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Can Elon Musk Convince the U.S. Senate to Level the Playing Field -- and Save Taxpayers Billions of Dollars in the Process?

Explaining the space business to the commander in chief. Photo: NASA.

"SpaceX was founded to radically improve space transport technology. ... Today, it is one of the leading aerospace companies in the world, with nearly 50 missions contracted ... eight [Falcon 9 rockets launched] with 100% mission success, including four launches for NASA, three to the International Space Station, and sophisticated geostationary spacecraft for the world's leading satellite companies."

So began SpaceX founder Elon Musk when he sat down before the U.S. Senate Appropriations Defense Subcommittee earlier this month. But while all this sounds impressive already, Musk was just getting warmed up -- and his next promise will shock you.

Musk wants to wipe out two-thirds of the cost of launching satellites into space, and break Boeing (NYSE: BA  ) and Lockheed Martin's (NYSE: LMT  ) monopoly over space launches in the process.

Elon Musk has a plan
As Musk reminded the Senate panel members, the U.S. government pays the United Launch Alliance ("ULA" -- a Boeing-Lockheed Martin joint venture) $1 billion a year to stand ready to send rockets into space. Washington pays even if no launches actually happen. The actual cost when a satellite goes up? On average, $380 million.

Musk says SpaceX can do the same job for just $100 million and would waive the $1 billion annual retainer. By his calculations, if the U.S. had availed itself of SpaceX's services over the last 36 launches that ULA handled, taxpayers would have saved $11.6 billion.

SpaceX's Falcon 9 can go up, up, and away -- for cheap. Photo: SpaceX.

No use crying over spilt rocket fuel
Of course, that's all history. Waterlogged dollar bills under the bridge. But Musk still thinks he can save taxpayers some money on future rocket launches. His purpose in appearing before the Senate, in fact, was to argue that SpaceX should be certified as a contractor to launch military satellites into space under the U.S. Air Force's Evolved Expendable Launch Vehicle, or EELV, project, and that future EELV contracts should be decided on the basis of competitive, fixed-price bidding between SpaceX and ULA.

To date, SpaceX has achieved Air Force "certification" of one EELV mission, and is waiting for its two subsequent launches to be certified. And if they are?

Well, 14 such EELV launches are planned for fiscal 2015. If Musk is right about his company's ability to do the work for less than $100 million apiece -- and $280 million less than what ULA would charge -- then opening this work up for bidding could save taxpayers nearly $4 billion.

Over the next 15 years, the Pentagon plans to spend $70 billion on space launches. If SpaceX could actually cut that cost by 74%, as argued, taxpayers could save more than $50 billion.

Death of a sales-monopoly
That sounds like good news for taxpayers. It would not be good news for Boeing or Lockheed Martin shareholders, who would lose a corresponding $50 billion in revenue. At the same Senate subcommittee hearing at which Musk spoke, ULA CEO Michael Gass argued against introducing price competition into the space launch business. According to Gass, the sector simply "won't work in a competitive environment."

In Gass' view, the high fixed costs of space launch mean that a provider needs a lot of launches to spread the expense around -- otherwise, it risks losing money, especially in a slow year. Duplicating these fixed costs by allowing two providers, Gass warned, risks both companies going broke. This was the same logic Boeing and Lockheed raised back in 2006 in arguing that they be allowed to form ULA, rather than compete against each other.

Musk countered that since Boeing and Lockheed stopped competing against each other in 2006, the cost of space launches has doubled. So apparently, ULA's cost-saving plan isn't working very well.

The Russia factor
Final point. You've all heard about the diplomatic kerfuffle between Washington and Moscow over Russia's annexation of Crimea, right? Well, in a parting shot, Musk pointed out one more wrinkle in these relations as they relate to space launch. Turns out, one of the two rocket families that ULA uses to send U.S. military satellites into space -- Lockheed's Atlas V  -- uses a Russian-made engine.

On the one hand, therefore, continuing to favor ULA over SpaceX has the unintended side effect of subsidizing the Russian military-industrial complex. On the other hand, if the diplomatic standoff continues, and Russia decides to embargo sales of its rocket engines to the U.S., that would throw a bit of a monkey wrench into ULA's ability to launch satellites for the Pentagon. Cost savings aside, this point alone seems to argue strongly in favor of bringing SpaceX in as an alternative launch provider and ending the ULA monopoly over military space launch.

ULA's Atlas V is a great way to launch satellites into space... so long as Russia approves. Photo: NASA.


