Orbital Access Cat Skinning Methodologies

In order to discuss the business, finance, and policy approaches for creating low cost and reliable space transportation, it helps to have an understanding of the underlying technology, in order to provide context for those discussions. It also happens to be a lot easier for one trained primarily as an engineer (and whose business experience mostly comes from a couple of classes that I was able to sneak in during my formal schooling, listening to people who know more than I do, and a little bit of firsthand experience at the whole entrepreneurism thing) to discuss the technological part of the problem.

Last week, I was asked to do a remote guest lecture for a university course on space development (being run by Dr Livingston). It was somewhat flattering to be grouped in the same category as much more experienced space technologists, pundits, and businessmen such as Dennis Wingo, Michael Kelly, Jeff Foust, and others. As part of the presentation on developing reusable orbital transportation, I discussed a short list of orbital space transportation approaches that I felt were the most promising directions for development.

So, over the next several weeks, I want to take a little bit of time to introduce and discuss some of those proposed approaches for reusable orbital transportation. Now, a lot of this may be a boring rehash for fellow engineers and technologists, but hopefully I can provide some useful discussion for those coming to this industry from non-engineering backgrounds. I'm planning on discussing the basic concept behind each approach, the potential pros and cons, the unknowns that need resolving for said approaches, and some thoughts on incremental development methods for resolving those unknowns. I may also go into some of the other topics I discussed such as my ideas on reusable transportation markets.

My goal is to provide a basic understanding of where we are, what we think some potential solutions might look like, and an understanding of some of the more probable paths that could take us from here to there (technologically). With that information as a background, it will hopefully make it easier to discuss how business, financing, and government policy issues tie in with the technological situation.

Hopefully I'm not biting off more than I can chew.

DIRECT v2.0 and Orbital Propellant Transfer

Several people have already brought up the DIRECT v2.0 architecture paper that was rolled out at AIAA Space 2007 this last week, as well as the snazzy new website that the DIRECT team just launched. I just wanted to give a few of my own thoughts.

First off, I really got a kick out of the "safer, simpler, sooner" subtitle. Isn't it ironic how hollow ATKs claims about the Shaft appear these days. Oh well, there's no idea too stupid for an entrenched bureaucracy to fight for to the bloody end.

Ross, Chuck, the Metschans, Antonio, and the others deserve a good deal of respect for putting together a rather solid case. As I've said in the past, I think having NASA develop any new launch vehicles is a big mistake--launcher development and operations are NASAs core incompetencies after all. However, politics is the art of the attainable, and the DIRECT concept shows how NASA could develop an architecture that is not only more affordable, more robust, and more capable than the planned architecture, but more importantly is a lot more friendly to commercial cooperation. NASA's current concept of commercial and international collaboration--the notion that commercial space entities and foreign countries should eagerly wait with bated breath for the construction of a lunar outpost before any serious involvement--is a sick joke.

I was only very tangentially involved with the DIRECT team's v2.0 development, but I'm glad to see that some of the memes I've been trying to spread took root in their latest development.

The biggest and most important of these improvements over v1.0 revolves around orbital propellant depots. I may sound like a "Jonny-one-note" on this topic, but I'm still convinced that the ability to store and transfer cryogenic propellants on-orbit is one of the key enabling technologies needed for a spacefaring society. Ross and team did a very good job of highlighting how important such technologies can decrease the odds of losing expensive missions, enable a much more capable NASA lunar architecture, and provide a massive increase in demand for commercial launch services.

As I've mentioned many times previously here, with the current architecture, a delay on the Ares I launch will more or less doom the multi-billion dollar hardware already on orbit. The time pressures likely to exist in trying to get off a lunar mission within 14 days of the first launch greatly increase the odds of making fatal mistakes like have been made in the past. Now, it is probably possible to build stages that can last longer on-orbit without excessive boiloff, but by having the ability to "top-off" the tank, this issue completely goes away. At worst delays would necessitate launching some more fuel before leaving.

The ability to "top-off" the EDS in orbit, or to transfer propellants launched on one launch to the earlier launch can both greatly increase the payload capacity of a 2-launch mission. The problem with doing a 2-launch mission without propellant transfer is that it's very difficult to evenly divide a lunar mission into two roughly identically sized launches. One of the two launchers will end up launching substantially lighter. But if you can transfer propellants, you can now pretty much divide the payload evenly, because you have an infinitely divisible medium that can be transfered back and forth as needed. More importantly, with propellant transfer and dry-launch techniques, a single Jupiter-232 mission could perform the same mission as a much more expensive Ares-1/Ares-V combo.

On a related note, by having propellant transfer capabilities and infrastructure in both LEO and L1/LUNO, several design decisions can be revisited. Right now, with the fragile, no-orbital-infrastructure approach taken in ESAS, if the CEVs engines don't light for the Trans-Earth-Injection burn, the crew is probably dead. Even with an ISS-like base on the surface, unless they have a bunch of backup vehicles, there's very little chance of a successful rescue mission being mounted in-time. Issues like this are part of what drove the CEV back to using hypergols instead of higher performance cryogenic combinations. Once you have some infrastructure in space, such issues become inconveniences instead of fatal mishaps. If your engine doesn't light, you just redock with the L1 node, and wait for a rescue, or possibly try to effect a repair. Or maybe you could transfer propellant back to the lunar lander and head back for the surface, etc.

The most important benefit of the latest DIRECT architecture is the development of a potentially massive new LEO launch market. As I see it, there really are only two major potential markets out there for LEO delivery services that actually have the potential to generate demand for the dozens to hundreds of flights per year that would enable RLVs to really shine--personal spaceflight and propellant deliveries. And by designing a NASA architecture that intentionally takes advantage of such developments to the maximum extent possible, NASA could really help promote and catalyze the development of a robust commercial LEO launch industry. As the Centaur team pointed out over a year ago, even 2-4 moon missions per year would provide a several-fold increase in the demand for commercial earth to orbit launch services. And because propellants are even more finely divisible than people are, such a market could be very helpful for early orbital RLV operators.

