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Air Force Budget Reveals How Much SpaceX Undercuts Launch Prices (arstechnica.com)
An anonymous reader quotes a report from Ars Technica: In 2014, the U.S. Government Accountability Office issued a report on cost estimates for the U.S. Air Force's program to launch national security payloads, which at the time consisted of a fleet of rockets maintained and flown entirely by United Launch Alliance (ULA). The report was critical of the non-transparent nature of ULA's launch prices and noted that the government "lacked sufficient knowledge to negotiate fair and reasonable launch prices" with the monopoly. At around the same time, the new space rocket company SpaceX began to aggressively pursue the opportunity to launch national security payloads for the government. SpaceX claimed to offer a substantially lower price for delivering satellites into various orbits around Earth. But because of the lack of transparency, comparing prices was difficult. The Air Force recently released budget estimates for fiscal year 2018, and these include a run out into the early 2020s. For these years, the budget combines the fixed price rocket and ELC contract costs into a single budget line. (See page 109 of this document). They are strikingly high. According to the Air Force estimate, the "unit cost" of a single rocket launch in fiscal year 2020 is $422 million, and $424 million for a year later. SpaceX sells basic commercial launches of its Falcon 9 rocket for about $65 million. But, for military launches, there are additional range costs and service contracts that add tens of millions of dollars to the total price. It therefore seems possible that SpaceX is taking a loss or launching at little or no profit to undercut its rival and gain market share in the high-volume military launch market. Elon Musk retweeted the article, adding "$300M cost diff between SpaceX and Boeing/Lockheed exceeds avg value of satellite, so flying with SpaceX means satellite is basically free."
The $422m figure is for a Delta Heavy launch, which makes the comparison with the Falcon 9 laughable - it should be compared with a Falcon Heavy launch, which SpaceX ain't giving launch cost figures for yet.
Also, Musks quote about the $300m price difference being the cost of the satellite is bang on, for commercial launches - military satellites are often into the billions of dollars, and as such are less price sensitive on the launch and more success sensitive. Delta Iv Heavy is at 8 launches with no failures (one partial success) and Atlas V is at 71 launches with no failures (one partial success).
SpaceX are getting there with reliability, but Musk needs to learn to STFU when it comes to price sensitivity because for some customers thats not the driving factor.
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He believes that ULA should be given corporate welfare indefinitely.
A. The Air Force will value safety over money by a much wider margin and B. The Air Force and NASA both are socialist programs meant to keep folks employed.
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Facts in the summary:
A) Company 1 (United Launch Alliance) refuses to lists net prices in a transparent way.
B) net costs seem to imply that SpaceX is about 7 times cheaper.
Then it states that SpaceX must be taking a loss.
BULL.
The company that refuses to lists net prices in a transparent way are the people that you should suspect of shenanigans. In this case, the evidence implies they are overcharging.
But I suspect that the comparison is not as bad as it looks. SpaceX may be launching only tiny payloads into low earth orbit while ULA may be launching huge payloads into high orbit.
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then buy insurance. The DoD can insure their payload and factor that into the prices from both rocket company.
The quoted price for the falcon 9 heavy is, of course, a lie, because it doesn't include anything beyond the payload adapter. Figure about triple once you get th engineering, integration, testing and ... Oh wait, at least the launch certification is free, because SpaceX pencil whips that. Seriously, spaceX numbers are bullshit: they don't include anything but the rocket and pad services. Similarly, the DOD launch numbers are bullshit, because they include absolutely everything, even the government employees who are doing anything vaguely related to the launch.
SpaceX are getting there with reliability, but Musk needs to learn to STFU when it comes to price sensitivity because for some customers thats not the driving factor.
Thats certainly the case with the Federal Govt. They don't care about prices. There's no profit motive for them, so they don't "lose" anything for bloated budgets. And after all, it's not their money....
The federal government is made up of federal employees, who are citizens and taxpayers of the US. I think as taxpayers they would care in how their tax dollars are being used.
Also, it's not like the federal employees which are the work bees of various departments have much say in their budgets (besides making requests). The people who decide how much money needs to be spent are folks critters in Congress....
"It therefore seems possible that SpaceX is taking a loss or launching at little or no profit to undercut its rival"
I don't get it, where are they getting this from? Yes SpaceX is selling their rockets more cheaply than ULA, but that is likely because of a much more streamlined production, development and procurement process as well as a higher (when they get the bugs worked out) launch rate. ULA is a defense contractor, which generally means that they spread their stuff around to keep the government contracts flowing (the more jobs and money in influential congressional districts the better) and pad their invoices significantly because quite frankly they can. I wouldn't be surprised if they're running the margins a little narrow at the moment (with development costs included) but I highly doubt that they're selling at a meaningful loss.
- military satellites are often into the billions of dollars, and as such are less price sensitive on the launch and more success sensitive.
If they are overpaying 6x for launches is it possible they are also overpaying 6x for the hardware they are putting into orbit? Just asking.
Cost plus percentage is illegal in federal contracting because it creates an incentive to increase costs. More common is cost plus fixed fee. The fee is calculated as a percentage of the bid cost, typically something like 5-6%, but is fixed. There's also cost plus incentive fee (lower cost = bigger fee), cost plus award fee (better job, measured by some metric = bigger fee), or firm fixed price (what you think it is).
Granted, even with CPFF, your company can get very large, because overheads are part of the "cost", but it's not large profit. It is also true that over time, repeated contracts are issued with the same percentage fee in the negotiation, so if you "creep" the cost up, the total profit creeps up too.
But even so, in business, total revenue isn't as much a part of the picture as percentage profit - because an investor is looking for "return on investment", and a business that makes 7% is a better investment than a business that makes 5%.
Actually, building copies of a satellite costs almost as much as building the first one - the majority of most satellites is fairly standardized, so you're going to buy the same stuff, it will take the same labor to assemble it, etc.
You really don't see "economies of scale" until you're building dozens or hundreds of something.
At the time of the first manned Atlas-Mercury flight, the Atlas had a record of 39 successes out of 72 flights.
Or if you want to consider only the 'specially prepared' ones that flew with mercury capsules, they had succeeded in 3 of 5 flights.
data from https://en.wikipedia.org/wiki/List_of_Atlas_launches_(1960%E2%80%931969)
33 out of 35 isn't doing bad at all.
Billions for a military satellite? Sounds like a new market for MuskX to get into. They could basically just launch the guts of one of the Tesla cars into orbit. It would probably be more advanced and effective than anything the military has designed.
It therefore seems possible that SpaceX is taking a loss or launching at little or no profit to undercut its rival and gain market share in the high-volume military launch market.
Or perhaps - because even if they triple their price it's still going to cost less than half of ULA's price - SpaceX is just better at rockets and space than the other folks?