Risk: The Missing Piece Of The Space Launch Debate

The Washington Post and Wall Street Journal both ran stories yesterday about the controversy surrounding how the government goes about procuring space launch services. The stories were balanced and informative, but as usual they depicted the controversy as a David-versus-Goliath struggle between entrepreneur Elon Musk’s upstart SpaceX and the two entrenched launch behemoths, Boeing and Lockheed Martin. Boeing and Lockheed have pooled their respective rockets in a joint venture called United Launch Alliance. Critics call it a monopoly, but the government permitted the combination because at existing demand levels, it was costlier to keep the two launch providers viable as separate businesses.

Elon Musk, the founder of SpaceX (Space Exploration Technologies), thinks that’s hogwash — an excuse for inefficiency at the expense of taxpayers. He says if the government will let him into the business of launching military satellites, he will deliver the same launch services for a fraction of the price it’s currently paying. He’s already made major inroads at NASA with the same argument, securing much of the money needed to operate SpaceX from a series of contracts to carry cargo to the International Space Station. Some policymakers and members of Congress think that Musk should be allowed to shake up the military launch business too, bringing competition to a market where right now the government has few options.

I’m not going to explain how Musk can do this, because frankly I can’t make any sense out of his business strategy (even the Chinese say they can’t match his prices). And his company’s track record so far on meeting price and schedule commitments leaves much to be desired. But SpaceX is a startup and Musk has risked a lot of his own money on the venture, so people tend to be forgiving. The possibility of having real competition in the launch business is so appealing that NASA and the Pentagon seem willing to roll the dice on a relatively untested supplier. Which brings us to the core problem that SpaceX and every other upstart confronts in trying to beat entrenched competitors in an established market: risk.

The simple reality is that SpaceX just doesn’t have much of a track record. It has launched a grand total of seven rockets, and three of those launches were failures. Its current launch vehicle, Falcon 9, has only been launched twice, and apparently neither of those launches was picture-perfect. In contrast, the United Launch Alliance has conducted 54 successful launches of high-value payloads. Lockheed Martin’s Atlas rocket, which was in use for decades before the joint venture was formed, is approaching 100 consecutive launches without incident, similar to the performance of the Trident ballistic missile that the company routinely tests for the Navy.

The statistical probability that SpaceX can ever match this record of success is approximately zero. Maybe it can deliver launch services for less money, but there’s good reason to believe that in rockets as in other products you get what you pay for. Once risk is factored into the comparisons, it’s hard to see how federal officials could justify placing a billion-dollar spy satellite, or for that matter astronauts, on Falcon 9 or any other SpaceX launch vehicle until there was much more evidence of their reliability. There’s a lot to like about SpaceX and Elon Musk, but the bottom line on his business case is that the government can save big bucks by taking big risks. That’s the kind of bet that entrepreneurs like Musk are willing to make, but it doesn’t sound like a tradeoff that Washington will find congenial for long.