SECOND SPACE CYNICS ROUNDTABLE DISCUSSION October 27, 2008Posted by drspaceshow in Uncategorized.
Tags: challenges, Cheap Access to Space, Club of Rome limitations, Department of Defense (DoD), Due Diligence, economic driver, economic viability, engineering, Mag lift, military, national security, politics, R&D, science, Space Based Solar Power (SBSP), Space Cynics, Space Elevator, space policy, Space Solar Power (SSP), substitute technology, terrestrial energy, Van Allen radiation belts
THE SECOND SPACE CYNICS ROUNDTABLE DISCUSSION IS HERE!!!
THIS TIME THE CYNICS FOCUS ON SPACE SOLAR POWER (and a few other issues).
Space Cynics Shubber Ali, Tom Olson (Tom’s Rants), Dr. John Jurist (Old Space Cadet) and Dr. David Livingston (Professor L) engaged in a roundtable conference call Saturday morning, Oct. 25, 2008 to discuss space solar power. In keeping with true Space Cynics fashion, this was a hard-hitting discussion addressing some of the fundamental challenges facing SSP and why the Cynics do not share the joy of seeing a future SSP world as do those promoting it. As we started the discussion, Shubber outlined three basic areas that we addressed: technical challenges, economic and political (policy) challenges, and those challenges represented by substitute technology. All of us were in agreement that the technical challenges can be met over time and with sufficient funding and R&D. All the Cynics believe that substitute technologies here on Earth will typically give the economic and policy advantage to terrestrial power over SSP. Furthermore, the economic, political, and policy challenges ahead for SSP are formidable and likely to be much harder, complex, and costly to resolve than many of those promoting SSP believe will be the case.
Since many listening to this discussion will not agree with some or even all of the points made, should you choose to reply, comment, or question what you hear, please do so factually. For example, if you are going to report or comment that the launch cost will be $200/kilo to GEO or some other very low rate, tell us how that happens so we can respond factually. If you are talking theoretical, please provide the support and basis for your theory. If you are expressing your opinion, fine, please do so, but remember that opinions are not fact or reality. By the way, this rule applies to the opinions of the Cynics as well. Another interesting point offered in this discussion came up when we talked about the need for low cost space access. Shubber made the point that the military does not really want cheap and easy access to space by the general public, thus it’s unlikely that there will be any government action taken to significantly change the way we access space.
For some of you, you may believe or even tell us that we are not helping the “SSP movement.” All of us have heard this before. So be it, but please tell us why our goal should to be to help any movement. Either individually or collectively as the Space Cynics, we discuss, report, and post on what we read, see, understand, and want to express. We are not posting to serve a movement of any kind. We are not obligated to serve any movement. We are obligated to study and understand an issue and report or discuss it as we see it and understand it. If some of you have ruffled feathers over that, please show us where our analysis or conclusions are wrong. We welcome such input and open discussion right here on the Space Cynics blog. Please see http://www.thespaceshow.com for a more comprehensive description of this program.
Alt.Space – The Thinkers and the Lunatic Fringe October 25, 2008Posted by shubber in suborbital tourism, smack talk, gauntlet being dropped, space tourism, CRATS, NASA, Wasting Money, public service announcement, investment, space, venture capital, hot air.
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(this post is from the Old Space Cadet)
On October 13, 2008, The Space Review carried my article The commercial suborbital sounding rocket market: a role for RLVs? http://www.thespacereview.com/article/1228/1 .
This article provoked some interesting commentary (and a lot that wasn’t so interesting). For convenience of the reader, I am reproducing the text of the article below and am then following with some comments and my responses:
The commercial suborbital sounding rocket market: a role for RLVs?
by John M. Jurist Monday, October 13, 2008
The current total US market for high altitude sounding rockets with payloads in the 50 to 200 kilogram range and apogees in excess of 100 kilometers is roughly 100 launches annually. At an average of one million dollars charged per launch, one might conclude that a real market exists for RLVs filling this niche.
At present, this market is essentially filled by solid-fuelled ELVs. What is the potential for market entry by a newcomer with the proverbial bright idea conceived in a garage?