But beyond the NASA demand for propellants, having NASA as an anchor tenant could be very useful for making propellant depots a reality sooner rather than later. As I've discussed in previous posts, propellant depots suffer from a chicken and egg kind of problem. Nobody is going to want to privately fund a depot before there are customers for such a depot, and nobody is going to want to fund businesses can act as customers for depots until the depots exist. It might be possible to break this chicken and egg problem without NASAs help by either finding a way to get a minimalist depot built for the low enough cost that someone would be willing to take the risk, or by trying to codevelop the depot and one of its potential customers...but both of those approaches are very uncertain from a business and a financing standpoint.

With NASA as an anchor tenant however, it becomes a lot easier for other businesses to then spring up that can take advantage of the new capabilities. Businesses such as cislunar tourism, or possibly changing the way upper stages are done today. For instance, a Falcon I upper stage refueled in LEO could deliver its full payload to GEO or LUNO, or even interplanetary trajectories. In fact, a Falcon I refueled in LEO could provide almost half the GEO capability of an Atlas V 401 (for a tiny fraction of the price). A Centaur stage refueled in LEO could put a Sundancer sized module into Lunar Orbit, etc.

But some have expressed concern about the idea of putting "risky technologies" on the critical path for NASA's return to the moon. They seem to believe that it would be best to take the lowest technical risk approach from the start, and then only add on things like propellant depots as after-the-fact performance enhancements. I think this view is shortsighted for several reasons, but first I'd like to draw an analogy. Back in the early Apollo days, there was a big debate over the mission architecture. One of the mission architectures that had a lot of favor originally was the "direct ascent" architecture. That architecture avoided the need for orbital rendezvous (which at that point was just as unproven and risky as propellant transfer is today), but at the cost of requiring a much larger NASA developed vehicle (NOVA). Had NASA not taken the smart move of putting "risky unproven technologies" like orbital rendezvous on their critical path, the Apollo program probably would've failed. As CFE points out in his latest blog post, if the Apollo program had taken the further technical risk of developing EOR technologies such as propellant transfer, they might have even been able to avoid the program cancellation that came from trying to run two very expensive launch vehicles.

If the ESAS architecture, by avoiding "risky unproven technologies" like propellant transfer, was able to provide a basic lunar transportation infrastructure for a couple of billion over a couple of years, it would be one thing. But in spite of avoiding any technology that really has the potential to make ESAS even remotely useful, they're still looking at spending $60-100B and the better part of two decades to develop a bare-bones lunar transportation architecture that's only a little more capable than the one fielded by NASA 40 years ago. What's the point in "avoiding technical risks" if it doesn't actually allow you to do things in a cheaper, quicker, or more sustainable fashion? By taking such a hyperconservative approach, and by abandoning most real new space technology R&D, NASA's setting itself up for stagnation over the next decade or so.

In life, and particularly in engineering, there are some risks that end up being riskier to avoid than to meet head-on and overcome. For NASA, orbital propellant transfer is one of them. So, I applaud the DIRECT team's latest release for its emphasis on this technology that's been neglected for far too long. The rest of the report is pretty good too...

I For One Welcome Our New, Scaly Overlords...

Well, it looks like Rand and Clark and Jeff are too busy blogging about the New Space conference to start synthesizing things yet, so I'll just make some comments on the big news from yesterday. In case you don't read Space Transport News every morning like most of the rest of us, it was announced yesterday that Northrop Grumman is buying out Scaled Composites. Unbeknownst to much of the alt.space world, Northrop has actually owned 40% of Scaled for some time now, possibly several years, so this move isn't quite as surprising to me as to some others.

Now, while some of the comments I've seen about the acquisition seem to "get it" (particularly comments from Nathan and Ferris over on Hobbyspace, and surprisingly enough, Mark Whittington as well), there still seems to be a lot of people who are worried that this will become a case of a "big dinosaur company gobbling up a plucky alt.space mammal." On the contrary, I would argue that not only is this acquisition likely to be a net win for Scaled, but in fact it may be one of the most important events this year for the future of commercial space development. Here's some thoughts on why:

Northrop's Skunkworks
First off, lets talk about why this particular deal is likely going to be win-win for both Northrop Grumman and Scaled Composites. Unlike Lockheed Martin, who has Skunk Works, and Boeing that has Phantom Works, Northrop Grumman really doesn't have an lean-and-mean R&D shop of the same caliber. Scaled comes with a reputation in that area that compares well with Northrop Grumman's competitors' secret projects shops, has the capability of doing important work very quietly, and has a longstanding relationship with Northrop.

With the size of Scaled's existing revenue streams, I wouldn't be surprised if the buyout was worth over $100M. Northrop isn't about to screw with a system that works so well that it's worth that kind of money, especially with how much Northrop would benefit from continuing to run Scaled the way it has been run.

The reality of Scaled is that Burt Rutan is eventually going to retire. Using Esther Dyson's meme of startups being either "toys" or "children", it is apparent that Burt is smart enough to realize that if he runs Scaled like his own personal toy, it won't outlast him. He's taking the probably painful step of letting his child grow up. By taking steps now, there's a good chance that Scaled will continue on long past his retirement as one of the world's premier aviation prototype shops.

I'm sure having a huge infusion of capital won't hurt Burt's aviation or space projects very much either.

Now, there are some real risks involved in such an acquisition process. Things don't always go smoothly, and there are bound to be some clashes of corporate culture even if Northrop tries to take a very liberal approach with Scaled. Things may yet get botched, but if they do, it will be because the execution was botched, not that the deal was a bad idea from the start.

