Launch Contract Dispute Pits SpaceX Against Air Force, ULA

By Stew Magnuson
A long-simmering dispute between rocket-builder SpaceX and the Air Force over launch contracts came to the fore when the company’s founder, CEO and chief designer Elon Musk announced a lawsuit directed at the service at the National Press Club in April.

At issue was a sole source, no-compete contract awarded to United Launch Alliance to provide government customers 36 rocket cores over five years.

“Essentially what we feel is that this is not right. That the national security launches should be put up for competition and they should not be awarded on a sole source, uncompeted basis,” Musk said. SpaceX is asking that the contract be canceled and not awarded until its Falcon 9 rocket is certified by the Air Force and has a chance to grab some of the business.

In the press conference, Musk accused the Air Force of moving the “goal posts” back when it comes to certifying its rockets and wasting taxpayer dollars by choosing more expensive launch services over his.

“This contract is costing U.S. taxpayers billions of dollars more for no reason,” Musk said.
The last decade has seen many changes in the U.S. launch industry.

It began in the 1990s as the Air Force created the evolved expendable launch vehicle (EELV) program, and awarded contracts to two of the major defense firms, McDonnell Douglas — later acquired by Boeing — and Lockheed Martin.

The long-term goal was to reduce the high cost of sending payloads into orbit, and, more importantly, to create more dependable rockets after a string of high-profile failures.

The service wanted two competitors in hopes that they would bid against each other and reduce costs. The result was Lockheed Martin’s Atlas V family of rockets and Boeing’s Delta IV.

These new rockets had their inaugural launches in 2002.

The same year, Musk, who had recently sold his first company PayPal to eBay for $1.5 billion at age 30, announced in June at a lightly attended panel discussion on space entrepreneurship in Palo Alto, California, that he was going to jump into the space business. His start up Space Exploration Technologies (SpaceX) intended to compete with Boeing and Lockheed Martin on launch vehicles and spacecraft, he told a reporter for industry publication Space News.

Less than four years later, Musk launched his first Falcon 1 rocket. It crashed into the ocean after less than a minute. On the fourth try, the rocket succeeded in placing a payload into orbit in 2008.

The company moved on to its Falcon 9 rocket in 2010 and began to sign up government and commercial customers, which included Air Force and NASA payloads. Today, SpaceX has more than 40 launches on its manifest, 3,000 employees at its Hawthorne, California, plant, and is developing a “heavy” version of the Falcon 9. It has had nine successful launches and no accidents over the past four years.

Boeing and Lockheed Martin at the same time began a long streak of successful launches beginning in 2002. To date, the Atlas and Delta rockets have strung together 68 consecutive missions with no major failures.

The Air Force, National Reconnaissance Office and NASA place a high premium on dependability. The loss of one satellite can cost billions and put vital programs back by years.

The Air Force’s plan to pit Boeing and Lockheed Martin against each other to foster competition came to naught, when the two companies were permitted to form a joint venture, United Launch Alliance, in 2006. SpaceX filed an anti-trust lawsuit against the plan, which was dismissed.

Companies such as SpaceX and Orbital Sciences could compete for smaller payloads, but for the heavy national security satellites, ULA had a monopoly.

Orbital Science’s Antares rocket is lifting medium-sized payloads of around 11,000 pounds into low-Earth orbit. It has had three successful missions so far. Falcon 9 can send about 29,000 pounds to low-Earth orbit, and 10,600 pounds to geostationary orbit.

As per-launch prices grew, ULA and some officials in the government began advocating for block buys of engine cores. The company said contracting for several launches in advance would allow it to purchase long-lead items in bulk, and cut down on contracting expenses, which would in turn reduce costs.

The Air Force and NRO would join to purchase a certain number of rocket cores in a block buy. The cores are sometimes combined for heavier payloads or to send them higher into space, so one core does not necessarily equal one launch.

As SpaceX became a more formidable competitor, those agencies plus NASA in 2011 released specifications for certifying new rockets, so new entrants would not have to be qualified individually by all three.

A March 5 Senate Appropriations Committee defense subcommittee hearing titled National Security Launch Space Programs took a look at the current state of the heated debate, and put Musk in the same room as ULA Chief Executive Officer Michael C. Gass.

The ULA executive touted the company’s perfect record, and said competition would not necessarily be good for the nation.

“Over the past 17 years the [EELV] program has continued to deliver. Meeting the needs of our nation effectively and efficiently — delivering capabilities on time, on budget and while delivering on all of the programs original requirements,” he said.

“I believe there are substantive questions about how EELV competitions will be structured to ensure the competition is fair and open and whether it will actually deliver savings to our nation. Ultimately, the central question is whether savings from competition will be sufficient to offset the cost of duplicating existing capabilities,” Gass testified.

“We went from two competing teams with redundant and underutilized infrastructure to one team that has delivered the expected savings of this consolidation,” he continued.

Musk countered that the Air Force and other agencies are paying too high a price for launches.

“The impacts of relying on a monopoly provider since 2006 were predictable, and they have been borne out. Space launch innovation has stagnated. Competition has been stifled,” he said. He asserted that had SpaceX been awarded the missions ULA received under its recent non-competed 36 rocket core block buy, it would have saved taxpayers $11.6 billion.