The RLV concept
Developing an RLV might look attractive since the vehicle can be reused and operating costs might potentially approach propellant costs per flight. If it isn’t trashed after a few flights, the manufacturing cost can be spread over a number of flights. However, developing an RLV with investment capital for this existing market makes no investment sense.
An accepted rule of thumb for high risk speculative investments is that they should return at least 18 percent annually on capital (Ref. 1). Based on a few startups that have considered this field, a total optimistic investment of perhaps $5 million might result in a workable prototype vehicle. Personally, I believe this figure to be low by some integer multiple, but we will use that development cost anyway. A return of 18 percent would require that at least $900,000 annually return to the investors from the ongoing revenue stream.
Remember that dividends are paid from corporate after tax dollars. If foreign sales are involved, ITAR and other assorted export controls become a potential issue and legal costs for regulatory compliance escalate accordingly.
The estimates given above suggest that the total revenue from the US suborbital sounding rocket market is roughly $100 million annually. At least one RLV startup is offering future flights to 100 kilometers at $250 per kilogram (Ref. 2). A 200-kg payload would result in $50,000 revenues for the flight by this startup. If the entire US market were to be captured at this admittedly attractive price, 100 flights would result in revenues of $5 million annually.
Our required after tax return of $900,000 divides out to $9,000 per flight. We assume that the hypothetical RLV operations involve a full-time team of five employees averaging $75,000 fully burdened annual salaries each (well below market averages), and we might assume $1,000 per flight for propellants. Fixed costs could be converted to a per flight basis by dividing annual costs by 100. Look at the following set of estimated expenses per flight:
RLV flight costs at 100 per year
Area Flight Cost
Investor Profit on sunk R&D $9,000
Federal Corporate Taxes (ignoring NOL carried forward) 12,300
Range and Spaceport Fees 1,000
Launch Insurance 1,000
RLV Operations Staff 3,750
Plant (with utilities) 240
R&D for Future Development 1,000
Lost Vehicle Sinking Fund 500
Support Staff 1,000
Regulatory Compliance 500
Catchall (Including Margin) 28,810
Total Expenses Charged Against Revenues 50,000
If you don’t like my numbers, use your own. Range and spaceport fees are probably wildly underestimated in this table.
Killers in this model include R&D overruns for vehicle development, time to market (which also runs up personnel costs), failure to capture 100 percent of the market, and others. For example, if R&D costs are doubled (most R&D costs more and takes longer than anticipated), the expected minimum investor return jumps by another $9,000 per flight. If market share is only 50 percent rather than 100 percent, revenues per flight are reduced to $25,000, which eats into the “margin” substantially.
The table shown above ignores interest costs, state and local taxes of all types, and numerous other expense categories. The table also seriously underestimates payroll and regulatory compliance costs.
How can we make this work with better odds of success?
Raise prices: Rather than $50,000 per flight, competition might be possible with revenues in the $500,000 per flight range. This is an exercise in price cutting competition against existing suppliers and an established market and is critically sensitive to range and insurance costs.
Increase market size: If one believes in the “build it and they will come” philosophy, the market will increase passively. Otherwise, add a line to the above table for sales and marketing staff and another for advertising. I suspect the academic market, which is largely served by free rides manifested on existing launchers, would not enlarge much unless there are significant increases in space-related research grant funding opportunities.
ELV threat: The shift from liquid-fuelled sounding rockets to solid-fuelled vehicles was driven by at least two factors: legacy engineering from larger tactical missiles or smaller strategic missiles and by the high development cost and finicky nature of pump-fed liquid versus solid systems. At present, an alt.space startup with a largely legacy sounding rocket design is UP Aerospace (Ref. 3). This dropped their upfront development costs to the point where they can afford to enter the market. Another approach for liquid-fuelled ELVs is to use composite propellant tanks that can supply pressure-fed motors and still be low mass compared to similar strength metallic tanks. Avoiding propellant turbopumps reduces the system parts count markedly. Microcosm’s Scorpius Space Launch Company uses this approach (Ref. 4).