Selling out to "The Man"
One of the comments I've seen many make is that Northrop is just buying Scaled to squash the competition. This meme of big, bad dinosaurs trying to maliciously destroy their mammalian competition needs to die. But this meme is even sillier in this particular case. I mean, what business exactly is Northrop supposed to be protecting by squashing Scaled? In fact, if we're talking about manned suborbital flight, none of the dinosaurs really have much to lose, because none of them are involved in that market.

More to the point, I'm not sure I'd even be worried about things if Boeing or Lockheed were the ones doing the acquisition. There may have been a time in the past where it was in the economic self-interest of some of the "dinosaurs" to squish their "mammal" competitors, but if there ever actually was such a time in the past, it doesn't appear to be the case any more. I mean, it should be an eye opener when the head of Exploration Systems for a dinosaur company is singing the praises of a launch vehicle being developed by one of their competitors. More to the point, and I think this is going to be a theme to be developed over the course of many blog posts in the future, I think that most of the big aerospace companies are starting to see New Space companies not as threats to be beaten, but as opportunities for collaboration. I truly believe that we'll see many examples over the next decade of alt.space and big.space companies working together to achieve things that would've been impossible to achieve alone. Heck, even some small parts of NASA are showing some positive trends in that regard.

Once again, the caveat has to be said that sometimes mammals can be squished accidentally even when the dinosaurs are trying to play nice with them. When you have firms of drastically different size working together like that, things have to be thought through carefully, because there are many ways the collaboration can be screwed up. But even with that caveat, I think that more often then not it is worth the risks to both sides to try and collaborate where common ground can be found.

But more on that at a future date.

Liquidity Events and "The Netscape Moment"
The last point I want to make about this deal, and the one that I think will be by far its most important impact, is what it means for investment in this industry. Investors typically don't risk large amounts of money investing in startups with the intention to just hold the resulting stock indefinitely. As one investor put it, if they wanted dividends, they'd buy utilities, not invest in startups. What investors want is a realistic exit strategy--basically an exit strategy is some way that down the road they can get their money back out with a severalfold increase. Since most of these startups are privately held companies, in order for investors to be able to "exit", there has to be some sort of "liquidity event." Due to both SEC restrictions, and the typical form of resulting stock agreements for privately held companies, it is very hard to actually sell stock held in a privately held company. In order to easily convert that stock back into liquid assets, the easiest way is if the company's stock becomes public. Which leads to the two main types of liquidity events that I've heard discussed for alt.space type companies: acquisitions by publicly held companies, and IPOs. Acquisitions being by far the most likely type of liquidity event for most alt.space companies.

Basically, as I understand it, when a private company gets bought out by a publicly traded company, the publicly traded company will usually buy the startup out using stock instead of cash. If an investor owns 10% of the privately held company after money, he'd get 10% of the stock in the public company doing the acquisition. That investor can then turn around and sell those stock to get his money back out to reinvest in other projects. [Note: if Steven or any other of the more investment savvy people are reading this and would like to provide clarification, I'd love to have your comments].

What this transaction shows investors is that there really is a realistic exit strategy for successful alt.space firms. When investors start realizing that they can put money into a promising alt.space startup, and that if all goes reasonably well the company has a good chance of getting bought up by a big, publicly traded aerospace company a few years down the road, you'll start seeing more investors willing to make the plunge. When people start seeing that it really is possible for them to turn a small fortune into a bigger one in this industry (instead of the other way around as the joke usually goes), you'll start seeing a lot more of them becoming interested. As it is, without valid examples of good exit strategies in and industry, its hard to attract much investment even if you have a rock solid business case and a top-notch team.

Now, I think this particular deal isn't like our industry's "Netscape Moment", I think we're definitely getting closer. I also doubt that this acquisition is going to lead in the immediate near term to wholesale buyouts of alt.space companies by big.space companies. However, I wouldn't be surprised to find out several years down the road that this event led to several big.space companies starting to make small strategic investments in the more promising alt.space companies, opening the door for future acquisitions.

So, if a couple of months or years down the road you hear about XCOR or Masten or Armadillo or even SpaceX "selling out to The Man", it might be worth reserving judgment for a while. You never know what might come of it.

Space Venture Finance Symposium

I just wanted to put a quick word for a symposium that's going to be held in conjunction with ISDC this year that I thought some of you might be interested in. It's called the Space Venture Finance Symposium, and it will be held on May 24th (the day before ISDC begins). Details and registration information can be found here on the ISDC 2007 webpage.

While I did take as many business classes as they'd let me as part of my Mechanical Engineering Masters degree studies, I don't get to spend as much time these days doing things on the business side (other than my dabblings on this blog) as I would like. While a key part of symposiums like this is trying to help people who are interested in possibly investing in commercial space ventures meet some of the firms and get some introduction to the industry, I like going just to learn, to meet new people, and bounce ideas around.

I don't know all the major speakers there, but I can vouch for Stephen Fleming, Lee Valentine, and Esther Dyson. I always learn something new from them, and the coolest thing I've found is that they're perfectly willing (as time permits) to talk with and answer questions, even from younger folk like me. Oh, and I particularly need to make penance for missing half of Stephen and Esther's panel at Space Access...

So, if you're an investor looking for more info on this interesting new industry, or if you're a startup looking for ways to better raise money, or if you're just fascinated by this whole space entrepreneurism thing... I'll hopefully see you there.

Some Launch Economics

A commenter on my post about Soyuz launches from Kourou raised the question of whether launch prices would really drop with an increase in flight rate. This question may be due to discussions about a report prepared for NASA by a Dr Hertzfeld of GWU that was discussed on the Space Show last year. I've been meaning to discuss the topic of launch economics for a while, since it was raised during my Space Show, and also because its a rather important question to answer for the emerging space industry as a whole.

There are a few pieces of anecdotal evidence that leads me to believe that increased flight rates typically will lead to lower prices. This doesn't mean Dr H's research was wrong, or that I'm more knowledgeable about economics than he is (because I'm not), but might mean that some people may be drawing incorrect conclusions from his paper.

