[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
COMMERCIAL HUMAN SPACE FLIGHT
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON SPACE AND AERONAUTICS
COMMITTEE ON SCIENCE
HOUSE OF REPRESENTATIVES
AND THE
SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND SPACE
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
U.S. SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
JULY 24, 2003
__________
Serial No. 108-26
__________
Printed for the use of the House Committee on Science and Senate
Committee on Commerce, Science, and Transportation
Available via the World Wide Web: http://www.house.gov/science
______
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WASHINGTON : 2003
____________________________________________________________________________
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COMMITTEE ON SCIENCE
HON. SHERWOOD L. BOEHLERT, New York, Chairman
LAMAR S. SMITH, Texas RALPH M. HALL, Texas
CURT WELDON, Pennsylvania BART GORDON, Tennessee
DANA ROHRABACHER, California JERRY F. COSTELLO, Illinois
JOE BARTON, Texas EDDIE BERNICE JOHNSON, Texas
KEN CALVERT, California LYNN C. WOOLSEY, California
NICK SMITH, Michigan NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland JOHN B. LARSON, Connecticut
VERNON J. EHLERS, Michigan MARK UDALL, Colorado
GIL GUTKNECHT, Minnesota DAVID WU, Oregon
GEORGE R. NETHERCUTT, JR., MICHAEL M. HONDA, California
Washington CHRIS BELL, Texas
FRANK D. LUCAS, Oklahoma BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland SHEILA JACKSON LEE, Texas
W. TODD AKIN, Missouri ZOE LOFGREN, California
TIMOTHY V. JOHNSON, Illinois BRAD SHERMAN, California
MELISSA A. HART, Pennsylvania BRIAN BAIRD, Washington
JOHN SULLIVAN, Oklahoma DENNIS MOORE, Kansas
J. RANDY FORBES, Virginia ANTHONY D. WEINER, New York
PHIL GINGREY, Georgia JIM MATHESON, Utah
ROB BISHOP, Utah DENNIS A. CARDOZA, California
MICHAEL C. BURGESS, Texas VACANCY
JO BONNER, Alabama
TOM FEENEY, Florida
RANDY NEUGEBAUER, Texas
------
Subcommittee on Space and Aeronautics
DANA ROHRABACHER, California, Chairman
LAMAR S. SMITH, Texas BART GORDON, Tennessee
CURT WELDON, Pennsylvania JOHN B. LARSON, Connecticut
JOE BARTON, Texas CHRIS BELL, Texas
KEN CALVERT, California NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland MARK UDALL, Colorado
GEORGE R. NETHERCUTT, JR., DAVID WU, Oregon
Washington EDDIE BERNICE JOHNSON, Texas
FRANK D. LUCAS, Oklahoma SHEILA JACKSON LEE, Texas
JOHN SULLIVAN, Oklahoma BRAD SHERMAN, California
J. RANDY FORBES, Virginia DENNIS MOORE, Kansas
ROB BISHOP, Utah ANTHONY D. WEINER, New York
MICHAEL BURGESS, Texas VACANCY
JO BONNER, Alabama RALPH M. HALL, Texas
TOM FEENEY, Florida
SHERWOOD L. BOEHLERT, New York
BILL ADKINS Subcommittee Staff Director
ED FEDDEMAN Professional Staff Member
RUBEN VAN MITCHELL Professional Staff Member
KEN MONROE Professional Staff Member
CHRIS SHANK Professional Staff Member
RICHARD OBERMANN Democratic Professional Staff Member
TOM HAMMOND Staff Assistant
U.S. SENATE
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii JOHN MCCAIN, Arizona
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska
Virginia CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon SAM BROWNBACK, Kansas
MAX CLELAND, Georgia GORDON SMITH, Oregon
BARBARA BOXER, California PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
KEVIN D. KAYES, Democratic Staff Director
MOSES BOYD, Democratic Chief Counsel
JEANNE BUMPUS, Republican Staff Director and General Counsel
ANN D. BEGEMAN, Republican Deputy Staff Director
------
Subcommittee on Science, Technology, and Space
SAM BROWNBACK, Kansas, Chairman
TED STEVENS, Alaska JOHN BREAUX, Louisiana, RMM
CONRAD BURNS, Montana JOHN D. ROCKEFELLER IV, West
TRENT LOTT, Mississippi Virginia
KAY BAILEY HUTCHISON, Texas JOHN F. KERRY, Massachusetts
JOHN ENSIGN, Nevada BYRON L. DORGAN, North Dakota
GEORGE ALLEN, Virginia RON WYDEN, Oregon
JOHN SUNUNU, New Hampshire BILL NELSON, Florida
FRANK LAUTENBERG, New Jersey
JEAN TOAL EISEN, Democratic Senior Professional Staff
FLOYD DESCHAMPS, Republican Senior Professional Staff
C O N T E N T S
July 24, 2003
Page
Witness List..................................................... 2
Hearing Charter.................................................. 3
Opening Statements
Statement by Hon. Sam Brownback, U.S. Senator from Kansas,
Subcommittee on Science, Technology, and Space, Committee on
Commerce, Science, and Transportation, U.S. Senate............. 8
Statement by Representative Dana Rohrabacher, Chairman,
Subcommittee on Space and Aeronautics, Committee on Science,
U.S. House of Representatives.................................. 9
Written Statement............................................ 10
Statement by Hon. Bill Nelson, U.S. Senator from Florida,
Subcommittee on Science, Technology, and Space, Committee on
Commerce, Science, and Transportation, U.S. Senate............. 10
Statement by Representative Bart Gordon, Minority Ranking Member,
Subcommittee on Space and Aeronautics, Committee on Science,
U.S. House of Representatives.................................. 11
Prepared Statement by Representative Eddie Bernice Johnson,
Member, Subcommittee on Space and Aeronautics, Committee on
Science, U.S. House of Representatives......................... 12
Witnesses:
Mr. Phil McAlister, Director of the Space and Telecommunications
Industry Analysis Division, Futron Corporation
Oral Statement............................................... 13
Written Statement............................................ 15
Mr. Dennis A. Tito, CEO, Wilshire Associates, Inc.
Oral Statement............................................... 18
Written Statement............................................ 20
Biography.................................................... 21
Mr. Elon Musk, President and Chief Technologies Officer, Space
Exploration Technologies (SpaceX)
Oral Statement............................................... 22
Written Statement............................................ 24
Mr. Jeff Greason, President, XCOR Aerospace, Mojave, California
Oral Statement............................................... 27
Written Statement............................................ 29
Biography.................................................... 31
Mr. Jon B. Kutler, Chairman, CEO, Quarterdeck Investment
Partners, LLC
Oral Statement............................................... 32
Written Statement............................................ 34
Biography.................................................... 36
Discussion
Impediments to Exploration..................................... 37
Safety and Certification....................................... 40
Indemnification................................................ 41
Effects of the Columbia Accident on Investment................. 42
Effects of Russian Participation on the Industry............... 43
Timelines...................................................... 44
Appropriateness of Government Regulation....................... 44
Profitability.................................................. 44
Liability...................................................... 45
Actions That Would Facilitate Growth........................... 46
Anticipated Launches........................................... 48
Tax Incentives................................................. 48
Appendix 1: Answers to Post-Hearing Questions
Mr. Phil McAlister, Director of the Space and Telecommunications
Industry Analysis Division, Futron Corporation................. 52
Mr. Dennis A. Tito, CEO, Wilshire Associates, Inc................ 55
Mr. Elon Musk, President and Chief Technologies Officer, Space
Exploration Technologies (SpaceX).............................. 57
Mr. Jeff Greason, President, XCOR Aerospace, Mojave, California.. 58
Mr. Jon B. Kutler, Chairman, CEO, Quarterdeck Investment
Partners, LLC.................................................. 62
COMMERCIAL HUMAN SPACE FLIGHT
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THURSDAY, JULY 24, 2003
House of Representatives,
Committee on Science,
Joint with U.S. Senate,
Subcommittee on Science, Technology, and Space,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Subcommittees met, pursuant to notice, at 10:15 a.m. in
Room SH-216, Hart Senate Office Building, Hon. Sam Brownback,
Chairman of the Senate Subcommittee, and Dana Rohrabacher,
Chairman of the House Subcommittee, presiding.
hearing charter
SUBCOMMITTEE ON SPACE AND AERONAUTICS
COMMITTEE ON SCIENCE
U.S. HOUSE OF REPRESENTATIVES
JOINT WITH THE
SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND SPACE
COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
U.S. SENATE
Commercial Human Space Flight
thurday, july 24, 2003
10:00 a.m.-12:00 p.m.
216 hart senate office building
1. Purpose
The Senate Science, Technology, and Space Subcommittee and the
House Subcommittee on Space and Aeronautics will hold a joint hearing
entitled Commercial Human Space Flight on Thursday, July 24, 2003 at
10:00 a.m. in the Hart Senate Office Building, Room 216. The hearing
will examine barriers to investing in entrepreneurial space ventures.
Topics will include the market potential of space tourism, regulatory
issues, private sector vehicle technology development, and capital
investment considerations.
BACKGROUND
In 1994, the U.S. commercial space launch industry performed a
study identifying future launch market opportunities and defining next-
generation launch systems and requirements. In particular, the study
concluded that while space tourism could become an economically viable
industry, the insufficient revenue potential for building a space
transportation fleet posed a barrier to realizing public space travel.
Since that time, however, a string of space tourism market forecasts
and surveys have indicated a growing demand for space tourism. As a
result, new investors are emerging that are interested in funding
entrepreneurial space ventures.\1\ Despite the current downturn in the
commercial space market, which is a reflection of and launch vehicle
overcapacity, recent long-term forecasts for the orbital and sub-
orbital space tourism markets\2\ indicate that space tourism has the
potential to generate upwards of hundreds of millions of dollars in
revenue.
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\1\ Wealthy individuals, that are successful in business, have
decided to enter the commercial space market. Dennis Tito, who
reportedly paid a $20 million dollars to fly with the Russians to the
International Space Station in 2001; Elon Musk, who founded his launch
vehicle manufacturing firm by selling his internet companies for $1.8
billion; Jeff Bezos, the founder of Amazon.com has also started a
commercial space research venture called Blue Origin; Bob Bigelow, a
real estate and land developer in Nevada founded Bigelow Aerospace; and
Andy Beal, V.P. of Proranking.Com, an Internet search engine developer,
was involved in the development of a new launch vehicle design are
among commercial space entrepreneurs interested in creating commercial
space launch ventures.
\2\ Studies conducted in 2002 by the Futron Corporation.
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Several U.S. entrepreneurial space ventures are developing sub-
orbital launch vehicles. They believe these vehicles are uniformly
smaller, have lower performance and range (and therefore have less
destructive potential in the event of an accident), and are inherently
simpler and more reliable than existing intercontinental ballistic
missiles (ICBM)--derived expendable launch vehicles, which are used to
launch objects like satellites into orbit. Many of these sub-orbital
vehicles can be tested in an incremental fashion, with early flights
limited to airplane-like performance demonstrations followed by sub-
orbital flight tests.
By law, any U.S. commercial space launch activity requires a
Federal Aviation Administration launch license. Among the eight sub-
orbital space launch vehicle manufacturers that have initiated
commercial launch licensing procedures with the FAA, only three have
the potential to receive a license within two years. Some sub-orbital
space launch operators believe a launch license could be granted
sooner.\3\
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\3\ Burt Rutan's Scaled Composites Company is an X PRIZE
contestant, and has test flown its two-stage sub-orbital launch vehicle
system (White Knight/SpaceShipOne). Rutan predicts he will be ready to
fly his launch system to 100 kilometers (sub-orbital altitude) by the
end of the year.
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Because launch vehicles, capable of reentering Earth's orbit, are
currently too expensive to develop, these sub-orbital vehicles offer
the U.S. space transportation industry a new, independent source of
technical innovation beyond government's attempts at space
transportation development.
The X PRIZE Foundation, established in 1994 as an educational, non-
profit corporation dedicated to inspiring the private sector to make
technological advances in space travel, is offering $10 million to the
first competitor that can carry three people to 100 kilometers altitude
and then repeat the same flight within two weeks. Donors to the
organization include Bank One, the Danforth Foundation, and the author
Tom Clancy.
Government's role in developing a space tourism industry will be
one of creating a stable regulatory environment. Furthermore,
legislation that provides financial assistance for the launch and
launch range segment demonstrates Congress interest in this area. In
particular, legislation offered by Rep. Rohrabacher, ``Zero Gravity/
Zero Tax Act of 2003'' (H.R. 914), is intended to provide incentives to
create new markets in space by providing a tax moratorium on space-
related income and capital gains exclusion for the sale of stock in
space companies, including those involved in space tourism.
KEY ISSUES
How optimistic are the space tourism market forecasts and surveys?
A variety of market surveys and forecasts suggest a difference of
opinion on the future prospects of public space travel. Early market
research on the demand for space tourism indicated the general public's
interest in traveling to space. While the findings were promising,
these surveys did not indicate a potential market. The Futron
Corporation's recent ``Space Tourism Market Study'' was the first
undertaking to poll the interests of those financially able to take
sub-orbital and orbital space flights priced anywhere from $100,000 to
$20 million. The study also includes 20-year forecasts that indicate
commercial space travel could manifest into a $1 billion industry by
2021. These findings are the basis for commercial space entrepreneurs
deciding whether to enter the space tourism industry.
What is the status of regulatory development?
Currently, there is no clear policy concerning how the FAA will
regulate space launch for sub-orbital space tourism. This is primarily
because of a jurisdictional dispute between two FAA organizations
involving which has oversight over commercial human space flight
operations. FAA's Aircraft Certification and Regulations Office (AVR),
which regulates the commercial airline industry, believes that it
should regulate sub-orbital space vehicles carrying tourist, because
according to the U.S. Code for Aviation Safety, it has regulatory
authority over passenger-carrying vehicles that traverse the U.S.
national airspace. But FAA's Associate Administrator for Commercial
Space Transportation (AST), which regulates traditional rockets of the
kind that launch satellites into orbit, disagrees. AST asserts that its
authority under the Commercial Space Launch Act (CSLA) [P.L. 98-575]
authorizes it to regulate the U.S. commercial launch industry,
including sub-orbital launch vehicles, even those that carry passengers
should they be developed. Congress may be required to intervene
legislatively to resolving this agency impasse.
How significant are regulatory barriers in making investment decisions?
Several U.S. commercial space entrepreneurs have announced plans to
develop and operate sub-orbital space vehicles, but they face very high
regulatory burdens. High altitude flight tests for these vehicles are
currently subject to FAA experimental aircraft safety regulations, but
those regulations prohibit these companies from flying passengers for
compensation. Commercial space entrepreneurs are concerned that the
cost of complying with existing regulations for certifying passengers
aboard aircraft would be too expensive. They also argue that applying
an aircraft safety certification regime to sub-orbital vehicles is
inappropriate, because of the cost involved to comply with experimental
aircraft regulations. Burt Rutan has claimed that the cost of
compliance could be ten times as great as the vehicle's development
costs. Moreover, entrepreneurs would not want to set a legal precedent
that their launch vehicles are experimental aircraft, because these
regulations prohibit sub-orbital space launch vehicles to carry
passengers for profit. They believe this situation can be avoided if
AST were to regulate the industry and build an affirmative, enabling
regulatory and legal framework that promotes development of
operationally safe sub-orbital vehicles and services.
Should the government provide indemnification for space tourism
activities as it does for other commercial space launch
entities?
Currently, the government provides indemnification to the U.S.
space transportation industry as a condition for obtaining a license to
launch a satellite into orbit. Government liability risk sharing for
third-party claim (for example, if a rocket flies off course and lands
in a populated area) against a space launch company follows a multi-
tier regime, in which the FAA determines the level of financial
responsibility (up to the first $500 million in damages) for the
company, and requires the company to obtain private insurance against
such losses. The government agrees to be responsible for damages that
fall within a range of $500 million to $1.5 billion. The
responsibilities for damages that exceed this range revert back to the
company. An indemnification regime regarding sub-orbital space tourism
does not currently exist, and whether it should exist for these
vehicles remains an open question. AST believes it is the
responsibility of the launch operator to acquire liability insurance to
cover passenger claims.
What are the benefits and drawbacks of indemnifying commercial human
space flight ventures?
All commercial space entrepreneurial ventures are anticipating that
they will be able to purchase third-party liability insurance.
Commercial space entrepreneurs believe insurance providers are basing
their willingness to serve the sub-orbital space tourism market on the
assumption that the government will grant space travel ventures the
same liability risk-sharing regime that currently applies to all other
commercial launch and reentry activities. The commercial space
entrepreneurs also believe that new companies appear prepared to meet
the same statutory and regulatory financial responsibility and
insurance purchase requirements as the large aerospace contractors who
launch satellites into orbit. But commercial space entrepreneurs
reasonably expect to share in the existing indemnification protection
against excess third party claims. On the other hand, indemnifying
space launch vehicles that perform like airplanes translates into
higher frequency of launch activity, which in turn, suggests increases
in the probability of government covering damages to third parties.
Whether an accident involving a sub-orbital space launch vehicle could
cause damage in excess of $500 million is unclear.
WITNESSES
Mr. Phil McAlister is the Director of Space and Telecommunications
Industry Analysis Division at the Futron Corporation. He manages the
corporations' industry analysis and market research. Over his career,
he has participated in the design and development of new launch
vehicles, the redesign of the International Space Station, plus several
commercial satellite endeavors.
Mr. Dennis Tito is founder and CEO of Wilshire Associates, Inc., and
created the first asset/liability model for pension funds long before
actuarial and accounting firms began using the technology. Mr. Tito
became the world's first space tourist in April 2001 when he was
launched aboard a Russian rocket to the International Space Station.
Mr. Elon Musk founded two Internet companies Zip2 Corporation and
PayPal. Mr. Musk is now founder and President of SpaceX, a launch
vehicle manufacturing company that is developing a family of space
launchers intended to reduce the cost and increase the reliability of
access to space by approximately one order of magnitude.
Mr. Jeff Greason is co-founded of XCOR. At XCOR, Mr. Greason has
managed a team developing small rocket engines and complete rocket-
powered aircraft. XCOR has demonstrated a very low cost reusable rocket
vehicle, the EZ-Rocket, which has had fifteen flights. Previously, he
spent two years managing the propulsion team at the Rotary Rocket
Company.
Mr. Jon Kutler is Chairman, CEO, and Founder of Quarterdeck Investment
Partners, LLC. Mr. Kutler is a nationally recognized expert in the
field of aerospace and defense and he has served as Chairman of the
White House Small Business Task Force on Defense Conversion.
OPENING STATEMENT OF HON. SAM BROWNBACK, U.S. SENATOR FROM
KANSAS
Senator Brownback: The hearing will come to order. Thank
you all very much for joining us today. I'm sorry for being
late. I was presiding and couldn't get out of the Chair,
unfortunately.
Delighted to see the extent of participation this hearing
has drawn as we delve into the future of space exploration, for
the future holds--whether it be by way of governmental entities
or by commercial space entrepreneurs, such as our distinguished
panel that is joining us this morning.
I'll be having a brief opening statement, then I'll turn to
Congressman Rohrabacher, the Chairman of the Subcommittee on
the House side for this joint hearing, and his statement, and
then recognize a Democrat from the Senate and then one from the
House for a opening statement before we go to the witnesses. I
hope that's acceptable to the other people.
I understand there may be votes in the House taking place.
What we'll try to do is just keep the hearing going, if that's
acceptable, just so that we can move on through the panel.
I appreciate the participation in this joint hearing that's
taking place. I think this is a good forum and a good format
for us to follow as we explore issues on space and how to move
forward.
Over the past months, Congressman Rohrabacher and I have
met to discuss our thoughts about space exploration and to
help--he and I are both in positions to help push space
exploration beyond the bureaucracy that's influenced the
industry for so long. Through conversations with Congressman
Rohrabacher, space industry representatives, some of our
witnesses even here today, I realized that we have an important
duty and opportunity for us in Congress. We must increase the
sources and numbers of entities entering space.
In the 1960s, we had the goal of getting a man on the moon
and return him safely to earth, and that served as an
inspiration to so many across the Nation. Today, America is
lacking a similar vision. I'd like to see the U.S. embrace a
vision, a new vision, an idea of dominating, commercially,
militarily, and for exploration, the Earth-Moon orbit. This is
a goal that Americans can grasp and aspire to. NASA will be a
key entity in this vision, but so will the private sector,
which we'll hear from today. Also critical will be the military
and intelligence organizations, and obviously the scientific
and exploration community. We need to dominate space and the
Earth-moon orbit for exploration, scientific discovery, as a
base for future missions to Mars, for security purposes, and
for commercial enterprise. We will do this for the benefit of
humanity.
I stated that I embraced the recommendations of the final
report of the Commission on the Future of the United States
Aerospace Industry when I first took over the chairmanship of
this Subcommittee. I believe this report is accurate, in
assessment of the aerospace industry, and addresses several
important areas of space exploration. The Commission
recommended, quote, ``the United States boldly pioneer new
frontiers in aerospace technology, commerce, and exploration,''
end of quote. It also recommended that, quote, ``the United
States create a space imperative, where partnerships between
government agencies and industry share innovations in aerospace
technologies.'' These are just a few of the many
recommendations listed in the final report. However, these
recommendations are why we are here today.
