Capitalism in Space

Because of these differing approaches – the government on one hand and the private sector on the other – policymakers have an opportunity to compare both and use that knowledge to create the most successful American space effort possible.

This report provides a historical look at what has happened in the American space industry as well as the international launch market since the turn of the century, focusing for comparison on the launch cost for the various new rockets and spacecraft being developed by the private sector and the government. Cost always has been one of the most important limiting factors in every nation’s space effort since the day the Soviet Union launched Sputnik in 1957. NASA listed lowering the cost to orbit as the number one reason for building the Space Shuttle. It is the reason the U.S. Air Force instituted the EELV program in the late 1990s. It has been the focus of Space Exploration Technologies Inc. (commonly known as SpaceX) from its founding, illustrated by the significantly lower prices the company charges for its commercial launches. Today, lowering cost is the number one consideration of many established space agencies and private rocket companies, resulting in a reinvigorated launch industry, more vibrant than anything since the 1960s space race.

Should future administrations leverage the lessons being learned now in private industry and make wise choices, the rest of the 21st century could see the entire solar system settled, with much of that exploration done by Americans, spending significantly less money than it has since the end of the 1960s space race.

Determining the Best Policy for Obtaining Access to Space

The central focus of this paper is a comparison between the two approaches to maintain and expand American access to space that NASA and the federal government have followed since the mid-2000s. 

NASA’s effort to build its own heavy-lift rocket for propelling humans to the Moon and beyond was specifically driven by the political vision of presidents and Congress. The program began under President George W. Bush with Constellation program and its Ares 1 and Ares 5 rockets and the Orion manned spacecraft. It then underwent significant modifications following the election of President Barack Obama, who attempted to cancel the program in 2010 before Congress stepped in to mandate its continuance. At that point the Constellation/Ares program was superseded by the Space Launch System (SLS) while work continued on the accompanying Orion spacecraft.

Alternatively, in NASA’s commercial space program the space agency – and the broader federal government, including the Department of Defense – is merely a customer buying privately built rockets and capsules from an array of competing private companies including SpaceX, Boeing, Orbital ATK, and the United Launch Alliance (ULA). For cargo, SpaceX uses its Falcon 9 rocket to launch its Dragon capsule, while Orbital ATK uses either its Antares rocket or ULA’s Atlas 5 rocket to launch its Cygnus freighter. For future human-crewed flights to the International Space Station (ISS), SpaceX will provide an upgraded Dragon capsule mated with the Falcon 9, and Boeing will provide its new Starliner Crew Space Transportation vehicle on a ULA Atlas 5.

For many reasons, it can be argued that a comparison of these two approaches is unfair. At first glance, the requirements for each seem significantly different. Both Ares 5 and SLS are heavy-lift rockets, comparable to the Saturn 5, and designed to lift into orbit payloads that exceed 70 tons. The rockets used by SpaceX, Orbital ATK, and Boeing to lift their crew and cargo and crew capsules into low Earth orbit are much less powerful, generally lifting less than 20 tons. None are capable of sending spacecraft beyond Earth orbit, as the SLS can.

Similarly, the Orion capsule has more demanding specifications. Operational assessments by Lockheed Martin suggest that it is capable of functioning successfully in space for at least 1,000 days; can travel, at a minimum, to and from Mars; and has sufficient micrometeorite and radiation protection for such travel.²  The cargo and crew capsules of SpaceX, Orbital ATK, Boeing, and Sierra Nevada do not have to meet such formidable requirements. They must merely reach low Earth orbit, which is far below the Van Allen radiation belts and means they will not face the solar and cosmic radiation storms of deep space and thus do not require heavy shielding.  They also are not required to maintain reliable function in free flight for longer than a few days.

A closer look at these programs, however, reveals that the differences are not as significant as they first appear and that the capsules are quite similar. While Lockheed Martin believes Orion can operate attached to a larger Deep Space Habitat across a 1,000 day Earth-to-Mars mission profile, the capsules being built now for the first two SLS missions (the focus of this report) follow NASA’s earlier and less stringent design requirements for manned independent operations in space for only 21 days, unmanned independent operations for six months, and docked operations to the ISS or a Deep Space Habitat for seven months.³ The manned variant of SpaceX’s Dragon as well as Boeing’s Starliner are being built with minimum requirements allowing for manned independent operations in space for at least 2.5 days and docked operations to the ISS for seven months.⁴  All three capsules are being built with the modern, highly reliable designs used routinely by communications satellites and planetary probes that are capable of operating for decades in deep space. The Orion spacecraft can carry four astronauts. The manned Dragon and Starliner are being designed to carry as many as seven.⁵

