Morton Thiokol Faces Stiff Competition : Space Shuttle Disaster May Open Door to Rivals for NASA Contract

Morton Thiokol is a company that power built. Deafening, fiery, earth-trembling power. The power of massive first-stage rockets surging with a million pounds of thrust. The power that muscles space ships from their launch pads and hurls them beyond gravity.

Since the dawn of America’s manned space program, every U.S. astronaut has relied on Thiokol power.

But that power failed on Jan. 28 when the space shuttle Challenger exploded, apparently because of a faulty Thiokol booster rocket. It was a particularly bad time for such a devastating failure.

Already the company’s exclusive hold on shuttle booster production was being challenged. From the halls of Congress to the deserts of Utah, competitors for the potential $300-million to $500-million shuttle market were pushing for a chance to share Thiokol’s booster rocket monopoly.

Hercules Inc., for example, based in Delaware, already was building a $140-million automated plant just 90 miles from the Utah site where Thiokol has been making its rockets for 30 years. The new, robot-manned Hercules facility will be able to manufacture the giant shuttle boosters by summer--if the company can capture a piece of that business from Thiokol.

“We just can’t let that kind of market go uncontested,” E. A. Mettenet, president of Hercules Aerospace Products Group in Utah, said.

Also, there were clear signs in Washington that the lobbying efforts of Thiokol’s rivals were opening the door to increased competition. Only days before the shuttle accident, in fact, NASA had agreed to solicit “second source” proposals--the first step toward sharing at least a portion of the booster market with a second rocket maker.

And now there are indications that Thiokol’s rocket industry dominance could be further challenged because of the shuttle disaster.

Challenger’s crash will “make it much easier” to promote competition for booster suppliers, Rep. Robert G. Torricelli (D-N.J.) predicted. The House science and technology subcommittee member said the crash underscores “the importance of real competition.”

“The United States cannot remain captive to one solid rocket supplier,” he said in a telephone interview. Torricelli added: “The lack of competition can breed more than waste--it can breed laziness and compromise with safety. I’m not accusing Thiokol of that, but competition is the best deterrent.”

By 1988, when Thiokol’s current 15-year contract with NASA expires, it is estimated that the company will have received $1.6 billion from the government. It costs an estimated $8 million to $9 million to make each solid rocket booster for the space shuttle program.

If Thiokol feels besieged by the demands of competition and the pressures of a politically sensitive accident investigation, it shows no signs of surrendering any market share without a fight. It is continuing negotiations with NASA for another order of 120 booster rockets and reportedly is offering to reduce prices substantially.

“We’re not about to roll over and play dead--stick our feet in the air,” one company source said. “People here have a lot of pride.”

It is a response that could have been expected from a company that has grown accustomed to success. In fact, the story of Morton Thiokol is an American history lesson rich in entrepreneurial enterprise, serendipitous discovery and high-stakes competition.

The Morton half of the corporate family is a direct descendant of the Morton Salt Co., an institution of Midwest commerce since 1848. It is the same company that in 1914 adopted what remains the classic advertising motto: “When it rains, it pours.”

The company thrived on salt. It supplied the booming Chicago meat-packing industry of the 1850s. It supplied the Union Army during the Civil War.

Through more than a century, salt was the steady--if unflamboyant--cash generator that financed the company’s steady growth. Over the years, corporate acquisitions and development of a chemical division converted the Midwest salt mining company into a billion-dollar conglomerate in salt, pharmaceuticals, household cleansers and specialty chemicals.

Sought Chemical Firm

In 1982 the company sold off its pharmaceutical interests and with the profits went shopping for a specialty chemical business. It found Thiokol available for $540 million.

While Morton relied historically on that ancient product, salt, Thiokol was betting on a product of the future--rocketry. Ironically, the company got its start thanks to a laboratory accident.

It was on a day in 1926 that a Kansas City chemist failed in an attempt to create a new, cheap antifreeze compound. Instead, he fouled his lab with an odorous gunk that could neither be dissolved nor flushed down the sink. But when a piece fell on the floor, it bounced.

