SpaceX' Defense Misses

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In a rebuttal to an article posted yesterday by Dr. Loren Thompson on Forbes titled, “What NASA Risks By Betting On Elon Musk’s SpaceX“, SpaceX’s Corporate Communications V.P. Bobby Block’s primary defense boils down to two issues:

  • Dr. Loren Thompson is a paid consultant to Lockheed Martin and has long been hostile towards SpaceX.
  • SpaceX’s launch costs have risen, but mainly as a function of inflation and integrating new technology.

Left unanswered are Thompson’s points about why SpaceX has been on average 2 years late and launch costs grow over 53% to 58% above anything that can be even remotely explained by U.S. economic inflation. And it was too bad that Block did not focus on the fact that, despite cost growth in its rockets, SpaceX currently represents a bargain in getting something into low-earth orbit.

The first issue that SpaceX’s Bobby Block addresses is for whom Dr. Thompson consults,

    [D]r. Thompson is a paid consultant for Lockheed Martin Corporation, which competes with SpaceX in various space ventures. He is also the chief operating officer of the non-profit Lexington Institute, a think tank often referred to as the “defense industry’s pay-to-play ad agency,” financed by and an advocate for the very defense companies most threatened by SpaceX’s new approach to the launch business.

It is worth noting that Block is a paid employee of SpaceX and that it is his job to promote the narrative that is SpaceX.

Next, Block concedes that,

    While there have been some price increases over the years, in line with inflation and technological improvements that have increased our vehicles’ performance, our prices are somewhere between 30 percent to 80 percent less than rival American rockets (that don’t compete on the commercial market) and our Russian and Chinese competitors. And our development costs are significantly lower than traditional government programs.

In a word, yes and no.

U.S. inflation can only explain a very small portion of increased SpaceX launch costs. SpaceX’s Falcon 1 development began roughly in 2002 and Falcon 9 in 2006. The total inflation for those periods were 26.2% and 12.7%, resulting in a nominal annual inflation rate of 2.91% and 2.54% respectively. To bring U.S. economic inflation into better perspective, consider that over the last 11 years the inflation rate of the U.S. topped-out at 3.85% in 2008 and bottomed-out at -0.34% in 2009.

In 2002 SpaceX stated that a Falcon 1 launch would cost $6 million but today that cost is $11 million, an 83% cost growth. Given the nominal rate of U.S. economic inflation between 2002 and 2011, the price of launching a Falcon 1 should only grow to roughly $7.8 million, not $11 million. When SpaceX began development of Falcon 9 in 2006, it stated a launch cost of $35 million. Today that cost is $60 million, or a 71% increase, and all in just 5 years. With a nominal inflation rate of only around 2.54%, the inflation adjusted cost of a Falcon 9 launch should be around $40 million, not $60 million.

In other words, while SpaceX has seen total launch costs for Falcon 1 and Falcon 9 increase 83% and 71%, or an additional $5 million and $25 million each, only around 30% and 13.5% of those costs increases, or $1.8 million and $5 million for Falcon 1 and Falcon 9 respectively, can be attributed to U.S. inflation. Where did the remaining 53.5% and 58% cost growth, or $3.2 million and $20 million, for launching Falcon 1 and Falcon 9 come from?

According to Block, such launch cost growth is due to “technological improvements that have increased our vehicles’ performance“. Other companies, such as those OldSpace companies, might use other terms such as “miscalculations” or “cost overruns”.

What should concern SpaceX and NASA is that two programs begun independently at two very different times in the company’s life experienced very similar non-inflation caused price growth. Two points define a line, and a line a trend. And a greater than 50% growth in expected price is not a good trend.

There was another space program that saw significant, though certainly not greater than 50%, cost growth, one that was to offer less expensive and safe access to space. Due to this financial uncertainty, a commission was assembled to review the program and assess its long-term viability. In the end, the program was killed because, according to the NASA Administrator Charles Bolden, its costs had grown too much. That program was Constellation.

Block is correct in stating,

    And our development costs are significantly lower than traditional government programs.

With less than $1 billion, SpaceX has built, tested and flown 2 rockets and one pressurized craft that it hopes to turn into a human-rated spacecraft. In aerospace circles, that is unprecedented. No, SpaceX did not develop new “game-changing” technology–no warp engines here. But it has built on existing technology with a very skinny budget. The credit for this feat must certainly go to SpaceX’s technical team. It is said that at SpaceX, 1 person does 5 jobs; it shows. But there is a great deal of credit that should go to SpaceX’s management for knowing how to lead and get out of the way of its engineers and technicians.

And then there is the fact that Dr. Thompson did not address, which is the issue of total launch cost. Even with its launch cost growth, SpaceX is still is offering to launch Falcon 1 or Falcon 9 for much less than its domestic competition, United Space Alliance. As to whether SpaceX can put a payload in space for less than what China would charge remains to be seen. But it’s nice to see an American company put pressure on the Chinese. True, soon SpaceX will be facing pricing pressure of its own as Orbital Science’s commercial offering in the payload range of Falcon 9 hits the market.

Why not celebrate the rise of SpaceX and Orbital, along with their lower launch costs, as a good thing for America? Because many who went through the first commercial space renaissance in the late 90’s get a sense of deja vu all over again every time they hear claims of bargain launch prices. The reason ULA’s Delta IV and Atlas V rockets are more expensive to launch than SpaceX is because those rockets were built on the premise that there would be over 12 launches yearly. The same was true for the Shuttle program. If the NewSpace companies are also basing their pricing on unrealistic launch rates, because of decisions made by the current leadership of NASA and the President it will be the American people who will likely have to pay the bill. Which is exactly what happened when the expected commercial launch market failed to materialize in the late 90’s.

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2 comments to SpaceX’ Defense Misses

  • The fact the Space X also claims that it has been profitable while accepting hundreds of millions of tax payer dollars is also pretty outrageous, IMO.

    But there’s no logical reason why an emerging space launch company like Space X shouldn’t be successful in the long run as long as they focus on commercial satellite launches and the emerging space tourism industry.

    But tax payers should be wary when such companies try to promote and to integrate themselves into extremely wasteful Federal programs like the ISS.

    • I couldn’t agree more with your point that if SpaceX remains focused, it should be profitable. The only caveat I could add is that I just hope that in their model, SpaceX didn’t assume a higher flight rate than whatever resulting market for satellites and tourism can support.