Dotcom Billionaires Taking on NASA’s Big Government Contract Culture

by | May 1, 2011 8:51am
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Posted to: NASA, Space Shuttle, Tech Biz

Lon Seidman Photo

SpaceX’s Bobby Block takes members of the news media on a tour of the company’s Cape Canaveral launch facility.

CAPE CANAVERAL, Fla. — The beat up launch pad leased by California-based SpaceX looks more like a relic of the 1960s than a cutting-edge space system of the 21st century.

And the company’s nearby rocket assembly building might remind some of an expanded Tuff Shed in comparison to NASA’s majestic and enormous Vehicle Assembly Building.

Further, compared to NASA’s staid, carefully crafted, safety-first image, company spokesman Bobby Block might come across to some like he is the lead singer of a rock band called “SpaceX” rather than a VP of corporate communications for the same.

Nevertheless, NASA and the Obama administration have decided that the scrappy, dotcom-funded startup and its equally scrappy launch pad and attitude will be one of the primary paths to space for Americans and their cargo after the shuttle is retired in June.

Members of Congress, especially those from districts benefiting from NASA contracts, are still grappling with the Obama administration’s decision to cancel the $9 billion Constellation program that was supposed to succeed the shuttle. The administration and NASA are moving forward quickly with plans to get the government out of the low-earth-orbit business and to have private companies provide multiple spacecraft and launch services.

—Watch President Obama’s speech announcing the cancellation of the Constellation program

The change has the NASA community buzzing with concerns about jobs, history, and the program’s direction.

But Philip McAlister, NASA’s acting director for commercial spaceflight development, confirmed where the manned space program is headed during an April 27 press conference at the Kennedy Space Center.

“The recently enacted 2010 NASA authorization clearly established commercial crew as the primary means for U.S. access to the International Space Station. We cannot have the future of human spaceflight completely dependent on the prevailing political winds or partisan concerns,” he said, later adding, “there’s no turning back.”

—Watch the NASA press conference

Lon Seidman Photo NASA is distributing $270 million to SpaceX and three other commercial space providers in the second round of their Commercial Crew Development program (CCDev). Two of the firms — Boeing and Sierra Nevada — have decades of NASA contract experience and are utilizing components of simple, proven designs for their crew vehicles. The other two, SpaceX and Blue Origin, are new companies founded by dotcom billionaires who are starting from scratch with their designs. Paypal founder Elon Musk launched SpaceX in 2002, and Amazon.com founder and CEO Jeff Bezos quietly started Blue Origin in 2000.

How did we get here?

Before Musk and Bezos built their personal fortunes in the 1990s, the U.S. had lost its place at the top of the commercial space launch marketplace — a market America dominated throughout most of the 1980s. But that dominance was eroded by competition from foreign governments’ space programs, and according to the FAA, in 2010 only 4 out of 23 commercial launches worldwide went up on American rockets.

That data reflects the reality that the commercial launch market had flopped in its infancy, but not without casualties among the industry’s old guard. According to company officials interviewed on April 29, Boeing was among those in the commercial launch market when it flopped.

“There was this big prediction that the market would be so big, so a lot of companies like Boeing and Lockheed went out and built these rockets,” said Edmund G. Memi, manager of media relations for Boeing’s space exploration division. “And then we built all these rockets, put a lot of R&D into these rockets, and then the market was never really there to sell.”

Memi said today’s market is following a similar path to the one that flopped.

“They saw great promise . . . and the market kind of evaporated,” Memi said. “What happened was, you’ve got countries like China . . . you’ve got the French with their rockets. There was just a lot of competition for the price . . . You can’t give the rocket away. You’ve got to recoup some costs.”

Michael L. Raftery, Boeing’s deputy program manager for the International Space Station, said Boeing and Lockheed “got talked into investing a lot of money in rockets” and later had to write off the losses and eventually partnered to form the United Launch Alliance (ULA).

