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+
+ - FUTURE MARKETS FOR COMMERCIAL SPACE
+
+[House Hearing, 109 Congress]
+[From the U.S. Government Publishing Office]
+
+
+
+ FUTURE MARKETS FOR
+ COMMERCIAL SPACE
+
+=======================================================================
+
+ HEARING
+
+ BEFORE THE
+
+ SUBCOMMITTEE ON SPACE AND AERONAUTICS
+
+ COMMITTEE ON SCIENCE
+ HOUSE OF REPRESENTATIVES
+
+ ONE HUNDRED NINTH CONGRESS
+
+ FIRST SESSION
+
+ __________
+
+ APRIL 20, 2005
+
+ __________
+
+ Serial No. 109-10
+
+ __________
+
+ Printed for the use of the Committee on Science
+
+
+ Available via the World Wide Web: http://www.house.gov/science
+
+ ______
+
+
+ U.S. GOVERNMENT PRINTING OFFICE
+20-541 WASHINGTON : 2005
+_____________________________________________________________________________
+For Sale by the Superintendent of Documents, U.S. Government Printing Office
+Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
+Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
+
+ COMMITTEE ON SCIENCE
+
+ HON. SHERWOOD L. BOEHLERT, New York, Chairman
+RALPH M. HALL, Texas BART GORDON, Tennessee
+LAMAR S. SMITH, Texas JERRY F. COSTELLO, Illinois
+CURT WELDON, Pennsylvania EDDIE BERNICE JOHNSON, Texas
+DANA ROHRABACHER, California LYNN C. WOOLSEY, California
+KEN CALVERT, California DARLENE HOOLEY, Oregon
+ROSCOE G. BARTLETT, Maryland MARK UDALL, Colorado
+VERNON J. EHLERS, Michigan DAVID WU, Oregon
+GIL GUTKNECHT, Minnesota MICHAEL M. HONDA, California
+FRANK D. LUCAS, Oklahoma BRAD MILLER, North Carolina
+JUDY BIGGERT, Illinois LINCOLN DAVIS, Tennessee
+WAYNE T. GILCHREST, Maryland RUSS CARNAHAN, Missouri
+W. TODD AKIN, Missouri DANIEL LIPINSKI, Illinois
+TIMOTHY V. JOHNSON, Illinois SHEILA JACKSON LEE, Texas
+J. RANDY FORBES, Virginia BRAD SHERMAN, California
+JO BONNER, Alabama BRIAN BAIRD, Washington
+TOM FEENEY, Florida JIM MATHESON, Utah
+BOB INGLIS, South Carolina JIM COSTA, California
+DAVE G. REICHERT, Washington AL GREEN, Texas
+MICHAEL E. SODREL, Indiana CHARLIE MELANCON, Louisiana
+JOHN J.H. ``JOE'' SCHWARZ, Michigan VACANCY
+MICHAEL T. MCCAUL, Texas
+VACANCY
+VACANCY
+ ------
+
+ Subcommittee on Space and Aeronautics
+
+ KEN CALVERT, California, Chairman
+RALPH M. HALL, Texas MARK UDALL, Colorado
+LAMAR S. SMITH, Texas DAVID WU, Oregon
+DANA ROHRABACHER, California MICHAEL M. HONDA, California
+ROSCOE G. BARTLETT, Maryland BRAD MILLER, North Carolina
+FRANK D. LUCAS, Oklahoma SHEILA JACKSON LEE, Texas
+J. RANDY FORBES, Virginia BRAD SHERMAN, California
+JO BONNER, Alabama JIM COSTA, California
+TOM FEENEY, Florida AL GREEN, Texas
+MICHAEL T. MCCAUL, Texas CHARLIE MELANCON, Louisiana
+VACANCY
+SHERWOOD L. BOEHLERT, New York BART GORDON, Tennessee
+ BILL ADKINS Subcommittee Staff Director
+ ED FEDDEMAN Professional Staff Member
+ KEN MONROE Professional Staff Member
+ CHRIS SHANK Professional Staff Member
+ ROSELEE ROBERTS Professional Staff Member
+ RICHARD OBERMANN Democratic Professional Staff Member
+ TOM HAMMOND Staff Assistant
+
+
+ C O N T E N T S
+
+ April 20, 2005
+
+ Page
+Witness List..................................................... 2
+
+Hearing Charter.................................................. 3
+
+ Opening Statements
+
+Statement by Representative Ken Calvert, Chairman, Subcommittee
+ on Space and Aeronautics, Committee on Science, U.S. House of
+ Representatives................................................ 9
+ Written Statement............................................ 10
+
+Statement by Representative Mark Udall, Ranking Minority Member,
+ Subcommittee on Space and Aeronautics, Committee on Science,
+ U.S. House of Representatives.................................. 10
+ Written Statement............................................ 11
+
+Prepared Statement by Representative Sheila Jackson Lee, Member,
+ Committee on Science, U.S. House of Representatives............ 12
+
+ Panel I:
+
+Mr. Burt Rutan, Scaled Composites, LLC
+ Oral Statement............................................... 13
+ Written Statement............................................ 17
+ Biography.................................................... 22
+
+Mr. Will Whitehorn, President, Virgin Galactic
+ Oral Statement............................................... 23
+ Written Statement............................................ 26
+ Biography.................................................... 28
+
+Discussion
+ 5-10 Year Commercial Space Industry Outlook.................... 29
+ Regulatory and Approval Process................................ 30
+ Similarities to Airlines....................................... 31
+ Export Controls and Tech Transfer.............................. 33
+ Economics of Commercial Space.................................. 35
+ Safety Concerns................................................ 37
+ Return-to-Flight............................................... 39
+ NASA Aeronautics............................................... 40
+
+ Panel II:
+
+Mr. Elon Musk, Chairman and CEO, Space Exploration Technologies
+ (SpaceX)
+ Oral Statement............................................... 44
+ Written Statement............................................ 46
+ Biography.................................................... 47
+
+Mr. John W. Vinter, Chairman, International Space Brokers
+ Oral Statement............................................... 47
+ Written Statement............................................ 49
+ Biography.................................................... 51
+
+Mr. Wolfgang H. Demisch, President, Demisch Associates, LLC
+ Oral Statement............................................... 51
+ Written Statement............................................ 54
+ Biography.................................................... 55
+
+Dr. Molly K. Macauley, Senior Fellow and Director, Academic
+ Programs, Resources for the Future
+ Oral Statement............................................... 56
+ Written Statement............................................ 58
+ Biography.................................................... 64
+
+Discussion
+ Cost of Access to Space........................................ 64
+ Emerging Space-based Markets................................... 68
+
+ Appendix 1: Answers to Post-Hearing Questions
+
+Mr. Burt Rutan, Scaled Composites, LLC........................... 72
+
+Mr. Will Whitehorn, President, Virgin Galactic................... 77
+
+Mr. John W. Vinter, Chairman, International Space Brokers........ 78
+
+Mr. Wolfgang H. Demisch, President, Demisch Associates, LLC...... 80
+
+Dr. Molly K. Macauley, Senior Fellow and Director, Academic
+ Programs, Resources for the Future............................. 81
+
+ Appendix 2: Additional Material for the Record
+
+Statement of Herbert F. Satterlee, III, Chairman and Chief
+ Executive Officer, DigitalGlobe, Inc........................... 84
+
+Statement of Peter H. Diamandis, President and CEO, X Prize
+ Foundation..................................................... 90
+
+
+ FUTURE MARKETS FOR COMMERCIAL SPACE
+
+ ----------
+
+
+ WEDNESDAY, APRIL 20, 2005
+
+ House of Representatives,
+ Subcommittee on Space and Aeronautics,
+ Committee on Science,
+ Washington, DC.
+
+ The Subcommittee met, pursuant to call, at 9:35 a.m., in
+Room 2318 of the Rayburn House Office Building, Hon. Ken
+Calvert [Chairman of the Subcommittee] presiding.
+
+
+
+ hearing charter
+
+ SUBCOMMITTEE ON SPACE AND AERONAUTICS
+
+ COMMITTEE ON SCIENCE
+
+ U.S. HOUSE OF REPRESENTATIVES
+
+ Future Markets for
+
+ Commercial Space
+
+ wednesday, april 20, 2005
+ 9:30 a.m.-12:00 p.m.
+ 2318 rayburn house office building
+
+Purpose
+
+ On Wednesday, April 20, at 9:30 a.m., the Subcommittee on Space and
+Aeronautics will hold a hearing to examine the future of the commercial
+space market and the government's role in that future. Last year, the
+President signed into law the Science Committee's Commercial Space
+Launch Amendments Act, which dealt with regulating one aspect of
+commercial space--private, human sub-orbital flights, which are
+generally intended for space tourism.
+ The first panel at the hearing will examine the potential for space
+tourism, with a focus on last year's successful flights by
+SpaceShipOne, the world's first privately-built and human-piloted
+spacecraft.
+ Built by famed aircraft developer Burt Rutan, SpaceShipOne last
+year won the Ansari X-Prize, a $10 million kitty raised by space
+enthusiasts to stimulate entrepreneurial interest in space flight.
+Rutan's ship was the first to fly to an altitude of more than 100
+kilometers twice in two weeks, beating 25 other teams from seven
+countries.
+ Virgin Galactic, founded by the Virgin entertainment and airline
+company owner Richard Branson, has announced plans to buy a fleet of
+spacecraft based on SpaceShipOne's design to carry tourists into sub-
+orbital space (an altitude not sufficient to orbit the Earth), possibly
+as early as 2008.
+ The second panel will examine the potential of the wider commercial
+space market, which includes rockets to launch satellites and the
+satellites themselves, which provide services ranging from beaming
+images of landscapes and weather patterns, to global communications and
+entertainment. The commercial space market has had a spotty record of
+success. The government is very involved in the commercial space market
+in a variety of ways, including providing permits for launches and
+insuring private parties against catastrophic accidents. Perhaps most
+significantly, the government is a leading purchaser of both satellites
+and launch services.
+ Another potential aspect of the commercial market--private
+provision of services for the National Aeronautics and Space
+Administration (NASA) to service the International Space Station--will
+not be a focus of this hearing.
+
+Witnesses:
+
+FIRST PANEL:
+
+Mr. Burt Rutan founded his company Scaled Composites, Inc. in 1982. For
+SpaceShipOne's achievements, Mr. Rutan this month received the Collier
+Aerospace Trophy, the most prestigious prize in aeronautics.
+
+Mr. Will Whitehorn is the President of Virgin Galactic and Group
+Corporate Affairs and Brand Development Director for Virgin Management
+Limited.
+
+SECOND PANEL:
+
+Mr. Elon Musk is the CEO and Chief Technology Officer of Space
+Exploration Technologies (SpaceX) in El Segundo, CA. He formerly
+founded two Internet companies, PayPal and Zip2 Corporation.
+
+Mr. John W. Vinter is Chairman of the International Space Brokers
+(ISB). ISB represents nine of the twenty satellite companies in the
+world and is the only insurance broker that is focused exclusively on
+the space industry.
+
+Mr. Wolfgang Demisch, the founder of Demisch Associates, LLC, is an
+aerospace financial analyst.
+
+Dr. Molly Macauley is a Senior Fellow and Director of Academic Programs
+at the Resources For the Future.
+
+Overarching Questions:
+
+ The Committee will focus on the following questions at the hearing:
+
+ 1. What is the outlook for the various aspects of the
+ commercial space industry over the next five to ten years?
+
+ 2. What should the government do or not do to encourage the
+ nascent commercial space industry?
+
+ 3. How can the commercial space industry avoid some of the
+ pitfalls that have led to unrealized expectations in the past?
+
+Background:
+
+The Rise of Commercial Space Industry and the Role of Legislation
+ From the dawn of the space age through much of the 1980s,
+governments dominated efforts in space. Governments financed and owned
+most satellites, which were launched on government-owned vehicles,
+including the Space Shuttle.
+ The Challenger accident in 1986, however, helped spur private
+sector ownership of both satellites and launch vehicles. After the
+Challenger accident, for example, government agencies, particularly the
+Department of Defense, viewed the Space Shuttle as too risky to be the
+sole launch vehicle for U.S. Government payloads and began looking for
+alternatives.
+ The Science Committee passed the Commercial Space Launch Act (CSLA)
+of 1988, which required NASA to purchase launch services for satellites
+from private companies rather than purchasing the launch vehicle
+itself. The CSLA ensured a market for the nascent launch industry by
+requiring the government to be a customer.
+ The CSLA also provided another element intended to foster the
+success of the new industry--indemnification against catastrophic
+accidents. Because a single launch failure had the potential of causing
+billions of dollars of damage should the debris fall on populated
+areas, the private sector argued that no private insurance company
+would offer coverage to a satellite company or launch provider unless
+the government agreed to indemnify (that is, pay for) at least a
+portion of the potential damages.
+ The CSLA indemnifies companies for catastrophic losses--losses
+above the amount of damages that private insurers calculate to be the
+maximum probable loss (for which private insurers themselves provide
+coverage) to a ceiling of $1.5 billion. While there is debate over
+whether indemnification is necessary as the satellite launch industry
+matures, Congress last year, led by the Science Committee, extended the
+indemnification provisions of the CSLA through December 31, 2009.
+ The CSLA also established a permitting process within the Office of
+Commercial Space Transportation (known as AST), now housed within the
+Federal Aviation Administration (FAA), for all private commercial
+launches.
+ Last year, as SpaceShipOne became the first privately funded,
+developed, and operated spacecraft to carry a person into sub-orbital
+space, the Science Committee passed legislation designed to foster a
+commercial space tourism industry. The Commercial Space Launch
+Amendments Act of 2004 gave AST explicit authority to permit launches
+with humans on board and provided guidance on how to use that
+authority. One key provision created a new kind of permit that would
+facilitate flights by experimental vehicles, modeled on the regime
+another part of FAA uses to regulate airplanes. (That part of FAA is
+known as AVR.) Another key provision limited the extent to which AST
+could regulate passenger safety in the near-term. (A summary of the Act
+is attached.)
+The Challenges Faced by Commercial Space Industries
+ Commercial space industries today include communication satellite
+developers (including radio, television, and telecommunications),
+launch service providers (whose customers include the government),
+satellite imagery companies, and perhaps soon, space tourism companies
+like Virgin Galactic and companies servicing the International Space
+Station.
+ One of the first challenges these companies face is securing
+financing. Space assets are expensive, and launching into space is
+fraught with risk. One or two launch failures can drive a company into
+bankruptcy. Finding investors is thus very difficult for new entrants
+in the space business, who frequently must court risk-seeking, ``angel
+investors'' rather than relying on more established financing firms.
+ Space industries must also secure insurance. But there are limits
+to the private pool of insurance available, which can pose a challenge
+to newcomers to the space business, who necessarily lack a track record
+to demonstrate their reliability to insurers. Moreover, costly failures
+in one portion of the space industry can affect the availability of
+insurance for the rest.
+ Perhaps the greatest challenge commercial space industries face is
+capturing a market large enough to sustain them. Unfortunately, their
+history of success in doing so has been spotty. The commercial
+satellite imagery or remote sensing industry has failed to develop as
+originally expected. But satellite radio seems to be gaining in
+popularity despite the abundance of free competition on more
+traditional airwaves.
+ Still, markets can be elusive. For example, optimism for
+communications satellite manufacturers ran high in the 1990s when
+markets opened in China and the former Soviet states, where there was
+little permanent communications infrastructure. Three U.S. companies
+raced to take advantage of the seemingly boundless opportunities.
+Iridium, a Motorola spinoff based in Chicago, was the first company in
+the race. It launched 66 communications satellites into orbit. Next was
+Globalstar, which had planned to launch 48 satellites.
+ But the ground-based cell phone industry was quicker. Its
+penetration into the former Soviet and Chinese markets soon rendered
+Iridium's and Globalstar's investments practically useless. Iridum's
+assets were ultimately sold to a group of private investors, which
+continue to own and operate Iridium today. (The Department of Defense
+continued to use Iridium throughout the change in ownership.) A third
+company, Teldesic, had planned to launch 288 satellites, but could not
+attract enough investors after the failure of Iridium and Globalstar.
+ As satellite producers saw their fortunes fade so did those
+companies who had hoped to put those satellites into orbit. Lockheed
+Martin and McDonnell Douglas had earlier invested large sums, aided by
+the government, to develop a new generation of launch vehicles. Boeing
+launches Sea Launch and the Delta series of rockets (obtained when
+Boeing took over McDonnell Douglas), and Lockheed launches the Atlas
+series of rockets. The Europeans have a competing Ariane rocket.
+ Unlike the Space Shuttle, these rockets are used only once, so they
+are known as Expendable Launch Vehicles (ELVs). The most advanced of
+the Atlas and Delta class vehicles, developed with the U.S. Air Force,
+are known as Evolved Expendable Launch Vehicles (EELVs). Elon Musk is
+developing a series of rockets dubbed Falcon, which he believes will
+launch at a significantly lower cost.
+ With the decline of the satellite industry, the rocket
+manufacturers were left with too few customers to easily recoup their
+costs. That has raised the cost of launches to the government. The
+recently released White House Space Transportation Policy is designed
+to find a way to provide enough business to keep two competing U.S.
+entities in the launch market. NASA's pending decisions on how to
+launch its scientific satellites and on how to launch the planned Crew
+Exploration Vehicle would affect the market.
+SpaceShipOne
+ Burt Rutan's SpaceShipOne is an effort to open a new aspect of the
+commercial space market--space tourism. Rutan had to complete two
+consecutive successful flights to earn the X-Prize. Those flights were
+not trouble-free. The vehicle rolled 29 times during the first flight;
+the vehicle shook but had only a ``little roll'' during the second
+flight, according to the pilot. No one was injured in either case.
+
+Questions Asked of the Witnesses:
+
+ In their letters of invitation, the witnesses were asked to address
+the following questions in their testimony:
+Mr. Burt Rutan:
+
+ 1. What is the future of your commercial SpaceShipOne program
+ and do you see other customers beyond Virgin Galactic?
+
+ 2. What should the government do or not do to encourage
+ commercial space endeavors?
+
+ 3. If you develop other vehicles, where would you expect to
+ find investors? Do you think the traditional investors of Wall
+ Street are likely to step forward?
+
+ 4. As you move into the commercial world, how do you expect to
+ be able to get insurance coverage?
+
+Mr. Will Whitehorn:
+
+ 1. When does Virgin Galactic plan to take ownership of the
+ five SpaceShipTwos that it has ordered from Scaled Composites?
+ How soon do you expect to be flying? When do you expect to make
+ a profit?
+
+ 2. What is different in preparing to take ownership of a fleet
+ of spaceships vs. Virgin Atlantic taking ownership of a fleet
+ of airplanes?
+
+ 3. What preparation are you engaged in for the commercial use
+ of these vehicles?
+
+ 4. What, if anything, should the government be doing or not
+ doing to encourage commercial space?
+
+Mr. Elon Musk:
+
+ 1. What business plan do you have to make your launch vehicle
+ a success in the commercial market?
+
+ 2. What do you see as the outlook for commercial space
+ activities in the next five years? The next ten years?
+
+ 3. What, if anything, should the government do or not do to
+ encourage the nascent commercial space industry?
+
+ 4. Are there implications for the commercial space industry as
+ you see it in the President's announced Vision for Space
+ Exploration?
+
+Mr. John H. Vinter:
+
+ 1. What kind of activities does your company include for
+ insurance purposes in its definition of ``commercial space?''
+
+ 2. As insurance brokers, what do you see as the outlook for
+ commercial space activities in the next five years? The next
+ ten years? How do you think we can avoid exaggerated
+ expectations for the industry, such as those that occurred in
+ the low-Earth orbit (LEO) market in the late 1990s?
+
+ 3. What, if anything, should the government do or not do to
+ encourage commercial space endeavors?
+
+Mr. Wolfgang Demisch:
+
+ 1. Considering some of the difficulties in the past for
+ commercial space business, (the low-Earth orbit launches
+ anticipated for Iridium, Teledesic, etc.) and the slow growth
+ of the commercial remote sensing industry, what is your outlook
+ for this nascent commercial space launch business and how do we
+ avoid the failures of the past?
+
+ 2. In the entrepreneurial commercial space arena, when would
+ you expect traditional Wall Street investors to become classic
+ ``risk-reward'' investors, in place of the ``angel'' investors
+ that we see today?
+
+ 3. What, if anything, should the government do or not do to
+ encourage commercial space endeavors?
+
+Dr. Molly Macauley:
+
+ 1. What kinds of activities would you include in ``commercial
+ space?''
+
+ 2. Is the U.S. the leader in ``commercial space?'' How does it
+ compare with the status of international commercial space?
+
+ 3. What do you think the government should do or not do to
+ encourage commercial space?
+
+ 4. What do you see as the outlook for commercial space
+ activities in the next five years? The next ten years?
+
+APPENDIX
+
+ Commercial Space Launch Amendments Act of 2004
+
+ H.R. 5382, the Commercial Space Launch Amendments Act of 2004, is
+designed to promote the development of the emerging commercial human
+space flight industry by putting in place a clear, balanced regulatory
+regime.
+ The Act assigns to the Secretary of Transportation jurisdiction
+over commercial human space flight and requires the Secretary to craft
+a streamlined experimental certification process for sub-orbital
+reusable launch vehicles. The Secretary of Transportation must ensure
+that only one license or permit is required to conduct human space
+flights. By its licensing or permitting of flights, the United States
+does not certify the safety of the flights for passengers or crew.
+ The Act requires the Secretary of Transportation to protect the
+uninvolved public when licensing commercial human space flights. The
+Act also requires that crew receive training and satisfy medical
+standards. Space flight participants must undergo appropriate medical
+exams and training requirements, and must provide written informed
+consent for their participation. For the first eight years after
+enactment of the legislation, the Secretary of Transportation may issue
+regulations governing the design or operation of a launch vehicle only
+if the design or operation has indicated likely safety problems through
+operational experience.
+ The Act extends the existing liability indemnification regime to
+the commercial human space flight industry, but excludes launches under
+an experimental permit.
+
+ SUMMARY OF H.R. 5382,
+
+ Commercial Space Launch Amendments Act of 2004
+
+ Introduced by Mr. Rohrabacher (CA) and co-sponsored by Mr. Boehlert
+(NY) and Mr. Gordon (TN)
+ Key features of the Act include:
+
+ The Act will make it easier to launch new types of
+ reusable sub-orbital rockets by allowing the Secretary of
+ Transportation to issue experimental permits that can be
+ granted more quickly and with fewer requirements than licenses;
+
+ Under the Act, permits will allow an unlimited number
+ of experimental flights, rather than requiring a license for a
+ single launch or small number of launches;
+
+ The Secretary of Transportation must ensure that only
+ one license or permit is required to conduct human space
+ flights;
+
+ The Act will require the Secretary of Transportation
+ to issue regulations for crews relating to training and medical
+ condition;
+
+ The Act will limit requirements for paying passengers
+ (or ``space flight participants'') a medical exam, training,
+ and to being informed of the risks of their participation and
+ providing written, informed consent;
+
+ By its licensing or permitting of flights, the United
+ States does not certify the safety of the flights for
+ passengers or crew;
+
+ For the first eight years after enactment of the
+ legislation, the Secretary of Transportation may only issue
+ regulations governing the design or operation of a launch
+ vehicle if the design or operation has indicated likely safety
+ problems through operational experience;
+
+ The Act will require paying passengers to execute
+ waivers of liability with the Federal Government; and
+
+ The Act will extend the existing liability
+ indemnification regime to commercial human space flight
+ launches, but the bill will not grant indemnification for
+ flights conducted under experimental permits, which will be
+ more lightly regulated.
+ Chairman Calvert. Good morning.
+ Pursuant to notice, I hereby call this meeting of the Space
+and Aeronautics Subcommittee to order.
+ Without objection, the Chair will be granted authority to
+recess the Committee at any time. Hearing no objections, so
+ordered.
+ Today, we are going to examine the future of the commercial
+space market. We are going to have two panels. The first will
+examine the success of the world's launch, the hopes of our
+nascent commercial space industry that led to a robust market
+for space tourism.
+ Burt Rutan's SpaceShipOne is a manned, reusable launch
+vehicle that has successfully flown twice in two weeks carrying
+the equivalent of three people. His team won the X-Prize in
+October, and last night, his team was awarded the 2005 Collier
+Trophy, congratulations, which recognizes those who have made
+the most significant achievement in the advancement of
+aviation.
+ Joining him will be Will Whitehorn, President of Virgin
+Atlantic. Virgin Atlantic will be buying the first fleet of
+five of a derivative of these spaceships that takes space
+tourists into sub-orbital space.
+ On the second panel, we have Mr. Elon Musk, the CEO of
+Space Exploration Technologies, or SpaceX. I was most impressed
+with the work his folks are doing when I was touring his
+facility in El Segundo. His company is developing a new family
+of launch vehicles, the Falcon. He will offer his insights on
+the business plan and how he intends to emerge as a success in
+this commercial space business.
+ Also, on this panel will be Mr. John Vinter, the Chairman
+of International Space Brokers. He will offer guidelines that
+the insurance community requires for those start-up companies
+and how they must compete with the established aerospace
+companies for insurance coverage.
+ Our third panelist is Mr. Wolfgang Demisch, a pre-eminent
+expert and financial analyst in the aerospace industry.
+ And finally on this panel, we will have Dr. Molly Macauley,
+a Senior Fellow and Director of Academic Programs at the
+Resources for the Future. Dr. Macauley will examine what the
+government should do or not do to encourage this start-up
+commercial space industry. She will give her predictions on how
+the industry will look in five to 10 years.
+ The history of success in the commercial space arena has
+been spotty at best. Today, I want to see how the government
+can be an enabler rather than a hindrance to this important,
+high technology industry. I am proud of the bill that this
+committee was able to get enacted last year, the Commercial
+Space Launch Amendments Act, which Congressman Rohrabacher
+worked very hard to get passed. This committee has had a
+history of interest in the commercial space industry, and I
+plan to continue that interest. I am hoping that we will glean
+information today that will be valuable as we put together our
+NASA authorization in the very near future.
+ I look forward to working with the new Administration, Mike
+Griffin, on this objective. I look forward to hearing from our
+witnesses today on this very important topic.
+ [The prepared statement of Chairman Calvert follows:]
+
+ Prepared Statement of Chairman Ken Calvert
+
+ In today's hearing, we are going to examine the future of the
+commercial space market. We are going to have two panels. The first
+will examine the success of the world's first private effort to launch
+a person into space and to launch the hopes of our nascent commercial
+space industry that may lead to a robust market for space tourism.
+ Burt Rutan's SpaceShipOne is a manned, reusable launch vehicle that
+has successfully flown twice in two weeks carrying the equivalent of
+three people. Last October his team won the privately-funded $10
+million X-Prize for the development of the first private, manned
+spacecraft to exceed an altitude of 100 km twice in two weeks, and last
+night, the team was awarded the 2005 Collier Trophy, an annual award
+that recognizes those that have made the most significant achievement
+in the advancement of aviation.
+ Joining Mr. Rutan on this first panel will be Mr. Will Whitehorn,
+President of Virgin Galactic. Virgin Galactic will be buying the
+inaugural ``fleet'' of up to five of the derivative vehicles of
+SpaceShipOne, named SpaceShipTwo. We are very interested in hearing
+when Virgin Galactic plans to take ownership and when they expect to be
+flying tourists into sub-orbital space.
+ On the second panel, we have Mr. Elon Musk, CEO of Space
+Exploration Technologies or SpaceX. I was most impressed with the work
+that his folks were doing when I toured his facility recently in El
+Segundo, CA. His company is developing a new family of launch
+vehicles--the Falcon. He will offer his insights on his business plan
+and how he intends to emerge as a success in this commercial space
+business.
+ Also, on the panel will be Mr. John Vinter, the Chairman of
+International Space Brokers. He will offer guidelines that the
+insurance community requires for those start-up companies and how they
+must compete with the established aerospace companies for insurance
+coverage.
+ Our third panelist is Mr. Wolfgang Demisch, a preeminent expert and
+financial analyst of the aerospace industry. He will address the
+outlook for the commercial space launch industry as well as outline
+when space is likely to be able to attract classic risk-reward
+investors to succeed the ``angel'' investors that we see today.
+ And finally, Dr. Molly Macauley, Senior Fellow and Director of
+Academic Programs at Resources for the Future, will examine what the
+government should do or not do to encourage this start-up commercial
+space industry. She will also give her predictions on how the industry
+will look in five and ten years.
+ The history of success in the commercial space arena has been
+spotty at best. Today, I want to see how the government can be an
+enabler, rather than a hindrance to this important, high tech industry.
+This committee has had a history of interest in the commercial space
+industry and I plan to continue to promote commercial space. I am
+hoping that we will glean information today that will be valuable as we
+put together our NASA Authorization in the very near future. I look
+forward to working with the new NASA Administrator on this objective.
+
+ Chairman Calvert. And with that, good morning, Mr. Udall.
+You may proceed with your opening statement.
+ Mr. Udall. Thank you, Mr. Chairman.
+ And good morning to all of us and all of you that are
+assembled here.
+ I want to welcome the witnesses as well, and particularly
+extend my congratulations, as did Mr. Calvert, to Mr. Rutan and
+his team on winning the Collier Trophy for their efforts on
+SpaceShipOne. This is a very prestigious and well-deserved
+award, and it puts Mr. Rutan in distinguished company,
+including Orville Wright, the crew of Apollo 11 lunar mission,
+and of course Mr. Rutan himself, because I just recently
+learned that you won the award back in 1986 as well. So
+congratulations. These are impressive accomplishments, and I
+think I speak for all of us when I say we consider you a real
+national asset. And we all hope you keep working and designing
+for many years yet to come.
+ Mr. Chairman, as you know, Congress, and this committee in
+particular, has long had a strong interest in promoting the
+growth of a healthy, robust commercial space sector.
+ Over the years, there have been some notable successes,
+such as the development of the Nation's commercial satellite
+communications industry.
+ There have also been some setbacks.
+ For example, the very optimistic projections made in the
+1980's for the emergence of manufacturing in space, solar power
+satellites, and so forth, have not been realized.
+ And finally, there are the commercial space transportation
+and commercial satellite remote sensing industries. These are
+industries in which there has been growth over the years as
+well as the promise of exciting new applications and markets on
+the horizon.
+ At the same time, the current reality is that both of these
+industries depend significantly on government contracts to
+maintain their viability.
+ While the primary focus of today's hearing is on emerging
+commercial space transportation initiatives, I hope that the
+witnesses will share their thoughts on the broader issues
+facing all commercial space companies, whether they be
+entrepreneurial start-ups or established companies fighting for
+market share.
+ The question, for example, of what helps determine whether
+a potential commercial space activity succeeds or fails, and
+what should government be doing, as the Chairman mentioned, and
+equally important, what should government refrain from doing if
+it wants to promote a healthy commercial space sector.
+ In that regard, I have received some written testimony
+submitted by one of the commercial remote sensing companies,
+DigitalGlobe, that addresses some of those broader issues. Mr.
+Chairman, I would ask unanimous consent that it be entered into
+the record of this hearing. (See Appendix 2: Additional
+Material for the Record, p. 84.)
+ Chairman Calvert. Without objection, so ordered.
+ Mr. Udall. And I want to thank you for convening this
+hearing, and I look forward to hearing from the witnesses
+today.
+ Thank you.
+ [The prepared statement of Mr. Udall follows:]
+
+ Prepared Statement of Representative Mark Udall
+
+ Good morning. I want to join the Chairman in welcoming the
+witnesses to today's hearing. And I would also like to extend my
+congratulations to Mr. Rutan and his team on winning the Collier Trophy
+for their efforts on Spaceship One.
