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Air Force budget reveals cost differences between ULA and SpaceX

Eric Berger at Ars Technica has found that the most recent Air Force budget provides a good estimate of the price ULA charges the military for its launches.

According to the Air Force estimate, the “unit cost” of a single rocket launch in fiscal year 2020 is $422 million, and $424 million for a year later.

This is a complex number to unpack. But based upon discussions with various space policy experts, this is the maximum amount the Air Force believes it will need to pay, per launch, if United Launch Alliance is selected for all of its launch needs in 2020. ULA launches about a half-dozen payloads for the Air Force in a given year, on variants of its rockets. Therefore, the 2020 unit cost likely includes a mix of mostly Atlas V rockets (sold on the commercial market for about $100 million) and perhaps one Delta rocket launch (up to $350 million on the commercial market for a Heavy variant).

In other words, the $422 million estimate per launch is the most they will pay. Atlas 5 launches will certainly be less, about $100 to $150 million, while the Falcon 9 will likely be under $100 million. What they are doing is budgeting high so they guarantee they have the money they need to pay for the most expensive launches, usually on the Delta Heavy.

From my perspective, they are budgeting far too high, and if I was in Congress I would insist that this number be reduced significantly, especially considering this Air Force statement on page 109 of the budget document [pdf]:

The Air Force, National Reconnaissance Office (NRO), and the National Aeronautics and Space Administration (NASA) agreed to a coordinated strategy for certification of New Entrants to launch payloads in support of NSS and other USG requirements which has so far resulted in the certification of one New Entrant. The Air Force continues to actively work with potential New Entrants to reliably launch NSS requirements. The Government may award early integration contracts to ensure each potential offeror’s launch system is compatible with the intended payload. Beginning in Fiscal Year 2018, the Air Force will compete all launch service procurements for each mission where more than one certified provider can service the required reference orbit. [emphasis mine]

The “New Entrant” is of course SpaceX. They are also saying that they are going to encourage competitive bidding now on all future launch contracts.

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6 comments

  • Edward

    Robert wrote: “From my perspective, they are budgeting far too high, and if I was in Congress I would insist that this number be reduced significantly

    This is likely the general strategy. Ask for more than you need so that you eventually get what you need. It allows Congress to reduce a part of the budget, so they look good, and the Air Force to launch all its missions, so they look good.

    I once worked for a guy who would put an intentional error on his travel expenses, so that the auditor would have something to find and correct, making the auditor look good and keeping him from scouring an expense report until he found some minor problem and rejects a legitimate expense. I believe that most budgeting works similarly: add in something that can be negotiated away so that the important stuff is covered by the final budget.

    On another note: the first article points out that ULA works to two Air Force contracts, one of which is a per unit price and the other is “a cost-plus incentive fee known as an ELC contract. This ELC contact was essentially a payment to ULA to maintain ‘launch readiness’ for critical national security payloads.

    I believe that many people, such as the unnamed person quoted in the article, confuse the ELC contract as a subsidy. This is not a subsidy but a method for covering the event that the Air Force launches too few payloads to cover ULA’s annual fixed costs. On the other hand, if the commercial customers do not pay to reimburse the Air Force for some of this annual fixed costs, then the Air Force is subsidizing the commercial customers.

    To go further, that same unnamed person claimed that ULA is trying to maintain a fiction that it is a competitive private sector company. Unfortunately for that person, ULA was set up specifically because there was no other competition than the Atlas and Delta rockets, and Delta launched too rarely to be affordable unless the fixed costs were shared with the Atlas, hence the ELC contract part of the deal with the Air Force. In essence, combining the two rockets into one company saves money overall, but only when compared to the traditional way of providing launch services. And it was recognized at the time that it was a monopoly for the Air Force.

    This is the beauty of SpaceX and Blue Origin as potential competition with ULA. The new companies do business in a different way, not conforming as much to the inefficiencies that the government built into the US launch industry, since WWII. Indeed, SpaceX has so very many customers that a contract similar to the ELC contract would be silly.

  • Edward wrote: “Ask for more than you need so that you eventually get what you need.”

    A New York caving friend of mine who invents toys for a living called this the 3-legged dog approach. You develop a perfectly finished toy of a dog, but leave off one leg. The customer loves it, but notices and mentions the missing leg.

    “Wow!” you say. “I didn’t realize. How could we get these projects finished without your help!”

    Meanwhile, they ignore everything else, and let you get on with getting the job done.

  • mkent

    Robert: Kudos on realizing that the budget document reflects the hypothetical maximum launch cost the Air Force will see after FY19, not the ULA average. As much as I normally like Eric Berger’s reporting, his SpaceX fanboyism sometimes gets the better of him, as it does in this case.