I remember at one point while developing our current line of rocket engines, we had found an analytical model to help us estimate a couple of design parameters. The model (which is a fairly well-accepted one) was suggesting that our design flat out wasn't going to work, and that we were going to have to try some drastic measures to get it to work. One of my coworkers though had been looking over actual data from our system, and questioned the model. It turns out that he was right, and as far as I can tell my understanding of this model (or possibly the model itself) was off by over a factor of 3! Ever since this situation, I've tried to be a little more humble about my capacity for correctly understanding things the first time, and have been a little less willing to brush-off inconvenient facts that ruin my otherwise perfect theories.

Two of the pieces of evidence that lead me to believe that there is something wrong with the theory that increases in flight rate won't decrease price are:

1. There is a lot of evidence that when you sign an order for multiple flights, you can usually negotiate a better per-flight price than if you order them one at a time. One publicly available piece of evidence corroborating this common knowledge is shown on the SpaceX site:
   

   Pricing and Performance
   SpaceX offers open and fixed pricing that is the same for all customers, including a best price guarantee. Modest discounts are available for contractually committed, multi-launch purchases.

   I'm sure that others that have dealt with launch providers (such as Dennis Wingo) could provide additional support to this piece of evidence--that "bulk buys" of launches will almost always net you a lower price per launch. The price reduction is probably modest mostly because most such bulk buy contracts are for a relatively small amount of launches spread out over several years.


2. As part of their study to try and determine if Atlas V could be used for servicing Bigelow Aerospace's planned Sundancer station, the ULA Atlas V team investigated the business case as well as the technical requirements. According to several sources, the total per-person price for a visit to Bigelow's station (including launch price, the price of the capsule flight, and the price of spending time there at the station) is actually substantially below what the current prices of Atlas V would suggest. One online article (whose numbers jibe with several other sources I've seen) states that:
   

   So how much will a space cruise cost the Average Joe? One week on the Sundancer alone will cost $7.9 million per person, predicts Bigelow. While pricey, it's a steal compared to the $20 million that Space Adventures, another orbital flight company, charges for a week-long whirl on the International Space Station.

   Even assuming the $7.9M/seat only covered the Atlas V launch costs (and all the info I've seen says that includes Bigelow's fee and the capsule providers fee as well as the Atlas V launch price) , you're talking about less than $60M for an Atlas V 401 flight. That's more than a factor of 2 drop from the current Atlas V 401 price, and is only possible because Bigelow is talking about providing for a much higher flight rate than the measly 1-2 flights per year Atlas V has been bringing in so far. Now obviously whether they will charge that price or not depends very strongly on if they think they can get enough demand to justify it. If Bigelow only buys 2-4 flights per year from them, the price will likely be a lot higher. But if the flight rate ever reaches the 16/year that Bigelow was talking about, their case can close on the $8-10M/person price point that Bigelow has been talking about.
   

While those two examples don't conclusively prove that in all situations increases in flight rate will drop price, they do show that that is in fact the case at least some of the time. Another commenter, Habitat Hermit, I think gave a much better explanation about the fundamental idea that governs whether prices will drop or rise--profit maximization:

[T]here isn't a conflict between demand & supply elastics (what you're reacting to) and profit maximization (what you're alluding to even if you manage to contradict yourself), quote contrary the two depend upon each other (which is sort of beautiful if you think about it and its consequences).

The launch industry's publicly traded companies will always seek to maximize their profits, they're even bound by the law to do this to protect the interests of their shareholders (privately owned companies without shareholders is a different story but I don't know of any currently available launch company that is).

Now as to whether the price will increase or decrease can be simplistically illustrated by where on the supply & demand curve the company presently is and where it is moving to. You are absolutely right that increased demand does not always lead to decreased prices and both scarcity and oversupply are important factors.

So what is the current situation?
- almost all launch companies are looking for more customers (could be interpreted as oversupply but it isn't, the correct term for this is overcapacity: the business as a whole has spare unused capacity it would like to fill to maximize its profits further)
- however it's not like the launch companies are constantly producing more launch vehicles than they have any use for (that would be real oversupply as well as the opposite of profit maximizing and if they did that the leadership would be quickly thrown out by the shareholders)
- there are plenty of available launch windows, especially for LEO (no scarcity)
- there is no lack of material or factory capacity for increasing the production of launch vehicles (no scarcity)
- most launch complexes can be easily expanded (and NASA is trying to get rid of a rather large one in an excellent location...)
- the main cost to the launch company is in maintaining the infrastructure and workforce required (fixed capital costs) and not in the launch vehicle production and launch itself (variable cost depending on units produced). Actually the fixed costs dwarf the variable costs, the two aren't remotely close.

Regarding the last point there are at least two things worth mentioning:
1. This is the explanation for why the barrier to entry into the industry is rather high unless you can evade or mitigate the huge fixed costs. A NewSpace company like SpaceX is able to attempt it because it is lead by an "angel" investor (Elon Musk) willing to spend a lot of money for little in return in order to establish the company. Another NewSpace company is attempting to evade the fixed costs by using air-launches (that would be t/Space) and thus has less of a need for money (but they're still struggling getting enough investors).
2. The second thing is that this is a very strong indication that increased production even if at a lower price would be more profitable. In other words if a somewhat lower price would bring in significantly more sales your total profit would rise (thus profit maximization).

What would cause the price of a launch for the customer to go up even though there was high demand? Scarcity in the launch industry. If the launch industry has little additional capacity and/or the fixed costs are no longer such a major cost relative to the product production and/or when investing in additional infrastructure (industry expansion) would not lead to increased profits through increased sales, then profit maximization would result in price increases to the customer (taking advantage of the oversupply of customers).

