Path: santra!tut!draken!kth!mcvax!uunet!husc6!rutgers!njin!princeton!phoenix!pucc!EWTILENI From: EWTILENI@pucc.Princeton.EDU (Eric William Tilenius) Newsgroups: sci.space Subject: STUDY OF COMMERCIAL LAUNCH INDUSTRY -- *LONG* FILE! Message-ID: <7552@pucc.Princeton.EDU> Date: 19 Mar 89 21:34:59 GMT Reply-To: EWTILENI@pucc.Princeton.EDU Organization: Princeton University, NJ Lines: 1440 Disclaimer: Author bears full responsibility for contents of this article The following is a fascinating look at the commerical launch industry. Due to net constraints, footnotes and graphs have been removed from this version. This is a LONG FILE - you may want to print it out before reading it. If you'd like a laser printed copy with footnotes and graphs, send $5 to: Eric W. Tilenius, 332 Walker Hall, Princeton University, Princeton, NJ 08544. THE UNITED STATES COMMERCIAL LAUNCH INDUSTRY: An Economic Study of the Issues Regarding Privatization. Junior Independent Work Respectfully Submitted to the Department of Economics, Princeton University on December 20, 1988 by Eric W. Tilenius Advisor: Professor R. Kuenne ACKNOWLEDGEMENTS: The following individuals and firms helped make this study possible... Professor Robert E. Kuenne, Princeton University Bill Sword, Jr. of Wm. Sword & Company Gregg E. Maryniak, Space Studies Institute American Rocket Corporation Space Services Incorporated of America Pacific American Launch Systems Orbital Sciences Corporation Representative George Brown's Office I. ABSTRACT The United States private payload launch industry is in flux. The industry faces changing regulations, growing international and domestic competition, and uncertain demand. The transitory nature of the market as it emerges from a government-controlled monopoly and moves toward a competitive situation is indicative of a market not in long- term equilibrium. This research paper analyzes, from a microeconomic framework, the issues and economic factors involved in the near-term move of the market toward long-term equilibrium. It finds that, after years of government launch subsidies, the government will need to do more than just talk about privatization if the industry is to move to equilibrium: the government must be a purveyor of launch services from the private sector and it must assure access to infrastructure. II. INTRODUCTION "Texas Rocket Built on 'Shoestring' Carries Free Enterprise Into Space," proclaimed the headline on the front page of the September 10, 1982 New York Times after Space Services, Inc. of America (SSI) launched the first- ever commercial space launch. SSI's rocket was declared "A Giant Step for Capitalism" in a Newsweek headline of September 20, 1982. David Hannah, a former Houston real-estate millionaire and chairman and founder of SSI jubilantly said the launch "showed that a group of private investors can get together and launch a rocket in a responsible way and well within a commercially feasible limit." Newsweek's article reported that "by the mid-1980's, Hannah hopes to offer a commercial alternative to NASA's space shuttle as well as Europe's Ariane rocket, which failed in its first commercial liftoff last week." And the September 20 U.S. News and World Report said that "if all goes well, Space Services will offer monthly flights within four years." Six years later, those flights have not materialized. While SSI is still in business - and still has ambitious plans - it has yet to launch its first paying cargo into orbit. And it has few customers waiting in line either. Its only present launch agreements are with Celestis, a Florida company that plans to "bury" cremated remains in space; Starfind, a relatively new communications satellite company; and the Consortium for Materials Development in Space ($1 million; funded through a NASA grant). SSI is just one of many new startups hoping to capitalize on what could, by the year 2000, be an $11 to $19 billion market in space commerce, according to CSP Associates, Inc. in Cambridge, Massachusetts. Other U.S. competitors include relative newcomers American Rocket, Inc. (Amroc) of California, Orbital Sciences Corporation, Pacific American Launch Systems, Inc., E-Prime Aerospace (the only public newcomer), Conatec, as well as established aerospace giants Martin Marietta, General Dynamics, and McDonnell Douglas. Yet in spite of the high hopes, ambitious talk, a commercial payload backlog created by the Shuttle disaster, President Reagan's 1986 decision to transfer commercial satellite launches from NASA to private industry, and other policies designed to aid these aerospace firms, domestic satellite companies have yet to sign up for a U.S. commercial launch. By comparison, Arianespace, the quasi-public marketing/management group for the European Space Agency's Ariane payload launcher reported an after-tax profit of approximately $53 million in 1987, while holding a backlog of 42 satellite launches for the coming years. Ariane's launch slots on the new Ariane 4 increased- lift booster are booked through 1990, and the current 42 satellite backlog - which includes satellites from U.S. companies - is valued at more than $2.48 billion in launch service contracts. Questions and Issues This paper addresses several pertinent questions about the private payload launch industry: - What is the rationale behind the push for private launches? - Is American private launch enterprise economically viable domesticallyy and internationally? - What should the government do if it wishes to encourage private sectorr transportation capabilities? The research into these questions was conducted with no preconceived answers. Since concrete aggregate data is not available for this industry, this paper employs economic analysis on available data and estimates, coupled with information on specific corporate and government market approaches, to form a model and analytic framework under which the current market situation can be understood and predictions put forth. III. BACKGROUND While it is not the purpose of this paper to analyze how the market attained its current state, it is important to have at least a brief background in the developments which have shaped the market conditions, so that the present and future conditions can be better appreciated. Shuttle as Subsidized Monopoly Supplier In the 1970's, the Shuttle emerged as the the leading supplier of launch services, achieving a near-monopoly status. NASA was expected to recover the marginal operational costs associated with launch services to non-NASA customers and so priced launches at approximately $74 million (full bay, in FY 1982 dollars), a price that undercut U.S. expendable launch vehicle manufacturers' marginal costs. The Shuttle thus became internationally competitive in providing space transportation by developing a captive market (DoD and NASA representing 75% of the non- Communist launch market), and by seeking to become economically efficient as the shuttle flight rate rose. More launches were expected to lead to drastically reduced flight costs: according to the Congressional Budget Office (CBO), a full shuttle would have operation costs of $358 million (FY 1986 $) in 1989 if 12 flights were flown; 24 flights would mean costs of $208M. This strategy worked well in terms of capturing the both the domestic and international market. Foreign competitor Arianespace, even while setting low prices to compete with the shuttle, had contracted for only eight of the relatively firm foreign and commercial satellite launches booked in November 1985, while NASA had contracted for forty. Further, the Shuttle had a base of 4 to 8 flights per year scheduled from the DoD from 1986 to 1992, and an equivalent base of NASA flights. While the Shuttle may have been a marketing success, it was far from successful in other ways. First, by charging below full discounted life cycle costs for each flight provided by the shuttle, it was the taxpayers, not the satellite companies, who bore the $25 billion fixed cost investment to develop the Shuttle system. Public Law 99-170, Title II, "set forth a reimbursement pricing policy for Shuttle that would encourage the full and effective use of space, preserve the role of the U.S. as leader in space research and development, and enhance the international competitive position of the United States." Ironically, the subsidized launches discouraged private industry's entry into the launch market, which consequently lead to lack of access to space, loss of leadership in space R&D, and decreased competitive position in the world. P.L. 99-170, Title II, sets forth the guidelines for pricing: The NASA Administrator is charged with setting a Shuttle price "which would be not less than $74 million or the additive cost of the launch." Additive cost is the marginal cost of flying an additional flight for commercial users. Recently, a White House interagency group on space suggested a $245 million price for a dedicated commercial launch, without specifying how the figure was arrived upon. The House Committee on Science Space and Technology felt that anything over $100 million would jeopardize the commercial market, and the interagency committee has revised their recommendation to $110 million. Change in Policy under Reagan Administration Privatization of space has been encouraged heavily under the