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

Elon Musk wants to save you some money, and he's prepared to upset the monopoly on rocket launches to do it.

Mar 30, 2014 at 10:41AM

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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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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