WASHINGTON — A pension fund has filed suit against the board of directors of Amazon, claiming they “acted in bad faith” in approving launch contracts for the Project Kuiper broadband constellation that awarded billions of dollars to Blue Origin, the company founded by Amazon’s Jeff Bezos.
The suit, a public version of which was filed with Delaware’s Court of Chancery Aug. 28, alleges that Amazon’s board and one of its committees spent “barely an hour” reviewing contracts with Blue Origin and United Launch Alliance, whose Vulcan Centaur rocket uses engines from Blue Origin, before approving them in March 2022. Delaware Business Court Insider first reported the lawsuit.
The suit is filed by the Cleveland Bakers and Teamsters Pension Fund, an Amazon shareholder, and sheds new light on how Amazon selected Blue Origin and ULA, along with Arianespace, for contracts announced in April 2022 to launch the 3,236-satellite constellation. It also suggests that personal animus between Bezos and Elon Musk, founder of SpaceX, prevented Amazon from considering SpaceX for those contracts.
Amazon board’s review of Kuiper contracts
According to the suit, Amazon management informed the board’s audit committee in July 2020 it was considering Arianespace, Blue Origin, ULA and a fourth company whose name is redacted in the public version of the complaint for launch contracts. The committee, the suit stated, “did not take any steps to oversee the negotiation process or to insulate the process from conflicts of interest.” [emphasis in original] Bezos, at the time, was chief executive of Amazon and remains its largest shareholder, while also owning Blue Origin.
The full board was briefed in November 2020 on plans for Project Kuiper, including its consideration of Blue Origin and ULA, among others, for launch contracts, which the suit said did not result in the board taking any action about potential conflicts of interest: “no guidelines, no oversight, and no expressions of concern.”
While the identity of the fourth potential launch provider is not made public in the suit, it does state that Amazon’s board was informed SpaceX was not under consideration. That included not just the overall launch contracts but a smaller interim contract that Amazon announced in April 2021 for nine Atlas 5 launches from ULA. While the value of the Atlas launch contract is redacted in the suit, it argues that SpaceX’s list price for Falcon 9 launches was significantly less.
By January 2022, Amazon management provided the board’s audit committee with summaries of the contracts it planned to sign with Blue Origin and ULA for Kuiper launches. The suit argues that the committee spent “no more than a few minutes” discussing the contracts, based on the length of the meeting and number of items on the agenda, before approving them and forwarding them to the full board of directors.
The full board met in March 2022 to consider all three launch contracts. The suit claims the board received no expert review of the contracts or other information, including whether the final price was fair to Amazon and whether other launch providers were considered, beyond a 2.5-page summary of the proposed contracts. The board approved the contracts in a meeting lasting 40 minutes.
The suit argues that the contracts are unfair to Amazon, in part because SpaceX was not even considered: “Despite being the launch provider with the most proven track record and the lowest prices in the industry, SpaceX was seemingly not considered by Amazon,” the complaint states. “By excluding SpaceX, Bezos and his management team minimized bid competition for the launch agreements and likely committed Amazon to spending hundreds of millions of dollars more than it would have otherwise had to.”
Bezos, the suit concludes, was able to negotiate from both sides given his roles at Amazon and Blue Origin. “For a year and a half, Bezos was free to identify and negotiate with launch providers for Amazon, while also free to negotiate against Amazon on behalf of Blue Origin.”
The suit strongly suggests that SpaceX was excluded from consideration from the Project Kuiper competition because of the rivalry between Bezos and Musk. A section of the 77-page complaint is devoted to outlining the history of the competition between the two billionaires and between SpaceX and Blue Origin, which included Blue Origin’s protest of a NASA lunar lander contract won by SpaceX in 2021. That section features screenshots of tweets from Musk appearing to taunt Bezos and Blue Origin.
“Given their bitter track record, Bezos had every reason to exclude Musk’s SpaceX from the process entirely,” the suit states. “And Bezos, it must be assumed, could not swallow his pride to seek his bitter rival’s help to launch Amazon’s satellites.”
Second-largest Amazon contract
The public version of complaint redacts many details about the launch contracts, including specific dollar values. It does state, though, that the combined contracts were “the second-largest capital expenditure in Amazon’s 25+ year history” after its $13.7 billion acquisition of grocer Whole Foods. Amazon’s second largest acquisition, of studio MGM in 2021, was valued at $8.5 billion.
While the suit redacts the contract values, it does state that nearly 45% of their overall value goes to Blue Origin, either through the direct contract between Amazon and Blue Origin or ULA’s purchase of BE-4 engines from Blue Origin to satisfy its own Amazon launch contract. Amazon has spent about $1.7 billion on those three launch contracts to date, including $585 million directly to Blue Origin.
None of the three companies have performed any launches under those contracts so far. The first launch of ULA’s Vulcan Centaur has slipped to no earlier than the fourth quarter of this year, while the first flights of Arianespace’s Ariane 6 and Blue Origin’s New Glenn have been delayed to 2024. None of the three companies have said when those vehicles would start launching Kuiper satellites.
Amazon announced Aug. 7 it would use one of the nine Atlas 5 launches it procured in 2021 to launch a pair of demonstration satellites as soon as late September. Those satellites were originally slated to launch on an RS1 rocket from ABL Space Systems, then moved to the inaugural Vulcan Centaur launch that it would have shared with Astrobotic’s Peregrine lunar lander.
Amazon is facing a schedule crunch to launch its Kuiper satellites. Its Federal Communications Commission license requires the company to have half the constellation, or more than 1,600 satellites, in orbit by July 2026, and the full constellation in orbit by July 2029.
An Amazon spokesperson did not answer specific questions about the suit in a statement to SpaceNews Aug. 31: “The claims in this lawsuit are completely without merit, and we look forward to showing that through the legal process.”
The suit seeks unspecified damages and legal fees as well as “immediate disgorgement” of profits, benefits and other compensation the defendants received as a result of the contracts.