Get others to pay for the R&D. This was partially done by UP Aerospace as mentioned above. This also suggests a role for university-corporate partnerships in which the university side uses specific development topics for educational efforts, such as senior engineering design classes, and gives out academic credit instead of money. The university gets a piece of the corporation for its development foundation in return and rental income on some of its facilities. To some extent, this is the approach used by Garvey Spacecraft Corporation with California State University at Long Beach (Ref. 5) and by Flometrics with the San Diego State University and with the University of California at San Diego (Ref. 6). Interestingly, Garvey has flown a Microcosm composite oxidizer tank (Ref. 7).
Structures to implement a solution
An approach I favor is forming a university consortium analogous to those that design, build, and operate large cooperative research assets, such as telescopes and particle colliders. That consortium could develop a suborbital RLV or even a nanosat launcher to be used by consortium members for academic projects. Since the consortium would design and develop the vehicles, participating universities would be more likely to use them for student research under some type of cost-sharing arrangement with federal granting agencies.
Dr. Steve Harrington proposed something a bit different recently:
If you took all the money invested in alt.space projects in the last 20 years, and invested in one project, it could succeed. More underfunded projects are not what we need. The solution is for an investment and industry group to develop a business plan and get a consortium to build a vehicle. There is a lot of talent, and many people willing to work for reduced wages and invest some of their own company’s capital. Whether it is a sounding rocket, suborbital tourist vehicle or an orbit capable rocket, the final concept and go/no go decision should be made by accountants, not engineers or dreamers (Ref. 8).
I would concur with Dr. Harrington’s final remark except I would expand the decision making group to include management and business experts nominated by the consortium members with whatever technical input they needed.
- F. Eilingsfeld and D. Schaetzler: The Cost of Capital for Space Tourism Ventures. Proceedings of the 2nd ISST, Daimler-Chrysler GmbH, Berlin, German, 1999.
- Masten Space Systems, Inc. web site: http://masten-space.com/, Sept. 29, 2008.
- UP Aerospace, Inc. web site: http://www.upaerospace.com/
- Microcosm, Inc. web site: http://www.smad.com/ie/ieframessr2.html, Sept. 29, 2008.
- Garvey Spacecraft Corporation web site: http://www.garvspace.com/, Sept. 29, 2008 and John Garvey, personal communication, Aug. 13, 2008.
- Flometrics web site: http://www.flometrics.com/rockets/index.htm, Sept. 29, 2008.
- Garvey Spacecraft Corporation, loc. cit.
- Steve Harrington, Space Access Society Annual Meeting, Phoenix, AZ, Mar. 29, 2008.
In his varied and somewhat schizoid career, Dr. John Jurist has variously served as a professor of surgery (orthopedics) at the University of Wisconsin Medical School, as a professor of space science and engineering at the same university; and as a professor of medical sciences, physics, and mechanical and aerospace engineering in the Montana State University system. He is currently Adjunct Professor of Space Studies in the Odegard School of Aerospace Sciences at the University of North Dakota. As a lucky entrepreneur, he has invested in a number of small aerospace and related startups, but he is not an investor in any of the corporations mentioned above. He can be reached at JMJSpace@AOL.com.
A comment in RLV News by Bob Steinke:
I’d like to point out one flaw in the sounding rocket article.
Mr. Jurist says that the current market demand is 100 flights per year and figures the hypothetical company’s revenue based on 100 flights per year. But the right way to figure it is that the current demand is $100 million per year.
Most current customers are government and educational institutions that have a certain budget and they are going to spend their entire budget regardless. So even if you assume no demand growth the current customers will spend the same amount and if prices are lower they will buy more flights.
There’s no shortage of scientists who would like to send payloads. The limitation is the budgets of the funding agencies, and you can count on the budgets of government agencies to stay pretty much the same regerdless [sic] of what they get for their money.
So a company that sells flights for $50,000 and captures the entire $100,000,000 per year market could sell 2000 flights.
The bad economy and federal deficits might reduce the current market, or there may be market growth from new customers when prices go down. But if you are going to do an analysis of current markets assuming no demand change you should measure deman [sic] in dollars, not flights.
