DARPA wants a new space shuttle -- and it's getting closer to building one.

For two years now, we've been following the progress of the Defense Advanced Research Project Agency's "XS-1" project, a continuing mission to build a reusable vehicle for launching small payloads into orbit.

Unlike the actual Space Shuttle operated by NASA from 1981 to 2011, DARPA calls its project a "space plane." Here's the crucial difference: Unlike the Space Shuttle, which launched like a rocket, orbited like a space ship, and then returned to Earth to land like an airplane, XS-1 will never actually enter orbit itself. Instead, it will rocket "to the edge of space," and once there, boost a payload the rest of the way into low Earth orbit.

After releasing the payload, XS-1 will land like an airplane, refuel, and be ready to launch again the next day. Ideally, DARPA wants its space shuttle to be so reliable and so reusable that it can fly "10 times in 10 days."

Also, XS-1 will have no pilot. It will be a drone.

Where we are now

When last we checked in on XS-1, DARPA was wrapping up Phase 1 of the project, in which three industry teams -- Boeing (NYSE:BA), working in collaboration with Jeff Bezos' Blue Origin; Northrop Grumman (NYSE:NOC) plus Virgin Galactic; and privately held Masten Space Systems, working with also-private XCOR Aerospace, all helped DARPA explore the technical feasibility of building a space plane/space shuttle capable of delivering payloads to orbit at a cost of $5 million per flight.

That accomplished, now DARPA is ready to proceed to Phase 2 -- building a prototype.

Phase 2

Actually, make that Phases 2 and 3. Because as best we can tell, DARPA plans to award both of its next two contracts simultaneously -- and to a single winner.

Last month, DARPA held a "Proposers Day" at which all interested parties -- not just the six companies named above -- were invited to float ideas for building a prototype XS-1. The next step will be to issue an official request for proposals, evaluate them, and pick a winner, perhaps as early as next year.

This winner (or winning team) will then design, build, and test a prototype (Phase 2). This winner will also be awarded the Phase 3 contract to conduct flight tests of the new vehicle. While DARPA hasn't set a firm deadline for completion, it has stated that the winning bidder must use a propulsion system that it expects to "be ready for flight no later than fiscal year 2020." That implies that the XS-1 space plane must itself be ready for testing by 2020.

How much is it worth?

In a special notice to participants in the Proposers Day, DARPA clarifies that it plans to award $140 million to the winner of the Phase 2 and 3 contracts.

Who will win it?

Figuring the odds on the XS-1 competition isn't easy. We know that Boeing, for example, already possesses an unmanned vehicle capable of orbital flight -- its X-37B "drone space shuttle" -- which it uses to deliver military payloads to orbit. But X-37B is pretty top-secret stuff, and we have little visibility into how much it costs to operate -- or whether it comes close to DARPA's targeted $5 million-per-mission price tag.

Also, as a true spaceship, X-37B doesn't precisely match DARPA's concept of a suborbital "space plane."

Northrop, meanwhile, built the original suborbital WhiteKnightTwo space plane that services Virgin Galactic's SpaceShipTwo launch vehicle. "WK2," as it's often called, seems to hew much more closely to DARPA's desire to build a suborbital space plane with "a physical size and dry weight typical of today's business jets."

The mechanics of how WK2 works (fly up like a plane, boost payload into orbit, land like a plane) are much closer to what DARPA is asking for than is X-37B. And measuring 79 feet long with a 141-foot wingspan, WK2 seems to be closer to the right size for a business jet. (Gulfstream's G650, for example, measures 100 feet x 100 feet. Boeing's X-37B measures 29 feet x 15 feet.)

What Masten and XCOR have up their sleeves is more of an unknown. In any case, DARPA's insistence that the winner of Phases 2 and 3 "cost share" on the project could put too much financial strain on these privately held companies for them to compete. In contrast, both Boeing and Northrop have ample cash at their disposal to fund this project. According to S&P Global Market Intelligence data, Northrop boasts $1.3 billion in cash reserves, and Boeing $8.3 billion.

Knowing what we know now, if I were betting on a winner, I'd place my money on Northrop Grumman's team first, and Boeing's second.