New Space Race Enters Next Stage With Moon Missions on Deck, Private Contractors Taking Larger RoleMar31

THEME ALERT: AN ACTIVE MRP THEME

I. Today’s Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

New Space Race Enters Next Stage With Moon Missions on Deck, Private Contractors Taking Larger Role

Summary: As the US approaches its first manned mission to the moon in more than five decades, private firms like SpaceX, Lockheed Martin, and Axiom Space are taking a larger role in space travel and raking in billions of dollars’ worth of government contracts. Though a big part of any launch will be the rockets, space suits, and other materials involved, improving satellite communication networks between Earth and its moon will be critical in establishing a permanent base of operations on the lunar surface.

Though the US government and American firms are the leading parties in more than 100 planned moon missions throughout the end of the decade, China’s burgeoning space program will be doing everything it can to play catch up in the new space race. China’s space program has had a presence on the moon since 2013 and recently unleashed groundbreaking results from the country’s first lunar sample-return mission.

Related ETFs: SPDR S&P Aerospace & Defense ETF (XAR), Procure Space ETF (UFO)

Next week, NASA and the Canadian Space Agency (CSA) will name three Americans and one Canadian that will go to the moon as part of the upcoming Artemis II mission, set to launch sometime in or after November 2024. Artemis II will loop around the moon as part of the first human lunar mission since Apollo 17 in December 1972. This mission will set the stage for an already planned Artemis III mission, planned for takeoff sometime in 2025, which will mark humanity’s first crewed return to the lunar surface. Artemis III is an especially interesting mission since it will incorporate more assistance from private companies than any mission prior.

It’s expected that the vessel for that mission will be a SpaceX’s Starship, funded with more than $4.0 billion in US government contracts and modifications, while Axiom Space has worked directly with NASA to develop next-gen spacesuits for lunar excursions. Axiom holds a $1.26 billion contract with NASA, of which $228 million was deployed to develop the new Artemis-era space suits.

The promise of a return to human exploration of celestial bodies outside of Earth is not only significant for scientific achievement, but one that will prove lucrative for aerospace firms involved. According to Crescent Space Services CEO Joe Landon, there are now “over 100 missions planned to go to the moon over the next decade”, which is expected to generate a multibillion-dollar market for lunar communications and navigation services. Crescent is a newly-minted subsidiary of Lockheed Martin, formed out of the company’s ambition to establish a network of satellites in cislunar orbit prior to the launch of Artemis III. That network, named Parsec, is meant to solve the problem of reliable communications once a permanent outpost is established on the Moon by serving as a relay network between Earth and its moon in deep space. Per the Wall Street Journal, Lockheed Martin’s space division, which Crescent is now apart of, generated $11.5 billion in revenue last year.

The US’s allies in the CSA and European Space Agency (ESA) are currently trailing American ambitions significantly. Of the hundreds of missions to the moon currently planned, Politico notes that Europe is only leading two. Despite ratcheting up their space program spending to €16.9 billion at a recent summit in Paris, the ESA space ministers haven’t agreed to press ahead with a human spaceflight program, instead postponing that call until their next ministerial summit in 2025. An ESA astronaut may tag along on a future moon landing, but an ESA effort to undertake such a mission remains very far off. More immediate concerns for the ESA appear to be centered on rebuilding their ExoMars rover, a joint project with Russia that has been stranded by a breakdown in diplomacy between the two parties.

China could well end up second to the US in the next generation of space travel – particularly where it concerns the moon. China first landed an exploration module on the lunar surface 10 years ago and has since launched multiple un-crewed missions back. The most recent lunar discovery of note was just achieved by the China National Space Administration’s (CNSA) Chang’e 5 mission, the first Chinese mission to return lunar samples to Earth. Those samples revealed an abundance of glass beads embedded in the moon’s surface containing water. Spread out across the entire surface of the moon, these water beads, generated by solar winds that blow hydrogen molecules onto the moon’s surface, which then combine with oxygen trapped inside the moon’s rocks, could contain 300 billion tons of water. Since the water can be easily extracted by heating the beads to the water’s boiling point, this could provide future astronauts with a native and renewable source of water on the moon once a base is established.

Just last month, China unveiled a concept for a lunar lander it hopes will put astronauts on the moon. Any crewed mission by China likely won’t take place until the close of the decade, or maybe even into the 2030s, but there is plenty more to do on the moon in the meantime. To undertake further missions, China is soliciting allies in Russia and the middle east. Russia’s space agency, Roscosmos, and CNSA inked a deal in November last year stipulating bilateral space cooperation throughout the 2023-2027 period, while the UAE was set to send their Rashid 2 lunar rover to the moon aboard China’s Chang’e 7 mission in 2026. The latter agreement was derailed recently, however, as it ran afoul of the 1976 International Traffic in Arms Regulations (ITAR), which bans US-built tech components from being launched aboard non-authorized missions. The UAE has had more luck, however, working with Japan since it is a US ally and carries authorized partner status. The Emirati Rashid 1 rover recently entered lunar orbit aboard a Japanese commercial moon lander, launched by a SpaceX Falcon 9 rocket.

THEME ALERT – LONG Aerospace & Defense

While moon missions aren’t specifically focused on improving any nation’s combat or defense ambitions, it’s an expression of a new space race that will likely culminate in some sort of militarization of the celestial realm. In the same way that US spending on missiles, aircraft, and other technologies will be critical in modern warfare, the militarization of space will also require significant funding for defense contractors. A major focus of the Department of Defense’s policy in space will be satellite data and imagery, as evidenced by significant demand for those products throughout 2022. While the war in Ukraine may only be a temporary state of affairs, monitoring Russian aggression, as well as China’s moves in the Pacific and other areas, will remain a critical component of the US and its allies’ defensive capabilities.

MRP has previously highlighted significant developments in the private satellite business – particularly in the defense industry – throughout the past several years. For example, President Biden’s $842 billion budget request for the Defense Department for fiscal year 2024 includes $30 billion for the US Space Force, an increase of nearly $4.0 billion from the prior year, and the largest funding request to date for the military space branch. As part of that budget, Space News notes that funding for low and medium orbit missile-tracking satellites will nearly double from $1.2 billion in 2023 to $2.3 billion in 2024. As Research and Markets reports, the global satellite data service market was estimated to be worth $13.7 billion in 2022. It is expected to reach $35.9 billion by 2027, growing at a CAGR of 21.2%.

MRP added Long Aerospace & Defense to our list of themes on June 18, 2021 and, in light of the war in Ukraine, we are re-affirming this theme today. Since the initiation of this theme, the SPDR S&P Aerospace & Defense ETF (XAR) has fallen -12%, thus far underperforming an S&P 500 decline of -5% over the same period.

CHARTS

There is much more to this report! McAlinden Research Partners is offering a complimentary 60 day subscription to receive the full Daily Intelligence Briefing to Hedge Connection clients/friends.

Activate yours by signing up today!