Will space shuttle deliver profits? Investors cautious

Wall Street to Mission Control: "TV may be full of stories about the commercial possibilities of the space shuttle, but we're not in orbit yet over them."

This message could well have been sent by Wall Street's aerospace analysts, who believe the effect of the shuttle on the main contractors, Rockwell International, Martin Marietta, and Thiokol, will not be great. A slight run-up in Rockwell stock before the scheduled but canceled launch on Friday was probably just an emotional spurt, analysts indicated.

Roland Williams, vice-president for aerospace with E. F. Hutton, says one of the reasons investors are not excited about the commercial possibilities of the shuttle is that it "generally is not that profitable a business, like the high-volume military contracts." Instead, he notes, this is a "customized job, in which the companies get paid and paid well, but on cost-plus basis."

Robert D. Kugel, an analyst with Drexel Burnham Lambert, estimates that the pretax profit margins for the shuttle work come to 6.5 or 7 percent for a company such as Martin Marietta, which is developing the launch vehicle's external tanks and parachutes as well as the Vandenberg Air Force Base facility. For Martin Marietta, this would come to a profit of $20 million on revenues of about $300 million. "This is peanuts," Mr. Kugel says, "when you see that their total aerospace revenues this year will come to $1.5-1.6 billion, with profits of $300-325 million. The space shuttle is only 6 percent of their profits."

Mr. Kugel maintains that the space shuttle will be "more of a plus" for Martin Marietta and Thiokol than Rockwell, since they produce "throwaway" items. Thiokol's Wasatch Division produces the solid-rocket boosters, while Rockwell's Rocketdyne Division is responsible for design and development of the shuttle and its main engines -- which are reusable. Martin Marietta will also be involved in the military applications of the shuttle, which dominate its future uses.

Analysts generally believe the shuttle will prove itself. But Mr. Kugel doesn't expect it will create great business opportunities. He notes that attempts to make ball bearings in a nongravity situation apparently resulted in "globs of metal."

Probably the chief use of the shuttle, besides the military aspect, will be to launch communications satellites. One publication recently estimated that communications satellites will take up 38 percent of the commercial space aboard the shuttle in the 1980s. Commercial space aboard the shuttle is reportedly booked through 1987.

Using the shuttle to launch a satellite will cut the launching cost from $20 million to $9 million. As Mr. Williams notes, however, this is small, considering the size of the companies involved -- i.e., American Telephone & Telegraph, RCA Corporation, and Communications Satellite Corporation.

As far as the stock market is concerned, both analysts conclude, the prospect of space commerce "is way out in the future." Mr. Williams says the shuttle will show profits from space are possible although still a long way away.

One thing is certain about the shuttle: It will be good for Florida's economy. In a recent report, Barnett Bank, headquartered in Jacksonville, commented: "The space shuttle and its applications could have an enormous impact on Florida's economy. High-technology businesses and a host of other industries probably would be drawn to the state to design and assembly shuttle payloads. Florida's gross income likely would be augmented by the influx of highly paid scientists and technicians. The insurance, housing, and tourism industries also could feel the benefits . . . . it seems safe to say that only the sky is the limit."

While the assessment might be a little optimistic -- given the ups and downs of the space program -- the bank points to a study made in 1974 by the University of California at Los Angeles that looked at the benefits to California of a shuttle launching site at Vandenberg Air Force Base, near San Francisco. The UCLA study concluded that the shuttle facility could add 49,000 new jobs and $5.6 billion to the gross state income.

In the past, Barnett Bank comments, the space agency's programs have added a healthy glow to Florida's economy. In 1968, the space program reached a zenith -- at least for Cape Canaveral -- and contract employment reached 21,000 people. But jobs shrank to 6,250 through 1977. Now, the local shuttle work force has expanded again to 11,000, with a payroll of $300 million. Barnett says it doesn't expect employment at the Kennedy Space Center to grow dramatically, although it adds that "a higher degree of technical skills may be required of the work force in the areas of launch- and mission-related operations." All this means that oranges and tourism won't be the only businesses in north-central Florida.

The prospect of higher interest rates grounded the stock market last week. The Dow Jones industrial average lost 6.84 points for the week, closing at 1000. 27. Even though it lost ground, analysts were pleased with the performance of some of the blue chips, particularly American Telephone & Telegraph, which was sharply higher in heavy trading. Investors were apparently encouraged by a statement last week that AT&T should not be broken up, for national defense reasons.

But other analysts said some of the buying was prompted by the expectation that the telephone company will soon enter some new, more dynamic lines of business. The phone company also received permission recently to increase its return on interstate and foreign calls. Softness in oil prices also helped the airline stocks, which analysts hope will benefit from stable oil prices.