The substance was named “thiokol,” Greek for “sulfur glue.” Actually, the chemist had discovered synthetic rubber--for which there was very little demand in those days. Furthermore, Kansas City was not fond of the “rotten egg” smell of the new product, so the new company--built around synthetic rubber--moved to New Jersey.

There, while waiting for a commercial market to develop, the company discovered a sealant for aircraft fuel tanks, a liquid polymer that also turned out to be the world’s most effective solid propellant fuel binder.

Entered Rocket Business

By the late 1940s, Thiokol was in the solid rocket business. An assembly and testing facility was built in rural Utah, far from any large population area.

“It may not be the middle of nowhere, but you can sure see it from here,” a Thiokol rocket engineer said.

At first, the company concentrated on building small- and medium-sized missiles; then Thiokol gambled on entering the large solid-fuel rocket business. In 1964, it invested $12.1 million to build a new manufacturing facility even though, as was the case earlier with synthetic rubber, there was no market for the product at the time.

“In this business,” said Harold Ritchey, then executive vice president of Thiokol, “you have to roll the dice, and you have to run like hell.”

Unfortunately for the company, space agency officials favored liquid boosters over solid-fuel rockets as the main engines powering the moon race over the next decade. Thiokol’s solid-fuel rockets were relegated to a supporting role. After earning $271 million in 1963, it lost $95 million over the next two years.

However, the company’s commitment to large rockets would pay off in subsequent years with Defense Department contracts and, finally, in a winning bid for the space shuttle booster contract. By the time Morton came shopping for a partner, Thiokol was the nation’s leading maker of large solid-fuel rockets.

Big Revenue Producer

Today, aerospace revenues account for nearly half of Morton Thiokol’s annual sales, which were $1.8 billion last year, and about 40% of annual profits, which were $119.5 million. The shuttle program alone accounts for about 20% of company profits. Nonetheless, Thiokol officials say it would take a long-term halt in the shuttle program to seriously damage Thiokol’s economic health.

“Unless manned space flights simply end, we don’t see any devastating impact,” Thomas Russell, vice president of corporate development and strategic planning at Morton Thiokol headquarters here, said. He also noted that Thiokol is working with NASA on tests--for which the company is paid--in connection with the shuttle crash investigation.

Besides, the company is protected from the volatile shifts in aerospace fortunes by the steadying influence of salt. In fact, salt profits are up 30% for the first six months of this year on increased sales of 11%, Russell said.

He conceded, however, that the shuttle accident might increase long-term competitive pressures.

For example, if NASA decides to ease some of the financial risks facing a potential second-source supplier of booster rockets--for instance, by guaranteeing to reimburse the projected $100 million to $200 million it costs to test the rockets and qualify them for the program--then Thiokol could be in for a serious competitive challenge.

Rivals Seek Backing

Such guarantees are precisely what Thiokol’s rivals--Hercules, Aerojet, United Technology’s Chemical Systems Division and Atlantic Research--are lobbying to get.

At stake are more than corporate egos. Any company that succeeds in becoming NASA’s second source for booster rockets would figure to be a strong contender for Thiokol’s primary contract the next time it comes up for renegotiation--in the early 1990s.

Hercules’ Mettenet argued: “Competition enhances management’s awareness of quality and customer satisfaction, and we’re confident it will reduce the government’s costs by 20% to 30%.” He credits the increased threat of competition from rival rocket makers with inspiring Thiokol’s willingness to offer NASA a price reduction under its next contract.

Thiokol’s Russell dismissed such comments as “a lot of marketing rhetoric” and said his company’s costs are dropping because plant and equipment have been depreciated and because the company is more experienced. He would not discuss details of the NASA negotiations, however.

Others at Thiokol express a virtual eagerness for competition. One executive said in an interview:

“We’re not afraid of competition. We competed with everyone last time and we won. I wouldn’t want to risk $200 million to compete against us today.”