However that simply isn't the case in the immediate future and even an additional 40 Atlas launches a year would not make it so for the industry as a whole, likely not even for LM. It's also important to understand that guaranteed sales as would be the case with Bigelow Aerospace is somewhat different than one-by-one sales and makes any need for additional capital investments much more tenable (if theres should be such a need at all that is).

Might as well stop now or this is going to become very long and cumbersome. I guess any introductory textbook on microeconomics should do a better job at this than I have.

I could probably go on as well, but I think that Habitat Hermit put it very well. The ULA team will do whatever they think will lead to the most profit for their investors, as will any other publicly held company (and even most privately held ones unless they are owned and run by the sole investor--like SpaceX or Bigelow), and in many cases the best way to maximize profits will involve dropping their launch prices.

Dallas Bienhoff Space Show Interview

I typically don't get a chance to listen in on the Space Show too often. I work long enough hours that when I get home I typically don't have a 1.5-2hr chunk of time where I can set aside for personal time. However there was a talk this week about orbital propellant depots given by Dallas Bienhoff of Boeing that I was planning on trying to find a way to listen to. Alas, it turns out that it was scheduled at the exact same time as a dentists appointment I had previously scheduled, so I had to download the archive and listen to it at home. I've met Dallas at a few space conferences over the years, including the ACES conference out at NASA Ames in October 2005. When it comes to orbital propellant depots, he's one of the most knowledgeable people I know, so the show ended up being very interesting.

A lot of what Dallas said mirrors some of the points I've been making here. That propellant depots could greatly enhance the current lunar plan. That they could provide huge markets for commercial orbital flight. That NASA isn't going to develop one of these on their own. Etc. I'd just like to comment on a few of the things he said that got me thinking.

Dallas presented a paper at STAIF a few weeks back discussing the implications of a commercial propellant depot for NASA's ESAS architecture. He found that by using orbital propellant transfer, the amount of surface cargo that could be delivered in a single flight could be more than tripled. This would be enough to bring a Sundancer module, or a ISS derived module down to the lunar surface, even at the same time as bringing crew down.

The market implications are even more impressive. Just to support 2 NASA lunar flights per year, there would be demand for nearly 40 Falcon IX sized flights. When you compare this with the current global launch market, you can see how important this market could be. It's large enough that it could possibly provide flight rates high enough to help close the business case for one or more orbital RLV companies.

There has been a lot of discussion claiming that orbital propellant depots only make financial sense if SpaceX is successful with their Falcon IX. However at different points in his interview, Dallas clarified several things. First, he clarified that the reason he used SpaceX numbers so much was because they were publicly available information that he couldn't get in trouble for talking about. Second, in light of the high projected flight demand (40+ launches per year), a listener asked if Boeing or Lockheed's prices could drop far enough for Delta or Atlas to close the business case. Dallas skirted the question, saying that the idea was possible, and that it was under investigation. If the numbers I've heard for human rated Atlas flights are any indication, then there is a real chance that Atlas could be a contender. Quite frankly, with a market this big, it's almost guaranteed that there will be more than one supplier. Possibly even more than two or three. Third, he also discussed the possibility of buying foreign launches. He brought up the launch inclination difficulties associated with Russian launch sites, but what with Soyuz expected to start flying out of Kourou next year, that could change substantially. With foreign providers, there will be real competition going on, and the prices will likely be kept low enough, even without SpaceX, to make such a venture worthwhile. If SpaceX succeeds, all the better.

One thing that came to mind during his discussion of using foreign propellant launches was the fact that an international standard propellant transfer interface could be very useful at some point in the future. If someone like MDA of Canada (or any of a number of European or Asian companies) were to come up with a working, standardized interface design for propellant transfer, it wouldn't be ITAR restricted, and would likely greatly facilitate the use of internationally launched propellant tankers. I imagine such standards already exist in other markets like oil transport and such. I wonder if a prize for coming up with such a specification might be useful?

Dallas also talked about the concept of anchor tenants, and how NASA could possibly make things drastically easier by acting as one. Unfortunately, Dallas came to the same conclusion as I did--that while writing NASA entirely off a customer is probably premature, they haven't proven themselves to be very reliable or stable customers in the past. Basing your business plan on them buying propellant from you is a recipe for disaster. He did mention one possible alternative, which was interesting: Bigelow Aerospace. Now, that's still a bit premature, seeing as how they haven't yet orbitted their first manned space station, but they have expressed a lot of interest in cislunar transportation, lunar cyclers, and most recently landing whole lunar bases in a single flight. All of these could benefit immensely from orbital propellant transfer. So, once Bigelow gets his current projects brought to market, working with him might make a lot of sense.

Anyhow, I think Dallas painted a fairly useful picture of how close this technology is to primetime. There are probably ways to make a 1st generation propellant depot even simpler than he outlined, but I think he made my case that this is a near-term technology that can have massive impacts on commercial space transportation.

Listen to the whole thing.

SPACE Act of 2007

Here's an interesting one I saw over on Space Law Probe: the SPACE Act of 2007. Now, I'll be the first to admit that in spite of being rather vocal about space policy, I'm not exactly the kind of space activist who goes out and writes his congressman all the time. In fact, I'm not sure I ever have. I've never gone to March Storm, and doubt I will anytime soon, but I have to say that I think the general idea behind this act is intriguing.

The basic gist if I'm understanding it is that it would create a 7-member National Space Prize Board that would come up with prizes to encourage the commercial, scientific, exploratory, and national security applications of space. This board would be funded at the rate of about $100M per year, and could offer prizes of up to $400M without requiring special permission from Congress.

I have no idea if getting a $100M/year entity funded is realistic at all in these times of tight budgets, but the idea of having a prize entity that represents not just NASA, but the military, the Department of Commerce, and the Department of Transportation as well sounds like a good idea in general. By having the ability to give out bigger prizes, hold money in escrow, form partnerships with other government and non-government entities for funding/running prizes, etc this could be rather helpful.

