Who Is Short Sighted?

Paul Spudis expresses his own concerns about the space debate, and defends Gene Cernan. Included in his piece, though, he inadvertently describes exactly why it’s hard to take Cernan seriously:

What did Cernan actually say? He has doubts about many of the claims made regarding “New Space,” specifically claims in the press about costs, schedule and capabilities. Cernan’s point is that it’s easy to design paper rockets and make hyperbolic claims about “new approaches” but in the business of space, things don’t always work as expected. Cernan also questions what markets will support commercial space (much of the focus is on NASA contracting with New Space companies to service the ISS with cargo and crew) and even questions the designation “commercial,” both on the grounds of the aforementioned non-existing markets and the reliance of some commercial space companies on NASA funding to develop their product.

If that is Cernan’s point, then he’s making it from some other planet. On this one, the “commercial” (whatever one means by that) companies don’t have paper rockets, but real ones. The Atlas Vs and Delta IVs that reliably launch defense satellites, and have been for years, are not “paper rockets.” Was it a “paper rocket” that put the Dragon into orbit in December? Was the Dragon a “paper capsule”?

Beyond that, Cernan doesn’t just “question” the markets, he completely ignores their existence. Bob Bigelow, who recently expanded his manufacturing plant in Las Vegas to build his own space facilities that only await completion of a means to reach them before he launches them, isn’t a market? Of course, Paul does the same thing:

New Space companies claim that they are commercial enterprises developing new space vehicles. If they are truly commercial, what markets do they serve? NASA is a government agency and has contracted for products and services from its beginning. A commercial company takes money from investors and sells a product or provides a service for profit. Commercial companies have access to NASA technology, so why do they also require and receive government subsidies?

Is he saying that SpaceX hasn’t taken money from investors? Because it has. That’s how it got started. Is he saying that they haven’t sold a product or provide a service for a profit? Because external audits by independent accounts indicate that they have, for several years running. And what’s with the word “subsidies”? Does he understand the meaning of that word? SpaceX (and OSC, and Boeing, and others) has provided a service or product (in the form of performance milestones) to the government in return for a fixed fee. In what way is that a “subsidy”? And even if it is, it’s not like it’s unprecedented. The airmail purchases of the governments played a key role in getting the early airline industry off the ground, both figuratively and literally. Even to this day the Civil Reserve Air Fleet underwrites some of the cost of the airline industry to ensure its availability for national needs (e.g. a surge of transportation required for a war, as happened in Desert Storm).

But some of this confusion can be allayed by thinking of it not in terms of “commercial” or not, but simply the nature of the contract. Traditionally, NASA has done things with cost-plus contracts, which result, eventually (assuming that it doesn’t get canceled first) in the product being delivered, but at horrifically high costs to the taxpayer (Constellation being an example of this, with the added disaster of it being sole-source no-bid, which compounded the problems from a lack of competition from the very beginning).

What is being proposed in the new paradigm is a) fixed-price contracts for defined milestones and b) multiple providers, creating on-going competition to drive down prices. And the notion that this will be beyond NASA oversight, as Captain Cernan seems to imagine (for no reason I can fathom other than that he has been paying no attention whatsoever to what has been going on), is ludicrous. If anything, the potentially undue amount of NASA oversight is putting a pall over the program right now, and if it fails, at least in its goal to reduce costs, this will be the most likely reason.

So if people are having trouble discussing this, it’s not because people are looking at the same set of facts, and coming to different conclusions. It’s that some people are completely oblivious to facts, and seem to be operating from false headlines and bombast from pork defenders on the Hill and industry, instead of reality.

35 thoughts on “Who Is Short Sighted?

  1. Chris Gerrib

    I generally agree with your post, but I have two quibbles:

    1) The cost for commercial space is going down. However, SpaceX’s $7.7 million/person ($54M / 7 seats per Dragon), while significantly cheaper than the Russians at $20M, still represents a tiny market.

    2) SpaceX so far has had successful flights. So did Shuttle at this point in her life cycle. Although I suspect Falcon is inherently safer, at this point in time we don’t have enough data to know.