+ Mr. Rutan, that is a very prestigious and well deserved award, and
+it puts you in very distinguished company, including Orville Wright,
+the crew of the Apollo 11 lunar mission. . .and of course Burt Rutan. .
+.because as I recently learned, you had already won the Collier trophy
+for the first time back in 1986.
+ That's a very impressive accomplishment, and I consider you a real
+national asset--I hope you keep working and designing for many years to
+come.
+ Mr. Chairman, as you know, Congress--and this committee in
+particular--has long had a strong interest in promoting the growth of a
+healthy, robust commercial space sector.
+ Over the years, there have been some notable successes, such as the
+development of Nation's commercial satellite communications industry.
+ There have also been some setbacks.
+ For example, the very optimistic projections made in the 1980s for
+the emergence of manufacturing in space, solar power satellites, and so
+forth, have not been realized.
+ And finally, there are the commercial space transportation and
+commercial satellite remote sensing industries.
+ Those are industries in which there has been growth over the years,
+as well as the promise of exciting new applications and markets on the
+horizon.
+ At the same time, the current reality is that both of these
+industries depend significantly on government contracts to maintain
+their viability. . .
+ While the primary focus of today's hearing is on emerging
+commercial space transportation initiatives, I hope that the witnesses
+will share their thoughts on the broader issues facing all commercial
+space companies--whether they be entrepreneurial startups or
+established companies fighting for market share.
+ That is, what helps determine whether a potential commercial space
+activity succeeds or fails? What should government be doing--and
+equally importantly--what should government refrain from doing if it
+wants to promote a healthy commercial space sector?
+ In that regard, I have received some written testimony submitted by
+one of commercial remote sensing companies--DigitalGlobe--that
+addresses some of those broader issues.
+ I would like to ask unanimous consent that it be entered into the
+record of this hearing. Well, Mr. Chairman, we have a wide range of
+issues to consider, and I look forward to getting the perspectives of
+today's witnesses. Thank you, and I yield back the balance of my time.
+
+ Chairman Calvert. I thank the gentleman.
+ And we are joined by Mr. Rohrabacher, the former Chairman
+of this subcommittee. Do you have any short comment? I would
+comment that what he is drinking there, ladies and gentlemen,
+is the energy drink. It is----
+ Mr. Rohrabacher. This is not beer.
+ I figured that your leadership, Mr. Chairman, would
+energize me, but just in case, I brought Red Bull.
+ Chairman Calvert. Well, it is appropriate that--at this
+hearing that you have wings. So----
+ Mr. Rohrabacher. All right.
+ Chairman Calvert. Without objection, the additional
+statements of other Members will be put in the written record
+so we can get right to the testimony.
+ Hearing no objection, so ordered.
+ [The prepared statement of Ms. Jackson Lee follows:]
+ Prepared Statement of Representative Sheila Jackson Lee
+
+Chairman Calvert, Ranking Member Udall,
+
+ I want to thank you for organizing this important Subcommittee
+hearing to discuss the Future Markets for Commercial Space. This is one
+of those topics where we realize the future we only read about is not
+too far from reality. Commercial space encompasses a number of
+different issues, some which are still be developed and others that
+have been an integral part of our lives for quite a while now. The only
+way to advance our prospects in this field is to invest in R&D and put
+our knowledge and skills to use for improving the lives of people.
+ Space tourism is a subject that seems like science fiction, but in
+fact that fiction is now close to being reality. SpaceShipOne, the
+world's first privately-built and human-piloted spacecraft built by
+Burt Rutan shows that individuals can indeed take part in space
+exploration. Rutan's ship was the first to fly to an altitude of more
+than 100 kilometers, completing the feat twice in two weeks. Now,
+Virgin Galactic has announced plans to buy a fleet of spacecraft based
+on SpaceShipOne's design to carry tourists into sub-orbital space.
+Clearly, the future is upon us, but realistically it will be many years
+before regular flights into space for individuals will be possible.
+Before we get to that stage, it is vital that we discuss all aspects of
+what this kind of space exploration will entail.
+ First among our priorities must be the issue of safety for those
+who would take part in such flights to space. In discussing NASA I have
+long said that safety must be the first priority, now with the prospect
+of average citizens being propelled into space the issue of safety is
+even more paramount. I would suggest that a separate commission be
+organized to discuss the safety parameters that would need to be in
+place to make it feasible for average citizens to enter space. Clearly,
+as time goes on so will the technology that will steadily allow people
+to gain even greater access to space exploration than is being proposed
+by Virgin Galactic. In accordance, guidelines and regulations must be
+put in place to meet the risks associated with such travel. We may be
+entering a new era in individual travel, but just like the passenger
+airplane before it we must ensure the safety of all passengers.
+ In regards to space tourism, it is also my belief that such travel
+should not be restricted to only the wealthy. Clearly, these businesses
+make large investments to startup such a complex operation and
+therefore huge fees must be generated to make up the costs. However,
+those who have a passion for space exploration; especially students
+should at least have a chance to experience space exploration. Of
+course, this could not be open to everyone, but even allowing a few
+individuals with lower means but high motivation to take part would be
+a wise investment. I believe in the long run this will be good for
+business and good for the science of space exploration because it will
+only increase the general public's interest in space. We must inspire a
+new generation to want to literally reach the stars, and with our new
+generation of technology this dream is more possible.
+ Commercial space has long yielded great dividends in the technology
+of satellites. In today's world we would be lost and confused without
+the aid of these stations in space. However, new technology must emerge
+and the ability for more businesses to use satellite technology must be
+enhanced. Lowering the cost of producing and launching commercial
+satellites would go a long way in bringing new business and therefore
+new revenue streams in to the fold. Together with space tourism, the
+future of commercial space is bright, but we can not relent in our
+pursuit of continued development. Only when we continue to push the
+boundaries of discovery do we yield innovations that affect the lives
+of everyday people.
+
+ Chairman Calvert. I ask unanimous consent to insert, at the
+appropriate place in the record, the background memorandum
+prepared by the majority staff for this hearing.
+ Hearing no objections, so ordered.
+ Today, we will begin with our first panel: Mr. Rutan and
+Mr. Whitehorn.
+ Mr. Rutan, thank you for attending, and you may begin. You
+might--turn your mike on there. That little green button.
+
+ Panel I:
+
+ STATEMENT OF MR. BURT RUTAN, SCALED COMPOSITES, LLC
+
+ Mr. Rutan. Okay. Thank you very much for the opportunity to
+address the hearing.
+ I will attempt to specifically answer the questions that
+showed up in the invitation.
+ I want to first point out that I will use the words
+``personal space flight'' here. We tend to use that nowadays
+instead of ``space tourism.'' And personal space flight is just
+access to flight above the atmosphere by the public, generally
+inferred that it is a commercial, revenue-like business.
+ I think the markets for personal space flight will take on
+two basic scenarios. The first is one in which commercial
+companies develop lower-cost versions of the classic government
+booster and spacecraft concepts and then conduct commercial
+flights that are funded by passenger ticket sales. This
+activity might properly be compared to trekking outfits that
+take courageous adventurers to the top of Mount Everest. That
+activity survives today even though more than nine percent of
+those who have reached the summit have died on the mountain and
+with the recent rate still at four percent. The safety record
+for all of government manned space flight is hardly better;
+four percent fatality rate for those who have flown above the
+atmosphere, and the fatality rate for government space flight
+for the last 20 years has been much worse than it was for the
+first 20 years.
+ This first scenario's approach will result in, I think, a
+very limited market whose size will depend somewhat on the
+ticket prices. However, I do not believe this scenario will
+result in significant volume of operations, being limited by
+the same factors that limit the Mount Everest climbers. I
+believe these systems might begin commercial flight in four to
+six years, flying maybe 50 to 100 astronauts the first year,
+and I think the rate will top out at maybe 300 to 500 people
+per year.
+ The second scenario is quite different. It is a scenario in
+which the players do not find the dangers of space flight
+acceptable. They recognize that extensive improvements in
+safety are more important than extensive improvements in
+affordability. Those that attack the problem from this
+viewpoint will be faced with a much greater technical
+challenge: the need for new innovations and breakthroughs. If
+successful, however, they will enjoy an enormous market, not
+one that is limited to servicing only a few courageous
+adventurers. It is likely that systems that come out of this
+approach will be more like airplanes and will operate more like
+airplanes than the historic systems that are used for
+government manned space flight.
+ The future plans for my company regarding the new industry
+can not be revealed since they are only at a preliminary stage
+of technical development. They are not fixed--excuse me.
+ Chairman Calvert. I apologize.
+ Mr. Rutan. No problem.
+ Chairman Calvert. They will go off in a second.
+ Mr. Rutan. They are not fixed in business deals and, in
+general, the--when we approach these sort of things, we don't
+talk about them in the early years. So we are not ready to put
+out, in a public forum, the--any details on our plans. I could
+share that with you privately, but not publicly.
+ I can assure you, however, that our plans do involve this--
+do not involve the scenario one approach. Since we believe a
+proper goal for safety is the record that was achieved during
+the first five years of commercial scheduled airline service
+started in 1927. The first five years of commercial airline
+service, while exposing passengers to risks that were high by
+today's standards, were more than 100 times as safe as
+government manned space flight. Achieving that goal requires
+new generic concepts, ones that will come from true research,
+not development programs like the ones we are seeing with
+NASA's exploration plans.
+ I can tell you that we do not yet have the breakthroughs
+that can promise adequate safety and costs for manned orbital
+flights. That is why our early focus will be on the sub-orbital
+personal space flight industry. Our recent SpaceShipOne
+research program did focus on the needs for safety
+breakthroughs by providing an air-launched operation in which
+the rocket propulsion is not safety critical and the ``carefree
+re-entry'' concept assures that flight control is not safety
+critical for atmospheric entry. Those are biggies, and those
+are the things that allow us to move into a commercial industry
+in the short-term.
+ Another thing I can tell you is that our systems for the
+commercial private space flight industry will be focused on an
+early marketplace with multiple, competing spaceline operators
+in order to bring the experience to the largest possible
+audience. The airline experience has shown us that it is not
+just technology that provides safety, but the maturity that
+comes from a high level of flight activity. Airline safety
+increased by a factor of six within the first five years
+without an accompanying technology increase.
+ I am not able to reveal the schedule for the introduction
+of our commercial systems. However, I believe that once revenue
+business begins with these new systems, it will likely fly as
+many as 500 astronauts the first year, by the fifth year, the
+rate will increase to about 3,000 astronauts per year, and by
+the twelfth year of operations, at least 50,000, maybe 100,000
+astronauts will have enjoyed that black sky view from sub-
+orbital flight.
+ Now that it has been shown that a small private company can
+indeed conduct robust, sub-orbital manned flights with an
+acceptable recurring cost, I do not believe that this industry
+will again be hampered by the inability to raise capital. The
+size of the potential market supports significant investment.
+The main barrier has been the perceived risk that the technical
+problems weren't solvable. Those that develop systems that have
+generic features that point to poor safety will continue to
+have trouble finding capital, as they should. Our ability to
+find funding for our research program, the one that we
+completed last year, was certainly tied to the fact that we had
+a goal of not just to fly in space, but to fly a system that
+could be immediately developed for the commercial market. We
+have had no problem finding investors for our future program, a
+program that involves the development and certification of
+commercial sub-orbital spaceships.
+ I believe the ability to insure will be greatly improved if
+the government steps up to the responsibility to require an
+operator to show his passenger safety by adequate flight and
+ground testing. Clearly, insurance will be expensive until it
+is shown that the aggressive safety goals are indeed being
+achieved. With maturity, that safety will continuously improve,
+as it did with airliners.
+ Over the last 33 years, my companies have developed 39
+different manned aircraft types. All were developed via
+research flight tests flown over our California desert area,
+and all flights were regulated by the FAA-AVR, which is now--
+the airplane folk are who I am talking about, now AVS. We have
+never injured a test pilot nor put the non-involved public or
+their property at risk. In spite of that record, the FAA
+insisted that the Office of Commercial Space Transportation,
+AST, impose their commercial launch license process on our last
+five flights of our 88-flight research-only test program. That
+would have been fine, except that their process bore no
+relation to that historically used for research testing.
+ The AST process, focusing only on the non-involved public,
+just about ruined my program. It resulted in cost overruns. It
+increased the risk for my test pilots. It did not reduce the
+risk to the non-involved public. It destroyed our safety policy
+of always question the product, never defend it. And under AST,
+it removed the opportunities for us to seek new innovative
+safety solutions. The main reason for this is that AST, with
+their history of only regulating the dangerous scenario one
+type of systems, applied the process of protecting only the
+non-involved and had no process to deal with the safety and
+prediction of failure for manned aircraft. Their process deals
+primarily with the consequence of failure, where the airplane
+folk, their regulatory process deals with reducing the
+probability of failure.
+ The regulatory process was grossly misapplied for our
+research tests, and worse yet is likely to be misapplied for
+the regulation of future commercial spaceliners. The most
+dangerous misapplication might be stifling innovation by
+imposing standards and design guidelines rather than the
+aircraft certification process that involves requiring a
+manufacturer to test to show his safety margins. AST has
+already used NASA and AIAA to develop design guidelines. This
+is an approach that must not be imposed on an industry that is
+still doing basic research. The AST launch license process
+might be applicable for the protection of those on the ground
+during flights of scenario one-like systems, but it will not
+work for the portion of the industry that promises growth and
+sustainability.
+ Time here does not allow me to elaborate on that, but I do
+have it included in my handout.
+ The basic problem faced by the FAA in dealing with the
+regulatory tasks ahead is funding for hiring staff that are
+familiar with aircraft certification and aircraft commercial
+operations. The FAA Administrator has told me that she is 300
+people short needed for the current demands in regulating
+aircraft, thus it is impossible to shift the job of regulation
+of spacecraft, like mine, to the aircraft organization. I think
+it needs to be shifted to people who know how to regulate the
+systems that are being developed.
+ This problem must be solved quickly to support an industry
+that needs a proper research environment to allow innovation.
+The problem can not be solved by adding staff at AST, since
+having more people applying the wrong process is not the
+answer. I believe they are over-staffed now to do the current
+launch license process. Much of the work done in an attempt to
+misapply the expendable booster process to our aircraft was
+repeated numerous times with a staff that were not equipped to
+make relatively easy decisions and incapable of applying the
+needed waiver process. In fact, while my company was already
+flying initial test flights and waiting for time-critical
+responses from AST during 2003 and 2004, AST found time to
+expend extensive resources processing and awarding a launch
+license to a company that did not even have a vehicle in
+construction, nor even funding for the program.
+ We have spent considerable resources developing
+recommendations for specific regulatory processes to be applied
+to the new industry, that is a streamlined like certification
+for these new commercial spaceships, but we have not yet found
+interest within the FAA to consider them. We will continue our
+work to solve this problem and will hope to make progress
+within the next two years.
+ I want to point out also, this sub-orbital space tourism
+industry has been criticized by some as, well, this is just
+joyrides for billionaires and that--what is this all about? It
+is about fun. I want to tell this group that I am not at all
+embarrassed that we are opening up a new industry that will
+likely be a multi-billion-dollar industry that is focused only
+on fun. I want to remind you, I--when we bought personal
+computers in the late '70s, a lot of people--you know, many
+thousands of people bought these things, and what were they
+for? Balancing our checkbook? Well, in general, they were for
+fun. The vast majority of uses on them were to play games. And
+the fact that it expanded as an industry and of something that
+we really didn't know what they were for, it left it wide open
+for somebody like Al Gore to come along and invent the
+Internet. And then, all of a sudden, the fact that it is out
+there, all of a sudden now here is an application, and the
+application is now our communication, it is our commerce, it is
+our, essentially, everything. And that was an industry in which
+the product was sold for a full decade just for fun. And I
+believe this is going to happen with space flying, also. I am
+not embarrassed that the first decade of personal space flight
+will be for nothing but fun. But I am confident that when there
+are 50,000 people that have left the atmosphere, and when there
+is a lot of capital investment on it, because it is profitable,
+all of a sudden we will get out there and we will solve the
+reasons to make it also safe to go to orbit and to go to the
+moon. And we will also find out new uses for it. There will be
+somebody that comes along and invent an Internet-like reason
+for changing this fun into something that is long lasting and
+significant for our Nation.
+ Thank you.
+ [The prepared statement of Mr. Rutan follows:]
+
+ Prepared Statement of Burt Rutan
+
+ Thank you for the invitation to address this important hearing. I
+will attempt to specifically address the subjects outlined in the
+invitation.
+ The markets for a future Personal Space Flight industry (access to
+flight above the atmosphere by the public) will likely take on two
+basic forms: The first is a scenario in which commercial companies
+develop lower-cost versions of the classic government booster and
+spacecraft concepts and then conduct commercial flights that are funded
+by passenger ticket sales. This activity might properly be compared to
+the trekking outfits that take courageous adventurers to the top of
+Mount Everest; the activity survives even though more than nine percent
+of those who have reached the summit have died on the mountain, with
+the recent rate still at four percent. The safety record for all of
+government manned space flight is hardly better; four percent fatality
+for those who have flown above the atmosphere, and the fatality rate
+for the last 20 years being much worse than the first 20 years. This
+first scenario's approach will result in a very limited market whose
+size will depend somewhat on the ticket prices. However, I do not
+believe this scenario will result in a significant volume of
+operations, being limited by the same factors that limit the Everest
+climbers. I believe these systems might begin commercial flights in
+four to six years flying maybe 50 to 100 astronauts the first year with
+the rate topping out at maybe 300 to 500 per year.
+ The second is a scenario in which the players do not find the
+dangers of space flight acceptable and recognize that extensive
+improvements in safety are more important than extensive improvements
+in affordability. Those that attack the problem from this viewpoint
+will be faced with a much greater technical challenge; the need for new
+innovations and breakthroughs. If successful, however, they will enjoy
+an enormous market, not one that is limited to servicing only a few
+courageous adventurers. It is likely that systems that come from this
+approach will be more like airplanes and will operate more like
+airplanes than the historic systems used for government manned space
+flight.
+ The future plans for my company regarding the new industry cannot
+be revealed since they are only at a preliminary stage of technical
+development. I can assure you that they do not involve a `scenario one'
+approach, since we believe a proper goal for safety is the record that
+was achieved during the first five years of commercial scheduled
+airline service which, while exposing the passengers to high risks by
+today's standards, was more than 100 times as safe as government manned
+space flight. Achieving that goal requires new generic concepts; ones
+that will come from true research, not merely development programs like
+the ones we are seeing with NASA's exploration plans.
+ I can tell you that we do not yet have the breakthroughs that can
+promise adequate safety and cost for manned orbital flights. That is
+why our early focus will be on the sub-orbital Personal Space Flight
+industry. Our recent SpaceShipOne research program did focus on the
+needs for safety breakthroughs by providing an air-launched operation
+in which the rocket propulsion is not safety critical and the `care-
+free re-entry' concept assures that flight control is not safety
+critical for atmospheric entry.
+ Another thing I can tell you is that our systems for the commercial
+Private Space Flight industry will be focused on an early marketplace
+with multiple, competing spaceline operators in order to bring the
+experience to the largest possible audience. The airline experience has
+shown us that it is not just technology that provides safety, but the
+maturity that comes from a high level of flight activity. Airline
+safety increased by a factor of six within the first five years without
+an accompanying technology increase. I am not able to reveal the
+schedule for the introduction of our commercial systems. However, I
+believe that once the revenue business begins it will likely fly as
+many as 500 astronauts the first year. By the fifth year the rate will
+increase to about 3,000 astronauts per year and by the twelfth year of
+operations 50,000 to 100,000 astronauts will have enjoyed that black
+sky view.
+ Now that it has been shown that a small private company can indeed
+conduct robust, sub-orbital manned flights with an acceptable recurring
+cost, I do not believe that this industry will again be hampered by the
+inability to raise capital. The size of the potential market supports
+significant investment. The main barrier had been the perceived risk
+that the technical problems were not solvable. Those that develop
+systems that have generic features that point to poor safety will
+continue to have trouble finding capital, as they should. Our ability
+to find funding for our research program was certainly tied to the fact
+that we had a goal of not just to fly, but to fly a system that could
+immediately be developed for the commercial market. We have had no
+problem finding investors for our future program that involves the
+development and certification of commercial sub-orbital spaceships.
+ I believe the ability to insure will be greatly improved if the
+government steps up to the responsibility to require an operator to
+show his passenger safety by adequate flight and ground testing.
+Clearly, insurance will be expensive until it is shown that aggressive
+safety goals are indeed being achieved. With maturity I expect that
+safety will continuously improve, as it did with airliners.
+ Over the last 33 years my companies have developed 39 different
+manned aircraft types. All were developed via research flight tests
+flown over our California desert area and all flights were regulated by
+the FAA-AVR (the airplane folk, now AVS). We have never injured a test
+pilot, nor put the non-involved public or their property at risk. In
+spite of that record, the FAA insisted that the Office of Commercial
+Space Transportation (AST) impose their commercial launch license
+process on the last five flights of our 88-flight research test
+program. That would have been fine, except that their process bore no
+relation to that historically used for research testing. The AST
+process, focusing only on the non-involved public, just about ruined my
+program. It resulted in cost overruns, increased the risk for my test
+pilots, did not reduce the risk to the non-involved public, destroyed
+our ``always question, never defend'' safety policy, and removed our
+opportunities to seek new innovative safety solutions. The main reason
+for this is that AST, with their history of only regulating the
+dangerous `scenario one' type of systems, applied the process of
+protecting only the non-involved and had no process to deal with the
+safety and prediction of failure for manned aircraft. Their process
+deals primarily with the consequence of failure, where the aircraft
+regulatory process deals with reducing the probability of failure. The
+regulatory process was grossly misapplied for our research tests, and
+worse-yet is likely to be misapplied for the regulation of the future
+commercial spaceliners. The most dangerous misapplication might be
+stifling innovation by imposing standards and design guidelines, rather
+than the aircraft certification process that involves testing to show
+safety margins. AST has already used NASA and AIAA to develop design
+guidelines. This is an approach that must not be imposed on an industry
+that is still doing research. The AST launch license process might be
+applicable for the protection of those on the ground during flights of
+``scenario one'' systems, but it will not work for the portion of the
+industry that promises growth and sustainability. Time here does not
+allow elaboration, so I must refer you to the handout.
+ A basic problem faced by the FAA in dealing with the regulatory
+tasks ahead is funding for hiring staff familiar with aircraft
+certification and commercial operations. The Administrator has told me
+that she is 300 short in staff needed for the current demands in
+regulating aircraft, thus it is impossible to shift the job of
+regulation of spacecraft like mine for ``scenario two'' to the aircraft
+organization (AVS) who will know how to regulate the systems being
+developed. This problem must be solved quickly to support an industry
+that needs a proper research test environment to allow innovation. The
+problem cannot be solved by adding staff at AST, since having more
+people applying the wrong processes is not the answer. I believe that
+they are over staffed, to do the current launch license process. Much
+of the work done in an attempt to misapply the expendable-booster
+process to our aircraft was repeated numerous times with a staff that
+were not equipped to make relatively easy decisions and incapable of
+applying the needed waiver process. In fact, while my company was
+already flying initial test flights and waiting for time-critical
+responses from AST, during 2003 and 2004, AST found time to expend
+extensive resources processing and awarding a launch license to a
+company that did not even have a vehicle in construction, or even
+funding for the project!
+ We have spent considerable resources developing recommendations for
+specific regulatory processes to be applied to the new industry, but
+have not yet found interest within the FAA to consider them. We will
+continue our work to solve this problem and will hope to make progress
+within the next two years.
+ Thank you for your attention to my opening remarks. I will be happy
+to answer your questions.
+
+ Regulation of Manned Sub-orbital Space Systems
+ for Research and Commercial Operations
+
+ A summary prepared by Burt Rutan, Scaled Composites
+
+Safety Requirements for the Private Spaceline Industry
+
+ New generic solutions for safety as compared to
+ historic Government manned space operations will be mandatory
+
+ Cannot run a Spaceline without a huge reduction of
+ current risk
+
+Safety Goals: Airline experience as a model
+
+ Risk statistics, fatal risk per flight
+
+ First 44 years of manned space flight = one
+ per 62 flights
+
+ First airliners (1927 & 1928) = one per 5,500
+ flights
+
+ Early airliners (1934 to 1936) = one per
+ 31,000 flights
+
+ Current airliners = one per two to five
+ million flights
+
+ Modern military fighters = one mishap per
+ 33,000 flights
+
+ Logical goal:
+
+ Better than the first airliners
+
+ < one percent of the historic government
+ space flight risk
+
+Different Systems Need Different Regulation Methods
+
+ The AST Process
+
+ To show that the consequence of failure,
+ i.e., the expectation of casualty (Ec) for the non-
+ involved public (NIP) is low.
+
+ Deals with systems that are historically
+ dangerous.
+
+ The AVR (now AVS) Process
+
+ To show that the probability of failure (Pf)
+ is low.
+
+ Assures safety of crew and passengers.
+
+ Deals with systems that need to be reliable.
+
+ The risk method approach by AST
+
+ Risk is product of failure probability and
+ consequence.
+
+ NIP risk with dangerous systems is assured
+ only by selection of flight area.
+
+ Flight crew risk with dangerous systems can
+ be addressed only by flight termination staging.
+
+ However, since Pf cannot be calculated for
+ immature systems, AST has no acceptable process for new
+ systems that have to be safe enough for commercial
+ passenger service.
+
+ AST Methods for Booster-like systems
+
+ Computer-flown or remote operation
+
+ Automation that requires backup via flight-
+ termination systems
+
+ Ground-launched
+
+ Safety-critical rocket propulsion
+
+ Un-piloted stages dropped
+
+ High-scatter landing
+
+ AVR Methods for Aircraft-like systems
+
+ Human Piloted flight
+
+ Expendable-like flight-termination systems
+ are not appropriate
+
+ Runway takeoff
+
+ Rocket propulsion not safety critical
+
+ No ``bombing'' of hardware that presents risk
+ to NIP
+
+ Horizontal aircraft-like runway recovery
+
+ If the safety approach is based on failure
+ consequence it should be regulated by AST.
+
+ If the safety approach is based on failure
+ probability it should be regulated by AVR or by staff
+ experienced in aircraft safety assurance.
+
+ If safety is based on both consequence and vehicle
+ reliability, then consequence should be calculated by AST, but
+ Pf must be accessed by those with aircraft safety regulation
+ experience.
+
+Experimental Research Testing of Airplane-like Systems
+
+ Cannot be addressed by enforcing standards or
+ guidelines--the important need is to allow innovation; to seek
+ safety breakthroughs without regulatory hurdles. Regulators
+ must not be expected to appreciate this need during a research
+ test environment.
+
+ Pf cannot be calculated, thus historic data must be a
+ guide for approval of an adequate test area to meet Ec intent
+ for NIP.
+
+ Environmental requirements, like for aircraft are not
+ needed, but they can be tolerated, with costs not the full
+ burden of the developer.
+
+ The AVR waiver method for all regulations is
+ mandatory. The developer must be able to argue the equivalent
+ safety justification for non-compliance to any regulation. This
+ is critical, especially for an immature industry with
+ indeterminate technical issues.
+
+ The AST launch licensing process is not acceptable
+ due to its costs, its hindrance of innovation and its negative
+ effect on safety policy. The AVR-EAC (Experimental
+ Airworthiness Certificate) method works and must be
+ implemented. The system is based on respect for a developer's
+ safety record and the expectation that he will follow the
+ license rules.
+
+Certification, or Licensing Spacecraft for Commercial Sub-orbital
+ Passenger Operations
+
+ The manufacturer and the operator cannot accept a
+ scenario in which the FAA has no role in approving the safety
+ of crews or passengers. His responsibility to do adequate
+ testing to assure passenger safety must have acceptance by the
+ FAA. Otherwise he has no unbiased defense at trial following an
+ accident.
+
+ Part 23 & 25 Certification are based on defining
+ conformity. Then, by test and analysis showing adequate margins
+ for the conformed vehicle. Subsequently the holder of the
+ certificate can then produce and operate unlimited numbers of
+ vehicles that conform. The main costs of certification are the
+ issues related to conformity, not the specific tests to show
+ margins.
+
+ Any ethical manufacturer or operator must test to
+ show margins, even in the absence of any government regulation.
+
+ However, initially the manufacturer and operator will
+ build and operate only a very small number of vehicles, thus
+ making the detailed conformity process debilitating. Also, the
+ intensity of the process would interfere with the need to solve
+ new technical problems and to maintain a ``question, never
+ defend'' posture while system technical status is not mature.
+
+ Our proposal: an applicant seeking approval to fly
+ passengers will be required to define the tests needed to show
+ adequate margins for his design and define the required systems
+ safety analysis. He must then obtain acceptance of the test
+ plan by FAA regulators and later get acceptance that the tests
+ were satisfactorily completed. The process will be design
+ specific and repeated for each flight article.
+
+ Conformity of the design, the tools, the systems or
+ the manufacturing process will not be required.
+
+ A manufacturer can select the conformity process as
+ an option if he desires to avoid the individual tests of each
+ production article.
+
+ Conformity may be mandatory after the industry
+ matures (the aircraft certification process).
+
+Lessons from the Regulatory Process During the SpaceShipOne (SS1)
+ Research Flight Tests
+
+ The Tier1 test program involved 88 flights, 17 for
+ the SS1 and 71 for the White Knight. 83 of those flights were
+ licensed via an AVR-AIR-200 Experimental Airworthiness
+ Certificate. Those flights were done under the authority of the
+ EAC and directed via the information in its Operating
+ Limitations list. The EAC was in effect for the duration of the
+ program, July 2002 to October 2004.
+
+ Five flights of SS1 were flown under the additional
+ authority of an AST Launch License. License was in effect from
+ March 2004 to October 2004.
+
+ The 83 flights flown under the EAC involved the
+ highest risk, both to the pilots and the NIP: first flights of
+ unproven vehicles and nearly all envelope expansion, including
+ first supersonic flight of SS1 to max-q.
+
+ The EAC flights were regulated similar to the 1,800
+ research flights conducted by Scaled on 36 aircraft types over
+ a 30-year period: we were expected to fly within the Ops Limits
+ list, and were trusted to do so. The program allowed the
+ innovation always present in aircraft research, and did not
+ interfere with our `question, never defend' safety policy.
+
+ Development of the new safety innovations were done
+ under the EAC: the new type hybrid rocket motor, the air launch
+ and the `care-free re-entry' feathered concept.
+
+ The EAC process provided an efficient environment for
+ exploratory testing and continued the historic research
+ aircraft record of safety for the NIP.
+
+ The AST Launch License process enforced on the
+ remaining five flights of SS1 was a very different regulatory
+ environment. We were assured streamlining from the
+ certifications needed for commercial operations approvals but
+ were kept in the dark on specifics. The process involved a 15
+ month, three party Ec analysis that failed to arrive at an
+ adequate calculation for Pf, thus rendering the Ec
+ determination to be useless. The process was misguided and
+ inappropriate, at times resembling a type certification effort
+ and left the applicant without the basic information needed to
+ determine status. The regulators requested Ec analysis, then
+ ignored those results without informing the applicant or
+ allowing him to defend, to revise or to resubmit the data. The
+ regulators refused to reveal the government's analysis method
+ for Ec calculation. The `shell game' continued for the majority
+ of the program, resulting in a severe distraction to key test
+ personnel as well as high costs and a disregard for our safety
+ policy. The environment also precluded innovation.
+
+ The Launch License process, as applied to the
+ aircraft research test environment resulted in increased risk
+ for our flight crews, the very people that bear the true risk
+ in experimental flight tests.
+
+ The AST office had no waiver policy, and answered our
+ requests by a written denial from the Administrator without
+ giving the applicant the opportunity to debate or negotiate the
+ technical merits or to get an opinion from the EAC's regulatory
+ staff.
