INTERNATIONAL COMPETITIVENESS IN LAUNCH SERVICES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B00181R001701630002-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 50
• Document Creation Date: December 27, 2016
• Document Release Date: March 23, 2012
• Sequence Number: 2
• Publication Date: February 1, 1985
• Content Type: REPORT

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COVER SHEET
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
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All material on this page is UNCLASSIFIED.
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Table of Contents
Page
I.
Highlights ......................................
Background ......................................
i
1
II.
Description of Launch Suppliers .................
6
III.
Space Shuttle Marketing Strategy and Pricing ....
12
IV.
Ariane Marketing Strategy and Pricing
15
V.
U.S. ELV Marketing Strategy and Pricing .........
17
VI.
Launch Demand and Capacity ......................
20
VII.
Factors Affecting Choice of Launch Vehicle ......
25
VIII.
Comparative Pricing .............................
28
IX.
Uncertainties and Risks .........................
35
APPENDIX I - Other Potential Launch Suppliers
APPENDIX II - Payload Classes
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Highlights
Background
o For many years, the U.S. Government maintained a monopoly in
the provision of launch services for the Free World.
However, European development of the Ariane Expendable
Launch Vehicles (ELVs) has effectively ended that monopoly.
o The leading competitors-for supplying commercial launch
services are the U.S. Space Transportation System (STS)
utilizing the Shuttle, Ariane ELVs, and U.S. commercial
ELVs. There are major obstacles to other potential launch
suppliers (China, the Soviet Union, and Japan) being able to
obtain a significant portion of the commercial market in the
time period of the study (1989-1994).
o There is a potential excess of worldwide launch capacity
relative to the likely demand for commercial payloads in
1989-1994. Ariane will have the capacity to launch about 50
percent of the target market (communications satellites),
the STS could launch about 90 percent, and U.S. commercial
ELVs could launch the entire market.
Assessment
o While the National Space Policy commits the U.S. to
"maintaining world leadership in space transportation," it
does not make any mention of commercial market share. The
STS offers capabilities far in excess of that possible with
ELVs (e.g., manned space flight, interactive R&D, commercial
materials processing). These unique capabilities provide
the proper focus for defining U.S. space transportation
leadership.
o Success of the STS need not be determined by its share of
the commercial communications satellite market. Competition
for routine services that could be performed by the private
sector is not a threat to the U.S. policy goal of
maintaining space transportation leadership.
o Although U.S. commercial ELV companies have been marketing
their launch services, the current large price differences
between U.S. ELVs and the subsidized STS and Ariane have
made it extremely difficult for U.S. ELVs to be successful.
The President's full-cost recovery policy for the STS
represents the most significant Government decision for
encouraging the development of a U.S. commercial ELV
industry.
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o An STS pricing policy reflecting full-cost recovery for
commercial and foreign launches as of October 1, 1988, needs
to be implemented soon, or U.S. ELV companies will be unable
to sustain their production. If the current ELV production
lines close, future prices would be substantially increased,
which may preclude any future reopening of lines.
o The NASA-proposed STS pricing plan is based upon the average
operating cost of Shuttle flights during the 1989-1991
period. A higher STS cost per flight than proposed by NASA
will result if the projected Shuttle flight rate of 24 per
year is not attained (as the rest of the Working Group
believes is likely) or other cost elements (such as recovery
of depreciation of Government assets--the orbiters) are
included in the price in accordance with Government-wide
cost recovery policy. Changing these assumptions could
easily result in a 30 percent higher price.
o At the NASA-proposed STS pricing, the STS and Ariane would
compete for the target market. The STS would have a pricing
advantage for smaller payloads, while Ariane would have a
pricing advantage for larger payloads. U.S. ELVs would be
unable to compete in this market.
o Under the 30% higher STS pricing alternative reviewed in the
Study, the STS and U.S. commercial ELVs would compete more
equally for the target market not captured by Ariane (about
half of the nominal demand). Assuming optimum mixing of
payloads, Ariane would appear to have a price advantage,
especially for the larger payload classes). This STS price
would provide U.S. ELV operators with more assurance that
the U.S. Government would not undercut their prices and
would encourage their participation in this market.
o While no price level can guarantee that U.S. launch systems
will be price-competitive with the launch systems of other
nations, there appears to be little reason for Arianespace
to maintain highly subsidized prices once the STS
transitions to full-cost recovery. Arianespace would have a
strong economic incentive to maximize its return by raising
prices in response to an STS price increase.
o It is uncertain whether the nations backing Ariane would
decide to increase its launch capacity to capture more than
50 percent of the market. Factors against such an expansion
include the substantial capital investment required,
uncertainties about demand, and competing European space
program funding needs.
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Risk Analysis
o There is a serious risk that by the early 1990's Shuttle
availability for commercial and foreign traffic could be
reduced by greater than nominal U.S. Government demand
(related to Space Station or the Strategic Defense
Initiative) or lower than planned flight rates. In the
absence of U.S. commercial ELVs, the prospect of this
situation would cause a difficult choice for the U.S.
Government. By the FY 1987 budget (before the fifth orbiter
option expires), the U.S. would have to decide whether to:
Expand Shuttle capacity, which would add to the large
world oversupply of launch capacity with a huge and
very costly ($2.5 billion) increment of new capacity to
meet contingent commercial needs.
Allow a massive loss of U.S. market share, which would
permit foreign competition to dominate the market for
launch of commercial satellites, costing the U.S. in
business revenues, balance-of-payments, and jobs.
o The U.S. has a better option than the choices outlined above
for competing in the international market for launch
services. Encouraging the competitiveness of U.S.
commercial ELVs would:
Carry out the President's ELV commercialization
initiative.
Require no additional U.S. Government investment.
Rely on the private sector for efficiently performing a
commercial service.
Provide a more economically efficient source of
additional U.S. launch capacity.
o U.S. commercial ELVs provide the best hedge available for
dealing with the uncertainties in the international
marketplace for commercial launch services. The option for
U.S. commercial ELVs will disappear unless action is taken
now to implement fully a pricing policy for commercial and
foreign users that recovers all of the costs of the STS,
consistent with Government-wide cost recovery policy.
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SECRET
I. Background
Introduction
This study has been prepared in response to NSDD 144, National
Space Strategy, of August 15, 1984, which directs that: (U)
"OMB, in consultation with DOC, DOT, DOD, NASA, and other
agencies, will prepare a joint assessment of the ability of
the U.S. private sector and the STS to maintain
international competitiveness in the provision of launch
services. This analysis should include an assessment of all
factors relevant to foreign expendable launch vehicles
(ELVs), U.S. ELVs, and the STS." (U)
For purposes of this study, "international competitiveness" is
defined as the ability to compete successfully for a share of the
market for launching commercial and foreign spacecraft. The U.S.
Government's policy of implementing full-cost recovery STS
pricing on October 1, 1988, for commercial and foreign users led
to a concentration on FY 1989 through FY 1994 in assessing
international competitiveness. (U)
As shown in the following section on "Policy Context,"
maintaining international competitiveness is not an explicit
objective of U.S. Space Policy. While the National Space Policy
commits the U.S. to "maintaining world leadership in space
transportation," it does not make any mention of commercial
market share. (U)
Policy Context
The National Space Policy of July 4, 1982, establishes national
policy to guide the conduct of the United States space program
and related activities. The following excerpts provide pertinent
guidance on the question of international competitiveness in the
provision of launch services: (U)
o The Space Shuttle is to be a major factor in the future
evolution of United States space programs. (U)
SECRET
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o The United States encourages domestic commercial
exploitation of space capabilities, technology, and systems
for national economic benefit. (U)
o The United States Space Transportation System (STS) is a
vital element of the United States space program and is the
primary space launch system for both the United States
national security and civil government missions. (U)
o The first priority of the STS program is to make the system
fully operational and cost-effective in providing routine
access to space. (U)
o STS capabilities and capacities shall be developed to meet
appropriate national needs and shall be available to
authorized users -- domestic and foreign, commercial, and
governmental. (U)
o The United States is fully committed to maintaining world
leadership in space transportation with an STS capacity
sufficient to meet appropriate national needs. (U)
o NASA will assure the Shuttle's utility to the civil users.