Reagan Administration. The Commercial Space Launch Act of 1984 helped cut the red tape which had hampered the private launch process. Previously, more than a dozen agencies had to approve the typical launch proposal; the current law streamlines the process, putting only the Department of Transportation in charge of commercial launches, and limiting the amount of time the Department can take before replying to launch proposals. On January 5, 1988, President Reagan issued a "Space Policy and Commercial Space Initiative to Begin the Next Century," which, among other things, sought to further private launch services by directing Federal agencies to procure existing and future expendable launch services (as opposed to hardware) directly from the private sector to the fullest extent feasible. This directive also sought to provide insurance relief for launch providers by limiting third party liability and setting limits to property damage; further provisions were designed to study the feasibility of private launch ranges and provide vouchers which could be used to purchase an alternative U.S. commercial launch service to research payload owners manifested aboard the Shuttle. This was a directive only, not law. Many parts of it have yet to be carried out, and some have complained that it was not well- coordinated with Congress. Whatever the causes, the past several years have seen a dramatic increase in the number of firms offering, or hoping to offer, commercial launch services. Motivations for Privatization Many of the arguments in favor of privatizing launch services parallel arguments in favor of privatizing other government services: a lower price due to competition, less bureaucratic inefficiency and paperwork, less opportunity for fraud, better response to market demand, and market selection methods that will make it clear which payloads are worth the trip. These general privatization arguments are carefully documented from both an economic and political standpoint in many books and articles; thus, this paper will concentrate here on a few issues specific to the industrial launch vehicle (ILV) industry. One such issue is access to space, viewed by many as pivotal to national security and economic interests. The recent Challenger disaster and the failures of the expendable launch vehicles - the Delta, Atlas Centaur, and Titan 34D - completely denied America access to space for two years. According to Edwin A. Deagle, Jr., manager for business operations for the Space and Communications Group of Hughes Aircraft Company, this had literally catastrophic results: critical national security space launch needs would not be met for two to three years; some of NASA's interplanetary scientific missions faced postponement of five years or more; and foreign and commercial satellite operators began looking overseas in search of launch capacity. All of this took place just as the international competition for scientific and commercial leadership in space for the rest of the century was beginning in earnest. In the short history of American activities in space it is difficult to find a more monumental failure in U.S. policy. By having a competitive market, the United States would be assured of a wide diversity of launch vehicles, and thus secure access to space. Secretary of Transportation James Burnley recently stated that commercial launchers are viewed as essential to national security since they help assure this diversity. Without rigorously examining the economic benefits of space access in this paper, it should be clear that a failure in the infrastructure which denies access to space is inefficient because it distorts choices away from the optimum by constraining options. Further, many feel that involving private launchers will do much to keep our space program alive despite budgetary pressures. While politicians say they are for space and for advanced scientific R&D, it is much easier to cut a government launch system than a farm subsidy program in a budget crunch, leading to insufficient and inefficiently- low allocations to space. According to Barron's contributor Michael Brody, the Challenger disaster revealed "a space program starved of funding and under tremendous budgetary pressure to meet a commercial launch schedule designed to recapture its costs. The Office of Management and Budget had as much to do with the disaster as did the engineering problems with the now notorious O-rings." Not pressuring NASA - whose missions play a valuable part in advancing scientific information about the universe and are at the leading edge of new technology R&D - to meet a commercial launch schedule will allow the agency to better carry on this vital line of work. The Office of Technology Assessment (OTA) has also warned that "large development projects for new space transportation systems are not likely to achieve their cost or technical objectives without continuity in commitment and funding." Erratic funding, then, is economically inefficient. Privatization proponents contend that corporations with a vested interest in a project can provide stability better than our political system can. Monopoly versus Competition One argument against privatization is that in an industry with high fixed costs - to develop a new, not-too-complicated large rocket might cost $5 billion, according to OTA - economies of scale are characteristic. However, there is no reason to suppose that this should prohibit private enterprise; if fewer firms are more efficient, the market will adjust with a restricted number of firms, providing both competition and economies of scale. Is a monopoly supplier more efficient because there is no duplication of effort, whereas private firms may spend millions on research and development to produce identical goods? The monopolistic argument holds that this duplication reduces consumer and producer surplus. Thus, lower fixed costs and higher surplus would result from having a monopoly supplier (either private or governmental) providing all goods and services in the industry. This contention parallels the justification of government-enforced monopolies for utility firms. Balanced against this must be the value of having a diversity of launch goods and services in the market, for the aforementioned reasons. Under the Equimarginal principle, to maximize total utility, the marginal value of the last dollar spent on each item must be the same. Here, the tradeoff is between diversity and lower price. So long as different firms produce different launch systems, there is positive marginal utility from having multiple firms in the marketplace. Are firms producing different launch systems? Yes. While there is undoubtedly duplication in the market, a look at the launch systems being developed shows that there is diversity: American Rocket Company is building a craft powered by a hybrid of solid and liquid fuel which should be cheaper to launch and reduce the risk of explosion; Space Services, Inc. of America is using off-the-shelf Morton Thiokol motors uniquely "stacked in the variety of configurations necessary" to provide appropriate lift for each payload; Orbital Sciences Corporation has developed a winged booster designed to be launched from a B-52 bomber, thus providing low-cost space access with minimal prelaunch handling; the remaining firms have different approaches. Thus, the goal of diversity is achieved by a competitive system. Under a monopolistic system, there would be little incentive to diversify, as falling fixed costs for a system mean that a profit maximizing monopolist would use the fewest number of systems possible. To be most efficient, the market should reach the exact point where marginal benefit from diversity and marginal cost imposed by duplication are equal. This is not likely to occur under a government- granted monopoly situation; since the monopolist would be the sole supplier of services, there would be little incentive to build another system in case the first failed. The monopolist's customers would simply have to wait until the system was repaired (as happened after the Challenger disaster). There is a question as to whether diversity would be priced correctly even in a competitive market situation. If access to space can be considered a public good, diversity may be underpriced in the market: while all benefit from having the assured access brought about by diversity, no one firm is willing to pay the cost associated with bringing about this diversity; each firm simply picks the cheapest launch services to maximize individual profits. The resulting "free rider problem" means an inefficiently small allocation of diversity. Thus, to the extent space access can be considered a public good, there is reason for the government to actively encourage privatization and diversification. The most recent House NASA Authorization Bill, recognizing the value of privatized services, states that "the goals of United States space transportation policy are... (C) to encourage, to the maximum extent feasible, the development and use of United States private sector transportation capabilities without direct Federal subsidy." Now that this study has addressed its first question ("Why privatize?"), the remaining sections will address whether the private industry is viable, and what actions on the part of the government are necessary if it is serious about its commitment to privatization. IV. SUPPLY At the moment, due to the Challenger disaster and the fact that many private launchers are still testing equipment, supply is extremely limited. The chances of launching most payloads in the next few months from U.S. Government or private suppliers is minimal. Hence, this study will examine expected supply within the next few years, starting with mid-to-late 1989 when these private and government sources begin supplying services in earnest. To model supply effectively, this paper makes several assumptions. These will be presented forthwith, followed by the model of supply, after which the validity of the assumptions will be rigorously examined, and the consequences of the model will be explored. Assumptions for the Model 1. Although each firm is producing different launch vehicles, the goods the market is supplying - launches - are perfect substitutes. Each launch carries a uniform mass into orbit. 