I want to examine how Congress can help ensure a strong
future for the United States in the commercial aerospace
industry. It's my hope that today's hearing will shed a great
deal of light on the status of commercialization of space and
the capability for space exploration. Additionally, I hope our
witnesses will share with us today the experiences they've had
in this endeavor and what barriers they've encountered that may
prohibit the private sector from contributing fully to the
effort.
I want to thank Congressman Rohrabacher for his leadership
and efforts in this area. I welcome him and the other House
Members here to the Senate today. I appreciate our witnesses
being here today, and I look forward to their testimony and
engaging in a question-and-answer dialogue.
With that, I would turn it over to Congressman Rohrabacher
for his opening statement.
STATEMENT OF HON. DANA ROHRABACHER, U.S. REPRESENTATIVE FROM
CALIFORNIA
Representative Rohrabacher: Well, thank you very much. And
I wanted to thank my colleague, Senator Brownback, for his
leadership in determining America's space policy, and that's
what we're here to do. What is America's space policy,
especially in this very important part of the space arena?
Today, we will examine the barriers to investing in
entrepreneurial space ventures. Dennis Tito's historic trip to
the International Space Station made the dream of citizen space
travel a reality. He and other visionaries are now in the
forefront of revolutionizing--revolutionizing, yes--space
transportation by supporting sub-orbital commercial human space
flight.
The benefit of these ventures offer--and let us stress
this--offer us things that go a long way beyond ``joyrides for
the rich,'' as it has been characterized by some of its
detractors. Opening space to those who are willing to pay for
the experience of it offers our industrial base a new source of
technical innovation well beyond the government's sphere of
activities. I predict that, in the future, we will be having a
lot of technological advances that take place in the private
sector being utilized by the government, rather than the other
way around, which it seems to have been for these last few
decades. Simply put, by building and flying space-launch
vehicles, commercial space entrepreneurs have already overcome
barriers that seem to plague NASA. And that, of course--what
we're really talking about, in NASA, which we don't see in the
private sector, is an amazing level of bureaucratic inertia.
And I have been told--a long time ago, I learned that
bureaucracy is perhaps the most effective method known to man
of turning pure energy into solid waste.
Unfortunately, a major barrier for new space-launch
ventures is the uncertainty in government's ability to create a
stable regulatory environment. It is clear that the future of
space commercialization hinges on the Federal Aviation
Administration's ability to resolve the issue of how to
regulate commercial human space flight operations. In my view,
the Federal Government has the power to promote investor
confidence by providing a clear regulatory guideline for
commercial space-transportation operators. It can do that, or
it can strangle this baby in the cradle. We're either going to
have a healthy industry because government is doing its part of
the job, or there will be no industry at all. And this insights
into this. We're looking forward to our witnesses to talk about
just how important this is.
Senator Brownback and I are interested in helping this
nascent industry realize its tremendous growth potential. Our
witnesses will provide us with a private-sector perspective
regarding these and other critical issues.
And, again, I certainly appreciate Senator Brownback's
leadership in trying to make sure that we overcome the hurdles
here, right in the beginning, of what could be a fantastic new
venture and adventure for humankind going into space.
Thank you very much. I yield back the balance of my time.
[The prepared statement of Mr. Rohrabacher follows:]
Prepared Statement of Representative Dana Rohrabacher
I want to thank my colleague Senator Brownback for his leadership
in determining American's space policy. Today we will examine the
barriers to investing in entrepreneurial space ventures. Dennis Tito's
historic trip to International Space Station made the dream of citizen
space traveler a reality. He and other visionaries are now at the
forefront in revolutionizing space transportation by supporting sub-
orbital commercial human space flight.
The benefits these ventures offer, however, go way beyond offering
joyrides for rich guys. Opening space to those willing to pay for the
experience of it offers our industrial-base a new source of technical
innovation well beyond government's sphere of activities. Simply put,
building and flying space launch vehicles, commercial space
entrepreneurs have overcome a barrier that apparently continues to
plague NASA's bureaucratic inertia.
Unfortunately, a major barrier for new space launch ventures is the
uncertainty in government's ability to create a stable regulatory
environment. It is clear the future of space commercialization hinges
on the Federal Aviation Administration's ability to resolve the issue
of how to regulate commercial human space flight operations. In my
view, the Federal Government has the power to promote investor
confidence by providing clear regulatory guidelines for commercial
space transportation operators, or strangle the baby in the cradle.
Senator Brownback and I are interested to helping this nascent
industry realize its tremendous growth potential. Our witnesses will
provide us with a private sector prospective regarding these and other
critical issues.
I welcome the opportunity to learn from the entrepreneurs who are
revolutionizing the commercial space industry.
Senator Brownback: Thank you, Congressman Rohrabacher.
I now recognize Senator Nelson, as the Ranking Senate
Democrat here, for an opening statement.
STATEMENT OF HON. BILL NELSON, U.S. SENATOR FROM FLORIDA
Senator Nelson: Thank you, Mr. Chairman. And what a
pleasure it is for me to join with my old House colleagues,
Congressman Rohrabacher and----
Representative Rohrabacher: Are we really that old?
(Laughter.)
Senator Nelson: You don't look it. Nor does Congressman
Gordon. But I had the privilege of serving with them on the
House Space Subcommittee, and we had some good times, and these
are good Members.
For those of you that I didn't have the pleasure of serving
with, these two Members know a lot, and I appreciate their
expertise.
And, Mr. Chairman, I thank you for doing a hearing like
this. We are, of course, in the news today, dominated by the
need to get the Space Shuttle flying again and to find out the
cause and to fix it. I'm impressed with the Gehman Commission.
I think they're going to come out with a good report. I must
say that I think what we're going to find is that we can't do
space flight on the cheap. And I must say that I was
disappointed as I have started to go through some of the
testimony that is held in a confidential manner by the Gehman
Commission, disappointed as I was looking specifically for
testimony as to the linkage between not giving NASA the
adequate funding for safety, and that, over and over in the
testimony, where the questions were asked and re-asked and re-
asked, of the testimony that I read, they dodged the question.
So that is something that our Committees, I think, are going to
have to really dig into as we try to fulfill the dream that all
of us have, which is that we have a robust and successful space
program.
And, Mr. Chairman, I appreciate you calling this hearing,
on a little bit different tack, as we are clearly involved in
trying to get the Space Shuttle up and flying again.
Thank you.
Senator Brownback: Thank you, Senator Nelson.
And as the senior Democrat on the House side here, for an
opening statement, Congressman Gordon.
STATEMENT OF HON. BART GORDON, U.S. REPRESENTATIVE FROM
TENNESSEE
Representative Gordon: Thank you, Senator Brownback.
And let me congratulate you and Chairman Rohrabacher for
the precedent in having this joint hearing. I think it's a good
way for us to try to gather information in an orderly way.
Senator Nelson reminded me of some old history. I was the
deciding--as a first-term member--the deciding vote on helping
him to jump our hierarchy in the Space Subcommittee some time
back and become our Chairman, of which he did a very good job.
Let me introduce, or rather, welcome our witnesses today.
I'm glad to see you. I've had a chance to meet and talk with
some of you before, and our conversations were both thoughtful
and stimulating.
It's too soon to say whether public space travel will ever
be more than a niche market for wealthy adventure tourists, but
time will tell. In the meantime, I know that individuals on
today's panels are spending considerable money and energy on
the development of sub-orbital vehicles that can carry
passengers to at least the edge of space and back. And there
are also serious attempts to build commercial passenger-
carrying orbital vehicles.
I'd like to hear more about your plans, what you consider
to be the main challenges that you face. I'd also like to have
the witnesses address some specific issues of interest to
Congress.
First, the FAA currently has the authority, under law, to
license sub-orbital launches. However, the law was silent on
the definition of ``sub-orbital rocket'' and ``sub-orbital
trajectory.'' Does Congress need to clarify those terms? And if
so, what definitions would the sub-orbital industry seek, and
why?
Second, if these vehicles are carrying passengers and
licensed by the Federal Government, I believe that there will
have to be some type of safety review. Does the industry have
its own set of proposed safety recommendations? And if so,
what?
And, finally, do you think it's appropriate for the
taxpayers to provide indemnification to companies whose main
business is likely to be flying wealthy adventure tourists? And
if so, why? And should you have some responsibility that goes
along with that indemnification?
Well, we've got a lot to cover today. I'm glad that you're
here, and look forward to hearing your thoughts on these
issues.
Senator Brownback: Thank you, Congressman Gordon. And those
are thoughtful questions I hope we'll get the chance to get
addressed.
Our panel will be testifying in this order. And what we'll
do is, we'll run this clock on a--let's run it on a seven-
minute timer, so it gives you a good idea.
We will take all of your written testimony into the record
as if presented, so you're entitled to, if you'd like, to just
summarize. You don't have to read through it. If you choose to
read through it, that's your choice. If you can keep the
testimony somewhere in that five- to seven-minute ballpark, and
then that'll give us the most chance to be able to have as much
interaction as possible. And then we'll go down through the
Members in the order that they got here, after the lead
questions by the Chairman and the Ranking Members, then we'll
go on the order that people arrived at the Committee for
questions, and we'll do five minutes of questions each.
[The prepared statement of Ms. Johnson follows:]
Prepared Statement of Representative Eddie Bernice Johnson
First of all, I would like to thank Chairman Brownback, Ranking
Member Breaux, Chairman Smith and Ranking Member Gordon for bringing us
together for this rare and noteworthy joint House and Senate
Subcommittee on Space and Aeronautics hearing today. It is always an
honor to convene with our distinguished colleagues from other chamber.
We are also privileged to have such notable witnesses who have agreed
to testify on this very important issue, and we thank you for coming.
The purpose of this hearing is to examine obstacles to advancing
commercial human space travel.
The much-publicized space tourist flights of Dennis Tito and Mark
Shuttleworth make it clear that an alternative motivation for human
space flight has emerged. Human space flight is no longer only about
meeting the priorities of national governments and space agencies, but
is also about the tangible possibility of ordinary people seeing the
Earth from a previously exclusive vantage point.
The rationale for human space flight is evolving due to a growing
commercial motivation. Human space flight can profit from an increased
synergy between the public and private sectors. Space tourism can
benefit immensely from the development of the necessary infrastructure,
while public space programs can benefit from increased awareness and
support for human space flight, generated by high-profile space tourism
flights and a growing perception that space travel is closer to being
within the grasp of ordinary citizens.
It is imperative that we today discuss the role of the government
in any commercial human space travel program. One primary concern will
be the regulation of safety, since space travel is inherently
dangerous. Under no circumstances should we allow the desire for
profits to ever interfere with the responsibility of maintaining
safety.
With that being said, I would like to again thank the Chairs and
Ranking Members for holding this hearing and the witnesses for agreeing
to answer questions.
Senator Nelson: Mr. Chairman, may I be excused at around
the hour of 11:00 o'clock? We've got the Palestine Prime
Minister meeting privately----
Senator Brownback: Sure.
Senator Nelson: --with our Foreign Relations Committee, and
I need to leave at that time, with your permission.
Senator Brownback: Certainly. I understand that.
The panel will testify in the following order. Mr. Phil
McAlister--he's the Director of Space and Telecommunications
Industry Analyst Division for Futron Corporation, out of
Bethesda. Number two will be Dennis Tito. He's CEO and founder
of Wilshire Associates, Santa Monica, California, who--he,
himself has gone to space. Number three will be Mr. Elon Musk,
CEO and founder of SpaceX, out of California. Number four will
be Mr. Jeff Greason, President of XCOR Aerospace, out of
California. And number five will be Mr. Jon Kutler, Chairman
and CEO of Quarterdeck Investment Partners, out of Los Angeles.
Gentlemen, we are delighted to have you here on the first
hearing on this topic of this style, where we've had a joint
hearing of the House and the Senate. We really are interested
in how we move this overall industry forward--government,
private sector, together. And we look forward to your
testimony.
Mr. McAlister, please start us off. Welcome to the
Committee.
STATEMENT OF PHIL McALISTER, DIRECTOR, SPACE AND
TELECOMMUNICATIONS INDUSTRY ANALYSIS DIVISION, FUTRON
CORPORATION, BETHESDA, MARYLAND
Mr. McAlister: Thank you, Mr. Chairman. Thank you,
Committee Members.
Futron's contribution to this issue was through an analysis
of the market for public space travel. We conducted a
nationwide survey to examine the demand for space tourism with
a strong emphasis on realism. The survey that we performed
presented a realistic portrayal of space flight to respondents,
and selected a survey population that could potentially afford
to pay for this service. And most of my remarks are extracts
from that analysis that we performed.
The current picture today is that tourists that desire
unique, challenging, and fun experiences are the ones that are
driving the demand for public space travel. This desire is
currently fueling a worldwide tourism industry with receipts in
excess of $450 billion-U.S. Given the generous revenues
associated with tourism, public space travel represents a huge
potential market. It is only potentially large, however,
because of the technical ability to service this market. It is
only potentially large, however, because the technical ability
to service this market is currently very limited.
Orbital space tourism became a reality in April 2001.
Fellow panelist, American businessman Dennis Tito flew into
space, docked with the International Space Station and was
followed by Mark Shuttleworth about one year after that.
Orbital public space travel is currently limited to one
spacecraft, the Russian Soyuz vehicle. Russia regularly
launches Soyuz on supply missions to the International Space
Station. Because only two cosmonauts are required, and there
are three seats, the third seat is available to potential space
tourists. This creates a steady stream of flight opportunities
for those interested in orbital public space travel.
And while most of the attention has been on this segment,
orbital flights, sub-orbital space tourism holds significant
promise. Space Adventures, a space tourism agency, currently
claims to have over 100 reservations for sub-orbital flights,
at a price of $98,000 each, despite the current absence of a
vehicle capable of offering such a flight.
The projected price of sub-orbital travel is a small
fraction of the price of orbital travel; and, as such, puts
space tourism within the financial means of a much larger
audience. While there are no vehicles currently that can serve
this market, a number of vehicles are in development. The
primary forum for development is for private entrepreneurial
ventures competing the X PRIZE competition, which will award
$10 million to the first team to privately build and fly a
spacecraft capable of carrying three people to a hundred
kilometers altitude twice in a two-week period.
All of these ventures--I'm sorry--in addition to the X
PRIZE participants, there are several other companies and
entrepreneurs attempting to develop vehicles to serve the sub-
orbital public space-travel market. All of these ventures face
a number of obstacles in their efforts to turn plans and
prototypes into operation.
In addition to the technical obstacles associated with any
new aerospace vehicle, passenger spacecraft will undoubtedly
face major financial and regulatory hurdles. Given the nascent
state of public space travel, Futron examined the current
demand for this service via a nationwide survey, which featured
the following components.
Only affluent Americans were surveyed. That is, the
population that is most likely to be able to afford this
service in the near-term.
Survey respondents were given a realistic description of
what space travel experience would be like, both the positive
and not-so-positive aspects. A former Space Shuttle commander
vetted our description.
We asked survey respondents direct questions on space
travel, as well as many other questions on the perceived risk,
their current health, past buying habits, et cetera, to
validate their answers, and we interviewed over 450
millionaires. Interviews lasted approximately 30 minutes, and
this gave us a margin of error of plus or minus 4.7 percent. So
we felt very confident about the results that we got.
Although a number of potential space-travel scenarios can
be envisioned, we chose to focus on two: a 15-minute sub-
orbital ride to the edge of space, and a two-week orbital
flight to an orbiting space station.
Regarding the interest level in sub-orbital space travel,
our survey results indicated that almost 20 percent of those
surveyed were either definitely likely or very likely to
participate in sub-orbital space travel. Further, these
individuals were interested at realistic price points.
Regarding the interest level in orbital space travel, again
almost 20 percent of the respondents indicated that they were
definitely likely or very likely to participate.
We also did some options from the standard missions, and we
noticed that the ability to purchase a trip from a U.S. company
or to complete the required training, which is quite extensive
for orbital space travel, inside the United States were
potential options that most positively influenced interest
level. Twenty-seven percent of respondents were much more
likely to participate in orbital space flight if the trip could
be purchased from a U.S. company. And over 60 percent of the
surveyed pool would be more likely to participate in an orbital
trip if they could train within the United States.
So incorporating these results, as well as the other
questions and significant secondary research, we developed
forecasts for these markets. And Futron is neither an advocate
for or a participant in these industries, so we had a very
objective, what we feel, realistic view on this market.
Futron's forecast and our conclusion was that sub-orbital
space travel is a promising market. Our forecast for this
industry projects that, by 2021, over 15,000 passengers could
be flying annually, representing revenues in excess of $700
million.
Orbital space travel is also a promising market. Our
forecast for that service projects that, by 2021, 60 passengers
could be flying annually, representing revenues in excess of
$300 million.
The challenge for the U.S. aerospace industry is to develop
a vehicle that can cost-effectively meet this demand. The
company that ultimately meets this challenge may come from the
X PRIZE competition, it may be a traditional aerospace company,
perhaps leveraging some government-sponsored technology, or it
may come from a company not based in the United States.
However, regardless of where the company comes from or how it
meets the challenge, the demand for public space travel is
real, robust, will eventually make someone very wealthy, and is
one of the few areas where growth can be predicted for the
launch industry.
Thank you.
[The prepared statement of Mr. McAlister follows:]
Prepared Statement of Philip McAlister
Introduction
Yuri Gagarin blasted off into space and into the history books over
forty years ago when he became the first person to orbit Earth. Alan
Shepard followed one month later with a 15-minute sub-orbital Mercury
ride in May 1961. Today, we are witnessing the natural evolution of
those early events--space travel for members of the general public.
Despite this clear evolution, a number of factors have constrained
the development of the market for public space travel. One of those
constraints is the lack of knowledge about the potential market size
for this emerging market. Futron Corporation, the industry leader in
forecasting space-related markets, decided to address this constraint
by objectively assessing the current interest in public space travel,
and quantifying and forecasting the future demand for this service.
As neither an advocate for, nor a participant in, the development
of public space travel, Futron was able to maintain a balanced and
objective viewpoint on the future of this industry. Futron conducted a
nationwide survey to examine the demand for space tourism with a strong
emphasis on realism. The Futron/Zogby survey presented a realistic
portrayal of space flight to its respondents and selected a survey
population that could potentially afford to pay the prices for the
service. The full results of this survey are available in Futron's
report, Space Tourism Market Study. My remarks today represent extracts
from that report pertinent to today's hearing.
Public Space Travel--the Current Picture
Tourists desiring unique, challenging, and fun experiences drive
demand for public space travel. This desire is currently fueling a
worldwide tourism industry with receipts in excess of U.S. $450
billion. Given the generous revenues associated with tourism, public
space travel represents a huge potential market. It is only potentially
large, however, because the technical ability to service this market is
currently very limited.
Two distinct services are currently envisioned for public space
travel: travel to low earth orbit or orbital flights, and short
excursions beyond Earth's atmosphere and back, or sub-orbital flights.
Each of these markets is in a different stage of development.
Orbital Flights
Orbital space tourism became a reality in April 2001 when American
businessman Dennis Tito reportedly paid U.S. $20 million to fly to
space. Mr. Tito was launched on a Russian Soyuz spacecraft, which
docked with the International Space Station (ISS) during the mission.
Mr. Tito spent eight days in space, six of which were spent inside the
ISS.
Tito's successful flight, carried out over the initial objections
of NASA and other ISS partner nations, opened the door to further
flights by paying customers. In April 2002, South African entrepreneur
Mark Shuttleworth became the second commercial space tourist as a
member of another Soyuz mission to the ISS. At the time of this
writing, a number of other potential orbital passengers have been
announced.
Orbital public space travel is currently limited to one spacecraft,
the Russian Soyuz vehicle. Russia regularly launches Soyuz on supply
flights to the ISS. Because only two cosmonauts are required to fly the
Soyuz, a third seat on each mission is available to potential space
tourists. This creates a steady number of flight opportunities for
those interested in orbital public space travel.
Sub-orbital Flights
While most public attention on space tourism has focused on orbital
flights, sub-orbital space tourism holds significant promise. Space
Adventures, a space tourism agency, currently claims to have over 100
reservations for sub-orbital flights at a price of U.S. $98,000 each,
despite the current absence of a vehicle capable of offering such a
flight. The projected price of a sub-orbital flight is a small fraction
of the price of orbital travel, and as such, puts space tourism within
the financial means of a much larger audience.
While there are currently no vehicles that can serve the sub-
orbital space tourism market, a number of vehicles are under
development. The primary forum for development is private
entrepreneurial ventures competing for the X PRIZE, a competition that
will award U.S. $10 million to the first team to privately build and
fly a spacecraft capable of carrying three people to 100 kilometers
altitude twice in a two-week period. In addition to the X PRIZE
participants, there are several other companies and entrepreneurs
attempting to develop vehicles to serve the sub-orbital public space
travel market.
All of these ventures face a number of obstacles in their efforts
to turn plans and prototypes into operational vehicles. In addition to
the technical obstacles associated with any new aerospace vehicle,
passenger spacecraft will undoubtedly face major financial and
regulatory hurdles as well.