(U)
o The United States Government will provide a climate
conducive to expanded private sector investment and
involvement in civil space activities, with due regard to
public safety and national security. (U)
National Security Decision Directive No. 94, Commercialization of
Expendable Launch Vehicles, of May 16, 1983, encourages domestic
commercial exploitation of space capabilities, technology, and
services for U.S. national benefit. (U)
o The basic goals of U.S. space launch policy are to (a)
ensure a flexible and robust U.S. launch posture to maintain
space transportation leadership; (b) optimize the management
and operation of the STS program to achieve routine,
cost-effective access to space; (c) exploit the unique
attributes of the STS to enhance the capabilities of the
U.S. space program; and (d) encourage the U.S. private
sector development of commercial launch operations. (U)
o The U.S. Government fully endorses and will facilitate the
commercialization of U.S. Expendable Launch Vehicles (ELVs).
(U)
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o The U.S. Government will not subsidize the commercialization
of ELVs but will price the use of its facilities, equipment,
and services consistent with the goal of encouraging viable
commercial ELV launch activities....(U)
o The U.S. Government will encourage free market competition
among the various systems and concepts within the U.S.
private sector. (U)
o Notwithstanding the U.S. Government policy to encourage and
facilitate private sector ELV entry into the space launch
market, the U.S. Government will continue to make the Space
Shuttle available to all authorized users -- domestic and
foreign, commercial, and governmental -- subject to U.S.
Government needs and priorities. (U)
o Through FY 1988, the price for STS flights will be
maintained in accordance with the currently established NASA
pricing policies in order to provide market stability and
assure fair competition. Beyond this period, it is the U.S.
Government's intent to establish a full-cost recovery policy
for commercial and foreign STS flight operations. (U)
Executive Order 12465, Commercial Expendable Launch Vehicle
Activities, of February 24, 1984, designated the Department of
Transportation as the lead agency within the Federal Government
for encouraging and facilitating commercial ELV activities by the
United States private sector. Under the provisions of this
document, the President directs the DOT to: (U)
o promote and encourage commercial ELV operations in the same
manner that other private commercial enterprises are
promoted by agencies of the Federal Government;
o provide leadership in establishing procedures that expedite
the licensing of private sector launch activities;
o assure fair and equitable treatment for all private sector
applicants;
o identify Federal statutes, treaties, regulations and
policies which may have an adverse impact on ELV
commercialization efforts;
o conduct appropriate planning with regard to the long-term
effects of Federal activities related to ELV
commercialization. (U)
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NSDD-144: National Space Strategy of August 16, 1984, identifies
selected, high-priority efforts and responsibilities, and
provides implementation plans for major space policy objectives:
(U)
o The STS is a critical factor in maintaining U.S. space
leadership, in accomplishing the basic goals of the National
Space Policy, and in achieving a permanent manned presence
in space. (U)
o Enhancements of STS operational capability, upper stages,
and efficient methods of deploying and retrieving payloads
will be pursued as national requirements are defined. (U)
o On October 1, 1988, prices for STS services and capabilities
provided to commercial and foreign users will reflect the
full cost of such services and capabilities. (U)
o The U.S. will encourage and facilitate commercial expendable
launch vehicle operations. U.S. Government policies will
promote competitive opportunities for commercial expendable
launch vehicle operations and minimize Government regulation
of these activities. (U)
o To stimulate private sector investment, ownership, and
operation of civil space assets, the U.S. Government will
facilitate private sector access to civil space systems, and
encourage the private sector to undertake commercial space
ventures without direct Federal subsidies. (U)
The Commercial Space Launch Act (P.L. 98-575) -- On October 30,
1984, the President signed legislation to facilitate commercial
space launch activities. In its findings, the Congress declared
that: (U)
o private applications of space technology have achieved a
significant level of commercial and economic activity, and
offer the potential for growth in the future, particularly
in the United States;
o the private sector in the United States has the capability
of developing and providing private satellite launching and
associated services now available from the United States
Government;
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o the development of commercial launch vehicles and associated
services would enable the United States to retain its
competitive position internationally, thereby contributing
to the national interest and economic well-being of the
United States;
o the provision of launch services by the private sector is
consistent with the national security interest and foreign
policy interests of the United States;
o the United States should encourage private sector launches
and associated services;
o the Secretary of Transportation is authorized to facilitate
and encourage the acquisition of Government launch property
and Government launch services by the private sector. (U)
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II. Description of Launch Suppliers*
For many years, the United States Government maintained a
monopoly in the provision of launch services for the Free World.
However, European development of the Ariane launch vehicles has
effectively ended that monopoly. The Ariane was developed to
provide the Europeans with an independent space launch
capability. (U)
The leading competitors for supplying international launch
services are the U.S. Space Transportation System (STS) utilizing
the Space Shuttle; European Ariane expendable launch vehicles
(ELVs); and U.S. commercial ELVs. Other potential launch
suppliers include China, the Soviet Union, and Japan. (U)
U.S. Space Transportation System (STS)
The U.S. Space Shuttle is a manned, reusable launch vehicle for
delivering payloads into low-earth orbit (65,000 pounds) and
supporting manned space research. Each Shuttle launch can carry
up to several different payloads at one time. Shuttle payloads
may be boosted from low-earth to geosynchronous orbit,
Earth-escape orbit, or other high altitude orbit by numerous
upper stages that include the Government's Inertial Upper Stage
(IUS), the future Centaurs, and several commercial stages. The
Space Shuttle also serves as an orbital research facility in
support of man-tended science and applications experiments. (U)
The Space Shuttle now relies on the commercial marketplace for
the supply of upper stages to lift current generation
communications satellites (designed originally for launch by
ELVs) from low-earth orbit to geosynchronous orbit. (U)
There are three Space Shuttle orbiters in service, with the
fourth to be delivered in April 1985. The Space Shuttle is
launched from the Kennedy Space Center, with launches also
scheduled from Vandenberg Air Force Base beginning in early 1986.
The Space Shuttle is a highly versatile system providing--in
addition to launch services--capabilities for on-orbit checkout,
retrieval, and repair of spacecraft configured to take advantage
of those capabilities. The payload volume and lift capacity of
the Shuttle were intended to meet national security requirements
STAT
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CONFIDENTIAL
established as design specifications. Its inherent complexity as
a manned system also entails additional costs for the users.
Safety constraints and associated thermal and structural loads
place requirements on the user which, for some user spacecraft
designs, could increase spacecraft and launch integration costs,
partially offsetting the other advantages of the Space Shuttle.
(U)
European Ariane ELVs
The Ariane launch vehicles are operated and marketed by
Arianespace, a semi-private company supported by the European
Space Agency (ESA) member states. Ariane was developed by ESA
and recently turned over to Arianespace with the intent to
provide international launch services at a profit. No attempt
will be made to recover the investment/development costs% paid by
the member states. France is the largest contributor to
Arianespace, furnishing 60 percent of its funding. (C NF)
Four versions of the Ariane have been developed or are planned:
(U)
o Ariane 1 (2,300 pounds into geosynchronous orbit) has been
launched successfully seven of nine attempts, with the first
launch occurring in December 1979. It is now being phased
out, replaced by the follow-on versions. (U)
o Ariane 2/3 (2,700-3,100 pounds into geosynchronous orbit) is
an uprated Ariane 1 with lengthened propellant tanks. The
Ariane 3 has two solid propellant strap-on boosters. The
first Ariane 2/3 launch was in August 1984. (U)
o Ariane 4 (2,600-5,100 pounds into geosynchronous orbit) will
use a new first stage and additional solid or liquid
propellant strap-on boosters. The first Ariane 4 launch is
not expected before mid-1986. (U)
o Ariane 5 (33,000 pounds into low-earth orbit) will use a new
high-performance first stage and two large solid-propellant
boosters. A new high-performance upper stage will be used
for high altitude or escape missions and will be able to
place up to 8,800 pounds into geosynchronous orbit. The
first launch of the Ariane 5 is not expected before the
1992-1995 time period. (U)
There have been nine successful Ariane launches out of 11
attempts to date, with the last six consecutive launches having
been successful. The Ariane 4 and 5 are still subject to
developmental uncertainties. (U)
CONFIDENTIAL
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The Ariane family of vehicles injects payloads directly into a
geosynchronous transfer orbit, rather than requiring a separate
upper stage to reach this orbit. (U)
The Ariane launch systems have real operational and cost
advantages over U.S. ELVs: higher payload capability because of
their location closer to the equator in French Guiana and a
larger common production and operations base over which to spread
fixed costs. The launch site in French Guiana is well located
for launching satellites into geosynchronous transfer orbits.