Though the Orion capsules being built will have more radiation shielding than either Dragon or Starliner, they are not completely shielded, and their shielding is insufficient for interplanetary flight.⁶ 

Essentially, the private capsules and the Orion capsules, as currently built, are  ascent/descent capsules, primarily designed to bring humans up and down from the Earth’s surface. When humans eventually travel beyond Earth orbit, none of these capsules, including Orion, will be sufficient. All are too small for interplanetary travel and their capabilities are inadequate. No crew of four can live in such a small capsule for the many months required to travel to and from Mars. Any interplanetary manned flight will require a much larger vessel, similar in scale to a Mir or International Space Station.⁷ Orion, like Dragon and Starliner, will essentially be used as the ferry to go back and forth from Earth. Setting aside any future requirement that Orion will someday be built to maintain structural and operational integrity across a 1,000-day mission profile, Orion at its core is not much different than Dragon or Starliner. That NASA has imposed more stringent requirements on Lockheed Martin for building Orion does not change the fact that the product NASA is getting now will essentially perform similarly to crew capsules being designed and built by private space companies. Hence, an assessment of cost and development time for the two different manned capsule programs is reasonable.

The comparison between the Ares/SLS rockets and the rockets used by private space companies is valid as well. Though SLS is far more powerful and capable than any privately built rocket, it is being built, like the private rockets, to provide NASA access to space. Rather than state a mission requirement and allow the private sector to compete to create a capability by evolving current technologies in new configurations, NASA, in a very traditional governmental approach, has chosen to create Ares/SLS, without basis, as a big rocket.

The question here is whether that development is giving NASA access to space. It is not easy to build a heavy-lift rocket. As a result, SLS has cost a great deal of money and experienced many delays, during which no spacecraft has flown and the agency has obtained no access to space. Meanwhile, the privately built rockets and capsules are launching repeatedly, albeit with some notable failures. Their lower cost might limit their initial capability, but their multiple launches (and failures) have allowed their parent companies to innovate and improve. From this knowledge comes the ability to upgrade their rockets, as SpaceX is doing with its Falcon 9 and Falcon Heavy, so that the company can ultimately match the capabilities of SLS.  More importantly, during this development time private rockets and capsules are flying, thus giving NASA the access to space that SLS is not capable yet of providing.

Hence, a comparison of these different rocket systems is useful as a process for exploring alternative approaches to space flight. Which line of attack is producing the results needed by both NASA and the nation? While both approaches are designed with the intent to provide the United States access to space, they are being executed with radically different methods in terms of technology and cost structure. Since the fundamental point of this paper is to reveal which policy best serves the national interests of the United States, a comparison of these two approaches is appropriate.

Policy Recommendations 

1. Restore Ownership

The rockets and capsules built by SpaceX and Orbital ATK are not owned by NASA, nor are they designed solely to serve NASA’s needs. Instead, the companies own them, and have designed them to have value both to NASA as well as other customers. This in turn requires the companies to keep the cost down so that all their customers can afford the product. Ownership also allows the companies to sell their product widely and make profits from it, regardless of whether NASA buys it. For example, Falcon 9’s design was aimed specifically for the commercial communications satellite market. Though it can haul cargo and crew capsules to the ISS, its design makes it affordable and useful to many other satellite companies. Thus, SpaceX can make money from it, which in turn lowers NASA’s cost.

Similarly, Dragon and Starliner are being designed not just to serve NASA but also a wider customer base. Boeing, for example, has signed an agreement with Bigelow Aerospace to use Starliner to provide cargo and passenger service to Bigelow’s privately built space stations, which it hopes to launch by 2020.¹¹⁴ SpaceX and Sierra Nevada meanwhile have offered their Dragon and Dream Chaser manned spacecraft to other countries as an inexpensive way to develop a space program. Instead of building their own rockets and spacecraft from scratch, Third World nations can buy these affordable American spacecraft and rockets and do science research in space, quickly and for relatively little money.

In contrast, though Lockheed Martin purportedly owns Orion, it has had no control over the capsule’s concept or overall design. Instead, that control belongs to NASA, which has justified it to Congress and the public as a vehicle for sending humans beyond Earth orbit, to the Moon, to the asteroids, and even to Mars. To achieve NASA’s goals, the agency has required Orion to meet these ambitious expectations. The result has been higher costs, and a very expensive spacecraft that is not practical for Lockheed Martin to sell to other customers. For example, the original heat shield for the spacecraft initially was based on the heat shield design used by the Apollo capsules of the 1960s. NASA figured it would save money to use this older design, since that heat shield design already had been proven successful during actual flights returning from beyond Earth orbit at the high speeds and temperatures such flight paths produce. Unfortunately, even before the first Orion test flight, it was discovered that this design did not scale up well for the larger Orion capsule. The surface of the Orion heat shield ended up too uneven. The old design also proved far too expensive to make, as it required too much manual labor to inject by hand the heat shield’s ablative material into a honeycomb pattern of more than 330,000 individual cells. Similarly, NASA’s interplanetary requirements for Orion has forced Lockheed Martin to give the spacecraft more radiation shielding (even if insufficient for interplanetary flights) than carried by the Dragon or Starliner capsules, further raising its development and operational costs.¹¹⁵