Understanding the Current Demand for Public Space Travel
Given the nascent state of the public space travel industry, Futron
examined the current demand for public space travel via a nationwide
survey, which featured the following:
1. Only affluent Americans were surveyed, i.e., the population
most likely to be able to afford a trip into space;
2. Survey respondents were provided with a realistic
description of what the space travel experience would be like--
a former Space Shuttle commander vetted our description;
3. We asked survey respondents direct questions on space
travel, as well as other questions on the perceived risk of
this and other activities, respondent's health, past buying
habits, etc., to validate their responses; and
4. The Futron/Zogby survey interviewed over 450 millionaires
(interviews lasted approximately 30 minutes each)--the margin
of error was calculated at +/^ 4.7 percent.
Although a number of potential public space travel scenarios can be
envisioned, Futron chose to focus the study on the two previously
mentioned public space travel scenarios:
A 15-minute sub-orbital ride to the edge of space,
and
A two-week orbital flight to an orbiting space
station
Regarding interest level in a sub-orbital trip, the Futron/Zogby
survey results indicated that almost 20 percent of the survey
population was either ``Definitely Likely'' or ``Very Likely'' to
participate in sub-orbital space travel. Further, these individuals
were interested in this service at realistic price points.
Regarding interest level in an orbital trip, again almost 20
percent of the survey population was either ``Definitely Likely'' or
``Very Likely'' to participate at realistic price points.
It is interesting to note that the ability to purchase a trip from
a U.S. company or to complete the required training inside the United
States were potential options that most positively influenced interest
level. 27 percent of respondents were ``much more likely'' to
participate in an orbital flight if the trip could be purchased from a
U.S. company. And, over 60 percent of the survey pool would be more
likely to participate in an orbital trip if they could train in the
United States.
The Future of Space Tourism
Incorporating these results with other survey responses and
secondary research, Futron developed forecasts of these markets. Our
conclusion is that sub-orbital space travel is a promising market--
Futron's forecast for sub-orbital space travel projects that by 2021,
over 15,000 passengers could be flying annually, representing revenues
in excess of U.S. $700 million.
Orbital space travel is also a promising market--Futron's forecast
for orbital space travel projects that by 2021, 60 passengers may be
flying annually, representing revenues in excess of U.S. $300 million.
The challenge for the U.S. aerospace industry is to develop a
vehicle that can cost-effectively meet this demand. The company that
ultimately meets this challenge may come from the X PRIZE competition;
it may be a traditional aerospace company (perhaps leveraging some
government-sponsored technology); or it may come from a company not
based in the United States. However, regardless of where the company
comes from or how it meets the challenge, the demand for the public
space travel is real, robust, will eventually make someone very
wealthy, and is one of the few areas where growth can be predicted for
the launch industry.
Senator Brownback: Thank you very much, and I look forward
to some questions about that.
Mr. Tito, you have been in space, and we look forward to
hearing your thoughts and comments about this travel and this
expanding industry.
STATEMENT OF DENNIS A. TITO, CEO AND FOUNDER, WILSHIRE
ASSOCIATES, SANTA MONICA, CALIFORNIA
Mr. Tito: Well, thank you, Mr. Chairman and Committee
Members.
My space flight, two years ago, was probably the most
euphoric experience of my life. And only by going to space, you
realize what it's all about. And realizing that dream, after 40
years, was an experience that I felt, within about the first
two seconds of burnout, looking out the window, and seeing that
I was in orbit and had achieved my goal.
Over the last two years, I've given hundreds of speeches
and spoke with over 10,000 people. A lot of people came up to
me after these speeches and expressed their interest in human
space flight and could identify with me, because I was pretty
much like them. I was not some young pilot that had ``the right
stuff,'' other than the briefcase of money, which was labeled
``the right stuff'' in one cartoon.
(Laughter.)
Mr. Tito: They could identify with myself, you know,
physically. They could see that it wasn't impossible to qualify
medically or any other ways.
It began to dawn on me, although I had a very different
opinion two years ago, that a sub-orbital experience was of
real value, that even though it gave someone possibly only a
three-minute slice of being in space, that, indeed, one
achieved that goal, if, indeed, that was their dream. And for
three minutes, they would be weightless, they would be able to
look at 2,000 miles of California coastline or Florida
coastline, and enjoy that experience and adventure of going to
space.
This interest is confirmed by the fact that over 600,000
people have applied to NASA over the last 40 years to become
astronauts and also Futron--Mr. McAlister's observations of the
interest in space travel.
Now, I am an entrepreneur. I started my own business over
30 years ago, and I know a business opportunity when I see one.
And this, indeed, is a huge business opportunity, not only to
provide the first step of sub-orbital flights, but, in the long
run, the development of a whole new industry of commercial
human space transportation, point-to-point transportation that
would eventually allow flights from New York or Washington to
Sidney, Australia, in something like 45 minutes. It may be 50,
100 years before that's realized, but there eventually will be
that kind of industry.
So I am ready to make an investment in a sub-orbital
vehicle. I'm different than most investors, in that Wall Street
will look at a business opportunity solely on the financial
merits. I am a person that's passionate about space, so there's
a lot more than rate-of-return-on-investment that is important
to me. But, nevertheless, I don't want to pour my money down
the drain. It's going to take a lot of money, and I want to
have some reasonable probability of success.
I think the technological hurdles can be dealt with. I
think the market is there. I'm not afraid of the competition. I
would love to compete with Elon and--I think that would be a
lot of fun, because I think there's big enough market for all
of us.
The only problem, big problem, that stands before myself
and others that want to do this is the regulatory risk. I
understand what regulation is all about. I'm in the investment
business. I have a firm that's a member of the New York Stock
Exchange, regulated by the SEC. We also manage money, and we're
heavily regulated. But we know who regulates us, and we know
what the rules are. There are plenty of securities attorneys to
explain that.
As far as sub-orbital space flight, we don't know who will
regulate us. And it looks like the FAA might be involved in
regulating us, at least on the aviation side, and that is very,
very scary. For example, it's my understanding that it costs
$600 million to certify a Lear 45. Well, with that kind of
certification cost, I would see that it would be impossible for
this industry to begin. So we need some kind of separate
recognition, as far as definitions, not only of what is a sub-
orbital vehicle, but also the issue of space flight
participants, namely--flying people in space, who is going to
set the safety standards? What are the safety standards going
to be?
If you take airplane-type criteria, say, for certifying a
Boeing 777, I think it's one out of 10 million fatality rate.
That is something that will be impossible with today's
technology for space flight. The fatality rates, unfortunately,
are very high, being one in 50. So we have a long way to go.
As a person interested in developing this business, I
recognize that we will have to have a much higher safety
standard. And one of the benefits of actually developing a
commercial capability is, I think we will see much improved
safety as we get a higher flight rate. There will be accidents.
We have to look back at aviation 90 years ago and people that
sacrificed to make commercial aviation what it is today.
The solution that I need comes in legislation. First of
all, we need definitions of what is a sub-orbital RLV. Some
definitions that have been suggested by AST, a division of FAA,
say that the thrust should be greater than the lift of a
rocket-powered vehicle for more than half the flight. That is a
definition that I support.
We have to recognize that individuals are assuming risk,
and, with some evaluation made medically, psychological, and
training, they should be able to assume risks that are
different than what the general public will assume by walking
on an airliner. The people should be qualified, just like a
scuba diver would be qualified to take--and trained--to take
that risk.
The third area that I think is important is that there
should be a clear distinction between the Office of Commercial
Space Transportation and the aviation side of FAA, because if
the aviation side of FAA gets involved, we're going to go on to
a bureaucratic deadlock that's going to go beyond my life
expectancy, and, therefore, be very difficult to invest. And
that problem, of course, could also be solved by taking the
Office of Commercial Space Transportation out of FAA and having
it report directly to Department of Transportation.
If this maintains--in five years, I see a successful
business model being developed by people like ourselves, who
can input capital plus the passion to make--show that the
business works, that it can be profitable, and then we will see
Wall Street lining up to invest the billions, tens of billions,
maybe hundreds of billions, eventually, that will be required
to develop the full reusable launch-vehicle capability, not
only for sub-orbital, but orbital.
Thank you very much.
[The prepared statement of Mr. Tito follows:]
Prepared Statement of Dennis A. Tito
Thank you to the Chairmen and Ranking Members of both Subcommittees
for your invitation to participate in this hearing today.
Over two years ago I achieved a lifelong dream by riding into space
aboard a Russian Soyuz capsule, visiting the International Space
Station, and returning safely to the Earth. I was fortunate enough to
have built a very successful investment business, and equally fortunate
that less than a decade after the Cold War, our former space race
competitors had partially privatized their human space flight
activities and were willing to sell me a flight.
Since returning from my mission, I have given hundreds of speeches
to audiences in the U.S. and abroad in which I've shared my space
flight experience. The response has been universally positive, and many
listeners--especially young people--tell me how eager they are to go
into space themselves. This isn't really newsworthy, given that some
600,000 people have applied to become astronauts over the past 40
years, and large percentages regularly tell pollsters they would fly on
the Space Shuttle, even after Columbia's tragic loss. Perhaps more
importantly, audiences seem genuinely inspired by the plausibility that
one day they or their children could fly into space themselves.
Of course, very few people can afford to travel into space as I
did, by paying roughly $20 million for the privilege. Even that high
price is probably artificially low, due to the ongoing economic
hardships of the Russian aerospace industry. At the same time, NASA has
had to postpone its development of a second generation reusable launch
vehicle that could carry people and cargo into orbit at lower cost than
current systems.
Yet there is a way to make at least a brief experience of space
flight available to many more people. Just as Alan Shepherd and Gus
Grissom flew sub-orbital Mercury missions before John Glenn eventually
orbited the Earth, sub-orbital rockets can provide a person with a few
minutes of weightlessness and a view of the Earth from 100 kilometers
up. In just the past year, entrepreneurs in the U.S. and elsewhere have
made significant progress in developing fully reusable sub-orbital
vehicles which could economically loft adventure travelers into the
shallow waters of space.
Two years ago, when I testified before the House Science Committee,
I was asked if I would invest in a reusable launch vehicle company. At
the time I said ``no,'' and that was the right answer. . .then. But
today, after talking to thousands of people who want to fly into space
and seeing the progress that's been made, my answer would be different.
Today I would say ``quite possibly.''
There is, however, one barrier that keeps me--and probably many
others--from writing out a check to fund the development of a
commercial sub-orbital RLV. This stumbling block can only be overcome
by people who work in this city, because the problem itself is located
here.
Please understand me: I am not looking for government funding or
technology. I don't need an investment tax credit or a loan guarantee.
I'm not even looking to escape the regulations under which other space
transportation companies operate. But I would like to know which
government agency, and which set of regulations, will oversee this new
industry.
You see, I am willing to risk my money on a technical concept and a
team of engineers. I am willing to risk my money on the customers
actually showing up. And I am willing to risk my money competing
against other companies in the marketplace. But I am not willing to
risk my money on a regulatory question mark, on waiting for the
government to decide who can give me permission to get into business,
and what the regulatory standards for my business will be.
The Commercial Space Launch Act of 1984 gave the Office of
Commercial Space Transportation the exclusive authority to license
commercial launches, including sub-orbital rockets, and in 1998
Congress extended this authority to include reentries of reusable
launch vehicles. But in the meantime, this office was moved into the
Federal Aviation Administration, an agency that certainly has a lot of
other issues on its plate.
Given that some proposed sub-orbital RLVs will have wings and take
off and land from runways, a question has arisen whether these new
vehicles will be regulated by the commercial space transportation
office or by the FAA's much larger and more risk-averse aircraft and
airline certification division.
This is not a matter of bureaucratic turf. When aerospace pioneer
Burt Rutan rolled out his Spaceship One experimental RLV a few months
ago, he declared that he had no intention of seeking FAA certification
of his vehicle as a commercial airplane, because it would cost hundreds
of millions of dollars to meet the same safety requirements as the
Boeing 777. Rutan's whole privately-funded research and development
program will cost perhaps a tenth of that amount.
If the Federal Government chooses to regulate this nascent sub-
orbital RLV industry as stringently as it does the mature, 100-year-old
airplane industry, then this new industry will die before it is even
born. Even the possibility of such burdensome regulation may stop these
new RLVs from ever getting off the drawing board, let alone flying into
space.
One reason there is regulatory confusion is that the terms ``sub-
orbital rocket'' and ``sub-orbital trajectory'' are used in the
original Launch Act but never actually defined. Recently, the FAA has
attempted to promulgate clarifying definitions of these terms, but has
been unable to reach internal agreement. This paralysis is a perfect
example of why investors such as myself are worried about how these
ventures will be regulated.
Mr. Chairman, it was these two committees that originally crafted
this legislation, and which share sole jurisdiction over the U.S.
commercial space launch industry. I respectfully request that you
reassert Congress' long-stated goal of promoting greater private
investment in new domestic space transportation capabilities. This new
industry needs the Congress to mandate in law an enabling regulatory
framework for commercial sub-orbital human space flight, and ensure
that this job be carried out by the Office of Commercial Space
Transportation.
If Congress can reduce the huge regulatory risk faced by potential
investors like myself, I believe that within five years we will ignite
a revolution in commercial space transportation, and inspire a whole
new generation of space-faring young Americans. That is a future I want
to work towards for the rest of my career, and one I believe we will
all be proud to have helped achieve.
Biography for Dennis A. Tito
Dennis A. Tito is the Chief Executive Officer of Wilshire
Associates Incorporated, a leading provider of investment management,
consulting and technology services. Applying science to the art of
money management, Tito and his team of 250 professionals utilize
mathematical formulas to advise a wide variety of institutional and
high net worth investors worldwide. Founded in 1972, Wilshire advises
on about $1 trillion in assets, directly manages about $10 billion in
assets, and provides analytical tools to some 350 institutions.
Tito earned a B.S. in Astronautics and Aeronautics from NYU College
of Engineering and a M.S. from Rensselaer in Engineering Science. He
began his career as an aerospace engineer with NASA's Jet Propulsion
Laboratory at the age of 23. While serving at JPL, he was responsible
for designing the trajectories for the Mariner spacecraft missions to
Mars and Venus. Although he left to pursue a career in investment
management, Tito remained interested in and committed to the
exploration of space.
Employing the same methodology he used to determine a spacecraft's
path, Tito is credited with helping to develop the field of
quantitative analytics that uses mathematical tools to analyze market
risks. In 1974, Tito developed the Wilshire Total Market Index (The
Wilshire 5000), the broadest stock market index that Federal Reserve
officials cite as a barometer of the U.S. economy.
Under Tito's guidance, Wilshire has consistently been an industry
pioneer. As the world began entering the computer age, Wilshire
integrated computers with engineering and investment concepts, to
provide some of the first data to money managers, ultimately shaping
modern portfolio management theories.
A philanthropist and civic leader, Tito supports and is actively
involved in many charitable and civic causes including establishing the
Dennis A. Tito Gene-Nutrient Interaction Laboratory at the UCLA Center
for Human Nutrition. He formerly served as President of Commissioners
for the Department of Water and Power of Los Angeles.
On April 28, 2001, Tito made history by becoming the first
individual to personally pay to travel into space. Launched from
Baikonur, Kazakhstan, Tito served as a crew member of an eight-day
Russian Soyuz taxi mission to the International Space Station. By
fulfilling his 40-year dream to travel to space, Tito captured the
imagination of millions of people worldwide and renewed interest in the
United States space program.
Born August 8, 1940, Tito has one daughter and two sons and
currently resides in Pacific Palisades, California.
Senator Brownback: Thank you, Mr. Tito. I look forward to
our question-and-answer session, too.
Mr. Elon Musk, CEO and founder of SpaceX, who is looking to
invest significantly in space travel, as well, from the private
sector. Mr. Musk, delighted to have you here today.
STATEMENT OF ELON MUSK, CEO AND FOUNDER, SPACEX, EL SEGUNDO,
CALIFORNIA
Mr. Musk: Thank you.
On behalf of Space Exploration Technologies, I'd like to
express my appreciation for being able to come before you here
to address the issues related to access to space.
It is despairing to consider that the costs and reliability
of access to space have barely changed since the Apollo era,
three decades ago. Yet in virtually every other field of
technology, we have made great strides in reducing the cost and
increasing capability, often in ways we did not dream existed.
We've improved computing costs by a factor of 10,000 or more,
decoded the human genome, built the Internet, and made
intercontinental flight available to the average citizen for no
more than a few hundred dollars.
The exception to this wave of development has been space
launch. But why? My best guess at the origin of the problem
relates to the breakdown of a process that the economist,
Schumpeter, called ``creative destruction.'' He postulated that
the way an industry improves is that new companies enter a
market with a lower price or superior product. This creates a
forcing function for the whole market to improve. Looking at
space-launch vehicles, we see a situation where there's been
not one single successful new entrant in four decades, apart
from one company in the '80s. Even in that case, the solid
rocket motors that constitute a majority of the manufacturing
costs of its launches are, in fact, built by an old-line
aerospace company. So we've really seen no truly new entrants
to the American launch-vehicle market, and, therefore, should
not be surprised that costs remain unchanged.
To address this problem, we must create a fertile
environment for new space-access companies that brings to bear
the same free-market forces that have made our country the
greatest economic power in the world. If we can create such an
environment, my expectation is that progress in space-launch
costs and capability will be no less dramatic than in other
technology sectors.
We are at a crucial turning point today. The recent
entrepreneurial activity in space, my company perhaps included,
shows promise, but it's still embryonic and fragile. It is very
important that our government, in all its forms, practically
adopt a nurturing and supportive approach to new space-launch-
vehicle developments.
It was to help change the equation of space exploration
that I established SpaceX and set as our goal revolutionizing
the cost and reliability of access to space, for nothing less
is needed. Our first offering is a semi-reusable orbital launch
vehicle called Falcon. Initially, we will deliver cargo to
orbit in the form of satellites and spacecraft. However, we do
believe in the long-term market for commercial human
transportation.
There is no simple sound-bite that describes why our rocket
is a fraction of the cost of efforts by existing launch service
providers. Our approach has been to focus on reducing all of
the cost elements of a launch-vehicle company, those being
propulsion, structures, avionics, launch operations, and
general overhead. We've also listened very carefully to the
collective wisdom of key engineers involved with all major
American rocket developments of the past three decades, to
glean whatever lessons may be learned.
At this point, we're very comfortable that selling the
Falcon for $6 million per flight is economically viable. This
is a reduction of over 75 percent, compared with our nearest
incumbent competitor. Moreover, as SpaceX refines the recovery
process for our rocket's first stage, we believe that the price
can be further reduced.
As you will no doubt hear from others on this panel and
have heard, there needs to be clear regulatory authority for
commercial launch vehicles of all kinds. It is also critical
that such regulatory authorities recognize the early and
experimental nature of the commercial launch-vehicle industry,
providing only the minimum regulatory burden necessary to
ensure reasonable safety for the general public. I believe that
should be the key criterion.
We recommend reaffirming the authority to the AST office of
the FAA as the primary regulatory agent for space vehicles.
Moreover, and very importantly, progress in fostering new
launch-vehicle developments should be a key metric of success
in the performance evaluation of AST and other federal agencies
when they report to Congress.
Environmental approval is a significant issue. For existing
launch vehicles--for existing launch facilities, where launches
are routinely conducted, we believe that either a blanket
environmental impact statement that covers all nontoxic launch
vehicles, or a categorical exclusion, such as exists for
airplanes, would be immensely helpful. This would save a
substantial amount of expense, paperwork and processing time.
For example, certain issues of environmental concern seem
to defy common sense. The population of seals in the waters
around Vandenberg increased by 12.7 percent last year, yet much
concern is raised about how rocket launches might disturb them,
and we are forced to spend $10,000 every launch to see if our
relatively small rocket, which is nontoxic, affects their
quality of life. This makes little sense. With that population
growth rate, it seems clear that, if anything, the Vandenberg
launch activity serves as an aphrodisiac.
(Laughter.)
Mr. Musk: Liability. One of the surest ways of preventing
companies like SpaceX from offering human transportation in the
future is to make it an unlimited-liability business. Where a
single unintentional mistake can result in a multi-hundred-
million-dollar jury award, it would instantly kill not only the
company that made that mistake, but the entire industry.
General aviation almost perished in the '80s as a result of
one massive jury award, of questionable justice, after another.
It was only revived once legislation placed reasonable limits
on liability. Moreover, in contrast to the fledgling status of
entrepreneurial space, aviation was a strong and mature
industry with a well-developed immune system.
We believe it is appropriate that a limit be placed on
liabilities such that, notwithstanding clearly egregious
conduct, a mistake or force majeure event resulting in third-
party injury, loss of life, or damage to property be limited to
a reasonable maximum dollar figure.
For those that choose to fly on early passenger-carrying
spacecraft, individuals should have the right to waive
liability provided the risks are fully explained, just as would
be done for extreme sports such as skydiving or mountain
climbing.
And I'd like to say just a bit about how we see the market
for commercial human space flight. The market for satellite
delivery, while significant, has limitations in size and
application. I suspect the far larger market in the long-term
is serving people that wish to travel to space for enjoyment.