2. The industry is perfectly competitive. 3. As production increases, a firm goes from a region of increasing marginal returns to decreasing marginal returns on inputs. 4. There is a short-term limit to how much a firm can produce within a year without having to invest to add new capacity. 5. There are substantial fixed costs involved with supplying launch services. Model of Supply Assumption # 1 allows this model to treat the market as having only one good - generic launch services - without having to model varying degrees of substitutability. The model will present the basic good as being a launch. Hence, price (in dollars) can be modeled as a function of the number of launches. Assumption # 2 requires that each firm be a price taker; an individual firm cannot affect the price, it can only control how much to produce. Thus, prices will be set on the basis of marginal cost. Assumption # 3 describes the marginal cost curve - it will fall first, then increase. By # 4, there is a point beyond which short-term supply cannot go without increasing fixed cost. Finally, assumption # 5 puts a firm's average total cost curve substantially higher than average variable cost when the number of launches is low. Combining the assumptions with a standard theory of costs, we can derive the cost curves facing one firm in the industry. This is shown by the left half of Figure 1. Figure # 1: Supply Curves for a Firm and the Industry LONG-TERM SHORT-TERM <> Supply for an Individual Firm The graph on the left of Figure 1 shows the Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC) curves facing a firm in the payload launch industry. (Note that AVC would actually be zero when no quantity is demanded and that ATC should be presented in terms of depreciated total cost since the timescale is per annum.) In addition, the firm faces a short-run capacity constraint, marked by the dotted line at Qcap. The firm's supply curve is that portion of the MC curve above the AVC curve. At MC = ATC, the firm will break even, making zero economic profits. This is the equilibrium point - the market will adjust the number of firms so that there are no economic profits. This is also, in the long-run, the position for Qcap since a rational firm will adjust capacity so that average total costs are minimized. If Qcap is higher than the point where MC = ATC, the firm will have excess capacity, which represents an opportunity cost to the firm. Qcap is a function of infrastructure, production facilities, and other inputs which could be rented or sold to bring the firm income; thus, the firm will rent or sell these excess facilities. It is possible that Qcap is slightly higher than the intersection of MC and ATC if the firm believes it is worth the cost of keeping this excess capacity in case a short-term surge in demand would mean positive economic profits. However, as demand for launches has not been volatile, there is very little incentive for a firm to expand capacity beyond the equilibrium point. Further, no rational firm would set capacity less than the point where MC = ATC since this would mean negative economic profits for the firm. Therefore, the placement of Qcap at MC=ATC will take place naturally under a competitive market. If the demand schedule (which will be detailed shortly) is shifted outward beyond Qcap for any firm, the firm cannot supply the additional quantity of launches without costly modifications, such as opening another plant, building more launch pads, or reclaiming rented property. Assuming the firm is able to do this, Qcap will move outward, setting the new price at Qcap = MC (the new point on the marginal cost curve). It does not, however, follow that the firm is making economic profits; the firm will have had to increase fixed costs to shift Qcap outward. These increased fixed costs are reflected in an upward shift of the ATC curve until the point where ATC = MC = Qcap. If ATC does not quite reach the point where MC = Qcap, by virtue of a competitive system, Qcap will shift back, as economic profits are not a long-term phenomenon. Thus, new equilibrium is reached. An examination of the market leads to the postulation of a minimum value for Qcap. When a firm enters the market, it incurs certain fixed costs. These fixed costs are associated with a certain level of Qcap. This paper has already shown that if Qcap is greater than the quantity demanded at equilibrium, Qcap will be reduced by the rational firm to the new equilibrium point. (This can also lead to reductions in ATC, but ATC, MC, and Qcap will still intersect at the new equilibrium where less is produced and the price is lower.) If there is still too little demand for a firm's launches where Qcap is at its minimum, however, the firm cannot shift this inward and thus cannot lower ATC. In order to get sales, the firm is now forced into pricing at MC below ATC. This means negative economic profits. If the firm must charge on the MC curve below AVC, then that firm will stop production and exit the market. There exists, therefore, a minimum quantity that a firm must produce in order to remain in the market. It should be noted that the change in fixed costs caused by raising or lowering Qcap is considered different from marginal cost in the analysis of a single firm. While a rise in Qcap does, theoretically, increase the marginal cost of the next launch, this model does not consider it as such for two reasons: (1) Qcap must be increased through an increase in investment and must be increased in substantial units, such as adding another factory; hence, this more closely resembles a fixed cost than a variable one; (2) it is standard business practice to depreciate such new investments over the expected lifespan of the investment and not to recover the cost from the next consumer to make use of this investment. Model of Aggregate Supply The short-term aggregate supply, shown on the right of Figure 1, was derived as follows: Assuming the market to be at equilibrium, we can find the capacity of the industry by summing the capacities of the individual firms involved. This is marked Qcap on the aggregate supply diagram, and for reasons heretofore stated, at equilibrium, the demand curve would cross the supply curve at this point. If additional services are demanded, the price will rise sharply in the short-term, since that added demand cannot be quickly accommodated. If only a few firms can push capacity outward in the short-term, additional supply is restricted, and there is essentially a different supply curve in the short-term for Q->-Qcap. Thus, for Q->-Qcap, the supply curve is very inelastic. Alternatively, for Q-<-Qcap, the supply will be comparatively elastic - since Qcap will not adjust in the short-term, it takes only a small adjustment in price to increase quantity supplied (assuming MC curves for suppliers have flat slopes below Qcap). In the long-term, Qcap can adjust to the market, and the long- term aggregate supply is best represented by an upwards-sloping supply curve. Do the Assumptions Hold? Our first assumption was that launches were perfect substitutes. This is not entirely true. Different launch vehicles have different maximum payload masses. Thus, a massive payload could not fly on the carriers providing only small payload capability, and small payloads would be less likely to fly aboard a heavy lift vehicle. (Table # 1, below, summarizes some lift capabilities.) This should not substantially alter the model, however, since there exists a large enough pool of substitutable launch services for any given consumer in the market. It may change the model to the extent that heavy payloads are more costly to launch than are light ones; perhaps a measure of both the number of launches and the pounds launched is necessary. It is fair to assume, though, that a model that represents the number of "average" launches can model the market with little distortion. This is what the model presented herein does. There should be little challenge to the assumption that there are regions of increasing marginal return, followed by regions of decreasing marginal return. This is basic to the theory of costs, and this study has discovered no evidence which contradicts it. Also, there is little dispute that this is an industry characterized by large fixed costs. As