Nearly all of the ULA’s business is launching American government satellites and probes into orbit, along with a few commercial customers.

SpaceX Bullish on the Future

Doug Hardy Photo Bobby Block, VP of Communications for SpaceX, is more bullish on today’s domestic launch market and says the upstart has secured two major satellite launch contracts, and more announcements are on the way.

“In the last two years we’ve taken back, for the first time in 15 years, a share of the launch market,” Block said. “We won Iridium. We’re about to announce two more satellite deals. We won SES.  We’ve got agreement for one launch with a possible second. This is the first time they’ve come back to an American launcher.”

In March, SpaceX and European communications giant SES signed a deal for the launch of a communications satellite in 2013 with an option for a second launch. In June 2010, Iridium agreed to a $492 million contract with SpaceX to launch its low-earth-orbit communication satellites beginning in 2015. NASA committed in late 2008 to a $1.6 billion contract with SpaceX for 12 unmanned resupply missions to the International Space Station beginning later this year.

With the exception of the NASA contract, Block added, SpaceX was competing directly with foreign launch providers.

Block, a former space beat reporter for the Orlando Sentinel, is not your typical aerospace executive and offers at least symbolic evidence of the cultural difference between SpaceX and NASA. He met a busload of journalists this week for a tour of the company’s Cape Canaveral facility wearing Ray Ban sunglasses, jeans, an earring, and an untucked polo shirt. He enthusiastically points out at every opportunity how the company has streamlined costs and reduced overhead to make spaceflight more affordable.

Lon Seidman Photo As he led a group out to the launchpad SpaceX leased from the U.S. Air Force, he points to a large spherical fuel tank once used during the Apollo era and says SpaceX purchased the tank from NASA at its cost as scrap plus a dollar. The tank is completely refurbished, including what appeared to be a fresh coat of white paint. Block even claims that a $6 million renovation the Army Corps of Engineers suggested for the launch pad’s flame vent was accomplished for $60,000 by company engineers utilizing a different design. The design incorporated new metal structures that are flooded with water to reduce fiery rocket exhaust at liftoff.

Neither the company, the Army Corps of Engineers, nor NASA could verify the remarkable cost-savings on the flame vent renovation, and the USAF did not return a call to their nearby offices for comment about the project.

But Block isn’t afraid to offer his own brand of irreverence in the face of questions.

Asked how much water is used over the vent during a launch, Block replied, “Shitloads!”

It’s the kind of attitude that an upstart brings to the market with a disruption, when a new website with a better widget can overtake an established competitor, seemingly overnight. 

Disrupting space

Block says SpaceX and its 1,200 employees manufacture 80 percent of the rocket, engines, and capsule “in-house” to reduce overhead and reliance on outside contractors.

Doug Hardy Photo Inside the hanger, a Falcon 9 rocket is being prepped for the first commercial flight to the International Space Station. Because it was less expensive to construct a shorter building, the rocket is assembled horizontally using an apparatus that can rotate the rocket in place to give engineers access to components without having to be hoisted aloft. This makes preparations more efficient, safer, and - of course - less costly.

Block said the rocket will be ready this summer to complete the next phase of their Commercial Orbital Transportation Services (COTS) program with NASA. The mission will take the company’s Dragon space capsule to the International Space Station to drop off cargo - another first for a privately owned spacecraft. 

SpaceX officials are confident their hardware is ready for the task - they’ve launched the Falcon 9 rocket twice and on the second flight successfully orbited and retrieved their Dragon capsule in the pacific ocean - again a first for a private company. But they’re eager to put people up in Dragon - and soon.

SpaceX Photo NASA’s CCDev program provides grants to companies seeking to build spacecraft capable of carrying humans. Unlike prior government contracts, the grants are awarded in fixed amounts rather than “cost plus” arrangements that guarantee a specific profit margin. The companies agree to reach specific milestones and to invest their own capital into project development. NASA will issue a third round of competitive grants next year.