There is some skepticism about the market size and
dependability. But such skeptics should study the early days of
aviation as a guide. For many years before airmail service
became the anchor that allowed the growth of commercial
aviation, a thriving airplane business was underway around the
Nation supporting the desire for an unprecedented adventure, an
incredible notion that humans could fly.
Barnstormers satisfied that interest and became the crop of
entrepreneurs and pilots from which commercial aviation would
be developed. Why do we think that commercial space passenger
services will be any different?
If we believe humanity should one day expand to the stars,
then people must have some way to see for themselves what space
is all about. They must share in its wonders and experience,
firsthand, its meaning, and, in so doing, open the doorway to
space for all.
Thank you.
[The prepared statement of Mr. Musk follows:]
Prepared Statement of Elon Musk
Senator Brownback and Members of the Senate Science, Commerce and
Technology Space Subcommittee; Congressman Rohrabacher and Members of
the House Space and Aeronautics Subcommittee; on behalf of the Space
Exploration Technologies Corporation I would like to express my thanks
and appreciation for the opportunity to come before you today to
address issues related to access to space.
It is despairing to consider that the cost and reliability of
access to space have barely changed since the Apollo era over three
decades ago. Yet in virtually every other field of technology, we have
made great strides in reducing cost and increasing capability, often in
ways we did not dream existed. We have improved computing costs by a
factor 10,000 or more, decoded the human genome, built the Internet and
made inter-continental flight available to the average citizen for no
more than a few hundred dollars. The exception to this wave of
development has been space launch, but why?
My best guess at the origin of the problem relates to a breakdown
of a process that the economist Schumpeter called ``creative
destruction.'' He postulated that the way an industry improves is that
new companies enter a market with a lower price or superior product.
This creates a forcing function for the whole market to improve.
Looking at space launch vehicles, we see a situation where there has
been not one single, successful new entrant in four decades, apart from
one firm established in the late 1980s. Even in that case, the solid
rocket motors that constitute a majority of the manufacturing costs of
its launchers are in fact built by existing aerospace companies. So we
have really seen no truly new entrants to the American launch vehicle
market and, as such, should not be surprised that costs have not been
reduced.
To address this problem, we must create a fertile environment for
new space access companies that brings to bear the same free market
forces that have made our country the greatest economic power in the
world. If we can create such an environment, my expectation is that
progress in space launch costs and capability will be no less dramatic
than in other technology sectors. If we truly desire to reduce costs
and substantially improve access to space, we must seek new approaches,
new ideas, and support new entrants into this difficult and challenging
field.
We are at a crucial turning point today. The recent entrepreneurial
activity in space (my company perhaps included) shows promise, but is
still embryonic and fragile. It is very important that our government
in all its forms proactively adopt a nurturing and supportive approach
to new launch vehicle developments, whether orbital or sub-orbital,
manned or unmanned.
The SpaceX Approach
It was to change the equation of space exploration that I
established SpaceX and set as our goal revolutionizing the cost and
reliability of access to space, for nothing less is needed. Our first
offering is a semi-reusable orbital launch vehicle, called Falcon.
Initially, we will exclusively deliver cargo to orbit in the form of
satellites and spacecraft, however we do believe in the long-term
market for commercial human transportation. The reasoning for an early
focus on satellites is that we feel this is the path of least market
risk and it allows Falcon to prove itself as a satellite carrier,
before we extend its use to other payloads.
There is no simple sound bite that describes why our launch vehicle
is a fraction the cost of efforts by existing launch service providers.
Our approach has been to focus on reducing all the cost elements of a
launch vehicle company, those being propulsion, structures, avionics,
launch operations and general overhead. We have also listened carefully
to the collective wisdom of key engineers involved with all major
rocket developments of the past three decades to glean whatever lessons
may be learned.
At this point, we are very comfortable that selling the Falcon for
six million dollars per flight is economically viable. This is a
reduction of over 75 percent compared with our nearest competitor.
Moreover, Falcon has 30 percent more payload and objectively fewer
catastrophic failure modes, which speaks to reliability.
How Can the Federal Government Support This New Era of Space?
What I will provide today is the SpaceX view on concrete and
rational actions that can be taken by the government to foster the
nascent entrepreneurial activity. SpaceX is just over a year old, so
these reflect only what we have learned to date. No doubt, there will
be more to report a year from now, when, if the future is kind, we will
have placed our first satellites in orbit.
It is worth noting that the perspective I bring to the launch
vehicle industry is drawn from a particularly Darwinian experience in
the business world, having founded and helped build two successful
Internet companies in Silicon Valley. Seldom have we seen a faster
moving, more voraciously competitive business environment or one with
more tombstones. However, for all the problems associated with that
era, the rise and fall and perhaps rise again of the NASDAQ, it is easy
to forget that the vast majority of the monumental work required to
build what we know as the world wide web was done in less than a
decade.
If you doubt that we can possibly see such progress in space
access, please reflect for a moment that the Internet, originally a
DARPA funded project, showed negligible growth for over two decades
until private enterprise entered the picture. At that point, growth
accelerated by more than a factor of ten. We saw Internet traffic grow
by more in a few years than the sum of all growth in the prior two
decades.
Our Suggestions:
Regulatory Authority
As you will no doubt hear from others on this panel, there needs to
be clear regulatory authority for commercial launch vehicles of all
kinds. It is also critical that such regulatory authorities recognize
the early and experimental nature of the commercial launch vehicle
industry, providing only the minimum regulatory burden necessary to
ensure reasonable safety for the general public.
We recommend reaffirming the authority of the AST office of the FAA
as the primary regulatory agent for space vehicles. Moreover, progress
in fostering new launch vehicle developments should be a key metric of
success in the performance evaluation of FAA-AST and other federal
agencies when they report to Congress.
Environmental Approval
For existing launch facilities, where launches are routinely
conducted, we believe a blanket Environmental Impact Statement that
covers all launch vehicles within a certain size and capability would
be very helpful. This would save a substantial amount of capital and
processing time.
In particular, certain issues of environmental concern seem to defy
common sense. For example, the population of seals in the waters around
Vandenberg increased by 12.7 percent last year, yet much concern is
raised about how rocket launches might disturb them and we are forced
to spend $10,000 every launch to see if our relatively small rocket
affects their quality of life. This makes little sense. With that
population growth rate, it seems clear that if anything the Vandenberg
launch activity serves as an aphrodisiac.
Range Safety Approval
SpaceX has been asked by senior leadership in the Air Force to
prepare a report on range safety approval once the process is complete
for Falcon. That will be our definitive view, but these are our
preliminary conclusions:
First, we suggest funding a zero-based revision of EWR-127-1 and
the FAA equivalent documentation with a focus on simplicity, along with
a clearly defined process for range approval. Rather than trying to
amend the existing document, we feel, based on conversations with range
safety personnel who have said as much, that the right approach is to
do a ground up revision.
Second is the difficulty of designing and obtaining approval for
flight termination systems, an important system on untested, high
energy launch vehicles. This is the on-board equipment and explosives
that, if needed in a major malfunction, would destroy the launcher and
its payload. Today's low launch rates only sustain a few companies that
provide these components. The result is that our flight termination
system is one of the most expensive and difficult to integrate elements
of our launch vehicle.
If the U.S. government wishes to advance commercial launch at our
ranges, we suggest that range safety offer a standard, integrated
flight termination system that it could pre-certify and then have
launch firms simply buy them from the range authority. This would also
improve issues of compatibility across launch vehicle designs. Our
discussions with range safety indicate they would be amenable to such
an approach. We would also strongly recommend eliminating the use of
explosive for flight termination in favor of non-explosive engine
shutdown, particularly for reusable components where explosives present
a hazard upon recovery.
Liability
One of the surest ways of preventing companies like SpaceX from
offering human transportation in the future is to make it an unlimited
liability business, where a single, unintentional mistake can result in
a hundred million dollar jury award. It would instantly kill not only
the company that made that mistake, but the entire industry.
General aviation almost perished in the 1980's as a result of one
massive jury award of questionable justice after another. It only
revived once legislation placed reasonable limits on liability.
Moreover, in contrast to the fledgling status of entrepreneurial space,
aviation was a strong and mature industry with a well developed immune
system. We are seeing a crisis in medical care for similar reasons.
We believe it is appropriate that a limit be placed on liability
such that, notwithstanding clearly egregious conduct, a mistake or
force majeure event resulting in third party injury, loss of life or
damage to property be limited to a reasonable maximum dollar figure.
For those that choose to fly on early passenger carrying spacecraft, an
individual should have the right to waive liability provided the risks
are fully explained, just as would be done for extreme sports, such
skydiving or mountain climbing. Whatever the final outcome of such
efforts, it is critical that a complete review be conducted of the
liability issue as applies to new passenger carrying commercial
launchers.
Access to Government Markets
All we seek is the opportunity to sell our launch vehicles to the
various agencies of the Federal Government. That requires full and
unfettered access in which the government buys services, and does not
enter into competition with us, using the public's money. Several
ballistic missile assets have been retrofitted into commercial
launchers. These vehicles, built and paid for to defend the country,
might now prove to be an obstacle to commercial development of space.
We seek government as a customer, not a competitor.
The Value of Commercial Human Space Flight
The market for satellite delivery, while significant, has
limitations in size and application. I suspect the far larger market in
the long-term is serving people that wish to travel to space for
enjoyment. For many people, as shown by a number of marketing studies,
this is the fulfillment of a lifelong dream and they are willing to
spend a substantial portion of their savings to see that dream
realized.
There is some skepticism about the market size and dependability,
but such skeptics should study the early days of aviation as a guide.
For many years before Air Mail service became the anchor that allowed
the growth of commercial aviation, a thriving airplane business was
underway around the Nation, supporting the fun or adventure factor.
Barnstormers satisfied that interest and became the crop of
entrepreneurs and pilots from which commercial aviation would be
developed. Why do we think that commercial space passenger services
will be any different? If we believe humanity should one day expand to
the stars, then people must have some way to see for themselves what
space is all about. They must share in its wonders and experience
firsthand its meaning.
And, in so doing, open the doorway to space for all.
That is what true access to space is about: creating affordable
ways for people, payloads, satellites, and experiments to develop the
space frontier.
Again, my thanks for the opportunity to come before you today, and
I look forward to answering any questions that you may have.
Senator Brownback: Thank you, Mr. Musk. I look forward to
your question-and-answer session.
Mr. Jeff Greason, the President of XCOR Aerospace. I
apologize for mispronouncing your last name earlier.
Mr. Greason: Understandable.
STATEMENT OF JEFF GREASON, PRESIDENT, XCOR AEROSPACE, MOJAVE,
CALIFORNIA
Mr. Greason: Thank you, Mr. Chairman.
Today, I will discuss the different ways in which aircraft
regulation and launch-vehicle regulation protect public safety,
explain why the launch-vehicle approach is more appropriate for
us, discuss how the line between them should be drawn, and
close with a few remarks on commercial human space flight.
Aircraft regulation has always developed after-the-fact.
The first aircraft regulations did not occur until after 20
years and tens of thousands of flights of operational
experience in the aviation industry. When those first
regulations came into play, the objective was to identify the
best practices already present in the industry, identify what
worked, and get rid of that which didn't. The assumption has
always been that the only way to protect the public is to keep
the airplanes in the air.
Over time, more and more such regulations have been drawn
up. And after 75 years of this, the aviation industry is one of
the safest human enterprises in the world and also one of the
most resistant to the commercial introduction of new
technology. Any innovation that comes along, before it's
adopted, has to prove itself at least as safe as existing
practices. That's a very difficult thing to do, given that
there are millions of flights experience with the current
technology. Experimental aircraft are allowed to use new
technologies, but only for noncommercial purposes.
Reusable launch vehicles are dramatically less mature. All
launches to date have been single-use expendable vehicles,
except for the Space Shuttle and very small sub-orbital rockets
that are recovered by parachute.
The safety record of current launch vehicles is poor. A
launcher with a safety record of one in 50 failures is
considered to be reliable. As a result, launch-vehicle
regulation has developed completely independently of aircraft
regulation. In launch vehicles, we assume there is going to be
a failure, and the emphasis is all placed on, ``How do you
ensure that that failure does not endanger the people on the
ground?'' As a result of that practice, no launch-vehicle
accident has ever caused a casualty on the uninvolved public.
This safety is achieved by a combination of flying in
sparsely populated areas and by providing a highly reliable
means of stopping the flight if it goes awry.
In 1998, Congress expanded the field of launch-vehicle
regulation to include reusable launch vehicles, and the Office
of Commercial Space Transportation, AST, developed regulations
to encompass those vehicles, based on their predictions of what
their operation would be like. Because of that, it has taken
four years of constant effort to work out how to interpret
those regulations, because there were no precedents to point to
see how they should be interpreted. But, after that work, we're
finally getting there. Today, there are three companies,
including our own, that are going through the licensing process
for their reusable launch vehicles, all sub-orbital, plus
there's Elon doing the orbital thing.
The only way that the emerging launch industry is ever
going to develop into a profitable taxpaying industry is to
fly, and to fly for revenue. While we fly for revenue, it's
obvious that the uninvolved public has to be kept safe. And the
only regulatory regime we have that allows safe flight for the
general public while permitting revenue operation of untried
vehicles is the launch-vehicle regulatory regime. That's how we
have to fly.
Now, because some of the reusable launch vehicles being
developed have wings, and some have pilots, the argument is
being made that they are not launch vehicles, that they are
airplanes. That is in spite of the Space Shuttle and Pegasus,
well-established launch vehicles that have wings.
Congress defined ``launch vehicles'' to include sub-orbital
rockets. Now, you might think, well, these are rockets, and
they don't go to orbit, so isn't it obvious that they're sub-
orbital rockets? It's a little more complicated than that,
because we don't want to create a loophole in which somebody
can take an existing aircraft, mount a rocket on it, but fly it
in an aircraft-like manner and claim exemption from the
aircraft regulations.
So it has taken a year of work for AST to come up with a
definition that is new and that we think makes a lot of sense,
which is that launch vehicles are rocket-propelled vehicles in
which the thrust exceeds the lift for the majority of the
powered flight. And since aircraft are defined--or, rather,
airplanes are defined as vehicles that are held up in the air
by their lift, this is a distinction that we think makes sense
and we can work with.
I'm going to close with a few remarks on the question of
carrying people in launch vehicles. Launch-vehicle regulation
already protects the uninvolved public. But, just as with
aviation in the early days, there are people who think that
enterprise is important and exciting, and they want to go.
Also, just as with aviation in the early days, there's no
question that the early flights are going to be risky and
costly. But if we are allowed to proceed, that cost and risk
will both go down over time.
We need to go through the same process aviation did. We
have start flying, find out, with experience, what works and
what doesn't, and then start improving. If we insist on perfect
safety at the beginning of the industry, we will get it,
because nobody will fly.
I have been responsible for committing a rocket-powered
vehicle to flight with a pilot on-board 15 times, and I take
that very seriously. I assure that I and my engineers are going
to fly on these vehicles before we ever consider them safe
enough for a paying passenger. And, also, we would never
consider taking someone who is not fully informed and prepared
of the risks that they were about to undertake.
But if Americans are willing to risk their lives and their
wealth to open a new frontier, why should we stop them? There
wouldn't be an America if our ancestors hadn't been permitted
to do the same. Our first flights may seem small and
unimportant, but they're only the first steps on a very long
and very important road.
Thank you.
[The prepared statement of Mr. Greason follows:]
Prepared Statement of Jeff Greason
Today I will discuss the different ways in which aircraft
regulation and launch vehicle regulation protect public safety, explain
why the launch vehicle approach is more appropriate for the emerging
sub-orbital space flight industry, and discuss where the line between
aircraft and launch vehicle regulation should be drawn. I will close
with a few remarks on commercial human space flight.
A few words about my experience in this area are in order. I am
President of XCOR Aerospace, an entrepreneurial space company in
Mojave, California. We have been working on safe and reliable rocket
propulsion systems and vehicles since 1999. I have been involved in
launch vehicle regulation issues since 1998 and have been traveling to
Washington regularly to work with the FAA since 2000. In the last few
years, XCOR has accumulated over 1,800 firings of rocket engines
without any safety issues, and we have flown a manned rocket-powered
vehicle fifteen times. These early flights took place as an
experimental aircraft, and we are now ready to begin construction on
higher energy vehicles. We are therefore bridging the two worlds of
aircraft and launch vehicle regulation.
Aircraft regulation has always developed after the fact. The first
aircraft regulations did not arise until after more than 20 years and
tens of thousands of flights' experience. When the first regulatory
actions were taken, the operating experience of the industry was used
to identify best practices and to eliminate things that didn't work.
The assumption has always been that to protect the public, we must
prevent crashes. Over time, more and more such regulations have been
written; usually toward a specific technology, e.g., this kind of
riveting is acceptable, that kind is not. This kind of instrument is
acceptable, that kind is not. After 75 years of such rule making, the
aircraft industry is among the safest enterprises in the world, and
also one of the most resistant to the commercial introduction of new
technology. Any innovation must prove itself safer than the established
practices; a difficult burden indeed, given the millions of flights'
worth of experience with established methods. Experimental aircraft are
allowed to use new technology, but only for non-commercial
applications.
Reusable launch vehicles (RLVs) are dramatically less mature. All
space launches to date have been single-use expendable vehicles, except
for the Space Shuttle and small sub-orbital rockets with parachute
recovery. The safety record of expendable launch vehicles is poor,
since a launcher with a failure rate of one in 50 is considered
reliable. As a result, launch vehicle regulation has developed quite
differently from aircraft regulation. In launch vehicles, we assume
that failures will happen and we take steps to ensure that those
failures will not endanger people on the ground. As a result, no launch
vehicle accident has ever caused a casualty among the uninvolved
public.
This safety is achieved by a combination of flying in sparsely
populated regions and providing high-reliability means of stopping the
flight if it goes awry.
In 1998, Congress expanded the regime for launch vehicles to
include reusables. Since then, AST developed regulations for RLVs based
on what they expected operational practices would be. It has taken four
years of constant effort by AST and industry to devise and refine
interpretations of those rules in the absence of precedents to point
to, but we are finally getting there. Today, at least three companies,
including XCOR, are going through the licensing process for sub-orbital
RLVs.
The only way that the emerging RLV companies will ever be able to
develop into a profitable, job-creating and tax-paying industry is to
fly, and fly for revenue. And while we fly for revenue, the uninvolved
public has to be kept safe. The launch vehicle regulatory regime is the
only available means to protect the public while permitting revenue
flight.
As recently as a year ago, I would have thought it obvious that our
vehicle would be regulated as a launch vehicle. But events over the
past year have shown that there are contrary opinions, which I hope we
will lay to rest. The Commercial Space Launch Act of 1984, as amended,
states clearly that if you have a launch license, no permission from
any other executive agency is required. That language was put in place
because the first attempts to launch commercially were stymied by
overlapping jurisdiction; dozens of federal agencies all claimed the
authority to say ``no,'' but had no responsibility for the
consequences, and hence no motive to say ``yes.''
Now, because some of the sub-orbital RLVs being developed have
wings and pilots, some argue that these are not launch vehicles, they
are airplanes. This claim is made despite the fact that NASA's Space
Shuttle orbiters and Orbital Sciences's Pegasus both have wings. In
1984 Congress defined launch vehicles to include sub-orbital rockets.
One might say ``Well, it's a rocket, and it doesn't go to orbit, so
it's a sub-orbital rocket.'' However, we don't want to create a
loophole, in which an otherwise conventional aircraft could mount a
rocket on it and claim exemption from aircraft regulation. After almost
a year of work, AST proposed a new definition, in which a sub-orbital
rocket is a rocket-powered vehicle whose thrust exceeds its lift for
the majority of its powered flight. Since airplanes are defined as
vehicles supported by lift, we think this is a good definition.
For those who have exclusively flown experimental-type aircraft,
the launch vehicle regulatory world can seem daunting. On closer
examination, it is less so: all that is needed is to demonstrate that
the public is safe. This is only more burdensome than for experimental
aircraft because the precedents are not yet set. The regulations and
regime for test flying experimental aircraft are well known, and the
failure modes are well explored. There are procedures for
communications, emergency response, etc., written down. XCOR believes
that requiring launch providers to document their procedures is
worthwhile.
The largest burden in moving from aircraft to launch vehicle
operation, and the least justified, is that launch providers and launch
site operators have to assess their environmental impact. Aviation,
including experimental aviation, operates under a categorical exclusion
(CATEX) to the National Environmental Policy Act. We have discussed
pursuing a CATEX with AST, but until there have been a number of
reusable launch vehicles using non-toxic propellants, it is difficult
to establish parameters for a category to exclude. Let me make it clear
that the vehicles we and others are developing have very low
environmental impact. And while the burden of documenting this is
substantial, it is likely unavoidable.
