SpaceX wins another Air Force launch contract


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The competition heats up: SpaceX has been awarded a $96.5 million contract to launch an Air Force GPS satellite.

This price is about $14 million more than the last SpaceX Air Force launch contract. That’s probably because SpaceX was trying to undercut ULA’s price by as little as possible so that they could increase their profit. Until there are others in the business who can compete with SpaceX’s prices, the company is sitting pretty in any competitive bidding situation. Their costs are less, so they can always beat everyone else’s prices, while maximizing their profits.

10 comments

  • LocalFluff

    I wonder why they don’t charge more. I don’t think that the Air Force would use foreign launchers (at least not cheap Russian and Chinese launchers, Japan and ESA are even more expensive than ULA) so the competition is limited to the ULA. According to their “Rocketbuilder” app the lowest price of Atlas 5 is $109 million and each solid booster costs $7 million. And Wiki says that ULA charges government contracts $30-$80 million extra because of bureaucracy.

    SpaceX should’ve been competitive even if they increased the price by half. But they maybe need to give a $50 million rebate in order to get interest and to compete with Atlas V’s impeccable launch success record. When the payload is worth a billion, the launch cost is not very important anymore.

  • wayne

    -Solar City is a heavily government subsidized business. Musk’s entire Model depends on massive subsidies, loan-guarantees, direct government (Federal and State) expenditures, and the sale of environmental credits. (New York for example, spent $750 million on a facility, which is leased to Solar City for $1/year, and is exempt from taxation.)
    http://www.watchdog.org/series/solarcity/
    -Tesla is similarly (massively) subsidized and now that the merger between SpaceX & Solar City is completed, Musk is now able to cross-subsidizing SpaceX with Solar City and Tesla.

  • LocalFluff

    @wayne
    Yeah, that is all directed at flying to Mars. Solar power, batteries, electric vehicles, “hyperloop” vacuum engineering, launchers, spacecrafts, commsats. Everything Elon Musk does aligns with his sole purpose of flying to Mars. Rising on the climate panic doomsday myth was politically correct for many years. Now patriotism is the new political gold and Elon Musk, violá, will become a patriot! He’ll completely ditch the climate myth and embrace both methane and nuclear powered spacecrafts. And get subsidies as a patriot instead! Taking over the military space flight needs. Same result, different talk.

    (Compare that with his competitor Jeff Bezos of Blue Origins that runs WaPo to totally hate and lie about Trump everyday in every way, who has the better chance to make it in space flight?)

  • Dick Eagleson

    wayne,

    Let’s look at all this in reverse order.

    Solar City was acquired by Tesla, not SpaceX. Solar City was a publicly-traded corporation and Tesla still is. SpaceX is not. It is not legal to cross-subsidize a privately-held company with funds from a publicly-held company as this breaches basic fiduciary duty to shareholders. That applies even if the largest shareholder of both firms is the same person.

    The only financial connection between the firms, so far as I’m aware, is SpaceX’s purchase of Solar City – now Tesla – bonds. SpaceX does this as a way to make more money on its cash reserves than it could get buying bank CD’s and at lower risk as well. So Tesla/Solar City is not cross-subsidizing SpaceX. The reverse is closer to being true.

    SpaceX, itself, doesn’t get any government subsidies. Government payments for services rendered are not subsidies. Government contracts for capability development – especially when aimed at saving the government on subsequent service purchases – are also not subsidies.

    Tesla used to qualify for federal purchase rebates on its cars, but doesn’t any longer. The rebates cut off once a company passes the 200,000 mark in total cumulative zero-emission vehicle production. Tesla did that in Dec. 2016. These rebates were, given the price of Tesla’s models S and X, a marginal factor in making sales.

    Tesla also sells zero-emission vehicle credits to other automakers which have declined to build such vehicles themselves. These credits are also of marginal consequence to Tesla’s financial situation as they are a California-only thing, not federal, and have been lowered in recent years. About the only other government subsidies Tesla is likely to be getting by this time next year are some purchase rebates also still in force at the state level only in California. These rebates are income-tested so only a fraction of Tesla’s customer base, even in California, qualifies for them. Tesla’s car business isn’t going to stand or fall on government subsidies or the lack of same.

