YouTube just may be Google's greatest gift to mankind -- and not just because of all the cat videos.
Last week, for example, I had the opportunity to spend an hour and a half watching a detailed Congressional inquiry into the process of awarding satellite launch contracts to SpaceX and United Launch Alliance.
Wait! No! Don't go! This really was a great video -- a lot more interesting than its C-SPAN-ish subject matter might suggest. As it turns out, there's a lot you can learn about how the government spends your tax dollars, just from watching YouTube. You can also learn a lot about the space race. Stuff like...
1. NASA isn't America's only "space agency"
NASA may get all the headlines, but when it comes to launching satellites critical to U.S. national defense -- spy satellites, dubbed "NRO" objects, because they're run by the National Reconnaissance Office -- it's the U.S. Air Force that steps in and handles those launches. It's these Air Force launches that were of particular interest to the U.S. House Armed Services Committee Hearings (Subcommittee on Strategic Forces) last month.
You see, USAF recently awarded United Launch Alliance a contract to put 28 satellites into space at a cost of roughly $11 billion. ULA joint venture partners Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT) earn beaucoup profits on these contracts, too -- an 8.7% operating profit margin on space work at Boeing, for example (according to S&P Capital IQ), and an even bigger 12.7% operating profit margin at Lockheed.
2. SpaceX wants in
But maybe you already knew that. Well, here's something you may have missed: Not satisfied with just doing work for NASA, SpaceX wants in on the USAF loot, too, and you can see why.
NASA has already contracted with SpaceX to perform around a dozen supply trips to the International Space Station, ferrying supplies to and from the ISS for $1.6 billion. NASA recently extended that contract by a further three missions. And according to SpaceX, these additional missions will be even more lucrative. The first 12 missions earned SpaceX an average of $133 million per milk run; SpaceX COO Gwynne Shotwell said she expects SpaceX to earn an additional $150 million per mission on the additional runs. That's a tidy 12.8% improvement in SpaceX's profit margin.
Incidentally, SpaceX says that if it's able to steal Air Force work from ULA in the future, it expects to charge a similar "$150 million to $160 million" for missions utilizing its new Falcon Heavy launch vehicle. (Simple Falcon 9 launches would cost taxpayers less than $100 million.)
3. SpaceX might soon be our only satellite launch provider
Another unexpected revelation from the hearings is that SpaceX could soon displace ULA as America's primary launcher of military satellites. The reason: After Russia invaded Crimea last year, Congress passed a National Defense Authorization Act containing something called "Section 1608," which forbids the Air Force from giving ULA any more satellite contracts that might require buying RD-180 rocket engines from Russia.
The RD-180 just happens to be the engine that powers ULA's Atlas line of rockets, which make up 10 of the 16 rocket models ULA offers. If Congress won't let ULA buy those rockets, then ULA won't be able to send up satellites using Atlas. (ULA's medium-lift Delta IV rockets can do similar work, but cost 30% more than Atlas. It would be nearly impossible for ULA to compete with SpaceX on price using Delta alone.)
Now, ULA is working on developing a homegrown alternative to RD-180, and has in fact lined up two companies to help it with that -- Jeff Bezos' Blue Origin and GenCorp (NYSE:AJRD). Blue Origin's BE-4 rocket engine won't be ready until 2019, however, and probably can't be "certified" for regular Air Force use before 2022. And GenCorp's rocket engine, the AR-1, is a couple of years behind that.
Problem is, ULA only has enough RD-180s stockpiled to supply Atlas launches through about next year. After that, unless the RD-180 ban is lifted, ULA will suffer what Bruno calls a "multiyear" shutout from the market for USAF military satellite launches. In effect, Congress will be trading one monopoly launch provider (ULA) for another (SpaceX).
4. Good news! Russians like money!
ULA's situation is not hopeless. While buying rocket engines, critical to national security, from a rival like Russia is certainly a suboptimal solution, it is at least possible. Worries that Russia would cut off ULA's supply of RD-180 rocket engines in response to sanctions imposed after the Crimea invasion have failed to bear fruit. Russian Deputy Prime Minister Dmitry Rogozin, who made the threat, and who suggested that henceforth, America's space program should focus on "trampoline" technology to reach space, was apparently called onto the Kremlin carpet and told to keep his mouth shut. Turns out, the RD-180 is a reliable source of revenue for Russia's space program, and one Russia doesn't want to lose.
In short, ULA CEO Salvatore Bruno assures me that Russia is currently more than willing to continue selling ULA as many RD-180s as it wants -- just as soon as Congress permits ULA to resume buying the engines.
5. But even that might not save ULA
Perhaps the most interesting tidbit I got from last week's YouTube broadcast came not from SpaceX or from ULA -- but from Congress itself. Specifically, from California Congresswoman Loretta Sanchez, who described a conversation she had with France's Arianespace a few years ago: "They were telling me that their launch costs about $200 million equivalent. They said they weren't worried about UAL [sic] but could I get rid of SpaceX? Because they were going to drive them out of business!"
That turns out to be a not uncommon concern. The Wall Street Journal reports that even with $140 million in subsidies from European governments, Arianespace is struggling to compete with SpaceX, and was forced to cut its prices last year. Additionally, Ariane is even developing a whole new rocket, the Ariane 6 (expected to cost about $77 million per launch), in an effort to compete with SpaceX. And even at ULA, there's a project afoot to create a "build your own rocket" tool online, where customers can see the base price of a ULA launch, add any options they want, and compare the resulting price to what SpaceX and Ariane are charging.
Whatever else we learned from last month's Congressional hearing, this fact alone makes it crystal clear: SpaceX is shaking up the space world, and driving prices lower in America and around the globe. That can only be good news for taxpayers.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 303 out of more than 75,000 rated members.
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