Another advantage of the launch vehicle regulatory regime is that
liability insurance is already established. Launch vehicles are
required to carry liability insurance up to a level called the maximum
probable loss (MPL). Let me make that a bit clearer. For me to launch,
I have to carry sufficient insurance to cover any reasonably possible
damage to third parties. The loss probability is set to a one in ten
million threshold, which is so high that we could fly four times every
weekday for ten thousand years before an event exceeding the MPL would
occur. Only in the case of a freak accident, with losses exceeding the
MPL, does the U.S. government's promise of indemnification come into
play. By eliminating the need for insurance carriers to consider wildly
improbable accidents in setting insurance premiums, the insurance costs
to launch providers are reduced, so far at no cost to the taxpayer.
I would like to close with a few remarks on the question of
carrying people in launch vehicles. Launch vehicle regulation already
protects the uninvolved public. Just as with aviation in its early
days, many adventurous people see this enterprise as exciting and
important. They want to go. Again, just as with aviation, this
enterprise will be risky and costly in its beginning; but if allowed to
proceed, the cost and the risk will go down over time. We need to go
through the same process as aviation; start flying, find what works and
what doesn't, then make improvements. If we insist on perfect safety,
we will get it because no one will ever fly.
I have been responsible for over a dozen flights of a piloted,
rocket powered vehicle. I assure you that I and my engineers will fly
aboard our vehicles long before we consider them safe enough for paying
customers. Nor would we ever consider flying someone who was not fully
informed of the risk involved. If Americans are willing to risk their
lives and wealth to open a new frontier, why should we stop them.
America would not exist if our ancestors hadn't done the same. Our
first flights may seem small and unimportant--but they are only the
first steps on a very important road.
Biography for Jeff Greason
Jeff Greason co-founded XCOR in September 1999. At XCOR, Mr.
Greason has managed a team developing small rocket engines and complete
rocket-powered aircraft at a cost and schedule far superior to prior
practice. XCOR has demonstrated a very low cost reusable rocket
vehicle, the EZ-Rocket, which has had fifteen flights. Previously, he
spent two years managing the propulsion team at the Rotary Rocket
Company. There he built a world-class development team, and led key
technical efforts in rocket engines. Mr. Greason has been involved in
space vehicle regulation since 1998 during the rule-making process for
reusable launch vehicles and has been an active member of the FAA's
Commercial Space Transportation Advisory Committee (COMSTAC) RLV
Working Group since 1999.
Prior to joining Rotary Rocket, Mr. Greason served as a technical
manager at Intel Corporation. In 1992, he received the Intel
Achievement Award for his work discovering a less expensive BiCMOS
technology than competitors, which became the basis for the Pentium
product line. Mr. Greason is an experienced technical manager, has wide
knowledge of rocket engine and rocket vehicle design from five years
study and four years experience, and has nine years experience in other
high tech product development. He holds 18 U.S. patents, has authored
numerous publications and has a BS degree in engineering from
California Institute of Technology.
Professional awards:
Received Intel's Portland Technology Development
S.T.A.R. award in 1997, an award given only twice before to
recognize outstanding technical achievement, for work in
defining the interconnection technology on Intel's 0.18u CMOS
process.
Received the 1992 Intel Achievement Award for
contributions to ``defining and implementing a unique, cost-
effective approach to BiCMOS processing for Intel''
Received Intel PTD divisional recognition awards:
1992: ``Implementing and validating Full Self Test
features on the 51S6.''
1989: ``The development of CLCD programs for hot
electron checking.''
Professional memberships
AIAA, IEEE, Society of Allied Weight Engineers, British
Interplanetary Society, National Space Society, Space Access Society,
Reaction Research Society.
Senator Brownback: Good points. I was just coming from the
floor, and we were discussing Lewis and Clark, who went on a
bit of adventure, themselves, at one point in time.
Mr. Jon Kutler, Chairman and CEO of Quarterdeck Investment
Partners, welcome, delighted to have you here.
STATEMENT OF JON B. KUTLER, CHAIRMAN AND CEO, QUARTERDECK
INVESTMENT PARTNERS, LOS ANGELES, CALIFORNIA
Mr. Kutler: Thank you. Thank you, Mr. Chairman, Committee
Members.
I am here today to talk about what Mr. Tito referred to as,
I think, ``the Wall Street perspective,'' and how institutional
investors would look at funding developments in this sector.
I'd personally like to applaud the efforts of the individuals
before me. I think we all can appreciate that they are the type
of people who have traditionally taken our country to new
heights of technological development, pushed the envelope, and
created new industries and new jobs. That's why I think it's
appropriate that we sit here on the centennial anniversary of
the Wright Brothers' flight to talk about the transition of
human space flight from a government venture to a economic
business pursuit.
I think one major issue, though, is a hundred years ago,
when the Wright Brothers were figuring out how to get into the
air, the only question they had to ask was, ``Can we?'' Today,
all these people here with me are really asking, ``Will we be
allowed?'' And the answer to that question is--while there are
some technological implications--really will be answered by
regulators and by investors. I'm quite comfortable that the
technological advancements will come.
So who are these investors, and how do they come to want to
place their bets in this sector? Well, to date, most of the
investment has come from angel investors, wealthy investors,
like Mr. Tito, who would view the passion of space flight to
supplement their classic return-on-investment calculation. For
this industry to be successful and take the next step, however,
it has to attract dispassionate people, who will make the
classic risk-reward tradeoff and view this as a place to make
their investment decision.
So, in the risk-reward dilemma--the people before me have
already talked about the reward, to some degree, so I think
it's important to discuss the risk profile. If all these people
were bringing a business plan to a number of investors, what
would they say? What would they focus on?
I think the first one they'd focus on is--what I just
mentioned--is the regulatory risk. And a number of other people
have talked about that, too. I don't think the industry or
investors expect there to be an absence of regulation. I think
they expect, however, to know what the rules of the game are.
We talked about different industries that are regulated,
like the SEC. I think another one which is relevant to
investors is the biotech industry. Billions of dollars have
been raised on Wall Street by biotech entrepreneurs on just a
dream and a desire to create something. The difference there
is, they knew what the rules of the game were for developing
drugs and having them been approved by the FDA, because it was
already in place prior to them making the investment decisions.
So investors know that the FDA decision can mean, not only life
or death for a patient, but also life or death for an
investment, and they are able to evaluate that risk, the risk
of being turned down, and the length of time it will take.
In this industry, the nascent human space flight industry,
they don't know. They don't know whether it'll be regulated as
an airplane, a rocket, what that will mean, whether it will be
regulated today and it will be changed tomorrow. That is a very
difficult scenario in which to invest significant capital.
On top of the regulatory issue, frankly, the timing is also
bad. Now, clearly, this is a long lead-time business, but if
you look at the number of the financing hurdles these gentlemen
have, they're significant.
The first is that despite last quarter's stock market
appreciation, venture investors are returning to being
extremely conservative. In the late '90s, we all know that you
could raise hundreds of millions of dollars on merely a story
and not a very significant business plan. That era is gone. I'm
not sure it won't come back in the future, but, for time being,
it is.
In addition, there has been a terrible history on Wall
Street with investing in commercial startup space ventures. Two
that come to mind are the LEO (the Low Earth Orbit) satellite
ventures, were, in the '90s, starting in the early '90s, and
lots of money was raised to create constellations of
satellites, for communications purposes, primarily. $14.5
billion of equity and debt capital vanished in the last few
years through bankruptcies and restructurings. That sits hard
in people's memories through names like Iridium, Globalstar,
and others.
Another venture which these gentlemen would have to sell
against is the remote-sensing business, which is also an
attempt to create what used to be government technology and
remote sensing from space--spy satellites--and use them for
commercial purposes. That venture has fared a little bit
better. But, clearly, what has happened there is, money was
raised on the promise of commercial applications, which really
have been extremely slow to mature. So what has kept that
sector on life support is something that was not anticipated;
it was government funding, government contracts for
supplemental imagery. And this whole concept of government
contracts is an important thing to think about as you think
about what government could possibly do to help this industry.
In addition, we have a period of time where safety is of a
primary concern. Until we put the Space Shuttle back into
operational performance and solve what are perceived to be
risks once again in people's mind about the safety of human
space flight, investors will react negatively to the concept of
spending money for a commercial venture if NASA still is not
flying. So that's another significant timing issue.
So, clearly, these investors need time, need time for the
concept to mature, for some of these issues to mature. And
government, if it chooses, can play a role. It can play a role,
first, of--in deference to the Hippocratic adage, ``do no
harm,'' you know, in terms of--tell people what the rules of
the game are, and encourage people, by a fair, up-front
forecast of what the rules are, and let the capital markets
raise money.
Second is increased R&D funding. There are some
technological challenges. Some of it has dual-use capability
between commercial markets and federal markets, and there are
lots of ways for people at this table and the industry they
represent to develop technologies that could be useful for the
government.
Third is government contracts. It has been the lifesaver
for the remote-sensing industry right now, while they're
waiting for commercial markets to come back, and it would be an
important aspect here, if the government chooses to do so.
So, in conclusion, my sense is that, in the near-term, this
industry will likely only be funded by wealthy investors until
a business plan can go full circle and get to the point where
there is more visibility on risk and more visibility on
profitability. A business case has not been made yet for large
investment. There's a significant role government can play,
should it choose to help facilitate that, but, in the meantime,
it will take incremental business successes before we're able
to reach for the stars.
Thank you.
[The prepared statement of Mr. Kutler follows:]
Prepared Statement of Jon B. Kutler
Chairman Brownback, Chairman Rohrabacher and Members of the
Subcommittees, thank you for inviting me to testify this morning. My
name is Jon B. Kutler and I am the Chief Executive Officer and Founder
of Quarterdeck Investment Partners, LLC, an investment bank focused
exclusively on the aerospace and defense industries. Today, it is my
pleasure to discuss what we see as the major issues facing the
commercial human space flight industry as its pioneering companies
progress to the point of seeking external financing from the capital
markets.
I must start by applauding the efforts of the individuals who have
spoken before me. They are the kind of leaders and risk takers who have
traditionally pushed this country to new heights of technological
advancement and created whole new industries and jobs. It is
appropriate that we sit here today in the centennial year of
celebration of the Wright Brothers' successful completion of the first
manned powered flight, to discuss the transition of manned space travel
from a government pursuit to an economic business opportunity. The only
question the Wright Brothers faced as they started their tests was
``can we?''. They did not have investors questioning their return on
investment or a federal regulator asking to certify the aircraft. The
question before these gentlemen today, however, has become ``will we be
allowed?''.
The most important people to answer that question are not
scientists pushing the bounds of technology. They are regulators here
in Washington, D.C., who set a framework for these efforts and
institutional investors who will judge whether this industry is ready
to be a profitable business opportunity worthy of large-scale
investment. I am sure that most regulators and investors believe that
at some point in the future there will be a prosperous commercial human
space flight industry. The foundation of this discussion, however,
remains whether the transition from novelty to viable industry will be
observed in our lifetime.
To the surprise of many, the sheer size of the capital required to
fund commercial human space flight is not the issue. There are numerous
examples of new companies in fields such as biotechnology and
telecommunications that have raised billions of dollars on the basis of
someone's dream. The hurdle is the perceived risk profile and return on
that investment. Some initial start-up capital has already been raised
and will continue to be available to these commercialization pioneers
from wealthy ``angel'' investors who have the wherewithal to supplement
their return on investment calculation with the passion that human
space flight often evokes. The next critical junction will involve
institutional funding, however, where the investment decision will be
based solely upon quantifying the magnitude of return a company can
potentially generate if successful, measured against the risks that
could cause the endeavor to fall short of the finish line. The capital
markets currently believe that this market will remain, in the near-
term, a niche opportunity with a number of substantial barriers
limiting total demand thus delaying the timing of its growth. Although
individually manageable, the combined belief of a limited market
opportunity and potential regulatory obstacles currently results in an
unattractive investment opportunity.
Biotechnology companies have raised billions of dollars from
investors who are quite familiar with the concept of regulatory risk
through the Federal Food and Drug Administration's drug approval
process. The pace of approval and ultimate outcome is a life and death
decision, not only for patients, but investors as well. This process is
a known and calculated investment risk, which predates the
biotechnology industry. The commercial human space flight industry and
its potential investors, however, face the prospect of unknown
regulatory hurdles, which could entail ``piggy-backing'' off the FAA
certification process for aircraft or the potential drafting of new
restrictive regulations.
The question of potential market size has become the ``Holy Grail''
of early-stage investors. Typically, these venture investors will take
large financial risks if they are confident that the return potential,
should the funded idea/entity become successful, is proportional to the
magnitude of risk taken. For example, although with the benefit of
hindsight Microsoft's success seems obvious, its early investors made
large financial bets with little tangible assets to show for it. The
Microsoft investment was a huge success in large part because once they
had a successful product there existed an untapped and reoccurring
global opportunity to sell affordable software for billions of customer
applications. The current per event costs for commercial human space
flight events are very high, which immediately eliminates a large
segment of the population from participating. As you know, Mr. Tito's
orbital trip has been reported to cost $20 million and near-term sub-
orbital trips are still projected to be several multiples of the
average U.S. annual household income. While Rolls Royce and Ferrari
also make luxury consumer items that have similar cost parameters, they
can still be considered an investment--a tangible, saleable asset--not
an expenditure on a onetime event. As you can imagine, investors in
either of those car companies might question the capital expenditure
plan for a new car line if they were told that a prospective customer
would have the single ride of a lifetime, but subsequently have to
throw away the vehicle.
Investors will also further factor the potential addressable market
by an allowance for competition. This is not just a question of
measuring the potential market share that could be captured if more
than one company presenting today becomes fully operational. It is also
an acknowledgement of competing tourism approaches. Many current
commercial human space flight business plans are based upon the
building blocks of an initial sub-orbital joyride approach. Without the
unique characteristics of a longer stay space tourism destination,
other companies may be able to further fragment the market by offering
specific aspects of space travel in a less technologically and
financially demanding fashion. For example, weightlessness can be
simulated for commercial customers through conventional aircraft in a
manner similar to the training regimen for all astronauts. Owners of
demilitarized Russian aircraft could meet the demands of those seeking
the g-forces of launch and the thrill of supersonic flight.
In order to attract investment capital into a risky, new industry
in its relative infancy, the business plan should have the potential
for a large financial return, be differentiated in the marketplace and
based on credible demand patterns. The most likely scenario for this
may ultimately rest in the build-out of a ``destination'' travel model.
By offering an overnight stay in space or turning a Mach ten flight
from a quick joyride to a reliable transportation system that features
global travel measured in minutes instead of hours and days, the time-
tested demand for destination travel could be leveraged effectively and
a much larger investment opportunity created.
Despite the rapid appreciation of stock market indices in the past
quarter, the capital markets still remain reasonably disciplined with
respect to calibrating the risks of such early-stage investments.
Assuming we were still at the height of last decade's investment
bubble, these financial metrics might have been pushed aside by merely
the ``story'' of commercial space travel. Unfortunately, companies
seeking investment in the commercial human space flight sector not only
have to deal with a more disciplined financing market, they also must
address the disastrous results of investments made by such investors
not that long ago based upon the dreams of other commercial space
start-up ventures. In the mid to late 1990s, companies poised to
develop and address the low earth orbit (``LEO'') satellite market
successfully raised billions of dollars of capital by extrapolating for
investors the rapid growth of bandwidth usage and cell phone
development. Their business plans implied that nearly the whole world
would, in the near future, be utilizing the services provided by the
winners of this race. Since then, more than $14.5 billion in debt and
equity capital has disappeared as a result of the industry's collapse
and subsequent corporate sufferings of Iridium, Teledesic, Globalstar
and ICO. Today, only two of the four companies remain; limping along in
attempt to stay alive until the market catches up with their business
plan. Following the Microsoft example, the return potential and market
opportunity presented to those LEO investors was substantially
different than the business cases currently provided by commercial
human space flight ventures. While the longer-term opportunity may very
well be larger, the current opportunity for which the capital is being
raised is perceived as much more of a niche.
In addition to the aforementioned investment history, which has not
yet been forgotten, there other risks remain that institutional
investors will consider. In the case of the LEO satellites, many of the
individual satellites that were intended to build out these
constellations did not reach orbit or even deploy successfully. This
potential outcome was factored into business plans and considered a
business risk, as well as an insurance issue. Should one space tourist
not safely return during the initial stage of developing the commercial
human space flight market, the industry would likely shutdown for
years. It will also take some time to erase the recent image of the
Shuttle Columbia from the minds of potential investors and tourists,
and restore confidence in the safety of human space flight. Of course
this will also be coupled with the risks of litigation and insurance
costs that will be present in the early days of this market, regardless
of the obvious use of legal disclaimers. These risks and uncertainties
that face the commercial human space flight industry can constrain the
near-term investment prospects and delay the fruition of these
pioneers' vision, until reasonably quantified.
What the commercial human space flight community needs is time: (i)
time for Wall Street to forget earlier failed commercial space
investments and change its risk profile; (ii) time to get the Space
Shuttle fleet flying again in a safe and reliable manner; and (iii)
time for certain new technologies to mature. I expect all three of the
aforementioned to happen. Time, however, is often the unfortunate enemy
of many investments and investment ideas. There are a number of actions
the government can take to buy some of that time should it chose to:
First, the Hippocratic adage, ``do no harm'' can
provide a useful guideline in evaluating any proposed
regulatory structure. Burdening the sector with either an
inappropriate degree of regulatory control or the lack of early
consensus in this area would kill the investment raising
ability of otherwise fundable companies.
Second, increased research and development funding in
certain key technologies could have the ``dual use'' benefit of
supporting NASA and Defense Department missions while
shortening the life cycle of longer-term human space business
opportunities with broader market appeal. Over time, this could
include developments such as the transition of sub-orbital
joyrides to hypersonic single-stage-to-orbit vehicles serving
as high-speed commercial transports.
Lastly, start-up ventures can leverage the stability
of mutually beneficial government contracts such as those
afforded to the space based remote sensing sector, into further
external funding.
Although not insurmountable, the near-term institutional investor
interest given to the commercial human space flight sector will be
limited by a number of risks and constraints that could adversely
affect investment return. In order for start-up companies to
participate in the natural transition from the small pools of capital
available through wealthy individuals to the investor base required to
fund their next level of growth, the regulatory and financial risks
associated with these ventures must be further quantified. While these
ventures may spark the imagination of many, to quote The Right Stuff,
``No bucks, no Buck Rogers.''
Biography for Jon B. Kutler
Jon B. Kutler is Chairman and Chief Executive Officer of
Quarterdeck Investment Partners, LLC, an investment banking firm he
founded in 1992 to focus exclusively on the aerospace and defense
sector. Mr. Kutler has advised on hundreds of transactions involving
most of the leading companies in these sectors. In December 2002, he
sold the firm to Jefferies & Company, Inc., a NYSE traded investment
bank. Quarterdeck currently operates in five offices globally as a
wholly-owned subsidiary of Jefferies & Company.
Mr. Kutler began his investment banking career on Wall Street in
1984, after serving ten years in various positions in the U.S. Navy. He
has worked with Goldman Sachs, The First Boston Corporation and was
Managing Director in charge of the West Coast office and international
aerospace and defense practice of Wasserstein, Perella & Co., an
international merchant banking firm.
Mr. Kutler is a nationally recognized expert in the field of
aerospace and defense. His articles on consolidation, restructuring and
defense conversion have appeared in Business Week, The New York Times,
Fortune, The Los Angeles Times, Defense News, Washington Technology and
Aviation Week & Space Technology. Mr. Kutler has testified before
numerous Congressional committees, has served as Chairman of the White
House Small Business Task Force on Defense Conversion and was a member
of an advisory panel established by the Congressional Office of
Technology Assessment to evaluate the status of the space launch
vehicle industry.
Mr. Kutler is a graduate of the United States Naval Academy and
holds a Bachelor of Science degree in Naval architecture. He received
his Master's of Business Administration degree from Harvard University.
Discussion
Senator Brownback: Thank you, Mr. Kutler.
Thank the panel. It's been an excellent presentation, and I
look forward to a discussion.
We're now in a period of five-minute questions, and we'll
go back and forth, and we'll go in the order of people coming
into the room, so we'll recognize those who have been here and
waiting the longest, after we go with the Chair's questions for
a five-minute time period. We'll go until we're concluded here
in time.
Impediments to Exploration
Let me ask--Mr. Musk, I want to build on your statement,
because this is something that's really troubled me and
perplexed me a great deal. After we go to the moon, we develop
a computer industry that's fantastic, an Internet industry
that--I just got an Internet e-mail from my wife, while I'm
sitting here--fabulous things, and yet we're stuck in low-space
orbit with government contracts in space.
Now, you say it's the breakdown of creative destruction.
Others, I take, are saying here that it's the lack of
commercial entry into the field that's been blocked for some
reason here. And I appreciate your notion of a space-tourism
industry, Mr. Tito, and others. Mr. McAlister, you were talking
about--I have to admit to you, that doesn't attract me a lot,
from a public-policy perspective, when my view is that we
should be expanding exploration. I'm willing to be supportive
of it. I like it. But I want to see us going further in space.
I want to see us back to the moon and beyond, and pressing the
bounds of humanity is what I'm after.
What else is there that has stopped us, as a society, from
going further than we have over the past 30 years?
