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This ain’t no stinkin’ drone… (wait for it) April 30, 2015

Posted by shubber in CRATS, Manned Space, space, space tourism.
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Just received this press release.

 

Happy Festivus!

Happy Festivus!

 

Although they have been operating under a fairly good shroud of secrecy, the wrapper is starting to be removed, and, like Christmas, we are beginning to see the awesome present that was under the tree…

So congratulations to another disrupter of the staid launch industry, Blue Origin, for the first developmental test flight of the New Shepard!

Although they didn’t stick the landing, they are already hard at work on getting their VTVL RLV technology working.

Which begs the question – how long until Amazon Prime provides 2-day free shipping to ISS..?

 

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I swear, this guy is one of us August 3, 2009

Posted by Thomas Olson in CRATS, hot air, investment, offworlding, space tourism, Wasting Money.
2 comments

Much love to Cynic-in-waiting Paul Contursi, who offered us this very cynical take on on-orbit refueling by Rob Coppinger. Equally entertaining are the comments.

What’s next? A note from his Mom? January 1, 2009

Posted by shubber in Congress, CRATS, distracting PR, gauntlet being dropped, hot air, Manned Space, NASA, public service announcement, smack talk, space, Wasting Money.
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5 comments

mophoto1275-300_

So in honor of our 300th post, i was planning to do a detailed examination of where we’ve been in the past couple years since the Space Cynics blog was started, how the industry has/hasn’t matured, predictions we (and others) have made that have/haven’t come true, etc.

And then I read this little gem.

Seems that Mike Griffin has been fighting pretty hard to keep his job when the new Administration takes over – and now he’s recruited his wife into the mix.  The headline:

Don’t Fire My Husband, NASA Chief’s Wife Begs Obama

Really? Have you no shame, Mike? It’s not like you’ve presided over any great legacy at NASA in your relatively short tenure under President Bush. You are beholden to your special interests in the military industrial complex, and only grudgingly have allowed any form of innovation or private sector involvement to participate in our development of space when forced, kicking and screaming, to adopt Zero G flights over the Vomit Comet or fund COTS – and even then you can’t do it right.

But to send out (via priority mail) copies of your speeches, as if anyone would want to suffer through them a SECOND time, was priceless.  Granted, it’s not like the total cost of mailing was even a rounding error in NASA’s budget – it’s about leadership.  The CEO of an organization, which is what you are for all intents and purposes, sets the tone for the people who choose to work for him.  When you engage in such behavior, it reinforces the wrong sort of message to the rank and file employees – no different than when the President chooses to get a hummer in the Oval Office from an intern and then lie about it on national television.

It’s about Leadership.

You missed great opportunities to engage in development of true CRATS, real hypersonics research, support initial studies into SBSP (yes, even though I am very cynical about it, that IS part of NASA’s job IMHO), and to put nails in the coffins of both VSE and the ISS, freeing up billions of dollars to fund the hardest part of the equation – getting out of the gravity well.

So, perhaps I can weave in a bit of “The 300” after all.   End your tenure with dignity, not sniveling before the next President begging for your job.  Or, even sadder, having your wife beg for you. DO your job, now, and then go out with pride.  If that’s still possible.

Alt.Space – The Thinkers and the Lunatic Fringe October 25, 2008

Posted by shubber in CRATS, gauntlet being dropped, hot air, investment, NASA, public service announcement, smack talk, space, space tourism, suborbital tourism, venture capital, Wasting Money.
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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 Article:
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
Propellant 1,000
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).

A solution
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.
References

  1. F. Eilingsfeld and D. Schaetzler: The Cost of Capital for Space Tourism Ventures. Proceedings of the 2nd ISST, Daimler-Chrysler GmbH, Berlin, German, 1999.
  2. Masten Space Systems, Inc. web site: http://masten-space.com/, Sept. 29, 2008.
  3. UP Aerospace, Inc. web site: http://www.upaerospace.com/
  4. Microcosm, Inc. web site: http://www.smad.com/ie/ieframessr2.html, Sept. 29, 2008.
  5. Garvey Spacecraft Corporation web site: http://www.garvspace.com/, Sept. 29, 2008 and John Garvey, personal communication, Aug. 13, 2008.
  6. Flometrics web site: http://www.flometrics.com/rockets/index.htm, Sept. 29, 2008.
  7. Garvey Spacecraft Corporation, loc. cit.
  8. 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”:

  1. Federal Corporate Taxes: 12,300 – note, if you are operating at a loss, there are no taxes…
  2. 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.
  3. 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:

  1. 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).
  2. 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?
  3. 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.
  4. 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.

SSP Makes Strange Bedfellows October 18, 2008

Posted by shubber in CRATS, distracting PR, gauntlet being dropped, hot air, public service announcement, sbsp, smack talk, solar power, space, Space Solar Power.
6 comments

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.