This translates to about 12 percent more performance capability
to geosynchronous orbit than would the same system at Kennedy
Space Center in Florida. This advantage provides savings not
only in propellants, but in overall system size and complexity
for the same payload compared to a launch from KSC.(U)
The various Ariane vehicles share common production facilities
and a common launch site for its various configurations of launch
vehicles. Thus, while U.S. ELV costs are shown based on annual
launch rates of four per year, the Ariane cost (and price)
estimates are based on minimum launch rates of six per year, but
they will likely attain 8-12 launches per year (including ESA
government flights), providing cost advantages on a "per flight"
basis. These rate benefits amount to cost savings on the order
of 10-20 percent compared to the U.S. ELV presumed rate of 4 per
year. (U)
On the other hand, there are also disadvantages to launching out
of French Guiana in that it is more expensive and presents
logistics problems for both personnel and components (replacement
parts). The location on the northeastern coast of South America
is less well sited for any launches into high-inclination orbits.
(U)
Because the launch vehicle technologies are comparable, if a U.S.
ELV were to have the same location advantage and a similar flight
rate, its operational costs per pound to orbit could be similar
to Ariane. (U)
ESA will not have an on-orbit repair, retrieval, or servicing
capability until its spaceplane becomes operational (perhaps the
late 1990's). (S)
Potential U.S. commercial ELV suppliers are divided into two
categories:
o Three launch systems which have been developed with
Government funds and have already been extensively used in
launching satellites for nearly two decades (Delta, Atlas,
Titan). (U)
SECRET
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o Other launch systems which may be developed by commercial
companies were assessed not to have significant impact on
international competition either due to the smaller size of
targeted payload or the time frame of interest in this
study. (U)
Delta -- The Delta is a two- or three-stage launch vehicle which
has been in service since 1960 and has maintained a reliability
in excess of 97 percent. The Delta with various upper stages can
be launched from the Kennedy Space Center in Florida to place
about 1500-pound payloads into geosynchronous Earth orbit.
Launched from Vandenberg Air Force Base in California, it can
place 4500-pound payloads into low altitude, high-inclination
polar orbit. The Delta is manufactured by McDonnell Douglas, and
is being marketed by Transpace Carriers, Inc. (TCI). (U)
Atlas -- There are several configurations of the Atlas booster
with an overall success rate of 96 percent since the 1960's.
With a Centaur upper stage, it has been placing up to 2600-pound
satellites into geosynchronous orbit from KSC. The core vehicle
without an upper stage is used from the Vandenberg West Coast
launch facility to place 3800-pound satellites into low altitude,
high-inclination polar orbits. The Atlas and its Centaur upper
stage is manufactured and marketed by General Dynamics. (U)
Titan III -- The Titan III has been flown since the mid-1960's,
with a success rate of 97 percent over 124 launches. Its present
version, the 34D, has liquid first and second stages, with
strap-on solid boosters, making it capable of lifting 32,900
pounds due east to low-earth orbit from the East Coast, or 27,600
pounds to low-earth polar orbit from the West Coast. It uses the
Inertial Upper Stage (IUS) or the Transtage for upper stages and
can lift a 4,200-pound payload to geosynchronous orbit. It is
the largest expendable launch vehicle in the Free World. The
Titan is manufactured and marketed by Martin-Marietta. (U)
U.S. Titan II -- In addition to the preceding ELVs which have
been used as space launch vehicles, the DOD is planning in the
President's FY 1986 Budget, modification of the Titan II ICBMs
for West Coast launches of Defense and NOAA Meteorological
Satellites and Defense navigation satellites in the 1990's.
Currently, there are approximately 50 Titan-II's which could be
used. Although there are no current plans for commercialization
of Titan IIs, there is no inherent reason why they could not be
commercialized. (U)
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The non-recurring costs of modifying the existing Titan II ICBMs
and Vandenberg launch pad has been estimated by the Air Force at
about $100 million, with hardware and launch support costs on the
order of $25 million per launch. (U)
The prospective availability and costs of the Titan II ICBMs for
East Coast commercial launches are unknown since there is no
existing Titan II capability there and the Titan III complex
would have to be modified to accommodate the Titan II version.
The Titan II represents a launch capability in the range of the
Delta to Atlas-Centaur class. (U)
Other Potential Launch Suppliers
Summary -- Because of major obstacles facing China, the Soviet
Union, and Japan in obtaining a significant portion of the
available commercial market in the time period of this study,
these systems were not analyzed to the same extent as the leading
competitors. In particular, there are major technology transfer
restrictions which may prevent the launch of Western-built
satellites on Chinese or Soviet vehicles. (See Appendix I.)
(S NF)
China -- China has two expendable space launch vehicles in their
inventory--the CSL-2 and the CSL-3--and has plans to modify
either or both. The two SLVs as well as China's large ICBM--the
CSS-4--use the same first and second stage; however, the CSL-3
has an additional liquid hydrogen/liquid oxygen third stage. (S
NF NC)
Combinations of increased lengths, increased diameters, and
strap-on motors will allow China to develop a flexible series of
SLVs which are similar to the European Space Agency's Arianes
1-5. (S NF NC)
The basic CSL-3 and the proposed modified CSL-3 are potential
launch vehicles for the target market. The CSL-3 can place about
1,000 pounds to geosynchronous orbit, which is about the size of
a Delta-class payload capability. The modified CSL-3 is expected
to place 2,630 pounds to geosynchronous orbit, about the size of
an Atlas-Centaur payload or two smaller Delta-class payloads. (S
NF NC)
China has offered its launch capabilities to at least one foreign
customer. (U)
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III. Space Shuttle Marketing Strategy and Pricing
Marketing Strategy
NASA's first priority, as directed in the National Space Policy,
is to make the Space Transportation System fully operational and
cost-effective in providing routine access to space. The Space
Policy also directs NASA to ensure the Shuttle's utility to civil
users. NASA believes that the launch of commercial spacecraft is
consistent with the direction to maintain world leadership in
space transportation. (U)
NASA has indicated its intent to market Shuttle services in
competition with other launch suppliers through an STS Marketing
Plan. NASA plans to implement an aggressive promotional,effort
to "counter competition" and "increase STS competitive
advantages." (U)
NASA currently markets Shuttle services in competition with the
Ariane and U.S. commercial ELVS while it phases out its
involvement in Government-managed ELVs. NASA has developed an
STS marketing plan which is intended to decrease the competitive
advantages of the Ariane by eliminating excessive documentation,
integration meetings, and overly complex interfaces between the
spacecraft and the STS. (U)
According to the NASA mission model, U.S. Government missions
will require about 18 of the 24 flights anticipated to be
available each year by the four-orbiter fleet in the 1989-1994
period. NASA estimates that about six flights per year will be
available for commercial and foreign customers in the 1989-1994
period. (U)
NASA has established the following priority order for use of the
Shuttle: (U)
o First, DOD missions critical to national security. (U)
o Second, NASA missions with fixed planetary-related launch
windows. (U)
o Third, commercial and foreign customers. (U)
o Fourth, NASA missions (except as already mentioned). (U)
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The STS offers capabilities far in excess of that possible with
ELVs (e.g., manned space flight, interactive research and
development, commercial materials processing). The Working Group
except for NASA believes that these unique capabilities provide
the proper focus for defining U.S. space transportation
leadership. (U)
The Working Group except for NASA also believes that success of
the STS need not be determined by its share of the commercial
communications satellite market. Competition for routine
services that could be performed by the private sector is not a
threat to the U.S. policy goals of maintaining space
transportation leadership. (U)
Pricing
NASA's pricing plan to implement full-cost recovery for
commercial and foreign STS flight operations was submitted to the
White House on September 17, 1984. In response to NSDD 144,
NASA's pricing plan for commercial and foreign flights which
occur after October 1, 1988, reflects NASA's estimate of the
operating costs for these flights. (U)
NASA estimates that the average operating cost of Space Shuttle
flights during the FY 1989-1991 period is $83.3 million (FY 1982
dollars) per flight. This estimate is based on a projected
flight rate of 24 per year, to be first achieved in FY 1989.