Gass said: “We are investing in new technology and concepts to make our products better and more affordable. We are investing internal funds to develop a capability to launch two GPS satellites at a time, which will cut launch costs almost in half. ULA, along with our government customers, is reviewing every requirement and every process to eliminate any unnecessary or inefficient elements.”

Musk noted at the hearing that SpaceX had to meet a number of requirements that were never demanded of ULA’s rockets. It was required to successfully launch three Falcon 9 flights, which was achieved with consecutive successful flights in September, December and January without any government support. Under the certification agreement, SpaceX had delivered more than 30,000 data items to the Air Force and provided total access to its internal systems to more than 300 government officials.

“We are hopeful that the Air Force will work expeditiously so that we can compete this calendar year,” Musk said at the hearing.

By the April press conference, that hope had evaporated.

The lawsuit, filed in the Court of Federal Claims, argued that SpaceX had met the requirements when it turned over the data to the Air Force on March 22.

The Falcon 9 had supported NASA and the space station, science satellites [and] complex commercial launches into geostationary orbit, which is some 22,000 miles above the Earth’s equator, Musk said.

“It should be qualified to launch something quite simple like a GPS satellite. This really doesn’t seem right to us. We have tried every avenue to figure out why this is case,” he said.

Furthermore, the lawsuit questioned the legality of using the RD-180 first stage rocket engine, which is produced by NPO Energomash of Russia. Recent sanctions against Russian leaders over the Ukraine crisis would make the Atlas V engine on which it is used illegal, he said.

“Atlas V cannot possibly be described as providing ‘assured access to space’ for our nation when supply of the main engine depends on President Putin’s permission,” Musk said.

The court dismissed this part of the lawsuit on the grounds that there was no proof that money was going to those on the sanctions list. A ruling on other parts of the lawsuit is pending.

ULA during the Space Symposium held in Colorado Springs in May pushed back at Musk and other critics’ assertions that its rockets were too expensive.

It distributed a fact sheet to reporters, “Dispelling Myths About the Cost of EELV & United Launch Alliance.”

It cited a 2014 Department of Defense selective acquisition report that stated the block buy will save the government $4 billion over the next five years.

Musk at the press conference said ULA’s rockets are “insanely expensive.”

SpaceX launches commercial satellites for $60 million. Air Force mission assurance requirements add another $30 million to that cost, he said.

ULA per-launch costs have been cited as high as $460 million, but that figure is misleading, the fact sheet said. On average, ULA launch costs are approximately $225 million, with the lower capability version costing $164 million and the most capable — three times the performance — are $350 million.

The $460 million was cited by Sen. John McCain, R-Ariz., in an April 25 letter to the Defense Department inspector general asking him to investigate the block buy contract.

ULA said the $460 million per launch figure was arrived at by dividing the 2015 budget request by three launch vehicles scheduled for procurement, when the overall budget figure supports 12 launches and long-lead purchases of hardware for future missions.

McCain’s letter also referred to the Air Force apparently sliding back on a plan to leave 14 launches to be opened for competition through fiscal year 2017. That plan had been endorsed by Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall, who has stated that launch contracts must be competed.

The block buy contract stated that if there weren’t enough demand for 36 launches, the Air Force could dip into the 14 that had been reserved for competition and award them to ULA. The Obama administration budget request also reduced their numbers from 14 to seven.

McCain referred to testimony before the Senate Armed Service Committee by Air Force Secretary Deborah Lee James, who said demand for rocket cores may be reduced because GPS satellites are lasting longer than expected. McCain said that was well known before the Air Force signed the contract for the block buy in December, so he wants the inspector general to investigate why the service proceeded with the contract.

The ULA fact sheet repeated Gass’ remark at the hearing that there isn’t enough business to support another entrant in the launch market.

“The reintroduction of competitors to the current marketplace, coupled with the requirement to maintain multiple launch systems to ensure ‘assured access to space,’ may be more costly than simply maintaining a single launch provider. Competition may return the launch industry to the same market dynamics that led to ULA’s creation eight years ago,” it said. 

Gen. William Shelton, Air Force Space Command commander, said the service is working as fast as it can to certify SpaceX’s Falcon 9 for launch. It was spending $60 million and devoting 100 personnel to the effort, he told reporters at the Space Symposium.

He reiterated his belief that competition would be beneficial.

“Our overriding objective here is to get national security payloads to space reliably. So that has to be front and center of anything we do. But by the same token we know it’s costing a lot to get assets to space and we need to drive the price down,” he said.

He said he was surprised by the SpaceX lawsuit.

“They can’t compete, cannot compete, will not compete, until they are certified. And the fact that they have, that SpaceX has completed three certification launches, that’s just openers,” he said. “There’s a tremendous amount of analysis that needs to be completed and it’s in cooperation with SpaceX. This is a certification process that they willingly signed up to, and we will continue to work that certification process.” 

The first of the three Falcon 9 launches has been deemed acceptable, but the Air Force is still working its way through the data on the following two. There are other factors, including ensuring that the manufacturing and engineering processes are done correctly, as well as confirming that SpaceX has an auditable financial system.

“It’s very difficult to pick up the pace on [all] that,” Shelton said.

Topics: Business Trends, Doing Business with the Government, Defense Department, DOD Budget, DOD Policy, Space

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