Well said.

What Would Warren Say? April 6, 2008

Posted by shubber in CRATS, gauntlet being dropped, investment, public service announcement, PYMWYMI, smack talk, space tourism, suborbital tourism, venture capital, Wasting Money.
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(NOTE: this post courtesy of the Old Space Cadet)

When I was a wee young lad in the mid 1960s I bought some stock because of my confidence in the company’s principal. His name was Warren Buffett. Since then, I have made a point of treating the annual reports of Berkshire Hathaway the same way many people treat outstanding textbooks. The latest is no exception. Substitute any of the terms alt.space, space tourism, new space, or suborbital tourism for the term airline in the following Buffet comments from the Berkshire Hathaway Inc. 2007 Annual Report, (Page 8):

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.

The airline industry’s demand for capital ever since that first flight has been insatiable. Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it. And I, to my shame, participated in this foolishness when I had Berkshire buy U.S. Air preferred stock in 1989. As the ink was drying on our check, the company went into a tailspin, and before long our preferred dividend was no longer being paid. But then we got very lucky. In one of the recurrent, but always misguided, bursts of optimism for airlines, we were actually able to sell our shares in 1998 for a hefty gain. In the decade following our sale, the company went bankrupt. Twice.

Given the regulatory environment, economic volatility, and gigantic entry barriers associated with alt.space, and given the frequent demands of the alt.spacers for “airline-like” operations for their fantasy spaceships, could Warren Buffet possibly be making a valid observation? If we are truly not quite into the DC-3 era of space flight, perhaps now is the time to think things through very carefully.

C’mon lucky number 7! Baby needs a new pair of shoes… February 25, 2008

Posted by shubber in CRATS, death, distracting PR, hot air, Manned Space, NASA, public service announcement, smack talk, space, Wasting Money.
8 comments

diceroll.jpg

Can anyone see the flaw in this logic:

Senior engineers working on the Ares 1 have determined that there is a high degree of danger of catastrophic shaking vibrations in the launch vehicle, with the expected bad outcome for those brave souls sitting on top. (See previous post on this topic here).

Aviation Week Article on Ares 1-X

NASA decides that the best way to verify this risk is to go ahead and build the vehicle and then see if it does in fact shake itself to bits… and if there are such problems, they can incur the expected enormously huge cost overruns necessary to fix those potentially fatal flaws (because NASA is rolling in the $$$… no, scratch that, I was thinking of the DoD. Nevermind). The contractors will of course be happy to eat the cost of the overruns and not pass them on to the taxpayers, because they designed a flawed rocket.

Ha ha! Nah, I’m just kidding.</Bender voice>

Oh, and while I’m not a big believer in the “stand back, give us the money, and let the private sector do it” mantra of the alt.space community, they have a valid point in raising the apparent hypocrisy of Mr. Griffin’s comment that NASA can’t do such a thing because it can’t rely on the private sector for its critical path.

Although I wouldn’t necessarily call it hypocrisy. More like irony.

Where’s Danny Ocean when you need him…?

(hat tip to Walking Eagle award winner Edward Wright, for sending out a link to this article)

2008 Legislative Blitz – February 10-12 – Washington DC January 8, 2008

Posted by shubber in Congress, CRATS, gauntlet being dropped, Manned Space, NASA, public service announcement, PYMWYMI, space, space tourism, suborbital tourism, Uncategorized, Wasting Money.
4 comments

US Capitol building In 2004, a group of thirteen premier space advocacy groups joined together under the Space Exploration Alliance to have their voices heard. The first SEA “Blitz” brought together 76 space enthusiasts from around the country. They converged on Washington, D.C. and talked to over 200 congressional offices in support of NASA’s bold and substantial mandate for human and robotic exploration of the solar system.                  -from the Space Exploration Alliance’s blitz webpage

Unfortunately, back then there was no one to act as the contrarian voice in the wilderness when it came to space advocacy… but not this time.

From February 10-12, 2008, while the Space Exploration Alliance is holding its annual Legislative Blitz, it is time for those of us who are sick of the kool-aid crowd holding the space agenda hostage to raise our collective Cynic voices and say (cue Jean-Luc Picard):

The line must be drawn HERE! This far – no further!

This year’s SEA blitz focus is an attempt to get Congress to change their mind in their attempts to either delay or derail NASA’s Moon-Mars plans. Apparently they are perturbed that some members of Congress have stated that the money directed towards the new Orion spacecraft would be better spent on other initiatives.

Those Congresscritters are correct.

Unfortunately, Congress has, historically, been quite happy to fund ridiculous NASA programs of yore, from the purposeless Shuttle to the even more exorbitantly priced, yet decidedly worthless, ISS. And they were SO close to killing it, too, before they bought the Goldin big lie hook line and sinker…

As the SEA rightly points out, barring a declaration of martial law and suspension of our elections, we will have a new President of the United States in less than one year. What would be nice is if we can actually dispell the mythos of human spaceflight from the political banter and get a NASA administrator appointed who would, to continue with the movie quotes (cue Al Pacino):

I would take a flamethrower to this place!