    We need to get to viable commerical space in order to transition from “explore” to “exploit.” That means doing what we’re doing, while being cautiously optimistic.

  2. Dick Eagleson

    As George Bernard Shaw said, “The key to success is relentless self-promotion.” Bob B. and Elon M. should get together and put on a series of elite dog-and-pony shows in Las Vegas, Hawthorne and possibly elsewhere, exclusively for U.S. astronauts – active or retired – who have made at least one flight. Show ‘em what you got, boys. Might quiet down some of this ill-informed chatter from people who really ought to know better. Might pick up a few new hires too.

  3. Thomas Matula

    Rand,

    They are not providing a “product” to the government because NASA is not going to take ownership of the Falcon like the USAF does a B-2. Nor have they delivered a single pound of cargo to the ISS, a service. So what is the money they receive for? Research and development, which is a traditional example of a government subsidy to industry.

    And there is NOTHING wrong with the government subsidizing an industry. The federal government has been doing it for over 200 years. So I don’t understand why New Space Advocates have such a problem with calling a spade a spade.

  4. Thomas Matula

    Chris,

    I am not sure if Elon Musk will be able to hold to the $7.7 million price.

    In the thread below Rand notes that Elon Musk states the cost of a Dragon cargo to ISS is $133 million. If that is the cost for a passenger Dragon, and 6 of the 7 seats are for tourists, you are looking at a cost of $22.16 million per seat. So he will be losing $14.46 million per seat. You don’t lose that much and stay in business.

  5. nooneofconsequence

    Its another “birther” thing – don’t spend time analyzing nonsense.

    Some people aren’t happy that SpaceX is helping govt LV development go into that “good, good night”. They don’t like it, so they throw stones. The stone throwing doesn’t have to make sense.

    To me it’s appalling that people wish to work down their own authority and heritage that way. On a battle that at its heart a) is unwinnable, b) decimates the area they are supposedly an advocate for, and c) shouldn’t be fought in the first place.

    If your concern is flight operations or vehicle reliability/integrity, address that specifically and get an up/down answer. If its economics / sourcing – address it by a business case (or bake off of multiple providers ala COTS). All I see here is “bad mouthing”.

    I’m tired of “The Gene” taking heritage and turning it into license like “The Donald”. Spudis will lose a lot of prestige by backing a “birther”.

    I guess Elon Musk had better release the “long form” of how he undercuts Chinese launch costs. Maybe that’ll give “The Gene” something to chew on.

  6. Thomas Matula

    nooneofconsequence,

    Actually folks are confusing costs and price. The numbers both Elon Musk and the Chinese provide are prices. Neither says anything about the actual costs of either to provide those services for the prices they are asking.

    So all you are really able to say is that Elon Musk is currently offering launches at prices below what the Chinese are willing to offer at the moment. And that is good.

  7. Joe

    Thomas Matula Says: May 4th, 2011 at 4:07 pm

    You actually undertood what “nooneofconsequence” said?

    That is impressive.

  8. Michael Kent

    Chris Gerrib wrote:

    1) The cost for commercial space is going down. However, SpaceX’s $7.7 million/person ($54M / 7 seats per Dragon), while significantly cheaper than the Russians at $20M, still represents a tiny market.

    The quoted $54 million is for the launch of the Falcon 9 only. It does not include the Dragon capsule in either manned or unmanned form, nor does it include in-space operations or re-entry.

    Elon has quoted a price of $20 million / seat to NASA based on the purchase of four flights of seven seats each. That price will necessarily go up if NASA buys fewer flights or fewer seats per flight.

    Also, the latest contract with Russia costs $63 million / seat on the Soyuz. SpaceX has plenty of room for cost growth to still be the market leader in cost.

    Mike

  9. Thomas Matula

    Michael,

    The price NASA is paying the Russians is basically a “what the traffic will bear” because they have a monopoly after Shuttle until CCDev 2 starts providing service. Based on what Dennis Tito paid I expect the Russians have plenty of run to undercut SpaceX if they wish to.

