Offworlding, Part II: Old Space, NewSpace, and RealSpace(TM)


During a recent email discussion between myself, other Cynics, and those involved in putting together the Space Investment Summit (SIS-3), the topic of Old Space and NewSpace was raised in the context of the Space Assets Protocol – specifically, that the Protocol would create a new international legal regime for the secured finance of satellites and other space assets that had the potential to in some way would boost investment in space projects.

Such a protocol already exists in the aviation environment, allowing for the financing of assets across nations by securing the rights of creditors to reclaim unpaid for items from borrowers, thus providing a level of comfort for the ultimate lenders and insurers that provide the capital and risk coverage. Without this, it would be difficult for an aircraft leasing company, for example, to provide an affordable aircraft to, say, Air Zimbabwe, because the act of repoing an airplane is a bit harder than going to get a car back from a deadbeat in, say, Los Angeles. (You’re less likely to find a pine-tree air freshener in the cockpit, too…)

Such a protocol in the space context, it is reasoned, would do wonders for investment in NewSpace companies, by providing the added security for lenders that they could take claim on an asset – even in space – if the borrower were to default. There are a few problems with this theory, though:

  • For NewSpace companies working on unique technology platforms, such as a new launch vehicle, they lack the basic concept of fungibility of the product, which makes the assets being financed much less attractive as an inherent guarantee for the lenders, because they can’t simply resell the unfinished rocket, for example, to another company, except maybe for a few components that might be transferable.
  • Even worse, unlike airplanes (which have a well-established market globally and thus can easily be re-leased to another carrier or user) many launch vehicles that are being marketed as reusable are not yet proven to be – especially in the case of early flight test articles, there may be nothing left (such as in the case of an accident) which again makes this an unattractive candidate for traditional financing.  And while airplanes, too, can have accidents, the failure rate in the much more experimental rocket business is orders of magnitude greater than in commercial aircraft, as the insurers and bankers will no doubt point out.

Which leads me to the term RealSpace (not actually trademarked, but you did hear it here first, folks!). Despite the hype of the community and their painting of space as some sort of David and Goliath endeavor where it’s either the big bad national space agencies and their bureaucratic wasting of billions of tax dollars or the scrappy little startups that are just about to break space wide open…. if only they had a few more dollars…. the truth is that there is a VERY successful, multibillion dollar COMMERCIAL space industry that quietly makes money, day in and day out, operating hundreds of satellites and piping fresh hot content to your computers, TVs, and even car navigation devices (oh, and power grids and timing networks and construction equipment and agriculture and… you get the idea). These are companies operating in the RealSpace economy – and, quite frankly, they are doing just fine thank you very much.

Would they benefit from a more streamlined regulatory environment (ITU anyone?) or a more friendly tax structure (Zero-G/Zero-Tax, for instance)? Of course they would. But, as with the expensive expendable launch vehicles that commercial satellite operators use today, these are costs they have factored into their businesses – businesses which are built and survive upon customer/consumer demand for the services that these RealSpace companies provide, and many (most?) of the customers don’t know or care that somewhere in the value chain of the product getting to them “space” was somehow involved

Just as I don’t really give a damn that the flash memory chips in my iPhone may have been manufactured in Taiwan.

4 thoughts on “Offworlding, Part II: Old Space, NewSpace, and RealSpace(TM)

  1. Big-time bonus points for the Repo Man reference. No matter the blog or the subject, references to Repo Man or The Big Lebowski make the author automatically one of the cool kids. And, uh, nice points about space insurance ‘n shit.

  2. Your critique of the Space Assets Protocol to the Cape Town Convention is reasonable. Nevertheless, the protocol still warrants full support of the space industry. It is true that many space assets are not fungible. However, satellite transponders are fungible and, as you know, are bought, sold and leased in a vibrant market. Transponder transactions would benefit from the protocol because buyers could finance the transaction more readily (in light of the fact that banks could then resell the transponder upon default to a large market of potential buyers). Fungibility in other areas will increase as the industry grows. And even if there is not a large spaceplane industry analogous to the airline industry, a spaceplane used as collateral will still have some value and provide some security – since the bank will likely be able to find another entrepreneur interested in buying a spaceplane at a discount. Although the benefits provided by the protocol may not be earth-shattering at this stage, this new law may assist in financing these expensive ventures – and I think we should do what we can to facilitate space ventures. It is true that the space industry has done quite nicely until now without a global secured transactions law – but there is no denying that secured lending is an integral part of modern finance, so why deprive the space industry of this very promising development in international commercial law? In the final analysis, the protocol can cause no harm – and it may indeed prove to be as beneficial to the space industry in the long run as it is to the aviation industry. So why not support UNIDROIT’s efforts? If such support is withheld because of the belief that it won’t provide immediate benefit, this opportunity to create a very progressive law for the space industry will be lost. Treaties are very difficult to draft, negotiate, and enact – now is the chance for the space industry to lock in this benefit for all future ventures. If we don’t move now, the project may be shelved and future generations will have us to blame.

  3. Has anyone studied the extent to which improvements in financing could accelerate progress on key goals of the space development community? I.e., in a quantifiable way? For instance, if there were aviation-style secured financing of satellites, to what degree launch volume would likely increase and thereby reduce access prices?

  4. Perhaps we should first quantify what the goals are, the market demand for specific solutions, and then make a realistic assessment of what firms could in fact make a difference in these areas with more strategic financing. A lot of “dumb money” has been pissed way on some very bad ideas because core business fundamentals were virtually ignored in the constant quest for the “coolness factor”.

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