SEA states that the next few years are critical to our human space program. They are right – with the proper decision making, we can stop focusing on flag and footprint bogus programs such as going to the Moon and then going on to Mars. And we can put our efforts purely into CRATS. Hey, there’s a thought.

Come and counter the voices of the hucksters and their gullible followers – while you won’t receive any necessary training, if you are over 21 I will buy the first round at a local watering hole and help arm you with talking points for your walk through the corridors of power. You will find this experience rewarding and a lot of fun! Because nothing is better than watching a space tragic get apoplectic when you deride their precious “vision” for space exploration.

See you in Washington, D.C.

Outsourcing – > Offshoring – > Off-worlding? November 3, 2007

Posted by shubber in CRATS, investment, offworlding, space, Uncategorized.
10 comments

My fiancee works as a human resources executive for a large global call-center outsourcing business. As a result, I get to hear great stories of life in the outsourcing world (having “worked” briefly in call center ops myself when I was at Capital One – our group was responsible in part for the call centers they ran for all of those late payers out there – I can empathize with her pain to some extent…).

We were recently having a discussion of space and my upcoming “state of the industry” talk at the Space Investment Summit in San Jose in December. I was attempting to explain to her why I don’t like to refer to space as an industry – because space is just a medium, a place, somewhere to do something. There are lots of industries and companies that are involved in the use of space in some way – from the usual suspects (launch companies, satellite builders, satellite television and data relay companies, terrestrial navigation companies that leverage a free signal from space, imagery companies, etc) and the not-so-usual but in many ways equally important suspects (financial banking institutions, legal, regulatory, PR, and other “support” businesses that may serve some clients who utilize space but hardly consider themselves a “space” business).

One of the things that has bothered me about the whole NewSpace ™ movement is this belief that, aside from government, not much has happened in space in the almost 40 years since Apollo, and that the magical hockey stick (or is it hokey stick..?) is just on the horizon now that the billionaires are playing in the sandbox and a few tourists have flown to ISS.  Leave aside for the moment that the price for an ISS holiday, counter to the loud claims being made when Tito first flew that this was the foot in the door, and that space was becoming more affordable…. until someone quietly pointed out that the price has been going UP.  That pesky economics and supply/demand law keeps getting in the way.  Damn that invisible hand.

The reality is that space as an industry is over $100 billion and growing.  In 1997, while I was at KPMG, we published the State of the Space Industry: 1997 Outlook report, which segmented and quantified the industry into various areas including telecommunications, GIS/Remote Sensing, Navigation, Launch, Ground Systems, and a few others.  What we found at the time was unsurprising, at least to us – that the “industry” was vibrant, growing, and consisted primarily of three groups:

  1. Companies serving government
  2. Companies serving customers on the Earth
  3. Companies serving the two categories of companies listed above

Category 1 is not terribly interesting, because government is a fickle and oft-considered lousy customer.  Purchase cycles can drag out for years, programs can get killed for fiscal reasons, and, frankly, the profit margins while good in the slow years aren’t necessarily comparable to what you can get in the private sector when demand is high.

Category 3 represents all those service providers mentioned higher up in this essay (finance, legal, etc) but also those companies such as launch providers who exist solely to get the assets of companies in Categories 1 & 2 into orbit where they can do whatever it is they were designed to do.

Category 2 – this is the steak to the sizzle of NewSpace ™.  The companies in this category collectively generate tens of billions in economic activity by serving customers – be it for satellite television services, providing in-car navigation capabilities, delivering digital radio (a channel for every possible genre!), taking high-resolution photos, you name it.

Which leads to the connection to outsourcing.  The trend today (actually, throughout the decade) in outsourcing has been not simply to package up a high-fixed cost, low value add operational element and hire a contract firm to do it for you – but to hire that firm in an emerging economy or third world country (call centres in Bangalore being the most notorious example for some) in order to reduce costs and get a nice bonus for management in the Christmas stocking.  I won’t get into the damage it does to the employment base in the country – that’s the subject of an entirely different discussion.  But this latest trend, “offshoring”, is not terribly different to what was done in the manufacturing sector over the past 40-50 years.

In the real old days of corporate America, manufacturers would make things in the US and sell them to consumers in the US – primarily because in the post WWII world there were few other economies that could generate consumer demand (and the currency to pay for it) other than our own US economy (something about winning a war, having a huge now-underutilized industrial base and workforce, oh, and not having the crap bombed out of your infrastructure base during that war).