NASA states that its proposed price includes direct and most
indirect costs associated with Space Shuttle flights. However,
the NASA pricing plan does not segregate costs by class of
customer (DOD, NASA, and commercial). Furthermore, the NASA
pricing plan does not include any fee for the depreciation or
replacement of Government assets as required by OMB Circular No.
A-25 (User Charges) or Vandenberg operations costs. (U)
NASA proposes to implement the new price for flights in FY 1989
through 1991, and proposes a baseline price of $87 million (FY
1982 dollars) per flight for commercial and foreign customers,
with the flexibility to adjust the price by as much as five
percent to accommodate special conditions relating to individual
customers' situations. (U)
NASA will also continue to provide direct Federal funding for
Shuttle flights of selected commercial space activities involving
new technology intended to project U.S. space leadership into the
future. This approach continues to take advantage of the unique
capabilities of the Space Shuttle for new technology development.
The proposed pricing policy will not affect NASA's research and
development and joint endeavor agreements, which provide reduced
cost or free Shuttle flights for new technology developments. (U)
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Spacecraft designs (like the Hughes Leasat and 393 series
satellite) which optimize for Shuttle's increased weight and
volume capabilities will allow spacecraft packaging to become
more efficient. With this increased optimization of designs
incorporating reduced weight and volume constraints comes greater
on-orbit capabilities per dollar. The Shuttle's ability to
compete successfully in the future marketplace would be enhanced
if more spacecraft designers choose to optimize for Shuttle
launched systems. (U)
The data available for this paper were inadequate to allow
definitive conclusions on the likely impact of such "Shuttle
optimized" designs. However, both a major satellite contractor
and an upper stage contractor believe that Shuttle optimized
designs will be able to provide "transponders-on-orbit" at about
10 percent less cost than present generation designs. Thus, all
other factors being equal, the Shuttle optimized design 'would
provide about a 10 percent price advantage for the Shuttle over
other launch systems. (U)
In consideration of the investment required and the resulting
dependence on a single source for access to space, most customers
still prefer to retain dual STS/ELV launch compatibility rather
than commit to Shuttle optimization. Customers have demonstrated
a desire to maintain flexibility in the selection of launch
vehicles regardless of potential efficiencies in design. (U)
This study of international competitiveness in the provision of
launch services does not address the question of the adequacy of
NASA's specific pricing proposal for full-cost recovery of STS
services and capabilities, which is being reviewed separately.
However, the Chapter VIII of this study assesses the potential
impact on international competitiveness of a higher STS price.
(U)
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IV. Ariane Marketing Strategy and Pricing
Marketing Strategy
Arianespace follows an aggressive marketing strategy, setting
launch prices competitive with those of the U.S. Shuttle and
offering a number of customer inducements in financing, insurance
subsidies, launch vehicle availability, relaunch guarantees, and
other competitive tactics. Technology transfer and trade offsets
have also been used in gaining Third World customers. (S NF NC)
Arianespace marketing officials have indicated their intention to
intensify their aggressive marketing program. This marketing
program will be oriented towards capturing major portions of the
West European, Third World, and U.S. commercial satellite launch
markets. (S)
Pricing
To promote the Ariane program outside Europe, the European Space
Agency agreed that until mid-1986 ESA members should pay 25
percent more than non-members for launches of their payloads.
Moreover, in some cases Arianespace adjusts its price to non-ESA
members according to the competition, and on several occasions
has underbid U.S. prices. Arianespace has been willing to absorb
large initial financial losses to obtain high-prestige launch
contracts or to keep its manifest full. (S NF NC)
In February 1984, ESA decided on a pricing policy characterized
as being based on full-cost recovery, effective for launches
after January 1, 1987. This new pricing policy for Ariane 4
launches will provide a continuous pricing scale based on payload
weight. To geosynchronous orbit, a 2,600-pound satellite will be
priced at about $54 million (shared launch) and a 5,100-pound
satellite will be priced at about $76 million for a single
large-satellite launch. The price may be negotiable depending on
international competition. (C NF NC)
Ariane prices and costs have been generally reflected in current
French francs. The exchange rate with the U.S. dollar thus
becomes an important factor in assessing relative cost/price
positions. However, with the increased strength of the U.S.
dollar, the latest Ariane contracts are being written in U.S.
dollars or the German mark to better account for the difference
in inflation factors and exchange rates. (The Working Group
converted all French francs to U.S. dollars using current
exchange rates and U.S. GNP deflators.) (U)
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V. U.S. ELV Marketing Strategy and Pricing
Marketing Strategy
It is difficult to describe the current U.S. ELV industry
marketing strategy in light of uncertainties about the next phase
of STS pricing policies. Although U.S. commercial ELV companies
have been marketing their launch services for over a year, to
date the large pricing differences between U.S. ELVs and the
subsidized STS and Ariane have foreclosed successful competition
by U.S. ELVs. No contracts have yet been signed. (U)
At the present time, two companies are actively pursuing
commercialization of existing U.S. Government expendable launch
vehicles. Transpace Carriers, Inc. (TCI) has signed an agreement
with NASA which allows them to market the Delta launch vehicle
and provides for access to excess hardware at a negotiated price.
General Dynamics/Convair has created an organization to market
the Atlas-Centaur and has taken the initial steps toward
formulation of an agreement with NASA. (U)
The President's full-cost recovery pricing policy for the STS
represents the most significant Government decision for
encouraging the development of a U.S. commercial ELV industry.
For this industry to have an opportunity to develop, the private
sector must be convinced that the U.S. Government will fully
implement the President's ELV commercialization policy on
schedule. However, if the private sector perceives that the U.S.
Government intends to continue to underwrite STS operations in
competition with the U.S. private sector, the likelihood of a
solid financial commitment from private industry is very small.
The $2 million NASA STS marketing Request for Proposals (RFP) and
the NASA response to the DOD RFP for procurement of complementary
ELVs has heightened industry's concerns regarding NASA's intent
to compete with the private sector. (U)
On the other hand, if the U.S. Government implements full-cost
recovery pricing for the STS that is perceived by the private
sector to be a truly "commercial" price, the private sector is
likely to regard their market prospects more favorably. In that
case, the success of the U.S. ELV industry will depend upon their
ability to compete with Ariane and potential other foreign
entrees. (U)
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Pricing
Since U.S. commercial ELV companies must recover production and
operating costs, as well as future non-recurring development
costs and provide a profit margin, their current prices for
comparable services are much higher than the present below-cost
(subsidized) prices of STS or Ariane. If this U.S. industry is
to survive and be a competitor over the long-term in the
international arena, STS and Ariane prices must increase to
reflect real cost-based pricing. (U)
In the near term, if STS and Ariane projected flight rates
continue to fall behind schedule and demand levels remain steady,
any resulting deferred payloads would be available to the U.S.