+
+Conclusions
+
+ An applicant for approval to fly research flight
+ tests of piloted, aircraft-like systems must have a defined
+ process, one that allows him to plan his program staffing and
+ financial needs. It is not acceptable to impose undefined,
+ inappropriate forced oversight. The specific EAC process has
+ served the industry well for decades and should be used and
+ enforced by regulators familiar with research aircraft testing.
+
+ The Ec process, developed for protection of
+ population from the dangers of ground-launched, expendable
+ rocket boosters, is not workable for application to piloted,
+ aircraft-like systems during research tests and must be
+ replaced by the AVR method of having test-experienced
+ regulators select an appropriate flight test area for research
+ tests. The Ec process might be justifiable for commercial
+ operations, but it must be regulated by those experienced with
+ commercial aircraft operations.
+
+ Regarding licenses to conduct commercial flights that
+ carry revenue passengers, it is not acceptable for FAA to
+ ignore the approval or acceptance of the vehicle's ability to
+ safely fly people. Regulation must be done by experienced
+ (aircraft experienced) staff.
+
+ The acceptance of the system's probable safety can be
+ done via a vehicle-specific test requirement process for
+ structures and safety analysis for systems, rather than the
+ more expensive Type Certification process that includes full
+ conformity assurance. These processes cannot be defined in
+ advance by specification of standards or by design guidelines,
+ since every new system will have unique features. The testing
+ details and systems safety analysis process must be specific to
+ the vehicle and its intended operation. This process does not
+ have to be significantly more expensive than that which would
+ be done by any ethical manufacturer in the absence of
+ government regulation.
+
+ Biography for Burt Rutan
+
+ Burt Rutan was born in 1943. He received his Bachelor of Science
+degree in Aeronautical Engineering at California Polytechnic University
+in 1965. His education includes the Space Technology Institute at Cal
+Tech and the Aerospace Research Pilot's School at Edwards Air Force
+Base. Mr. Rutan holds, in addition, the honorary degree of Doctor of
+Science from California Polytechnic State University, San Luis Obispo,
+June 1987; Doctoral of Science, honoris causa, from Daniel Webster
+College, May 1987; Doctoral of Humanities, honoris causa, from Lewis
+University, May 1988 and Doctorate of Technology, honoris causa, from
+Delft University of Technology, January 1990.
+ Mr. Rutan worked for the U.S. Air Force from 1965 until 1972 as
+Flight Test Project Engineer at Edwards Air Force Base, California. His
+projects ranged from fighter spin tests to the XC-142 VSTOL transport.
+ In March 1972, Mr. Rutan became Director of the Bede Test Center
+for Bede Aircraft in Newton, Kansas.
+ In June of 1974, at Mojave, California, Mr. Rutan formed the Rutan
+Aircraft Factory (RAF) to develop light homebuilt aircraft. Through
+this company, the VariViggen, VariEze, NASA AD-1, Quickie, Defiant,
+Long-EZ, Grizzly, scaled NGT trainer, Solitaire, Catbird, and the
+world-flight Voyager aircraft were developed.
+ In April 1982, Mr. Rutan founded Scaled Composites (Scaled) to
+develop research aircraft. Since its founding, Scaled has been the
+world's most productive aerospace prototype development company,
+developing new aircraft types at a rate of one each year. Past projects
+include the 85 percent scale Starship 1 for Beech Aircraft Corporation,
+the Predator agricultural aircraft for ATAC, the Scarab Model 324
+reconnaissance drone for Teledyne Ryan Aeronautical, the Advanced
+Technology Tactical Transport (ATTT) for DARPA, the 1988 America's Cup
+wing sail, the Triumph light executive jet for Beechcraft, the ARES
+close air support attack turbofan, the Pond Racer, the Pegasus Space
+launch vehicle flying surfaces, the Model 191 general aviation single
+for Toyota, a 40 percent scale B-2 bomber RCS model, General Motor's
+1992 show car (the GM Ultralite), the Bell Eagle Eye prototype tilt
+rotor RPV, the Earthwinds pressurized gondola, the McDonnell Douglas
+DC-X single stage rocket structure, the VisionAire Vantage business
+jet, the Raptor and Raptor D-2 high altitude RPVs for BMDO, a 40-meter
+wind generator for Zond, three NASA X-38 crew return vehicles, the
+Williams, International V-Jet II, the high-altitude Proteus aircraft,
+the Adam Model 309 business aircraft, and the Rotary Rocket Roton
+atmospheric test vehicle. Recent projects include the White Knight and
+SpaceShipOne. On 21 June 2004, with Mike Melvill at the controls, SS1
+flew history's first private manned space flight. On 4 Oct 2004, SS1
+won the $10M X-Prize (two flights within five days flown by Melvill and
+Brian Binnie). The Virgin Atlantic GlobalFlyer designed and built at
+Scaled made its maiden flight in March 2004 and a record setting solo
+world flight in March 2005.
+ A few of the awards which Mr. Rutan has received include:
+
+ EAA Outstanding New Design, 1975, 1976 and 1978.
+
+ Presidential Citizen's Medal presented by Ronald
+ Reagan, December 29, 1986.
+
+ Grand Medal of the Aero Club of France, January 29,
+ 1987.
+
+ National Medal of the Aero Club of France, January
+ 29, 1987.
+
+ Society of Experimental Test Pilots, 1987 J.J.
+ Doolittle Award and 2004 J.J. Doolittle Award.
+
+ Royal Aeronautical Society, British Gold Medal for
+ Aeronautics, December 1987.
+
+ Design News Engineer of the Year for 1988.
+
+ Western Reserve Aviation Hall of Fame, Meritorious
+ Service Award, 2 September 1988.
+
+ The International Aerospace Hall of Fame Honoree, 24
+ September 1988.
+
+ Member, National Academy of Engineering, 1989.
+
+ 1987 Robert J. Collier Trophy for ingenious design
+ and development of the Voyager 15 May 1987 and again on 19
+ April 2005 for SpaceShipOne.
+
+ National Aviation Hall of Fame Honoree, 21 July 1995.
+
+ EAA Freedom of Flight Award, 3 August 1996.
+
+ EAA Homebuilders Hall of Fame, 23 October 1998.
+
+ Designer of the Year, Professional Pilot Magazine, 13
+ March 1999.
+
+ Clarence L. ``Kelly'' Johnson ``Skunk Works'' award
+ by the Engineers Council, February 2000.
+
+ 2000 Lindbergh Award by the Lindbergh Foundation, May
+ 20, 2000.
+
+ Aviation Week & Space Technology magazine's ``Laurel
+ Legend'' and Hall of Fame in April 2002, Current Achievement
+ Award for first privately-funded manned space flight by
+ SpaceShipOne in April 2005.
+
+ Aviation Week & Space Technology magazine's ``100
+ Stars of Aerospace'' (ranked 29th), June 2003.
+
+ Scientific American magazine's ``Business Leader in
+ Aerospace,'' November 2003.
+
+ Time Magazine's ``100 Most Influential People in the
+ World,'' April 18, 2005.
+
+ Chairman Calvert. I thank the gentleman for his excellent
+testimony.
+ That--Mr. Whitehorn, and I apologize, President of Virgin
+Galactic, not Virgin Atlantic. I just--it morphed in my mind,
+but----
+
+ STATEMENT OF MR. WILL WHITEHORN, PRESIDENT, VIRGIN GALACTIC
+
+ Mr. Whitehorn. Thank you very much, Chairman Calvert.
+ Can I first of all start by moving slightly away from my
+testimony and express my total agreement with Burt Rutan's last
+comment there with regards to the reasons why personal space
+flight, as a concept, is incredibly important?
+ Our belief at Virgin Galactic is that the proof of concept
+in creating a profitable business in the private sector without
+government funding to take individuals into space to experience
+the blackness of space, the curvature of the Earth,
+weightlessness, and all of the attendant things that they will
+feel and experience during their two-hour trip to space is not
+just about fun. It is certainly not all about fun for us. We
+see this is as a proof of concept, proof of the idea that it is
+possible to develop viable, reusable space systems that can be
+safe in their operation.
+ As a major airline group operating three airlines around
+the world, Virgin Atlantic and its sister companies have not
+taken lightly the idea of venturing into the personal space
+flight market. There has been a lot of handling over the issue
+internally, because we have a worldwide brand and a reputation,
+and we have a reputation for safety in the commercial airline
+industry, which is second to none. In the 20 years we have been
+operating, we have not lost a single passenger. We also operate
+one of the largest rail networks in Europe operating high
+technology tilting trains, which are a new technology to the UK
+market. And we carry 50 million passengers a year in that
+business, and we haven't had a single accident or incident
+involving the death of a passenger on board.
+ And for us, the principle of entering this is the principle
+of proving a concept, proving that something can be done in the
+private sector, can be done safely, and through the personal
+space flight experience of the pioneers who do pay at the
+beginning of this process, we believe within five years we can
+create a viable business, which will be profitable, and that
+would allow us to bring down the costs of personal space flight
+to levels which would be affordable across the board in the
+United States and around the world.
+ I will move on now to talk a little bit about some of the
+questions that the Subcommittee put to us. You asked us about a
+timetable, and I think my answer to the issue of the timetable
+is pretty similar to Burt Rutan's. The timetable for us depends
+upon the ability to go through the process of completing the
+design of SpaceShipTwo, as we will call it for the purposes of
+today, and proving and testing the vehicle. For us, the issues
+of coming to a contract with Mr. Rutan's company to build
+SpaceShipTwo are bound up in a number of issues of bureaucracy,
+which we are not unhappy about. We believe we can cope with
+them. We have got the Defense Department and the DDTC to deal
+with over the issue of technology transfer. And that is a
+process which has to be completed before we can complete the
+design work with Burt Rutan's company and move towards a final
+contract to construct a fleet of space ships.
+ But an outline, our view of the issue is that we would like
+to order at least five SpaceShipTwos, as we will call it for
+the purposes of today, from Mr. Rutan's company, and we would
+like to be in operation before the end of this decade. And we
+would like to be going through a testing process by the end of
+2007 and commercial operation by 2008, if that was possible.
+But we can not allow ourselves to be dictated to by a
+commercial need. The most important factor for us will be
+developing a safe vehicle and operating that vehicle safely.
+And if that can be proved, then we believe that we can take the
+people into space and the people want to go.
+ To give you an example of where we believe the marketplace
+is for commercial space tourism, we announced the formation of
+Virgin Galactic formally before the X-Prize flights last
+September, and we, at that state, set up the marketing
+operation to market the flights. We have, since we set up, had
+29,000 applications to fly. That is 29,000 people who said they
+are willing to pay a deposit of up to $20,000 for space flights
+within a range of prices of up to $200,000. We have also had
+100 people who have actually signed terms and conditions with
+us now to pay the full cost of a $200,000 flight up front in
+order to fly in SpaceShipTwo, should that be developed.
+Clearly, if we fail to develop a viable vehicle, they will get
+their money back.
+ And moving on to some of the other questions that you
+asked, and the question of profitability for us is a very
+important one. We are not doing this as a rich billionaire's
+toy adventure and as a loss leader or just as a grand
+representation. We are doing this to create a profitable and
+viable business to prove a concept. And we believe that if the
+initial work that we have done on the business plan can be met,
+that this business can be profitable within five years, and the
+cost of space flights could fall by a factor of 75 percent by
+the end of that five-year period. And the pioneers, who are
+going to be the pioneer astronauts who pay to fly commercially
+into space, will help to fund the process of making
+commercially viable personal space flight something that people
+across the country can enjoy and afford in the future.
+ And you asked one of the questions about the differences
+between acquiring a fleet of commercial spacecraft compared
+with the process of buying commercial aircraft in the
+commercial airline market and our experience of both. At the
+risk of sounding trite, the short answer is that the
+differences between the process we are going to undertake with
+Burt Rutan's company and buying aircraft from Boeing are chalk
+and cheese. We are in uncharted territory here, and it is
+relatively easy now, on the basis of an output specification
+from an airline, for one of the major manufacturers to provide
+one's needs within the parameters of their manufacturing
+capability. And the business is highly regulated. We work in a
+highly regulated environment in commercial airline operation,
+and rightly so.
+ In this area, the area of personal space flights, we are
+going to have to design different ideas as to how we create a
+viable vehicle, and we are going to be working very closely
+with scale composites to come to a contractual arrangement with
+each other, which will work for both parties to ensure that we
+get the thing built and we get it operating viably as quickly
+as possible. But it will not be like buying aircraft in the
+commercial airline market. We are at the experimental cutting
+edge of a new industry here, and between the two of us, with
+our commercial experience and Burt's experimental aircraft
+experience, we are absolutely convinced that we can come up
+with something which will be viable and acceptable in terms of
+safe operation to the FAA and the other organs of government
+who are going to be involved in regulating the venture as it
+unfolds.
+ It is--one of the other questions that you asked was the
+question of the space act of last year and issues within that
+act, which are important to us and things that the government
+can do to help. Frankly, the most important thing to say is we
+don't want help from the government. This is an important point
+of principle here that the parties undertaking this venture do
+it in the private sector and do it off their own back. However,
+in a nascent industry like this, enabling by the government is
+a very important thing. And I think one feature of the act that
+we would like to look at more closely is the issue of the
+insurability of this industry. For this industry to be viable,
+the commercial personal space flight industry to be viable, it
+is important that some of the breaks on insurance and support
+from the government in the insurance area are carried through
+beyond the current plan of 2008 to 2009 and that when the
+government looks at this issue, they do extend the insurance
+provisions within the act to cover a longer period of time to
+allow this industry to get going with the kind of support it
+needs. Because with the support of the government, the
+insurability of the third party uninvolved risk is going to be
+a much easier thing to undertake.
+ I think the other thing that the government can help us
+with is enabling, enabling the processes that we undertake and
+taking an active role in preventing roadblocks on the way. We
+believe that the FAA is an organization that is well up to the
+job of helping this industry to form and form a safe pattern of
+operation. We believe the Defense Department can take its
+responsibilities to protect the U.S. public very seriously and
+at the same time not hold up this project. We don't see
+roadblocks on the way at the moment, but if they appear, we
+would like the chance to come back before this group and have
+the chance to tell you about it.
+ Thank you very much.
+ [The prepared statement of Mr. Whitehorn follows:]
+
+ Prepared Statement of Will Whitehorn
+
+ Chairman Calvert, Ranking Member Udall, and other Members of this
+distinguished subcommittee, on behalf of Virgin Galactic, thank you for
+the opportunity to testify today. Virgin Galactic appreciates the
+chance to explain how, with an unwavering commitment to safety, we plan
+to make available and affordable an adventure of a lifetime. We are
+proud to be on the leading edge of the commercial space industry and
+honored to have Burt Rutan as our future partner.
+ I am Will Whitehorn, the President of Virgin Galactic. I also am
+Group Corporate Affairs and Brand Development Director for Virgin
+Management Limited. I have nearly 30 years of aviation experience
+having previously worked for British Airways and Thomas Cook before
+joining Virgin in 1987.
+ At the outset, I wish to acknowledge the invaluable leadership the
+House Science Committee and this subcommittee provided last year for
+the nascent commercial space industry. You ensured Congress struck a
+proper balance in the Commercial Space Launch Amendments Act of 2004.
+Had it not been for that sensitivity in crafting a proper regulatory
+oversight regime consistent with the goal of permitting our emerging
+industry to realize its full potential, it is unlikely the Virgin Group
+would have made our considerable commitment to Virgin Galactic.
+ Virgin Galactic is a private sector venture. We receive no state
+aid. Frankly, we think that is the way it should be. Entrepreneurs like
+Sir Richard Branson who are willing to shoulder the economic risk and
+challenge of commercializing space will be the most successful
+innovators who lead this industry and chart its course. Government's
+proper role is regulatory oversight and creating a climate in which
+entrepreneurs can translate their vision into reality and innovation
+can flourish.
+ The history of Virgin Galactic goes back to the mid-1990s when Sir
+Richard Branson identified that new technologies in composite
+materials, rocketry and computing could easily lead to the development
+of safe, economical reusable spacecraft in the future. At that time, we
+registered the Virgin trademark in the area of space travel. In 1999,
+we registered the Virgin Galactic name.
+ Virgin has a long history of working with Burt Rutan going back to
+the early 1990s. When Mr. Rutan informed us he was building a spaceship
+for a private customer to win the X-Prize, we made a commitment to him
+that we would be prepared to develop a commercial version of
+SpaceShipOne should he be successful. Over the last year we have
+negotiated with Paul G. Allen, the visionary and financier behind
+SpaceShipOne, to buy the rights to use his technology. Following the
+successful conclusion of these negotiations, we signed a $21.5 million
+deal for the use of that technology and developed a $100 million
+investment plan to build up to five spaceships at Mr. Rutan's factory
+in Mohave, California. The plan for the ships themselves is being
+developed by Mr. Rutan to a specification created by Virgin Galactic.
+ Safety obviously is our first priority. Our commitment to safety
+extends beyond the Virgin name, one of the best-known and most valuable
+brands in the world. Sir Richard Branson has said that he, along with
+his parents, son and daughter plan to travel in Virgin Galactic's first
+space flight. If the Federal Aviation Administration permits me to do
+so, I hope to be on an earlier test flight. Our commitment to safety is
+very real and personal to us. Safety is and will continue to be Virgin
+Galactic's North Star.
+ Suffice it to say that the Virgin Group has considerable experience
+in issues regarding passenger carriage and an unwavering commitment to
+safety. Virgin currently operates three separate airlines around the
+world which together carry over 50 million passengers a year. The best
+known of these is Virgin Atlantic Airways whose main business is
+operating scheduled services between the United Kingdom and a variety
+of destinations in the United States, as well as flights to the Far
+East, Africa and Australia. We have an unblemished safety record having
+never lost a single passenger in over 21 years of operation. All of our
+airlines also are profitable without ever having received any state
+subsidy. We also operate the U.K.'s largest long-distance rail company
+which also has an unblemished safety record despite carrying 35 million
+passengers per year at speeds over 125 miles per hour.
+ Let me briefly describe the out-of-this-world service Virgin is
+known for that, quite literally, we intend to offer to Virgin Galactic
+customers. It is envisaged that the astronauts we carry will experience
+a two hour trip. Half of that will involve the thrill of climbing to a
+safe altitude with the mother ship and then our astronauts will
+experience the exhilaration of spending an hour on SpaceShipTwo as it
+accelerates to over three times the speed of sound and climbs to well
+in excess of the 100km altitude officially recognized as entering
+space, and becoming one of the few humans to have left the planet. Our
+current plan is to begin operations in Mohave and then develop a second
+site in another location that could possibly be either Florida, Texas
+or New Mexico. The flights will be what is known as sub-orbital. The
+pioneers who become astronauts with Virgin Galactic will initially pay
+$200,000 for the trip but the Company hopes to reduce the cost over
+time as the business develops. Our long-term goal is to develop
+commercial space tourism into an orbital business which could in the
+future carry payloads as well as people into orbit.
+ Chairman Calvert, the Subcommittee asked that I address several
+specific questions in my testimony. Let me turn to them now.
+ The Subcommittee asked about the timetable for taking possession of
+the Virgin Galactic spacecraft, first flight and expected
+profitability. At this time, Virgin Galactic has a memorandum of
+understanding with Mr. Rutan's company, Scaled Composites, to customize
+the SpaceShipOne vehicle for commercial use. Design work to that end
+continues. However, we have not yet formally ordered the spacecraft.
+After U.S. Government technology transfer issues are clarified and
+addressed if deemed necessary, we hope to place a firm order for the
+spacecraft. At this point, due to uncertainty about possible licensing
+requirements, we are not able to even view Scaled Composites' designs
+for the commercial space vehicle.
+ Mr. Chairman, we are not concerned about this lack of clarity on
+the technology licensing issue and the nominal delay it has caused to
+date. Like any nascent industry overseen by government oversight
+agencies faced with issues of first impression, we understand instances
+such as this are to be expected. We are continuing a robust and cordial
+dialogue with the Department of Defense and other agencies that provide
+input on technology licensing issues. We hope a consensus can soon be
+reached that will clear the way for us to move forward with a formal
+order for Mr. Rutan's spacecraft.
+ In terms of first flight, we are hopeful Virgin Galactic will begin
+service in either 2008 or 2009. Let me be clear, this is an estimate
+only. As I testified earlier, safety is our North Star and it will
+determine our launch date. We will launch as soon as our safety
+assessments and training dictate we do so, and not a day before. Our
+launch date estimate also assumes prompt clarification of the U.S.
+Government technology licensing issue I just mentioned. The longer it
+remains unresolved, it could adversely impact our projected launch
+date.
+ As far as profitability is concerned, our business plan projects
+that we will attain profitability in our fourth or fifth year of
+operation. Importantly, this estimate assumes five spaceships, two
+launch aircraft or mother ships, and two launch bases in the United
+States. If the schedule for deploying any of these assets slips, it
+would negatively impact our target date for profitability.
+ Mr. Chairman, the Subcommittee asked that I comment on the
+differences in procuring a commercial spaceship fleet and Virgin
+Atlantic's experience acquiring a fleet of commercial aircraft. At the
+risk of sounding trite, the short answer is everything. Virgin Atlantic
+is a customer of both Boeing and Airbus aircraft. Being a customer of
+commercial aircraft essentially is a passive process. While you can
+request some custom features, the aircraft as designed by the
+manufacturer essentially is a complete unit and customer suggestions
+and requests tend to relate to the margin. Virgin Galactic's
+relationship with Scaled Composites is very different. It is an active
+partnership. It is envisaged that we will work very closely together
+designing the aircraft and sharing our complementary expertise. Simply
+put, it will be a symbiotic relationship where ideas and intellectual
+capital are shared by the customer and manufacturer to ensure a
+successful product that benefits both.
+ This active partnership dynamic is precisely why we are so pleased
+to have Burt Rutan as our future partner. Incidentally, in a decade or
+so when the history books are written describing the birth of the
+commercial space industry, I am confident that just as the Boeing brand
+is synonymous with ushering in the age of commercial jet travel, Scaled
+Composites will deservedly receive similar recognition for its
+trailblazing role in our industry.
+ Mr. Chairman, let me now turn to the question the Subcommittee
+asked about what preparations we presently are undertaking for the use
+of the spaceships we plan to purchase from Mr. Rutan. We are focused on
+complying fully with the letter and spirit of the Commercial Space
+Launch Amendments Act of 2004. Scaled Composites will have sole
+responsibility to certify the spacecraft. However, together, we are
+engaged in an active dialogue with the Federal Aviation Administration
+on other aspects of our business. At the same time, we are designing a
+program to prepare our astronauts for an incredible sensory experience
+and to allow them to gain the maximum from their journey to space. That
+program will include training in all areas from physiological to
+psychological. We want to ensure our passengers have the optimum
+sensory experience but, even more importantly, that the operation will
+be undertaken with the utmost safety, consistent with safety being our
+absolute priority.
+ Finally, Mr. Chairman, you asked what, if anything, should the
+government be doing to encourage commercial space. Let me reiterate a
+point I made earlier. Virgin Galactic is a private venture. Consistent
+with our belief that the proper role for government in encouraging the
+commercial space industry should not include financial subsidies, we
+receive no state aid. We believe there is great potential for mutually
+beneficial partnerships between NASA and private companies involved in
+our emerging industry. In other words, we support public-private
+partnerships. For instance, NASA should seek opportunities to contract
+with private sector manufacturers for cutting-edge designs and outside-
+the-box thinking. I am encouraged by signs of progress in NASA's
+willingness to engage with the private sector in idea sharing. This
+spirit of cooperation should be encouraged and broadened whenever
+practical to do so. Virgin Galactic, for example, would welcome the
+opportunity to provide assistance to NASA for aspects of astronaut
+training. If NASA's first instinct is to look to private sector
+commercial space partners for opportunities to work together, I believe
+both NASA and our industry will be the better for it.
+ Mr. Chairman, let me conclude by again thanking you, Ranking Member
+Udall, and other Subcommittee Members for the opportunity to testify
+today. Virgin Galactic looks forward to working with you and your
+staff. Burt Rutan has expressed his wish to put the first private
+spacecraft on Mars. It may be several more years before I get the
+chance to address the Subcommittee on that subject! I am pleased to
+respond to your questions today and to keep you apprised of relevant
+developments as we prepare to take-off.
+
+ Biography for Will Whitehorn
+
+ Will Whitehorn is Brand Development and Corporate Affairs Director
+of Virgin and one of five members of the Management Board of the group.
+He is responsible for the corporate image of Virgin, public affairs,
+global brand development and a number of new business development
+activities most recent being the formation of Virgin Galactic, the new
+Virgin space tourism operator due to launch flights in 2007-8, of which
+he is President. In addition he acts as Richard Branson's spokesperson.
+ Aged 45, he joined Virgin Group in 1987, as Head of Corporate
+Public Relations. Previously he was an Account Director at Lombard
+Communications where he had worked on numerous flotation's and bids for
+companies as diverse as Chrysalis Group, Ward White and Grampian
+Holdings. Before entering the public relations industry he had worked
+for British Airways as a helicopter crewman in the North Sea, was a
+Graduate trainee with Thomas Cook Group and finally Market Intelligence
+Officer for the TSB Group flotation. He was educated in Edinburgh and
+graduated from Aberdeen University in 1981 with an honours degree in
+history and economics.
+
+ Discussion
+
+ 5-10 Year Commercial Space Industry Outlook
+
+ Chairman Calvert. I thank the gentleman.
+ Now we will open up for questions.
+ Mr. Rutan, this is obviously very exciting, and this is
+moving a lot quicker than we imagined just a year ago that we
+would be moving to this next stage of space exploration.
+ What is your outlook for the commercial space industry, you
+kind of mentioned this in your testimony, but maybe you would
+like to expand on this, over the next five to 10 years? And how
+do you expect SpaceShipOne or SpaceShipTwo to fair
+commercially? Do you--how--what do you see the vision of this?
+ Mr. Rutan. Yes, I did try to summarize that in my opening
+remarks, but I will tell you that we won't sell spaceliners or
+spaceships to spacelines that aren't safe to fly. And we don't
+plan to develop ones that will have large direct operating
+costs, because we don't need to. We believe we have all of the
+technologies demonstrated. There are several new technologies.
+There are probably a couple of new patents in work now relating
+to the new vehicles that will be commercial. But I think our
+risks that we need to take right now are tiny compared to the
+risks that we took in the year 2001 to get to the goals of
+SpaceShipOne. When we have available spaceships that can be
+flown at low direct operating cost per seat and provide the
+real experience, and I want to point out this will not be the
+experience like you saw in SpaceShipOne where you have a small
+cabin and people are strapped down and they have little
+windows. The very first generation of commercial sub-orbital
+spaceships will be experience-optimized. There will be large
+cabins. There will be big windows. There will be--since you
+only have four or five minutes of weightless time, they will
+pull a bar open, and you will float your body about the cabin.
+We think that is extremely important to do on a short space
+flight.
+ So we are working very hard on assuring that this will be
+extremely attractive to the public, it will be extremely
+affordable, and it will be at least as safe as the early
+airlines. If we achieve those goals, and I think we really can,
+we don't have tough answers to--in front of us or new
+challenges in front of us to get there, but if we achieve those
+goals, I think this is going to be a much, much bigger market
+than anyone imagines. I think once it is determined that this
+is a business that is profitable, I think very much like the
+early airlines, you will get dozens of businesses wanting to
+be--wanting to compete with Virgin, for example, and wanting to
+be space flight operators. I believe that a lot of those will
+fail either financially or their ability to raise capital or
+their inability to follow--to support and follow the
+maintenance and other guidelines that we will set up. And in
+fact, we are looking at having this not like selling a
+spaceship that says, ``Here, take it and do what you want,''
+but we are looking at doing it as a franchise, like a Wendy's
+franchise. You buy our product, but you have to follow very
+carefully our rules in how to maintain it and how to operate it
+and the limits of its operation.
+ Chairman Calvert. I don't know if you want to use Wendy's
+as an example.
+ Mr. Rutan. Well, okay. McDonald's franchise, right. But at
+any rate, the important thing is because of where we stand in
+the marketplace now, I think we will be able to assure that all
+of the operators operate it safely.
+ Now I believe, like the early airlines, most of these that
+want to that will try, I think most of these will fall out for
+the same reasons that the early airline companies did. But I
+expect to see that, say, in the--between five and 10 years into
+the operation of these, I expect to see that you will have
+three or four operators with multiple sites that are operating
+reliably, and they are going to be competing with each other,
+and they are going to have an enormous, enormous market. The
+space market has never had any product, any payload that is
+high volume. Generally, nowadays, if you are doing something
+commercial in space, you don't complain a lot that you have to
+pay $80 million to buy a booster, because your payload that is
+in it, you may invest a half a billion dollars to build this
+payload. Well, the payloads for this industry don't cost
+anything. In fact, they pay to fly. That is a totally different
+concept for the space industry. In fact, the payloads can be
+easily reproduced by unskilled labor. And I don't see a limit
+to it, whereas there has been very specific limits to
+everything.
+ Another thing, if we reach our goals on affordability and
+safety, it will affect everything else that is done in space.
+For example, as we flow this capability of very high volume,
+very low cost, high safety into the orbital market, all of a
+sudden, those that go out and want to do exploration of the
+planets, instead of being able to afford to build one or two of
+these every couple of years, we can build thousands and
+hundreds and send them everywhere and do real exploration
+because it will be affordable. I have had NASA, two different
+centers, including NASA headquarters, insisting that I keep
+SpaceShipOne flying so that they can fly their payloads on it.
+You know, they have made a lot of these payloads for student
+projects and so on, and they just don't have an ability to fly
+it.
+ My position on that has been that NASA certainly has a lot
+more capability to fly science payloads than we do. They have a
+space station. They have a reusable Space Shuttle. The reason
+that they can't fly their own payloads is not my fault. And I
+have refused to do that, because I have refused to have
+anything in my way in order to, as quickly as we can, get an
+operable system that flies safe and flies cheap. And I think it
+is much better for NASA to just wait and buy tickets rather
+than us doing science projects to develop that kind of
+capability along the way. We have put all of this other
+interest and all of this other stuff aside so that we can
+quickly reach the goal. And that goal will help everything
+else.
+ Chairman Calvert. Thank you.
+ Mr. Udall, a skilled man.
+ Mr. Udall. Thank you, Mr. Chairman.
+ The testimony that both of you presented was fascinating,
+and I am looking forward to hearing more about your point of
+view.
+
+ Regulatory and Approval Process
+
+ Mr. Rutan, you talked about some of the challenges working
+through the--an approval process for SpaceShipOne. As you look
+ahead at developing a commercial version of this spaceship,
+have you had any discussions with FAA as to what you will have
+to do to get your vehicle approved for commercial service? And
+would you be willing to talk with us and/or provide some
+specific ideas about changes to the process? And perhaps you
+could do that for the record. Again, we have got limited time
+today, but----
+ Mr. Rutan. Absolutely. I have had multiple meetings with
+the FAA Administrator. I have insisted that at least one of
+those meetings including having the airplane people as well as
+the space people, you know, AVR as well as AST, and I did
+succeed last month in having that meeting where all three were
+in the same room. And that was in the FAA Administrator's
+office. It was a meeting of more than two hours, and I made my
+point that the FAA does need to stand up to the responsibility
+for assuring the safety of the passengers. And I believe that
+that process can be structured so that the applicant for flying
+commercial flights can get an acceptance by the FAA that he has
+indeed done his testing and has defined the testing that is
+needed for--to show his margins, his safety margins. I believe
+that can be done with a very minor effect on the cost of the
+developer.
+ However, this is a subject that FAA seems to be afraid of.