Mr. Musk: Well, I think, as far as the, sort of, greater-
good-of-humanity type objectives, it's difficult to generate a
commercial return from such things. So that is, sort of,
necessarily the funding purview of government, the Federal
Government, and its vessel for doing so, which is NASA. And the
bias, the exclusive bias, really, of NASA, as far as
contracting for any significant project, is to go to the
incumbent corporations--that being, Boeing, Lockheed, and, on
rare occasion, Orbital Sciences--but, really, not going to any
new players.
And that's really what I meant by shutting down
Schumpeter's process of creative destruction. If you shut down
the process of new companies getting into such a market, you
won't see the price decrease, you won't see the quality
improvement, because there is no forcing function for
incumbents to change.
The reason, I think, that space tourism is very important
is because this is something where you have an objective
customer. You have someone that is going to choose to fly or
not to fly based upon the price and the merits of the vehicle,
exclusively. They don't care who made it. They don't care where
you're from. The consumer is an incredibly objective judge of
product. And that's what I've seen in my prior businesses,
PayPal, in particular. They didn't--we were up against
Citibank, were up against Microsoft, we were up against AOL,
and so forth, but----
Senator Brownback: Let me put a better point on my
question, because my time's very limited. Is the key for us,
going forward in space exploration, to engage this commercial
sector much more robustly, and particularly as the near-term
point being space travel by tourist?
Mr. Musk: I think that is it not just the preferred way, I
think it is the only way.
Senator Brownback: Mr. Tito, you talked about a number of
regulatory issues, and I've got those down, and I appreciate
your identification of those. What are the technological issues
that you believe are the biggest hurdles for you to face in
moving forward with a vehicle to take people into space in a
safe manner?
Mr. Tito: Well, I think the major technological hurdle is
reliability. If you're going to have a commercial venture, you
have to demonstrate a high degree of safety. But part of the
development will be not only the standard reliability testing
procedure, but, in addition to that, a lot of flights, a lot of
flights, none commercially, to demonstrate a very high degree
of safety.
Senator Brownback: And you would do this before you would
take your first passenger? You would fly a number of flights up
and down before you would take your first passenger?
Mr. Tito: Yes, before I would take my first paying
passenger. I might be a passenger, myself, but I wouldn't pay.
(Laughter.)
Senator Brownback: Mr. Rohrabacher.
Representative Rohrabacher: Well, that's very interesting,
this concept of entrepreneurs and trailblazers actually risking
their own personas in their vehicles before they open it up to
the public. I think that speaks very well of you. And I would
say, in the ancient Romans, you know, there was a--the
architect, when they--in order to ensure the quality of the--I
guess, the arch, that the architect was supposed to stand
underneath the arch as they took away the final beams that were
propping it up. And so if the arch didn't succeed, of course,
the architect would face the consequences. So this is a very
interesting carry-on to that principle, sort of, started by the
ancient Romans.
Also, it's interesting to note that, when you asked Mr.
Tito about the technical obstructions to success, what--he came
back with liability, which is not really a mechanical technical
obstruction, but a technical obstruction that's based on law,
which is based on regulations and law, rather than obstacles in
engineering, and technology. So that's fascinating.
Also, last night, when I talked to Mr. Tito, we went out
for dinner, and he said something that I thought fits right in
with what Mr. Musk was saying today, which is, you have a
certain establishment in this whole--in the business, but
also--and I'm including government in that--there is an
established--there's a space establishment within the corporate
world as well as within the government world. And today we're
looking at some of the government impediments. But big business
has its own bureaucracy, has its own obstacles in the way. And
Mr. Musk alluded to that by talking about the incumbents not
being able to innovate. But, last night, Mr. Tito, you
mentioned that if we would have relied on the railroads, then
we might--remind me what you said about space flight--railroads
were the number-one transportation industry of the day, and yet
that's not where airplanes came from. And you might give us an
insight into that.
Mr. Tito: Well, you would think that major transportation
companies would be the innovators for the next form of
transportation, but, instead, it took a couple of bicycle
mechanics to develop the first airplane. And so you would not
expect to see a Boeing, for example, develop the first single-
passenger sub-orbital vehicle. They're focusing on their
business and do not seem to have any interest in this vehicle,
other than, once we get started, maybe try to buy us out.
Representative Rohrabacher: I think the dynamics of that is
important for us to realize if we expect to have progress in
this area. The railroads didn't finance the--I might note, the
Wright Brothers, as well, but we also have to note that the
government didn't finance the Wright Brothers. And also, if it
would have, they probably would have--it would have taken a lot
longer to--matter of fact, they probably never would have
qualified for those government loans at that point, as well as
the liability factor of having that strange craft going over
there in North Carolina. Perhaps the North Carolina legislature
would have had all sorts of liability regulations. And, who
knows, Mr. Musk? Maybe the Wright Brothers would have disturbed
the reproduction patterns of the local crabs, or whatever, and
would have had to have been prevented from moving forward.
Let's get down to a couple of things--and I see my time is
running out, as well--in terms of--we're mentioning the things
that are preventing people from moving forward, and contracting
by the government and dual-use has been mentioned as something
that could stimulate investment in this area, of course. And I
have a bill, zero gravity, zero tax. Tax incentives might. But,
just looking at the obstacles now, we find that the FAA and the
way they are approaching, especially, Mr. Tito's venture and
sub-orbital space travel for regular citizens, what needs to be
done, Mr. Tito, to make sure that the FAA does not prevent you
from investing in this venture, which would then create a whole
new vehicle for humankind?
Mr. Tito: Well, I think the Congress has to assert its
authority and allow a definition of sub-orbital RLV, and that
the Office of Space Commercialization will have exclusive
authority, not only to license, but also to regulate the
passenger aspect of it. And the aviation side of the FAA will
not be part of it.
Representative Rohrabacher: So this should be taken totally
out of the hands of those people regulating airplanes, and
should be a totally different category, or it will not work. Is
that correct?
Mr. Tito: That is correct.
Representative Rohrabacher: All right. Thank you.
Senator Brownback: Congressman Gordon.
Safety and Certification
Representative Gordon: Thank you, Mr. Chairman.
I'd like to have a little talk with the panel concerning
safety, and explore that some more. It would seem to me that if
we're going to have a successful commercial space tourism
industry, that there's got to be a perception that there's at
least some reasonable level of safety and reliability. So I'd
like to ask the panelists, what is safe enough, and who should
verify that?
Mr. Tito is--I think, really, has set a fairly high
standard. You're talking about maybe a thousand flights
before--that's pretty expensive a venture. So, again, let me
ask you. What is safe enough, and how do we verify that?
Mr. Tito: Well, again, you have to go through the standard
qualification of a vehicle. And then once that is accomplished,
if you have a vehicle that can be turned around at a fairly low
cost--for example, the vehicle that I'm looking at would be
turned around in something like $10,000, and a thousand flights
would be $10 million. And if one could fly this vehicle many,
many times a weekend, fuel it up, turn it around, and have a
simple mission profile--taking off and landing at the same
runway, and demonstrate a flawless flight, what I like to call
is a ``textbook flight''--and we do this a thousand times, I
think it'll become readily apparent----
Representative Gordon: So what's it's going to cost you to
do that a thousand times?
Mr. Tito: $10 million.
Representative Gordon: I don't mean to cut you off, but
we've got a short time here. Let me ask, does anybody have a--
sort of, a ``Katy bar the door'' attitude, sign a waiver and
take your chances?
(A show of three hands.)
Representative Gordon: You do? Okay. Well, so why don't
we--so almost everybody does, then. So you're all--you're in
disagreement with Mr. Tito. So why don't you give your side of
the story, then.
Mr. Greason: I don't think that those attitudes are
necessarily in conflict. I mean, it's safe enough when the
customers start to show up, and you go through a process of
demonstrating the vehicle over and over and over again. Now, we
have our own internal business targets about how safe we have
to know it is before we can base a business on it. But it's
important to realize that long before we get to the point where
we know it's safe enough that our expensive asset won't crash
and be lost to revenue service, something we have to do for our
own business, long before that point, we will have demonstrated
safety far superior to what people think of as space flight
safety as being right now. I mean, the test program, alone is
probably going to be 50 flights.
Representative Gordon: I don't want to be discourteous.
This five-minute, sort of, thing makes it----
Mr. Greason: Yeah. Go.
Indemnification
Representative Gordon: So let me ask you, our sign-a-
waiver-and-take-off folks, do you think there should be
indemnification by the Federal Government also?
Mr. Greason: Of who?
Representative Gordon: Some amount of--you know, of the
company, for some amount above your level of insurance.
Mr. Greason: You're referring to the third-party liability
indemnification?
Representative Gordon: Right. Yes.
Mr. Greason: It would be--it's hard to see why we should--
why the Federal Government should take steps to make insurance
harder to get than it is already. I mean, it would be nice if
the currently-existing regulatory regime were left untouched.
Representative Gordon: Well, then if we're going to provide
some type of indemnification, then aren't we, in some way,
making the public think that the government has signed off on
this, and wouldn't the government have a higher responsibility
to certify safety?
Mr. Greason: I think you're mixing the issues of the safety
of the passengers with the safety of the uninvolved public. I
mean, I already have to carry, before I can launch a launch
vehicle, insurance to cover events so improbable that I could
fly for 10,000 years four times every weekday before they would
be likely to occur. I mean, it's not like I'm getting some kind
of break.
Representative Gordon: But if you're a citizen--maybe you
read, and you should, all of those pages that go along with
doing a real estate, you know, closing with your house, and
maybe when you go into the doctor's office and you've got a
problem, you read all those waivers, and you should. I think a
lot of folks don't. I think they somewhat think that if you are
an operation--again, if you're going to be indemnified in some
way by the Federal Government, that there probably is somebody
in some safety office that's at least given this a review.
But, that's fine. You don't agree with that, and--so, Mr.
Tito, are you our loan--or what about if you're--what's the
investment community think about----
Mr. Tito: I think----
Representative Gordon: --some type of safety----
Mr. Tito:--I think--a similar issue, which--I think
investors won't line up until they can be convinced there's
some repeatability. The real issue, I think, is not so much
will an accident happen, because eventually it will, it's
what's the liability for the company if an accident happens. So
there's a liability to the passenger, which--I think that
investors could be comfortable that the waiver covers them
there. It's really the third-party liability, and could
somebody else make some claim on that company for some
liability? So I think it's really an issue of cap, not a
question of occurrence.
Representative Gordon: I guess I won't----
Senator Brownback: You'll probably get a next round in, if
we can. We'll see if can do that.
Representative Gordon: If I could, I would just like to ask
the panelists if they could maybe submit their opinions on this
issue and where we should go? I don't have a strong opinion,
but I would like to get more information on it.
Thank you.
Senator Brownback: That would be good. That's an excellent
request.
Let's see. Congressman Lampson.
Representative Lampson: Thank you, Mr. Chairman.
I appreciate the opportunity to come over and participate
in this panel, and all of you for coming over here. This is
very interesting.
In the last Congress, I introduced a piece of legislation
to address the issue of space tourism, the Space Tourism
Promotion Act. And the bill would create federally guaranteed
loans, tax credits, and hopefully a predictable regulatory
structure for space tourism. The legislation would also spur
research and development in technologies that will assist the
private sector to develop operational passenger-carrying space-
transportation systems and on-orbit habitations.
Humans, obviously, have had a long yearning to travel into
space and experience the conditions beyond Earth's atmosphere.
Hopefully, that won't ever go away.
Forty years of human space flight experience have
demonstrated the feasibility of travel to and from space, as
well as the ability of humans to live and work in space. The
Nation's human space flight program has developed technologies
and operational procedures that the private sector could make
use of to enable American citizens to experience space travel.
Space tourism has the potential to become a significant
industry and powerful stimulus for advances in space
transportation. And all of the different ideas that so many
different people have had have been fascinating to listen to.
And so I hope that you all do well in promoting this and that
we do the right kinds of things to make sure that you have
those opportunities.
I plan on reintroducing a similar version of that
legislation in the fall, and I look forward to working on these
issues with my colleagues. And I would hope that you, too,
would have suggestions for me, and us, in making sure that we
include the kinds of things that you want.
Effects of the Columbia Accident on Investment
Now, let me ask a couple of questions. My first thought in
all of this is, how has the investment community reacted to the
Space Shuttle Columbia accident? Has it affected your ability
to attract capital? Did that frighten people away? And how will
it make the transition into a potential accident that might
occur in your development stages? And any of you can begin.
Mr. Greason: Somewhat to my surprise--I expected that,
after Columbia, there would be a lot of people who had signed
up and saying, ``Yeah, I want to ride,'' that would go away. If
anything, the reverse has happened. The people who are looking
to go to space in the early days of this emerging industry are
fully aware that it's a risky endeavor. And I think the events
of February reminded them that, in their own way, they're doing
their part by being willing to take that risk, and increased
their eagerness to do so.
I don't think anybody--I don't think the perception that
the shuttle was safe was held widely in the informed members of
the public, and so I don't think there was the degree of
surprise that there was in some other quarters.
Representative Lampson: Does anybody else have a----
Mr. McAlister: I concur. When we surveyed individuals for
this market study, we actually explicitly asked questions about
the perceived risk of space flight, and most of the respondents
equated it on the order of mountain climbing. Skydiving is the
most risky, mountain climbing, space flight was right on the
order. And so that's a fairly risky activity. And so
individuals know that this is an inherently risky activity and
are still willing to go. And a lot of people have asked me
has--is my impression--has the results of the market study
changed because of that Columbia accident, and I would say no,
because people understand that this was risky. We explicitly
said that it was risky when we asked about their interest
level. So I think people had a common understanding of what the
realistic aspects are.
Effects of Russian Participation on the Industry
Representative Lampson: The Russian Space Agency has
already flown tourists into space, including Mr. Tito. Agency
officials have suggested that Russia might attempt to develop
more space tourism capabilities. What would happen? What would
be the impact on the emerging commercial human space flight
industry if the Russian Government decided to pursue that
development of a government-sponsored space-tourism program?
Why don't you start----
Mr. Tito: Well, there's an effort right now in Russia,
which is more privately oriented, to build a sub-orbital
vehicle. And the investment required would be similar to what
would be required here. And I know, for myself, I would
strongly prefer investing in America, because, well, I'm an
American, but also, this is where the market is. And I think a
very small percentage of those that might be interested would
actually go to Russia and have to train in Russia and fly in a
Russian vehicle. So I don't see that as a threat. I think it
should be done here.
Representative Lampson: One final comment, and I'll turn it
back to the Chairman. Mr. Rohrabacher made the comment awhile
ago that the government wasn't involved in the Wright Brothers'
efforts. But I might add that the very first thing that
happened, shortly after that short flight, was the sale of an
aircraft to the United States Army, and they trained the flyers
right out here--under contract with the United States
Government, right out here at College Park.
Senator Brownback: Excellent comments and excellent
questions.
Ms. Johnson.
Representative Johnson: Thank you very much, Mr. Chairman,
and thank you for having us join you this morning. And thanks
to all the witnesses. It's been very interesting.
About eight years ago, I had a couple of gentlemen come by
my office and talked about commercializing space exploration,
and I thought it might have been a joke. I've lived long enough
now to know that all the things I saw in movies as a kid is a
reality now.
Are you all planning separate ventures in different parts
of the country?
Mr. Musk: Yes.
Timelines
Representative Johnson: And how quickly do you think you
can be ready to do it?
Mr. Musk: Well, in our case, we're building an orbital
launch vehicle to initially deliver satellites and then,
subsequently, once it's proven, human transportation. We expect
to do our first flight sometime in the next eight months. We're
currently scheduled to launch January 22nd, from Vandenberg.
Mr. Greason: We've been flying a rocket-powered vehicle
with a pilot on-board for two years, and when the bigger
engine's ready, in about a year, we expect to be ready to move
on to a bigger vehicle.
Representative Johnson: And these are occupied? By human
beings, I mean.
Mr. Greason: Yes.
Appropriateness of Government Regulation
Representative Johnson: How do you--do you think it's
appropriate that there is any kind of government standards or
any government involvement as you begin these ventures?
Mr. Greason: I think it's very appropriate that government
continue as it has begun in having standards that protect the
uninvolved public. I mean, the public will not accept hazards
from things--nor should they--hazards from things that they
have no say in, and there already are very exhaustive
standards--I mean, I could break this table with the amount of
paperwork we have to wade through--to keep the uninvolved
public safe.
I resist the suggestion that government would put in
standards for the safety of the people who want to fly, not
because it is in any way inappropriate, but because it's too
early. We don't know what standards to put in. The probability
of doing the wrong thing is very high. And I think we have to
let the industry develop for awhile and start flying some
people for awhile before we will gain experience about what
works and what doesn't.
Representative Johnson: Mr. Tito, good to see you again.
You went on a government-sponsored flight. Is that correct?
Mr. Tito: Well, I would say that it was somewhat government
sponsored, in that the Russian Space Agency launched the
vehicle. But, from a financial standpoint, it was sponsored by
myself.
Representative Johnson: Yeah, 20 million.
Mr. Tito: Right.
Profitability
Representative Johnson: Do you think that--do you feel
confident that a commercial venture would be profitable?
Mr. Tito: Absolutely. And I wouldn't be interested in doing
it unless it was going to be profitable.
Representative Johnson: What did you see?
Mr. Tito: Pardon?
Representative Johnson: What did you see?
Mr. Tito: From space?
Representative Johnson: Yes.
Mr. Tito: Well, I saw that this is something that, not only
I, but thousands of people would get an experience of a
lifetime. And as those people experience it and relay their
experiences to all of us here, I saw an opportunity to make
space flight available to a large number of people, not just
people that could afford $20 million. But, eventually, people
who can afford an SUV should be able to afford a flight into
space.
Representative Johnson: Let's see how I'm going to
formulate this other question. The vehicles that you have that
you are trying out now, how many passengers will they load?
Mr. Greason: Our initial revenue-generating vehicle will
only carry one passenger, plus the pilot.
Representative Johnson: What is the cost to operate?
Mr. Greason: That's proprietary. But the prices, which
includes our profit, will initially be about a hundred
thousand. It will probably come down as new entrants enter the
field and competition drives the price down.
Representative Johnson: So, initially, persons who would
want to make a flight, they would pay, not 20 million, but
something over a million?
Mr. Greason: No. About a hundred thousand per flight----
Representative Johnson: A hundred--so it's----
Mr. Greason: --is what the initial people are looking at.
Representative Johnson: --a hundred thousand.
What do you expect the government role to be?
Mr. Greason: Let us fly, and keep the public safe, the
general public.
Representative Johnson: So meeting safety standards?
Mr. Greason: The safety standards that we have to already
meet as a launch vehicle, to protect the uninvolved public,
yes.
Senator Brownback: Ms. Johnson, we'll----
Representative Johnson: Thank you very much, Mr. Chairman.
Senator Brownback: Thank you very much.
And we'll go to Mr. Burgess.
Liability
Representative Burgess: Thank you very much, Mr. Chairman.
And I apologize for being late. This has been a fascinating
discussion.
I guess my question, first, is for Mr. McAlister. And you
talked about how people generally understand the nature of the
risk when a citizen such as Mr. Tito undertakes this type of
adventure, but I couldn't help but think about the general
aviation industry and how that industry was almost taken from
us because of the costs of liability. And that was not
liability generated by people who were harmed on the ground
when a plane crashed, that was liability that was generated by
pilots, themselves, in some instances, and loved ones who were
left behind, who perhaps didn't understand the nature of the
risk that someone undertakes when they strap themselves into
their small plane and take off into bad weather.
So I guess my question is, How do you look to manage the
liability from that standpoint? That is, Mr. Tito had a very
clear understanding of his risk when he took off, I suspect, or
at least could get his arms around it to some degree. But I
would have a strong suspicion, if there had been a very bad
outcome, then would his family have been so understanding? And
then that gets to the questions that Mr. Gordon and Mr. Lampson
were bringing up about the issue of liability and how in the
world are you going to pay for insurance for someone to go up
in a commercial space venture.
Mr. McAlister: I think Jeff's probably more qualified to
answer that specific question, because he's dealing with how to
get insurance right now, so I'm going to defer to him.
Representative Burgess: Okay.
Mr. Greason: I don't think--I mean, this is not a hundred
years ago. So the only way that it's practical, in the near-
term, to take people is, they have to be able to waive their
liability. And there's no--it's going to take years, maybe
decades, for enough of an operating track record to be built up
that any insurance carrier would consider writing a policy for
somebody who actually wanted to ride. I mean, it was only a few
years ago that you started to be able to get life insurance
policies that didn't have an exclusion that said if you flew on
an experimental aircraft, your life insurance was void. Sixty,
seventy years from now, maybe space travel will be so common
that we won't have that problem anymore, but today we certainly
do.
So when I talk about liability insurance or indemnification
or any of those issues, I'm really talking only about third
parties, because I don't think there's any alternative. But the
people who fly on experimental space vehicles do so at their
own risk.
Representative Burgess: Well, very good. All I have to add
to that is that when Chairman Rohrabacher takes the first Codel
into space, I'd like to be included in that.
(Laughter.)
Representative Burgess: And I will waive my liability.
(Laughter.)