  10. Karl Hallowell

    2) SpaceX so far has had successful flights. So did Shuttle at this point in her life cycle. Although I suspect Falcon is inherently safer, at this point in time we don’t have enough data to know.

    Chris, SpaceX started off with three launch failures in a row. The Space Shuttle’s first accident was 25 flights in.

    They are not providing a “product” to the government because NASA is not going to take ownership of the Falcon like the USAF does a B-2.

    A service is also a “product.”

  11. Mike Lorrey

    Thomas,
    Since Dennis Tito flew on Soyuz, theres been this thing called inflation thats been eating away at the comparative value of the dollar. At the same time, costs for the Russians have been rising as their economy has recovered from its post-Soviet collapse. I too, miss the days when you could buy a Mig-29 for $100k…

  12. Trent Waddington

    Wow, Mike Kent has a lot more patience than me. Chris Gerrib just literally pulled a Gene Cernan and formed an argument without the facts.. in an article about Gene Cernan forming arguments without facts. What the hell?

    Imagine if a court of law was run like Congress. The judges stack the deck of “witnesses” who say stuff that is outright speculation (SpaceX landing crews at sea), hear-say (what he thinks he heard Bolden say about “bailouts”) or hasn’t been entered into evidence (this whole I’ll-just-invent-the-facts-to-suit-my-bias), and there’s no-one there to say “objection! The witness is not-even-wrong!” You’d say it’s just a kangaroo court, and that’s what it is. To call it a “hearing” is an insult to justice.

  13. Malmesbury

    When a discussion become heated, it is a good idea to return to the basic facts of the case – a reset as it were.

    1) Commercial Crew

    In the latest round of this, CCDEV-2, NASA awarded contracts to four companies:

    Company: SpaceX
    Spacecraft: Dragon, 1 successful launch and recovery of the cargo version
    Launchers: Falcon 9, 2 successful launches

    Company: Boeing
    Spacecraft: CST-100, in development
    Launcher: Atlas 5

    Company: Sierra Nevada
    Spacecraft: Dream Chaser, in development – substantial hardware built.
    Launcher: Atlas 5

    Company: Blue Origin
    Spacecraft: Biconic capsule, in development
    Launcher: Atlas 5

    3 out of 4 proposals use the Atlas 5. Atlas 5 has had 24 successful launches, 1 abort-to-orbit (equivalent) and no losses since it was put into production. It is part of the EELV program for the US Airforce, launching the surveillance sats that are the crown jewels of US national security.

    Falcon 9 has had 2 successful launches to date and is entering series production.

    CST-100 is based on the work that Boeing did in their bid for the Orion capsule project.

    Sierra Nevada has been around for 50 years, Boeing is… well I don’t really have to say anything about that. SpaceX was found in 2002. Blue Origin was founded in 2000.

    So, we have 2 launchers. Both exist and are in use. One is new, the other is a proven launcher used for the most valuable loads the US military has.

    We have 4 potential spacecraft. One is new, currently in final testing as an un-manned cargo vehicle (SpaceX). One is based on a design for the Orion project, by one of the largest and oldest aerospace contractors in the world (Boeing). One is a space place, using a tested NASA design (HL-20), being built by a well established aerospace contractor (SNC). One is being built by a another new company (Blue Origin).

    All the rockets exist. No paper. One is just entering service, the other is well established.

    Of the space craft, 1 exists in cargo form (Dragon). 2 have had substantial hardware built (Dream Chaser & CST-100). The status of the last (Blue Origin) is uncertain, but metal has been cut.

  14. Ron Atkins

    Thomas Matula Says: May 4th, 2011 at 6:36 pm

    “The price NASA is paying the Russians is basically a “what the traffic will bear” because they have a monopoly after Shuttle until CCDev 2 starts providing service. Based on what Dennis Tito paid I expect the Russians have plenty of run to undercut SpaceX if they wish to.”

    The Russians will not be undercutting SpaceX. Once the first CCDEV participants come on line the Russians will be OUT.