The Old Space Cadet responds:
Your point is well taken, but I actually divided the postulated total market demand by number of flights to get the per flight revenue. Also, you are assuming that the launch demand is elastic and based on the size of the money pool rather than on the total mass of the payload pool. A company working under that assumption would be betting the farm until and unless the postulated increase in demand was extremely rapid. The assumption that the entire market or some large fraction could be captured is questionable. I did use that assumption in my paper, of course, in order to overstate the case for RLVs. I would also expect that entities such as MARS would respond by flooding the academic launch “market” with surplus solid-fuelled missile motors for use at their facilities. Finally, costs that are firmly tied to flight numbers would reduce the percentage margin as flight numbers increased if the market is fixed in dollars. Thank you for your comment.
An interesting comment in Transterrestrial Musings by David Summers:
Um, some comments on his accounting (or lack thereof) in the section “RLV flight costs at 100 per year”:
- Federal Corporate Taxes: 12,300 – note, if you are operating at a loss, there are no taxes…
- R&D for Future Development: 1,000 – future development is charged against future profits, not current operations. Treat future stuff like the separate investment that it is.
- Catchall (Including Margin): 28,810 – um, look, if half your numbers are in the “other” category, you aren’t presenting any data.
And look – if you subtract out those numbers, the $50,000 cost per flight becomes closer to $8,000… which is pretty darn close to the “required” $9,000 per flight. And, duh, they should raise prices if the presented scenario was even close to correct.
But it isn’t correct – to my knowledge, there is not a $100M market for suborbital flights right now. (see http://www.faa.gov/about/office_org/headquarters_offices/ast/media/3Q2008%20Quarterly%20Report.pdIf anything, there are a bunch of people willing to sink $1M of their money in order to fly there own rocket… so not only would this be a dumb idea because capitalism beats a command economy, but it wouldn’t even address anyone’s needs!
The Old Space Cadet responds:
- If you are operating at a loss, there are no taxes, but my article assumed an 18% minimum annual return to investors. That return comes from profits and profits are taxable. Dividends are not deductible as a business expense so they are essentially paid from after tax dollars. If the company is operating at a loss, there is no return for investors (unless it is a Subchapter S Corporation passing the losses to the shareholders).
- R&D should be charged against future profits for accrual accounting, but suppliers and subcontractors like to be paid for their services. Since the company can’t print money like Barney Frank, Chrisopher Cox, Barack Obama and their ilk, those payments have to come from somewhere – either the net revenue stream, liquid capital, or a line of credit. Given current economic conditions, how would you rank a line of credit as a source of R&D funding? Also, how often have we heard the mantra that revenues from some space-related activity could be used to fund future development – such as orbital tourism from suborbital tourism revenues?
- I was wondering if anyone would catch that one. Congratulations. However, remember range fees, integration costs, and insurance. UP Aerospace, using a solid-fuelled expendable sounding rocket that is essentially a legacy design, charges roughly $200K per flight. How that is distributed against range, integration, insurance, and EBITA is not public, but I bet the terms range fees and insurance could account for a lot of that “Catchall” term instead of the $1,000 each I used in my paper. Now consider insurance. The formula presented in the paper: J. M. Jurist, S. Dinkin, D. Livingston: When physics, economics, and reality collide: The challenge of cheap orbital access, American Institute of Aeronautics and Astronautics, AIAA-2005-6620 (Sept 05) by Dr. Sam Dinkin (a Ph.D. economist and insurance expert) when coupled with the insurance costs for Falcon-1 released by Elon Musk on a per pound GLOW basis for MPL suggest that a 98 percent reliable RLV would cost roughly $75,000 per flight for risk-based insurance. Oops, there goes the “Catchall” and then some.
- You are right about market size. There is not a $100 million suborbital sounding rocket market. It is much less than that. That strengthens my argument about the lack of market capable of recapturing the additional expense of an RLV vs. legacy ELVs. That also reduces margin. The underlying and unstated issue is a narrow academic need. A lot of intangible factors are addressed by such a consortium arrangement.
Thank you for your comments.
A fascinating comment in Transterrestrial Musings by Stephen Fleming:
And we can all eat at Taco Bell forever. Since it’s the only restaurant to survive the Franchise Wars of 2032.
