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Muncy, Greason, Bahn
Jim Muncy, Jeff Greason, and Pat Bahn (left to right) discuss liability issues during the conference. (credit: J. Foust)

The trials and tribulations of licensing

<< page 1: an 800-pound gorilla named NEPA

Liability concerns

Besides demonstrating that a vehicle is safe and has no significant environmental impact, a potential launch licensee has to demonstrate financial responsibility: the ability to cover what AST determines to be the maximum probable loss (MPL) to third parties in the event of an accident. This provision is a direct outgrowth from the Outer Space Treaty, which holds countries responsible for any damages caused by their space activities, whether governmental or commercial. This absolute liability regime, explained Jim Muncy of PoliSpace, differs from the limited liability regime of commercial international aviation, which was established back in the 1920s when the “air powers” of the time concluded that it was in their interests to promote air commerce.

Both suborbital and orbital launch vehicle operators are required by AST to demonstrate—typically through insurance—that they have the resources to cover the MPL. Fortunately for startup suborbital RLV companies, the MPL for such vehicles is smaller than for orbital launch vehicles: on the order of $10 million. “AST will make you buy more insurance than you want,” said Greason. “AST will probably make you buy more insurance than you truly think you need. But, it’s less than the amount of insurance you can get. It will cost more than you think it should, but less than you have.” In his ideal world, Greason said he would be able to carry two to three times less insurance than he is currently mandated to have.

Another issue regarding third-party insurance is how to obtain it. Launch insurance is currently handled by a relatively small community of insurers that often charge high premiums even though the odds of a third-party loss are very small. The problem is exacerbated for suborbital RLVs, which have MPLs ten times smaller than larger expendables, but will generate only a hundredth the revenue per launch, according to Pat Bahn, CEO of TGV Rockets.

Greason said he would like to move towards the aviation insurance market, which has vastly lower premiums in part because they have a large experience base; space insurers, by contrast, have to research every launch. That difference, he noted, has influenced some of the engineering decisions made by his company, among others, to make their vehicles operate more like aircraft in the hopes that they can be insured more like them.

“AST will probably make you buy more insurance than you truly think you need. But, it’s less than the amount of insurance you can get. It will cost more than you think it should, but less than you have,” said Greason.

A bigger problem than third-party insurance, though, may be second-party insurance: coverage for passengers of RLVs. Such insurance, said Bahn, “has wild risk potential”: on the order of 100 times the ticket price. “This is something insurance agents charge an awful lot of money for, because even for an insurance company these are large potential losses,” Bahn said. As a result, he said, while third-party liability insurance will cost about a third of his company’s anticipated revenues, second-party coverage for passengers could be as much as 150-300 percent of revenues. “When we looked at passenger tourism and doing second-party insurance on that, we could not see how a business plan closes because the premiums you pay are larger than the revenue you can anticipate.”

Legislative relief

Help may be on the way for the suborbital RLV industry on these issues. Much of the attention focused on HR 3752, the Commercial Space Launch Amendments Act of 2004, has been on its provisions that define suborbital vehicles and ensure that they are regulated by AST instead of the aviation side of the FAA. However, the bill contains several other provisions that address some of the concerns raised by the industry.

For one, HR 3752 effectively eliminates the need for second-party insurance. The bill creates what Muncy calls a “fly at your own risk liability regime”, where passengers—called “space flight participants” in the legislation—will be legally required to waive liability claims against the launch services provider. Potential passengers will accept such a system, he believes, because they are aware of the risks inherent with spaceflight, in much the same way people accept the risks of other dangerous activities, like mountain climbing. “This is a new industry,” said Muncy, “This is barnstorming.”

The bill also establishes something called “experimental permits” that could allow companies to obtain approval to fly from AST in far less time, and with potentially far less hassle, than conventional launch licensing. The permits would create a flight test regime similar to experimental certificates in aviation, allowing unlimited test flights of a vehicle provided it is not put into commercial service. Unlike a standard launch license, where AST has 180 days to render a decision once an application is deemed sufficiently complete, regulators would have just 90 days to make a decision on an experimental permit.

Backers of this provision hope that the experimental permit system will make it easier for RLV developers to get approval to conduct test flights. They hope that the shortened period for evaluating applications will encourage AST, and ultimately the Secretary of Transportation, to use a provision of existing law that allows the Secretary to waive existing laws and regulations during the regulatory process if they don’t affect the safety or security of the country and the general public. This would, for example, allow AST to waive some of the environmental regulations assuming AST and the appropriate agency—in this case the Council on Environmental Quality—agreed this was in the public interest.

“We’re not sure how we’re going to do” experimental permits, said Nield, “but we’re going to give it our best effort.”

AST has this power now, although it is not frequently used. For example, when AST granted a launch license to Scaled Composites for SpaceShipOne, it waived a requirement that the company provide public notice for its launches, noting that such a notice “may have the unintended effect of drawing spectators to the launch area thereby increasing risk to public safety and the safety of property.” (The waiver also effectively allows Scaled to maintain the veil of secrecy surrounding its test program.) However, by explicitly stating in HR 3752 that AST should use that ability “to the greatest extent practicable”, supporters of the bill hope to make it clear that AST can use that authority for issues more significant than waiving public notice requirements.

AST is “still struggling” with the ramifications of the experimental permit concept, Nield said. “It looks like we have to keep the same level of safety, we don’t get any relief from the environmental regulations, and we have to do this in half the time,” he said. “We’re not sure how we’re going to do that, but we’re going to give it our best effort.”

The prospects for HR 3752 appear uncertain right now. The bill passed the House by a nearly unanimous vote, 402-1, in early March. While the Senate originally had its own version of the bill, S.1260, it has since adopted the House version and will try to pass it. However, as Muncy pointed out, very little progress has been made on any legislation in the Senate recently given the sharp partisan atmosphere of this election year. He is optimistic, though, that progress can be made to nail down the bill in the Senate in the next couple months and get it passed, hopefully on unanimous consent.

The suborbital RLV industry, needless to say, is looking forward to the passage of the bill. “I am extremely happy with HR 3752,” said Greason. “It is a huge step forward.”