    As for the now-Tesla solar panel plant near Buffalo, it’s probably the largest, but far from the only example of New York trying to buy a restoration of its upstate manufacturing plant and job base via direct government expenditure and 10-year tax holidays. Given that Tesla is partnering with Panasonic, just as it did on its Nevada battery Gigafactory, New York state looks to have a pretty good shot at coming out ahead on the deal. Certainly a much better shot than the feds did with Solyndra.

    And this is hardly an Elon-only program. New York state runs TV ads promoting this program on network TV and basic cable. Elon Musk is far from the first corporate CEO to get a sweetheart deal from a state government eager to bring jobs to a depressed area. He did the same with the Tesla battery Gigafactory in Nevada and the SpaceX Brownsville spaceport project.

    I don’t think these state-level giveaways are necessarily good investments, in the aggregate and over the long haul, but then I’m a Republican. Politicians are rarely if ever concerned with the long-haul, especially Democratic politicians. Guess which party runs California, New York and Nevada?

    As for other subsidies, there is a one-time federal tax credit for rooftop solar panel installation. This is of some importance to companies in the rooftop solar business, but not critically. What really sells the product is net-metering, in which the baseload utility has to buy excess electricity produced by a rooftop photovoltaic installation when such production exceeds household use. This applies in ongoing fashion and is the real basis for rooftop solar’s favorable economics, at least in the Sunbelt.

    Utilities don’t like this and managed to get it killed in – ironically – Nevada. Every rooftop solar company in Nevada, Solar City included, promptly closed up its business in that state, except for maintenance. Net-metering is not a subsidy, as it costs the government nothing. It is a non-trivial transfer of money that would otherwise go to baseload utilities back into the pockets of ratepayers, but it also reduces the degree to which said utilities have to build and maintain peak-hour capacity, which is expensive. It’s not obvious, on net, that utilities actually lose out on this arrangement, but regulated monopolies don’t like their monopolies being screwed with on general principals, it seems.

  • Edward

    LocalFluff,
    The contract for the ninth and tenth GPS III satellites was $395 million, meaning each one cost $200 million, somewhat less than your guesstimate. As you noted, when the satellite is expensive or is one of a kind, then reliability becomes important.

    Another factor to consider is that the US government is not an “all the traffic will bear” customer and does not take lightly any price gouging on its contracts. A company’s bid has to have a reasonable profit, even when it is fixed price. This is why ULA is so concerned about the competition. I think it is also why Robert wrote, “That’s probably because SpaceX was trying to undercut ULA’s price by as little as possible so that they could increase their profit.” SpaceX is probably looking for that “reasonable profit” point. It seems unlikely that this GPS satellite has enough additional servicing requirements from the last one to justify the additional price.

    ULA may be feeling good that their rockets have rarely failed to place their payloads into proper orbits, but SpaceX could easily and quickly become just as reliable, especially if they can work up to a high launch cadence. They currently have two operational launch pads (KSC and Vandenberg, for polar orbits), will soon have a third back in operation (Canaveral), and will eventually have a fourth at Brownsville. With pad availability becoming a non-problem, their main limit to a rapid cadence will be prep-time at each pad, refurbishment time of each rocket, and production rate of future needed rockets.

    For a couple of decades, Europe (Arianespace) has had about half the commercial launch market, but SpaceX now threatens to take the lead in a big way.

    On the topic of subsidies, ULA has a contract that looks like subsidies but is not. The Delta IV launches can get fairly rare (only one last year) thus it would have been especially expensive, had the fixed expenses not been combined for both rockets and split for the variable expenses. Because Atlas V and Delta IV share some expenses (e.g. launch crew), the Delta has not been priced out of usability. The cost of the Delta no longer includes a standing army, during downtime, as that army now works on the next Atlas launch.

    Arianespace, however, truly is subsidized by Europe.

    Dick,
    Thank you for the excellent analysis on the subsidies issue. I’ll keep this bookmarked for future reference.

