EELV’s era of transitionby Stewart Money
|
| The good news was that the bulk buy was saving the taxpayer “up to $4.4 billion” over the duration of the current phase of the program. Or was it? |
With the announcement of the New Entrants Certification guide in October 2011, the Department of Defense set the stage for changes to take place in its flagship launch program, but both the degree and pace of the changes were not clear. Two years later what is coming into view is a program that is very much in transition. The program has been buffeted by domestic changes brought on primarily by SpaceX, even as an increasingly difficult budget environment and a new threat assessment regarding anti-satellite capabilities are changing the underlying hyper-expensive, large satellite bias that served as the justification for the program in the first place.
The EELV program’s new phase began in earnest with the announcement that the Air Force would reduce the proposed block buy from 50 to 36 cores, while reserving up to an additional 14 opportunities for open competition provided new entrants met the standards in time for consideration. While competition was now finally a possibility, the outcome was by no means assured, and for the most obvious entrant, SpaceX, everything depended on the timely and successful introduction of the Falcon 9 v1.1.
In June 2013, the Air Force and SpaceX signed a Cooperative Research and Development Agreement (CRADA) that called for the company to conduct three launches, including at least two consecutive successful ones, in order to submit data for evaluation. It was only after that point that the company could begin to compete for the first of the open launch opportunities set aside under the agreement. While it might have seemed likely that SpaceX would want to get the first test launch of the enhanced Falcon 9 behind it before submitting its candidacy, the company indicated that it would seek to meet the CRADA flight requirements from the very first launch. That opportunity came with the booster’s inaugural flight, which took place out of Vandenberg Air Force Base in California on September 29, 2013. More than four months later, the Air Force has yet to release its report on the launch, which saw the terminated re-start of the second stage engine after the booster completed its primary mission. In the meantime, however, SpaceX has now completed two more launches, both to geostationary transfer orbit (GTO), of the SES-8 and Thaicom-6 satellites; both were flawless. Presumably, the company has now crossed the threshold established by the CRADA and, subject to final analysis, can compete for future launch opportunities.
At the same time, and after protracted negotiations which saw the first seven cores ordered in 2013 as part of a “bridge agreement,” elements of the space media reported with some fanfare that ULA had concluded an arrangement with the Air Force on the remainder of the 36-core buy. And the good news, it was saving the taxpayer “up to $4.4 billion” over the duration of the current phase of the program. Or was it?
As the recent Space News article outlining the agreement pointed out, based on publicly available information, the numbers do not appear to add up. In fact, a close look at the announcement reveals the numbers are every bit as questionable as the projected price increases put forward in late 2011 to justify the block buy in the first place, in large part because they appear to be based on the very same numbers. In order to see why, a little background may be helpful.
| Despite assurances to the contrary, and a gradual rebound in the commercial market, launch costs continued to rise after the creation of ULA. |
With the formation of United Launch Alliance as a joint venture between Lockheed Martin and Boeing in 2006, the Air Force formally enshrined a policy of “assured access to space” already underway in the form of subsidy payments that the two aerospace giants insisted were necessary to remain viable after a global retraction of the commercial launch market. Under the new arrangement, the subsidy would continue as the ELC, or launch capabilities contract that provides general infrastructure support, while specific launch services hardware is procured through a different contract, the ELS. Taken together with the wide variety of booster configurations offered through its “dial-a-rocket” approach, tracking the actual costs of launch services—the company will not disclose—became problematic. The important item to understand is that ULA receives the subsidy, about $1 billion annually, regardless of the number of launches it conducts (and if it launches more than eight times, it charges the government for additional “launch capability.”) It also receives the benefit of separate R&D funds as well. Besides the R&D funding, ELS and ELC contracts, the EELV program also allocates lesser amounts to administration and to engineering analysis, costs which will ultimately cover any new entrants.
Despite assurances to the contrary, and a gradual rebound in the commercial market, launch costs continued to rise after the creation of ULA, and the Air Force fiscal year (FY) 2012 budget request for the EELV program contained a rather nasty surpris: an escalation that saw the total unclassified program budget go from $1.14 billion in FY 2011 to $1.7 billion in FY 2012, a 50% increase. In terms of the boosters, the cost per core increased from $92 million in FY 2010 for three cores and $96 million in FY 2011, also for three, to an astronomical $179 million for four in FY 2012. Those figures, however, do not include an appropriate portion of the launch capability subsidy that must be factored in to arrive at the actual cost. According to DOD numbers, the gross unit cost increased from a prior year average of $272 million through FY 2010 to $425 million in FY 2012, and it was these increases that set off a round of unaccustomed media scrutiny and intensified Congressional oversight.