ELV industry to service those customers for which schedule.,
rather than price, is the most important factor. (U)
This study addresses the longer term (1989-1994) ability of U.S.
launch suppliers to compete internationally. It has been assumed
that an STS pricing policy reflecting full-cost recovery for this
period will be implemented soon to take effect for launches on or
after October 1, 1988. If this condition is not met, U.S. ELV
companies will be unable to sustain their production until STS
and Ariane capacity is filled and a stronger demand for ELV
services again appears. (U)
A major factor that directly affects ELV prices is their flight
rate. An adequate flight rate is required to justify an economic
production rate. Analysis has shown that below four vehicles per
year, the unit costs rise sharply; above this rate, the unit
costs drop gradually. (U)
Because of the domestic ELV industry's inability to be
competitive with current subsidized pricing of STS and Ariane,
their production lines are beginning to close down or will close
down in the very near future if the commercial prospects do not
brighten. The production line for Delta is effectively closing
now, the Titan line is nearly closed, and the Atlas line will
close soon. Without firm contracts signed within a year, these
manufacturers cannot afford to sustain a capability costing tens
of millions of dollars per year. (U)
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If the current ELV production lines close, future prices
(compared to those in this study) would be substantially
increased because of restart costs and may preclude any likely
future consideration of reopening the line. These increases
would be caused by start-up costs for both the manufacturers and
their suppliers; the dispersion of the technical and production
personnel to other jobs; the need for retooling; and the need to
reestablish production facilities. Such increases would greatly
limit the domestic ELV industry's future ability to compete
internationally. (U)
Defense ELVs
The Department of Defense plans to acquire and use a limited
number of ELVs on the East Coast to complement its primary, launch
vehicle, the Space Shuttle. DOD is proceeding with plans to
procure competitively an ELV based on the Titan or Spacd Shuttle
solid rocket boosters. The vehicle chosen as a result of this
competition will carry a Shuttle-equivalent payload and is
intended to provide DOD with assured access to space. DOD's plan
could also facilitate commercialization of U.S. ELVs by:
o supporting their underlying production infrastructure over
the next several years (even if a different sized launch
vehicle is produced for the commercial market);
o helping assure their longer term viability. (U)
Defense procurement of one ELV system could also provide some
indirect benefit to supporting the production base of other
potential U.S. ELV suppliers. In some instances, different
booster configurations use the same rocket motors from the same
suppliers. For example, it should be noted that although the
vehicle manufacturers are different, each uses rocket motors
(liquid or solid) that are made by Rocketdyne, Aerojet General,
Thiokol, and UTC's Chemical System Division. (U)
In addition, DOD is now planning use of the Titan II ICBMs as a
West Coast space launch vehicle which would further broaden the
support base for U.S. ELV operators, allowing both apparent
longer term viability and the likelihood of lower prices than
considered in this study. These factors would help to increase
U.S. commercial ELV international competitiveness. (U)
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VI. Launch Demand and Capacity
Payload Demand Assumptions
The total Free World demand for launch services includes all
military, civil government, scientific, experimental,
international, and commercial payloads. Such a projection does
not exist in a single document. To create an estimate of total
demand, the following sources were used: The NASA mission model
(1982-2000), the DOD launch projections, the STS manifest, the
Ariane manifest, and the Battelle Low Model of foreign and
commercial payloads. (U)
In analyzing the market for Free World payloads, the following
assumptions have been made: (U)
o Government-sponsored payloads will generally fly on the
launch vehicles of those nations until the available
capacity of the national system is exhausted (except for
cooperative research payloads with other nations). (U)
o The remaining market and thus the demand for commercial
launch systems is limited to the residue of payloads that
are not identified as belonging to a nation. This residue
of potential demand has been termed the "competitive" or
"target" market. (U)
By subtracting government payloads from the estimate of total
Free World payloads, a target commercial market was developed.
For the period covered by this study, this target market consists
essentially of communications payloads to geosynchronous orbit.
(U)
There are many different launch demand projections made each
year. All have historically overstated the demand for launch
services. One of these demand projections is that made by
Battelle's Columbus Laboratories. Each year Battelle makes a
high and a low model demand projection of payloads. The Battelle
Low Model has been the most conservative of all the projections;
although, it should be noted that historically projections four
years or more in the future have been too high by about 25
percent. (U)
The Working Group agreed to use a modified Battelle Low Model as
a nominal case. The Working Group made adjustments to update the
Battelle Low Model, which effectively increased it by 10-15
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percent to reflect projected payload slippage from Ariane. This
projection-is lower than other available projections and was
selected in an effort to not overstate demand. Battelle
maintains that the model has been corrected for earlier
over-optimism. While the modified Battelle Low Model used by the
Working Group calls for 17 to 22 payloads to be launched each
year starting in 1988, the current manifests for STS and Ariane
in 1987 are now projecting only a total of 12 payloads. (U)
TABLE I (U)
Working Group Estimate of Competitive Commercial Satellite Market
Payload Size Class 1/ FY 88
89
90
91
92
93
94
PAM D ...............
8
9
8
7
15
8
5
PAM D II ............
1
3
4
4
4
10
6
Atlas/Centaur .......
5
3
2
3
1
1
9
Large ...............
3
5
3
5
3
2
Total Payloads ....
17
20
17
19
20
22
22
(Equivalent Shuttle
Flights) 2/ ....... (6.2)
(7.8)
(5.8)
(7.4)
(4.7)
(7.3)
(7.4)
1/ See Appendix II for definition of payload classes (pounds to
geosynchronous orbit).
2/ Equivalent Shuttle Flights is a term used historically to
normalize the various sized payloads and launch vehicles by
indicating how many Shuttle flights would be required to
carry these payloads. In the same manner as that used in
calculations determining Shuttle Charge Factor (see Appendix
II), the size of a particular payload (weight or volume) is
compared against the capacity of a nominal Shuttle orbiter to
determine how much of the Shuttle's capacity is used by the
payload. For example, a payload (spacecraft) 30 feet long
and/or weighing 32,500 pounds would occupy one-half of the
Shuttle's capacity for one flight. Dividing by 0.75 to
reflect non-optimum launch loading (for numerous reasons, all
Shuttle flights will not be 100 percent full but will
"average" 75 percent full) gives an Equivalent Shuttle Flight
of 0.66.
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Launch Capacity Assumptions
U.S. Space Transportation System (STS) -- The baseline assumption
of STS flight rates for this study is the NASA FY 1986 budget
submission to OMB through 1991 and the Under Secretary of the Air
Force's commitment letter of November 2, 1984. In this
projection, a steady state flight rate of 24 flights per year is
achieved by FY 1989. NASA estimates were used to update the
out-years. See Table II. (U)
TABLE II (U)
Nominal Planned Shuttle Flights
85
86
87
88
89
90
91
92-94
Projected STS
Capability 1/ .... 11.0
13.0
17.0
19.0
24.0
24.0
24.0
24
Less:
Projected U.S.
Government Demand 2/
NASA ........... 3.8
6.7
7.8
6.1
7.2
9.3
8.3
9
DOD 3/ ......... 2.0
2.3
5.7
8.0
10.3
8.3
9.0
9
Subtotal .... 5.8
9.0
13.5
14.1
17.5
17.6
17.3
18
Available for
Commercial and
Foreign .......... 5.2
4.0
3.5
4.9
6.5
6.4
6.7
6
1/ NASA has established 24 flights per year after 1989 as a
planning baseline for budgeting purposes. NASA believes that
the currently funded facility investment and continued
improvement in launch processing time lines could support
launch rate capability estimates up to 28 flights per year.
While accepting a capability of 24 flights per year, the rest
of the interagency Working Group believes that an actual rate
of 18-20 flights per year will more likely be realized.
2/ The outyear U.S. Government demand projections reflect use
patterns consistent with those in the preceding years. These
projections do not reflect changes in use patterns which may
occur because of the Space Station program. NASA believes
that it is far too early to quantify such projections with any
validity. Previously, NASA projected 4 to 6 Shuttle flights
per year to support a Space Station. In addition, the
projected DOD demand does not include additional launches
which may be required for the Strategic Defense Initiative.