Actions That Would Facilitate Growth
Representative Burgess: One last point, then, is, if you
could just sum up, Is there one thing that you would like to
see us do in the near-term--us, here in Congress--that would
facilitate you all getting off the ground? No pun intended.
Mr. Greason: Define sub-orbital in a way that keeps it out
of the hands of the airplane guys.
Representative Burgess: Is that in general agreement from
everyone there?
Mr. Tito: And also define the role of flying passengers for
hire and, you know, recognize the ability of the individual to
go through certain checks and ultimately waive his or her
rights, you know, to any claims.
When I flew to the ISS, I waived all claims that either--
would be made either to the Russian Government and to the U.S.
Government. My kids would have gotten nothing if I did not come
back.
Representative Burgess: I guess that's really the question.
Would the heirs and signs of the Wilshire Corporation have been
so understanding if something bad happened? Would that be
defensible? Would that hold up in court? I'm not a lawyer, and
I don't play one on the floor, but--I guess that's a question I
need to find out.
Thank you.
Senator Brownback: Thank you, Mr. Burgess.
We'll go through another round here, as long as we can. If
the panel can continue to participate with us, we'd like for
you to do that.
Mr. Kutler, if we got the regulatory structure right,
limitation and liability right, the various regulatory issues,
to where this industry--where we were, in Congress--the
Administration was saying, ``We want this industry to move
forward. We think it's a key portion of the U.S. dominance in
space, is we've got to engage the private sector of this
country.'' If we got that right, do you think that we could
attract the billions of dollars private-sector money to cause
this industry to move forward?
Mr. Kutler: I think there's no question you could, over
time. Obviously, whether it's investors or it's passengers,
these things tend to happen in a stair step function. You start
at a small threshold, you have some successes, you, therefore,
go out and do it again, and you work your way up the chain. So
I think, in a logical progression, you certainly can raise the
capital required to do this over a period of time.
Senator Brownback: And do you see any key particular
factors we have to get right in order to attract the capital
into the private sector of this business?
Mr. Kutler: Well, I think there's two elements to assess--
we've already laid out, or the panel has, from a regulatory
standpoint what needs to happen. If that happens, then the
burden really is on industry to have these incremental
successes in order to prove the concept to raise the capital
required to get to the next level.
Senator Brownback: Okay. Now, the same question to you, Mr.
McAlister. If we get the regulatory structure right, we get the
limitation of liability right that this industry can move
forward, will we be able to attract the billions of dollars,
either from investors or from consumers willing to take these
flights?
Mr. McAlister: Yeah, I concur with Jon. I think, almost
certainly, the money would be made available. The question is--
the key question is, Can we produce a--can we produce a vehicle
that can satisfy this demand in a cost-effective manner so that
a profit can be shown to be made? But if that business case can
be made, then, yes, the investment capital would come.
Senator Brownback: Mr. Musk, do you concur?
Mr. Musk: Yes, I do. I think it's really critical to have
that one good example. The Internet was really quite stagnant
until Mark Andreessen and Jim Clark got together, funded by
Angel Capital from Jim Clark. Where Netscape was shown to be
successful, that really broke open the flood waters, and the
Internet became what it is. I think the same can happen with
space.
Anticipated Launches
Senator Brownback: And, for me--I want to, you know,
reiterate--my interest in this is, I want to see the United
States dominate the Earth-moon orbit. I want to see it for the
good of humanity, for commercial, military, intelligence,
exploration, scientific purposes.
It seems to me what you're presenting here today, which is
a rational presentation, is that the key for us is going to be
unlocking billions of dollars of private capital for that to
move forward. We've been stagnant in the public investment
area. We've invested fair in it, but not heavily. And we need
to unlock that private capital, and this would be a key for us
to go forward.
Mr. Greason, when would you be ready to take your first
commercial passenger up in space? And I'm going to ask the
others, as well.
Mr. Greason: That depends, in part, on factors that are not
entirely in my control, like how fast we lock up some of the
remaining investment. But if the investment is in hand, not
sooner than about three years, because we have an extensive
test program we have to go through.
Senator Brownback: So you believe you would be ready to
offer commercial space flights for private-sector individuals
by 2006?
Mr. Greason: We could be, yes.
Senator Brownback: That presumes that we will be able to
get the regulatory structure and limitation of liability?
Mr. Greason: Yes, sir.
Senator Brownback: And how is your capital formation? I
know that's proprietary, but are you being fairly well received
to date?
Mr. Greason: It's been a long road. There was--as the
gentleman to my left said, this has been a track record of bad
results, but I'm quite optimistic about our prospects for
getting the rest of the money that we need. And right now,
we're solvent, based on current contracts.
Senator Brownback: Mr. Musk and Mr. Tito, when could you
take your first commercial paying human customer into space?
Mr. Musk: Well, the task that SpaceX has set for itself is
probably an order of magnitude greater than sub-orbital flight.
We've really aimed at orbital flight, really essentially the
job that the Space Shuttle does. That's a longer road. But I
think it's conceivable we could get something done in the 2006
time frame, as well.
Senator Brownback: Mr. Tito.
Mr. Tito: Well, my time frame is the time that I would make
a commitment to invest. And then, depending on who I invest
with, it would depend on their timetable. But it would be
consistent with, you know, the three- to five-year period. But
as far as my personal timetable, I'm ready to write the check,
have the pen in hand. It's a matter of getting the regulatory
approval.
Tax Incentives
Senator Brownback: Congressman Rohrabacher.
Representative Rohrabacher: When talking about attracting
investment, of course, we attract investment by individuals who
are excited about the idea of being involved in space projects,
but also just regular investors. And when you can attract
regular investors, that's when a flood of revenue may come in.
I have the zero tax, zero gravity legislation, Mr. Chairman,
that you might think about on the Senate side--it's H.R. 1914--
which excludes new space ventures from capital gains and other
type of business-related taxes.
Mr. Kutler, do you think that this--giving people an
incentive in this way would attract the type of capital that's
necessary to kick off this part of this adventure?
Mr. Kutler: Well, I think, obviously, anything helps,
because what it does is changes the return-on-investment
equation for an investor. But that will only help if some of
the preliminary steps are taken to solve the regulatory and
other issues we talked----
Representative Rohrabacher: I see.
Mr. Kutler: --about today. If those aren't taken, then
nobody will take you up on your offer and start companies to go
ahead and advantage themselves of the capital gain.
Representative Rohrabacher: So for our tax incentive to
work, we've got to make sure we have the liability and
regulatory reform----
Mr. Kutler: Correct.
Representative Rohrabacher: --that's necessary. Well,
that's a very good answer. But let us note that, under this
bill, space tourism is certainly a new venture in space that
would be covered by zero gravity, zero tax.
I thought that the comparison with general aviation, about
liability, was an important point, Mr. Chairman, to come out of
this hearing, that general aviation in our country was almost
strangled in the cradle. I mean, it wasn't even in the cradle,
it was actually--it was an adult by then, and we almost killed
an adult industry with an irrational liability standard. And
today, of course, general aviation is thriving, and many
thousands of people, if not tens of thousands of people, earn
their living manufacturing general aviation planes, servicing
general aviation planes. It's a very important part of our
economy.
I remember, when I was a young man, I would go to Palm
Springs and celebrate Easter, and it was a pretty wild time out
there. And one of the things we would do--Mr. Tito remembers
these days very well--and we would rent motorcycles, and we'd
go out in the desert and ride our motorcycles that we would
rent. But something that's happened that today's generation of
young people don't have the ability to rent a motorcycle and go
out in the desert and enjoy the same type of thing that I
enjoyed, the freedom, the exhilaration, the experience of
riding a motorcycle in the desert in that same area. And why is
that? Because someone along the line sued someone. Because when
I rented the motorcycle, I assumed my liability. And somewhere
along the line, a lawsuit or a law case by some lawyer who was
seeking financial reward--for himself, I would imagine--was
able to change the rules of the game. People can no longer sign
off their liability in renting motorcycles in the desert.
So what do we have? We have a whole generation of young
people that aren't able to experience this, and we've got
people, who are in that industry, who no longer have jobs,
renting motorcycles to people who want to go out and experience
something on the weekend or in their holiday.
It almost happened to general aviation. We want to make
sure, in this industry, which we believe will have a tremendous
benefit to the United States and to humankind, that we don't
eliminate this industry with that same sort of irrationality of
liability standards that are irrational.
In fact, as I say, I think that we are entering an era when
the spinoffs of investment by private individuals, like Mr.
Musk and Mr. Tito, will actually help us in our national
defense. We will actually--instead of having the Defense
Department invest in technology that flows into the private
sector, we will actually see people move forward in Wright-
Brothers-type entrepreneurial activity, producing technologies
that will flow into our own defense system and into other
commercial endeavors. And that's why it's important that we
permit the entrepreneurs to get involved by having the right
regulatory and liability standards, and perhaps some of the tax
incentives, as well.
And, with that, I want to thank, especially Mr. Musk and
Mr. Tito and the others, who are willing to put their money
where their mouth is. The fact is that these two gentlemen--Mr.
Musk has invested considerable amounts of his money into a
space venture. Mr. Tito is willing to do that as long as we
make sure we're doing our job. And I think that this is a--this
type of entrepreneurship is in the best tradition of the United
States of America, and that's why we lead the world, because
we've got people like you.
So thank you all very much. And thank you, Mr. Chairman.
Senator Brownback: Thank you, Congressman Rohrabacher.
I want to thank the panelists for joining us today. It's
been an excellent hearing. We're going to try to put together a
series of those, of how we can move forward in the space
ventures for the United States, that's leading up to and then
past the Gehman Commission that'll be reporting out, I presume
sometime in September. So it's all part of that effort to try
to figure out how we can move forward in space as a country,
and move forward aggressively.
Thank you very much for being here. The hearing is
adjourned.
[Whereupon, at 11:55 a.m., the hearing was adjourned.]
Appendix 1:
----------
Answers to Post-Hearing Questions
Responses by Phil McAlister, Director of the Space and
Telecommunications Industry Analysis Division, Futron
Corporation
Questions submitted by Chairman Dana Rohrabacher
Q1. What barriers must be overcome for commercial human space flight
to succeed as a viable business?
A1. Within commercial human space flight, there are two segments:
orbital space travel and sub-orbital space travel. These are very
distinct markets, each with there own issues.
Orbital commercial human space flight currently exists with the
Russian Soyuz launch vehicle. The primary ``barrier,'' or rather the
primary ``hindrance'' is financial--the current price for orbital space
flight on the Soyuz limits the potential market to the super-affluent
population.
There is no current supplier within the United States of orbital
space flight, and the barriers to this market are similar to that of
sub-orbital space flight within the United States. The barriers are
technical, financial, and regulatory. Technically, no organization has
ever built a reliable production-level sub-orbital space vehicle. And,
no organization has ever come close to doing it cost-effectively (the
financial barrier). From a regulatory perspective, the lack of a clear
regulatory framework for this industry is also a major barrier.
Q2. How optimistic are you that these barriers will be overcome?
A2. I am somewhat optimistic that the barriers within the U.S. will be
overcome. I put the odds at 50-50.
Q3. When, if ever, do you think commercial human space flight will
become a viable business?
A3. As mentioned, orbital commercial human space flight is a business;
although, it is debatable whether it is ``viable.'' Futron estimates
that the earliest sub-orbital commercial human space flight could
provide service is 2006, and it would be several years after that when
the business would become ``viable,'' depending on how you defined that
term.
Q4. What barriers must be overcome for commercial human space flight
to succeed as a viable business? How optimistic are you that these
barriers will be overcome? When, if ever, do you think commercial human
space flight will become a viable business?
A4. There is no question in my mind that commercial human space flight
will become a viable business. The major determinants are economically,
not technologically driven. Furthermore, the major economic unknown/
`barrier' is the regulatory framework which is within the control of
the Federal Government and therefore so is the projected time frame is
for the maturation of the business opportunity.
Questions submitted by Representative Bart Gordon
Q1. Should the Federal Government provide third-party liability
indemnification for commercial human space flight activities, and if
so, why? What, if any, ``cap'' should there be on the government's
level of indemnification?
A1. It depends whether the space flight activity in question is sub-
orbital or orbital.
For orbital space flight, indemnification already exists. There is
no qualification for indemnification regarding the purpose of the
flight (e.g., commercial human space flight, launch of a
telecommunications satellite, etc.).
For sub-orbital space flight, it would depend on the goal of the
government. If the goal is to treat sub-orbital and orbital activities
in a consistent manner, then the government should provide
indemnification. If the goal is to stimulate sub-orbital space travel,
then again the government should provide indemnification. The
government should not provide third party indemnification if the goal
is to minimize government involvement in private sector activities.
Commercial insurance companies can provide third-party liability
insurance. It may turn out that commercially-provided liability
insurance is exorbitant, and therefore it may be a barrier to the
expansion of sub-orbital commercial human space flight. However,
theoretically, any activity can be insured.
If the government decided to provide indemnification, it should be
at a level consistent with orbital space flight indemnification, i.e.,
at a level equal to the maximum probable loss of the vehicle.
Unfortunately, litigation, and the potential for extraordinary
financial awards, are a way of life in this country. It brought a
mature general aviation industry to its knees in the 1980s. This
bankrupted many participants, cost a large number of jobs and delayed
any significant new investments/advancements for over a decade. The
industry is still digging out from that train wreck. The potential for
a single similar judgment could kill the entire fledgling commercial
human space flight industry before it gets off the ground. Should the
Federal Government seek to promote this industry, third-party liability
indemnification will be an essential part of the plan. Such
indemnification should, however, be carefully legislated so that it is
a temporary, not institutionalized benefit. Once a track record of
successful space flight is achieved, I am confident that the
corporations involved will work with industry insurers to consider what
an appropriate risk sharing is going forward. The other important
insurance element is the ability for a reasonable waiver of liability
signed by passengers to be considered valid/enforceable and not subject
to reversal in court.
Q2. What, if any, regulatory role should the Federal Government play
relative to the commercial human space flight industry, and why?
A2. Again, for orbital space flight, the regulatory regime is already
established.
For sub-orbital space flight, the government should regulate the
safety of the uninvolved public. In this regard, the orbital space
flight safety regime should be used as a template for sub-orbital space
flight.
Other than the safety role, the government should not be involved.
Particularly, the government should not be in the business of
determining what is an acceptable risk level for paying passengers of
sub-orbital space travel. The provider of sub-orbital space travel and
the customer are involved in a consensual, private transaction. The
customer should be free to weigh the risks, rewards, and price of such
a service and decide whether or not to purchase the service. The
customer should also be free to decide whether or not to waive his/her
liability against the supplier.
Like many sectors with large potential legal risks, the industry is
not likely to receive the full funding required to develop without a
regulatory framework set by the Federal Government. Investor's fears of
what could be' may be even more harmful than having a set of
regulations which are only partially industry-friendly. There should
therefore be early Federal Government oversight regulating commercial
human space flight. The key is to balance the regulatory burden to be
placed upon start up companies and primarily focusing on the risks of
the uninvolved public.
Q3. Should the government certify the safety of your vehicles prior to
the commencement of commercial, passenger-carrying operations? If so,
how should that be done? If not, how should your industry address
safety considerations?
A3. No (see the answer to question 2). The government should only
certify/license vehicles as safe for the uninvolved public. Again, the
orbital regulatory regime can be applied for this purpose.
It is up to the industry to demonstrate to the public that its
vehicles are safe. The risk/reward equation is unique for each
individual and it should be left up to the individual customer to make
that determination. Even if sub-orbital human space travel turns out to
be enormously risky, it should be up to the individual to determine if
the risk is worth the reward. If the industry cannot demonstrate its
safety, it will not get any customers and the question becomes moot.
Government certification of experimental spacecraft will place a
huge financial burden on start-up companies. Unlike the early days of
the commercial aerospace industry, today there are minimal
technological contributions made by small companies. The current
regulatory burden on the industry has become an effective `barrier to
entry' for new technologies and ideas, except those developed by the
largest of companies. Of course since those large companies have huge
investments in the current state of technology, development will
continue to lag what it otherwise technologically possible. For that
reason, the Federal Government should recognize the inherent
experimental nature of early commercial manned space flight and not
require companies to spend more on attorneys than engineers. Paying
passengers should be permitted to assume risk for themselves, rather
than relying on a Federal Government to regulate space flight to a
safety level comparable to a commercial aircraft in these early
developmental days. Over time, as the industry matures, safety metrics
will develop and at some point it would be appropriate for the
government to regulate the industry just as it does other means of
transportation.
One analogy to compare it to is the regulatory oversight of the
Securities & Exchange Commission. The SEC has a regulatory framework in
place to protect investors. Certain sophisticated investors, as defined
based upon their net worth and experience in investing, are permitted
to make investments with minimal disclosure that otherwise would not be
generally available to the public. In this case the SEC views those
investors as being capable of making a risk assessment for themselves.
During the early days of human commercial space flight, the cost of a
ticket will be high enough to permit the Federal Government to think
about this risk assessment by individuals alone in a similar manner.
Answers to Post-Hearing Questions
Responses by Dennis A. Tito, CEO, Wilshire Associates, Inc.
Question submitted by Chairman Dana Rohrabacher
Q1. In establishing safety standards for commercial human space flight
activities, what features of current aircraft safety standards and
space launch safety standards should be applied to commercial human
space flight?
A1. As I stated in my testimony, commercial aviation is a mature and
well-established industry. Aircraft safety standards reflect 100 years
of powered flight experience, and are part of a 75+ year history of
federal regulation increasingly focused on protecting the safety of
airline passengers as well as uninvolved third parties.
The commercial space launch industry is a somewhat less mature
industry, with just over two decades of commercial experience. This
industry's heritage, however, is based on over a half-century of
military and civilian development and testing of ballistic missiles and
their descendant launch vehicles. Missiles and most current launch
vehicles have significant destructive potential and, because they are
expendable, cannot be flight tested, fixed, and re-tested in the way
aircraft or other reusable systems can. Launch safety standards have
therefore focused on detailed oversight, complex system redundancy and
flight termination (self-destruct) capabilities.
Neither of these two operational safety paradigms is appropriate
for commercial human space flight. There may be some similarities
between aircraft and sub-orbital reusable launch vehicles, and others
between RLVs and expendable rockets. However, I predict that these new
space planes will in fact merit their own operational safety
approaches. At this point, we need to develop and fly some vehicles so
we can learn what to do and what not to do. That, after all, is the
beauty of the competitive marketplace: better ideas are rewarded while
less-good approaches suffer until they are improved or die off.
Questions submitted by Representative Bart Gordon
Q1. Should the Federal Government provide third-party liability
indemnification for commercial human space flight activities, and if
so, why? What, if any, ``cap'' should there be on the government's
level of indemnification?
A1. In general I believe that the Federal Government should provide a
level playing field for all commercial space transportation endeavors.
If policy-makers believe that the current third-party excess liability
risk-sharing regime, commonly known as ``indemnification,'' should be
continued for expendable launch vehicles, then I would expect it to
apply to reusables as well.
Personally, continued provision of indemnification is not an
absolute requirement for me to make an investment in the sub-orbital
RLV industry. I am not seeking to be regulated by the FAA Associate
Administrator for Commercial Space Transportation in order to obtain
indemnification. I am seeking a predictable, stable, and streamlined
regulatory environment so that if my investment leads to a successful
RLV, the company I invest in will be able to pursue commercial revenues
in the marketplace without the burdensome regulation faced by the
existing mature aviation industry.
I predict that the inherent reliability and fairly small size of
sub-orbital RLVs will make their likelihood of incurring significant
third party liability much less than current large commercial ELVs. To
the extent this is proven out over time, the government's risk of ever
actually paying an excess claim will decrease even as the number of RLV
flights dramatically increases. That is certainly a win-win for all
parties.
Q2. What, if any, regulatory role should the Federal Government play
relative to the commercial human space flight industry, and why?
A2. First and foremost, the government should continue its space
transportation regulation focus on protecting uninvolved third parties.
Just as the Federal Aviation Administration allows people to risk their
lives jumping out of planes while protecting other air traffic and
people and property on the ground from skydiving operations, the
Federal Government should allow people to experience the inherently
risky adventure of human space flight. So the primary regulatory focus
should be to protect public safety.
Because this industry is not even in place yet, I would be very
hesitant to suggest that the government take a prescriptive approach to
regulating the design or operation of vehicles in order to somehow
guarantee the safety of space flight participants. The only way to
guarantee safety is to not allow these vehicles to fly in the first
place. If policy-makers agree that it will help America's national
space enterprise to allow more of its citizens to personally
participate in the opening of the space frontier, especially if
citizens will voluntarily pay for the experience and/or invest in
developing these vehicles without federal funding, then you cannot
preempt the industry's need to naturally evolve through flight
experience. In short, if vehicles can't be funded to fly for revenue
because someone might get hurt, we won't learn to build safer and more
cost-effective vehicles and achieve the kind of safe operation of RLVs
that aviation enjoys today. Government cannot short-circuit the risky
``barnstorming'' phase of space flight, although it can work with
industry to maximize the learning from these early years.
Q3. Should the government certify the safety of your vehicles prior to
the commencement of commercial, passenger-carrying operations? If so,
how should that be done? If not, how should your industry address
safety considerations?