Although ULA in large part blamed the cost increases on uncertainty in the supplier market, the Government Accountability Office (GAO) took considerable exception to the claims, noting that the data submissions were inconsistent, conflicting, and based on a highly flawed survey that ULA submitted to its own vendors seeking specific results. Meanwhile, the Department of Defense admitted that much of the data was “neither reviewed or independently assessed.” The block buy went through anyway, and the results are perplexing.
After holding steady at $1.7 billion in FY 2013, and requesting $1.88 billion for FY 2014, the omnibus spending bill passed on January 15 trimmed the ELLV budget by roughly $300 million, noting in its explanation that $150 million of the adjustment was for “unjustified increase” and another $50 million for “program decrease.” Additionally, it solidified a change already begun in the FY 2013 appropriations and formally broke apart the ELS and ELC contracts into separate accounts, assigning them at $809 and $678 million respectively, with most of the cost cuts coming from the latter. The result is a FY 2014 EELV budget for Air Force unclassified booster cores (ELS) and ELC of $1.5 billion, which appears to be the new baseline going forward. Notably, it is still well above the historical baseline.
So where did the $4.4 billion in claimed savings come from?
In the absence of further reductions or a full explanation from either United Launch Alliance or the Air Force, we are left with supposition. One explanation could be that a large portion of the “savings” have been manufactured by first extending the inflated and debunked FY 2012 budget, which projected out-year levels through FY 2017 of $1.7, 2.0, 2.1 and 2.2 billion, respectively, and then comparing them against the new FY 2014 levels.
Perhaps there are other sources as well. The National Reconnaissance Office portion of the EELV budget is classified, but as Space News pointed out based on leaked documents from Edward Snowden, it is substantial. Presumably reductions in that segment based on similar and equally misleading assumptions regarding the FY 2012 numbers could contribute to the total. Also, ULA could be making projections based on the very questionable assumption that it wins all of the 14 openly competed launches as well. In any event, without the increased scrutiny brought on by the potential for competition, one thing seems clear: the taxpayers were going for ride.
If the FY 2012 budget projections are indeed the basis for the claims, as has been acknowledged by ULA, it is, as an act of marketing bravado, as impressive as it is utterly misleading. While imaginary savings for deeply discounted retail products that were artificially elevated in the first place may be commonplace for designer clothing and fashion accessories, they are not likely to be well received in devising a family budget, and they are not useful in a launch program strapped for funds, particularly when contrasted against very real savings available elsewhere.
| As SpaceX emerges as a second, completely independent and fully domestic commercial provider with its own growing reliability record, it is no longer possible to make a credible argument in favor of either restricted competition or subsidized support. |
At the time the block buy was originally called into question in 2011, SpaceX had only conducted two launches of the original Falcon 9, both to low Earth orbit and neither with a payload fairing. In coming up with the New Entrant Strategy and setting aside up to 14 launch opportunities for new providers, the Air Force struck a reasoned balance between the confidence of a stellar launch record with ULA and the opportunity of significantly reduced launch costs with SpaceX. Two years later, the situation is very different. With SpaceX’s current track record—eight Falcon 9 launches, three of which were of the upgraded version, including two to GTO—the potential savings to the EELV program offered by new entrants are no longer hypothetical. They are quickly becoming real, and there is every indication that by the time new opportunities are open for competition in 2015, significantly lower costs will be an indisputable fact of life in the launch industry.
Although SpaceX lists the Falcon 9 v1.1 at $56.5 million on its website, there is no doubt that due to mission assurance requirements levied by the government, the unit cost to the EELV program will be markedly higher. For example, the July 2012 contract award to SpaceX through NASA’s NLS-II contract for the NOAA Jason-3 satellite was announced at $82 million, representing at 45% premium for mission assurance and the demands levied by a US government customer. Assuming the premium under the EELV program is even higher—and it probably is—there is still an enormous differential between the real costs of the Falcon 9 and the Atlas or Delta vehicles, one which appears to begin at roughly $50 million for the most basic version of the Atlas V, and then quickly escalates as a larger fairing and solid rocket boosters are added. In properly establishing the basis of competition for the 14 available cores, it is important that the Air Force fully explain or dismiss the apparently exaggerated savings currently being touted, and recognize the actual savings now being offered by SpaceX and the Falcon 9.