The competitive grants are indicative of NASA’s new “no turning back” mentality voiced by McAlister at the April 27 news conference.

“Competition is very central to our strategy,” McAlister said. “It incentivizes performance and encourages cost effectiveness.”

Boeing, the lead contractor on the International Space Station, has a simple re-usable capsule design that they say will meet the objectives of the program and should be ready for unmanned test flights in 2013. They received the largest grant in the second round at $90 million.

Sierra Nevada received $80 million to continue development of a mini Space Shuttle (based on an earlier NASA-designed vehicle). They expect flight testing to take place by 2014. Blue Origin wasn’t ready to announce plans to test fly their capsule at Thursday’s press conference. They received $22 million for the capsule, which is designed to take off and land vertically.

Boeing and SpaceX both concede human crew development can’t be completed without government help. While there is optimism that a market might exist for space tourism or smaller countries looking for human spaceflight capabilities, NASA is currently the only paying customer.

“We’ve already stated that if NASA doesn’t fund a large part of our funded development, we wouldn’t be in it,” Memi says. “You’re not going to throw a bunch of money into something for a market that may or may not happen. I mean you’ll get the NASA business, but you couldn’t expect the company to shoulder . . . I don’t think any of the companies would shoulder the entire cost of the development by themselves.”

At Thursday’s press conference, SpaceX’s Garret Reisman (a former NASA astronaut), said the $75 million SpaceX is receiving from NASA for the next year of work will keep the company on track for a 2014 launch of crew, provided the funding keeps coming.

“We would need additional support from NASA beyond the CCDev 2 program to get us through those last two years,” Reisman said.

SpaceX Photo SpaceX officials are anything but modest about their ambitions for space. Musk told the Wall Street Journal this week that his company could be sending humans to Mars in 10 years. The company boasts that a yet-to-be launched heavy-lift rocket can carry twice the weight of their nearest U.S. competitor at a third of the price. The cover of a SpaceX press kit for the CCDev2 announcement shows a lineage of NASA’s crew capable rockets, with the Falcon 9 placed right after the Space Shuttle. Those are big words from a small company without the track record of the big government contractors SpaceX is competing against.

Doubts ran high this week among space industry workers, news media, and observers at the Kennedy Space Center over NASA’s risky gamble on the young upstart.

Boeing officials are taking a wait-and-see approach, and acknowledge that SpaceX has captured peoples’ attention. It also appears to help that the company is flourishing in the current economic climate. Officials from the space program in China - where most goods are manufactured cheaper - have reportedly said they can’t match SpaceX’s cost savings.

“It’s just a new buzz,” Raftery said. “Anybody can create a new buzz.”

But Raftery also suggested there is value in what SpaceX, their competitor, is bringing to the industry.

“Some change is good though,” Raftery said. “We constantly challenge ourselves to reinvent ourselves. I think that’s some of what you’re seeing from some of the smaller companies coming into the business. They’re trying new business models and that’s healthy, I think. Some of them will work and some of them won’t. I’m kind of counting on those guys to deliver the goods on their current commitments before we start signing them up for a bunch of new stuff . . . Then the thing is going to be, can they keep the business case closed on how much they’re charging. We’ll have to just see how it goes. That’s the important part - being able to close the business case so you’re not in a constant loss leader environment.”

As if to reconfirm just how different the new company is from the old, Block was quick to point out the company’s balance sheet is healthy.

“We’ve been profitable since 2007.  We’re profitable now,” he said, “The world satellite manufacturers and other folks are going to the Chinese and Russians.  The trend is down.  Development of technology is like all things it’s like cars and anything else, [when] you’re launching a lot your production costs go down because you’re manufacturing stuff at a high launch rate.  Therefore you can start to innovate, because you build new lines.”

Now it’s up to SpaceX to prove whether it can finally offer what the Space Shuttle never could: an inexpensive, safe, and routine route to space.

Bobby Block discusses SpaceX’s cost savings:


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