The Old Space Cadet responds: ??
A bizarre comment in Transterrestrial Musings by Adam Greenwood:
Please, all my Great Depression warning lights are blinking anyway . . . and now we have folks talking about the inefficiencies of competition and the need to form industry wide trusts run by experts. AAAAH! What’s next, anti-semitism? Oh, wait.
The Old Space Cadet responds sadly:
This comment needs no response by me.
The other dozen or so comments in Transterrestrial Musings about socialism, socialized medicine, STS, etc.:
The Old Space Cadet responds again:
What does any of this have to do with a proposed university consortium generating a reusable sounding rocket design for academic use? What does it have to do with university corporate partnerships? There are several university consortia on the space payload side, but there isn’t one on the launch side (yet).
Anybody who knows me knows that I am anything but a socialist (especially when socialized medicine comes up for discussion). Are these comments representative of alt.space thinking? If so, I weep for our spacefaring future.
If you are for Alt-Space, Obama’s your candidate October 18, 2008Posted by shubber in public service announcement, space.
Having just returned from hearing Obama speak under the St Louis Arch with approximately 100,000 of my fellow Americans, I thought I would pass on this piece of his platform that I think was perhaps the most important for Alt.Spacers and one that I had not heard before today:
He will ELIMINATE capital gains tax for investments in startup companies and small businesses, in order to encourage that sector of the economy which drives innovation.
For those of you who are looking for investors or talking to investors (or have put your own hard earned $$ into your companies), this should be of particular importance to you.
SSP Makes Strange Bedfellows October 18, 2008Posted by shubber in smack talk, gauntlet being dropped, CRATS, public service announcement, space, distracting PR, hot air, solar power, Space Solar Power, sbsp.
It appears that Dr. Zubrin and I agree on something after all…
A recent email exchange between proponents of Space Solar Power (or as we sometime lovingly refer to them: those who gulp from the space kool-aid punch bowl), which focused on the cost of access to space and the apparent closing of the business case when we get launch costs down to $200/kg, led to this sage bit of wisdom from Dr. Zubrin:
The cost of transporting solar panels to Arizona is less than $1/lb.
That is why SSP is total bullshit.
Priceless October 10, 2008Posted by shubber in distracting PR, economy, public service announcement, Wasting Money.
SHUBBER ALI ON THE SPACE SHOW October 1, 2008Posted by drspaceshow in Uncategorized.
Tags: Alt.space, Cheap Access To Space (CATS), classics, Discovery TV, E-84, economic crisis, energy, ethanol, flex fuel engines, Greek, housing bubble, housing crisis, jobs program, Latin, M-84, methanol, NASA, NewSpace, oil, Shubber Ali, Space Cynics, Space Investment Summit, Space Solar Power (SSP), space tourist, spaceports, SpaceX, suborbital tourism, Thalia, venture capital, Walking Eagle Award
Listen to Shubber on the Tuesday evening, Sept. 30, 2008 episode of The Space Show. Shubber is hard hitting, witty, and at times, in your face with reality and facts. We had a surprise caller, Thalia.ad.astra! Listen to her questions and answers in her own voice. Yes, she is a real, independent person who called in from Seattle. During this show, you will hear Shubber do a hard analysis on our nation’s economic crisis and apply the consequences to space development now and for the future. Shubber dissects space solar power from the economic perspective, pulling the rug out from underneath those that belong to the Church of Space Solar Power as we discussed during our Cynics discussion roundtable at ISDC at the end of May. Other topics that Shubber addressed included the Zubrin plan for flex fuel engines to become energy independent, the gap, space tourism, both orbital and suborbital, space investment, venture capital, and financing. Other favorites, such as spaceports, were dissected with Shubber’s hard hitting, reality based analysis. If you listened to the program by means of this Space Cynics link and if you have comments or questions for Shubber, the callers, or for me, please post them right here on the Cynics blog, do not send them to me at my Space Show address. This is a transparent process, so please post right here. If you do send them to me, be advised that I will immediately post them on the Cynics blog as a comment, name and all. Also note that this is a Space Show program and as host of The Space Show, I obtained permission to link this Space Show program here with Space Cynics.