previously cited, developing a new launch system can cost up to $5 billion; using existing components requires fixed costs of many millions of dollars. Perfect Competition? In testing for perfect competition, the first question to ask is if there are barriers to entry. In the short-term, yes, but in the long-term, according to The Economist, "it does not take much to put 100kg or so into orbit, and there are plenty of surplus boosters from old missile systems that could be modified to do it. Hosts of companies make missiles for ships, aircraft and soldiers. Any of them could tinker with existing systems and get into space if the market grows dramatically." Further, while the number of firms in the industry is not high, there are growing numbers of domestic and international competitors. In the international arena, Arianespace (ESA) is already a big supplier of services, as noted earlier. NASDA-Japan's H Series vehicles are expected to be ready soon, and the Soviet Union's Proton, Soyuz, Energia, and shuttle - comprising a major portion of world space resources and conducting over 100 launches annually - are expected to become increasingly open to commercial customers. China's Great Wall Industries has already opened up a Los Angeles office to woo potential U.S. companies, and has secured three launch agreements from U.S. companies. The USSR and Chinese services are attractive because they remain government subsidized, a position which has elicited protectionist grumblings from American firms, NASA, and ESA. The major challenge to a perfectly competitive market comes from patents which are awarded to rocket design. With a patented rocket, it is possible for one competitor to achieve a substantial reduction in marginal cost and thus gain an advantage on its competition. As Pacific American President Gary Hudson remarked, "whoever makes it to the marketplace cheapest may win." A current example of this is Orbital Sciences Corporation. In a combined venture with Hercules Aerospace, it has developed a winged booster which is designed to be launched from a B-52 bomber. Aviation Week and Space Technology, a noted industry publication, has said that this booster, which is capable of placing 900 lbs. in orbit, "could have a long-term effect on U.S. launch operations and help stimulate development of an entirely new class of small and medium-size spacecraft... [it] is one of the largest U.S. space commercialization efforts attempted to date." Project officials forecast 10 to 12 launches per year, and believe they can base a viable business on as few as five or six missions. What gives this booster an advantage is its ability to provide low-cost access to space with minimal prelaunch handling (only six or seven technicians will be required at the B-52 airfield once the program gains experience) and, most importantly, without being tied to ground launch pad scheduling and availability. The booster is considered 50% complete, and is expected to fly in mid- 1989. Launch services will be priced around $10 million. Under the presented model, Qcap, which is 10 to 12, would be set at the point of zero economic profits. Here, project officials claim that zero economic profits occur at as few as 5 or 6 launches. To explain this, consider that the demand curve facing an individual firm is flat - at the current market price (P), the firm can sell all it wants. At price P, then, Orbital Sciences Corporation anticipates 10 to 12 launches and sets Qcap equal to this. However, because of innovation, it has reduced costs, resulting in a lower MC curve. This means that MC = ATC at only 5 or 6, whereas it is forecasted that the market will buy 10 or 12, thus giving it economic profits. While aberrations such as this will no doubt move this market away from perfect competition, the vast number of approaches to rocketry assure that other firms will think of other innovative ways to reduce costs. It is therefore fair to say that the market will be competitive in nature, even if not perfectly so. Short Term Capacity Limit Expendable launch vehicle lift capacity is limited by the lower of either their maximum annual production rate or the maximum annual launch rate. (In many cases, due to lack of infrastructure, the current factories could produce more launchers of a specific vehicle than it is possible to launch. Infrastructure will be covered in more detail later in the paper.) Currently, OTA estimates this means the capability of launching 12 Scout rockets, 12 Delta II, 4 Atlas/Centaur, 5 Titan II, 4 Titan III, and 6 Titan IV vehicles per year. This includes DoD, NASA, and some commercial launchers. The figures for short-term capacity are presented in Table 1, below, which should make it clear that there is a definite short-term capacity constraint. Table # 1: Short-term Capacity of Currently Available Launch Vehicles VEHICLE MAX PAYLOAD (lbs) NUMBER/YR CAPABILITY Scout 570 12 6,840 Titan II 5,500 5 27,500 Delta II (3920) 7,600 12 91,200 Atlas/Centaur 13,500 4 54,000 Titan III 27,600 4 110,400 Titan IV 39,000 6 234,000 Space Shuttle 48,000 9 432,000 -------- TOTAL = 956,000 lbs times 90% manifesting efficiency = 860,000 lbs 00 lbs Source: Office of Technology Assessment, Launch Options, p.20 Actual Supply Data The United States Government vehicles alone provide a fairly substantial supply of launch power. A recent estimate by OTA reports that in various stages of production for government use are a replacement Shuttle and 57 ELVs (Expendable Launch Vehicles) ordered by the Air Force: 23 Titan IVs (manufactured by Martin Marietta), 20 Delta IIs (McDonnell Douglas), and 14 Titan IIs. The capability of the Shuttle depends on how many orbiters are in the fleet (currently 3; the replacement scheduled for January 1992 will bring the total to 4) and the maximum Shuttle flight rate. Predicted shuttle flight rates have been drastically downscaled to 3 flights per vehicle per year, for a near-term total of 9 flights per year. An 860,000 lbs. capability (Table 1) compares favorably with the approximately 600,000 pounds launched by the United States before the Challenger disaster (1984 and 1985). The 860,000 is even more favorable because it does not include the many new systems soon to be ready from the new market entrants, who have ambitious plans for supplying launch services. American Rocket, for example, predicts it could be launching at a rate of one per week by 1993. The Effect of an Accident on Supply The 90% figure in Table 1 is employed to simulate volume constraints, scheduling incompatibilities, or security considerations which mean that payload bays will not carry 100% of the rated weight. It is not meant to compensate for the possibility of launch failure; OTA estimates the reliability rate of these vehicles at about 96.2%. This makes the probability of having no further accidents 68% in 10 flights, 46% with 20 flights, and only 2% for 100 flights. It is difficult to estimate the reduction in supply due to these failures, and how much failure will cost, but it seem certain to play a factor in the supply of launchers, especially with the reusable Shuttle which takes a long time to rebuild. The actual replacement cost of the craft, even the Shuttle, is only a portion of the price paid for failure. The Challenger failure has been estimated at over $13.5 billion by Boeing, about half due to delays in Shuttle operations and payload processing. Another $3.7 billion went for added costs of debt service, insurance, special order production; $1.4 billion was spent for accident investigation, corrective action, and reflight; and $260 million for cargo replacement. The replacement craft costs $1.5 billion. While any ELV failure would undoubtedly be scaled down considerably from these numbers, the costs could still be significant. OTA recommends purchasing spare vehicles and payloads and continuing to fly missions "at risk" after the failure. (Insurance costs to cover risk are covered in more detail later.) Also, since ELVs do not have to be "man-rated" to assure crew safety, delays will most definitely be shorter. Overall, the greater diversity of vehicles brought about by privatization, and the fact that some are produced at a greater quantity than could be launched, should mean that the reduction of aggregate lift capacity for the system is not greatly affected by failures, especially by an ELV failure. Infrastructure and Supply The government's policy role in shaping private supply should not be underestimated. Government programs comprise the largest component of demand, and that demand will thus dictate the aggregate level of Qcap to a large degree. Further, the fixed costs of developing complex rocket launch facilities and other supporting infrastructure are so enormous relative to market return that private capital has never been committed without the assurance of firm government contracts. All of the current private firms have contracted to use government facilities, but as current pricing for the use of these facilities is based on the marginal cost incurred by the government in renting the facilities, there is no profit incentive to build new infrastructure. Thus, it will take government policy in all likelihood to broaden this critical part of capacity. The agreement between Space Services Inc of America and NASA to use NASA's