+They seem to be happy that they are not required under the new
+legislation to certify these ships. And I think it is--really
+comes down to the problem is that they just flat don't have the
+people that are qualified to do it. I don't believe that the
+new ships will go through a conformity process like you do in a
+part 25 certification for airplanes. And we have developed
+specific processes for that as suggestions. And I am--I hope
+to, over this next month or two, have a meeting with the
+working level certification people so we can present this. But
+we have not had that opportunity yet.
+
+ Similarities to Airlines
+
+ Mr. Udall. Thank you.
+ If I could, I would move to Mr. Whitehorn.
+ You have got a background in the airline industry. Would
+you talk a little bit about what aspects of your operations
+that you think will be similar to the airline industry and
+which aspects would be different?
+ Mr. Whitehorn. Yes. I mean, I think when we look at issues
+such as the certification of the spacecraft, I mean, Burt
+Rutan's company, Scaled Composites, will be responsible for
+certifying the SpaceShipTwo, which we have developed into a
+commercial business. So I won't talk about those issues at all.
+We will leave that to Burt.
+ We will receive--we have engaged in an active dialogue as
+well with the FAA at the moment, which is in a much happier
+area, which is the area of what the passenger experience will
+be and the program to prepare the astronauts for flight and the
+regime that we will operate in terms of the safety of those
+astronauts, what we will need to do on the medical front to
+ensure they are fit to fly. We are planning to buy a system
+from Burt Rutan, which would allow 80 percent of the population
+of the world to fly in terms of medical areas. And in terms of
+age, it would be open to anybody of any age to fly. But
+obviously, from the point of view of the FAA, we will come up
+with a set of standards and guidelines as to what we will deem
+acceptable. And what the legislation allows us to do is to work
+in quite an open forum on those issues of the guidelines as to
+what the passenger will have to experience.
+ Where I think this differs from the commercial airline
+industry is that the commercial airline industry has been
+regulated now for the best part of 70 years, properly
+regulated, in the United Kingdom and the United States. And the
+difference here is that there is no precedent to base things
+upon. The precedent of the past is to look at the best that has
+happened in the world of commercial aviation and try and apply
+the important principles of that but not create rules before we
+know exactly the direction of where we are going is, but to try
+and develop the rules that will be there for the future in as
+open a forum as possible between the parties involved in this
+industry. And I think that is achievable. I think the FAA has
+an open attitude to those aspects. And I think that when it
+comes to the certification of the craft itself, that is Mr.
+Rutan's area, the principles around how it operates the
+business will be our area, as the commercial operator. And you
+know, I think the principles of safety for us are paramount.
+The principles that we do want to create an experience for the
+customers that they can have confidence in, and the kind of
+sophisticated individuals we are dealing at the moment have an
+understanding of risk, but they are expecting an experience,
+which will be along the lines--I mean, as Burt said, the early
+days of commercial aviation, back in the 1920s and 1930s, or
+somewhere around where private aviation got after the second
+world war in the USA in terms of the level of safety. That is
+what the audience expects that we are addressing this product
+to. And I think that our north star in safety is going to be
+ensuring that the standards that we introduce to service at the
+beginning of the operation of this by the end of this decade
+are standards that then can be improved by experience all of
+the time.
+ And if one starts from a prescription of where you begin,
+you are never going to get to the position of creating
+guidelines that can be improved and developed with experience.
+And one of the things I am encouraged by, though, is in that
+particular area I think the FAA is spot on in the way it is
+working.
+ Mr. Udall. Thank you.
+ Chairman Calvert. Mr. Rohrabacher.
+ Mr. Rohrabacher. Well, I thank you very much. And let me
+just sing the praises of Burt Rutan, who, of course, everybody
+sings the praises of Burt Rutan. I don't know if you are Hans
+Solo or Charles Lindbergh, but whoever you are, Mr. Rutan, you
+are an historic person, and it has been my honor to have had
+the opportunity to know you and to watch with amazement some of
+the things you are doing. So thank you very much for being just
+a role model to young--the young people in America and old
+people in America as well.
+ Mr. Rutan. Well, thank you, Dana. I consider myself someone
+that just hides out in the high desert in California and has as
+much fun as I can. And I don't look at it that way at all, but
+thank you very much.
+ Mr. Rohrabacher. Well, I would hope that when people are
+studying in our universities and in our high schools that when
+they pick people out to study and to see what type of person
+they were and to use as examples for--I would certainly hope
+that the education community takes a look at Burt Rutan and
+makes him a full chapter in the book, because that is what our
+young people need.
+ Mr. Rutan. I believe that the education, which has--NASA
+has spent a lot of money over the last three decades on trying
+to keep the interest in education, I believe that problem will
+totally disappear once there is a growing industry out there
+and kids can not just kind of be prompted to dream about being
+an astronaut, they will be making their plans to fly. And once
+you have that, I think we are going to get an enormous amount
+of increase in those that go to school to learn engineering and
+science and those that deal with all of the aspects of this new
+industry. And I don't think our education problem will be a
+problem at all once there is something real that is going on.
+ Mr. Rohrabacher. Okay. Thank you very much.
+ The--I had to leave a few moments ago, because Lieutenant
+General Arnold, who is the command of the Space Missile Center
+there in Los Angeles, was--needed to meet me right outside the
+room here. And I think that it is significant, and you
+mentioned this in your testimony in passing, that in the past--
+as in contrast to the past, where there were spin-off effects
+from America's defense spending to the private sector. You
+believe that there is going to be a great spin-off or
+collateral effect for national defense and other type of issues
+from the private sector investment in space.
+ Mr. Rutan. I have got an example that supports that, and
+let me just state that I don't think the primes--Lockheed and
+Boeing, for example, I don't think they know it yet, they will
+be developing large numbers of low-cost launch capabilities.
+And the reason I say that is we have an example in front of us
+that I really truly believe is a parallel and that is in the
+late '70s, IBM did not know that in a few years they would be
+building tens of thousands of $700 computers. They really
+didn't know that. They found out that they had to force
+themselves into that market. They had to realize that, ``Hey,
+we are not just a company that makes a handful of mainframe
+computers.'' And they changed very quickly, and they got in and
+they competed. And I think that is going to happen also as this
+paradigm changes to where there are the benefits of cost and
+safety and an enormous lot of activity.
+ Mr. Rohrabacher. Which leads me to a question for Mr.
+Whitehorn. And of course, let me applaud you, as well. Very
+rarely do we have a witness come here before us in Washington
+saying that they aren't asking for any help.
+ Mr. Whitehorn. Well, that is because I come from the United
+Kingdom, and if you ask the government for any help, they just
+don't get it.
+ Mr. Rohrabacher. But I noted--I think we noted two things
+here. Number one, you were asking, basically, correct me if I
+am wrong, for making sure that we have definitions of liability
+that will permit your business to succeed. And I think that
+that is something that we understand.
+
+ Export Controls and Tech Transfer
+
+ Number two, you also mentioned tech transfer, just in
+passing. Is there a problem? And again, there are military and
+security implications to the craft that is being developed,
+because obviously, frankly, what Burt is developing here as
+something for the general public has some very great
+implications for the security of the United States and the free
+world. Are there problems with transfer to Britain, to a
+British company and----
+ Mr. Rutan. Yes, I thought that Britain--or that England was
+a relatively friendly nation to America. And at least reading
+the papers, you would see that. But when you try to export
+designed things that are tied to either rockets or the avionics
+that go in rockets, we have seen this as an extremely difficult
+thing. And it has been one of the reasons that we have had to
+move away from the basic concept of this being a foreign-funded
+development of the ship, even though it is a very friendly
+country. And I have been to London. I found these people seem
+to like us, too.
+ Mr. Rohrabacher. Well----
+ Mr. Rutan. But let me point out----
+ Mr. Rohrabacher. And people will be able to get to London a
+lot quicker in your----
+ Mr. Rutan. First of all, I don't think we are going to have
+this problem in the short term now by developing the ship here.
+And if we fly them within the United States, I think that
+problem will be minimized. However, relatively soon, and I
+think this will happen in the first decade of commercial
+operations, there will be requests, and very serious, well-
+funded requests. We have gotten them even from the guys
+building that new city outside of Dubai. They want to run space
+lines in their country. And when you take something that does
+have some technologies that would transfer over--that could be
+transferred over into a weapon, even though these technologies
+are all really in the public domain, we run into very severe
+restrictions. We have wrestled with this problem in terms of
+technology transfer to Virgin Atlantic for about five months
+now. And it has been--it doesn't seem to meet logic, and it has
+been difficult. I think--and as a result of that, we are
+discouraging, until there are routine commercial operations
+going on in this country, and it can be shown that for the same
+reasons that we sell airliners that we don't want to have
+technology, that they don't have to have the technology in
+order to operate a spaceline. And I think that is not going to
+work on the early stages, because we just flat can not export
+it. But I believe once there is routine operations going on
+this country, then we will be able to surpass those roadblocks
+and be able to set up sites in Dubai or in Australia or in
+Europe.
+ Mr. Rohrabacher. Mr. Chairman, just one note, and I know my
+time is up, and that is I have been a long-time advocate of a
+two-tiered system of technology transfer controls where
+countries like Australia and England and other countries that
+are totally friendly to the United States should not have the
+type of restrictions on them as compared to a country that
+poses a potential threat to the United States. And thus, it
+should be a totally free market with those countries.
+ Chairman Calvert. The gentleman----
+ Mr. Rohrabacher. Thank you very much.
+ Chairman Calvert. The gentleman is correct, however, you
+know, there are still some burn marks from 1812 over at the
+Capitol. We may have to send Virgin a bill for cleaning some of
+that up.
+ Mr. Whitehorn. I would just like to add a couple of
+comments to what Burt said there. We don't envision a problem
+with the DDTC or with the Department of Defense. We are having
+a robust and very friendly dialogue on this issue. But we have
+made it clear to them that we are not planning to export the
+vehicles, and we are planning to operate the vehicles only in
+the USA to start with. But if you look at the marketplace, and
+I think back to Burt's point about Boeing selling aircraft
+around the world or Lockheed selling aircraft around the world,
+the market for this is worldwide. Of the 29,000 people who have
+registered that wish to pay the deposit, only 40 percent are
+from the U.S. Now a lot of the people are going to be coming
+from other parts of the world to fly in the U.S., but this
+could be an export industry for the U.S. And you know, this
+country has a balance of payments problem, there is no doubt
+about it. And you know, you have to look to the methodologies
+which you are adopting in terms of every aspect of export of
+technology from this country, because, you know, it is the
+export of technology, which is the lifeblood of an industrial
+country. And at the moment, there are issues to deal with on
+this front.
+ Chairman Calvert. I thank the gentleman.
+ Mr. Costa.
+ Mr. Costa. Thank you very much, Mr. Chairman and the
+Ranking Member for having this hearing today. I think it really
+focuses on a very important growing technology that I think all
+of us are excited about. And I, too, want to commend Burt Rutan
+as the recipient, for the second time, of the Collier Trophy.
+It just goes to show that kids that grow up in Silicon Valley
+can do good, as a native not far away from Fresno. We are very
+proud of all of those accomplishments, obviously.
+ I have two questions, and I think it was important in
+your--both--Mr. Rutan, your testimony, and Mr. Whitehorn, to
+remind us of the history of aviation in the 1920s and the
+1930s. Douglas and Northrop and a little company in San Diego
+called Ryan that built an airplane for a fellow named
+Lindbergh, and how that whole relationship developed between
+entrepreneurs who had a vision and had a dream to fly and the
+partnerships, the public partnerships that later developed.
+Obviously, if it weren't for the establishment of the Federal
+Postal System giving contracts to the fledging airlines of
+those days, because the passengers certainly weren't paying for
+the airlines to come together, but if you could get a postal
+route, it made a big difference. And that whole evolution
+process, and I think there are certainly applicable lessons to
+be learned as we develop this industry, as you so well stated,
+Mr. Rutan, in your comments, and you as well, Mr. Whitehorn.
+
+ Economics of Commercial Space
+
+ Two questions. One, and I don't know if you are yet at this
+level in terms of developing your economic model. You talk
+about 27,000-plus interested parties that have indicated, and
+we hear the number thrown around about $200,000 per flight per
+individual, and say, maybe half of those actually end up
+purchasing a ticket. And you can do the math, obviously, but
+have you done any economic models in terms of the multiple
+impact? I spent some time in high-speed rail and others, and
+they like to talk about a two-to-one factor, for every dollar
+spent, there are $2 benefit in return in terms of the ripple
+impact to other economic sectors or subcontractors or the like.
+Have you developed anything like that yet at this point in
+time?
+ Mr. Whitehorn. No, we haven't done it at this stage. I
+mean, what we have done is we have taken Burt's costs in the
+development of SpaceShipOne and some feasibility work that Burt
+did for us last year before we signed the contract with them to
+buy the technology. And we have modeled. We believe that with
+it--for the expenditure of $120 million, we can get to a viable
+business and that the early pioneers will pay $200,000 to fly
+on this model, and we believe that by year five we can be
+reducing those costs very considerably. And from the point of
+view of the individuals, we believe that eventually we could
+get it down to $25,000 or $30,000 after a number of years per
+flight per person.
+ In terms of the economic impact outside of Virgin
+Galactic's own business plan and Burt's own business is he uses
+us as the launch customer, as Boeing would describe it. And our
+status as a launch customer will obviously give Burt the basis
+on which to invest in developing further projects. And we, in a
+symbolic relationship, would envision ourselves developing an
+orbital business eventually out of the Virgin Galactic
+business.
+ My personal view is that the developments that we undertake
+together, Burt as the manufacturer and ourselves as the
+customer, will have a considerable effect on the industry as a
+whole, on the space industry in the United States. NASA, for
+example, you know, will be able to help us by being a customer.
+But the reason they should come to us as a customer is because
+we can do for them what needs to be done more efficiently than
+they can do it themselves. And that is how public-private
+partnerships work. One thing that the UK has actually excelled
+in the past 20 years is privatizing its publicly owned
+industrial structure and creating partnerships between the
+public sector and the private sector. If you look at our
+National Health Service in Britain, for example, it was run
+like a Soviet operation 10 or 15 years ago. Everything was done
+inside the health service. Now 10 billion pounds worth, so
+about $20 billion worth, of contracts per year are let by the
+National Health Service, which is a publicly owned institution,
+to the private sector. I don't think NASA has gotten as far as
+that in terms of its attitude to the private sector yet.
+ Mr. Costa. Yeah.
+ Mr. Whitehorn. But when it does, and when organizations,
+such as NASA, buy in more and more from the private sector, as
+this industry develops, and I don't mean the Lockheed or Boeing
+private sector.
+ Mr. Costa. Right.
+ Mr. Whitehorn. I mean, not the primes, but the new industry
+that emerges, I think you will see a ripple effect in terms of
+investment. But it is too early to model that for the moment.
+ Mr. Costa. Thank you. And----
+ Mr. Rutan. Could I comment briefly on the launch customer
+point that----
+ Mr. Costa. Sure.
+ Mr. Rutan.--Will made? I think it is extremely important to
+us that we have a Virgin as a launch customer, because if I
+would look back before Richard Branson's interest in this, my
+business model assumed that this business would start off from
+a low-credibility standpoint, both from developing and building
+spaceships and for those that operate them. I didn't dream and
+expect that a Jet Blue or a United or American Airlines would
+come in and buy spaceships early in this game. I just--my gut
+told me that they will pass on that. The fact that a major
+world airline has stepped up and has told us that they want to
+buy the first five spaceships and that they want to operate,
+and they have already gone out and done market surveys and so
+on, that fact that an airline, not just whatever else would--
+you would think would be there, has stepped up has given me the
+ability to go out and get the investment that is needed to
+develop and certify the spaceships. So I didn't expect that we
+would start off from that strength. The fact that we have a
+launch customer, which is a successful, major airline is
+absolutely huge.
+ Mr. Whitehorn. I have to add, of course, that Virgin
+Atlantic is just another normal airline. As they say in Denmark
+about Carlsberg, it is probably the best airline in the world.
+ Mr. Costa. Mr. Chairman, I know my time has run out, but I
+do have a technology application question that Mr. Rutan might
+want to respond to later on to the Committee, but I--in terms
+of the application of this technology, I know there has been a
+lot of investment by NASA and by some other companies on
+hypersonic space flight to bridge the continents, and I would
+like to have a better understanding of whether or not there is
+an application of this technology to that at a later stage. And
+you can maybe do that in a written statement or whatever suits
+the Chairman.
+ Chairman Calvert. Certainly. We could move into our next--
+Mr. Honda.
+ Mr. Honda. Thank you, Mr. Chairman and Ranking Member.
+ Let me just piggyback on my colleague's question, and maybe
+you could answer that question at the same time that--piggyback
+on the question that I am going to ask.
+ First of all, I--you know, as a kid that grew up watching
+Flash Gordon in his young adult, the--you know, Star Trek and
+all of that sort of stuff, I find this subject very
+interesting.
+ A quick comment on NASA. I think NASA will probably be in a
+position to do more partnering if this Administration had the
+foresight to invest more into the projects that we have,
+because currently we are looking at massive cuts, and massive
+cuts that would affect young people who would consider space
+flight and manned space flight if we were to invest properly in
+a more healthy way into this area. That is a personal comment,
+because I agree with both of you that NASA has a great role to
+play. And as a schoolteacher, I do believe that NASA has a role
+to play in terms of education and primary research.
+
+ Safety Concerns
+
+ Having said that, along with Mr. Costa's question, in terms
+of research in manned space flights, do you believe that there
+are--that humans can be subjected to unknown kinds of exposures
+that we haven't even thought of as of yet that we should be
+looking at in terms of safety and long-term safety, whether it
+is intercontinental, high-speed, supersonic travel or orbital
+space flights? What would be your reaction to that?
+ Mr. Rutan. Well, there is nothing that is unknown about
+what we are going to put humans exposed to in order to have
+this sub-orbital industry grow and be healthy. We know all of
+the answers to those things. They are very straightforward.
+They are very acceptable, and they are--you--by the way, you do
+want to expose someone to forces in order for it to be fun. And
+the--there are now showstoppers out there at all. Now as we
+move on and go to the planets where you have long-term exposure
+to radiation and so on, there are serious things that need
+solutions, but that is not for the work that we are likely
+going to be doing this decade. That is the next step. But I
+don't see any roadblocks at all on technologies, and I don't--I
+do not believe we need any research work done at NASA to
+support the sub-orbital private space flight industry. I
+believe when the private space flight industry moves to taking
+people to the moon and the planets, NASA will be a very strong
+player, because they do need to get back into their role of
+doing basic research rather than running the airline. And I see
+a big role for NASA as we go to low-Earth orbit, and
+particularly as we go above low-Earth orbit. And I think Mr.
+Musk will comment more on his, because he is working on orbit,
+and we are not. But for this new industry that we have been
+developing here on this panel, we don't see a role at all for
+NASA.
+ Mr. Whitehorn. If I can just add to that, very quickly. I--
+one of the things we are working with the FAA at the moment is
+the guidelines. And one of the guidelines is that we explain to
+the customers exactly what the risks are. And those risks are
+known, so the risk of----
+ Mr. Honda. Oh, okay.
+ Mr. Whitehorn.--gamma radiation, for example, will be
+explained to the customers. And you know, you are talking about
+a level of risk of a CT scan for a flight on a sub-orbital
+craft.
+ Mr. Honda. So you have research on that, then?
+ Mr. Whitehorn. There is plenty of research on it, which
+goes back decades now. And the research in the airline industry
+and the research that was done around the introduction of
+Concord back in the 1970s is all perfectly relevant to this
+particular situation. I mean, the only risks we don't know
+about is, you know, the possibility that we might meet aliens
+since there will be several thousand flights rather than just a
+few hundred over 40 years.
+ Mr. Honda. Well, that is a buzzword in this country.
+ Thank you.
+ Chairman Calvert. Thank you.
+ Mr. Wu.
+ Mr. Wu. Thank you very much, Mr. Chairman.
+ I have a couple of questions, but I just want to start by
+saying that, you know, my dad was in the aerospace industry. By
+then, the industry was already fairly mature, and names like
+Northrop and Boeing were institutions rather than individuals,
+but by having an affection for whatever field I am in, I dig
+into the history. And it was interesting for me to find the
+individuals behind those institutions, and that was a romantic
+era when the founders of these great institutions were first
+starting their businesses.
+
+ Return-to-Flight
+
+ I want to salute you all for your cutting-edge work, and I
+truly believe that Mr. Whitehorn, Mr. Rutan, you and Mr.
+Branson will be remembered in the aerospace pantheon with the
+likes of Jack Northrop and others, and I really want to
+recognize that.
+ And Mr. Rutan, it was a long time ago, but I made a 200-
+mile drive to see Voyager land in the Mojave Desert, and that
+was one of the great moments of my life to see that aircraft
+come in. It is just really terrific. I try to explain its
+significance to my son when we see it at the Air and Space
+Museum. He is less than completely impressed right now, but I
+think--he is seven, and----
+ Mr. Rutan. I believe the Voyager pilot is with us in the
+audience today, too, my brother, Dick.
+ Mr. Wu. Well, you flew it really nice, straight, and level
+all of the way in. And you did walk away from the landing,
+which is a very good thing. Thank you. It is very, very
+impressive.
+ I really want to ask you all a couple of questions apart
+from commercial space and what you have been working on,
+because, you know, sometimes in the course of your work and
+your extensive background, you can shed valuable light on other
+organizations and other processes. And the two things I wanted
+to check with you about are really NASA and federal programs.
+ As you know, the launch window for the next Shuttle opens
+approximately May 15, and I was wondering if either of you,
+particularly Mr. Rutan, but either of you, have any commentary
+as you have observed. I mean, I know you all have been very
+busy, but if you have observed the NASA return to space--return
+to flight efforts, if you have any observations to share with
+us. And then I have one other question after that.
+ Mr. Rutan. Well, I feel very privileged to have an
+appointment this afternoon with the new NASA Administrator,
+even though he has only been on the job a couple of days. So I
+believe there is likely going to be major changes on what we
+believe is ahead, and I would prefer to not guess, at least
+until I have had a chance to give him my thoughts and to have a
+better idea of what is likely to happen at NASA. But I believe
+there will be major changes in what NASA's activities were
+otherwise going to be because Mike Griffin is on board. So I
+really don't think it would be appropriate for me to guess on
+that until I have a little more information.
+ Mr. Whitehorn. I would like to make a general comment.
+ I think it is incredibly important for the future of space
+that NASA returns to space flight. I think there is an enormous
+psychological impact. And you know, one of the comments that
+was made earlier was about in education. When I was brought up
+as a young lad in Scotland, my parents told me that I would
+probably go to space when I grew up and that they wouldn't be
+alive to see it, but I would. The generation beyond my
+generation grew up not believing they would ever go to space.
+They ceased to believe it, because the whole attitude to space
+became, ``Robots will do it, because robots are going to be
+cheaper,'' and scientists decided that robots were where space
+was going. And to be honest with you, the psychological impact
+of that around the globe was that people actually stopped
+believing in the whole idea of the exploration of space,
+because why do human beings want to pay through their tax
+dollars to fund something that they are never going to get the
+chance to ever experience themselves? However, science has
+moved on. Our understanding of our own planet has moved on
+enormously in the last 20 years, and people have realized that
+our tenure on this planet is pretty limited, that you know,
+there will be catastrophic events that could damage
+civilization itself, and that they happen on a more regular,
+say, precept than we had thought of 30 or 40 years ago.
+ So the idea that we can't ever leave this planet is a
+psychologically damaging one to the whole concept of
+civilization, development, and science and technology itself.
+So not only is this private sector venture incredibly
+important, but also NASA's return to space flight is incredibly
+important, and I think we should laud them for, hopefully, what
+will be a great event around May the 15th or shortly
+afterwards. And it was interesting, my son went to see
+SpaceShipOne the Christmas before last. And he went back to his
+school in England, and the schoolteacher was asking, ``What did
+you do in the Christmas holidays?'' of all of the boys in the
+class and the girls in the class. And he said he had been to
+see the spaceship and his dad might be building one. And the
+science teacher sent him out of the class. And the difference
+between two years ago and now is that he has had a letter of
+apology about that and--thanks to Burt succeeding in the X-
+Prize, and also, you know, if you look at the attitude to space
+at the moment, the interest there was in the Mars mission,
+because this government announced that you were going to intend
+to go to Mars with human beings, and the worldwide coverage of
+the Mars Explorer last year was dramatically different to the
+previous coverage of the early missions to Jupiter, for
+example, in the late '80s and early '90s, which didn't attract
+that much public interest or attention. The fact that human
+beings are going out beyond this planet is the incredibly
+important principle that NASA has to re-establish and it is
+doing so now, which is to be lauded.
+ Mr. Wu. Thank you very much.
+ And Mr. Chairman, with your forbearance, if I can get out
+my second question.
+ The--if--and I look forward to hearing, Mr. Rutan, your
+observations in private after you have had your meeting. And
+Mr. Whitehorn, I completely agree with you about the importance
+of NASA's return to flight. It has tremendous symbolic as well
+as real significance, and I think the whole Nation, the whole
+world, will be holding its breath. And that is why it is so
+important.
+
+ NASA Aeronautics
+
+ The other thing that gets a whole lot less attention and
+that is that we talk all of the time about space, but we forget
+about the aeronautics mission of NASA. And I was wondering if
+either of you have views about whether NASA has under-
+emphasized its aeronautics mission perhaps at the expense of
+either American competitiveness or world aviation.
+ Mr. Rutan. Well, before NASA, there was NACA. And NACA did,
+indeed, support the industry by providing wind tunnels and
+providing basic research, really very well focused on the kinds
+of things that a manufacturer would need in order for him to go
+out and build an airplane and compete and to build the
+industry. NACA never did run an airline. NASA now is running
+the only airline that America has in space. So it is a
+considerably different thing. I don't think just by throwing
+more funding to NASA you are going to get help on the
+aeronautics. I think you are going to have to be specific, and
+you are going to have to identify the resources that NASA has
+for aeronautics, which one of the wind tunnels are critical,
+and the ones that are critical need to be--remain open so that
+the developers all of the way down to--all of the up from
+Boeing and all of the way down to Scaled Composites can use
+these facilities, because they are national assets that we have
+spent money for.
+ In general, though, in terms of the research done at the
+individual level, say, calculations and so on, at NASA, what
+has happened is because the airline industry and the military
+airplane development industry is so competitive, you will look
+inside Northrop and Boeing and so on and you will find better
+skills there of these technologies than you find looking inside
+the labs at NASA. So I am not a proponent of keeping a lot of
+that alive if it is not something that flows good information
+out to the U.S. manufacturers. I don't see a benefit there. But
+I think at least on the short term, we have got to make sure
+that the wind tunnels that are important and the assets that
+are important that the government owns, that they not be just
+thrown away.
+ Mr. Whitehorn. I would agree with Burt's testimony.
+ I would also add that I think one of the issues that NASA
+has had to face over the last 45 years is that it really hasn't
+had a clear output specification of what it should be doing
+from government on behalf of the people of the States. I mean,
+it is, to me, very, very interesting that NASA had--if you look
+at the 1970s and 1980s, it was very direction-less for a long
+period of time. And it was also part of a Cold War that existed
+between the Soviet Union and the USA, and people forget that
+these days. It was forced to do things by government by using
+tax dollars, which were part of the Cold War itself, rather
+than part of the exploration of space. And I think NASA, for
+the first time in, probably, two decades, has a very clear
+direction at the moment, but it mustn't be thinking in that
+clear direction about the mechanics of achieving it using the
+ideas of the past. It mustn't get stuck into the rut of,
+``Well, we have got to do this so we have got to build this
+type of rocket, because that is the way you do it.'' It should
+really be thinking about, you know, if the best way to do it is
+to build something out of paper mache and send it into space,
+because that will work more effectively and be more cost-
+effective and safer, then that is the way we should think about
+doing it. And I think that attitude and that cultural change in
+NASA you can definitely see happening at the moment from the
+outside.
+ Chairman Calvert. I thank the gentleman. I thank the
+gentleman for his questions.
+ Mr. Wu. I thank the witness, and I thank the Chairman for
+his forbearance.
+ Chairman Calvert. Okay. We are spending a little more time
+on this panel than we expected, but it is very interesting. Mr.
+Bartlett has joined us. Does the gentleman have any other
+questions or----
+ Mr. Bartlett. I am sorry I couldn't have been here for the
+whole hearing. Thank you all very much for coming.
+ Are you making an argument, maybe, that you ought to be--we
+ought to be rethinking NASA and its mission when you note that
+the aeronautical area has--now has large companies, very
+competitive, that are able to attract skills that it is
+difficult for the government to match? I have a general
+philosophy that government needs to be only where they need to
+be, and if we don't need to be in an area, maybe we shouldn't
+be there.
+ Mr. Rutan. Well, I don't think that it is NASA's role to do
+development, and I don't think it is NASA's role to run an
+airline or a spaceline. I think it is NASA's role to do basic
+research to discover--to allow the discovery of breakthroughs.
+The problem that we have is if you define research, like I
+think it should be defined, and that is if there is something
+out there that you are trying to achieve and you want to put
+funding in to achieve it, if half of the people that look at
+that goal look at it from the standpoint of, ``Oh, man, that is
+tough. And, God, it would be neat if you could do it, and I
+think you can do it.'' And then the other half of the
+technologies looked at--technologists look at that and they
+say, ``Well, hell, that is impossible.'' Okay. I believe at
+that level, then to go after it, you are doing research. But if
+everybody says, ``Oh, yeah, that will work, and we are just
+here to kind of refine it,'' then all you are doing is
+development. And that is my argument with this exploration
+program now is they are not out there looking for the
+breakthroughs. They are not out there looking for things that
+can make big differences. They are really--NASA is doing
+development, because NASA, in general, and it may be somewhat
+of things imposed by them by accident committees. It may be
+some things that are imposed on it by you folks who pass out
+their money. But they just flat are scared to death of failure,
+and if they are scared to death of failure, you are incapable
+of doing research. I think NASA ought to be funded to do
+research to support America's airline industry and America's
+military development industry, and that means that most of what
+they do are things that are expected to fail. And that takes a
+whole different culture and a whole different idea. That is
+what NASA ought to do.
+ Mr. Bartlett. I come from a science background. I
+appreciate very much your understanding that there is no
+unsuccessful experiment.
+ Mr. Rutan. Right.
+ Mr. Bartlett. If it doesn't work, that is a success. You
+learn----
+ Mr. Rutan. Right.
+ Mr. Bartlett.--that it doesn't work, so you have got to try
+something else next time.
+ Mr. Rutan. And if you are afraid to fly it, you never learn
+anything.
+ Mr. Bartlett. That is right. You know, and people who don't
+come from a science background have a lot of trouble
+understanding that, that there is no unsuccessful experiment.
+If it didn't work, it didn't work, so we will try something
+else next time.
+ But for people who are--who want to avoid failure, they see
+an experiment that--where you didn't prove your hypothesis,
+where the data did not support your hypothesis, they see that
+as a failure, and so they don't want to do it. And when you
+have that kind of timidity, you are not going to push the
+envelope very far very fast.
+ Mr. Rutan. The X-34 is a very good example. Here is
+something that was funded all of the way through, essentially
+ready to fly, and then was not flown because it was deemed to
+be risky. And you know what happened shortly after we had some
+failures in some Mars missions, and they decided, ``Listen, we
+don't like it, because it is risky, so we don't fly it.'' And
+that is, essentially, what happened. If they had have flown
+that and made a smoking hole in the desert, you would learn
+something from it. When you don't fly it, you have wasted all
+of your money and you have defined certain failure of your
+goals.
+ Mr. Bartlett. I appreciate your concern.
+ Thank you very much, Mr. Chairman.
+ Chairman Calvert. I thank the gentleman.
+ I certainly thank this panel. Mr. Rutan, again,
+congratulations for your accomplishments.