3/ The DOD STS flight rate assumes that two launches per year
will be made on complementary ELVs starting in 1989. However,
there has been no assumption made about potential U.S.
Government use of Titan IIs.
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U.S. Commercial ELV Capacity -- Nominal, near-term production
rates for each potential commercial launch vehicle, based on
production capacity, have been provided by the individual
companies. However, the existing lines are now closing. It
should be noted that the maximum production rates using current
facilities could be as much as 50-100% higher than shown below.
See Table IV. (U)
TABLE IV (U)
Delta
...........................
8
8
8
8
Atlas
...........................
8
8
8
8
Titan
...........................
4
4
4
4
Total ELVs .....................
20
20
20
20
20
(Equivalent Shuttle
Flights) .......................
(7.6)
(7.6)
(7.6)
(7.6)
(7.6)
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VII. Factors Affecting Choice of Launch Vehicle
Decision Criteria
During the course of the analysis, members of the Working Group
contacted a variety of U.S. launch companies and satellite
operators to establish what went into decisions on launch service
selection. (U)
The customer's selection of a launch system depends on a number
of factors. The most predominant factors are price, schedule
availability, and schedule reliability. Other factors, such as
vehicle reliability and insurance, also influence the decision,
but not to the extent of the first three factors. The'weight of
these factors will vary depending on whether the client,is
replacing a satellite on a planned schedule, or is undertaking a
new application. (U)
Price
Results of the survey showed, in essence, that a difference in
price per launch of any appreciable amount ($0.5-2.0 million) was
sufficient to affect the selection of a launch vehicle, all other
factors being equal. In reality, all other factors are never
equal. For example, the added assurance of using more than one
launch system can alter this criterion. The limit seems to be
about five percent of launch price. Above this magnitude of
differential, price becomes the dominant factor. (U)
Schedule Availability
The significance of being able to place the payload in orbit at a
specific time varies greatly depending on whether this is a
planned replacement for an expiring satellite (less urgency) or a
new application. For the new application, it is of major
importance to get the revenue-stream started, begin the return on
investment, and get ahead of future competitors. Some of these
costs can be converted into time-value costs and some cannot.
Time-value costs of a delayed schedule can be derived by
calculating the present-value of the delayed revenue stream. For
communications satellites, whose revenues can run from $20 to $30
million per year, a delay of only a few months can begin to
increase costs noticeably. (U)
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If the real (inflation adjusted) cost of capital is.five percent,
a six-month delay in launch schedule from the needed--date could
be worth about a $4 million differential in the quotation for
launch services. Further, the loss of competitive advantage by
not being there early and capturing potential customers for the
satellite cannot be quantified. (U)
Schedule Reliability
The same time-value factors cited above also apply to the problem
of schedule reliability. While the customer can pace his
procurement and investment around the planned launch date to
minimize interest and capital costs, unanticipated delays beyond
the schedule date result in increased costs for additional
interest, lost revenues, and lost customers. However,
historically, there is an 80 percent probability of experiencing
at least a two-month, and likely a six-month, schedule slip. (U)
Communications satellite operators often contract with customers
on the basis of penalty clauses if service is not available when
promised, with automatic termination after six months. For many
applications, the need for schedule protection can overcome some
differential (perhaps five percent) in the quoted price of launch
services. However, this depends critically upon the customer's
assessment that the launch supplier is able to meet schedule
commitments. (U)
Vehicle Reliability
U.S. ELVs have proven their system reliability over several
hundred flights. Both the Ariane and the STS have established
their system reliability over a small number of launches (11 and
14, respectively). (U)
From the perspective of a user, the issue is not that of the
reliability of the individual launch vehicle components as much
as it is that of the total system. For example, the reliability
of the upper stage must be combined with that of the Shuttle or a
commercial ELV. Current upper stage problems for payloads
launched by the Shuttle have reduced the overall success of the
Shuttle to that comparable with Ariane. (U)
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CONFIDENTIAL
Insurance
Financing
Every indication is that for commercial U.S. ELV operations, the
U.S. financial community can match any financing option offered
by Arianespace if it is financially prudent to do so. (U)
Marketing
A strong marketing effort based on the approach of serving the
customers' needs and protecting their launch dates can be
important in the awarding of the launch services contract. Thus,
Arianespace and the U.S. commercial ELVs have a marketing
advantage over the STS, which is publicly recognized as being
dedicated to servicing the U.S. Government's needs first.
Changing Government priorities combined with the possibility
(however unlikely) of pre-emption by the DOD could jeopardize the
launch schedules for private sector users of the STS. However,
the NASA Administrator has testified to Congress that NASA
intends to assign only critical U.S. Government missions a higher
priority than commercial and foreign payloads. (U)
Impact of Other Laws and Policies
In the past, the USG has on occasion denied export licenses for
U.S. satellite manufacturers to export their products for launch
overseas. Although one direct and desirable impact of this
action is to ensure that U.S. manufacturers use U.S. approved
launchers, another less desirable result may be to stimulate
users to buy both their satellite and their launches overseas.
(U)
CONFIDENTIAL
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VIII. Comparative Pricing
The two dominant components of launch costs are those of the
launch vehicle and the upper stages. Cost and price estimates
were obtained from the following sources: (U)
o STS. Estimates of STS total operating costs and proposed
prices were obtained from NASA's pricing study. The STS
price reflects NASA's estimates of both the cost of Shuttle
launch operations and the price for the upper stage required
by current generation commercial satellites. An Alternative
STS Pricing Case was also analyzed to illustrate the effect
of a range of pricing assumptions on international
competitiveness. (U)
o Ariane. Estimates of Ariane pricing were obtained using the
pricing formula ESA has made available to potential
customers starting in 1987. These prices are consistent
with cost estimates provided by the Intelligence Community.
These prices are higher than the current subsidized Ariane
prices and are believed to more closely reflect their actual
costs. However, Arianespace is expected to adjust its
prices to remain below the prices charged by its
competitors. (U)
o U.S. ELVs. The three primary ELVs included in this study
are Delta, Atlas, and Titan. Each competitor covers a range
of lift capabilities. The specific pricing data for each
variant were provided by the contractor community on a
proprietary basis. In order to make these data available in
the report, a range of domestic ELV prices for each payload
class was calculated. This avoids the publication of
contractor-sensitive data and the implication of the
Government evaluating individual company viability as
opposed to the commercial industry viability. These data
are based on a production rate of four vehicles per year
with any non-recurring development costs recovered over the
first eight vehicles. (U)
o Upper Stages. Prices for upper stages used in this study
were supplied by both NASA and the contractors. (NOTE: The
Ariane system does not require an additional upper stage; a
factor taken into account in the calculation.) (U)
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CONE JOENTI AL
In the analysis, typical NASA load and charge factors are used
for each payload class to obtain the appropriate STS prices.
Estimates of STS optional services are also included. (See
Appendix II.) (U)
Domestic ELV performance and-mixing capacities provided by the
respective suppliers were used to project appropriate ELV prices
for individual payload classes and when flown in combinations.
(U)
STS Pricing
The following cases illustrate a range of pricing for the STS:
(U)
o NASA Proposal -- Proposed NASA FY 1989-1991 charge per
flight--$87M (82$) or $101.7M (86$). Based upon NASA's
estimates of the average operating cost of Shuttle flights.
(U)
o Alternative Case -- 30% higher price -- $109M (82$) or
$132.2M (86$). Reflects inclusion of some additional cost
elements in the price (such as recovery of depreciation of
Government assets). (U)
STS Prices by Payload Class* (U)
(1986 $M)
Atlas-
PAM-D PAM-D II Centaur Large
30-37 42-51 62-74 116-141
* Includes upper stage hardware, launch support, optional and
mission unique services as follows: PAM-D -- $9M; PAM-D II --
$12M; Atlas-Centaur (AMS) -- $22M; Large (TOS) -- $35M.