Wallops Flight Facility on Wallops Island, Virginia exemplifies current infrastructure contracts. Under the terms of the agreement, SSI will be responsible for preparation and launching of the vehicles; NASA will participate as observers to insure safety compliance. SSI will be billed for all "direct costs" for its launches and tracking. Since one of our original goals in privatizing, however, was to escape the reliance on budget pressure to sustain a launch industry, it would make sense to charge the private companies more for the infrastructure, placing these funds in a pool specifically for building more capacity and upgrading current facilities. Otherwise, inadequate infrastructure could place major restraints on market capacity. V. DEMAND Price Elasticity of Demand There are two distinct sources of demand for private launch services - the private sector and the government. Each has a distinct price-elasticity of demand. Since the government is committed to launching certain payloads for defense and scientific reasons, government launch demand is relatively inelastic. What would private industry's demand curve look like? At the moment, there are very few inelastic needs for space launches by private companies. Most launches are not critical to the entire economic welfare of the launch buyer. Rather, individual projects are booked on the basis of whether they represent the best investment for the company. The company is thus very sensitive to the price of the launch. This means private demand is very elastic. This is borne out by historical evidence. In the early 1980's, satellite manufacturers planned and built payload after payload, anticipating cheap and frequent launches. The relationship is simple: when prices fall, private demand greatly increases; when prices rise, private demand greatly decreases. How does this explain today's seeming dearth of private payloads? The market model being developed will go a long way towards answering this if we define price correctly. Opportunity Cost It is vital to understand that the true cost of a launch to the consumer of launch services is not just the real price paid in currency. Both opportunity cost and risk are essential components of the true cost. As regards opportunity cost, if a launcher is charging $1M, but has a waiting period of a year before he can fly a payload, there is a significant added cost. As noted in E-Prime Aerospace Corporation's business plan, "satellites are both costly and intricate, requiring considerable time for planning, design, and manufacture. When launches are delayed, the costs are extremely expensive, i.e. debit servicing on the satellite owner's capital investment, satellite storage cost of up to $1,000,000 each month for a large satellite stored in an ultra-clean storage facility... Also, the longer that launching is delayed, the greater the risk of technological obsolescence of the satellite." Plus, the longer it has to forego the income that payload could be generating. True Price of Launch Includes Risk Risk encompasses many elements of doubt involved with using a given launcher: How much delay will be experienced? Will the payload be mishandled? What are the chances of an explosion or launch failure? Will proper orbit be achieved? Is the company going to go bankrupt before launching the payload? Will corners be cut due to lack of funding? And so forth... With the real and opportunity costs of payloads being substantial, this risk factor is considerable. Launch services which have a track record also have a set of variables which can be used to predict that risk and aid in the evaluation of whether the decision to launch on that service is a sound one or not. But consider a company with no track record. Not only do the "usual" risks apply, but there is a further risk because the risk itself is unknown. If the typical corporate manager, aware of the huge costs failure could pose, tends to be risk-averse, at least he can cite statistical evidence to back up his decision if it fails. But the typical manager will not be willing to explain why he placed the valuable company payload on a system with an unknown risk. This is especially true since satellite owners who are trying to obtain full insurance coverage will face some difficulty in doing so at present. This means that, as Tom Dworetzky wrote in Discover, "the only way to attract customers is to have a string of good launches; but the only way to build a string of good launches is to have customers - a cosmic catch-22." This theory fits well with current market conditions. With an elastic private demand curve, the greater risk of the untested private carriers means a much lower demand for their services. Presently, those that are signed up to use these carriers are either: (A) the government, which has an inelastic demand curve; (B) those companies with not much at risk, such as Celestis' payload of ashes which would present a very small loss if it were destroyed; or (C) startup firms themselves, who are willing to take the risks because of the high payoffs possible and need to reduce costs, such as Celestis and Starfind. Risk can be built into our perceived price on the demand side of the model. The higher the risk or the uncertainty about risk, the higher the price. However, in this situation, risk creates a one-sided price level increase on the demand side; suppliers and consumers are therefore not looking at the same price levels. A supplier can set a price at $10 million, yet have the true cost to the consumer be anywhere between $11 and $300 million (depending upon payload value and degree of uncertainty). Aggregate Demand and Supply Model If we wish to standardize everything to market price, this price discrepancy can be modelled as an inward shift in the demand curve proportional to the price-elasticity of demand. If the demand is very elastic or additional price due to risk very high, there will be a big reduction of demand at any given price. Using the short-term aggregate supply model, Figure # 2 models this to create a picture of the launch market. Figure # 2: Short-Term Supply/Demand Analysis of Market At long-term equilibrium, the demand curve would cross the supply curve at Qcap. This is the anticipated demand curve (grey line) which has been juxtaposed with the supply curve. Shown also crossing the supply curve are the individual private (elastic) and government (inelastic) demand curves. These are aggregated to make the true demand curve, shown in solid black. True demand is not yet at equilibrium demand because of the aforementioned effect of risk on true consumer prices. The launch firms, looking at market prices and past history which suggests demand at shuttle prices, have failed to take into account the full price of risk to the launcher. To them, the anticipated demand is the long-term demand, so this is where they have targeted capacity. How the market gets from this short-term state of surplus production and/or capacity to the long-term equilibrium where demand = supply = Qcap will have a large impact on the health of these launch firms. If the demand cannot be stimulated outward, Qcap must eventually fall. As has already been demonstrated, this will likely mean exit from the market by firms whose Qcap cannot be reduced. The preferable solution would be to reduce the risk, bringing true demand up to Qcap. How this may be done with a minimum amount of effort on the part of the government will be pursued shortly. A REALISTIC MODEL? This model predicts surplus capacity. Is this found in the market today? OTA finds that "the United States possesses a capable fleet of launch vehicles and the facilities necessary to meet current launch demands and provide for limited near-term growth." This was found to be the case without emphasizing new private firms who are entering the market. These new firms will increase the supply even further; hence, a surplus. Overestimation: A Standard Phenomenon? It should be added that this alone is not sufficient to support the model. Demand for payload launches is extremely difficult to quantify, as history has shown. In 1979, NASA forecast a need for 58 equivalent Shuttle flights in 1988. It steadily decreased this estimate until in 1986 only 20 equivalent Shuttle flights were predicted. Similarly, the 1977 estimate that 572 Shuttle flights would be needed between 1980 and 1991 had been downscaled to just 30% of that - 165 flights - in 1985. There are several reasons for this over-estimation of demand. In response to launch projection surveys, potential satellite manufacturers regularly underestimate the formidable barriers to entry. "It is one thing to commission market surveys, apply for orbital slots and deposit $100,000 to reserve a shuttle or Ariane launch. It is quite another to secure $150 - $500 million for serious entry in a hotly competitive satellite communications market that is in the midst of a severe shakeout from overcapacity and competition from fiber optic cable systems. Of the 69 foreign and commercial payloads booked on Ariane and the shuttle before the Challenger accident, for example, perhaps less than thirty will actually fly." Other factors, such as longer satellite working lives than originally anticipated, and miniaturization and technology growth that allows one satellite to