    Edward: The ELC contract is, roughly, ULA’s annual fixed costs collected into one contract. Since for the most part ULA only launches government payloads, the government is going to pay ULA’s entire cost one way or the other. Moving the fixed costs into a single contract came about during a period when many government payloads were undergoing lengthy delays — often multiple years. Neither ULA nor the Air Force could predict even the number of launches in any given year, let alone what they would be, so ULA had no way of determining how to spread those fixed costs across their launches each year. Separating those fixed costs into a separate contract allowed the Air Force to negotiate lower profit margins since they were assuming the risk of payload-induced launch delays.

    “…and Delta launched too rarely to be affordable unless the fixed costs were shared with the Atlas…”

    Actually, in the 00’s Delta was way out-launching Atlas (72 to 44). In 2006, when ULA was formed, it was 9:2. It was 9:4, 5:2, and 11:5 the next three years.

    All that said, ELC is ending. FY-2019 (Oct 2018 through Sep 2019) will be its last year.

    Note also that this budget document includes the costs for the Air Force itself and other contractors (such as the Aerospace Corp.). Subtracting those other costs out, “only” about $1.035 billion went to ULA in FY16 for four launches, $1.190 billion in FY17 for five launches, and $1.136 billion in FY18 for three launches.

    Those launches haven’t happened yet. That’s when the launch contracts were / are to be signed. Looking at the manifest, I believe FY16 funds 2 Atlases, 1 Delta Medium, and 1 Delta Heavy; FY17 funds 4 Atlases and 1 Delta Heavy; and FY18 funds 1 Atlas and 2 Delta Heavies.

    If my hunch is correct, a little algebra yields the total ULA cost (launch contract plus ELC) of an Atlas V to be $178 million, a Delta IV Medium to be $201 million, and a Delta IV Heavy to be $479 million.

    Don’t take those as gospel. I’m just trying to make sense of the numbers.

  • LocalFluff

    I actually think budgeting for the highest established bidder makes sense. That’s the highest price they could launch for. Since the manufacturing cost of the payload, and much more the (military) value created by it, far exceeds the cost of launch, I think it is prudent. It’s worthwhile launching one way or another, according to their valuation of the payload.

    An order of magnitude cheaper launch costs will transform the design of the payloads and greatly decrease their costs in the long term. But I doubt that launch costs are a significant part of total mission costs for most Air Force space missions. For a bureaucratic budget one year ahead, I think this is a reasonable approach.

  • mkent

    Note that the high launch costs are way out in the latter half of the budget planning document. This has as much to do with the current uncertainty in the market as anything else. As the RD-180 engine availability becomes known, as SpaceX becomes more capable, as ULA reduces their costs and switches to Vulcan, and as new entrants enter the military market, those costs will come down. And as time progresses and those launches move closer to the then present day, the budget figures will transition to actual costs.

  • Edward

    mkent,
    You are correct. I left out a very important paragraph explaining the problem of the uncertainty of the number of launches in any given year. The ELC contract was intended to even out the fluctuation in revenue that would have resulted from that uncertainty.

    Your hunch and algebra lead to prices that are probably more precise than reality, but they are probably fairly accurate.

    LocalFluff,
    You are correct that Air Force payloads tend to cost far more than their launch cost, but budgeting for the maximum cost tends to take money away from other valuable projects as well as make it easy for the procurement department to get lazy in finding economical solutions to launch costs. The final budget should be realistic as well as set a challenge for cost savings, otherwise launch costs can easily skyrocket out of control — which was a complaint, just a few years ago, about ULA’s monopoly with the Air Force.

    The answer seems to be to find less expensive engines and to return competition to the launch process.

    For the past quarter century, when asked, I have estimated the cost of putting a commercial communication satellite into geostationary orbit as $100 million for the satellite, $100 million for the launch, and $50 million for the insurance. None of these numbers is accurate, because satellites cost more or less depending upon capabilities, launches cost more or less, depending upon satellite weight (rocket choice), and insurance costs more or less depending upon a number of factors, including failures (claims) in recent years.

    Unlike the Air Force’s satellites, commercial companies tend to build satellites less expensively (closer to the launch cost), largely because each one tends not to use as much leading-edge technology, so development costs are lower, and they tend to order in batches of the same design, so design costs are spread over multiple satellites. Each of the Air Force’s GPS satellites tend to cost less than many of their others, because the GPS satellites are ordered in batches of the same design. The nature of government contracts and the secrecy needed tend to also raise the cost of Air Force satellites.

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