Constellations, Launch, New Space and more…

Analyst Rips SpaceX on Price Increases, Schedule Delays

By Doug Messier
Parabolic Arc
May 29, 2011
Filed under , , , ,

Artists conception of SpaceX's Dragon spacecraft in orbit

Loren Thompson has a piece on in which he tries to tear down what he views as myths and falsehoods concerning Elon Musk and SpaceX. Among other things, the Lexington Institute chief operating officer doesn’t believe Musk’s numbers:

The easiest ways to track prices in the launch services market are to follow cost per launch and cost per pound lifted into orbit — metrics that may diverge considerably depending on the intended payload size and orbital plane. Measured either way, SpaceX tends to over-promise when it announces a new vehicle and then raise prices later. For example, the price of a Falcon 1 launch was initially stated at about $6 million in 2003-2004, but then gradually rose to about $11 million in 2010-2011. The price of a Falcon 9 launch rose from $35 million prior to 2008 to $60 million today. The lower prices were quoted before the two vehicles had actually been launched, so the later prices presumably reflect complications encountered in development — a key problem when implementing any new business strategy. Similarly, the per-pound cost of launching payloads into orbit on either vehicle has risen over 100 percent since initial estimates were made by the company.

Other items in the SpaceX business plan have also seen significant price increases over time. For instance, the cost of certifying the Falcon 9 launcher and Dragon space capsule for use by astronauts has risen from an initial estimate of about $300 million in 2006 to a billion dollars today. The cost of developing a new Merlin 2 engine to power launch vehicles has reflected a similar pattern. Such increases suggest that SpaceX is following the same trajectory as traditional launch providers in projecting development costs too optimistically, and then having to backtrack. The space industry has a long history of over-estimating demand, under-estimating technical challenges, and then experiencing cost increases and schedule delays leading to recriminations. The same pattern prevails in the weapons industry, which probably means that companies selling to the government operate within a structure of incentives that rewards such behavior.

In a rebuttal, SpaceX defends its costs and pricing and says that Thompson is a paid shill for Big Rocket:

Mr. Thompson is a paid consultant for Lockheed Martin Corporation, which competes with SpaceX in various space ventures. He is also the chief operating officer of the non-profit Lexington Institute, a think tank often referred to as the “defense industry’s pay-to-play ad agency,” financed by and an advocate for the very defense companies most threatened by SpaceX’s new approach to the launch business….

While SpaceX prices do shatter the historical cost models of government-led developments, these prices are not arbitrary, premised on capturing a dominant share of the market, or “teaser” rates meant to lure in an eager market only to be increased later. These prices are based on known costs and a demonstrated track record. And these prices are what led to SpaceX last year taking back international market-share in commercial satellite launch, the first time an American company has done so in more than a decade.

While there have been some price increases over the years, in line with inflation and technological improvements that have increased our vehicles’ performance, our prices are somewhere between 30 percent to 80 percent less than rival American rockets (that don’t compete on the commercial market) and our Russian and Chinese competitors. And our development costs are significantly lower than traditional government programs.

In terms of where Thompson makes his money, SpaceX has a point. The footer at the end his blog post reads:

Loren Thompson is Chief Operating Officer of the non-profit Lexington Institute and Chief Executive Officer of the private consultancy Source Associates. The Lexington Institute receives money from many of the nation’s leading defense contractors, including Lockheed Martin and other space launch providers. Source Associates provides technical services to several companies that compete in space launch, including Lockheed Martin.

Disappointingly, SpaceX doesn’t specifically address the cost increases and schedule delays that Thompson mentions (aside from attributing them to inflation and technological improvements). I haven’t looked closely at those numbers, so I don’t know if his figures are accurate. But, it is certainly clear that increases and delays have occurred, as they do in all projects.

Thompson’s criticism of SpaceX is typical of critics’ approach to NASA’s commercial space efforts. They have a laser focus on SpaceX, which has less space experience than larger rivals such as United Launch Alliance and Boeing. Critics never mention that NASA’s commercial space efforts are broader than SpaceX, and that these other companies are competing for funds as well.  This approach has the effect of making NASA’s commercial crew program look riskier than it is while making SpaceX’s larger rivals look like much safer bets.

It’s a shame because the ultimate goal of NASA’s approach — commercializing low Earth orbit operations — is something that conservatives should support. That point is getting lost by this false belief that NASA’s only goal is to turn the sector over to Musk and his inexperienced start-up. This formulation makes the policy look crazy, and the NASA hierarchy and the Obama Administration appear foolish to pursue it.

If Boeing and United Launch Alliance want to argue — as they undoubtedly are arguing — that their decades of experience and proven space systems are a better bet than SpaceX, and that they can provide these services on a commercial, fixed-cost basis that fits within NASA’s budget, then let them make those arguments. Let’s elevate the discussion to that level instead of presenting this false choice.

I’m left to wonder if conservatives would have been this critical if a similar plan had been proposed by a Republican administration. I doubt it.  Last year, Forbes let Dinesh D’Souza write a cover story on his crackpot theories about President Obama. Nothing the man will do will ever be acceptable to these guys.

