Firefly Aerospace Is Awarded New Orbital Contract From Department of Defense

Firefly Aerospace (NASDAQ:FLY) just scored another in a lengthening series of U.S. federal government contracts. Just after market close on Thursday, the space company announced it had signed a pact with the Department of Defense (DoD; rebranded the Department of War by the Trump administration) for the first phase of a planned mission.

While it's typically good news whenever a company gets a contract, particularly from such a reliable and well-funded counterparty as the Feds, Firefly stock actually dipped slightly on Friday as investors digested this news. Let's explore the contract a bit and tease out why those market players weren't so excited about it.

Image source: Getty Images.

Decluttering space

The contract, issued by the Department's Defense Innovation Unit and its Space Development Agency, covers a preliminary design review (PDR) for a deorbit mission (for those unfamiliar, deorbiting is the process of clearing space debris from operational orbits).

As its name implies, a PDR is the initial phase of certain types of federal government contracts; these are often granted to more than one potential vendor. Completing a PDR increases a business's chances of landing additional contracts for the same project; however, this is not guaranteed.

And that's likely the main reason for the tepid investor reaction on Friday. This, plus the fact that Firefly is actively working on dozens of contracts, some of which are in far more advanced stages than this new one. In fact, the space company took pains to note that it's currently under contract with the Defense Innovation Unit for a space domain awareness mission. This will be undertaken with the Elytra, the same spacecraft that will be used if and when the company advances to later stages of the deorbit project.

In its press release about this latest federal contract, Firefly touted the craft's suitability for the work.

"In alignment with the White House order to prioritize orbital debris mitigation, our team designed a highly efficient, cost-effective solution for our Elytra vehicles to deorbit satellites nearing end of life," the company quoted CEO Jason Kim as saying.

"This dialable system can deorbit satellites of vastly different sizes and configurations to help mitigate the growing space debris challenge our industry is up against," he added.

Should the project advance with Firefly, Elytra would be launched into low Earth orbit (LEO), then maneuver to the objects to be removed. Using that system, it would remove the offending matter (this is usually done by sending it Earthward to burn or by pushing it into a higher "graveyard" orbit).

Ready for more work

As is common practice in the defense and space industries, Firefly did not disclose the contract value or the total financial scope of the deorbit project. It confirmed that if the PDR is successful, it will be eligible to compete for the next phase of the mission. Happily, this would fall within its wheelhouse of launch and spacecraft operations.

To me, then, investors should be at least cautiously optimistic that, with the specially equipped Elytra, the company has more than a fighting chance of going all the way with the deorbit project. That should support the buy case for Firefly, which already has plenty of contracts under its belt from both public-sector clients and prominent private-sector businesses such as aerospace giant Lockheed Martin (NYSE:LMT).

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Firefly Aerospace. The Motley Fool has a disclosure policy.