  • wayne

    Dick–
    Good stuff.
    If I used the word “subsidize” too loosely, I would stand corrected. I would however, differ as to some of your conclusions regarding the Musk empire. I don’t hate the guy, but nor do I believe he’s the poster-boy for free market economics in general. I like SpaceX. They do amazing stuff at low prices.
    My only point on Musk is that both the Tesla & SolarCity model’s are based largely on government intervention & largess at a number of levels. They were marginal at best with full-blown largess, and as you noted– some of these direct subsidies & mandates are expiring and/or will be done away with sooner rather than later.
    I’m sure everyone is following their fiduciary duty, to the letter.

  • LocalFluff

    @Edward,
    Maybe SpaceX would gain much more in the long run by now offering the Air Force launches at cost without profit. Like $50 million instead of ULA’s $200 million. Demonstrating that ULA (and Airbus) has no business in space anymore.

    I think that it is obvious, but rarely publicly recognized, that Elon Musk does business only with the purpose of going to Mars. What other explanation could there be for the choice of businesses he is in? They are all crucial for living on Mars. Nothing of what he does lacks significance for going to Mars. And since government steals most of the monies in society, financing is mostly about convincing the government to pay, by playing along with their random myths, like the climate doomsday until recently, patriotism from now on. Everything SpaceX does is made in the USA, a great argument these days. Government changed, and Elon Musk immediately adapts to it in order to keep the financing, or “subsidies”, for his Mars mission.

  • Dick Eagleson

    Wayne & Edward,

    Thanks for the kind words.

    Wayne is correct that Musk is no poster boy for free-market economics, he just found some pre-existing government programs he could take advantage of to help him do things, especially in the early stages, that he wanted to do anyway. In doing these things Musk has, inevitably, applied a boot to certain industry fundaments that have been long overdue for a good swift kick. Given that he has added significantly to the degree of competition, rate of change, rate of expansion and large-scale societal impact in every industry he has elected to enter, the fact that he is, personally, not John Galt is kind of beside the point. He’s been therapeutically disruptive of industrial sectors that had gotten way too sedentary and moss-grown. That’s all to the good.

    One can additionally note that he has – contra the prevailing B-school wisdom – done so with an essentially 100% American-based workforce and physical plant. Small wonder President Trump seeks his advice even if he and Musk have significant political differences. Not so long ago, that alone would have been regarded as more improbable of accomplishment than even the rocket spectaculars he’s managed to pull off.

    Musk builds big factories in America and employs lots of Americans in them. The people who work in them get paid, buy stuff and pay taxes. Absent Musk, they might well have been costing the federal and state treasuries on the dole. The fact that local and state governments don’t get any tax revenues from these facilities right away is really of no consequence. As a conservative, I think any dollar kept out of the hands of the State is a better dollar than one that isn’t.

    None of Musk’s tax holidays are in perpetuity anyway. Somewhere down the road, all the jurisdictions will eventually get some taxes coming their way. Absent Musk, these facilities would never have been built and said jurisdictions would never get squat.

    The First Amendment allows one – as a certain innumerate doofus did in the L.A. Times awhile back – to add up the maximum future value of all Tesla’s tax abatements and then call the result a multi-billion dollar subsidy, but that doesn’t make any of it true.

  • Edward

    LocalFluff wrote: “Maybe SpaceX would gain much more in the long run by now offering the Air Force launches at cost without profit. Like $50 million instead of ULA’s $200 million. Demonstrating that ULA (and Airbus) has no business in space anymore.

    I don’t know how it works in your part of the world, but in the US it is a delicate balance. “Dumping” your product or service onto the market is illegal; for the most part, companies have to sell at a reasonable price.* The Sherman Antitrust Act prohibits anti-competitive business activities. It is acceptable to undercut the competition and drive him out of business if you have a superior product or method or can produce at lower cost, but it is unacceptable to drive him out of business merely to reduce competition.

    ULA and Arianespace should get their opportunity to improve their services in order to increase the competition.