9 responses to “Analyst Rips SpaceX on Price Increases, Schedule Delays”

  1. Jim Howard says:

    I see no evidence at all that ‘conservatives’ have a problem with SpaceX.

    We do have a big problem with kind of crony capitalism practiced by this administration, GE is of course the poster boy for this with Lockmart close behind.

    I think that last paragraph in which you introduce your own crackpot thoery hurts your argument a great deal. Do you really think that introducing partianship helps SpaceX win friends?

  2. jstults says:

    Disappointingly, SpaceX doesn’t specifically address the cost increases and schedule delays that Thompson mentions

    Agree; hit with the facts to build credibility. The old-style PR of saying what you want to say and ignoring the inconvenient works great for TV, not so much on the internet where the words are sticky and everyone can find facts for themselves.

    Here’s one piece, GAO report; factors contributing to schedule delay:

    launching the maiden Falcon 9, such as Falcon 9 software and database development
    design instability and production
    Dragon spacecraft testing and software development
    obtaining flight safety system approval

    I agree with Jim, you hijacked your own thread before it started. How did we get from the obviously not disinterested analysis of LockMart’s hatchet man to “conservatives hate Obama”? Yikes…you gotta spring that stuff on your reader a little more gently.

    • Doug Messier says:

      “I agree with Jim, you hijacked your own thread before it started. How did we get from the obviously not disinterested analysis of LockMart’s hatchet man to “conservatives hate Obama”? Yikes…you gotta spring that stuff on your reader a little more gently.”

      My comment was mostly directed at Forbes, that bastion of free market capitalism and government privatization. This is the sort of policy they would normally support without reservation (for better or worse). Instead, we get this on the website. I do think the magazine hates Obama. And that it affects their ability to look at this policy clearly and comprehensively.

      The rest of the comments are very interesting. I’ll take a look at the GAO report when I get a chance. Thanks for posting that.

  3. jstults says:

    The ‘whys’ of schedule delay are important, from that GAO report, “SpaceX’s decision to incorporate design changes to meet future CRS mission requirements has delayed the company’s second demonstration mission. Integration challenges on the maiden Falcon 9 launch and the first COTS demonstration mission have also kept SpaceX engineers from moving on to the second COTS demonstration

    So, a little bit of requirements creep, a little fly-fix-fly going on, that’s nothing to be surprised about with a new product development. Redesign and re-work is to be expected too; the fatal trap for most government product development programs is thinking you can prevent it all by exquisite systems engineering and layers upon layers of review upfront. You can’t: only the hardware can tell you what you didn’t already know.

  4. jstults says:

    that bastion of free market capitalism and government privatization
    Yeah, their hypocrisy knows no bounds, I thought it was interesting that Thompson was widely billed as a “Forbes contributor” in the secondary stories that picked it up, rather than “defense industry consultant” or “Chief BlahBlah for the Lexington Institute” as he normally is in the defense trade rags.

  5. Burke Burnett says:

    Jim’s logic is puzzling. On the one hand, Obama has a “crony” relationship with LockMart. And yet, in supporting SpaceX and others CCDev partners, they’re evidently annoying LockMart sufficiently to have them call out their attack dogs in the form of Mr. Thompson & Co. This would be a most curious form of “cronyism” indeed, if it were true.

  6. jstults says:

    I haven’t found any supporting documentation for “price increases”. Slides 5&6 [pdf] show the classic Gant chart for SpaceX COTS, basically same as the GAO report, but it shows the original milestone dates.

    Not much new info in Thompson’s part 2.

  7. jstults says:

    Better response from SpaceX; an improvement on the “hit with the facts” theme.

    Fist: similar to Boeing’s first Delta IV-Heavy test in 2004 which lost its payload and failed to reach its intended orbit because sensors shut down its three main engines prematurely
    Fingers-spread: In fact, data from every Falcon 1 launch was used to make our two Falcon 9 flights a huge success
    What specific thing did you do/learn/change? Great example with the Boeing sensor shake-out, what specific thing changed about Falcon because of your tests?

    Fist: SpaceX has missed its schedule
    Fingers-spread: [the whole of that paragraph following; even though there’s good specifics about Shuttle it is all tu quoque]

    Fist: Orion capsule…already cost upwards of $5 billion, and is still many years and billions of dollars from completion. Compare that to the mere $300 million that NASA has spent to get the Dragon test flight on the Falcon 9 last December.

    Tu quoque is fine when the person you are responding to actually is a hypocrite, but the *why* facts are worth talking about too. We’ve delayed X months because we’ve learned from building and flying hardware, e.g. Falcon 1 showed us that the gidget must be flumuxed duvorously; with the first Dragon launch we learned to spiddle the gromet thusly. We learn these things while our competitors are still shuffling powerpoint decks and burning money like sailors on shore leave. We’ve delayed Y months to make an additional investment in CRS capability; note the differing incentives Coastal Ron points out that make this different than the usual “requirements creep” that plagues government product developments.

    Facts are fists. You hit somebody with your fist not with your fingers spread (sorry Heinz).

Leave a Reply