do the job formerly needing two, also lead to over-estimation. While risk may only be part of the over-estimation, the supply/demand model accurately reflects this overestimation. Soft Demand Under the presented model, demand would be soft and elastic. Indeed, today demand for private launch services seems very soft. As mentioned before, while Arianespace has satellite backlogs valued at $2.48 billion, private companies have yet to sign any satellite launch agreements. More importantly, while these small companies are actively pursuing private contracts, the only real launch agreements they have received have been from the government. Orbital Sciences President and CEO David W. Thompson estimates revenues from their winged booster at $5 million for this year. The source of the revenues? A contract with the Defense Advanced Research Projects Agency (DARPA) for launch services. SSI has a NASA consortium contract and a Strategic Defense Initiative Organization contract. Pacific American has gotten a grant for studying a DoD project. Amroc has proposed flying missions for "a government agency". Government contracts seem available, but what about private flights? Private companies are optimistic about getting private contracts, but express an element of doubt. "We were optimistic that it was going to happen a lot faster than it has," said Deke Slayton, President of SSI. For SSI and many other companies, there have been long, lean years of waiting with little response to the private demand which their estimates say must exist. Bleak Prospects Assuming our model to hold, if nothing is done the prospects of achieving a long-term equilibrium with a high degree of privatization seems bleak. A recent U.S. Commerce Department market assessment found that the long-term prospect for commercial space financial backing was questionable. Barring massive government spending increases that may lead to under-estimation of demand, such as deploying SDI, building a moonbase, and launching expeditions to Mars, the demand does not seem sufficient to enable all these firms to continue competing in the launch business. Please remember that the main cause of this scenario is a high degree of risk stemming from a nonexistent track-record on the part of the new launch suppliers, and the subsequent reduction in the demand schedule to compensate for this. Government Demand - A Key to Private Demand The situation has a solution which will move the real demand outward to Qcap, resulting in a more efficient usage of resources in the process. It is a sensible, cheap way of giving these firms a track record - have the government use their services. The function illustrated in the Figure 3 (below) portrays an important relationship: as government usage of private launch carriers increases up to a point, private use also increases. Firms will not only be able to see a track record of launches, but having the government use the same services that they are using will give them confidence. Government purchase is only good for this up to a certain point, however. After that, it begins to crowd out private usage because of the constraints on capacity. Figure # 3: Effect of Government Use of Private Launch Services on Private Use of Private Launch Services.
This function shows the harm in Reagan injunction ordering commercial payloads off the Shuttle so that it can be used for DoD/NASA payloads. By offloading the commercial payloads with elastic demand onto untested private ELV companies, while allowing government payloads to remain on the shuttle, the Administration is effectively reducing demand for these ELV services (in this period and future periods), prolonging their financial troubles, and reducing their competitiveness, and preventing the industry from reaching equilibrium at the current Qcap level. There is much to be said, then, for considering remanifesting commercial satellites on the Shuttle and pushing all DoD and NASA payloads that can be launched on ELVs into the commercial sector. First, this policy presents much less risk to the government than to private industry. According to a recent Transportation Department study of risk, a fully fueled Boeing 747 has almost three times the explosive potential as an Atlas/Centaur, Delta or Titan 3 rocket, and the probability of a rocket crashing into a populated area is far less than that of an airplane doing the same. The report also points out that since the beginning of U.S. space launch operations in the 1950s, no launch operation accidents have caused any damage or casualties outside of the launch facility. This indicates that the actual risk may not be nearly as great as the perceived risk; the government's purchase of ELV services can concretely demonstrate this point to the private sector. Insurance Further, government purchases can help break the current cycle in another way, by enlarging the insurance pool for the market. Currently, House and Senate bills have been introduced to limit the liability of launch suppliers to $500 million for third-party damages and $100 million for damage to government property. Even if this were enacted (the current legislation status is unknown), it is unlikely that insurance would be available. One major reason is the low amount of money in the global insurance pool to cover space launches. Insurance industry officials have estimated that the size of the pool at about $150 million, and predict that amount to decrease. "Until underwriters see some black ink, I don't think we are today anywhere near being able to achieve" the estimated $640 million needed for full insurance coverage of payload, vehicle, and third-party liability, said Donald G. Kenny, Vice President of insurance broker Alexander & Alexander, Inc. Government purchase of ELV services will increase private purchases, making a larger insurance pool; the government could further purchase insurance for its own flights, again increasing the pool. Or, perhaps some government-industry risk-sharing provision would be in order, with the government being the "insurer of last resort." Any government policy that increased available insurance would have the effect of lowering P (which includes risk costs), thus increasing the demand for private services, which would boost the insurance pool, lowering P again, and so forth. Policy Conclusions Derived from Demand/Supply Model An underlying issue behind our model is that risk, especially less predictable risk, is averse to stability. Stability, in both government policy and the market, is the key to encouraging long-term private sector investment which generates the demand for launches. These investments will only be made if such stability can be anticipated. Government use of private ELVs promotes stability. Edwin A. Deagle (of Hughes Aircraft) points out another way in which remanifesting Shuttle commercial payloads "between now and 1990" would increase private demand for private services in the long run: ... many U.S. satellite operations are under contract to provide satellite communications services at prices based on low shuttle launch costs and resulting insurance prices. Offloading of government ELV- class payloads would permit the shuttle program to honor its commercial contracts. A revised shuttle manifest policy would weaken the short- term monopoly supplier position of Arianespace, which now commands 50 percent of the foreign and commercial launch market. The current forced migration of U.S satellite operators to Arianespace and other foreign ELV suppliers will make it more difficult for U.S. ELV suppliers to compete once they enter the business... the shuttle commercial manifest in the period 1988-90 should be constructed so that U.S. satellite operators - those that survive* - are not encouraged to establish the kind of long-term technical and commercial relationships with foreign ELV suppliers that would make it difficult for U.S. ELV manufacturers to enter the market in 1990... it is important that government support of ELV services be carefully designed to insure growth in ELV payload capabilities. Deagle's passage makes a good argument, but it is important for another reason. The asterisk next to the phrase "those that survive" was in the original and referred the reader to an almost comical footnote: "Hughes Aircraft Company is a manufacturer and operator of communication satellites and expects to survive." So, one can reasonably conclude that Deagle, who is manager of business operations for the Space and Communications Group of Hughes, has more than an academic interest in the policy. Does this mean we should dismiss the comment as biased? Far from it. Hughes is part of the demand we are trying to model, and if corporate managers there are stridently arguing not to be forced away from the Shuttle and onto the private ELVs at this stage, this goes a long way in proving the point that the P for private ELV launches is simply too high at present to attract much commercial demand. One can also infer that Deagle argues for government use of ELVs because this will lower the price of these services later and enable him to cheaply book Hughes craft on them. Hughes is undoubtedly not alone in adopting this position. This strongly supports the curve presented earlier that relates private demand to government demand and it fits