CONFIDENTIAL
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U.S. ELV Pricing
The ELV prices shown below reflect nominal likely prices (not
costs), as reported by the U.S. ELV industry, for servicing the
classes of payloads indicated. It is important to note several
key assummptions that were used in deriving these ranges. Where
applicable: (U)
o A production rate of 4 per year was assumed. (U)
o Non-recurring costs were amortized over 8 vehicles. (U)
SECRET
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o The unit production costs of the vehicles were averaged over
the first two years (i.e., the second year's production run
was usually cheaper because of start-up costs incurred in
the first year) . (U)
o A reasonable profit margin was assumed. (U)
o Mixing of payloads was assumed where viable. The lowest
price represents the optimum mixing of payloads while the
highest price assumes no mixing of payloads. (U)
o Upper stage hardware and launch servicing costs were
identical to similar systems on Shuttle. (U)
U.S. ELV Prices by Payload Class* (U)
(1986 $M)
Atlas-
PAM-D PAM-D II Centaur Large
* Includes upper stage hardware, launch support, optional and
mission unique services as follows: PAM-D -- $9M; PAM-D II --
$12M; Atlas-Centaur (AMS) -- $22M; Large (TOS) -- $35M.
Summary of Prices by Payload Class (U)
PAM-D
PAM-D II
Atlas-
Centaur
Large
STS ...........
30-37
42-51
62-74
116-141
Ariane ........
27-33
38-45
54-67
76-117
U.S. ELVs .....
37-42
50-55
67-77
116-130
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Assessment
The results of the above analysis are summarized in Figure 1
which shows a range of estimated pricing for the U.S. STS,
Ariane, and U.S. ELVs for four payload classes. For each payload
class, the top and bottom ends of the bar graph shows a range of
prices as discussed above. (U)
For the STS, the bottom end of the bar graph shows the NASA
proposal for STS pricing. The top end of the bar graph indicates
STS prices under the Alternative STS Pricing Case. (U)
With the implementation of full-cost recovery for the STS, the
zone of price competition among the providers of launch services
is very likely to shift upward. That is, Ariane's pricing is
expected to rise with that of the STS to enhance economic
return--but will probably be kept slightly below the new STS or
U.S. ELV pricing for competitive purposes. Whether the STS or
U.S. ELVs can be commercially competitive in the longer term
depends largely on how high the "full-cost pricing" becomes for
both the STS and Ariane. (U)
At the NASA-proposed STS pricing, STS and Ariane would compete
for the target market. As shown in Figure 1, the STS would have
a pricing advantage for smaller payloads, while Ariane would have
a pricing advantage for larger payloads. However, U.S. ELV
operators would be at a significant price disadvantage (the
NASA-proposed STS pricing would be $7-10 million per flight below
the mid-point of the U.S. ELV pricing range) and U.S. ELVs would
be unable to compete in the international marketplace for launch
services. (U)
A higher STS cost per flight than proposed by NASA will result if
the projected Shuttle flight rate of 24 per year is not attained
(as the rest of the Working Group believes is likely), or other
cost elements (such as recovery of depreciation of Government
assets--the orbiters) are included in the price in accordance
with Government-wide cost recovery policy. This study makes no
attempt to calculate the amount of pricing increase that might be
related to any specific changes in such assumptions. However,
changing some of these assumptions could easily result in a 30
percent higher price as reflected in the Alternative STS Pricing
Case. The Alternative STS Pricing Case illustrates the
sensitivity of international competitiveness to such an increase
in STS price. (U)
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Under the Alternative STS Pricing Case, STS and U.S. ELV prices
would be much closer. At this pricing, STS and U.S. commercial
ELVs would compete more equally for the target market not
captured by Ariane (about half of the nominal demand). Assuming
optimum mixing of payloads, Ariane would appear to have a price
advantage, especially for the larger payload classes. (U)
The Alternative STS Pricing Case would establish a different
competitive environment in the international marketplace for
launch services. It would provide U.S. ELV operators with more
assurance that the U.S. Government would not undercut their
prices and would encourage their participation in this market.
No price level can guarantee that U.S. ELVs will be price
competitive with the launch systems of other nations; that
depends upon the pricing policies adopted by those nations.
However, there appears to be little reason for Arianespace to
maintain highly subsidized prices once the STS transitions to
full-cost recovery. (U)
The Alternative STS Pricing Case would also decrease the
competitiveness of the Shuttle as a launch vehicle for routine
commercial payloads and would likely result in a net reduction in
the Government's collection of reimbursements. A previous study
supporting the initiative to commercialize U.S. ELVs concluded
that this loss of reimbursement is less significant than the
benefits of maintaining a U.S. commercial ELV industry. Even
without any commercial traffic, the Shuttle's unique capabilities
would continue to demonstrate U.S. leadership in space
transportation. (U)
The effect on international competitiveness of lower STS pricing
than proposed by NASA was not assessed since such pricing would
be inconsistent with the President's full-cost recovery policy
for commercial and foreign STS flights effective on October 1,
1988. (U)
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ftU1tt1U
Launch Prices by Payload Class
$ in millions
160 r
Figure 1
ELV
Ariane STS
PAM-D PAM-D It Atlas/ Large
Centaur
w = Arianespace published price for
launches after January 1, 1987.
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IX. Uncertainties and Risks
There are major uncertainties in the outlook for international
competitiveness in the provision of launch services, including:
(U)
o The possibility of alternative communications technologies
(e.g., fiber optic cables), which could reduce the number of
satellites needed. (U)
- Ground alternatives to space communications satellites
are becoming more competitive, and movement away from
satellite communications to ground-based alternatives
may be accelerated by the inherently high costs of most
current space launch technologies. The launch vehicles
now competing commercially (primarily the Shuttle and
Ariane) require national subsidies to offer prices
which do not recover all of their costs. Recovery of
total costs would require increases in launch prices.
Some communications satellite vendors believe that such
price increases may be sufficient to accelerate the
movement away from space communications to ground-based
alternatives. (U)
- Unless the inherent costs for space launch can be truly
reduced (i.e., not artificially reduced by setting
prices less than total cost), a movement by the
communications industry away from space, because of
increased prices, may be in the best economic interest
of the U.S. The U.S. taxpayer may subsidize the space
mode when more economically efficient technologies are
available. Private ELV manufacturers believe their
vehicle technologies are sufficiently low in cost to
permit space launch services that are both competitive
and economically efficient. (U)
o The trend toward larger, more capable and longer-lived
satellites, which could also reduce the number of satellites
needed. (U)
o The extent to which there will be timely demand by adequate
numbers of compatible payloads to permit efficiently using
the full capacity of launch vehicles ("mixing)". (U)
o Possible changes in projected nominal U.S. Government
demand. (U)
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- Decreased demand could result from program delays or
cancellations. (U)
- By the mid-1990's, increased demand could result from
the Space Station, space commercialization, or the
Strategic Defense Initiative (SDI). (U)
o The ability of the Space Transportation System to achieve
the build-up of flight rate from four per year in 1984 to 24
per year by 1989. Although NASA is confident that the
planned flight rate will be achieved on schedule, the rest
of the Working Group believes that an actual rate of 18-20
flights per year is more likely. (U)
- NASA has been able to achieve only about one-half of
its projected launch rate buildup in 1983 and 1984. (U)
1
- The National Academy of Sciences report stated in 1983:
(U)
"In the event of extended mission duration, more
frequent repair, longer overhaul period, or
contingencies that incapacitate an orbiter for a
prolonged period, the number of yearly launches may
be reduced significantly below 24." (U)
o Whether Arianespace will raise its prices substantially in
response to an STS price increase. Arianespace would have a
strong economic incentive to maximize its return from
current investment by raising prices. However, Arianespace
could decide to restrain its price increase to seek a larger
market share up to the limit of its capacity. (U)
o Whether the nations backing Ariane decide to increase its
capacity to capture a larger market share. (U)
- Factors against such an expansion of capability include
the substantial capital investment required, the length
of time before additional revenues would be realized,
uncertainties about demand, competing European space
program funding needs (e.g., the man-rated Ariane 5),
and the overall European economic situation. (U)
- However, Arianespace could still decide that the
potential additional benefits are worth the additional
investment and risk. (U)
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- It should be noted that Ariane did not substantially
increase its market share objective when introductory
Shuttle prices were doubled to the FY 1986-1988 level.