What do you all think?

Faith: An Entrepreneurial Attribute

Something Mark said in reply to my last blog post reminded me that I've been wanting to write an article about the importance of faith in enterpreneurial endeavors. Mark states that (emphasis mine):

But there is no proof that any plan...will advance the day people return to the Moon by even a year, not to mention to a time when many people will get excited about it now.

The question is, what exactly does he mean by proof? What "proof" is there that the ESAS approach will work. Can Mark see the future well enough to guarantee with 100% certainty that NASA will through the ESAS plan place 4 astronauts on the surface of the moon within 12 years? No he can't. He believes that to be the case, but he has no more proof of the reality of that belief than any "Internet Rocketeer" does of the feasibility of their "pet plan". Now, I could go on about specific peaces of evidence that lead me to strongly feel that DIRECT, or some of the ideas I've talked about are likely to take far less time and cost far less money. But that's not the point of this post.

The point I want to make is that all entrepreneurism is based to some extent or another on the principle of faith. The LDS prophet Joseph Smith had this to say about faith:

[F]aith is the assurance which men have of the existence of things which they have not seen, and the principle of action in all intelligent beings.

If men were duly to consider themselves, and turn their thought and reflections to the operations of their own minds, they would readily discover that it is faith, and faith only, which is the moving cause of all action in them; that without it both mind and body would be in a state of inactivity, and all their exertions would cease, both physical and mental.

Were this class to go back and reflect upon the history of their lives, from the period of their first recollection, and ask themselves what principle excited them to action, or what gave them energy and activity in all their lawful avocations, callings, and pursuits, what would be the answer? Would it not be that it was the assurance which they had of the existence of things which they had not seen as yet? Was it not the hope which you had, in consequence of your belief in the existence of unseen things, which stimulated you to action and exertion in order to obtain them? Are you not dependent on your faith, or belief, for the acquisition of all knowledge, wisdom, and intelligence? Would you exert yourselves to obtain wisdom and intelligence, unless you did believe that you could obtain them? Would you have ever sown, if you had not believed that you would reap? Should you have ever planted, if you had not believed that you would gather? ... In a word, is there anything that you would have done, either physical or mental, if you had not previously believed? Are not all your exertions of every kind, dependent on your faith?

It's a lengthy quote, but one that I hope you can see is utterly relevant. In most areas of life, and especially in entrepreneurism, we have to deal with uncertainty and imperfect information, most especially about the future. We don't know for certain that something will suceed or fail until after we have tried.

And that is one of the main reasons why there even is such a thing as entrepreneurship. We can't see the future. There is risk inherent in everything. Entrepreneurs are people who see what they think is an undervalued resource or idea, and then act to bring that resouce or idea to its proper value. Inherent in this is faith. Entrepreneurial rewards entail entrepreneurial risks. Building an educated guess about the future and acting on it is the key to just about all progress in humanity. But it also comes with a lot of failure and a lot of ambiguity. In order to make any progress in this life, you always have to act before you have perfect information. Entrepreneurs are people who learn to accept this fact, and good entrepreneurs are the ones who find ways to act wisely even in the face of uncertainty, imperfect information, and ambiguity.

One of my teachers in college (himself a very succesful entrepreneur) said that sometimes in a project you can see the end, the beginning, and every step along the way, almost as clear as day. Other times, you can see the end, and the beginning, but not be certain about much past the first few steps, but you move forward anyone trusting that the path will become clear as you go. People who are incapable of handling these sorts of risks and ambiguity are not and will never be entrepreneurs. People who are too cynical and unbelieving will have a hard time ever making the leaps of faith inherent in any uncertain enterprise.

On the other hand, one really does have to be careful to neither be too cynical and unbelieving nor to be too trusting, gullible, and willing believing. There are lots of incorrect ideas, flawed plans, and bad ventures out there. There are even situations where in spite of the best planning in the world reality intervenes. The challenge in life is not determining whether to have faith--even the crustiest, most cynical of atheists or skeptics uses faith every single day of his life--but what to have faith in. In fact, that may very well be the biggest challenge in life.

So, while it may often appear that it is safer to be cynical, and to demand proof before action, the future belongs to those are willing to act based on evidence of things unseen.

[Update: The "Mark Whittington Award for Completely Missing the Point" goes once again to Mark Whittington...
I never said anywhere that one shouldn't do any due dilligence, and that one should jump into a venture without any evidence. Quite the contrary in fact. I was just pointing out that proof and evidence are not synonymous. Evidence shows that there is reason to believe something is true, but proof shows with certainty that something is true, and can only really happen after the fact. My only point was that in entrepreneurism, you have to act with a level of evidence that is always less than 100%. But I wouldn't want to keep Mark from providing us with some more entertainment from Planet Strawman]

Pay As You Go

One of the cutsie phrases that the current NASA Administration likes bandying about regarding their approach to exploration is "Pay As You Go". Kind of like O'Keefe's "spiral development", this pithy phrase is the latest fad at NASA. The basic philosophy behind "Pay as You Go" being that instead of coming up with an actual cost number, and asking for go ahead on what they know is an extremely expensive and bloated space exploration program, they instead try to live with their budget, and accelerate or decelerate their plans depending on funding. The idea being that if you don't actually specify a cost, it's impossible to have a "cost overrun"...

Gotta love that logic, eh?

The real problem with this approach as I see it, is when you factor in the fact that they're trying to run this as a jobs program to try and make the program as "unkillable" as possible. The idea being that while trying to reduce costs compared to the Shuttle a little bit, they want to keep as many former Shuttle employees employed as they possibly can. Who cares if the ability to attach ceramic tiles to an orbiter isn't really that important for lunar exploration? Who cares if most engineers in their right mind would get rid of the labor intensive, expensive, and dangerous SRBs in any future launch project? Who cares if it would be far cheaper to just buy existing launch services and focus instead on the orbital, translunar, and lunar portions of the architecture? This is about "butts in seats" in Utah, Texas, Florida, Alabama, California, Louisianna, etc.

