Lesson 9 Archive Notes: June 2, 2010Posted by drspaceshow in Uncategorized.
Space Show Classroom Lesson 9: Launch System Economics & More
Tuesday, June 1, 2010
Archive Notes and Program Information
The Space Show Classroom Lesson 9 can be downloaded or heard at:
Guests: CLASSROOM. Dr. Henry Hertzfeld, Dr. John Jurist, Dr. Jim Logan. Topics: Lesson 9 Launch Systems Analysis and Economics. Please see The Space Show Classroom blog, Lesson 9 Archive Notes for information about this show ( https://spaceshowclassroom.wordpress.com). Lesson 9 focused on launch system economics, markets, demand, and the definition of commercial versus government launchers. In our fist segment, our guest panel expert, Dr. Hertzfeld, defined commercial which as you will hear was no easy task to do. While we considered definitions based on the type of contract, even the nature of the customer, we ultimately looked to the party assuming the risk to determine if the launcher or even industry was commercial or not. This is a must listen to discussion so don’t miss it as its comprehensive and our guests do a superb job in evaluating commercial as opposed to government. I asked Henry for the track record of government as an enabler of industry and mentioned the usual examples of airmail the railroads, and interstate highways. As you will hear, government has the potential to be an enabler of private industry but in the examples cited, Dr. Hertzfeld pointed out that there was already demand and a market so what government did was to improve development of an existing market. This is not the case for the launch industry because here the market for commercial other than for satellites has not yet been developed so government as an enabler must actually attempt to develop a market, not just make it more efficient. Again, don’t miss this discussion. We then turned our attention to examining cost plus contracting as opposed to fixed price contracts. We talked about COTS which is actually a Space Act Agreement and a Requirements contract, something that was used frequently by the coal and railroad industries and has some similarities to the launch industry. Listeners asked about lowering launch prices to stimulate market development and demand and compared to the idea to putting products on sale or cutting prices such as with cars or airplane tickets. As you will hear, Henry said the launch demand is inelastic so lowering prices does not mean much. As Dr. Jurist pointed out, often by law or regulation government is required to contract for the lowest possible price so a company could not lower prices for new customers and keep prices at existing levels for the government customer. That said, there have been examples where government arranged to pay higher fees for something to stimulate others but as you will hear, the market in these cases already existed. Our discussion turned to examining risks. It was said that in some cases, with a fixed cost contract the bidders will bid up their contract prices to compensate for unknown and uncertain risks so often fixed price contracts can be more costly than other types of contracts. Before this segment ended, we talked about the possibility of seeing a truly commercial launch industry evolve in several years where one does not partner with the government which is the case today. Our panel suggested that because of extremely regulated nature of the launch industry, partnering with the government is going to be the nature of the business. When asked if there were terrestrial industrial or business examples of this, the nuclear industry was cited. In our second segment, we talked about the upcoming Falcon 9 Space X launch and the possibility of undue pressure on the company given the launch timing and the space policy debate going on in government. We talked about keeping shuttle flying and it was said the downside of this was the amount of money it would take to keep it flying. We talked about the GAP and then about the problems caused by the continuation of cancelling government programs. This led to an entire discussion on the subject, the consequences of one program cancellation after another on those thinking of careers in the field, education, and more. As you will hear Dr. Logan say, this process is demoralizing. X-33 and Venture Star were cited among many other examples. This discussion took us back to talking about the uncertainty risk and the consequeseunces for having a system with this type of risk in the project. Later we talked about the Field of Dreams approach, that is build it and they will come. Our panel did not think highly of this approach to space development let alone the launch industry. Nuclear rocket propulsion came up again and while all of us want to see nuclear rocket propulsion developed, we were not sure it would change the demand curve of the elasticity of launcher demand. We agreed that the culture in the U.S. is still going to be a challenge to overcome to do anything nuclear in space plus the various NPT’s do not permit nuclear propulsion in space. Toward the end of this segment and the program, I asked our panel why we don’t fund space development and treat it with the importance all of us believe space represents for our future. I’m not sure we came up with a plausible answer to this often asked question but it does seem to require an answer, especially as we look at new space policy designed on limitations and what can be afforded or not afforded. If space is so vital, affording it should not be a question. Henry even said that government could choose to pay for space development even in these hard times. Its a political choice and a leadership issue. I then related a personal experience that I recently had at a local film festival. While it was based on the old question of why go into space when we have so much to do on Earth, this happened last month and I asked our panel members to address it. Listen to the story. On the next Open Lines, you can let us know what you might have done in such a setting. Remember that all questions and comments are posted on the blog at https://spaceshowclassroom.wordpress.com. Emails sent to me will be posted on the blog.