+ Mr. Whitehorn, thank you for putting some risk capital
+behind this, and that is what entrepreneurship is all about.
+ I am going to have a question--a couple of questions, one
+that I will--because we--in the interest of time, about the
+long-term prospects for space tourism on full orbital flights.
+And if I can put that in writing to you and get a written
+response what kind of technologies need to be developed and
+what do you see is a timeline for something like that.
+ With that, again, thank you very much for your testimony.
+It is very interesting. We have spent more time on this than we
+thought, but you were very kind to stay here, and it was very
+interesting for us. Thank you very much.
+ Mr. Rutan. Thank you.
+ Chairman Calvert. Okay. Our next panel: Mr. Elon Musk is
+the CEO and Chief Technology Officer for Space Exploration
+Technologies, SpaceX; Mr. John W. Vinter is Chairman of the
+International Space Brokers, ISB; Mr. Wolfgang Demisch, the
+founder of Demisch Associates, LLC, Aerospace Financial
+Analyst; and Dr. Molly Macauley, Senior Fellow and Director of
+Academic Programs at Resources for the Future.
+ Of course, Mr. Musk is known for inventing, what is it,
+PayPal and very successful and now is investing his money in
+something that is even more interesting, and that is space
+exploration.
+ With that, Mr. Musk, we are going to try to stay on our
+traditional schedule now of five minutes of testimony and five
+minutes for questions. We kind of let that go with the last
+panel, but we are going to stick to it this time.
+ So Mr. Musk, thank you very much for coming, and you may
+begin your testimony.
+
+ Panel II:
+
+STATEMENT OF MR. ELON MUSK, CHAIRMAN AND CEO, SPACE EXPLORATION
+ TECHNOLOGIES (SPACEX)
+
+ Mr. Musk. All right. Thank you. There we go. All right.
+ Chairman Calvert, distinguished Members of the Committee,
+thank you for having me here. It is an honor to be here.
+ I will address the questions as directly as possible.
+ The first one is: ``What is the SpaceX business plan?''
+ SpaceX is dedicated to improving the reliability and cost
+of access to space for the greater purpose of helping us become
+a space-faring civilization one day. Without dramatic
+improvement in those two inseparable metrics, cost and
+reliability, we will never exceed the great deeds our Nation
+accomplished for all humanity with the Apollo program.
+ Although the ultimate goal of SpaceX is to provide heavy-
+lift, super-heavy lift, in fact, and manned launch vehicles, we
+have chosen to focus our initial efforts on a small rocket
+capable of launching satellites to low-Earth orbit. This
+vehicle, the Falcon I, is effectively a sub-scale technology
+test bed, ensuring that the inevitable areas of development
+occur at a small scale and without people on board.
+ However, the Falcon I, which has the lowest cost per flight
+in the world, and is entirely American built, is also showing
+strong market demand in its own right. We already have three
+firm contracts for launch and expect to close another two
+before Falcon I performs its maiden flight later this year.
+Once Falcon I has a few flights under its belt and the
+satellite producers have time to adjust, I think it is quite
+possible that there will be more flights of Falcon I than any
+other orbital launch vehicle in the world.
+ It is also worth noting that the Falcon I is the only semi-
+reusable rocket in the world, apart from the Space Shuttle.
+However, reusability is not currently factored into the price.
+As we refine that process, we may be able to make further cost
+reductions and hope to make further cost reductions in the cost
+per flight of Falcon I. As far as reliability is concerned, the
+Futron Corporation, which is used extensively by NASA and the
+FAA, concluded that the Falcon I, despite being low cost, had
+the second highest design reliability of any American rocket.
+It was tied with the most reliable version of the Boeing Delta
+IV and Lockheed Atlas V. The highest design reliability rank
+was held by our Falcon V design, which will be the only
+American rocket that can lose any engine or motor and still
+complete its mission, which I think is really quite crucial.
+ The Falcon V, scheduled for first flight next year, is a
+medium-lift rocket designed to carry people as well as
+satellites. As such, the design margins will meet or exceed the
+NASA requirements for manned spacecraft. In fact, my current
+instruction to the design crew is that they exceed the NASA
+specs. My hope is that this vehicle will provide the United
+States with an all-American means of transporting astronauts to
+orbit and ensure that we are beholding to no one once the Space
+Shuttle retires.
+ All in all, I see an increasingly positive future for
+commercial space activities over the next five to 10 years.
+ But what should the government do or not do to encourage
+the nascent commercial space industry?
+ The most important thing that the government should do is
+adopt a nurturing and supportive attitude towards new
+entrepreneurial efforts. In particular, the government should
+seek to purchase early launches as well as offer prizes for
+concrete achievements. Evidence for the tremendous power of
+prizes can be found throughout history, most recently,
+obviously, with the X-Prize and the best evidence being the
+prior panel.
+ Regarding purchasing early launches, the Defense Department
+has been very supportive and has done the right thing at every
+level, purchasing two of the four launches we have sold to
+date. But regrettably, NASA has not yet procured a launch and
+has provided less financial support than the Malaysian Space
+Agency, who has bought and paid for a flight on Falcon I.
+ However, I am very much heartened by the recent
+confirmation of Dr. Griffin as the new NASA Administrator. I am
+confident that his outstanding technical ability, dedication,
+and diverse experience will invigorate our space program. With
+a finite budget and entrenched interests to fight, Dr. Griffin
+will be forced to make some difficult decisions in the year
+ahead. I urge Congress to give its full support to Dr. Griffin
+when he does so.
+ As far as what the government should not do, I think it is
+important to minimize the regulatory burden required for space
+launch activities. And a comment made by Mr. Rohrabacher early
+on regarding the ITAR rules and having ITAR apply only to
+certain countries and not to others with--you know, we are in
+close military alliance, I think makes a lot of sense. But
+right now, we have the greatest difficulty just dealing with
+people from New Zealand and from the UK and from Canada. I
+mean, for goodness sake, it just becomes a bit silly. I really
+think we need to--there is an urgent need for reform in that
+area. I think, unfortunately, the American industry is really
+being harmed by this. And so it--but in general, we should do
+no more than is necessary to protect the uninvolved public, I
+think, as far as regulation is concerned. It sometimes seems to
+me that our society is paving the road to hell one regulation
+at a time.
+ And are there implications for the commercial space
+industry as you see it in the President's announced Vision for
+Space Exploration?
+ Well, the NASA budget is unlikely to see significant
+increases in years ahead, and in fact, will face severe
+pressure from entitlements just when we really need to spend
+money on the moon and Mars in, say, 10 or 20 years. Compounding
+the problem, U.S. launch prices have been increasing every
+year. So this places NASA in a financial vice, a continually
+tightening financial vice.
+ Unless we can reverse the trend of rising costs, we are
+going to accomplish less and less every year. So therefore, the
+only way that our country can meet the President's Vision, or
+really, any interesting objectives in space, is to encourage
+the development of new, low-cost access to space. If we can't
+afford to get there, the Vision will remain--or will become
+nothing more than a mirage.
+ [The prepared statement of Mr. Musk follows:]
+
+ Prepared Statement of Elon Musk
+
+ Chairman Calvert and distinguished Members of the Committee, thank
+you for inviting me to testify today on Future Markets for Commercial
+Space. It is an honor to be here.
+
+What is the SpaceX Business Plan?
+
+ SpaceX is dedicated to improving the reliability and cost of access
+to space for the greater purpose of helping us become a true space-
+faring civilization. Without dramatic improvement in those two
+inseparable metrics, we will never exceed the great deeds our nation
+accomplished for all humanity with the Apollo program.
+ Although the ultimate goal of SpaceX is to provide super-heavy lift
+and manned launch vehicles, we have chosen to focus our initial efforts
+on a small rocket capable of launching satellites to low-Earth orbit.
+This vehicle, the Falcon I, is effectively a sub-scale technology test
+bed, ensuring that the inevitable errors of development occur on a
+small scale and without people on board.
+ However, the Falcon I, which has the lowest cost per flight in the
+world for a production rocket and is entirely American built, is also
+showing strong market demand in its own right. We already have three
+firm contracts for launch and expect to close another two before Falcon
+I performs its maiden flight later this year. Once the Falcon I has a
+few flights under its belt and the satellite producers have time to
+adjust, I think it is quite possible that there will be more flights
+per year of Falcon I than any other vehicle in the world.
+ It is also worth noting that the Falcon I is the only semi-reusable
+rocket in the world, apart from the Space Shuttle. However, reusability
+is not currently factored into the price. As we refine that process,
+the cost of Falcon I will decline over time. As far as reliability is
+concerned, the Futron corporation, which is used extensively by NASA
+and the FAA, concluded that Falcon I had the second highest design
+reliability of any American rocket. It was tied with the most reliable
+version of the Boeing Delta IV and Lockheed Atlas V. The highest design
+reliability rank was held by our Falcon V design, which will be the
+only American rocket that can lose any engine or motor and still
+complete its mission.
+ The Falcon V, scheduled for first flight next year, is a medium
+lift rocket designed to carry people as well as much larger satellites.
+As such, the design margins will meet or exceed NASA requirements for
+manned spacecraft. My hope is that this vehicle will provide the United
+States with an all American means of transporting astronauts to orbit
+and ensure that we are beholden to no one once the Shuttle retires.
+ All in all, I see an increasingly positive future for commercial
+space activities over the next five to ten years.
+
+What should the government do or not do to encourage the nascent
+ commercial space industry?
+
+ The most important thing that the government should do is adopt a
+nurturing and supportive attitude towards new entrepreneurial efforts.
+In particular, the government should seek to purchase early launches as
+well as offer prizes for concrete achievements. Evidence for the
+tremendous power of prizes can be found throughout history, most
+recently with the X-Prize.
+ Regarding purchasing early launches, the Defense Department has
+been very supportive and has done the right thing at every level,
+purchasing two of the four launches we have sold to date. Regrettably,
+however, NASA has not yet procured a launch and has provided less
+financial support than the Malaysian Space Agency, who has bought and
+paid for a flight on Falcon I.
+ However, I am very much heartened by the recent confirmation of Dr.
+Griffin as the new NASA Administrator. I am confident that his
+outstanding technical ability, dedication and diverse experience will
+invigorate our space program. With a finite budget and entrenched
+interests to fight, Dr. Griffin will be forced to make some difficult
+decisions in the years ahead. I urge Congress to give its full support
+to Dr. Griffin when he does so.
+ As far as what the government should not do, I think it is
+important to minimize the regulatory burden required for space launch
+activities. We should do no more than is necessary to protect the
+uninvolved public. It sometimes seems to me that our society is paving
+the road to hell one regulation at a time.
+
+Are there implications for the commercial space industry as you see it
+ in the President's announced Vision for Space
+ Exploration?
+
+ The NASA budget is unlikely to see significant increases in coming
+years and in fact will face severe pressure from entitlements in the
+next decade. Compounding the problem, U.S. launch prices from existing
+contractors are increasing every year, sometimes significantly.
+ Unless we can reverse the trend of rising costs, NASA will be
+placed in a continually tightening financial vice, accomplishing less
+and less each year. Therefore, the only way that our country can meet
+the President's Vision in a meaningful way is by encouraging the
+development of new, low cost access to space. If we can't afford to get
+there, the Vision will become nothing more than a mirage.
+
+ Biography for Elon Musk
+
+ Elon is the CEO & Chief Technology Officer of Space Exploration
+Technologies (SpaceX), which is developing a family of launch vehicles
+intended to reduce the cost and increase the reliability of access to
+space ultimately by a factor of ten. The company officially began
+operations in June 2002 and is located in the heart of the aerospace
+industry in Southern California.
+ SpaceX is the third company founded by Mr. Musk. Prior to SpaceX,
+he co-founded PayPal, the world's leading electronic payment system,
+and served as the company's Chairman and CEO. PayPal has over sixty-
+five million customers in 38 countries, processes tens of billions
+dollars per year and went public on the NASDAQ under PYPL in early
+2002. Mr. Musk was the largest shareholder of PayPal until the company
+was acquired by e-Bay for $1.5 billion in October 2002.
+ Before PayPal, Mr. Musk co-founded Zip2 Corporation in 1995, a
+leading provider of enterprise software and services to the media
+industry, with investments from The New York Times Company, Knight-
+Ridder, MDV, Softbank and the Hearst Corporation. He served as
+Chairman, CEO and Chief Technology Officer and in March 1999 sold Zip2
+to Compaq for $307 million in an all cash transaction.
+ Mr. Musk's early experience extends across a spectrum of advanced
+technology industries, from high energy density ultra-capacitors at
+Pinnacle Research to software development at Rocket Science and
+Microsoft. He has a physics degree from the University of Pennsylvania,
+a business degree from Wharton and originally came out to California to
+pursue graduate studies in high energy density capacitor physics &
+materials science at Stanford.
+
+ Chairman Calvert. I thank the gentleman for his testimony.
+ Mr. Vinter.
+ If the gentleman would turn on his microphone.
+
+STATEMENT OF MR. JOHN W. VINTER, CHAIRMAN, INTERNATIONAL SPACE
+ BROKERS
+
+ Mr. Vinter. Yes.
+ Good morning, Mr. Chairman. Thank you. Members of the
+Subcommittee, good morning as well.
+ My name is John Vinter, Chairman of International Space
+Brokers. Our office is in Rosslyn, and we have subsidiary
+offices in London and Paris. I am pleased to testify before the
+Subcommittee.
+ My company represents a ``who's who'' of satellite users,
+including, in the U.S., Intelsat, XM Satellite Radio,
+Worldspace, AT&T, Bigelow, Kistler, and SpaceX. Additionally,
+we represent SES Astra in Luxembourg, Telesat Canada, New Skies
+Satellites in the Netherlands, Optus in Australia, Star One in
+Brazil, and Singapore Telecom. We have also managed the third-
+party liability program for the Shuttle when they were flying
+commercial missions.
+ I am also the Chairman of COMSTAC, the DOT's Commercial
+Space Transportation Advisory Committee.
+ You have asked me today to address three questions: ``What
+kind of activities does your company include for insurance
+purposes in its definition of commercial space?'' ``As
+insurance brokers, what do you see as the outlook for
+commercial space activities in the next five years, 10 years?
+How do you think we should avoid exaggerated expectations in
+the industry, such as those that occurred in the low-Earth
+orbit market in the late 1990s?'' and finally, ``What, if
+anything, should the government do or not do to encourage
+commercial space endeavors?''
+ With respect to commercial space, we include any space
+activity which does not directly involve the U.S. Government as
+an insured. We address satellite insurance and risk management
+needs from ``cradle to grave.''
+ For us, commercial space begins with the arrival of people
+or equipment at the various launch sites, continues through
+launch, deployment, testing, and on-orbit operations of
+satellites through the end of their expected lives. These are
+the areas of risk where we spend the majority of our time and
+where satellite owners spend the majority of their insurance
+money. The launch itself is generally the riskiest and most
+expensive phase of any commercial space endeavor. In simple
+terms, our objective is to cover the risk of loss or damage to
+the satellites, including failure of the launchers or failure
+of the satellite to work according to the specifications. In
+general, as a comment, the market wishes to see successful
+first flights before insuring.
+ We also provide liability coverage for damages to third
+parties caused by launch and related activities and accidents.
+Again, commercial space insurance begins with arrival of
+equipment or people at the launch site and continues through
+on-orbit operations. As with the satellite coverage above,
+activities prior to arrival at the launch site are best covered
+in non-space insurance markets.
+ We also insure persons, for example, astronauts, tourist
+visitors to the Space Station, and individuals who have flown
+on the Shuttle. We also can insure various contingencies such
+as acts of governments, and yes, we could probably even insure
+a space prize.
+ As insurance brokers, what do you see the outlook for
+commercial space in the next several years?
+ We see space activities evolving and growing, albeit not
+very fast. The world's satellite manufacturers and launch
+vehicle providers have considerable excess capacity. There does
+not seem to be sufficient demand to absorb this excess in the
+near future. For the next several years, we think there will be
+approximately 15 to 20 commercial launches a year. We see,
+however, more human activities in space, the X-Prize being the
+first, and no doubt the America's Prize will be the second. And
+other incentive programs I am sure will generate an increase in
+activities.
+ I hope Mr. Rutan and Mr. Whitehorn, the other gentleman
+from Virgin Galactic, are widely successful and very active.
+The insurance community will be there for them, but it still
+remains to be seen.
+ What, if anything, should the government do?
+ Well, with respect the government involvement to encourage
+space endeavors, I offer the following. I would suggest the
+government maintain the current liability risk-sharing regime
+of private insurance, government indemnification in excess of
+private insurance, and cross waivers. This regime was
+established in the late '80s and was renewed last year for an
+additional five-year period. This system, in my judgment, is
+working very well. It has been adopted by non-U.S. launch
+organizations. I know there are doubters, but I believe this is
+very essential to the commercial launch business in the U.S.
+ I also would recommend we take another look at the
+International Traffic in Arms Regulations as regards to
+commercial space to see if they really achieve what they are
+meant to achieve. We handle these matters for some of our
+clients, and the people who review the matters for licensing
+and monitoring are doing an excellent job and in a very timely
+fashion. The practical impact is not so clear. From the
+insurance point of view, this is an essential area, because 2/3
+of the insurance market is located outside the country, and it
+appears that the same underwriters show up on every program,
+but they have to be individually cleared for every program. I
+believe that the U.S. industry would benefit if the process can
+be streamlined. I should also point out the whole process is
+pushing satellite business overseas as non-U.S. operators find
+it increasingly difficult to cope with the whole process.
+ I believe the use of government ranges and government
+purchases of commercial space services, where feasible, seems
+to be working well. I would, of course, defer to others, such
+as Mr. Musk, for their comments.
+ In this age of deficit spending, I would be hesitant to
+recommend additional public spending, but perhaps it could be
+considered by way of providing seed money for promising new
+technology.
+ This concludes my testimony. I will, of course, be pleased
+to answer any questions. Thank you.
+ [The prepared statement of Mr. Vinter follows:]
+
+ Prepared Statement of John W. Vinter
+
+ My name is John Vinter, Chairman of International Space Brokers,
+Inc. My office is in Rosslyn, VA, and we have subsidiary offices in
+London and Paris. I am pleased to testify before the House Committee on
+Science, Subcommittee on Space and Aeronautics.
+ My company represents a ``Who's Who'' of satellite users, including
+the following: In the U.S., Intelsat, XM Satellite Radio, Worldspace,
+AT&T, Bigelow, and SpaceX. Additionally, we represent SES Astra in
+Luxembourg, Telesat Canada, New Skies Satellites in the Netherlands,
+Optus in Australia, Star One in Brazil, Singapore Telecom in Singapore,
+and others. We also have managed the Shuttle third party liability
+insurance program for NASA.
+ I am also the Chairman of COMSTAC, the Department of
+Transportation's Commercial Space Transportation Advisory Committee,
+advising the FAA's commercial space transportation office. In my
+career, I have been fortunate, in separate career phases, to work for
+both a satellite company having the need for insurance as well as an
+underwriter company providing insurance coverages. Today, I am a broker
+representing the above mentioned clients, and others, in the purchase
+of insurance from the international space insurance market. You have
+asked me to address the following questions:
+
+ 1. What kind of activities does your company include for
+ insurance purposes in its definition of ``commercial space''?
+
+ 2. As insurance brokers, what do you see as the outlook for
+ commercial space activities in the next five years? Next 10
+ years? How do you think we should avoid exaggerated
+ expectations for the industry, such as those that occurred in
+ the low-Earth orbit (LEO) market in the late 1990s?
+
+ 3. What, if anything, should the Government do or not do to
+ encourage commercial space endeavors?
+
+What kind of activities does your company include for insurance
+ purposes in its definition of ``commercial space''?
+
+ With respect to ``commercial space'' activities, we include any
+space activity which does not directly involve the U.S. Government as
+an insured. We address satellite insurance and risk management needs
+from ``cradle to grave.''
+ For us, commercial space begins with the arrival of people or
+equipment at the various launch sites, continues through launch,
+deployment, testing, and on-orbit operations of satellites through the
+end of their expected lives. These are the areas of risk and insurance
+where we spend the majority of our time and where satellite owners
+spend the majority of their insurance money. The launch itself is
+generally the riskiest and most expensive phase of any commercial space
+endeavor to insure. In simple terms, our objective is to cover risks of
+loss or damage to the satellites, including failure of the launchers,
+or failure of the satellite to work according to its specifications.
+ We also provide liability coverage for damages to third parties
+caused by launch related and satellite operational accidents. Again,
+commercial space insurance coverage begins with the start of launch
+site activities and continues through on-orbit operations. As with the
+satellite coverage above, activities prior to arrival at the launch
+site are best covered in non-space insurance markets.
+ We also ensure persons, for example, the lives of various
+astronauts and tourists/visitors to the Space Station, including
+individuals who fly or have flown on the Shuttle.
+ From time to time, we also insure contingencies such as acts of
+government, and other causes, that could affect the ability to launch
+for various reasons.
+
+As insurance brokers, what do you see as the outlook for commercial
+ space activities in the next five years? Next 10
+ years? How do you think we should avoid exaggerated
+ expectations for the industry, such as those that
+ occurred in the low Earth orbit (LEO) market in the
+ late 1990s?
+
+ As brokers, we see space activities evolving and growing, albeit
+not very fast. The world satellite manufacturers and launch vehicle
+providers have considerable excess capacity at the moment. There does
+not seem to be sufficient demand to absorb this excess in the near
+future. For the next several years, it would appear there will be
+approximately 15 to 20 commercial launches per year. We see, however,
+more human activities in space, the X-Prize being the first of what is
+expected to be a significant increase in the number of humans going
+into space. I have no doubt that the America's Prize, and, hopefully,
+other incentive programs will generate an increase in activities,
+although it is hard to determine how long this will take.
+ Going into space is expensive and involves significant risk. The
+implications of the low-Earth orbit projects in the late '90s adversely
+affected the financial markets. I have no doubt that the financial
+community will demand sound business plans before advancing significant
+sums of money. As it is well known, space is very exciting and will be
+the subject of much discussion. Unfulfilled expectations can't be
+avoided. I do not know whether a solution will exist to deal with the
+ups and downs of expectations. Perhaps getting together with the
+insurance industry for their opinions may be of value in minimizing the
+potential financial risks.
+
+What, if anything, should the government do or not do to encourage
+ commercial space endeavors?
+
+ With respect to government involvement to encourage space
+endeavors, I offer the following thoughts.
+ I would suggest the government maintain the current liability risk
+sharing regime of private insurance/government indemnification in
+excess of private insurance and cross waivers. This regime was
+established in the late 1980s and was renewed last year for an
+additional five-year period (P.L. 108-428). This system, in my
+judgment, is working very well and has been adopted by non-U.S. launch
+service organizations. I know this regime has doubters but failure to
+maintain this regime, I believe, in the long run could significantly
+harm the U.S. commercial launch business.
+ I would also recommend that the International Traffic In Arms
+Regulations, as regards to commercial space activities, be reviewed to
+see if they really achieve what they are meant to achieve. We handle
+these matters for some of our clients and the people who review such
+matters for licensing and monitoring are doing an excellent job and in
+a very timely fashion. The practical impact of these regulations should
+be noted. From the insurance point of view, it is important to
+recognize that two thirds of the market is located outside of the
+country and the same underwriters appear on most of the programs. It
+could benefit U.S. industry if the ITAR process can be streamlined.
+However, I should point out the whole process is pushing satellite
+business overseas as non-U.S. operators find it increasingly difficult
+to cope with the process, particularly, in a tough competitive
+environment.
+ I believe the use of government ranges and government purchases of
+commercial space related services, where feasible, seems to be working
+well. I would defer to others for their comments in this regard.
+ In this age of deficit spending, I would be hesitant to recommend
+additional public expenditure for commercial space projects but perhaps
+it could be considered by way of providing seed money for promising new
+technology and so forth.
+ This concludes my testimony. I would, of course, be pleased to
+answer any questions. Thank you for this opportunity.
+
+ Biography for John W. Vinter
+
+Professional Background:
+
+ John Vinter is Chairman of International Space Brokers, Inc. (ISB).
+He has been involved with virtually all aspects of satellite business
+for over thirty years. Mr. Vinter was appointed to the Department of
+Transportation's Commercial Space Transportation Advisory Committee
+(COMSTAC) in January 2000. In July 2003, he was appointed as COMSTAC
+Chairperson by FAA Administrator, Marion Blakey and assumed the
+official duties of Chair at the last meeting in October 2003.
+ Mr. Vinter founded ISB in February 1991, in conjunction with three
+prominent insurance brokerage organizations. Since its founding, ISB
+has consistently maintained a 30-40 percent market share in this
+business.
+ From March 1984 to February 1991, Mr. Vinter was responsible for
+the space underwriting activities for INTEC (now AXA Space). INTEC was
+the underwriting manager for CIGNA and a large number of insurers and
+re-insurers worldwide. As Executive Vice President, Mr. Vinter was lead
+underwriter for many of the world's major programs. His underwriting
+activities were such that INTEC was able to achieve an underwriting
+profit six out of seven years and a market share of 20-25 percent.
+ From August 1976 until February 1984, Mr. Vinter held a variety of
+positions with Satellite Business Systems where he was Director of
+Administration, Contracts and Procurement. In this capacity he was
+responsible for Satellite Business Systems' business transactions
+involving contractual relationships with its customers, contractors,
+insurers and launching agencies. He was also responsible for the risk
+management function of the company. In connection with this activity he
+negotiated the contract for the first HS-376 satellite as well as the
+first commercial Shuttle launch services agreement with NASA for which
+he then purchased the first Shuttle third party liability and launch
+insurance.
+ From July 1968 to August 1976, Mr. Vinter held a number of
+management positions within Communications Satellite Corp. in which he
+was responsible for the negotiation, procurement and administration of
+major satellite and ground system procurements.
+
+Education:
+
+ John Vinter has an A.B. degree in Economics from Georgetown
+University and a M.S. degree in Telecommunications Operations from
+George Washington University.
+
+ Chairman Calvert. I thank the gentleman.
+ Mr. Demisch, you may begin your testimony.
+
+ STATEMENT OF MR. WOLFGANG H. DEMISCH, PRESIDENT, DEMISCH
+ ASSOCIATES, LLC
+
+ Mr. Demisch. Thank you, Mr. Chairman.
+ Mr. Chairman, Members of the Subcommittee, and honored
+guests, thank you for the opportunity to appear before you
+today. My name is Wolfgang Demisch. I am a principal in Demisch
+Associates LLC, a financial consultantcy in the aerospace
+sector.
+ You have asked me to address the outlook of the commercial
+space launch business as well as to forecast when space would
+attract classic risk-reward investors to succeed the ``angel''
+investors, such as Paul Allen, who funded SpaceShipOne that we
+see today. The goal is to help the Committee recommend what the
+Congress could or should do to encourage commercial space
+endeavors as called for in the NASA charter.
+ Your hearings come at a challenging time for commercial
+space. The benefits of commercial space are just embedded in
+the economy. They are taken for granted by anybody who goes for
+a hike with a GPS, for instance, but they just haven't been
+well rewarded in the financial area. To highlight the issue,
+over the last four years, essentially all of the world's civil
+communications fleet has changed hands for an aggregate price
+roughly equal to one-year NASA budget. That has been a
+disappointing return for the investors, and that is without
+factoring the costs of things like Iridium or Beale or Kistler.
+The only consolation is the buyers are probably a roll call of
+the smartest investors in the world, people like KKR and
+Carlyle and Apollo, and clearly, they see outstanding risk-
+reward in space right now, and but notably in the space
+communication segment.
+ The fact that there are smart buyers for space
+communication doesn't change the reality that access to space
+remains too costly for most commercial endeavors. Price per
+pound to low-Earth orbits in the $10,000 class, essentially
+unchanged from the $1,000 a pound achieved by the Saturn V in
+the 1970s. That translates, incidentally, on a tourism basis,
+directly into the $20 million a head paid by the guys who flew
+on the Russian boosters, and I might note that that was a
+bargain. They didn't pay for life support. If NASA were to do
+the same thing, if Congress was encouraging them, they would
+probably have to charge five to eight times as much.
+ So I think the message is space launch is on a much lower
+productivity track than microelectronics or computing, and that
+is despite Congress's long-term funding support of new space
+launch technology: the reusable Shuttle, the commercially-
+derived EELV. No savings were achieved. I am unaware,
+regrettably, of any credible proposal for substantial cost
+reductions. The propulsion breakthrough, which I think would be
+necessary in the technical basis to achieve such a
+breakthrough, isn't in sight. I think it would be prudent to
+set policy on the basis that no substantial launch cost
+reductions are to be expected.
+ It will stay expensive until we get something like the
+proposed space elevator that Clarke, among others, has written
+about. I think that is a plausible technology, and so I
+enthusiastically applaud NASA's Centennial Challenge program,
+which will help mobilize the need of talents and materials and
+power technology that would underpin that kind of a
+transformation. And I think that is worthy of your support, but
+in the interim, I think it will remain uneconomic to send up
+anything other than information up and down from space. Absent
+some astonishingly serendipitous discovery, a cancer cure, for
+instance, space access, I think, would grow in line with the
+general economy.
+ And I think the more promising approach to improving the
+efficiency of space flight is to accept that it is hugely
+costly; about 10 pounds of space payload is equal to one man
+year at current engineering rates, and at that price, it is
+really worthwhile to invest to shrink the payload weight that
+is needed to perform a specific task. NASA has used this
+technique with pretty good success to trim the mission costs of
+its interplanetary probes. And while it has limitations,
+because, you know, antenna size and also people don't scale
+down like they might, nevertheless, it is pretty powerful,
+especially when you combine several satellites in the station
+keeping system to ambulate the performance of a bigger
+platform. There is lots of space for better improvement: better
+batteries, better solar cells, lighter structures, more
+efficient communications, and has direct spinout both to the
+military as well as eventually to the larger economy. I think
+that that kind of effort deserves your support.
+ In general, I have to say Congress has been consistently
+supportive of commercial space. It has shied away from the kind
+of direct operating incentives we saw in the beginning of the
+civil air transport industry, but nevertheless, Congress has
+been very generous. I consider, for instance, you know, the
+duopoly allocation for the satellite radio business or, for
+that matter, the enormous frequency allocation, which was
+granted Teledesic when they had their broadband project, and
+those kind of in-kind supports that is essentially the modern
+day equivalent of land grants to the railroads that financed
+the transcontinental railroads in the 19th century. I think it
+is important, but I think it is inadequate, to catalyze a major
+new industry of the scope and stability that is needed to
+transform commercial space into the kind of risk-reward
+investor as opposed to ``angel'' investor area that you are
+seeking. Commercial space today is centered on communications
+and broadcasts and the new broadcasts are being brought into
+service, like XM Radio and Sirius, and as that happens,
+existing services, like DirectTV, get forwarded into larger
+media powerhouses and the investment feasts on those
+enterprises is not controlled by the space investment. It is
+controlled by other factors.
+ I do think there are other drivers for commercial space
+initiatives that respond to Congressional mandates regarding
+national security, for instance. It is interesting that right
+now there is no effective surveillance of the millions of
+containers that flow across our borders. In fact, industry
+can't even find about 1/3 of them. So the TSA and Customs have
+begun to institute some monitoring. These are big boxes, you
+know, I mean, sort of house-sized, able to contain anything,
+germ warfare labs. The monitoring doesn't really watch these
+trailer-sized structures either while they are in transit or
+when they are in the U.S. There are proposals for satellites to
+offer that capability to maintain that watch worldwide. It
+requires each container be equipped with a suitable black box
+that checks its status and reports intrusions. And once that is
+there, there is also, of course, obvious commercial spin-offs
+from that. You can monitor the environment. You can monitor the
+temperature. You can check the--see that the product quality is
+maintained. When you have a container of beer and it goes to
+160 degrees, it is probably not going to be good beer. But it
+also gives you a straight commercial payoff. You can include
+the documentation for fast Customs clearance.