The problem though is that if NASA doesn't get the big budget increases they want over the next few years, and they decide to "throttle back" the exploration development, something interesting happens...

Basically, if you are trying to keep the Shuttle team continuously employed, you have to keep paying them fulltime paychecks. Whether they're actually flying anything or sitting on their thumbs, they're collecting a fairly hefty paycheck every month. And SRB techs or Shuttle TPS techs can't exactly be moved over to engineering and plopped down in front of a computer and told to start running CFD analyses. These guys have lots of skills in maintaining the shuttle, but for the most part aren't exactly engineers.

So what? What that means is that as you "throttle back development" more and more of the exploration budget goes to just keeping people around, and less and less of it goes to actual bending metal, flying tests, firing engines, etc. As that percentage drops, it actually drags the development program out more than you would think, and can have a major impact on the end cost of the program. Especially after the Shuttle gets retired, when all of the technicians that need to be kept around to support Ares I and Ares V need to get paid out of the Exploration Systems budget every year, regardless of how long it takes to get Ares I and Ares V flying.

Let's look at a simplified example. A company has a project that requires about $2.5M in actual hardware, consumables, test articles, etc. and a fixed monthly cost for payroll and other overhead of about $250k/month. If the company is funded at a rate of $500k per month, the project ends up costing about $5M total and taking about 10 months.

But what if you "throttle things back"? What if the company is having a hard time raising money, and is only able to keep a trickle of $350k per month flowing in? If the company can't layoff employees, or shift them to part time (which may very well be the case if the company is doing something that requires lots of specialized skills), then the project ends up dragging out for over two years. In the end, it ends up costing $8.75M instead of $5M, with only about 28% of the money actually going to hardware.

Admittedly this is oversimplified a bit. If a company were in that situation, it'd probably have its engineers spend more time doing analysis, and low-cost tests, that might decrease the amount of overall tests a bit, and bring things back a little bit under control. But you get the basic point. If you have high fixed payroll and overhead costs, "throttling things back" doesn't eliminate cost overruns, it causes them. At least if you're intellectually honest. A program that ends up costing almost twice as much as it was supposed to because it was stretched out over a longer time has overrun its budget whether you declare that number up front, or play coy games about not knowing the costs.

If NASA were pursuing an exploration plan that didn't have such a large percentage of its funding tied up in maintaining large standing armies, multiple factories, etc. it wouldn't be so bad. If they were able to layoff employees (especially those not doing anything useful) when the money got tight, it also wouldn't be so bad.

Keeping the overall program cost from mushrooming due to delays would imply the ability to layoff excess employees at will. If your funding rate cut in half, and you were able to layoff half of your employees, you could theoretically still get done for the same budget, but just taking twice as long (ignoring all the details). Unfortunately this just isn't a reality, or if it is, it undermines one of the key arguments for Ares-I.

The argument goes that you need a bunch of these Shuttle employees to stick around for Ares V, and also to prevent a dangerous brain-drain from endangering any of the remaining shuttle flights (as people see their job ending and jump early). If you could really lay some of these people off without incurring these effects, the argument is bogus. If the argument is real, then you're stuck paying for them, even if they end up sucking up almost all of the exploration budget.

By going with NASA developed, owned, and operated HLVs for their space exploration plan, NASA has put itself in a situation where any decrease in funding is going to have a disproportionate effect on schedules and overall costs. If they had instead tried to build a more open-transportation architecture that mostly relied on existing and future commercial vehicles with NASA only developing the orbital, translunar, and lunar components, things would be a lot different. The percentage of exploration systems costs that were direct payroll and overhead would be much lower, which would make the project far less affected by temporary budget cuts or lack of budget increases. The overall cost of the project wouldn't go up anywhere near as quick, and the schedule wouldn't be impacted anywhere near as much.

As it is, if NASA can't manage to get something better than the full-year continuing resolution for this next year, the whole return to the moon might get delayed by several months to as much as a full year. With Democrats in charge of the House and Senate, large budget increases (or raiding money from Science or Aeronautics) are less likely to be allowed, which starts really raising questions about the political viability of NASA's exploration plan. The very thing that is being used to make the ESAS approach "unsinkable" (all of the jobs in all the Congress districts) may end up slowing the whole thing down so badly that it ends up putting the whole program at risk of cancelation at some future point.

This also highlights once again how critical COTS is to the survival of the whole ESAS scheme. If the budgetary situation doesn't end up being as rosy as ESAS initially planned (and even with unrealistic budget increases they still were coming in over budget for the timeline they're publically touting), and if COTS doesn't get the funding and support it needs to succeed, NASA may find itself spending almost its entire exploration budget on just maintaining ISS and keeping all those Shuttle people employed while they slowly try to develop Ares V and eventually start working on the other lunar transportation elements. If that were the case, and as the return to the moon date slides further and further into the future, do you really think that nobody is going to care just because they're staying within their budget?

Results obviously aren't the most important thing that Congress expects out of NASA, but they aren't entirely unimportant. At some point somebody is going to question the wisdom of continually blowing as much money as they do every year for so little in return.

Subeconomics Resource Transformation and The Fallacy of Technological Stasis

I just read a very interesting article on the Ludwig von Mises Insitute website, that got me thinking a bit about how to better explain my thoughts about how I think lunar markets will pan out. There are a lot of good points made in this article and I'm not sure I'll get a chance to go into all of them today, but I wanted to start off discussing one interesting idea that the author, Curran Kemp, presents:

Antarctic resources have been speculated for over a hundred years, but so far, most of the resources found have proven to be subeconomic. The economic model is based upon current prices, distances to market, and current technology. If the technology changes, then it becomes economic.