    LocalFluff wrote: “And since government steals most of the monies in society

    Amen to that!

    LocalFluff wrote: “Everything SpaceX does is made in the USA, a great argument these days.

    It could be patriotism or it could be to assure that there are no ITAR problems with the supply line.**

    Dick Eagleson wrote: “[Musk] just found some pre-existing government programs he could take advantage of to help him do things, especially in the early stages, that he wanted to do anyway.

    I agree that he wanted to do them anyway, but it is likely that he needed to take advantage of the government incentives in order to be competitive in these respective industries. This is part of the problem with government interference in the free markets, it changes the buying behaviors of the rest of us so that we tend to buy and sell things that would not otherwise make as much sense — the very purpose of the government incentive. Due to such government interference, we tend to get what government wants, not what we want.

    The purpose of these government incentives is to encourage the behavior of starting or maintaining these industries. It is no different than the tax deductions that we get for mortgages and charitable gifts. In all these cases, the government uses the tax code to perform its own form of social engineering. Of course, when the CBO is not allowed to use dynamic analysis, our leaders are fed results from faulty models, which they use to create policy. It is similar to using faulty global warming models to determine policy.

    Dick Eagleson wrote: “The people who work in them get paid, buy stuff and pay taxes. … The fact that local and state governments don’t get any tax revenues from these facilities right away is really of no consequence.

    Local tax incentives to bring in industry sounds like a loss to the area, but the income, property, sales, and other taxes paid by the workers helps to make up for that perceived “loss,” even though the company pays far more tax in that town, county, or state than if if the company chose to invest elsewhere. Because the workers buy locally, additional jobs are created (or not lost, if the population is already there but needs jobs) by the McDonalds and other stores either already in the area or that start up due to the increased business. The additional workers also pay taxes and buy locally, too. Each worker brought into the area by the original manufacturer creates (or saves) possibly 1-1/2 other jobs, as someone pointed out a couple of weeks ago in another thread.

    Area that offer incentives to companies to expand in their area are either trying to expand or are trying not to dry up and blow away, as Detroit has done.

    * As an example: sale prices as a loss leader, a method of getting people into the store, are OK. Another example: the Japanese got into trouble a quarter century ago for dumping DRAMs on the US market — selling well below manufacturing costs. They were then forced, as punishment, to sell at a much higher price, but by then the US had stopped making DRAMs, so Japan won big.

    Dumping launches on the US Government is especially bad, because it is using the government to help beat the competition. Talk about the government choosing winners and losers!

    Selling first launches or risky launches for a loss is also reasonable, because of the risk taken.

    ** I once worked at a company that had to send back several malfunctioning units for redesign and repair, but the State Department held up the transfer for ITAR (International Traffic in Arms Regulations) reasons — they feared a transfer of technology to a friendly country by sending them their own faulty equipment.

    ITAR was used by the Clinton administration and beyond specifically to delay technology transfer to China, but its implementation made doing business with US companies so difficult that foreign manufacturers quickly decided to build everything that only the US could build, at that time. Since there were constraints on what they could tell the Chinese only when there were US units on their satellites, the foreign manufacturers quickly had no restrictions on what they could tell the Chinese. Now the Chinese have reliable rockets that can dock with orbiting space stations as well as target moving American aircraft carriers.

    As a result of ITAR, the US went from having more than 80% of the world’s satellite technology market in 1999 to less than half today.

    ITAR backfired in a spectacular way.

  • Edward

    I wrote: “Area that offer incentives to companies to expand in their area are either trying to expand or are trying not to dry up and blow away, as Detroit has done.

    I forgot to add that this is also a form of social engineering, one that provides incentives for doing things differently than we otherwise would have done. Whether such incentives are a net good or a net ill is something that could be debated. They are probably good for the areas offering them, but if the incentives did not exist and companies only invest in places that are naturally less expensive, would those companies be better off and would the nation or the world as a whole be better off, too?

    Although I said that with government incentives we tend to get what government wants rather than what we want, that is not always a bad thing. Government also has needs, and should be allowed to provide incentives to meet those needs.

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