+ That kind of monitoring, I think, will be routine in the
+decade, because it responds--is driven by a pressing security
+need. There are other initiatives, for example, to switch a lot
+more of the air traffic control to satellite-based navigation
+and communications. That will take longer. But I think that
+getting the infrastructure support, which provides steady and
+reliable revenues, that is the kind of thing risk-reward
+investors seek and will accept. I think that may begin the
+transition the Committee is talking about.
+ Thank you for your attention. I am available for any
+questions.
+ [The prepared statement of Mr. Demisch follows:]
+
+ Prepared Statement of Wolfgang H. Demisch
+
+ Mr. Chairman, Members of the Subcommittee, honored guests. Thank
+you very much for the opportunity to appear before you today. My name
+is Wolfgang Demisch, I am a principal in Demisch Associates LLC, a
+financial consultancy oriented towards the aerospace sector and I have
+been active in aerospace financial matters since the early 1970's.
+ You have asked me to address the outlook for the commercial space
+launch business, as well as to forecast when space would attract
+classic risk-reward investors to succeed the `angel' investors we see
+today, investors such as Paul Allen, who funded the Spaceship 1
+development. The goal is to help the Committee recommend what the
+Congress could or should do to encourage commercial space endeavors, as
+called for in the NASA charter.
+ Your hearings come at a challenging time for commercial space.
+While the benefits of commercial space are now so embedded in our
+economy that they are taken for granted by anyone who goes on a hike
+with a GPS, to give just one example, they have not been well rewarded
+in the financial arena. To highlight the problem, over the past four
+years, the bulk of the world's civil communications satellite fleet has
+changed hands, for an aggregate price roughly equal to one year's NASA
+budget. This represents a disappointing return to the industry
+sponsors; even without factoring in the additional losses on
+restructured projects such as Iridium or the costs of now quiescent
+launch ventures such as Beale or Kistler. The consolation, if any, is
+that the buyers, firms such as KKR, Carlyle and Apollo, are almost a
+roll call of the world's most astute investors. Their actions
+demonstrate that they see outstanding risk-reward value in commercial
+space, notably the communications segment, where substantial purchases
+could be made.
+ That commitment to space based communications however does not
+invalidate the painful reality that access to space remains too costly
+for most commercial endeavors.
+ At present, the price per pound to low Earth orbit is in the
+$10,000/lb class, depending on the vehicle. It is not much changed, on
+an inflation adjusted basis, from the roughly $1000/lb achieved by the
+Saturn V booster in the 1970's. Today's price translates readily into
+the $20 million fare paid to Russia by the first space tourists, who
+arguably got a bargain, as their life support and training was
+included. NASA would have to charge several times as much to cover its
+costs, if the Congress were ever to encourage such a use of NASA's
+fleet.
+ Clearly space launch costs are on a much lower productivity track
+than the microelectronics or computing sectors. This is so despite
+Congress' solid support of cost reduction efforts, first with the
+reusable Space Shuttle, then with the commercially derived EELV,
+neither of which achieved the savings anticipated. Regrettably, I am
+unaware of any credible proposal to achieve the desired substantial
+cost reductions. The propulsion breakthrough, which would be a
+prerequisite for a much better cost performance, is not in sight. Hence
+it would seem prudent to set policy on the basis that no substantial
+launch cost reductions are to be expected.
+ Access to space will stay expensive until we can achieve something
+like the proposed space elevator that Arthur C. Clarke, among others,
+has written about. This seems a plausible technology. Consequently, I
+enthusiastically applaud NASA's Centennial Challenge program, which
+will, I believe, help mobilize the needed talents to realize the
+materials and power technologies that underpin such a transformative
+capability. This effort, although still far from fruition, is worthy of
+your consideration in my view.
+ In the interim, perhaps for the next two or three decades, it will
+remain uneconomic to send anything other than information up into or
+back down from space. This suggests that absent some astonishingly
+serendipitous discovery, a cancer cure for instance, entry to space
+will grow about in line with the general economy, rather than some
+multiple thereof. It also suggests that there is not much to be gained
+from an effort to force feed the launch sector
+ A more promising approach to improving the economic efficiency of
+space flight, in my opinion, is to accept that space payload is hugely
+costly, 10 pounds per man-year at current engineering rates. At that
+price, it is worthwhile to invest to shrink the payload weight needed
+to perform the desired task. NASA has used this technique with
+considerable success to trim the mission cost of its interplanetary
+probes. While the approach has limitations, because of antenna size and
+power requirements, because of packaging constraints as well as because
+of people life support needs for manned systems, it is surprisingly
+powerful, especially when considering that several smaller spacecraft
+can cooperate to emulate the performance of a larger platform. There is
+plenty of scope for payload improvement, including better sensors, more
+efficient solar cells and batteries, lighter structures and more
+efficient communications. The product applications exists in the
+broader defense market as well as in space, plus such improvements
+eventually find application in the larger economy. While unglamorous,
+such initiatives are well suited to the NASA culture and likewise
+deserve your continued support.
+ Congress has been consistently supportive of commercial space.
+While it has thus far shied away from the kind of aggressive operating
+incentives that early in the last century helped bring the national air
+transport system into existence, Congress has been generous, even
+beyond the massive launch vehicle investments. For instance, Congress
+allowed duopoly positions for the satellite radio business, just as it
+blessed the enormous frequency allocation granted Teledesic to support
+their space based broadband project.
+ Such in kind support, reminiscent of the land grants that financed
+the transcontinental railroads in the 19th century, remains an
+important component for commercial space ventures, but appears
+inadequate to catalyze major new industries of the scope and stability
+needed to transform commercial space into a risk-reward investor's area
+of interest. Commercial space enterprises are currently centered on the
+communications and broadcast sectors. While there have been new
+services brought into being here, most recently the direct radio
+broadcasters Sirius and XM Radio, others such as DirecTV have been
+acquired by larger media powerhouses. For these entities, space is a
+minor component of the overall investment thesis.
+ There may however be other drivers for commercial space,
+initiatives that respond to Congressional mandates regarding national
+security for instance. For example, there is not at present any
+effective surveillance of the millions of containers that flow across
+our borders. While the TSA and U.S. Customs have begun to institute
+some monitoring, both at the point of origin as well as at the port of
+entry, there is no watch on these trailer sized structures while in
+transit or while in the U.S. Satellites offer the capability to
+maintain that watch worldwide, provided each container is equipped with
+a suitable black box that checks its status and reports intrusions.
+This type of self-assessment is of course readily extended to include
+measurements of commercial interest, such as temperature or vibration,
+which then facilitates better product quality control, as well as of
+course electronic documentation for faster and easier customs
+clearance.
+ Such monitoring will, in my view, be a matter of routine within the
+decade, because it responds to a more pressing security need. Other
+initiatives, for instance to shift much more of the air traffic control
+responsibility to satellite based navigation and communications links,
+will take longer to achieve broad acceptance. However, services such as
+these, providing critical infrastructure support, appear to be the kind
+of reliable revenue generators that risk-reward investors eagerly
+accept. They may begin the transition the Committee asked about.
+ Thank you for your attention.
+
+ Biography for Wolfgang H. Demisch
+
+ Mr. Demisch is an owner of Demisch Associates LLC, an aerospace
+financial consultancy. He has over 30 years experience as an analyst
+and banker in the Aerospace and Technology sectors. While a research
+analyst covering aerospace and computer technology, he frequently was
+ranked a leader in these fields by Institutional Investor Magazine. He
+later established and managed the U.S. Equity Research department for
+UBS. He subsequently moved to the investment banking side of the
+business, where he helped implement transactions such as the 2002
+purchase of GE Americom by Societe Europeenne des Satellites. He has
+served on the NASA Advisory Council and numerous NASA panels, including
+small satellite technology, space station alternatives and commercial
+uses of space. In 2003 he established Demisch Associates LLC to provide
+advisory services for investors considering acquisitions in the
+aerospace and technology sectors. A frequent guest on financial TV and
+speaker at industry meetings, he is a member of Wall Street Week with
+Louis Rukeyser's Hall of Fame. He has served on the Board of Directors
+of SAIC, an employee-owned professional services company, since 1991.
+He is a graduate of Princeton University and the Harvard Business
+School.
+
+ Chairman Calvert. Thank you.
+ Dr. Macauley, you may begin your testimony.
+
+STATEMENT OF DR. MOLLY K. MACAULEY, SENIOR FELLOW AND DIRECTOR,
+ ACADEMIC PROGRAMS, RESOURCES FOR THE FUTURE
+
+ Dr. Macauley. Thank you.
+ Good morning, Mr. Chairman, and Members of this
+subcommittee. Thank you for the opportunity to join you today.
+ Much of the discussion this morning has centered on getting
+things and people into space. I have been asked to broaden
+discussion a bit to consider these as well as other kinds of
+activities included in the commercial space industry. I have
+also been asked to discuss U.S. leadership in these activities,
+and probably most important, the role of government, including
+what government should not do in encouraging commercial space.
+ My written comments address all of these three topics, and
+they have some very specific discussion of past regulatory and
+legislative initiatives, the legislative initiatives taken and
+spearheaded by this subcommittee. And the testimony also has
+some detailed discussion about directions for the future.
+ So, in the interest of time, I will just summarize the
+general themes here.
+ And I offer my comments with a great deal of humility. I am
+not a pioneer in building space technology and making a
+business work like my colleagues this morning. So I offer my
+comments with humility. What I and other analysts try to do,
+though, is innovate in the case of public policy. And actually,
+in the past couple of years, there has been a great deal of
+innovation in public policy in the U.S. Government at the
+Federal, State, and local level, and these have direct
+applicability to space policy making.
+ Generally, they are incentive-based approaches. They
+generally work. They generally work well. In particular, what
+they try to do is to minimize the costs imposed on industry,
+but, at the same time, do some of the things government is
+supposed to do, such as protecting the environment to some
+degree, providing some reasonable amount of worker or consumer
+safety, generally provide opportunities but without dictating
+choice, and in short, to balance the interests of the taxpayer
+with specific interests of industry.
+ So some of these examples of policy innovations, say, in
+the last decade have been highly successful tradable permits in
+the case of industries that have to meet environmental
+regulation, auctions of portions of the electromagnetic
+spectrum by the Federal Communications Commission to improve
+access to and use of spectrum, vouchers to permit consumer
+choice, the move towards performance standards meeting a level
+of overall performance rather than government dictating exactly
+how every nut and bolt used by industry should comply with
+safety regulations, and of course the role of prizes and cash
+incentives.
+ I think it is very important to point out that government
+policy making for space in the form of Congressional
+legislation, again spearheaded by this subcommittee in the
+past, as well as some presidential policy directives and some
+regulation of various commercial space activities has, in many
+cases, already promulgated incentive-based policies like these.
+We already have on the books some provisions for space
+transportation vouchers. In some cases, we are moving towards
+performance standards. There are provisions for government
+purchases of Earth and space science data and space
+transportation services and now, most recently, we are
+experimenting with prizes. In all cases, the statutory intent
+has been to support commercial space.
+ Now to be sure, not all of these initiatives have worked.
+The example perhaps most notable is the attempt to transfer to
+commercial operations. But the policy experiments are being
+attempted. And in terms of government's future role, I
+recommend that a philosophy of incentives like these and
+sometimes established as experimental or demonstration policy
+programs, the counterparts to technology pathfinders underlie
+future approaches.
+ In the interest of quickly summarizing my other comments,
+let me use two examples.
+ The first. Recently Google joined with a company called
+Keyhole to offer three-dimensional maps on our PCs and our
+BlackBerrys for finding things ranging from street directions
+to restaurants to ATM machines. For some neighborhoods, these
+maps are so detailed, you can see your neighbors' trashcans.
+But the real advantage of Google and Keyhole is that the maps
+are easy to use and they are very well annotated. Even though
+the underlying satellite imagery and aerial photography data
+can consist of many terabytes, they are very complicated to
+manipulate and geographically rectify these data, and they are
+very hard for a consumer not trained in photogrammetry, let
+alone map reading, to understand. The factors, then, are these:
+ease of use, low-cost ease of use, annotation, and a corporate
+partnership that brings with it, ready-made, a large consumer
+market.
+ The second example. A newcomer to commercial space is
+satellite radio, XM and Sirius. They had to obtain FCC licenses
+and frequency allocations, contract for commercial launch
+services and insurance, obtain permits for and then install and
+maintain an initial network of hundreds of terrestrial
+repeaters for ground coverage in drop-out areas. They also had
+to design and test radio antennae and in-car technology. Then
+they had to attract GM, Honda, Sony, Wal-Mart, Best Buy,
+Circuit City, and RadioShack for their supply and market
+chains. And they still weren't done. They needed programming.
+They needed content. So they are signing up Major League
+Baseball, NASCAR, CNN, Fox News, and Howard Stern, literally
+hundreds of kinds of programs.
+ The points of these examples are these.
+ Businesses can succeed or fail despite of or independent of
+space policy. Commercial space success depends as much on the
+usual business challenges: strategy, customer relations,
+contracting practices, understanding consumer markets, as on
+challenges that are space unique. Space businesses also depend
+on innovation in non-space commercial markets, like
+electronics, information technology, entertainment,
+automobiles, retail services. And space businesses also face
+policies related to export restrictions, as have been mentioned
+earlier, national security concerns, and regulation in
+financial, environmental, occupational, and employment sectors.
+ And a good space policy, I think, will be familiar with
+these other pressures brought to bear on our U.S. industry to
+understand the big picture of what space business in this
+context is all about.
+ So in conclusion, I would just like to say that I think to
+confer with the titans of space industry, as we have done
+today, is essential for good policy making. It may also be
+useful to confer with titans in other types of U.S. industries
+that are directly related to the success of our space
+businesses. And finally, good space policy is necessary, but it
+won't always be sufficient for business success nor at fault
+for business failure.
+ Thank you.
+ [The prepared statement of Dr. Macauley follows:]
+
+ Prepared Statement of Molly K. Macauley
+
+ Good morning, Mr. Chairman and Members of the Committee on Science,
+Subcommittee on Space and Aeronautics. I am Molly K. Macauley, a Senior
+Fellow at Resources for the Future (RFF), a research organization
+established in 1952 and located here in Washington, DC. RFF is
+independent and nonpartisan, and it shares the results of its policy
+analyses with members of all parties in the executive and legislative
+branches of government, as well as with business advocates, academics,
+members of the press, and interested citizens. My comments today
+represent my own views, it should be noted, and not those of RFF, which
+takes no institutional position on legislative or regulatory matters.
+ My training is in economics and I have worked as a space analyst
+for 20 years. I have written extensively about space economics and
+policy, serve on numerous NASA and National Academy of Science panels,
+and have had the opportunity to meet with your committee several times
+in past years. Thank you for the opportunity to meet with you today,
+Mr. Chairman. I am honored to be part of this distinguished panel.
+Moreover, I am grateful that you are seeking perspectives about the
+role of government in space commerce.
+ I've been asked to consider these topics: the kinds of activities
+included in ``commercial space;'' U.S. leadership in these activities
+and the outlook during the coming years for the industry; and the role
+of government, including what government should not do in encouraging
+commercial space.
+ My overall observation is that U.S. commercial space policy to date
+has been appropriately supportive of U.S. industry and sets a good
+precedent for the future. The interests of the taxpayer and industry
+are most likely to flourish mutually by way of a conservative approach
+to legislative and regulatory intervention, coupled with an innovative,
+incentive-oriented philosophy. I also recommend the usefulness of
+demonstration or pathfinder, experimental approaches to policy.
+
+WHAT KINDS OF ACTIVITIES ARE INCLUDED IN ``COMMERCIAL SPACE?''
+
+ Some of the promise of commercial space has been more than
+realized, accompanied by new and perhaps unexpected consumer markets.
+Some promise has been less successful, often for a variety of reasons
+independent of government actions.
+ Looking backward for just a moment is useful. A decade ago, the
+Wall Street Journal and USA Today had vastly expanded their geographic
+distribution by a new method: using satellites to transmit the papers
+to local printing presses across the country for early morning
+publication. The satellite distribution technology was so novel that
+the papers included at the top of their front page, ``Via Satellite,''
+to impress upon readers that the news was hot off the press even if the
+news had originated thousands of miles away. A much more routine use of
+space by the commercial media was the satellite pictures of cloud cover
+and hurricanes on the daily TV news. In another routine use of space,
+telecommunications companies routed some long-distance telephone calls
+by way of satellite, although microwave or undersea fiber optic cable
+sent most calls. Satellites also enlarged the market for cable
+television. Sometimes to the dismay of neighbors, many consumers had
+erected large satellite dishes in their yards to receive cable TV.
+Reflecting the by-then wealth of experience of commercial satellite
+makers in serving these markets, Fortune magazine, in its list of ``100
+Things America Makes Best,'' included communications satellites by
+Boeing.
+ In another related market, the satellites supplying these services
+were commercially launched, fueling the commercial space transportation
+industry. In other markets, some bulky, expensive, and complex global
+positioning satellite (GPS) receivers were finding use in ground
+surveying and in navigation for civil aviation. The entrepreneurs
+proposing the first commercial remote sensing space system worked with
+policy-makers to forge entirely new regulatory and legislative policy
+to obtain licenses for their service and were preparing for launch.
+There were also business plans for markets in space burials and for
+commercial materials processing on the Shuttle and Space Station.
+ Today, just a decade later, the novelty of commercial
+communications satellites has worn off so that the newspaper covers
+don't remind readers of the transmission technology (although the
+technology is still essential and new comsats are routinely launched
+for existing and new services). Residential satellite dishes are much
+smaller and hardly noticeable perched on apartment balconies and
+corners of rooftops. There are now some thirty-two commercial satellite
+operators around the world. They support 176 million Americans for whom
+cell phones, pagers, BlackBerrys and high-speed connection to the
+Internet are as essential as a morning cup of coffee. Most of these
+services use at least some satellite relays in addition to terrestrial
+network technologies. Backpackers and passenger cars carry lightweight,
+increasingly lower cost, and highly capable GPS receivers. Satellite
+radio receivers are in cars, homes, and boats and hand-held satellite
+radios accompany joggers. XM Satellite and Sirius Satellite radio
+companies along with SpaceShipOne are the most prominent among new
+entrants in commercial space markets. XM has just announced that it is
+also joining with AOL for Internet radio service. Both XM and Sirius
+point out that after eighty years of AM radio and sixty years of FM
+radio technology, their digital technology offers the first new radio
+broadcast medium.
+ In the case of commercial space remote sensing, industry is
+struggling financially. For a variety of reasons, the industry has had
+trouble building a civilian consumer market and has instead relied
+heavily on sales to government, including contacts for data purchases
+by the National Geospatial Intelligence Agency and other national and
+foreign government security departments.
+ But the recent acquisition by Google of Keyhole Corporation, a
+California-based digital mapping company, is a new and promising
+direction for remote sensing. Keyhole uses satellite and aerial maps
+and, most important, easy-to-use software. A person (untrained in the
+complexities of photogrammetry) can zoom-in for detail on satellite and
+aerial pictures by way of a personal or laptop computer and even
+simulate 3D maps to find hotels, parks, ATMs, and subway stops at home
+or when traveling. One reviewer noted that in some cases a consumer can
+even zoom in enough to see a neighbor's trash cans. In remote sensing,
+then, companies are finally treating the market not as ``users'' but as
+``consumers.'' Keyhole, together with the innovative software known as
+Ajax that manages the complexity of all of the data and interfaces
+between hardware and software components, simplifies and annotates
+otherwise complicated digital imagery.
+ In the commercial space transportation industry, ideas and
+technology have moved from conventional rockets to an innovation like
+Sea Launch, and from unmanned commercial vehicles to the promise of
+SpaceShipOne in serving payloads in the form of people not packages.
+ These examples of satellite radio, the Google-Keyhole arrangement,
+and innovations in space transportation technology and markets
+represent a particular and significant development relevant to
+Congressional and public policy perspectives on commercial space. This
+development is the hard work of industry in blending space-based
+technology with existing technologies and markets on Earth, complete
+with having to comply with the regulations that govern those
+technologies and markets. In other words, commercial space is not a
+stand-alone industry and it can succeed or fail on market conditions
+and other public policy wholly independent of commercial space policy.
+ By way of illustration, satellite radio had to: obtain FCC licenses
+and frequency allocations; contract for commercial launch services and
+insurance; obtain permits for and then install and maintain an initial
+network of 800 terrestrial repeaters for ground coverage in drop-out
+areas; design and test radio, antenna, and in-car technology; attract
+GM, Honda, Sony, WalMart, Best Buy, Circuit City, and Radio Shack,
+among other companies, to build its supply and market chain; and sign
+up major league baseball, NASCAR, CNN, Fox News, Howard Stern, and
+other programming. No space technology has a stand-alone supply network
+or consumer market.
+
+U.S. LEADERSHIP IN COMMERCIAL SPACE--STATUS AND OUTLOOK
+
+ Most experts contend that some of the best commercial space
+products as well as significant innovation continue to come from U.S.
+companies. But these observers also acknowledge that ``U.S.-made'' can
+be misleading. For instance, companies routinely employ foreign-born,
+U.S. trained engineering talent. In addition, increasingly, and due in
+part to export restrictions, markets are typically larger for U.S.-made
+components rather than entire finished products.
+ Space-related markets are markedly more competitive than in past
+decades. Space transportation markets now include suppliers in Europe,
+China, Russia, Ukraine, Japan, and India--all now offer commercial
+launch services. Israel and Brazil also have their own launch
+capability. According to data maintained by the Office of Commercial
+Space Transportation in the Federal Aviation Administration, in the
+past ten years, the U.S. share of the worldwide commercial launch
+market has averaged about 30 percent to 40 percent of total launches
+and about a third of total revenue (of a $1 billion total market in
+2004, the U.S. share was about $375 million). The total number of
+launches in the past five years has been smaller than in previous
+years, largely due to longer-lived satellites and a decline in the
+number of small satellites launched to nongeostationary orbit. For
+example, in 2004, U.S. companies launched six out of a total of 15
+worldwide commercial launches.
+ Joint arrangements between U.S. and foreign companies are
+increasing. For instance, Boeing has a share of launch revenue from its
+partnership in Sea Launch, which had three launches valued at $210
+million in 2004. In commercial remote sensing, U.S. companies have
+entered into distribution agreements to market foreign data from SPOT
+and Radarsat.
+ The international mobility of engineering talent, increasing
+activity by other countries in commercial space launch markets, and
+joint arrangements such as those noted above are trends that are likely
+to continue in coming years. During 2004-2013, the Office of Commercial
+Space Transportation expects a total of about 23 commercial launches
+per year, on par with past years. Industry trends may include
+continuing coupling of space-based and ground-based technologies and
+markets--the ``XM'' model. Commercial companies have also proposed the
+first commercial deep space science mission and commercial space
+operations and telemetry, tracking, and control systems. In the case of
+Earth observations, a major initiative impelled by the G-8 heads of
+state in June 2003 has led to a ten-year plan for an integrated global
+Earth observation system (GEOSS) among the governments of more than 30
+countries. A separately established organization is working closely
+with industry to identify opportunities to support GEOSS in the coming
+decade.
+
+WHAT MIGHT GOVERNMENT DO (OR NOT DO) TO ENCOURAGE COMMERCIAL SPACE?
+
+ The Congress and executive branch have generally been extremely
+supportive of commercial space. The legacy of policy initiatives to
+nurture the industry is rich with examples. Table 1 lists key
+legislation, regulation, and policy directives that have included
+provisions specifically addressing commercial space. These initiatives
+have included (but not been limited to) a host of innovative, market-
+like approaches: vouchers to fund launch purchases by space science
+researchers, to enable them to choose a launch vehicle best tailored to
+their payload; government purchases of Earth and space science data and
+launch services; and most recently in the Commercial Space Launch
+Amendments Act of 2004, initial steps toward allowing private and
+commercial passengers to undertake space travel.
+ The twenty-year legislative and regulatory history of commercial
+space has generally and been responsive to industry concerns. To be
+sure, not all initiatives taken so far have worked in practice. For
+example, transferring the land remote sensing system (Landsat) to
+private operation or identifying a commercial company to build and
+operate a follow-on system (the Landsat Data Continuity Mission) did
+not work out for a variety of reasons. However, the policy emphasis on
+data buys has formed the basis for the purchases of commercial space
+remote sensing data under contracts worth about $1 billion with
+national security agencies. By way of the Centennial Challenges
+project, the National Aeronautics and Space Administration (NASA) is
+now offering prizes for space technology development. NASA also has
+funding in its FY 2006 budget request for commercial transportation of
+crew and cargo to the International Space Station.
+
+
+
+ In the future, consideration could be given to potentially strong
+incentive-oriented approaches when government oversight of commercial
+space activities is deemed necessary. These approaches include
+financial incentives, performance standards that nurture adoption of
+alternative technologies rather than requirements that specify
+technologies to achieve performance, rational pricing policy for access
+to government assets, and reliance on private markets for insurance
+when appropriate. Table 2 lists market-like policies that have been
+taken or are currently used, or that might be used in the future in
+designing space policy. These approaches include performance standards,
+prizes, private market insurance, auctions, voucher, and government
+purchases of commercially produced goods and services. The objective of
+policy options such as these is to encourage flexibility, discourage
+government intervention when private institutions (such as insurance
+markets) could suffice, and ensure a ``fair playing field'' between
+government space and commercial space activities.
+ I know from Chairman Calvert's recent comments at the 21st National
+Space Symposium this month that there is concern about sectors of the
+U.S. space program working in isolation from the others. These sectors
+would include the civil, national security, and commercial space
+activities. This is a familiar problem. For instance, in the case of
+energy policy, the Department of Energy, the Federal Energy Regulatory
+Commission, the U.S. Nuclear Regulatory Commission, the National
+Highway Safety Administration, the Environmental Protection Agency, and
+the Minerals Management Service all have great influence on energy
+markets. These agencies' decisions affect what fuels are used to
+generate electricity, what fuel efficiency targets cars must meet, what
+mixtures of gasoline may be sold, and where oil and natural gas can be
+produced.
+ Our space and space-related agencies now range from the national
+security complex to NASA, the Department of Interior and the U.S.
+Geologic Service, the Department of Commerce and the National Oceanic
+and Atmospheric Administration, the Federal Aviation Administration,
+and the Federal Communications Commission. The Departments of State and
+Energy, together with the Department of Commerce, are key champions of
+the GEOSS program (described above). The Department of Energy also
+plays a role in space power systems.
+ To some extent, our space sectors have mutually benefited from this
+mix. For instance, GPS is owned and operated on the defense side but
+routinely used by the civil and commercial sectors. Remote sensing/
+Earth observation information was championed by NASA and the
+infrastructure, data, R&D, data validation, and information products
+from NASA's Earth science activities over four decades are routinely
+used by the defense and commercial sectors. Commercial satellite
+telecommunications were advanced markedly by industry but are routinely
+used by the defense and civil sectors.
+ Some steps could be taken to better integrate the large scale and
+scope of government space and space-related activity. For instance,
+establishing prizes for innovation of use to all three space sectors--
+civil, commercial, and national security--makes sense provided all
+three sectors have at least a few desirable innovations in common.
+These requirements could range from space transportation to space-based
+navigation for on-orbit activities that may include autonomous
+refueling and repair. They may also include developments in Earth
+science in mapping and meteorology, for which prizes could be offered
+for new and faster algorithms to turn data into actual information
+products for the battlefield or the oil field (for geologic
+exploration). These prizes could be jointly funded and developed by the
+civil and national security sectors with input from the commercial
+community.
+ Another step, and one that has been taken in the past, is
+establishment of a space-dedicated cabinet council. In the past, such
+an effort has been inadequate to overcome differences in goals,
+leadership and decision-making. Nor did previous interagency efforts
+adequately include provision for industry representation, which if
+optimally designed would include representatives from ``other than the
+usual suspects'' by seeking participation of non-space companies
+(perhaps WalMart, Microsoft).
+
+
+
+
+SUMMARY OBSERVATIONS
+
+ Some of the alternatives outlined in Table 2 address different
+types of risk (financial and safety), export issues, and other topics
+not addressed at length in this testimony. With these omissions in
+mind, some general guidelines for public policy and commercial space
+include:
+
+ -- Balance financial risk taken by industry compared with
+ asking the public to underwrite risk (for example, in the case
+ of upcoming deliberations on continuation of commercial launch
+ indemnification)
+
+ -- Balance personal risk taken by crew, passengers, and third
+ parties in commercial space transportation
+
+ -- Maintain familiarity with the non-space commercial markets
+ upon which commercial space relies (for example, computing
+ hardware, software, wireless connectivity, telecommunications
+ capacity enhancements and cost reductions, consumer retail
+ markets)
+
+ -- Routinely seek out the opinions of non-space industry
+ leaders in information technology, telecommunications
+ technology, entertainment, automobiles, education, retail
+ services, and other consumer markets to appreciate the larger
+ context in which commercial space operates
+
+ -- Intervene when necessary and appropriate in legislative and
+ regulatory policy in non-space commercial markets upon which
+ commercial space relies (for instance, spectrum and orbital
+ access, environmental and occupational safety/health
+ regulation)
+
+ -- Balance export policy, national security concerns, and
+ other restrictions on international trade in space goods and
+ services
+
+ -- Build or build-on inter-agency relationships among the
+ myriad government offices that are involved directly or
+ indirectly in space technology, policy, and operations
+
+ -- Acknowledge that commercial space success depends at least
+ as much if not more on normal business challenges (business
+ strategy, customer relations) as on challenges that are space-
+ unique or that pertain to government commercial space policy
+
+ -- Accept that some commercial ventures will fail
+ independently of supportive legislative, regulatory, or other
+ policy
+
+ In conclusion, the supportive legacy of U.S. commercial space
+policy has set a good precedent for the future. The interests of the
+taxpayer and U.S. industry are most likely to flourish mutually by way
+of a conservative approach to legislative and regulatory intervention,
+coupled with an innovative, incentive-oriented philosophy amenable to
+demonstration or pathfinder, experimental approaches to policy.
+
+ Biography for Molly K. Macauley
+
+ Dr. Macauley is a Senior Fellow at Resources for the Future in
+Washington, DC. Her research focuses on economics of and policy issues
+in space transportation, Earth science and remote sensing, space risk,
+space debris, space power technology, and the roles of the government
+and private sectors in space. She has published over 50 articles,
+lectured widely, and testified before Congress on these topics. Dr.
+Macauley also chairs the Board of Advisors of the Thomas Jefferson
+Public Policy Program at the College of William and Mary and has served
+on the Board of Directors of Women in Aerospace. She is a member of the
+International Academy of Astronautics and the Aeronautics and Space
+Engineering Board of the National Academy of Sciences, and has been
+honored by the National Space Society as one of the Nation's ``Rising
+Stars'' in space policy. She has also received commendation from the
+National Aeronautics and Space Administration for contributions to
+development of commercial space remote sensing. In addition, Dr.
+Macauley spearheaded the Space Shuttle flight of replica of a standard
+of George Washington; that standard is now on display at Mount Vernon.
+Dr. Macauley has taught for many years in the Department of Economics
+at Johns Hopkins University and consults for a variety of aerospace and
+other companies. She has a Bachelor's degree in economics from the
+College of William and Mary and Master's and doctoral degrees from
+Johns Hopkins University.
+
+ Discussion
+
+ Cost of Access to Space
+
+ Chairman Calvert. Thank you. Thank you for your testimony.
