Money's Tight at NASA, so Expect More Space IPOs

Key Points

• An unpublished NASA memo reportedly warns of a change in how the space agency awards contracts to build private space stations.

• NASA appears to be leaning into the public-private partnership model, shifting more costs to space companies.

• To bear those costs, more private space companies may need to IPO and become public space companies.

• 10 stocks we like better than Voyager Technologies ›

The International Space Station is a marvel of modern engineering. Built by the combined efforts of seven countries (hence, "international") and staffed by a rotating crew of astronauts from more than two dozen countries (so really international), it's taken 27 years to put the ISS together in its present form -- and more than $100 billion.

And yet, at age 27 and counting, the ISS is getting a bit long in the tooth. Most of the nations that built ISS have agreed to send it back down to Earth sometime after 2030, where it will (mostly) burn up in the atmosphere, with the remnants crashing into the sea.

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At that point, we're going to need a new space station.

Or space stations.

And quite a lot of money to build them.

Image source: Getty Images.

Help wanted: One (or more) new space stations

In fact, America and a handful of other countries are already planning to build not just one but potentially as many as four new privately owned space stations to replace the ISS. The companies aiming to build these stations include relatively unknown, private companies Vast Space and Axiom Space, as well as consortia of much larger, better-funded, and more well-known space companies -- several of which are publicly traded, allowing you and me to invest in them.

The latter includes the "Orbital Reef" team, which is everyone from Boeing (NYSE: BA) to Redwire (NYSE: RDW) to Sierra Space and Blue Origin (the extremely well-funded space company founded by megabillionaire Jeff Bezos).

A second team, dubbed "Starlab," is led by recent initial public offering (IPO) Voyager Technologies (NYSE: VOYG), with help from an array of partners, including Airbus (OTC: EADSY), Northrop Grumman (NYSE: NOC), and even Hilton Hotels (NYSE: HLT).

Money needed...and probably a few IPOs

So far, so good. Lots of high-quality, name-brand space companies -- and non-space companies -- are stepping up to fill the gap in orbital space stations before it even appears.

But here's where things get dicey.

Up till now, NASA has been helping these four teams of companies along in their work as they design and begin building prototypes of the stations they hope to put in orbit. But as SpaceNews reported last week, NASA is privately planning "to revise its plans for the second phase of its Commercial Low Earth Orbit Destination, or CLD, program."

And by "revise," I mean maybe reduce funding or at least change how the money is doled out.

To date, NASA has committed nearly $530 million to the Axiom, Orbital Reef, and Starlab projects, with plans to spend a further $2.1 billion over the next five years. (If that sounds like a lot of money, recall that the ISS cost nearly 40 times more.) NASA has been keeping prices low by awarding Space Act Agreements that are essentially public-private partnerships where costs are shared between NASA and its contractors.

But citing a projected $4 billion shortfall in its funding from the government, on July 31, NASA released an internal memo expressing a desire to revise Phase 2 of CLD. Apparently, Phase 2 was originally envisioned as a series of fixed-price contracts in which:

• NASA would pay a fixed price for an item or service.
• A contractor would agree to perform the work for that price.
• If the cost exceeded the fixed price, the contractor would "eat the cost."

Now, NASA seems to want to continue awarding Space Act Agreements, similar to those already being used in Phase 1, in Phase 2 as well. Under this method, NASA will share costs with its contractors (Boeing, Blue Origin, Voyager, and so on), but the companies will also bear much of the cost themselves -- and ultimately end up owning the space station(s) once built.

As SpaceNews explains it, NASA plans to award "at least two" Space Act Agreements "to mature space station designs through critical design reviews and then to flight demonstrations." If both designs are approved, this could result in at least two private space stations being built (largely at the companies' own expense).

What this means for investors

Remember that the memo is not yet public, and even the space companies themselves "are still studying the implications of NASA's memo," trying to figure out what's happening. But assuming all this is correct, here's what it means for investors: NASA is pulling back on its financial commitment to building replacement space stations, and companies may need to find more money on their own.

How will they do that?

One obvious possibility is to raise money from investors through one or more IPOs of stock. Already, we've seen Voyager Technologies go this route, raising some $380 million from an IPO in June. The Orbital Reef team has a strong financial backer in Jeff Bezos and Blue Origin. Still, I wouldn't be shocked to see a second IPO from that team as well. And Axiom and Vast have significantly fewer resources to draw upon independently.

Given a sufficient demand from the IPO market, I suspect we'll see IPOs from one or both of these companies as well. Stay tuned.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.