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Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 30, 2014, at 1:31 PM, cobraman69 wrote:

    It's time the monopoly was ended. Let's get back to the competitive bidding process and save us, the taxpayers, some serious money.

  • Report this Comment On March 30, 2014, at 2:50 PM, moonwatcher2001 wrote:

    This is all well and good, but as of yet, SpaceX does not have the long track record that Boeing and Lockheed-Martin do in launching high value military assets to space. Perhaps after say 10 to 20 more successful launches involving resupplying the International Space Station, and for paying commercial customers for communication satellites, SpaceX can show that it too can be a player. But people need to understand that cost and risk BOTH have to be weighed.

    The most expensive vehicle, no matter the upfront costs, you can fly your payload on is the one that fails. Given that each of these intelligence satellites take years to build and cost approximately $2 Billion, flying them on the "cheap" while taking a higher risk of failure is simply not a good bargain for our nation or taxpayers.

    I hope SpaceX CAN get to the point where it too can be considered in the equation of being launch provider for these assets, but right now, it might be a bit too premature until that longer track record of success is made evident.

  • Report this Comment On March 31, 2014, at 1:53 AM, Sergi wrote:

    Elon Musk may in fact be one of the most intelligent human beings on this planet today. I am reading more and more of this individual's dramatic accomplishments. In order to introduce a concept to the world, one must have a vision of the future. Elon Musk may very well have acquired such gift. When a person strives to impress the world with their idea of making this world a better place to live, I personally acknowledge that. Space X, sure it is in it's earliest stages of success, but so was the FORD motor company. In time, before anyone will realize, Space X may very well develop our first commercial vehicle that may allow us to venture beyond our very own planet. As an amateur astronomer, I say; beam me up Elon.

  • Report this Comment On March 31, 2014, at 9:29 AM, wrwhiteal wrote:

    for 4 decades, the US has ceded the commercial launch business to overseas... why?

    The real villain here is Nasa and our Federal Govt..

    After Apollo and the unaffordable/unsustainable Saturn launchers, Federal Agency Nasa promised a gullible Congress/America 'cheap, safe, reliable access to space' shuttle at $7 million/launch...

    Then Nasa delivered a $1.6 billion/launch boondoggle... the most unaffordable, dangerous, unreliable space vehicle in history...

    But Congress granted the Nasa shuttle a monopoly on all US launches, killing any hope of a competitive US launch service...

    Then after the shuttle disasters, Boeing/Lockheed restarted commercial boosters, but at Govt services prices... many times the offered overseas commercial launch rates.

    While Nasa wasted $20 billion on it's failed/cancelled Constellation, Innovative, efficient, spirited SpaceX developed far superior/efficient boosters/capsules for only $300 million...

    SpaceX is now capturing competitive domestic and international launch business for America.

    Although the Boeing/Lockheed still lobby to maintain their monopoly on US military launches, and Nasa refuses to leverage/use the far superior/available SpaceX launchers/capsules to instead blow $100 billion or more on the shameless earmarked pork unsustainable, unaffordable, unneeded SLS/Orion.

  • Report this Comment On March 31, 2014, at 9:48 AM, MikeR613 wrote:

    "Given that each of these intelligence satellites take years to build and cost approximately $2 Billion." Not an expert, but that seems very unlikely. Much more likely is that the research and development and design costs billions. The actual manufacture is unlikely to cost more than a tiny fraction of that number. Can some expert correct me? I would imagine that making two identical copies would cost $2.01 billion, if you know what I mean.

    If my guess is correct, your requirement for super-reliability on the launcher is unnecessary; make two, and one of them will be successful. You'll still save a hundred million dollars or more.

  • Report this Comment On April 04, 2014, at 6:43 PM, JulianCox wrote:

    Very nice to see an intelligent and well written summary of this subject.

    Required reading for so many misinformed and mindless haters that accuse Musk of seeking taxpayer handouts.

    ULA is an American company, SpaceX is an American company. One makes rocket engines, the other buys rocket engines from a potential adversary and will take 5 years and $Bns more taxpayers money to develop one of its own.

    One can stand ready because it is commercially competitive on the international stage with a full manifest. One requires $Bns of taxpayers money to stand ready because it is uncompetitive.

    Again, these are two American companies, one more younger and more American than the other.

    WTF is going on that the expensive American company relying on Russian contractors for lack of American expertise is treated to protection from American competition in America for America's security?

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Rich Smith

As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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