+ Mr. Musk, as I was listening to the other testimony, I
+noticed an emotional response at one moment where Mr. Demisch
+said that we should set policy on the basis that no substantial
+launch cost reductions will be expected. And I know from
+discussions with you, you hope to reduce those launch costs
+through your business. So I thought I would give you an
+opportunity to comment on that.
+ And since you are one of the newest entrants into the
+launch market, based on your experience, how would you
+characterize the U.S. Government's regulation of the launch
+industry, in general? And what should the government possibly
+do to enable this industry to succeed?
+ So with that, I will----
+ Mr. Musk. Certainly. Well, I think the fact that we are
+offering the Falcon I launch vehicle at a price of
+approximately $6 million, which, thanks to the current U.S.
+dollar, is quite a bargain on the international market. We are
+actually--we only cost, effectively, about three million
+pounds. The--this compares with the next best U.S.--or the next
+best U.S. launch vehicle being the Pegasus from Orbital
+Sciences, which has a NASA list price of about $30 million. Our
+vehicle does 50 percent more payload, has a better payload
+environment, has more volume. In fact, on every meaningful
+dimension, it is superior and yet it is about 1/5 of the cost.
+ So I think that is, you know--clearly indicates that
+significant improvement is possible. We expect to do the same
+thing with our medium-lift vehicle, Falcon V, and we expect to
+make some announcements about a heavy-lift vehicle in the--
+later this year and with similar price reductions on the order
+of four to five over the current U.S. launch vehicle costs. And
+those we consider starting points. We are going to go down from
+there.
+ As far as the--what the U.S. Government can do as--from a
+regulatory standpoint, you know, I think there is currently a
+fairly large body of regulation regarding expendable launch. It
+is quite onerous. It adds quite a bit to our cost per launch.
+And I think the U.S. Government should do its best to minimize
+and constantly be trying to reduce that body of regulation.
+Regulation just tends to--it is like atrophy. It just keeps
+growing. Unless there is an active force to contain it, it just
+gets worse and worse every year.
+ And then to the point that I mentioned in my testimony, I
+think we really need to do something about ITAR. I think that
+is really harming the U.S. industry.
+ Chairman Calvert. Yeah, I am going to give you the
+opportunity to answer a question.
+ There are people, and you have probably heard this, Mr.
+Musk, because of your own considerable personal wealth, I heard
+the phraseology ``angel.'' You are probably considered one of
+those folks, and that--you know, you have more capability
+financially than most to do this that--are you in this for the
+business, or are you in this--because, you know, I am sure you
+heard this behind your back, are you in this for a hobby? So I
+want you to have the opportunity to answer this question for
+the record, because----
+ Mr. Musk. Certainly.
+ Chairman Calvert.--I think you should--you deserve that.
+ Mr. Musk. I certainly--well, if it is a hobby, it is the
+most expensive hobby I could possibly conceive of. You know, in
+fact, the--I have--there is a joke in the space industry, which
+is how do you make a small fortune in the launch business, if
+you start with a large one? And I have heard that joke so many
+times that I started to--just for amusement, when people ask me
+why I started the company, I would say, ``Well, you know, I had
+a large fortune, and I was trying to make it small very
+quickly, and this seemed like a good way to do it.''
+ But the serious answer is that this really is a business,
+which I expect to be really quite profitable. I think we could
+hit a positive cash flow as soon as the--late this year or
+early next year, which would mean that, if we were able to do
+so, we would have achieved positive cash flow in our third or
+fourth year of operation, which is unusually good for any
+business, and I would say particularly good for the launch
+business.
+ So I think I am really quite convinced that there is a
+solid business there. You know, we are doing our best to
+solicit business throughout the world. You know, we--the
+Malaysian launch, we competed against the Russians for that and
+won. You know, that was a tough one. We have got a couple of
+other international launches we expect to win. We are working
+hard to earn NASA business. So I am--we are trying to get as
+much business as possible in order to drive that cost even
+lower than it is today.
+ Chairman Calvert. Thank you.
+ Mr. Rohrabacher.
+ Mr. Rohrabacher. One thousand dollars a pound on Saturn V?
+Is that in today's dollars or then-dollars?
+ Mr. Demisch. Then-year dollars.
+ Mr. Rohrabacher. Then-dollars? So it is----
+ Mr. Demisch. So adjustment for inflation, it is about
+$10,000.
+ Mr. Rohrabacher. So it is about the same, then?
+ Mr. Demisch. Yeah, it hasn't--things haven't changed much.
+I think if Mr. Musk can achieve the kind of overhead reductions
+that I think are necessary to get the costs down to something
+which is a little bit closer to materials and engineering
+content, it would be a tremendous gain. It hasn't been possible
+for any of the other players, maybe perhaps because of
+regulatory issues, but----
+ Mr. Musk. If I--this is an interesting point, which I
+suspect that members may not be aware of.
+ Do you know what the cost of propellant is on our rocket?
+Propellant is usually the dominating cost. It--you know, gas--
+jet fuel is the dominating cost in airliners. The cost of
+propellant for our rocket is $50,000 a launch. That shows you
+there is a huge amount of room for improvement. And we should
+be getting to the point where that cost actually matters as
+opposed to being an accounting error on the launchcrafts.
+ Mr. Rohrabacher. Well, of course--Mr. Musk, how old are
+your children now?
+ Mr. Musk. They are one.
+ Mr. Rohrabacher. I am--you have two babies that are one,
+and I have three babies that are one week from being one. Now
+do you foresee our babies being able to go to college on the
+Moon?
+ Mr. Musk. Well, I think college on the moon may be
+challenging, but if they can actually have the potential to go
+there at all, that is really part of what I am working hard to
+try to achieve is that there should be the possibility that,
+you know--that any citizen can go to space, go beyond orbit,
+even to the Moon and going to Mars. I think it would be really
+a very dismal future where that possibility was closed.
+ Mr. Rohrabacher. I noticed when the other panelists were
+talking, there was a lot of--I am sorry. You did sound a little
+pessimistic, sir, but--about the development of technology and
+overcoming this, but I think that what we hear from Mr. Rutan
+and Mr. Musk, who are on the business end of this, is that the
+technology development will be there. They are confident. I
+mean, I noted confidence in both Mr. Rutan and Mr. Whitehorn in
+terms of technology. What they don't seem to be confident in is
+government policy that will permit them the type of technology
+development to overcome problems.
+ Mr. Demisch. I think that I will defer to Mr. Musk in one
+nanosecond, but the challenge really has been that there are--
+we are living with the same technology in space propulsion and
+have, really, since--probably the Shuttle is the most advanced
+engine of any space vehicle currently flying. And so that sets
+your underlying engineering merit. And then the question is how
+cheaply can you build it. And that then becomes a question of
+how costly and complicated is it and what is your overhead
+weights on your people and all of the rest of these things.
+ Mr. Rohrabacher. You know, I think every time that
+humankind has said that, they have been wrong. And let me just
+note, and Mr. Rutan is not on the stand now, but I will never
+forget when he talked about when he--I had a group of people
+there to hear a lecture by him in my District, when he talked
+about how he has changed the way that there is re-entry and how
+that the implications on that--of that. I mean, this is not
+just a mechanical change. It is actually a change of concept.
+ Mr. Demisch. I think Mr. Rutan is a genius in aviation. I
+think that that is--I bless his efforts, and I hope that this
+committee can encourage NASA to give people like him a lot more
+space in the aeronautics arena, because it--God knows it needs
+it, where industry would just be fading before our very eyes in
+terms of employment and so on. It would be nice if we had
+people like Mr. Musk in the space frontier. All I am saying is
+the underlying technical merit of the boosters hasn't changed.
+The only real way for drastic improvement is something
+completely different, like an elevator. That I think is
+technically doable over time. So it is not there yet, but at
+least it is conceptual.
+ Mr. Rohrabacher. Well, that is--there is a revolutionary
+idea: the elevator into space. But let me know. I never looked
+at that.
+ Thank you.
+ Mr. Chairman, if you would just indulge me one more note,
+and that is that what we have heard today is that there are
+some things we can do, and the--Mr. Musk has made it very clear
+that export control is--as our witness of the first panel
+mentioned export control, I--and we are talking about people
+who understand the importance of freedom here and are not
+suggesting that we do anything that puts our country in
+jeopardy by making these technologies available to potential
+enemies. But I think it behooves us and the Subcommittee to
+become a force, as I have tried to be, in the international
+relationships to try to push these barriers aside for countries
+that are friendly to the United States and pose no future
+danger to us. And it is something that we could do that would
+really help these folks out. This is one of the regulations----
+ Chairman Calvert. And I would be happy to work with you on
+this. I am on the Armed Services Committee, and you are on the
+International Relations Committee. We--and this committee. We--
+between that, we ought to be able to work out some streamlining
+to make this process work a little more simpler.
+ Mr. Rohrabacher. And one on--other note is that Mr. Musk
+did, I would like to note, mention the concept of prizes as a
+means of developing new technologies. And I have a bill for
+that, and I would hope our new head of NASA, who we are all
+mystic about, he also takes a positive view towards that
+approach, and perhaps we could work something out, and move in
+that area as well in developing new technologies by prizes for
+them rather than having the government bureaucracy telling
+people how to turn the screws and seeing the actual development
+process.
+ So thank you very much, Mr. Chairman.
+
+ Emerging Space-based Markets
+
+ Chairman Calvert. I thank the gentleman.
+ I am going to have a question for all of the panelists.
+ And looking into the future, do you see evidence of newly
+emerging markets or products that will rely on space-based
+assets? And if so, what might they be? And we will put it
+another way. Are there products or services coming into the
+marketplace in the next five to 10 years that are likely to
+spur the additional space-based infrastructure?
+ And I think I will start with you, Mr. Musk, and just head
+on down the panel.
+ Mr. Musk. Sure. I think that there are a couple trends that
+I see. One is in the small satellite arena of doing things with
+the smaller, lower-cost satellites rather than with gigantic,
+very expensive satellites. I think we are seeing that trend. We
+are certainly seeing that trend and the interest in our small
+launch vehicle. I think as the--as time goes by, there is
+greater and greater interest in more broadcast, more
+communications, more exploration. I see a--really a very
+positive future for space. And it is--for those that are
+pessimistic, I think it is--bearing in mind that space is a
+very cyclic business, and so when--and once--people are prone
+to become very optimistic at the top of the cycle and very
+pessimistic at the bottom of the cycle. And you need to
+remember that it is a cyclic business.
+ Chairman Calvert. It sounds like real estate.
+ Mr. Musk. Yeah. Buy low, sell high.
+ Chairman Calvert. Mr. Vinter.
+ Mr. Vinter. Yes, sir.
+ I echo what Elon is saying about small satellites replacing
+big satellites. The big satellites have proved to be very, very
+difficult to produce, taking three and four years to get out of
+the factory, whereas the smaller ones could come out in a year
+or a year and a half. So that is definitely a trend.
+ There is also, I think, going to be a big interest in so-
+called KA band, and this is an application where there is
+interaction, you know, back and forth over the Internet. And we
+are seeing a number of people today who are really interested
+in KA band. And there are a couple of experimental packages
+that--and one operational package already flying with us. And I
+think that if it takes off, it will be--probably very
+interesting.
+ Mr. Demisch. I think that there is still a tremendous
+opportunity for growth, or just start off with trying to use
+your cell phone. I mean, the service is still terrible any way
+you slice it, and so there is need for a better service, and
+the only way you really get it is to have it coming down from
+above rather than from the buildings on the side. And the other
+thing is, of course, I think the kind of really high-speed
+mobile links, as you sort of start to see TV on your cell phone
+and so on, again, the best place to do it is from up above. I
+think the underlying concept that was behind Teledesic remains
+sound, and I don't know that their business plan is close to
+being resurrected, but a lot of work has been done there. And I
+think that that is going to see a lot more future. And the
+other thing is I just think that the combination of
+surveillance and tracking for monitoring and national security
+purposes is, in fact, going to be a large growth market over
+the course of the coming decade.
+ Dr. Macauley. I come from a research organization where my
+colleagues specialize in agriculture, energy, water, and I
+argue with them, and they are gradually coming to agree, that I
+think that space is every bit as an important and natural
+resource as those. And it is a natural resource that is really
+unique. It is an incredibly unique environment. It has
+fundamental attributes that make it a very difficult place to
+be for a long period of time, but nonetheless it is a resource
+that we are still learning a lot about. And I remember eight
+years ago when we would get USA Today or the Wall Street
+Journal, right under the headline, it said, ``via satellite,''
+which meant in order to get these newspapers to remote places
+around the world in time for people's morning coffee, the text
+of the newspapers was sent via satellite to regional printing
+presses. And now we don't see that underneath the Wall Street
+Journal or USA Today. They are still using that technology, but
+it is embedded so much in our way of life, and similarly with
+much of our communications activities. So space, as a place
+through which to bounce signals, is very much a part of our
+life. Will it ever be a place where we turn to the dreams of a
+decade ago of doing materials processing? I remember hearing,
+similar to those today, where we had entrepreneurs thinking
+about space as a unique environment in which to do some very
+interesting materials processing. And then what happened was
+when 3M and other companies stepped up to the plate to try it
+out, it took so long to get there, to get through the process
+of getting your assets into space and getting the experiments
+done that we had accomplished the innovation here on Earth much
+more quickly.
+ So once we get to space more quickly and can stay there for
+sustained periods of time routinely, we may see some of those
+visions, which were very visionary, recycle back. And then
+today, the extensive discussion about not just a place through
+which to bounce signals but a place to actually send us all
+and, perhaps, someday to live, if not visit. I think that--
+yeah, I think the future of space is very bright, subject to a
+lot of other things that have to happen in a business sense to
+make it work and subject to sound government role.
+ Chairman Calvert. Well, thank you.
+ And I want to thank this panel. We are living in an
+exciting time, and I am looking forward to working with all of
+you in the future. And I am looking forward to, Elon, coming
+out to your launch here shortly, and I wish you all of the
+success in the world.
+ And I, again, thank this panel for coming today. We are
+adjourned.
+ [Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]
+
+ Appendix 1:
+
+ ----------
+
+
+ Answers to Post-Hearing Questions
+
+Responses by Burt Rutan, Scaled Composites, LLC
+
+Questions submitted by Representative Mark Udall
+
+Q1. As you understand it, what steps will you have to go through to
+get the commercial version of your spaceship approved for commercial
+service by the FAA? Which office of the FAA will you be coordinating
+with?
+
+A1. In my opening remarks I did outline what I believe the proper steps
+for government approval of commercial spaceships. My handout also
+included more detail on the subject and is attached for your reference.
+(See Attachment)
+
+Q2. In your testimony you indicated that you have a number of proposed
+changes to the licensing process that you think would make sense.
+Please provide your proposed changes for the record.
+
+A2. Our main emphasis is that FAA needs to staff the regulatory office
+with personnel experienced in the research testing and certification of
+commercial aircraft. These personnel are found at AVS, not at AST.
+
+Questions submitted by Representative Sheila Jackson Lee
+
+Q1. Some of those who have argued for an ``informed consent'' approach
+to safety for the emerging Personal Space Flight industry make an
+analogy to the ``barnstorming'' days of aviation when a formal
+structure for regulating safety did not yet exist but the aviation
+market continued to grow dramatically. It doesn't seem from your
+testimony that you agree with that analogy. Is that true? If you don't
+agree, why not?
+
+A1. We are not among those who have argued that informed consent is
+adequate. Two things need to happen for a healthy, sustainable private
+space flight industry.
+
+ 1. A level of safety at least as good as the early airliners.
+
+ 2. Some form of FAA approval for the flight vehicle's safety
+ as regards the paying passengers, not just the uninvolved
+ public.
+
+ We believe the industry might be stillborn after the first fatal
+accident if these two items are not provided.
+
+Questions submitted by Representative Jim Costa
+
+Q1. One of the goals of previous hypersonic R&D programs such as the
+National Aerospace Plane was to cut travel times between widely
+separated locations such as the west coast of the United States and
+Asia. Would a commercial version of the sub-orbital spaceship you have
+developed be able to contribute to that goal? Why or why not?
+
+A1. Sub-orbital rockets, flying parabolic missions will work nicely for
+flying people outside the atmosphere. However, they are limited to 300
+or 400-mile trips. Air breathing, high altitude propulsion or space
+planes that skip along the atmosphere's extremities would be needed for
+travel between widely separated locations.
+
+Attachment
+
+ Regulation of Manned Sub-orbital Space Systems
+ for Research and Commercial Operations
+
+ A summary prepared by Burt Rutan, Scaled Composites
+
+Safety Requirements for the Private Spaceline Industry
+
+ New generic solutions for safety as compared to
+ historic Government manned space operations will be mandatory
+
+ Cannot run a Spaceline without a huge reduction of
+ current risk
+
+Safety Goals: Airline experience as a model
+
+ Risk statistics, fatal risk per flight
+
+ First 44 years of manned space flight = one
+ per 62 flights
+
+ First airliners (1927 & 1928) = one per 5,500
+ flights
+
+ Early airliners (1934 to 1936) = one per
+ 31,000 flights
+
+ Current airliners = one per two to five
+ million flights
+
+ Modern military fighters = one mishap per
+ 33,000 flights
+
+ Logical goal:
+
+ Better than the first airliners
+
+ < one percent of the historic government
+ space flight risk
+
+Different Systems Need Different Regulation Methods
+
+ The AST Process
+
+ To show that the consequence of failure,
+ i.e., the expectation of casualty (Ec) for the non-
+ involved public (NIP) is low.
+
+ Deals with systems that are historically
+ dangerous.
+
+ The AVR (now AVS) Process
+
+ To show that the probability of failure (Pf)
+ is low.
+
+ Assures safety of crew and passengers.
+
+ Deals with systems that need to be reliable.
+
+ The risk method approach by AST
+
+ Risk is product of failure probability and
+ consequence.
+
+ NIP risk with dangerous systems is assured
+ only by selection of flight area.
+
+ Flight crew risk with dangerous systems can
+ be addressed only by flight termination staging.
+
+ However, since Pf cannot be calculated for
+ immature systems, AST has no acceptable process for new
+ systems that have to be safe enough for commercial
+ passenger service.
+
+ AST Methods for Booster-like systems
+
+ Computer-flown or remote operation
+
+ Automation that requires backup via flight-
+ termination systems
+
+ Ground-launched
+
+ Safety-critical rocket propulsion
+
+ Un-piloted stages dropped
+
+ High-scatter landing
+
+ AVR Methods for Aircraft-like systems
+
+ Human Piloted flight
+
+ Expendable-like flight-termination systems
+ are not appropriate
+
+ Runway takeoff
+
+ Rocket propulsion not safety critical
+
+ No ``bombing'' of hardware that presents risk
+ to NIP
+
+ Horizontal aircraft-like runway recovery
+
+ If the safety approach is based on failure
+ consequence it should be regulated by AST.
+
+ If the safety approach is based on failure
+ probability it should be regulated by AVR or by staff
+ experienced in aircraft safety assurance.
+
+ If safety is based on both consequence and vehicle
+ reliability, then consequence should be calculated by AST, but
+ Pf must be accessed by those with aircraft safety regulation
+ experience.
+
+Experimental Research Testing of Airplane-like Systems
+
+ Cannot be addressed by enforcing standards or
+ guidelines--the important need is to allow innovation; to seek
+ safety breakthroughs without regulatory hurdles. Regulators
+ must not be expected to appreciate this need during a research
+ test environment.
+
+ Pf cannot be calculated, thus historic data must be a
+ guide for approval of an adequate test area to meet Ec intent
+ for NIP.
+
+ Environmental requirements, like for aircraft are not
+ needed, but they can be tolerated, with costs not the full
+ burden of the developer.
+
+ The AVR waiver method for all regulations is
+ mandatory. The developer must be able to argue the equivalent
+ safety justification for non-compliance to any regulation. This
+ is critical, especially for an immature industry with
+ indeterminate technical issues.
+
+ The AST launch licensing process is not acceptable
+ due to its costs, its hindrance of innovation and its negative
+ effect on safety policy. The AVR-EAC (Experimental
+ Airworthiness Certificate) method works and must be
+ implemented. The system is based on respect for a developer's
+ safety record and the expectation that he will follow the
+ license rules.
+
+Certification, or Licensing Spacecraft for Commercial Sub-orbital
+ Passenger Operations
+
+ The manufacturer and the operator cannot accept a
+ scenario in which the FAA has no role in approving the safety
+ of crews or passengers. His responsibility to do adequate
+ testing to assure passenger safety must have acceptance by the
+ FAA. Otherwise he has no unbiased defense at trial following an
+ accident.
+
+ Part 23 & 25 Certification are based on defining
+ conformity. Then, by test and analysis showing adequate margins
+ for the conformed vehicle. Subsequently the holder of the
+ certificate can then produce and operate unlimited numbers of
+ vehicles that conform. The main costs of certification are the
+ issues related to conformity, not the specific tests to show
+ margins.
+
+ Any ethical manufacturer or operator must test to
+ show margins, even in the absence of any government regulation.
+
+ However, initially the manufacturer and operator will
+ build and operate only a very small number of vehicles, thus
+ making the detailed conformity process debilitating. Also, the
+ intensity of the process would interfere with the need to solve
+ new technical problems and to maintain a ``question, never
+ defend'' posture while system technical status is not mature.
+
+ Our proposal: an applicant seeking approval to fly
+ passengers will be required to define the tests needed to show
+ adequate margins for his design and define the required systems
+ safety analysis. He must then obtain acceptance of the test
+ plan by FAA regulators and later get acceptance that the tests
+ were satisfactorily completed. The process will be design
+ specific and repeated for each flight article.
+
+ Conformity of the design, the tools, the systems or
+ the manufacturing process will not be required.
+
+ A manufacturer can select the conformity process as
+ an option if he desires to avoid the individual tests of each
+ production article.
+
+ Conformity may be mandatory after the industry
+ matures (the aircraft certification process).
+
+Lessons from the Regulatory Process During the SpaceShipOne (SS1)
+ Research Flight Tests
+
+ The Tier1 test program involved 88 flights, 17 for
+ the SS1 and 71 for the White Knight. 83 of those flights were
+ licensed via an AVR-AIR-200 Experimental Airworthiness
+ Certificate. Those flights were done under the authority of the
+ EAC and directed via the information in its Operating
+ Limitations list. The EAC was in effect for the duration of the
+ program, July 2002 to October 2004.
+
+ Five flights of SS1 were flown under the additional
+ authority of an AST Launch License. License was in effect from
+ March 2004 to October 2004.
+
+ The 83 flights flown under the EAC involved the
+ highest risk, both to the pilots and the NIP: first flights of
+ unproven vehicles and nearly all envelope expansion, including
+ first supersonic flight of SS1 to max-q.
+
+ The EAC flights were regulated similar to the 1,800
+ research flights conducted by Scaled on 36 aircraft types over
+ a 30-year period: we were expected to fly within the Ops Limits
+ list, and were trusted to do so. The program allowed the
+ innovation always present in aircraft research, and did not
+ interfere with our `question, never defend' safety policy.
+
+ Development of the new safety innovations were done
+ under the EAC: the new type hybrid rocket motor, the air launch
+ and the `care-free re-entry' feathered concept.
+
+ The EAC process provided an efficient environment for
+ exploratory testing and continued the historic research
+ aircraft record of safety for the NIP.
+
+ The AST Launch License process enforced on the
+ remaining five flights of SS1 was a very different regulatory
+ environment. We were assured streamlining from the
+ certifications needed for commercial operations approvals but
+ were kept in the dark on specifics. The process involved a 15
+ month, three party Ec analysis that failed to arrive at an
+ adequate calculation for Pf, thus rendering the Ec
+ determination to be useless. The process was misguided and
+ inappropriate, at times resembling a type certification effort
+ and left the applicant without the basic information needed to
+ determine status. The regulators requested Ec analysis, then
+ ignored those results without informing the applicant or
+ allowing him to defend, to revise or to resubmit the data. The
+ regulators refused to reveal the government's analysis method
+ for Ec calculation. The `shell game' continued for the majority
+ of the program, resulting in a severe distraction to key test
+ personnel as well as high costs and a disregard for our safety
+ policy. The environment also precluded innovation.
+
+ The Launch License process, as applied to the
+ aircraft research test environment resulted in increased risk
+ for our flight crews, the very people that bear the true risk
+ in experimental flight tests.
+
+ The AST office had no waiver policy, and answered our
+ requests by a written denial from the Administrator without
+ giving the applicant the opportunity to debate or negotiate the
+ technical merits or to get an opinion from the EAC's regulatory
+ staff.
+
+Conclusions
+
+ An applicant for approval to fly research flight
+ tests of piloted, aircraft-like systems must have a defined
+ process, one that allows him to plan his program staffing and
+ financial needs. It is not acceptable to impose undefined,
+ inappropriate forced oversight. The specific EAC process has
+ served the industry well for decades and should be used and
+ enforced by regulators familiar with research aircraft testing.
+
+ The Ec process, developed for protection of
+ population from the dangers of ground-launched, expendable
+ rocket boosters, is not workable for application to piloted,
+ aircraft-like systems during research tests and must be
+ replaced by the AVR method of having test-experienced
+ regulators select an appropriate flight test area for research
+ tests. The Ec process might be justifiable for commercial
+ operations, but it must be regulated by those experienced with
+ commercial aircraft operations.
+
+ Regarding licenses to conduct commercial flights that
+ carry revenue passengers, it is not acceptable for FAA to
+ ignore the approval or acceptance of the vehicle's ability to
+ safely fly people. Regulation must be done by experienced
+ (aircraft experienced) staff.
+
+ The acceptance of the system's probable safety can be
+ done via a vehicle-specific test requirement process for
+ structures and safety analysis for systems, rather than the
+ more expensive Type Certification process that includes full
+ conformity assurance. These processes cannot be defined in
+ advance by specification of standards or by design guidelines,
+ since every new system will have unique features. The testing
+ details and systems safety analysis process must be specific to
+ the vehicle and its intended operation. This process does not
+ have to be significantly more expensive than that which would
+ be done by any ethical manufacturer in the absence of
+ government regulation.
+ Answers to Post-Hearing Questions
+Responses by Will Whitehorn, President, Virgin Galactic
+
+Questions submitted by Representative Sheila Jackson Lee
+
+Q1. It has long been my belief and contention that space exploration
+is something that should not be limited. This principle has generally
+applied to space exploration by nations, but today we face the prospect
+of space tourism where individuals would be the ones who get to explore
+space. I feel strongly that this opportunity should not just go to the
+rich, but also to others who have a passion for space exploration;
+especially students should at least have a chance at this. I believe in
+the long run this will be good for business and good for the science of
+space exploration because it will only increase the general public's
+interest in space. Does Virgin Galactic have any plans to provide the
+chance to explore space to even a select few individuals who may not
+have the means to pay for such a flight?
+
+A1. Representative Jackson Lee, let me assure you that Virgin Galactic
+shares your concern that financial barriers alone should not limit
+commercial space travel to only the most financially able. Virgin
+Galactic is committed to making seats available on our spacecraft each
+year for individuals who cannot afford to pay the commercial price for
+this adventure of a lifetime. Our plans to accomplish this shared goal
+are in the early stages. I will provide more details to you and the
+Subcommittee as they crystallize. At this point, we are in discussions
+with the National Space Society to receive its input. Internally, we
+also are exploring opportunities to make tickets available every year
+for other charitable purposes. As our plans solidify, we will keep you
+and the Subcommittee advised.
+
+Q2. You come from a background in the airline industry. As you look
+forward to operating commercial passenger-carrying spaceships, what
+aspects of your operations do you think will be similar to those of
+airlines, and what will be different? In particular, how will the
+safety and maintenance practices you plan to follow in your Virgin
+Galactic operation differ from those you follow in Virgin Atlantic?
+
+A2. Lest there be any confusion, commercial operations for Virgin
+Galactic and Virgin Atlantic will differ markedly in many significant
+respects. Running a commercial space business is dramatically different
+than running a scheduled commercial airline. Differences aside, the
+most important common thread Virgin Galactic and Virgin Atlantic share
+is Virgin's unwavering commitment to safety. With respect to the
+airlines Virgin operates around the world and the passenger rail
+service we operate in the United Kingdom, the Virgin brand has become
+synonymous with safety. We have never lost a passenger. This fact is
+our proudest accomplishment. Similarly, safety will be Virgin
+Galactic's North Star.
+ Virgin Galactic will differ from Virgin Atlantic in a number of
+significant operational respects. For instance, it will not operate
+point-to-point service and it will not be subject to the Federal
+Aviation Administration's (FAA) customary regulatory structure for
+commercial carriers. These differences aside, the safety procedures we
+envision will bear some similarities to the lessons we have learned
+from our safe and successful airline ventures. For example, Virgin
+Galactic's pilots will be expected to develop a pre-flight safety check
+protocol similar to that used by our commercial airline pilots.
+Similarly, we intend to have maintenance practices and spacecraft check
+procedures similar to those jointly used by operators and manufacturers
+in the commercial airline industry. One key area of difference will be
+Virgin Galactic's pre-flight focus on the health, safety and security
+of our passengers. Working closely with the FAA's Office of Commercial
+Space Transportation, we plan to develop pre-flight guidelines that
+will be rigorously followed.
+
+ Answers to Post-Hearing Questions
+
+Responses by John W. Vinter, Chairman, International Space Brokers
+
+Questions submitted by Representative Mark Udall
+
+Q1. In the past, we have heard the concern expressed that new
+commercial space ventures would not be able to find insurance because
+of the risk presented to insurers from potential launch failures. Is
+that still a concern?
+
+A1. Underwriters are not unduly concerned about launch failures. They
+recognize that launch failures are part of the unique circumstances
+with respect to space ventures. What underwriters are concerned about
+is untried and unproven technology. Underwriters generally are quite
+willing to insure developed technology. Thus, in most cases,
+underwriters wait to see one or two successful launches before
+committing underwriting capacity for subsequent launches. The thesis
+being that a new launch vehicle or other untried technology should
+first be proven to work before seeking insurance. That said,
+occasionally the market will sometimes insure new technology but at a
+very much higher price.
+
+Q2. How will the insurance market for commercial passenger-carrying
+spaceships differ from that for expendable launch vehicles that launch
+unmanned satellites?
+
+A2. The market will consider the reliability for commercial passenger-
+carrying spaceships in much the same way that it does for expendable
+launch vehicles that launch unmanned satellites. The space market is
+primarily a property market. It will rate each spaceship and/or launch
+vehicle on its own merits. Thus, today whether we are discussing Space
+Shuttles, the Atlas or the Delta, the market will rate the launch
+system on its own merits. In due course as passenger-carrying
+spaceships prove themselves to be working, the likelihood is that
+eventually passenger-carrying spaceships will be treated very much like
+airline planes and their passengers are treated today.
+
+Q3. As you look at the emerging commercial human space flight industry
+being described by Mr. Rutan and Mr. Whitehorn, how important will
+demonstrating adequate safety margins in advance of flight operations
+be if they want to get insurance? Are there any regulatory approaches
+to safety that would be more likely to make it easier to get insurance?
+Less likely?
+
+A3. As stated in the answer to Question 1 above, the market would want
+to see successful demonstration of the vehicles carrying humans before
+making significant commitment to such vehicles. I should point out from
+the beginning that the market has insured humans on the Space Shuttle
+and indeed tourists on the Russian Soyez vehicle. A regulatory regime
+much like the FAA regime for aviation will most likely be rewarded by
+the market and the demonstration of successful flights will be the
+determining factor in these circumstances.
+
+Q4. In your testimony you mentioned the potential impact of current
+export control policies on the U.S. commercial space industry.
+
+ Please elaborate on the nature of your concern with
+ the present situation.
+
+ What would you do to fix the problem?
+
+A4. The concern with the current ITAR arrangement is that non-U.S.