  15. Bill Hensley

    I do think it is fair to call COTS and CCDev “subsidies”, as in government-subsidized R&D. CRS is not a subsidy; it is a contract for services. Whatever follows CCDev will be the same. NASA’s goal with these subsidies is to foster the development of services which they would like to purchase, but which currently do not exist. They have the very reasonable expectation that these services will be less expensive than what it would cost if they did it themselves as an in-house government operation.

    What is unique about even the subsidies, and must not be glossed over, is the nature of the contract: fixed-price, pay per milestone development. Also, CRS is structured the same way, and no doubt the ISS crew contracts will be, too. Finally, the “commercial” aspect enters into the picture in that the suppliers will be able to sell their services to other customers on the open market, should they be able to find any. With Bigelow (and perhaps others) on the horizon, many of us are very hopeful that such markets will develop.

  16. Trent Waddington

    By that logic, every single government building is a subsidy of the building industry. There has to be a point where you stop calling it a subsidy and start calling it a purchase.. my interpretation has always been when the service has to be delivered before the payment.

  17. Larry J

    Malmesbury, one addition to your post is that Boeing has designed their CST-100 so it can be launched on the Atlas V, the Delta IV, and the Falcon 9. Like the Atlas V, the Delta IV is a proven EELV design also used to launch our most valuable military and national payloads. Designing the CST-100 so it can use multiple launch vehicles seems a very smart decision to me. That prevents them from being grounded for extended periods in the event of a booster malfunction and allows for much greater operational flexibility.

  18. Bill Hensley

    rent, I think you are engaging in a bit of hyperbole. Perhaps it is the word “subsidy” that offends you. Whatever we call it, NASA is helping to fund the R&D for Dragon, Cygnus, CST-100, Dream Chaser and Blue Origin, which is helping those companies close their business case on those products. Without their assistance those products would either not come to market at all, or not in a timely manner for NASA’s needs. So NASA is helping to fund their development. Once the products exist NASA will simply purchase them like anyone else, but in order to get to that point NASA has to give these companies some support. That’s a good thing. I’m rabidly pro-commercial space, but it’s simply factual to acknowledge that NASA is giving these companies some much needed assistance in bringing commercial orbital services to market.

  19. Trent Waddington

    no worries :)

    I’m still confused on how you see a distinction worthy of the word.. NASA wants design reviews and such that would not be done the way NASA likes it if they weren’t paying for those reviews. If they simply waited for the product to be available they wouldn’t be willing to purchase it.

  20. Bill Hensley

    Trent, I’ve worked for many years in the software business and sometimes a major client will offer to fund the development of a new product or service. Generally, if we agree to such a deal it is because it’s a product we’d like to have, but either we don’t have the capital to develop it or the ROI isn’t attractive if we have to fund it ourselves. In our business we usually call that “funded development”, but if the customer were the government I can see someone wanting to call it a “subsidy.” Whatever you call it, you have a third party paying for product development. That’s different from a third party buying an existing product.

  21. MPM

    You actually undertood what “nooneofconsequence” said?

    That is impressive.

    You little man. Pay attention to what “no one” says on various blogs and you might learn something.

  22. nooneofconsequence

    Thomas Matula,

    Yes and no. You’re correct in that no one knows costs, only prices. And prices can be set independent of cost. But that isn’t what I’m getting at.

    The aerospace industry model is a snail – it carries everything on its back and leaves a wet trail. When you add cost to *any* system, it adds to the collateral burden perpetually.

    Conversely, if you start out with a “clean sheet”, think about cost from day one, you accumulate the fewest burdens. Musk isn’t doing anything radical – EELV is an example of a *mostly* clean sheet attempt. He just took it a few steps further.

    Not defending his (or others) *actual costing*. Speaking just to the structural aspects of the business.

    US, Russia, and China built off a base of weapons – ICBMs. Those don’t have to be cheap. That is the problem for them. Next best case is the Ukrainian ICBMs – no surprise thats where Orbital got tanks and first stage. And Russian engines at mostly salvage cost.

  23. Thomas Matula

    Mike,

    But the Russians don’t need to make a profit nor are inhibited from charging below costs to drive competitors under. The could easily switch to a marginal cost pricing model.

