Competition and innovation are key ideals in American society, and they were the main focus on March 5, 2014 when the CEOs of SpaceX and United Launch Alliance (“ULA”) testified before the Senate Appropriations Subcommittee on Defense. The ULA, a joint venture between aerospace giants Boeing and Lockheed Martin, currently provides launch services for the U.S. National Security Space Launch programs. SpaceX, a relative newcomer to the space launch business, is seeking to break ULA’s current monopoly on national security launches and open the procurement process to other launch providers.
The EELV Program
In 1994, the U.S. Air Force initiated the Evolved Expendable Launch Vehicle (“EELV”) program to ensure that the U.S. military and civilian national security organizations would have reliable access to Earth’s orbit for spy satellites, military communications, and other important payloads. As originally conceived, the program would have selected a single launch provider from a competitive bidding process, replacing three aging systems with a new, improved launch vehicle. Cost savings would be realized through the use of common components and launch infrastructure, and the elimination of costly maintenance on outdated technologies. Based on projections of higher commercial launch activity, the Air Force revised its acquisition strategy in 1997 to select two launch providers, and it selected Boeing’s Delta IV rocket and Lockheed Martin’s Atlas V at the close of the selection process in 1998. The selection of two contractors was intended to promote continued competition between them.
In 2004, the Government Accountability Office (“GAO”) found that the EELV program had achieved significant cost-savings over heritage systems, but that the cost of the program was increasing significantly each year. On March 4, 2014, a GAO report found that costs had continued to increase since 2006, the year Boeing and Lockheed Martin joined their launch operations to form ULA. Due to a lack of transparency in accounting for these costs, it has been difficult for the government to identify and negotiate for lower prices in its contracts with ULA. Since they began launching in 2002, ULA’s Delta IV and Atlas V rockets have had a nearly perfect record of launch success.
The hearing on March 5 focused on several key issues related to the national security launch services procured by the Air Force. Reliability and affordability, the two original goals of the EELV program, were the main focus. Michael Gass, CEO of ULA, touted the 100% success rate for Delta IV and Atlas V launches and acknowledged the high cost of ULA’s launch services, but he insisted that ULA would work with the government to reduce costs. SpaceX’s CEO, Elon Musk, argued that SpaceX could provide launch services for much lower prices – about $90 million per launch compared to an estimated $380 million for each ULA launch, which would provide substantial savings to taxpayers. SpaceX uses an innovative approach to manufacture its rockets, with a focus on cost-effectiveness. Musk also highlighted the fact that Atlas V used Russian engines, which could lead to supply issues in the event of sanctions against Russia for its actions in Crimea or future conflicts, while SpaceX manufactures its parts exclusively in the United States. At the time of the hearing, there were 36 possible launches to be sole-sourced from ULA and 14 future launches open for competition, which SpaceX is seeking to win with its Falcon 9 rocket.
Competition and innovation are important drivers of industry, and they tend to lead to lower costs over time. Based on the current trend of rising costs for ULA’s launch services over the past decade, it does not appear that there is any significant pressure to decrease costs. The launches are a matter of national security and no other company currently has the ability to provide these services, for lack of certification. SpaceX is currently seeking certification based on its previous successful Falcon 9 launches and other criteria, but there is no guarantee that it will receive certification, and Falcon 9 will still have to compete against the proven Delta IV and Atlas V rockets for the additional launches. In addition, on March 7, 2014, the number of competitive launch slots was decreased from 14 to 7. Under these circumstances, costs are likely to continue increasing unless some substantive changes are made.
The remedy to this situation is to increase competition for national security launches. If SpaceX can deliver launches at the cost estimated by Musk during the hearing, then it has the potential to save taxpayers billions of dollars while accomplishing the same important national security function. Open competition should also drive down the prices ULA currently charges for its services, so even if SpaceX is not selected, savings may still be realized. The current status quo does not provide any incentive for ULA to reduce costs and it is therefore unsustainable. Increased competition is the best way to significantly reduce these costs.