(U)
o Whether other national launch systems (Chinese, Soviet,
Japanese) choose to enter the market more aggressively than
is presently assumed, and if so whether they can overcome
barriers such as technology transfer restrictions. (U)
Most of the uncertainties outlined above are beyond the control
of the U.S. Government (these include technological developments,
commercial demand, or decisions of other governments on the
supply or pricing of their launch services.) The factors which
the U.S. Government can control or influence are its own demand
and the supply and pricing of U.S. launch services. (U)
Historical trends suggest that demand (both commercial and
Government) and flight capacity (e.g., flight rate) will all rise
more slowly than currently projected. (U)
Assuming the STS is able to compete for a high proportion of
commercial and foreign traffic into the early 1990's, the
continued availability of the STS for such traffic would be very
sensitive to small. increases in U.S. Government demand or small
decreases in achievable flight rate. This occurs because
commercial payloads are usually much smaller than many Government
payloads. Each Shuttle flight can typically carry several
commercial size payloads. A decrease in achievable flight rate
of one flight per year, or an increase in Government needs by one
flight, could displace several commercial payloads, causing the
U.S. to lose up to 12-25 percent of the world demand. The U.S.
would be especially vulnerable to such loss by the mid-1990's
when the Space Station or SDI may substantially increase U.S.
Government demand and potentially displace commercial payloads.
(U)
There is a serious risk that by the early 1990's Shuttle
availability for commercial and foreign traffic could be reduced
by greater than nominal U.S. Government demand or lower than
planned flight rates. In the absence of U.S. commercial ELVs,
the prospect of this situation would cause a difficult and
predictable choice for the U.S. Government. By the FY 1987
budget, the U.S. Government would have to decide whether to: (U)
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o Expand Shuttle capacity. This would add to the large world
oversupply of launch capacity with a huge and very costly
increment of new capacity to meet contingent commercial
needs. Because a Shuttle orbiter is such a large increment
of capacity, this option would provide a far less
economically efficient matching of supply and demand under
varying market conditions. Because of the long leadtimes
involved in expanding Shuttle capacity, the U.S. Government
would have to make a $2.5 billion decision by next year
(before the fifth orbiter option expires). (U)
o Allow a massive loss of U.S. market share. This would
permit foreign competition to dominate the market for launch
of commercial satellites, costing the U.S. losses. in
business revenues, balance of payments, jobs, and taxes. (U)
The U.S. has a better option than the choices outlined above for
competing in the international market for launch services.
Encouraging the competitiveness of U.S. commercial ELVs would:
(U)
o Carry out the President's ELV initiative. (U)
o Require no additional U.S. Government investment. (U)
o Rely on the private sector for efficiently pe Drming a
commercial service. (U)
o Provide a more economically efficient source of additional
launch capacity. (U)
U.S. commercial ELVs provide the best hedge available for dealing
with the uncertainties in the international marketplace for
commercial launch services. It would be appropriate to take
reasonable steps to encourage the viability of U.S. ELVs. (U)
The option for U.S. commercial ELVs will disappear unless action
is taken now to implement fully a pricing policy for commercial
and foreign users that recovers all of the costs of the STS,
consistent with Government-wide cost recovery policy. (U)
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SECRET
Other Potential Launch Suppliers*
Summary
The CIA believes that both the Peoples' Republic of China and the
Soviet Union have the technical potential to become competitors
in the commercial launch services arena within the time period of
the study. However, there are major obstacles to China or the
Soviet Union capturing large shares of the launch services
market. These obstacles include technology transfer restrictions
which may prevent the launch of Western-built satellites on
Chinese or Soviet vehicles, the perceived reliability of Chinese
and Soviet space launch vehicles, scheduling reliability,
financing, and the willingness of Chinese and Soviet authorities
to be open about their space launchers and facilities. (S NF)
China and the Soviet Union have made public statements concerning
their entry into this arena, and both nations have a surplus
launch capability that could satisfy some customer needs. The
Chinese launch services would be primarily restricted to
low-earth orbit, at present, with limited services to
geosynchronous orbit. Increased production of the CSL-3 third
stage would permit the Chinese to have the potential to capture a
major share of the geosynchronous launch services market. (S NF
NC)
Chinese ELVs
China is probably formulating plans to participate in the
expanding launch services market. A high-ranking Chinese space
official, stated publicly in September 1984 that "China was now
in a position to launch satellites for other countries," and that
they had rockets for launching both large low-orbiting and
geostationary satellites. (S NF NC)
SECRET
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SECRET.
tember, China also signed their first space cooperation
In Sep
agreement with a Third World country--Brazil. That agreement
provides for the joint launching of rockets and
satellites--apparently from China. This, too, will be a first
for the Chinese. (S NF NC)
In China, the very ambitious satellite programs of the late
1970's have been scaled down to where even the military is
conducting only one launch per year, leaving excess launch
capacity. (S NF NC)
Production figures for CSL-3 third stages are difficult to
calculate; however, a rate of about one per year from 1979-1984
is indicated. China has used two and may intend to use another
in 1984, leaving an immediate surplus of three. From 1985 until
1989, the CIA anticipates five additional CSL-3 launches, but
expects third-stage production rates to go up as China Pearns
more about the system. (S NF NC)
While launch facilities and ELVs are available to sustain launch
rates of at least four per year to probably a high of one per
month--as more vehicles are produced--there is evidence that the
Chinese do not have the technical personnel to handle more than
one launch every two months and may lack key permanent
electronics at some launch sites to sustain more than six per
year. (S NF NC)
Although China has approached Western countries and offered to
become the launch service for the Third World, China has little
or no experience in international space competition. In
mid-1984, during negotiations for purchase of a direct broadcast
satellite system from the West, China recognized that they were
inexperienced and hired a U.S. consultant to help them write
their request for proposals. (S NF NC)
Another problem could be insuring payloads on a Chinese ELV.
Because Western companies know very little about China's space
program, they may refuse to insure payloads or set extremely high
rates, making launch insurance prohibitive. In such a case, the
Chinese could decide to insure the payload themselves. (S NF NC)
SECRET
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SECRET
Soviet ELVs
25X1
In view of these problems, Moscow could decide to seek an entry
into the commercial launch service market by offering to both
manufacture and launch satellites for its clients in the Third
World. Although there is no evidence of Soviet intentions to
manufacture satellites for foreign countries or firms, the USSR
is capable of doing so, particularly in the field of
communications satellites. (S NF)
The Soviet decision to make the first pictures of the Proton
available on December 15, 1984, may mark a more open attitude
about the Proton. Such a move would help the Soviet efforts to
commercialize the Proton. (U)
China's announcement of its intentions to enter the space launch
market, moreover, may motivate Moscow to increase its efforts to
establish itself as a launch service for Third World satellites
before the Chinese can do so. The Soviet Union and China,
however, are likely to offer launch services to those states
where they already have close ties, thus, for the most part,
avoiding direct competition. (S NF)
SECRET
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 25X1
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Payload Classes (U)
Class
Weight to
Geosynchronous Orbit
Shuttle
Charge Factor
PAM-D ..................
(pounds)
1200-1400
0.21
PAM-D II ...............
. 1401-2050
0.29
Atlas/Centaur ..........
2051-2600
0.39
Large ..................
2600-5100
0.80.
NOTE: Shuttle Charge Factor represents the percentage of the
Shuttle bay payload by weight or volume, whichever is
greater, including upper stage and support equipment,
divided by 0.75. The division by 0.75 acknowledges and
compensates for the reality that Shuttle flights will
average about 75 percent full, when compared to an
absolute theoretical 65,000-pound load-carrying capability
of a Shuttle orbiter.
For these computations, the Shuttle Charge Factor is based
on the larger of the payload weight ranges. (U)
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 STAT
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