+satellite operators are favoring European suppliers of the satellites
+over U.S. suppliers in large measure because of the complication of the
+ITAR regime. The current ITAR regime limits the amount of information
+available to non-U.S. owners. Thus, all other factors being equal, a
+non-U.S. customer will buy a European satellite because it is much
+simpler to buy such satellite. I am aware of a number of instances
+where this happens to be true.
+ Please note I am talking of standard commercial communication
+satellites. With respect to launch vehicles and Earth observation
+satellites and new high technology equipment, I do not suggest any
+change to the current regime. In particular, launch vehicles and Earth
+observation satellites can be deemed weapons and as such, should be
+controlled to the maximum extent possible. With respect to standard
+communication satellites, however, I should point out that such
+satellites are in production in Europe without restrictions and nothing
+is gained from strictly controlling technical information with respect
+thereto.
+ With respect to these satellites, consideration should be given to
+removing such satellites from the Munitions List. If there is a
+particular technology, by all means this technology should be
+protected. If the concern is of a particular country such as China,
+then it should be specified as such. The above comments are made as an
+observer of the current situation and it does not have an insurance
+connotation.
+ With respect to the non-U.S. underwriter community (approximately
+2/3 of the market is overseas), I suggest an annual license be adopted
+for each underwriter for all projects. A license is now issued to each
+underwriter for each launch to be insured or each satellite on-orbit,
+no matter how similar the satellites are. While the current government
+employees are very efficient in processing licenses, it seems a waste
+of time. A streamlined approach would be simpler.
+ Answers to Post-Hearing Questions
+Responses by Wolfgang H. Demisch, President, Demisch Associates, LLC
+
+Questions submitted by Chairman Ken Calvert
+
+Q1. The Federal Government invests large sums of money in space and
+aeronautics research and development. From an economic perspective
+which has a greater return on investment for the U.S. economy,
+investments in space or investments in aeronautics? Are there specific
+areas within either space or aeronautics that have a particularly high
+return on investment?
+
+A1. The economic contribution of the aeronautics sector substantially
+exceeds that of the space segment, both in terms of direct sales as
+well as when factoring in the associated business activity. Moreover,
+because a substantial fraction of the federal space funding is
+committed to support manned space operations, an investment whose goals
+are primarily social rather than economic, the returns on space
+spending are further diluted. Historically, the Congress has not
+wavered in its steadfast support of advanced technology development,
+with aerospace a leading beneficiary. Experience has shown that
+advanced technology brings enormous social benefit through the new
+industries and jobs that it makes possible. Hence at the national level
+it has been the Congress's choice to support ambitious new technology
+and leave marginal improvements to industry. To achieve a better return
+on its aerospace investment, the Congress may find it useful to take a
+wider perspective on the challenges facing the aeronautics and space
+communities. In civil aeronautics, the aerodynamics and structures
+technology is mature.
+ One limiting factor is the need for manual control of each
+individual flight. This is both economically burdensome, (crew costs,
+along with fuel and capital, are one of the three largest elements in
+the air carriers direct operating cost) and a safety/reliability issue,
+particularly in general aviation. A more aggressive push to achieve
+automatic fight, with increased safety standards from what we now
+accept, should be a national goal Deployment would presumably start
+with the cargo carriers, but should spread very quickly as it would
+transform airline economics and greatly improve the utility of general
+aviation. Achieving this capability requires at the very least seamless
+cooperation between the FAA and NASA, plus superior software
+integration, but the payoff is very large.
+ Feasibility is clearly demonstrated by the growing numbers of
+military UAVs now routinely deployed in the U.S. and abroad.
+ In the military aerospace segment, strategists are seeking much
+higher speed flight vehicles and very long endurance systems. Much
+better materials and more efficient power sources are prerequisites for
+these efforts. unfortunately, although NASA has much experience in
+these issues, the NASA effort in these areas is small and shrinking.
+The success of the X-43 program last year is not being pursued, even
+though the return on investment from operational hypersonics for the
+country appears compelling.
+ The returns on space investments are often smaller simply because
+of time. The most promising commercial space businesses are
+communications and Earth observation both substantially regulated and
+hence subject to long delays before new technology can be brought to
+market. For instance, the Ka band communications now beginning to be
+offered were demonstrated in the 70s by NASA's experimental and very
+successful ATS III satellite. To rebuild the Nation's technology
+reserves and to restore NASA to its proper role as a technology
+generator for the national economy, in my opinion, it would be
+beneficial to encourage really challenging goals, objectives that
+cannot be met with off the shelf systems. one such goal could be deep
+space, to send probes out towards nearby stars, recognizing that such a
+mission would last perhaps centuries. The task would set new standards
+for advanced propulsion, ultra light structures, sensors and power
+systems, plus extreme reliability. Another goal might be comprehensive
+and ongoing multi-spectral Earth observation. To properly assess the
+implications of the geyser of environmental, economic and military data
+such a system would generate represents the data management challenge
+of the century, but the rewards are proportionate.
+
+ Answers to Post-Hearing Questions
+
+Responses by Molly K. Macauley, Senior Fellow and Director, Academic
+ Programs, Resources for the Future
+
+Questions submitted by Chairman Ken Calvert
+
+Q1. The Federal Government invests large sums of money in space and
+aeronautics research and development. From an economic perspective
+which has a greater return on investment for the U.S. economy,
+investments in space or investments in aeronautics?
+
+A1. I appreciate the importance of this question, as the answer should
+guide budgetary allocations for both of these fields. However, I have
+not and do not know of any economic analyses comparing these
+investments on an apples-to-apples basis (that is, with comparable
+methods, time periods, and other modeling criteria).
+
+Q2. Are there specific areas within either space or aeronautics that
+have a particularly high return on investment for the overall economy?
+
+A2. Although I am not aware of studies that can provide an answer, the
+field of economics usually argues that government investment, as
+differentiated from private sector investment, has the higher return
+and the less potential to crowd out private investment when made on
+innovation that is generic, hence hard for private investors to capture
+a return.
+
+Questions submitted by Representative Mark Udall
+
+Q1. What future markets do you see for the commercial remote sensing
+industry?
+
+A1. I see at least three markets. One market is providing services to
+operational civil and military government agencies, as implemented by
+funding awards to the commercial industry from the National Geospatial
+Intelligence Agency. On the civil side, the Federal Government has yet
+to provide a ``one-stop'' agency through which government can arrange
+for imagery purchases to support activities of the EPA, DOI, Dept. of
+Agriculture, Dept. of Energy, and other agencies. Yet the market seems
+to be there. For instance, while not a federal agency data purchase,
+the State of Hawaii has recently arranged to buy Quickbird imagery from
+DigitalGlobe to map rainy terrain in Kauai County. It is key that the
+imagery had to be of adequate resolution to meet the requirements of
+FEMA's Digital Flood Insurance Rate Map (see Space News, 6 June 2005,
+p. 13). It is also worth noting that the products that the commercial
+remote sensing industry provides are derivatives of sensor
+instrumentation and spacecraft bus designs pioneered by NASA's four
+decades' of remote sensing science and technology.
+ A second market is sales to commercial markets--agribusiness, real
+estate, utilities, etc. Here, the commercial markets are still coming
+up to speed in terms of having the expertise and technology in place
+for making use of imagery. At the same time, the commercial imagery
+world needs to better develop and market its products for the
+commercial sector. The commercial imagery world still is quite
+provincial in producing products with limited general appeal.
+ A third market yet to be tapped is that of providing imagery and
+other data from space assets for the purpose of monitoring compliance
+with domestic environmental regulation and international environmental
+agreements.
+
+Q2. What do you consider to be the biggest obstacles to growth and
+sustainability of the commercial remote sensing industry?
+
+A2. I see the biggest obstacles to be:
+
+ -- failure to market more consumer-oriented, easy to use and
+ understand products. This calls for better annotation of
+ imagery as well as a Microsoft-approach to product design.
+
+ -- failure to think outside the government procurement
+ mechanisms to exercise more mainstream, consumer-oriented
+ pricing and marketing
+
+ -- a possible concern about innovation and R&D, typically the
+ role of NASA. Cutbacks in the Earth science budget may not
+ ensure that our remote sensing industry remains state-of-the-
+ art.
+
+ Appendix 2:
+
+ ----------
+
+
+ Additional Material for the Record
+
+
+ Statement of Herbert F. Satterlee, III
+ Chairman and Chief Executive Officer, DigitalGlobe, Inc.
+
+ Mr. Chairman, Mr. Ranking Member, and Members of the Subcommittee,
+I would like to thank you for the opportunity to discuss the future
+market for commercial space and specifically as it pertains to the
+remote sensing and satellite imagery industry. I am the Chairman and
+Chief Executive Officer of DigitalGlobe, a commercial remote sensing
+and satellite imagery and information company based in Longmont,
+Colorado.
+ There are three commercial imagery companies currently operating in
+the United States, each with one satellite on orbit. Launched in 2001,
+DigitalGlobe's QuickBird satellite offers the world's highest
+resolution imagery commercially available at 61 centimeter resolution.
+Thornton, Colorado-based Space Imaging and Dulles, VA-based ORBIMAGE
+operate the IKONOS and OrbView3 satellites respectively, both at
+approximately one meter resolution. All three companies provide
+unclassified, high resolution satellite imagery to government and
+commercial customers worldwide for a variety of market applications
+such as defense and intelligence, homeland security, agriculture,
+forestry, oil and gas, environmental assessment, disaster planning,
+mitigation and recovery, flood insurance mapping, transportation and
+more.
+ Despite the vast range of potential markets for commercial
+satellite imagery, the industry has been slower to develop than
+originally anticipated. Still, the industry sees steady commercial
+growth with each fiscal quarter, and increased interest and demand from
+government and commercial customers. Strong U.S. Government anchor-
+tenant commitments have helped this industry maintain momentum as it
+develops commercial markets, and a continued commitment from the U.S.
+Government will be necessary until the full commercial market develops.
+These markets will not fully develop until we address the expensive and
+risky nature of the commercial space business which inhibits the
+realization of the industry's full potential. The cost of access to
+space has been a tremendous barrier to entry, and will continue to
+stifle industry's progress in making this business profitable. In order
+for the U.S. commercial satellite imagery industry to remain
+competitive with foreign and other domestic competitors and achieve its
+maximum potential, the cost of access to space needs to be
+significantly reduced.
+
+Access to Space is a Competitive Discriminator
+
+ DigitalGlobe, clearly the leading commercial satellite imagery
+company in the remote sensing industry, has been in operation since
+2001 with the launch of our QuickBird satellite. DigitalGlobe won the
+industry's largest-ever U.S. Government contract in 2003, and just
+recently signed the biggest, most prominent commercial contract the
+industry has ever seen. However, in recognizing these accomplishments
+and celebrating our successes, we must not forget the long, tumultuous
+road we've traveled and the challenges that lie ahead for DigitalGlobe
+and the entire industry.
+ Because of the tremendous cost associated with launching and
+operating commercial satellite imaging systems, it is an extremely
+risky business. One of the most significant challenges in successfully
+getting three companies to orbit has been the cost of access to space
+(including the consequent insurance premiums). All three of the
+commercial U.S. operators struggled to enter the market, each having
+experienced at least one launch or on-orbit failure. Approximately
+fifty percent of the cost to put DigitalGlobe's QuickBird system in
+orbit was related to launch and insurance costs, totaling tens of
+millions of dollars. Access to space in the past has been one of
+biggest barriers to building a successful commercial industry, and it
+will continue to be a major discriminator in the future.
+ Although the commercial satellite imagery industry has several
+benefits over its market rival, the aerial photography industry, it
+nevertheless experiences a major competitive disadvantage. The cost to
+develop and fly a commercial aerial photography sensor in an airplane
+is far less expensive than the cost to build and launch a commercial
+imaging satellite; yet, to stay viable, commercial satellite imagery
+providers must offer pricing competitive to that of the aerial
+photography companies.
+ Not only does our industry see competition from domestic
+competitors, but also from foreign satellite imagery providers. Foreign
+competitors are gaining a foothold in the global marketplace, and
+subsidization from foreign governments is a significant contributing
+factor. The U.S. companies make up the only truly commercial industry,
+having launched three satellites, all financed through private capital.
+Foreign providers enjoy partial or full subsidization from their
+governments, enabling them to more quickly realize a profit.
+ As the Commission on the Future of the Unites States Aerospace
+Industry identified, ``the cost to orbit is an essential ingredient for
+progress.'' The cost of access to space needs to be significantly
+reduced in order for the U.S. commercial satellite imaging industry to
+remain competitive with foreign and other domestic competitors.
+
+The U.S. Government-Industry Partnership: A Mutual Reliance
+
+ In part because of the high cost for access to space, the
+commercial satellite imagery operators have had to rely on significant
+U.S. Government contracts to sustain the industry while we grow the
+commercial markets. Long-term U.S. Government commitments such as the
+National Geospatial-Intelligence Agency's ClearView and NextView
+contracts have been key factors in allowing the industry to attract the
+private investment necessary to serve fixture commercial markets.
+Industry seeks a similar level of commitment from the U.S. civil
+government agencies to help grow our businesses and markets.
+ While the U.S. Government has made a significant investment in the
+industry, it receives tremendous value in return. As President Bush's
+2003 Commercial Remote Sensing Space Policy recognized, a robust
+commercial satellite imagery sector will ``advance and protect U.S.
+national security and foreign policy interests,'' ``foster economic
+growth, contribute to environmental stewardship, and enable scientific
+and technological excellence.'' To this end, the President directed
+U.S. Government agencies to ``rely to the maximum practical extent on
+U.S. commercial remote sensing space capabilities'' and ``develop a
+long-term, sustainable relationship between the United States
+Government and the U.S. commercial remote sensing space industry.'' By
+entering into long-term partnerships with industry and increasing its
+reliance on commercial satellite imagery, the U.S. Government is able
+to realize increased cost savings, streamline requirements among
+agencies and reduce duplication of efforts.
+ U.S. Government reliance on commercial satellite imagery drives
+further demand for and consumption of the technology. For example, as
+the industry entered into the marketplace several years ago, the
+initial demand from the defense and intelligence community was slow to
+materialize. However, the reliance on commercial imagery during
+military operations in Afghanistan and, even more so, in Iraq
+demonstrated that commercial products and services were of even more
+value than many had previously imagined. The ability to share
+unclassified commercial imagery with coalition troops and allies was
+invaluable, and the capacity of the industry to provide imagery to
+troops on the ground sometimes within a few hours of collection was
+remarkable. Because the use of commercial satellite imagery in these
+two campaigns was proven to be highly successful, the defense and
+intelligence communities have accelerated the convergence of commercial
+technology with national imagery architectures, and will increasingly
+rely on commercial sources to meet their mapping and intelligence
+needs.
+
+
+
+
+ Another area where commercial satellite imagery was a significant
+factor in helping to complete a vital mission for the U.S. Government
+and others throughout the world was during the Southeast Asian tsunami
+crisis in December of 2004. Within hours of the event, commercial
+satellite imagery of the devastated areas flowed via Internet
+connection to U.S. and global emergency relief organizations.
+DigitalGlobe offered newly collected imagery along with archived data
+of the same geographic areas from our ImageLibrary, enabling relief
+workers to assess the magnitude of the damage, navigate the altered
+landscape, determine where infrastructure and medical facilities
+previously existed or needed to be constructed, and decide on their
+next courses of action.
+
+
+
+
+
+
+ Data stored in the ImageLibrary is not only valuable for before-
+and-after assessments such as this, but also for assistance in pre-
+event emergency planning. For example, archived, yet current satellite
+imagery could be extremely useful in emergency response planning for
+future tsunamis, earthquakes, hurricanes, forest fires, or other
+disasters. Satellite imagery together with digital geographic
+information systems (GIS) containing features such as key
+infrastructures like roads, airports and utilities, and key
+installations like hospitals, shelters, fire departments, and schools
+can be helpful in planning evacuation and emergency scenarios.
+
+
+
+
+Cultivating Commercial Markets
+
+ The global exposure that the tsunami and military operations
+provided the commercial satellite imagery industry has not only been
+instrumental in increasing the U.S. Government reliance on the
+technology, but also in cultivating new commercial markets. For
+example, the news media's use of commercial satellite imagery during
+Operation Iraqi Freedom captured the attention of the oil and gas
+industry, which is now investigating the use of the technology for
+vulnerability assessment, infrastructure security and exploration
+purposes. And, State and local governments have focused more of their
+attention on satellite technology for emergency planning and relief,
+and homeland security purposes. Agriculture is another example of a
+market with huge growth potential for our industry. By utilizing new
+and archived commercial satellite imagery to assess crop and soil
+conditions and detect change, growers can make faster, better informed
+and more accurate crop management decisions, resulting in greater
+productivity and higher revenues. The insurance industry can benefit
+from utilizing high resolution commercial satellite imagery and
+elevation data to determine flood, fire or other hazardous zones. Even
+professional consumers such as realtors can use commercial satellite
+imagery and other GIS technology to map and identify potentially
+lucrative land development opportunities by being able to analyze
+traffic patterns, population growth, census data, and key
+infrastructure placement. And in addition to commercial businesses,
+satellite imagery has even reached the individual consumer market with
+the recent deal made between DigitalGlobe and the Internet search
+engine Google to provide Internet surfers with current satellite
+imagery of almost any researched location on Earth. The list of
+potential commercial and consumer markets for commercial satellite
+imagery goes on and on: forestry, environmental assessments,
+transportation, port and airport security, economic development, etc.
+
+Conclusion
+
+ After experiencing many bumps along the road, the U.S. commercial
+satellite imagery industry is experiencing steady growth and success.
+However, the industry has had to put its future into the hands of the
+U.S. Government. Without long-term U.S. Government commitments, U.S.
+companies' plans to begin their next generation systems might still
+only be ideas and briefing charts. Instead, the C1earView and NextView
+programs have turned those charts into hardware for both DigitalGlobe
+and ORBIMAGE by allowing our companies to attract the hundreds of
+millions of dollars in private investment required to build and launch
+our future generation systems.
+ Having more commercial satellite imaging assets in space multiplies
+the benefit for both the U.S. Government and the vast array of
+potential commercial customers. However, with launch and insurance
+costs remaining extraordinarily excessive, government budgets facing
+deficiencies, and foreign and domestic competition looming, the U.S.
+commercial imagery industry still faces significant challenges. More
+must be done to lower the cost of accessing space, or the commercial
+satellite imagery industry will be challenged to realize its full
+potential and provide the innovative solutions on which its government
+and commercial customers have begun to rely.
+
+ Biography for Herbert F. Satterlee, III
+ Chairman and Chief Executive Officer,
+ DigitalGlobe
+
+ Mr. Satterlee joined the DigitalGlobe team in 1998, bringing more
+than 25 years of experience in business and finance management for
+space, defense and remote sensing programs. In the face of two
+satellite failures prior to the successful launch of QuickBird in 2001,
+Satterlee rebuilt DigitalGlobe by refocusing the management team,
+boosting employee morale and confidence, leading the company out of
+near bankruptcy and securing the financing necessary to move forward
+with plans to build and launch QuickBird. Under Satterlee's direction,
+DigitalGlobe became fully operational and began serving customers in
+2002. Also under Satterlee's leadership, DigitalGlobe was granted a
+quarter-meter imaging license by the U.S. Government, and was awarded
+the NextView contract by the National Geospatial-Intelligence Agency in
+2003. Satterlee will help lead DigitalGlobe and the commercial remote
+sensing industry into the next generation of imaging with the
+construction and launch of the WorldView system no later than 2006.
+Satterlee is member of board of directors for USGIF, on the advisory
+committee for National Satellite Land Remote Sensing Data Archive, The
+National Oceanic and Atmospheric Administration's (NOAA's) Advisory
+Committee on Commercial Remote Sensing (ACCRES), and a member of MAPPS
+and ASPRS.
+ Satterlee previously served as CEO of RESOURCE21 LLC, a Denver-
+based remote sensing information products company. There, Satterlee led
+the development of aircraft-derived imagery information products for
+the agriculture industry. Prior to that, Satterlee spent 19 years
+working for Boeing Company, where he held several senior management
+positions. He received a Bachelor's degree in business administration,
+with a specialization in finance, from Washington State University, and
+an executive Master's of business administration degree from the
+University of Washington.
+
+About DigitalGlobe
+
+ DigitalGlobe is an Earth imagery and information company located in
+Longmont, Colorado. With superior image resolution and unmatched
+customer service, DigitalGlobe makes it easier than ever to use spatial
+information to improve decisions in markets such as agriculture, civil
+government, environment, infrastructure, exploration, visualization-
+simulation, and intelligence.
+ DigitalGlobe offers the world's highest resolution commercial
+satellite imagery, the largest image size, and the greatest on-board
+storage capacity of any satellite imagery provider. In addition, the
+company's comprehensive ImageLibrary houses the most up-to-date images
+available. DigitalGlobe established market leadership with the 2001
+launch of its QuickBird satellite, and will continue its legacy with
+the construction and launch of WorldView--the industry's next-
+generation commercial satellite imaging system.
+ DigitalGlobe's comprehensive geo-information product store--at
+digitalglobe.com--delivers data for many types of project requirements.
+Through this online store, customers can access a wide variety of
+imagery and derivative information products, including 61-centimeter
+panchromatic and 2.4-meter multi-spectral imagery--the highest
+resolution satellite imagery commercially available.
+ In addition to technical superiority, DigitalGlobe distinguishes
+itself through its commitment to quality, fairness and customer
+satisfaction, and prides itself on being the most reliable and
+responsive provider of satellite imagery and information products for
+commercial and government applications.
+ DigitalGlobe's Basic Imagery products are designed for users with
+advanced image processing capabilities. DigitalGlobe supplies QuickBird
+camera model information with each Basic Imagery product, permitting
+users to perform sophisticated photogrammetric processing such as
+orthorectification and 3D feature extraction. Basic Imagery is the
+least processed image product of the DigitalGlobe product suite.
+ Standard Imagery products are designed for users with knowledge of
+remote sensing applications and image processing tools and require data
+of modest absolute geometric accuracy and/or large area coverage. Each
+Standard Image is radiometrically calibrated, corrected for sensor and
+platform-induced distortions, and mapped to a cartographic projection.
+ Orthorectified Imagery products are designed for users who require
+imagery products that are GIS-ready or have a high degree of absolute
+geometric accuracy for analytical applications. Each Orthorectified
+Image is radiometrically calibrated, corrected for sensor, platform-
+induced, geometric and topographic distortions, and mapped to a user-
+specified cartographic projection. Additionally, customers may choose
+to have these imagery products digitally mosaiced, edge-matched, and
+color-balanced to create seamless wide-area coverage. The panchromatic,
+natural color, and color infrared versions of Orthorectified Imagery
+are well suited for visual analysis and as backdrops for GIS and
+mapping applications, while the multi-spectral version is best used for
+image classification and analysis.
+ In addition to imagery products, DigitalGlobe provides product
+solutions for environment/natural resources, civil government,
+visualization-simulation, infrastructure, agriculture and other
+markets. The products include cloud-free mosaics, vegetation maps,
+bundled and merged products. DigitalGlobe also partners with industry
+leaders to provide value-added imagery and information products.
+ Prepared Statement of Peter H. Diamandis,
+ President and CEO, X Prize Foundation
+ Chairman Calvert and Members of the Committee, thank you for
+permitting me to submit this testimony on market development for
+personal space flight.
+ Today I wish to brief you on three subjects pertinent to your
+discovery of the marketplace for space and our ability to meet the
+needs of that market in the near future: First, the X-Prize
+Competition; second, the critical need to support an emerging new crop
+of space entrepreneurs; and third, the need to embrace an increased
+level of risk in our exploration of space.
+
+The X-Prize Competition:
+
+The Power of a `Prize' to drive the market
+ There is a large and vibrant marketplace of individuals willing to
+pay for the opportunity to fly into space. Recent surveys consistently
+indicate that more than 60 percent of the U.S. public would welcome the
+opportunity to take such a trip. The Futron organization quantifies
+this public space flight market at more than $1 billion per year, over
+the next 20 years.
+ On October 4, 2004, Burt Rutan and the Mojave Aerospace team,
+supported by private financing from Mr. Paul Allen, won the ANSARI X-
+Prize Competition--proving to the world that sub-orbital flight was
+possible to develop in the private sector, safely, and at low cost.
+But, this is one vehicle. I support the notion that the market will not
+be served until there are multiple vehicles offering a diversity of
+competing spaceships serving this market.
+The X-Prize Competition
+ In 1995, I proposed an idea that would spur the industry into
+motion to develop these myriad spacecraft. We funded the $10 million X-
+Prize and it was offered to the first private team to privately build a
+ship and fly three adults to 100 kilometers altitude, twice within a
+two-week period. The prize was purposefully funded to support the
+development of a spaceship capable of meeting the current market
+demand.
+ We announced the X-Prize Competition in May 1996 in St. Louis,
+under the Arch with then NASA Administrator Dan Goldin and 20
+astronauts, business leaders and visionaries. Twenty-seven teams from
+seven nations signed up to compete over the next eight years. During
+this time, 150 individuals deposited funds to reserve a ride on the
+winning vehicle. The market for private space flight was born.
+ The result of the X-Prize competition was a miraculous rise in the
+public's demand for space flight, coupled with the private sector
+stepping forward with private funding to develop the vehicles.
+Additionally, the prize maximized investment. For the promise of a $10
+million prize, more than $50 million was spent by the competing teams
+in research, development, and testing. Dozens of real spacecraft were
+actually built and tested. Compare this to a $10 million investment
+from a government procurement program, which historically has resulted
+in one or two paper designs.
+ This is Darwinian evolution applied to spaceships. Rather than
+paper competition with selection boards, the winner was determined by
+the ignition of engines and flight of humans into space. Best of all,
+we didn't pay a single dollar until the results were achieved.
+ The bottom line is that prizes work!
+NASA's Centennial Challenges
+ I'm also very proud of the critical role that the success of the X-
+Prize Competition played in inspiring NASA to create the newly
+announced Centennial Challenges. These annual NASA prizes will help
+encourage out-of-the-box thinking that is sorely needed in our risk-
+adverse space community. While the annual budget for NASA's Centennial
+Challenges is only $25 million today, I imagine and ask for the
+Committee's support for a future where 2.5 percent of the NASA budget,
+some $400 million, would be offered each year. And, what would be truly
+exciting is to see NASA combine its efforts in research with the
+development efforts of the private sector--resulting in a two-tiered
+system of space flight.
+ Entrepreneurs can solve the problems that large bureaucracies
+cannot. Prizes offer NASA and the U.S. Government both fixed-cost
+science and fixed-cost engineering. More importantly, prizes offer NASA
+the passion and dedication of the entrepreneurial mind that cannot be
+purchased at any price.
+ I encourage the Committee to fully embrace and support the use of
+prizes for NASA's future Orbital, Moon and Mars initiatives.
+
+Public Support drives the economic engine
+
+ As a result of the ANSARI X-Prize Competition, the front pages of
+Forbes, Investors Business Daily, Wall Street Journal, Wired, The
+Washington Post and the New York Times began to report on a new breed
+of space entrepreneurs. Companies representing the X-Prize teams, XCOR,
+SpaceX, Zero Gravity Corporation and Space Adventures captured both
+public attention and investor interest. For our space community, these
+companies were the early versions of Apple, Microsoft and Netscape.
+These companies embodied the entrepreneurial ``can-do'' spirit of
+America. When the X-Prize was won, it was the number two story of the
+year in 2004, headlining more than 300 newspapers and media outlets
+worldwide.
+ Most of the new space companies, including Zero Gravity Corporation
+which I founded, are focused on one specific market: Personal Space
+Flight. Many of us believe that it is the only commercial market that
+makes near-term sense. Call it space travel or barnstorming, the fact
+is that the public will pay for a chance to fly into space. This is a
+mass market that can yield a profit while developing breakthroughs in
+launch operations. These two areas are the very essence of what is most
+needed to develop a hearty industry.
+ The reason that space flight is so expensive today is simple--there
+just isn't enough of it. The commercial launch market for satellites is
+pathetically small, only 15-25 per year. The number of human space
+launches is even smaller: four Space Shuttle flights and four Soyuz
+flights.
+ What we need is not dozens, but thousands of space flights per
+year. Flights that teach us about launch operations--how to refuel, re-
+tool and re-launch a fleet of reusable vehicles.
+ I recognize that the vehicles resulting from the X-Prize are only
+sub-orbital ships, only one-thirtieth the size of today's orbital
+ships, but the lessons we will learn from these vehicles are critical.
+We will learn about operations, an area in which we are sorely lacking.
+ Everyone knows that the reason the Space Shuttle costs so much to
+operate is not the fuel, but its dependence on a standing army of
+10,000-plus professionals. We have people, watching people watching
+people in order to increase safety margins.
+ In stark contrast, the reason that a crew of six can turn around a
+Boeing 737 for its next flight in 20 minutes is the operational
+robustness achieved through millions of flights conducted during the
+first 50 years of aviation. Flights that began with 10-minute hops
+across farmers' fields grew over time to transatlantic journeys. Our
+space program has in essence skipped the learning stages of these 10-
+minute hops and went straight to orbital shots. We need to practice and
+learn, but we cannot achieve the flight rates and experience base we
+need with the Space Shuttle or the Crew Exploration Vehicle or any
+other large government program.
+ The next generation of X-Prize vehicles will soon be competing in
+the X-Prize Cup--an annual competition for rocket-powered aircraft and
+future spacecraft. The X-Prize Cup is a partnership established between
+the X-Prize Foundation and the State of New Mexico under the vision of
+Governor Bill Richardson--specifically to support the new generation of
+space entrepreneurs. During X-Prize Cup week, there will be an
+Education Day with thousands of students learning about space, rocket
+demonstrations and eventually races, and an exposition of space-related
+technologies. In 2005, we will ``Countdown to the X-Prize Cup'' at the
+Las Cruces International Airport from October 6-9.
+ I urge the Committee to join our efforts to recognize the need to
+support the creation of personal space flight, if for no other reason
+than to enable a high flight-rate and teach us about low-cost, safe and
+frequent operations of rocket powered vehicles. NASA and the DOD should
+embrace this new generation of sub-orbital vehicles to learn all they
+can. Fly them frequently. Learn. Support America's space entrepreneurs.
+
+ACCEPTING RISK:
+
+ Finally I'd like to address the issue of risk. In contrast to
+individuals who speak about reducing risk, I want to speak in favor of
+taking more risk.
+ There is no question that the ANSARI X-Prize Competition involved
+risk--so does going to the moon or Mars or opening any portion of the
+space frontier. BUT, this is a risk worth taking!
+ As Americans, many of us forget the debt we owe to early explorers.
+Tens of thousands of people risked their lives to open the `new world'
+and the American West. Thousands lost their lives crossing the ocean
+and then the plains--but we are here today because of their courage.
+ Space is a frontier and crossing new frontiers is inherently risky!
+As explorers and as Americans, we must have the right to take risks
+that we believe are worthwhile and significant. We owe it to ourselves
+and to future generations. It is also critical that we take risk to
+develop technology. It is critical that we allow for failure. Without
+risk and without failure, we cannot initiate and realize the very
+breakthroughs we so desperately need.
+ A breakthrough, by definition, is something that was considered a
+``crazy idea'' the day before it became a breakthrough. If it wasn't
+considered a crazy idea, then it really wasn't a breakthrough, but an
+incremental improvement. Remember those immortal words, ``Failure is
+not an option''. . .if we live and work in an environment where we
+cannot fail, than breakthroughs may not be an option either.
+ In summary, I urge the Committee to support those efforts that will
+allow us to realize our dreams of space exploration. Support prizes as
+the most efficient mean to foster and enable breakthroughs in
+technology and embrace risk. Help the American people understand that
+space exploration is risky--but a risk worth taking.
+ Let's let space explorers be heroes once again.
+
+