perfectly with the supply-demand model of this paper. The House Committee on Science, Space, and Technology recently summed it up in a suggestion imbedded in the latest NASA Multiyear Authorization Bill: "NASA should boost its efforts in commercial space... If the Administration is serious about its own commercial space initiatives, it would do well to abide by public law; to recognize the expertise and knowledge that lies within the National Aeronautics and Space Administration, the agency chartered by Congress to foster the commercial use of space; and to respect the needs of the user community which it professes to promote." While this statement was issued more out of concern for the purchasers of services, it can also aid the suppliers, as we have shown, provided government launches are contracted out. VI. EXTERNALITIES Technological Development: A Role for the Government All the private launch companies are using versions of old technology. Even Amroc's "new" rockets are based on a 50-year old technology that was abandoned as being too slow. The reason for this is clear: using derivatives of "off-the-shelf" technologies reduces market entry costs enormously. In a highly competitive situation, lowering fixed entry costs becomes essential to gaining a market foothold. However, under such a situation prospects of future competition down the road look grim. How could private companies, struggling to survive, possibly invest the billions necessary to develop new technologies that will drastically reduce launch costs and enable them to compete internationally against countries such as the Japanese, who are investing in new technologies? The reduction of launch costs is cited as a major factor in enabling both firms and government to take advantage of the many opportunities in space. With drastically reduced launch costs, many projects, such as solar power satellites and microgravity manufacturing would become profitable. Private investment in space resources and demand for launch services would skyrocket, and the government would be able to do many more valuable projects without raising spending. This would require, however, a reduction of magnitude simply not possible to achieve with present technologies. As W. Haynes, Senior Analyst for Science Applications International Corp. recently concluded, "achieving substantial cost reductions for space systems by pursuing low tech systems per se will not be successful. On the contrary, only by applying new technology just coming into the realm of the possible, can really substantial cost reductions be achieved." While all launch firms employing such a technology would benefit from the reduced costs and consequent increased demand, no firms have the resources to invest in developing a system to meet these requirements. The Air Force has said it needs an Advanced Launch System that can get payloads into orbit for 10% of the current cost, and such a system can be a long-term goal for policy makers. Private launchers have suggested that it should be NASA's role to develop these technologies, and their role to employ them. This, of course, puts the new technology development back into the political arena we were trying to avoid, and makes the taxpayers pay for a system which will primarily benefit the industry (in effect, a heavy subsidy of the industry). Suggestions that NASA develop the technology, keep it proprietary or lease it out to recover costs are unworkable, not only because it contradicts NASA's given function of making new technologies widely available, but because "that kind of license agreement has not meant much because the government does little or nothing to enforce it. In addition, the government has brought only one infringement suit against private industry for the use of government-owned patented inventions without licenses." This suit was lost because of the past precedent the government had set in not enforcing patents. A more equitable and efficient system would be to have space companies and NASA form a contract under which technology research and development would be jointly funded by the government and industry. This could involve putting a portion of taxes from the aerospace industry in a special fund earmarked for this purpose, and matching it with general government funds. Because of the externalities associated with this technology, it is inevitable that many people would benefit from it, so involving government funding is a good way to control this externality. A joint industry-government research program has been successful in developing Ariane for ESA, and is widely employed in Japan. The American Council on Education's Business-Higher Education forum has called for the creation of consortia involving government, business, and university members to facilitate new technology development. Clearly, there is a role for government in creating these new technologies. Without government assistance, individual launch companies will soon be ill-equipped to face international competition, and will find it almost impossible to reduce launch costs by an order of magnitude. Pollution There are three major externalities associated with the launch business: pollution (including possibility of explosion) on earth, pollution in space, and the limit on certain orbital positions. Earthly pollution caused by launches could be minimized by setting a Pigouvian tax on the launch proportional to the amount of pollution. Companies using fuels which are more harmful to the environment would be charged more; those using less fuel or fuel which is cleaner would be charged less. This could easily be controlled through infrastructure tariffs. Earlier, this paper noted that infrastructure was being offered too cheaply, and that this gave no incentive to the government to build more infrastructure. Infrastructure prices are also too low because they do not internalize any of the cost of pollution. Including a fee equal to the marginal damaged caused by launch pollution in the price of the launch facilities would make sure that a pareto efficient level of launches was reached. Space pollution is a more complicated matter. Currently, there are more than 7,100 trackable objects (larger than a basketball) in orbit, 5,393 of which are considered debris. And, there are considerably more objects and debris which are too small to be tracked at present. The current probability of collision for an object the size of a satellite is about 1 in 1,000, and for objects in geosynchronous orbit (the orbit where satellites match the earth's speed) the probability is about 1 in 100,000. By the turn of the century, however, the chances are expected to increase to about one in 100 and one in 500, respectively. Each new payload or satellite launched increases the odds of debris collision, and increases the hazard posed by satellites uncontrollably reentering the earth's atmosphere at the end of their lifespans. Due to the international aspect of the problem, agreements need to be reached with all the countries launching payloads. A fee per launch based on estimated breakdown rates times marginal damage, to be administered by the U.N. towards a program to clean up space debris, is a solution worth considering. Orbital Slots & International Competition In a recent Wall Street Journal op/ed article, Amroc VP for external affairs James C. Bennett called for negotiations to end "dumping", saying that "with one satellite launch having the same trade impact as the import of 10,000 Toyotas," trade negotiations should be a major government concern. Arianespace, too, has joined this call, and has further raised its launch prices so as to not to be a subsidized launcher. There exists the possibility to solve this trade issue and another externality - the allocation of orbital slots, especially in the valuable geostationary orbits - simultaneously. While improvements in technology have increased the density with which satellites and payloads can be placed in these orbits, there is nevertheless an allocation problem - since space belongs to no one, there is no market system to insure that a given "slot" of space is being put to the most efficient use. One possibility would be to assign rights to certain segments of space to each country. How to decide how many degrees of orbit, etc., each country received would naturally be an explosive issue since they would, indeed, be valuable commodities just like land, but for the purposes of this example, consider that it is done. Countries would then be allowed to sell or buy slots on the open market. The result of this would not only be to encourage countries to choose wisely (through a market system or otherwise) which payloads to send up, but - more interestingly - to reduce the incentive to dump subsidized launch services onto the market. Assuming the provision that a country would have to launch payloads to its own slots, this would provide a disincentive to dump and, in equilibrium, would result in both the most efficient use of orbital slots and the elimination of dumping. This is because no country would want to subsidize the launch of a foreign payload into its space without charging a fair market value for that space, since otherwise it could sell the space on the open market for more money. While this would be challenging to execute in