  24. Thomas Matula

    Karl,

    SpaceX has yet to deliver a single ounce to ISS, so what is the service NASA is paying for?

  25. Thomas Matula

    Trent,

    Do airlines pay up front for Boeing to design & test fly it’s airliners? Or are those costs part of the price airlines pay when they are delivered?

    Also will the seats it buy be at the market rate or at a much higher rate to subsidize the tourist seats?

  26. Rand Simberg Post author

    …what is the service NASA is paying for?

    NASA is paying for the service of the ability to deliver cargo to/from ISS much earlier and much sooner than any other way, including both developing its own new system, or the Russians.

    NASA needs SpaceX much more than SpaceX needs NASA.

  27. Thomas Matula

    Bill,

    Generally when private firms pay for funded developed they get a price break on the production run. I wonder if SpaceX will charge more or less for NASA seats then for private seats. I bet they will be higher as the subsidies continue for the industry.

  28. larry j

    Do airlines pay up front for Boeing to design & test fly it’s airliners? Or are those costs part of the price airlines pay when they are delivered?

    The airlines don’t but the military does. If NASA had not paid the COTS and CCDev money, some of the companies like SpaceX may well have continued with the development on their own while other projects would’ve been stillborn. The money is to accelerate development and give NASA options to purchasing everything at higher prices from the Russians.

    As to the prices NASA will have to pay, Musk has stated that the cost of a Falcon 9 and Dragon capsule is about $120 million (I forget the exact figure). A Dragon capsule will have 7 seats. If one of the seats is taken by a SpaceX pilot (something the NASA astronaut corps opposes), then that leaves 6 seats for customers at a cost of $20 million each. The cost won’t be any less if NASA only wants to fly 3 or 4 people on any given mission so the effective cost per seat will be higher. If there happens to be paying customers who’re willing to buy a ride on one of those empty seats, then fine. If not, then NASA gets to eat the full bill, just the same as if they chartered an airplane and didn’t fill the seats.

  29. Thomas Matula

    Rand,

    In other words they are subsidizing it’s develop since it has yet to deliver anything to the ISS. And because they want an American option for out sourcing.

  30. Mike Lorrey

    Bill,
    I’ve worked for software companies that only did new development for their existing applications if a customer paid them to add a feature. This is called a job shop model, and we would bid on the cost to the customer of developing the feature and stick to that cost even if it cost us more, and when the new full version came out, all our customers would get all the features that had been custom paid for by individual customers in the prior year. This isn’t subsidizing, its just a way of doing business, but note the lack of cost-plus contracting…

  31. Trent Waddington

    If an airline demanded Boeing create a whole bunch of reports they wouldn’t normally create before they would buy Boeing’s aircraft, you don’t think they’d have to pay for that? You don’t think an airline would have to pay a whole *lot* more to get early input into the development of one of Boeing’s aircraft? Are you kidding?

    We don’t even have to look for some mythical airline without any common sense.. just look at NASA. Every time they’ve demanded some custom built plane from Boeing they’ve paid for it, up front. If it looks like they’re getting a fantastic deal from SpaceX and the other CCDev providers, it’s because they are.

  32. Karl Hallowell

    SpaceX has yet to deliver a single ounce to ISS, so what is the service NASA is paying for?

    So Thomas, they will have no future need for delivering ounces to the ISS, especially at the prices SpaceX claims it can achieve?

  33. Thomas Matula

    Trent,

    [[[If an airline demanded Boeing create a whole bunch of reports they wouldn’t normally create before they would buy Boeing’s aircraft, you don’t think they’d have to pay for that?]]]

    No, because if Boeing didn’t give it to them they would threaten to go to Airbus to buy their aircraft. That is how real commercial markets work. And why COTS is not commercial, merely another form of government contracting.

    Indeed COTS is no different then the Army Air Corps bomber competition in the 1930′s, the one that stuck them with the B-18.

  34. Thomas Matula

    Karl,

    You mean beyond the supplies that will be delivered to the ISS by the Progress, ATV and H-II transfer vehicles?

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