The ownership situation with Boeing’s SLS rocket is even more tilted in the government’s favor. NASA designed it solely for deep space missions and then handed out contracts piecemeal to different companies to build the rocket’s different components. The rocket therefore essentially belongs to NASA, whose goals – exploring space – have nothing to do with reducing cost or obtaining profit. Even if NASA were interested in marketing it to the commercial market, which it is not, the cost for a single SLS is many times more expensive than the most costly ULA launch (priced at $460 million). No satellite company can afford it. NASA and the companies building SLS’s components thus have only one customer, the government, and the only way they can hope to make money on it is to charge the government a lot to build it

Recommendation: The government should leave the design work and ownership of the product to the private sector. The private companies know best how to build their own products to maximize performance while lowering cost, especially because it is in their own self-interest to do this well, as a unreliable rocket will not attract many customers. NASA engineers and administrators in turn might be very skilled, but their priorities tend to focus on management and regulation. If NASA or the Air Force require a service they should request it from the private market, becoming a customer like everyone else.  This will result in increased competition and performance at a lower cost.

2. Simplify Design and Construction

Because SpaceX and Orbital ATK are entirely in charge of construction, they have the ability to keep their design and manufacturing processes simple and efficient. For example, SpaceX built one rocket engine, the Merlin, and then used it on every stage of its Falcon 9 and Falcon Heavy. This reduced development time and costs while simplifying the manufacturing process. Similarly, rather than design a whole new first stage for its heavy-lift rocket, SpaceX decided to simply strap three Falcon 9 first stages together, a much simpler design solution that saved them millions.

With SLS and Orion, however, Congress imposed mandates that forced NASA to distribute the work to as many contractors as possible (similar to what ESA forced Arianespace to do with Ariane 5). SLS’s first stage (built by Boeing) uses engines different from its second stage (built by Aerojet Rocketdyne). SLS also will use a third design for its solid rocket strap on boosters (built by Orbital ATK). This hodge-podge of contractors does nothing to improve the rocket, and everything to increase its cost and lengthen its development time.

Recommendation: Allow NASA and the Air Force to pick the most effective design built by the most efficient companies, even if this means that many established aerospace companies could very well lose their business with the government because they can’t build cheaply. In the end, however, the nation, and its elected officials, will benefit, as the government will acquire more for less. The renewed competition for space contracts, unhampered by congressional mandates, also will encourage innovation and cost reduction, resulting in better rockets and spacecraft that can be useful not only to the government, but to many in the private sector.

3. Streamline Cost-Conscious Fixed-Price Contracts

The fixed-price contracts used by NASA for the commercial cargo/crew program (which were also the predominant contract used by NASA in the 1960s) not only put a ceiling on NASA’s costs, they also created an incentive for the private companies to keep their costs low and build more efficiently. NASA and Congress further emphasized this desire to keep costs low by requiring the companies in the initial development contracts to invest some of their own money. Moreover, by paying SpaceX and Orbital ATK in increments only after reaching certain milestones, the fixed-price contracts encouraged work to be done quickly and as close to the planned schedule as possible. Also, the use of streamlined SAA/FAR agreements instead of the more complex FAR contracts reduced the costs to both NASA and the contractors while speeding up construction time.

In comparison, the cost-plus contracts that NASA is using for SLS and Orion have been the equivalent of blank checks to the private contractors. The companies actually benefit if costs go up, construction gets delayed, or NASA requests changes. Thus, even after a decade of work and significant budget increases, we are still years from the first manned launch, with many issues suggesting that further delays are imminent.¹¹⁶

Recommendation: Abandon the use of cost-plus contracts. They first were introduced in the early years of the space program, when the technology was very uncertain and companies demanded some cushion in case the needs of the engineering were beyond their financial capabilities. More than a half century later, this cushion is now unnecessary. Even with the most daring and radical designs, such as SpaceX’s reusable first stage, the engineering is well within the resources of any U.S. company the government might consider hiring. 