practice, it is important to consider this aspect of international relations when negotiating for "fair trade" in space. VII. CONCLUSIONS By employing economic analysis, this paper has presented a solid model of the United States commercial payload launch industry. Its major findings are summarized as follows: - There are benefits afforded by a privatized launch industry that make it preferable to a monopoly system. These benefits include assured access to space through a diversity of transportation vehicles and a commitment to launching payloads based upon their ability to pay, not upon budgetary pressures. - While not perfectly competitive, the launch industry is best characterized by a competitive market with upward-sloping supply curves and downward-sloping demand curves. - Commercial satellite firms have a relatively elastic demand for launch services when the "true" launch cost to the firm is considered. Government demand for services is less elastic. - Short-term supply of launch services is restrained by a capacity which is set at equilibrium to where a firm's marginal cost and average total cost curves intersect. - There is currently a surplus of launch capacity because of different perceptions of price between the supplier and the consumer. This is due to the high risk associated with new launch firms and it serves to distort choices away from these entrants, producing an inefficient, non- equilibrium condition. - Up to a certain point, increased government use will encourage commercial use rather than crowd it out. This complementary usage is essential to overcoming the risk dilemma. - The President's policy of forcing commercial payloads off the Shuttle, designed to help private launchers, may actually be hurting private launchers, the government, and industry demanding these services in the short run. - Infrastructure available for launching is both undersupplied and priced. Setting a higher tariff for commercial launches would make more space available, provide capital funds for investing, and help control externalities. - Investment in new technology necessary to assure lower launch costs in the future and make U.S. corporations more competitive is unlikely to occur without government help. - Negotiations between governments are needed to insure properly priced launch services and control externalities such as space debris. BIBLIOGRAPHY American Council on Education, Business-Higher Education Forum. Space: America's New Competitive Frontier. Washington, D.C.: Business- Higher Education Forum, April, 1986. American Rocket Company. Business Plan Summary and Media Kit. Camarillo, CA: American Rocket Company, November 1988. "Amroc Conducts Full-Duration Firing of Hybrid Booster," Aviation Week & Space Technology, October 3, 1988, p. 44. "Arianespace Registers After-Tax Profit in 1987," Aviation Week & Space Technology, June 27, 1988, p. 39. Asker, Jim. "Awaiting Liftoff: Space Services Finally Realizing Payload Potential," The Houston Post, June 1, 1987, pp. 1F, 14F. Ball, Jim. "NASA Commercial Center Awards Launch Services Contract," NASA News (Release 88-145). Washington, DC: National Aeronautics and Space Administration, October 26, 1988. Bennett, James C. "Space, the New Trade Frontier," The Wall Street Journal, October 4, 1988. Brody, Michael. "Adventure Capitalism: Privatization of Space is Going into Orbit," Barron's, April 11, 1988 (Editorial Commentary). "Commerce Report Cites Potential of Commercial Space Markets," Aviation Week & Space Technology, June 6, 1988, p. 17. Covault, Craig. "Commercial Winged Booster to Launch Satellites from B- 52," Aviation Week & Space Technology, June 6, 1988, pp. 14 - 16. Deagle, Edwin A., Jr. "America's Return to Space: U.S. Space Transportation Policy," in The U.S. in Space. ed. Edmund S. Muskie. Washington, D.C.: Center for National Policy Press, 1988. Deudney, Daniel. Space: The High Frontier in Perspective. (Worldwatch Paper 50). Washington: Worldwatch Institute, August 1982. Dworetzky, Tom. "The Launch Gap," Discover, July 1988, pp. 56-62. E'Prime Aerospace Corporation. E'Prime Aerospace Corporation: Business Plan. Titusville, Florida: E'Prime Aerospace Corporation, October 1988. "Fewer and More Powerful Birds, Smaller Dishes, Riper Market for DBS," Broadcasting, April 25, 1988, p. 61. (On microfiche: SRI 1988 C1750- 1, Fiche 4.) "Firms Seek Share of Satellite Launch Business," The Houston Post, August 20, 1986, p. 3E. "1st Rocket Launched by Private Company," Chicago Tribune, September 10, 1982. Foley, Theresa M. "ELV Launch Liability Limited Under House, Senate Bills," Aviation Week & Space Technology, May 30, 1988, p. 109. "Free Enterprise Goes into Space," U.S. News and World Report, September 20, 1988. General Dynamics. Atlas (publicity brochure). San Diego, California: General Dynamics Commercial Launch Services, July 1988. "Government Payloads Dominate Commercial Launch Manifest," Aviation Week & Space Technology, July 4, 1988, p. 24. Hartsock, John. "Wallops Shapes Up as Spaceport," Houston Chronicle, May 11, 1987, Section 2, pp. 1-2. Haynes, W. "The Issue is Cost," The High Frontier Newsletter (Space Studies Institute, Princeton NJ), March/April 1988, p. 1-5. Holman, Mary A. The Political Economy of the Space Program. Palo Alto, California: Pacific Books, 1974. House of Representatives, Committee on Science, Space, and Technology, 100th Congress, 2d Session. Report, together with Supplemental Views to Accompany H.R. 4561: Multiyear National Aeronautics and Space Administration Authorization Act (Report 100-650), 1988. "Houston Power Company Invests in Space Services, Inc.," Aviation Week & Space Technology, February 23, 1987, p. 59. "Insurance Rates Likely to Rise as Result of Satellite Failures," Aviation Week & Space Technology, September 19, 1988, p. 21. Jaffer, Azeezaly S. "Space Services Inc. to Use NASA Launch Facility," NASA News (Release 86-128). Washington, DC: National Aeronautics and Space Administration, Sept. 8, 1988. Karlin, Beth. "Starship Enterprise," Omni, July 1988, pp. 51- 57, 104 - 106. Kiely, Kathy. "Houston Firm a Step Closer to Hauling Cargo to Space," The Houston Post, Vol. 102, No. 163, p. 4. Kurtzman, Joel. "Prospects: Commercializing Space," The New York Times, October 2, 1988, Business Section. Lenorovitz, Jeffrey M. "Europe Presses U.S. to Agree on Launch Competition Rules," Aviation Week & Space Technology, June 27, 1988, pp. 36 - 37. "Making America's Payloads Pay," The Economist, October 1, 1988, pp. 95 - 96. Marbach, William D., with Dan Shapiro. "A Giant Step for Capitalism," Newsweek, September 20, 1982. Marsh, Peter. The Space Business: A Manual on the Commercial Uses of Space. Middlesex, England: Penguin Books Ltd., 1985. Mecham, Michael. "NASA, Pentagon Urged to Focus on Cutting Launch Operation Costs," Aviation Week & Space Technology, October 3, 1988, p. 39 - 44. National Academy of Public Administration. Encouraging Business Ventures in Space Technologies. (Study prepared for the National Aeronautics and Space Administration.) Washington, DC: National Academy of Public Administration, 1986. Orbital Sciences Corporation. Company Fact Sheet & Promotion Brochure, Washington, DC: Orbital Sciences Corporation, 1988. Office of the Press Secretary, The White House. Presidential Directive on National Space Policy. (Fact Sheet). Washington, DC, February 11, 1988. Pacific American Launch Systems, Inc. "Introduction to the Company" (publicity sheet). Menlo Park, CA: Pacific American Launch Systems, Inc., 1988. "Pacific American to Begin Desert Rocket Tests this August," Space Daily, July 18, 1988, p. 1, 2. Reinhold, Robert. "Texas Rocket Built on 'Shoestring' Carries Free Enterprise Into Space," The New York Times, September 10, 1982, pp. A1, A16. "Space Services wins $300,000 Contract." Houston Chronicle, Friday, May 6, 1988, Section 2, p. 3. Space Services Incorporated of America. Low-Cost Space Systems and Services (publicity brochure). Houston, Space Services Inc. of America, 1988. "SSI Looking at Other Launch Facilities to Complement Wallops," Aerospace Daily, September 12, 1986, p. 415. Stevenson, Richard W. "New Hopes at Space Companies," The New York Times, January 18, 1988, Business Day. Stodden, John R. "Orbital Sciences Charts Rapid Growth with Reduced Risk for Pegasus Investment," Aviation Week & Space Technology, June 27, 1988, pp. 51, 53. Sword, William, Jr. Personal interview on November 4, 1988. "Transportation Dept. Assesses Booster Hazards for Industry," Aviation Week & Space Technology, September 5, 1988, pp. 218, 220. U.S. Congress, Office of Technology Assessment. Launch Options for the Future: Buyer's Guide, OTA-ISC-383. Washington, DC: U.S. Government Printing Office, July 1988. U.S. Congress, Office of Technology Assessment. Reducing Launch Operations Costs: New Technologies and Practices, OTA-TM-ISC-28. Washington, DC: U.S. Government Printing Office, September 1988. Wert, David. "Amroc Closer to Launch," Lompoc Record, October 5, 1988, p. A12. Eric W. Tilenius | ColorVenture Software | ewtileni@pucc.BITNET Princeton University | 11 Prospect Drive South | ewtileni@pucc.Princeton.EDU 332 Walker Hall | Huntington Sta, NY 11746 | rutgers!pucc.bitnet!ewtileni Princeton, NJ 08544 | 516-424-2298 | princeton!pucc!ewtileni 609-734-4911 | * Sft. for the CoCo 3 * | CIS: 70346,16