A3. If by ``certify'' you mean the same process used by the FAA to
certify a commercial airplane for regular passenger operation, the
answer is clearly no. Neither the FAA nor industry know enough about
reusable launch vehicles to conduct an aircraft-style certification
process. And we will never learn unless vehicles can fly for revenue
under the existing RLV licensing process. Furthermore, any functional
equivalent of government certification would create an inappropriate
expectation on behalf of RLV customers that their space travel
experience will be as safe as riding a Boeing 737 from Los Angeles to
San Francisco.
That does not mean that the RLV industry does not need to pay
attention to the safety of its customers, nor that the government
should take a passive role. First and foremost, the government's
regulation of RLVs to protect safety of the general public will
encourage increasing vehicle reliability and other features (e.g.,
fail-safe designs and multiple abort modes) which will inherently tend
to protect space flight participants as well. Furthermore, the
government must require that RLV companies fully disclose the safety
record of their vehicles to potential customers, and help RLV companies
to set appropriate medical and training standards as part of the
licensing process.
However, the industry also must bear a significant responsibility
for developing its own ``best practices'' to evolve towards safer space
travel experiences. In this regard, another historically risky
``adventure travel'' industry--commercial scuba diving--may provide an
excellent model for the commercial human space flight industry.
With the commercial introduction of Jacques Cousteau's aqualung
after World War II, more and more scuba-oriented diving shops opened up
around the U.S. during the 1950s. As more people began to participate
in the late 1950s and early 1960s, more accidents occurred. The
industry responded by creating professional certification organizations
and training courses to ensure that diving customers had the requisite
training and skills to safely enjoy their diving experience. By the
1970s, diving certification cards were regularly required for the
purchase or rental of diving equipment, and new technological
innovations were diffused throughout the industry to improve the
reliability of all manufacturers' equipment.
I see no reason, particularly with an active facilitating role by
the Federal Government, why the commercial human space flight industry
cannot develop similar practices and methods to provide an increasingly
safe--but still adventurous--space flight experience to our customers.
Answers to Post-Hearing Questions
Responses by Elon Musk, President and Chief Technologies Officer, Space
Exploration Technologies (SpaceX)
These questions were submitted to the witness, but were not
responded to by the time of publication.
Questions submitted by Chairman Dana Rohrabacher
Q1. The Space Launch Initiative (SLI) was intended to encourage
innovative ways for reducing launch vehicle development cost. In your
opinion, why didn't SLI succeed?
Q2. To what level should industry standardization be pursued during
the early stages of commercial human space flight development? How does
standardizing launch vehicle components contribute to the goal of low-
cost launch operations?
Questions submitted by Representative Bart Gordon
Q1. Should the Federal Government provide third-party liability
indemnification for commercial human space flight activities, and if
so, why? What, if any, ``cap'' should there be on the government's
level of indemnification?
Q2. What, if any, regulatory role should the Federal Government play
relative to the commercial human space flight industry, and why?
Q3. Should the government certify the safety of your vehicles prior to
the commencement of commercial, passenger-carrying operations? If so,
how should that be done? If not, how should your industry address
safety considerations?
Answers to Post-Hearing Questions
Responses by Jeff Greason, President, XCOR Aerospace, Mojave,
California
Question submitted by Chairman Dana Rohrabacher
Q1. In establishing safety standards for commercial human space flight
activities, what features of current aircraft safety standards and
space industry launch safety standards should be applied to commercial
human space flight?
A1. Because of the immaturity of this industry, we believe that
standards should be generic rather than specific, guidelines rather
than specifications.
We have sought in vain for a set of applicable standards covering
the type of vehicle we are developing. Many existing standards cover
systems, subsystems, and components of aircraft and launch vehicles.
These are derived from FAA, NASA, DOD, OSHA, DOT and non-governmental
bodies such as AIAA, SAE, and NFPA. While we refer to these standards
frequently we have found few to be wholly applicable.
Standards are often written in a very prescriptive manner: ``you
will do it this way.'' As one example, a certain common aircraft
material (such as aluminum alloy 2024-T3 per Federal Standard QQ-A-250/
4) may be specified for a pressure vessel, and it works quite well when
used on an aircraft. It may, however, be completely incompatible with
launch vehicle propellants, or reentry temperatures, or it might simply
weigh too much to be acceptable in a launch vehicle. Any given
standards document usually covers multiple systems, and while one
element of it may apply to our case, several others will not.
Therefore, if by ``features of current standards'' you mean pieces
of the standard that we can adopt, I cannot recommend adoption of any
such combination of standards.
We think more in terms of design criteria than standards. A
standard suggests something uniform across several vehicles; and
successful standards are based on experience. It is clearly too early
to develop such standards for sub-orbital or orbital commercial manned
vehicles, since there are no such vehicles to use as the basis of
experience. In setting the design criteria used in any given vehicle,
we have examined a large collection of standards used in various
arenas. We have often found that these standards are useful resources
in developing design criteria for a specific vehicle. The requirements
in a standard are there for a reason; usually in responses to some
failure that has occurred in a given system. While we may not be
preventing that type of failure in the same way, we need to prevent it
in some way. The applicability to any given vehicle can only be
determined on a case-by-case basis.
Therefore, at the current stage of maturity in commercial human
space flight, we need a regulatory framework that avoids design
standards that are too specific to an assumed design. Vertical takeoff
rockets may need a completely different set of standards than winged
vehicles that take off from a runway. Instead, we need performance-
based standards; an approach which says ``you will demonstrate this
level of performance,'' rather than ``here is how you do it.'' As the
industry develops a track record, the time will come when design
standards will be appropriate, but this can only be learned through
experience.
While the current AST regulations have many shortcomings, their
outstanding feature is that they are being developed in a performance-
based manner. Their approach to public safety relies on a quantitative
safety standard (expected casualties) rather than specifying the design
methods which will achieve the desired level of safety. This leaves
each launch company free to develop the designs which will be used to
achieve that level of safety, and AST is left with the task of
confirming that they are adequate to protect public safety. The single
most useful feature of the existing regulations is that they preserve
the performance-based approach to regulation.
Questions submitted by Representative Bart Gordon
Q1. Should the Federal Government provide third-party liability
indemnification for commercial human space flight activities, and if
so, why? What, if any, ``cap'' should there be on the government's
level of indemnification?
A1. The government currently does carry such third-party
indemnification per international treaty, and I see no reason to change
this. In other words, there is no reason why the current launch of, for
example, a satellite that will be used to broadcast entertainment
should be treated differently in this respect from the future launch of
space flight participants. The justification for third-party liability
indemnification for commercial launches of non-government payloads is
that the health of the industry is important to the United States. The
health of an industrial base for frequent, safe, reliable, and
affordable space transportation is at least as important, economically
and strategically, as the commercial direct broadcast satellite
industry.
Singling out one segment of space transportation to be excluded
from the already existing indemnification regime would make it
extremely difficult to obtain third-party liability insurance. Space
insurance is already a small and highly specialized business, and the
existing insurance suppliers and customers have stated publicly that
the current indemnification regime is important to them. Therefore it
would be an unfair burden to emerging space transportation developers,
who are least able to afford expensive insurance, to drive up their
insurance rates while leaving the existing players indemnified. This is
essentially the same argument I made at the hearing: ``why make
insurance more difficult to get than it is already?''
So far, I have asked only for equality of treatment. This is
separate from the question of what the indemnification regime should
be. Let me summarize the current situation. The only ``indemnification
regime'' for launch vehicles covers third-party losses in excess of the
maximum probable loss. The intention is that the losses to the
uninvolved public from unforeseeable, extraordinary, less than one-in-
ten-million accidents be covered by the U.S. government. That, in turn,
was necessary because the Liability Convention, to which the U.S. is a
party, establishes the U.S. government as the ultimately responsible
party for third-party damages in international launch accidents. The
so-called ``indemnification'' regime actually limits the exposure of
the U.S. government by requiring launch operators to purchase very
expensive insurance to cover a significant fraction of the potential
risk which otherwise, by treaty, would be the province of the U.S.
government.
Furthermore, before the government provides indemnification and
issues a launch license, all parties to the launch activity must agree
to waive liability claims against all other involved parties, including
the government. This ``cross waiver'' means that the government does
not protect a launch provider against claims by, for instance, the
launch customer. This situation would continue in the case of the sub-
orbital RLV industry, so that the government would not be placed in the
role of indemnifying the vehicle operator against claims by a space
flight participant. Nor could the participant expect to make claims
against the government, since they would have waived that right as part
of the cross waiver which is required as a condition of the launch
license.
In 1988, the Congress and Executive Branch decided that the brand-
new U.S. commercial launch industry could not bear the burden of
assuming unlimited liability for every possible (however improbable)
launch accident. Insurance for such liability would be unobtainable or
prohibitively expensive. The result was the current indemnification
regime.
It should be noted that other countries offer indemnification
provisions to their launch operators which are at least as generous as
that offered by the U.S. From time to time, the U.S. Congress has
questioned whether these justifications still apply, and that
discussion will probably go on. I will note in passing that it is easy
to criticize the indemnification regime, but not so easy to suggest an
alternative without at least some substantial drawbacks. I also note
that the government has never paid a claim for a commercial launch
accident, only for government launches.
If the sub-orbital RLV industry is encouraged and fostered, we will
be able to build up a large flight database. Once this has been done,
the nature of the insurance problem may change. One reason that space
insurance is so specialized and so expensive is that the flight
frequency is too low to apply normal statistical techniques. As
customer demand and flight rates increase, this will change; when there
are hundreds of flights per year, failure rates will be predictable and
the pool of possible insurance providers will be much larger. At that
time, a reexamination of the indemnification strategy will be called
for.
But for now, the indemnification regime has helped foster the
existing ELV industry, can help foster a new RLV industry, and has not
cost the taxpayers a dime. It is difficult to see a near-term need for
change.
Q2. What, if any, regulatory role should the Federal Government play
relative to the commercial human space flight industry, and why?
A2. The Federal Government has two critical roles in the commercial
human space flight industry: protecting the public, and promoting the
development of the industry.
Striking the right balance between these objectives calls for
vigilance; the regulations need to evolve with the industry. Right now,
we face regulations which are a mix of old missile-derived ELV
regulations and RLV regulations based on regulators' best guesses about
how the RLV industry would develop in the future. There is also the
usual human tendency towards regulatory mission creep, developing new
regulations in advance of a clear requirement, even in advance of the
regulated activity actually occurring (and along with it any experience
base that would properly inform the regulatory process).
What the nascent sub-orbital RLV industry needs is a flexible and
enabling regime in which we face the minimum set of regulations
necessary for the protection of public safety. It should not be
sufficient that a proposed regulation be useful or plausible, it has to
be demonstrably necessary. The AST regulatory approach has elements of
this approach but much work remains to update and streamline the
regulations. We believe that as soon as several RLVs are actually
flying, a review of the regulations will be necessary, and we will
likely find that many of them need to be revised or replaced. Today's
RLVs are turning out to be somewhat different than what was predicted a
few years ago when the existing regulations were originally drafted.
The ``promotion'' mission could use some more emphasis. The most
important way to promote the industry is with a predictable and
workable regulatory regime, but more could be done. AST has many
initiatives underway which will take time to bear fruit, including
tools to simplify the safety analyses, and most importantly, developing
a categorical exclusion (CATEX) from the National Environmental Policy
Act for sub-orbital RLV activities to lift the needless burden of
individually assessing each launch license for NEPA compliance.
It also seems to us that AST would profit from shifting resources
away from regulatory development and towards field experience with the
RLV developers. We believe AST has the right ingredients to grow into
an effective agency for promoting the development of a safe RLV
industry. However, because this industry is so young, they lack
practical experience needed for developing future regulations. Assuming
that sub-orbital RLVs will continue to be regulated by AST, these
suggestions represent more a fine-tuning of their regulatory approach
than a radical change.
There are some who have suggested rolling back the progress since
1984 and placing sub-orbital RLVs under the aircraft regulatory regime.
That would be a huge mistake; a nascent new area of technology and
business cannot be appropriately regulated by an agency that oversees a
fully mature industry and has no promotional mandate. Much of aircraft
regulation is design-specific, rather than performance based. Certain
technologies are either explicitly or implicitly assumed to be in use
in the aircraft world, and flight regime is assumed to be subsonic in
air thick enough to lift the vehicle. While some RLVs will employ some
aviation-derived techniques, they will deviate from aircraft practice
in many ways, far more than the most unusual certificated aircraft has
ever done. The aircraft regulatory system simply cannot evolve fast
enough to keep up with the pace of technological development in this
new industry because it, appropriately, errs on the side of caution to
protect the general public which rides on commercial airplanes. As
discussed above, the AST regime is not perfect either, but our chances
of succeeding with this much smaller and more flexible agency are much
better.
I believe the government also has a very important role to play in
developing passenger safety, by adopting a paradigm of seeking
continuous improvement in passenger safety, rather than imposing a
specific solution. I discuss this more in the answer to the following
question.
Q3. Should the government certify the safety of your vehicles prior to
the commencement of commercial, passenger-carrying operations? If so,
how should that be done? If not, how should your industry address
safety considerations?
A3. The government should absolutely not certify the safety of our
vehicles prior to the commencement of commercial, passenger-carrying
operations. Today, we have a gap of one-million-to-one between the
safety of space flight (roughly 40 fatalities per thousand emplanements
for U.S. space missions) and aircraft (roughly 25 fatalities per
billion emplanements for U.S. scheduled air carriers). When aviation
started, its accident rate was as bad or worse than today's space
transportation technology. In the early days, carrying passengers for
``barnstorming'' was one of the few sources of revenue in the aircraft
industry. Today, risk tolerance is lower than in the 1920s. We believe
we can and must do better. But if commercial RLV operators are ten
times safer than government space flight efforts (which may be
achievable), that is still 100,000 times less safe than aircraft. We
are clearly too early for any kind of certification regime as that
practiced in commercial aviation.
Early generation RLVs should be allowed to fly as long as the
uninvolved general public are kept reasonably safe. The key is a system
which investigates failures and shares the methods used successfully.
The best and fastest path to safety is establishing a regulatory
culture of continuous improvement based on experience; and the more
flights we get, the faster we will gain that experience. Attempts to
shortcut this process by establishing standards based on guesses or
predictions about future technologies will stifle innovation, fix in
place present practices, and slow the pace of safety improvement. This
might not be so bad if the current safety record of space
transportation were something to preserve. But it is not; it is
something to change for the better.
If this is so, how should our industry address safety
considerations for passengers? We will field an array of quite
different vehicles with different costs, safety records, level of
training needed for passengers, and passenger comfort. Among the
adventurous early participants, we face a spectrum from the old to the
young, from the very fit to those with various medical limitations, and
a wide variation in tolerance for risk. There are those who have spent
much of their life seeking a way into space and would gladly risk their
lives, and those for whom it is merely a passing fancy. Trading off
these many variables is not a task for regulation; no regulator can
look into the hearts and minds of the passengers and decide, whether an
operation is safe enough for this or that passenger.
I am not suggesting a passive role for regulators regarding
passenger safety, however. For passengers to be able to make these
decisions in an informed manner, the operators must be required to
fully disclose their safety operating record in unambiguous terms. How
else can the passengers seek out the safer vehicles? Furthermore, some
vehicles will require more stringent medical standards than others, and
some will require more training than others. What is the right level of
each? Currently the answer is ``we don't know.'' Nobody knows what the
market will support; and it is likely not going to be a single answer.
There will probably be those space flight participants who seek a
hands-on flight, which will require substantial training, and those who
just want a thrilling ride.
Market mechanisms can work only when consumers have access to the
information they need to make decisions. So we certainly need some
regulation so that all operators are forced to disclose their safety
records, giving safer operators a way to attract customers. But
arbitrarily requiring some level of safety today, possibly more than
today's technology will permit, will only drive up costs and actually
slow down the rate of progress toward safer operations. What is the
right trade off? It is different for different customers, but the safer
we get, the more customers we will attract.
The training and medical issue is less obvious but similar in
nature. If one vehicle requires strict screening and extensive training
for hands-on participation, and another is hands-off, then applying the
same standard to both vehicles has negative effects. If the standard is
loose, passengers in the hands-on vehicle are not being adequately
screened, with safety implications for both the passenger and the
public. But if the standard is strict and all passengers must be
screened and trained, then what of the innovator who sought to bring
space to the masses with a hands-off vehicle? That operator is out of
business: no customers have been attracted because the passengers all
had to be trained and screened for a competitor's vehicle.
The argument is sometimes made that decisions on safety are too
difficult for passengers to make. I believe in the wisdom and ability
of free citizens to make such decisions for themselves; and that it is
proper in a free society to let them do so. People are allowed to risk
their lives mountain climbing, parachuting, SCUBA diving, or driving
race cars--we do not believe the decision to travel to space, facing
the risks of doing so, is any different.
The current safety situation will change when operational track
records are established. It is very likely that there will be dramatic
differences in safety between vehicle types. When that happens, AST,
industry, and the NTSB need to collaborate on raising the bar, perhaps
by establishing minimum safety records, perhaps by design standards, or
a mix of both. As this evolves, it will be important to avoid applying
these new regulations to vehicle test flights. Research and development
test flights should continue with the sole burden of protecting the
safety of the general uninvolved public. In this way we can hope that
people will look back on the first century of private space flight and
see the same dramatic improvement in safety which has been demonstrated
by aircraft.
Answers to Post-Hearing Questions
Responses by Jon B. Kutler, Chairman, CEO, Quarterdeck Investment
Partners, LLC
Question submitted by Chairman Dana Rohrabacher
Q1. What barriers must be overcome for commercial human space flight
to succeed as a viable business? How optimistic are you that these
barriers will be overcome? When, if ever, do you think commercial human
space flight will become a viable business?
A1. There is no question in my mind that commercial human space flight
will become a viable business. The major determinants are economically,
not technologically driven. Furthermore, the major economic unknown/
`barrier' is the regulatory framework which is within the control of
the Federal Government and therefore so is the projected time frame is
for the maturation of the business opportunity.
Questions submitted by Representative Bart Gordon
Q1. Should the Federal Government provide third-party liability
indemnification for commercial human space flight activities, and if
so, why? What, if any, ``cap'' should there be on the government's
level of indemnification?
A1. Unfortunately, litigation, and the potential for extraordinary
financial awards, are a way of life in this country. It brought a
mature general aviation industry to its knees in the 1980s. This
bankrupted many participants, cost a large number of jobs and delayed
any significant new investments/advancements for over a decade. The
industry is still digging out from that train wreck. The potential for
a single similar judgment could kill the entire fledgling commercial
human space flight industry before it gets off the ground. Should the
Federal Government seek to promote this industry, third-party liability
indemnification will be an essential part of the plan. Such
indemnification should, however, be carefully legislated so that it is
a temporary, not institutionalized benefit. Once a track record of
successful space flight is achieved, I am confident that the
corporations involved will work with industry insurers to consider what
an appropriate risk sharing is going forward. The other important
insurance element is the ability for a reasonable waiver of liability
signed by passengers to be considered valid/enforceable and not subject
to reversal in court.
Q2. What, if any, regulatory role should the Federal Government play
relative to the commercial human space flight industry, and why?
A2. Like many sectors with large potential legal risks, the industry is
not likely to receive the full funding required to develop without a
regulatory framework set by the Federal Government. Investor's fears of
`what could be' may be even more harmful than having a set of
regulations which are only partially industry-friendly. There should
therefore be early Federal Government oversight regulating commercial
human space flight. The key is to balance the regulatory burden to be
placed upon start up companies and primarily focusing on the risks of
the uninvolved public.
Q3. Should the government certify the safety of launch vehicles prior
to the commencement of commercial, passenger-carrying operations? If
so, how should that be done? If not, how should the industry address
safety considerations?
A3. Government certification of experimental spacecraft will place a
huge financial burden on start-up companies. Unlike the early days of
the commercial aerospace industry, today there are minimal
technological contributions made by small companies. The current
regulatory burden on the industry has become an effective `barrier to
entry' for new technologies and ideas, except those developed by the
largest of companies. Of course since those large companies have huge
investments in the current state of technology, development will
continue to lag what it otherwise technologically possible. For that
reason, the Federal Government should recognize the inherent
experimental nature of early commercial manned space flight and not
require companies to spend more on attorneys than engineers. Paying
passengers should be permitted to assume risk for themselves, rather
than relying on a Federal Government to regulate space flight to a
safety level comparable to a commercial aircraft in these early
developmental days. Over time, as the industry matures, safety metrics
will develop and at some point it would be appropriate for the
government to regulate the industry just as it does other means of
transportation.
One analogy to compare it to is the regulatory oversight of the
Securities & Exchange Commission. The SEC has a regulatory framework in
place to protect investors. Certain sophisticated investors, as defined
based upon their net worth and experience in investing, are permitted
to make investments with minimal disclosure that otherwise would not be
generally available to the public. In this case the SEC views those
investors as being capable of making a risk assessment for themselves.
During the early days of human commercial space flight, the cost of a
ticket will be high enough to permit the Federal Government to think
about this risk assessment by individuals alone in a similar manner.