When you’re faced with the problem of customers in other countries not being able to buy your goods because they were too expensive (US labor costs PLUS the strong dollar didn’t make it easy), the simple solution for a manufacturer is to build a factory in the third world and make knock-offs using local labor for the local market. Sure, quality may not be quite as good, but it has the American brand on it and it’s still better than the local equivalent (perception or reality, or a bit of both, depending on the product…).  I’m ignoring this first step in offshoring as there is no real “space locals” market out there to serve more cheaply by making things in space than sending them up from the ground.  We’ll return to this part in 100 years or so.

Now, over time, as inflation in wages kicked in, workplace safety standards and regulations became more demanding, and international transportation logistics improved, American manufacturers (ever looking for a way to cut costs and reduce red tape) began to offshore production of high quality goods to factories set up in places that were more conducive to their ways of doing business. Initially, these products were still destined primarily for the home country – prices didn’t necessarily drop, but rather profits improved because the cost of goods went down while the consumer continued to pay the same (or nearly the same) price.  Companies were then being referred to as “multinational corporations” or MNCs.  Think about the last time you heard that expression…

Over time, of course, as other national economies improved, the quality of goods manufactured improved, and the prices came down (competition being a great leveling force in the market – huzzah for the invisible hand!) these overseas factories began exporting in quantity to other markets besides the home country, as well as continuing to sell back to the US – exploiting an economic advantage in production that US factories simply couldn’t match when labor costs were a key component of the total cost of goods sold.  MNCs morphed into “global” corporations, reflective of the grander scope of what they were doing.

Returning to the concept of the $100+ billion  space “industry” and, specifically, those category 2 companies – I would suggest that the commercial space sector today is in engaged in the equivalent of offshoring, or, perhaps more aptly: Off-worlding.  If you look at the companies operating in this business – be it XM Satellite Radio, Digital Globe, Direct TV, SES, Intelsat, or their brethren, what you will find is that they are not space businesses, but rather businesses that serve traditional consumers on the ground more effectively by using space as the medium through which they operate their services.  After all, when you are listening to radio in your car, it doesn’t really matter (beyond maybe 0.003 milliseconds of “wow, cool, this is coming from a satellite”) where the signal that you pay $10/month for comes from- because XM is serving a demand that already exists (audio content to engage you while you drive) but did it in a different and compelling way so as to convince people to pay for that which they previously received for free (just as people now pay up to $100/month or more for 500 channels of crap on TV instead of getting 3-10 free-to-air crap channels in the old day).

Commercial space (category 2) is still in the MNC phase of corporate development – and it is not until we have truly cheap reliable reusable access to space that we’ll get to the “global” phase (manufacturing/operating in space to serve customers in space).

So, when looking at a the potential prospects for a “space” company, ask yourself this: do they serve an existing market here on Terra Firma, in some uniquely, competitively, better way that allows them to make a decent profit and in a reasonable timeframe? If the answer is yes, then they probably have a decent shot at success, and may be a good investment opportunity.  But if the answer is no – you may want to think twice, and then a third time, just to be safe.  Serving customers that are in themselves dependent on demand from another customer set, which may also be dependent on demand from their own customers in turn, is a recipe for disaster.  Or for really bad launch forecasting (as we saw in the late 90s).

But that’s worthy of a separate blog post in itself.

Tap tap tap… October 21, 2007

Posted by shubber in CRATS, death, Manned Space, NASA, rocketplane, space, space tourism, suborbital tourism, Wasting Money.
4 comments

that sound, dear friends, is the sad accompaniment to the activity of driving a nail into a coffin.

RPK Coffin

In this particular instance, the coffin would be that of RpK’s COTS efforts. It appears that NASA has finally determined that RpK was not going to be able to meet the already missed milestones or upcoming ones, and has therefore informed Oklahoma City-based Rocketplane of its decision in a letter from Associate Administrator for Exploration Systems Rick Gilbrech.

In the next breath, of course, NASA then went on to mumble something about “A vibrant commercial space industry will help NASA fulfill its promise to support the International Space Station, retire the space shuttle and return humans to the moon.” This from Alan Lindenmoyer, manager of the Commercial Crew and Cargo Program Office.

Of course they’re going to say that. It’s not like they can ever just come out and fess up on what a colossal SNAFU the entire manned space program is, right? And just what vibrant commercial industry are they referring to, anyway?!?

Meanwhile, NASA says that the unspent money will be re-awarded to other aerospace firms in a new competition.

Here’s a question for those who are excited at the prospect of the money being up for grabs again…. Has anyone noticed a common theme amongst the new space access companies: SpaceX, Blue Origin, Armadillo, Virgin/Scaled, and even Beal (before it went bye bye)?

Here’s a hint: the investors/developers in these NewSpace launch technologies are all gazillionaires or backed by those people. So who does NASA plan to award the remaining $170+ million from RpK’s lost contract? I can’t say for certain, but i’m pretty sure I know who WON’T be getting the money…