Recommendation: Even with the use of fixed-price contracts, the government should not entirely underwrite the development of new designs, but instead insist that the companies invest some of their own capital. If private companies are to own the product, making money by selling it to customers outside the government, then they also should help pay for its development. Moreover, more money does not necessarily translate into more success. Congress, NASA, and the Air Force should keep a tight rein on the purse strings, a policy that will effectively encourage the private sector to lower costs and work more efficiently.

Recommendation: Congress should allow NASA and the Air Force to simplify their contracting regulations. The success of the SAA agreements, creating capsules and rockets for significantly less money in significantly less time, demonstrated that the complex supervision and added regulations of the FAR contracts are mostly unneeded and actually interfere with the ability of the government to accomplish what it needs to accomplish.

4. Keep Overhead Low

The difference in cost between commercial cargo/crew and SLS/Orion can be attributed mostly to the different amounts of money NASA budgeted for each program’s administration, overhead, and labor costs, within NASA. In the case of commercial cargo/crew, NASA left the ownership, design, and construction entirely up to the private companies, devoting almost no agency resources to the projects. The capsules and rockets still got built, but it was the private companies that did it, and the cost to the government was significantly reduced.

With SLS/Orion, however, NASA allocated significant agency resources, both labor and facilities, to design and construction. Yet NASA still had to award large contracts to private companies to get the rockets and capsules actually built. The result was a gigantic budget for NASA administration and operations that more than doubled the overall cost of the projects. In a sense, the government paid twice for Orion and SLS, once when the agency labor force designed and then supervised the project’s construction, and then again when the agency hired private companies to do the work.

Dragon/Falcon 9 and Cygnus/Antares, however, demonstrated there is no need for that additional NASA design and supervision and the labor force that goes with it. The private sector has proven that it will respond to  public and private demand and will do so quickly and for a reasonable price.

Recommendation: Congress must use its oversight power to direct NASA and the Air Force to eliminate or significantly reduce their overhead and labor forces, especially in the area of manned space. If most of this work is done by the private companies, there is no justification for the taxpayer to pay salaries for a large standing army of government workers who do little more than administration. In many cases, this recommendation should cause the elimination of a number of NASA centers and facilities. 

While many NASA programs – the agency’s planetary and astronomical programs, for example – are necessary and do excellent work, the history outlined in this paper suggests that much of the manned space program and the launch industry would be better served if they were handled almost entirely by a competitive private sector. It is in these areas that Congress should consider major reductions at NASA, even as it carefully provides sufficient funds for new manned and science projects in orbit and beyond. In fact, not only would this change in policy allow the government to do more for less in its manned program, a significant portion of the savings from these reductions then could be applied effectively to NASA’s planetary, astronomical, and Earth resources programs, allowing them to do more. 

5. Expand Competition

The striking competition in the private launch market, spurred by SpaceX’s innovation and lower costs, illuminates a path for invigorating the aerospace industry, both for the private sector and the government. 

SpaceX entered the aerospace market with one goal: lower the price so that it could compete aggressively for market share. That effort has succeeded. In response, the older, already established companies have become more competitive, or have indicated by non-action that they will fall by the wayside. The result is a revitalized launch industry. A tertiary effect has been the creation of additional new launch companies, able to gain investment capital and enter the market, thus completing the economic cycle and increasing the competition and further lowering prices.

NASA encouraged this process with its second round of commercial cargo contracts, awarding contracts to three companies – SpaceX, Orbital ATK, and Sierra Nevada – but left itself the freedom to decide later how many cargo launches from each company the agency would buy. If any company has problems or delays, NASA simply will send its business to the other two. The result: a heightened sense of competition, encouraging faster schedules and lower costs.

Recommendation: Expand competition. Assuming the government accepts the above recommendations, it then should award the work to multiple companies in order to increase competition as well as provide redundancy to the government. The history of those cargo contracts showed that it can actually cost the government less to award contracts for the same service to more than one company, as long as those contracts are streamlined, fixed-price, and leave the design to the private company.

A Final Point

A close look at these recommendations will reveal one common thread. Each is focused on shifting power and regulatory authority away from the federal government and increasing the freedom of American companies to act as they see fit to meet the demands of the market. The key word that defines this common thread is freedom, a fundamental principle that has been aspired to since the nation’s founding. 

Political leaders from both parties have made the concept a central core tenet of American policy. Democrat John Kennedy stated that his commitment to go to the Moon was a “stand for freedom” in the Cold War. Republican Ronald Reagan proposed “Freedom” as the name for the new space station, and viewed it as a platform for promoting private enterprise in space.

Freedom is actually a very simple idea. Give people and companies the freedom to act, in a competitive envi- ronment that encourages intelligent and wise action, and they will respond intelligently and wisely.

The United States’ history proves that freedom can work. It is time that it prove it again, in space.