In other words, a resource is "subeconomic" if the cost at this point in time of bringing it all the way to market is high enough that it wouldn't be profitable to extract. A resource could be subeconomic for a variety of reasons. It could be found in too low of a concentration, or in an inconvenient form, or in an area that is expensive to access, or it could require technology development that would cost too much at this point to be worthwhile. Or there could be a lot of lower-cost sources or competitors on the market driving the price down, or the resource might require some technology or infrastructure development to become useable. You see many of these situations with oil for instance. There are places in the world that have oil in one form or another that would cost more to develop at this instant than you could probably sell them for, or which would be marginal enough compared to other investments that nobody would put money into them.

The important point to remember though about subeconomic resources is found in the last sentance of the quote above. The "subeconomic" resource of today may very well become an "economic" resource tomorrow. Technology does not stand still. As new technologies come into existance (some from within the industry, but many from other industries), the cost associated with harvesting a given resource will go down. Also as a resource becomes more scarce (or more highly demanded), prices go up, making some subeconomic resources become economically feasible. As other technologies come into existance, they create new demand for a given resource driving the price up. Crude oil today is worth a whole lot more than it was worth before Ford built the Model T for instance. The rise of the automobile has made many previously subeconomic resources of oil quite economic.

For an example of the transformation of a subeconomic resource to an economic one, imagine trying to make a business case for extracting oil from the North Slope of Alaska back in the '20s. People would've laughed you to scorn. "There's no way", they'd have said, "that could ever become economical". They might bring up the fact that there's no way you could extract and ship the stuff for even a fraction of what oil cost on the world market at that point. They might go into how difficult the environment to work in is or how the deep cold is more difficult than almost any other environment that's ever been worked in. They'd have been right. Artic Oil was subeconomic in 1920. However, in 2006, the situation is obviously no longer the same. Artic oil is definitely an economic resource now even though it wasn't previously.

Lets now look at a lunar example. Let's take the example of lunar Platinum Group Metals. In order to mine PGMs on the moon, you're probably going to need humans present, you're going to need to know where they are, and you're going to need lots of custom designed mining equipment. In order to get humans there starting from where we are, right this instant, you'll need a launcher, some sort of passenger vehicle/capsule, a lunar transfer vehicle, and a lander. With platinum running about $16k/lb here on earth, and about a 10:1 IMLEO to return payload ratio, you're also going to need to include development costs for a high-flight-rate RLV to get the transportation costs low enough to even have a chance. Factor in all the uncertainties, risks, time involved, etc, and it all adds up to Lunar PGMs being currently subeconomic. The total cost of developing all the hardware necessary and operating the system is currently more than the expected future profits, especially when you start factoring the time-value of money in.

However, reevaluate things 5 years from now. Bigelow flies Genesis 2 in a few months, decides to play it safe and do one more iteration before Sundancer, but Sundancer is in orbit by 2010, with Nautilus just getting there in early 2011. At least one of the three main vieing human orbital spaceflight providers (LM with Human-Rated Atlas, or the two COTS winners, SpaceX with Falcon IX/Dragon, and Kistler with K-1) is now flying people to orbit, with the total expected demand for flights between ISS and Bigelow being over 20 flights to LEO per year at a ticket price of about $10M per person. Lockheed has found a customer that wanted to use the Lunar Mission Centaur to put a much bigger payload in lunar orbit than could've been done otherwise, proving out the technology. Boeing has flown a lunar lander and rover as part of the Lunar Precursor and Robotic Program. LRO has flown as has the Indian probe, and the Chinese one. Using some clever techniques, a company thinks they've found good evidence between mascons and radar/IR data for a potentially large Ni-Fe meteorite impact site on the Moon with a large intact core.

If you reevaluate the costs at this point, there are now many of the items you would've needed that are either off-the-shelf, or at least you have some proven hardware that you can base your designs on. That slashes the development costs and timeframe substantially. Now you only need to fund development for a manned lander, the RLV, on-orbit propellant transfer, and all the lunar surface equipment. The risks are much lower, the timeframe closer, but the up-front costs are still high. Probably still subeconomic.

Take a look 5 more years down the road. Some commercial company has developed a business selling translunar flights using orbitally refueled Lunar Mission Centaur stages as the transfer system. Between demand for translunar tourism, and increased demand for Bigelow's second Nautilus station, some enterprising company is able to raise enough money to build a smaller, higher flight rate RLV for fueling, personel launch, and light cargo. Another company is in final development with Boeing or Lockheed on a manned lunar lander that they're planning on selling lunar tourism flights with. Bigelow announces that he's going to be putting a Sundancer station in at Earth-Moon L2 to support the various commercial and public lunar programs that are coming on-line in the near future.

Reevaluate costs then. Now the situation has changed enough that the lunar platinum may very well be nearing "economic". Some initial speculative money for follow-up, "ground truth" prospecting missions might now make sense.

Anyhow, ignore the specific timelines mentioned here. They're 100% speculative, and I can gaurantee that the future will not look exactly like what I'm talking about. I don't have a crystal ball anymore than the next guy. My point though is that resources that are entirely subeconomic now will not always be so. And that more importantly as technology and other business ventures progress, little by little new ventures will become economically feasible, and eventually those "completely economically unrealistic markets" may very well cease to be unrealistic at all.

Another important conclusion to draw is that lunar markets are going to develop organically if they develop at all. Communist style 5 or 20-year plans that try to determine all the things that need to happen for a market and then make them so are doomed to failure. The first bar of lunar platinum that gets sold on earth is going to be excavated by a different company than built the lander, which will have been built for a different market entirely, flown on a launcher provided by someone else and developed for something else, etc. You can't "plan" this stuff that far ahead. What you can do is try and figure out what the next steps are for a given project, and try and guage the market for when the right time to jump in is. It's business, it's risky, it's uncertain, it's messy, but that's how entrepreneurism works.

And it'll still probably get us back to the moon before our Glorious National Space Program does.