Why does it matter? From the Space Fence to the CHIRP hosted payload project, recent months have brought a slate of news regarding space defense programs which are being eliminated or curtailed due to budget pressures. Based on the claimed savings, the stage is being set for a facetious argument: if ULA is not awarded the additional launches, the taxpayer is losing out on additional savings. In reality, if the EELV program pursues its option to purchase all optional 14 cores, the Falcon 9 offers a real savings on the order of $1 billion.
There is also the issue of the industrial base and what comes after the current phase of the program expires. As SpaceX emerges as a second, completely independent and fully domestic commercial provider with its own growing reliability record, it is no longer possible to make a credible argument in favor of either restricted competition or subsidized support. In fact, the entire line of reasoning put forward in favor of the block buy now turns against the incumbent, as Elon Musk’s company validates the original rationale put forward in seeking two fully independent providers, a goal still promoted in theory but abandoned in practice with the merging of two product lines in a single plant and a planned common upper stage engine. It also brings new focus to the glaring inconsistency in logic in continuing to support a product line powered by a foreign main engine, when there are now two main domestic lines in the Delta and Falcon series. This is a point brought home by another development since the block buy discussions began.
In June 2013, the Federal Trade Commission announced that it was opening an investigation into possible anti-competitive trade practices on the part of United Launch Alliance regarding its exclusive access to the Russian built RD-180 main engine that powers the Atlas V. Weeks later, Orbital Sciences filed suit against ULA over the same issue, asking for a jury trial and $515 million in damages with a possible trebling under RICO statutes. In December, a judge rejected a motion to dismiss, setting the stage for a trial (or, more likely, a settlement) later this year. Even without delving into the specifics of the case, which appear compelling, the simple fact that two American companies are fighting over access to a Russian engine both want to sell to the Department of Defense should be a clear sign that the decade-long policy of monopoly privilege and comfortable subsidies has failed badly. It is, in fact, embarrassing.
In looking ahead, the reality of two independent, domestic propulsion lines in the Merlin and RS-68 series engines suggests that it is time to place a sunset provision on the use of foreign engines for national security needs, and ultimately, for all taxpayer-funded launches. Implementing such a policy would help to resolve the obvious contradiction in supporting two product lines and a 50-50 distribution of orders between Atlas and Delta, when ULA’s own arguments in favor of the block buy clearly indicate that the pricing of either would benefit from a focus on one line or the other. Based on the less than impressive actual cost reductions revealed in the 36-core announcement, it may be the only real hope of achieving competitive status.
| If the EELV program is to protect taxpayer value while keeping its very practical goal of maintaining two independent sources into the next decade, it is time to phase out the launch subsidy and insist that the incumbent at least enter the present decade. |
While the EELV program is now in a period of transition, and SpaceX still has a great deal to prove in terms of extending its reliability record and successfully introducing the more powerful Falcon Heavy, it is also a time for the program to recognize that there are much bigger changes in the works. SpaceX’s surprising success in pursuing reusability with the Falcon 9-R, demonstrated in both the Grasshopper program and stunning progress in engine re-ignition on the Falcon 9 v1.1’s inaugural flight, suggest that well before the current, transitional phase of the EELV program has passed, the entire basis of how we access orbit may undergo fundamental change.
In terms of reliability, which is the justifiable overriding concern of the EELV program, early efforts at first stage recovery are going to provide hard data and post flight analysis on engine and vehicle health to a degree that is not possible with any fully expendable launch vehicle. Because of these efforts, and irrespective of any technical issues encountered in its adolescence, the Falcon 9 is well on its way to substantiating claims that it was designed to be the most reliable launch vehicle in the world. It is already the most cost effective.
If the EELV program is to protect taxpayer value while keeping its very practical goal of maintaining two independent sources into the next decade, it is time to phase out the launch subsidy and insist that the incumbent at least enter the present decade. It begins with rejecting the false narrative of non-existent or exaggerated savings currently being put forward by the incumbent in an attempt to further justify its monopoly position in the market, and a clear recognition that it is time to demand the real savings through continuous competition which are already reshaping the launch industry.