Research Laboratory is exploring capability to rapidly deliver cargo on reusable commercial rockets. $47.9mn is requested for the Rocket Cargo project in FY22, up from $9.7mn in FY21. We note that SpaceX has an early lead in reusable rocket technology.