Category Archives: Business

Business, Economics, Media Criticism, Political Commentary, Space

Who Is Short Sighted?

35 Comments

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.

Business, Economics

How SpaceX Reduces Cost

26 Comments

Elon Musk explains (not a permalink):

Whenever someone proposes to do something that has never been done before, there will always be skeptics.

So when I started SpaceX, it was not surprising when people said we wouldn’t succeed. But now that we’ve successfully proven Falcon 1, Falcon 9 and Dragon, there’s been a steady stream of misinformation and doubt expressed about SpaceX’s actual launch costs and prices.

As noted last month by a Chinese government official, SpaceX currently has the best launch prices in the world and they don’t believe they can beat them. This is a clear case of American innovation trumping lower overseas labor rates.

I recognize that our prices shatter the historical cost models of government-led developments, but these prices are not arbitrary, premised on capturing a dominant share of the market, or “teaser” rates meant to lure in an eager market only to be increased later. These prices are based on known costs and a demonstrated track record, and they exemplify the potential of America’s commercial space industry.

Here are the facts:

The price of a standard flight on a Falcon 9 rocket is $54 million. We are the only launch company that publicly posts this information on our website (www.spacex.com). We have signed many legally binding contracts with both government and commercial customers for this price (or less). Because SpaceX is so vertically integrated, we know and can control the overwhelming majority of our costs. This is why I am so confident that our performance will increase and our prices will decline over time, as is the case with every other technology.

The average price of a full-up NASA Dragon cargo mission to the International Space Station is $133 million including inflation, or roughly $115m in today’s dollars, and we have a firm, fixed price contract with NASA for 12 missions. This price includes the costs of the Falcon 9 launch, the Dragon spacecraft, all operations, maintenance and overhead, and all of the work required to integrate with the Space Station. If there are cost overruns, SpaceX will cover the difference. (This concept may be foreign to some traditional government space contractors that seem to believe that cost overruns should be the responsibility of the taxpayer.)

The total company expenditures since being founded in 2002 through the 2010 fiscal year were less than $800 million, which includes all the development costs for the Falcon 1, Falcon 9 and Dragon. Included in this $800 million are the costs of building launch sites at Vandenberg, Cape Canaveral and Kwajalein, as well as the corporate manufacturing facility that can support up to 12 Falcon 9 and Dragon missions per year. This total also includes the cost of five flights of Falcon 1, two flights of Falcon 9, and one up and back flight of Dragon.

The Falcon 9 launch vehicle was developed from a blank sheet to first launch in four and half years for just over $300 million. The Falcon 9 is an EELV class vehicle that generates roughly one million pounds of thrust (four times the maximum thrust of a Boeing 747) and carries more payload to orbit than a Delta IV Medium.

The Dragon spacecraft was developed from a blank sheet to the first demonstration flight in just over four years for about $300 million. Last year, SpaceX became the first private company, in partnership with NASA, to successfully orbit and recover a spacecraft. The spacecraft and the Falcon 9 rocket that carried it were designed, manufactured and launched by American workers for an American company. The Falcon 9/Dragon system, with the addition of a launch escape system, seats and upgraded life support, can carry seven astronauts to orbit, more than double the capacity of the Russian Soyuz, but at less than a third of the price per seat.

SpaceX has been profitable every year since 2007, despite dramatic employee growth and major infrastructure and operations investments. We have over 40 flights on manifest representing over $3 billion in revenues.

These are the objective facts, confirmed by external auditors. Moreover, SpaceX intends to make far more dramatic reductions in price in the long term when full launch vehicle reusability is achieved. We will not be satisfied with our progress until we have achieved this long sought goal of the space industry.

For the first time in more than three decades, America last year began taking back international market-share in commercial satellite launch. This remarkable turn-around was sparked by a small investment NASA made in SpaceX in 2006 as part of the Commercial Orbital Transportation Services (COTS) program. A unique public-private partnership, COTS has proven that under the right conditions, a properly incentivized contractor — even an all-American one — can develop extremely complex systems on rapid timelines and a fixed-price basis, significantly beating historical industry-standard costs.

China has the fastest growing economy in the world. But the American free enterprise system, which allows anyone with a better mouse-trap to compete, is what will ensure that the United States remains the world’s greatest superpower of innovation.

Not if Congress has anything to say about it. They continue to want a state-socialist jobs program.

Business, Economics, Media Criticism, Political Commentary, Space

The Space View From The Left

3 Comments

Over at Kos, “Darksyde” writes about the rocket to nowhere. Ignoring the comments about uteri and urine, I pretty much agree — pork is pork from either side of the aisle. I would point out, though that Constellation and Ares were not proposals by George Bush (though I can understand why he’d want to phrase them that way to his audience, to further demonize them). It was all Mike Griffin, and I’m sure that Bush had zero interest in the subject once he hired Mike.

Business, Economics, Political Commentary

Economic Insanity

9 Comments

From the guy who runs Medicare:

In other words, Berwick’s column accidentally teaches us an important lesson. When consumers are in charge and responsible for paying their own bills, markets are very efficient and costs come down. But when government policies cause third-party payer, consumers have little if any incentive to spend money wisely – leading to high costs and inefficiency.

Defenders of the status quo argue that the market for healthcare somehow is different than the market for things such as computers. But here’s a chart (click to enlarge) showing that relative prices are falling in one of the few areas of the healthcare system where consumers spend their own money. And I’ve previously noted that the same thing applies with abortion, where prices have been remarkably stable for decades. Regardless of one’s views on the procedure, it does show that costs don’t rise when people spend their own money.

That’s common sense and basic economics. But it’s not a good description of Obama’s healthcare plan, which is explicitly designed to increase the share of medical care financed by third-party payer.

It’s almost as though they have a hidden agenda to increase the scope of government power.