Thoughts on Commercial Space, Part IIC
Commercial Space 2.0, Big LEOs and EELV
The next wave of commercial space began in 1991 with the establishment of Iridium. The idea was conceived in the late 1980’s by engineers at Motorola to provide satellite phone service to the globe. Iridium is named for the 77th element in the periodic table because the constellation would have 77 satellites. It was subsequently reduced to 66, six orbital planes of eleven satellites each. [The sixty-sixth element is called dysprosium, perhaps a more apt name in hindsight!] The project attracted investment from many industry giants including Lockheed Martin (LM), Sprint and Sony. But it was Motorola that footed most of the bill. Iridium was the first of the low earth orbit constellations to be proposed and one of the few to be fielded.
The first launch of five satellites was in May 1997 on board a Delta II rocket from Vandenburg AFB. The launch campaign was an international effort with the Russian Proton and the Chinese Long March each getting some of the launches. The system was declared operational in December 1998. As a major space project, Iridium was a technical success. Seven years from conception to operational service is respectable even by today’s standards. But nevertheless, the company filed for Chapter 11 bankruptcy in August 1999. What went wrong?
Lots of things. Fundamentally, Iridium was unable to sell enough subscriptions. To pay off the seven billion in initial investment, Iridium needed to sell one million subscriptions within the first year. They managed only fifty-five thousand. It turns out that while Iridium was spending billions and taking years to deploy a sixty-six satellite constellation, other companies like Verison and AT&T were installing cell towers fast and cheap and building a customer base with small pocket sized phones and low cost deals. In contrast, Iridium’s phones were large and clunky and the cost per call was many times that of the cellular competitors. True, you could take a call using Iridium in a remote canyon in a remote region of the world, but most of the customer base didn’t need that capability.
I was at Lockheed during the Iridium years and I remember the excitement. Lockheed built a special purpose factory to assemble the satellite bus for Iridium. Lockheed lost close to one hundred million dollars when the wheels came off, a significant sum, but far less than the billions lost by Motorola.
The excitement generated by Iridium attracted many copycats and competitors. Globalstar was also formed in 1991 as a partnership between Loral and Qualcomm. It launched its first satellites, built by the Italian Aerospace company Alenia, in 1998. I remember touring the Alenia plant outside Rome sometime in the late 1990s. Globalstar production was already complete, but the idea of rate production of dozens of identical satellites and the manufacturing efficiencies gained thereby has stuck with me ever since. Sadly, Globalstar also filed for bankruptcy—in 2002.
Motorola had grand plans for more Iridium-like constellations. M-star and Celestri were the most ambitious. I remember hosting several Motorola executives at the Lockheed facilities near Denver in the late 1990’s. I was working on the Atlas V development program at the time and we couldn’t afford to ignore a potential customer needing to launch hundreds of satellites. But the Motorola representatives insisted on pricing far below market pricing at the time. I remember being lectured that Motorola’s buying power would force us to play ball or go out of business. Atlas V is still going strong. All of Motorolas’ space ambitions are ashes—just saying…
Perhaps the most ambitious of the big LEOs of the nineties was Teledesic. An independent company unassociated with any large aerospace prime, Teledesic nevertheless had some impressive backers including Craig McCaw, Bill Gates and the Saudi Prince Alwaleed Bin Talal Bin Abdulaziz. Their concept went beyond satellite phones to broadband services, the internet in the sky. The Teledesic constellation was originally 840 satellites, not including spares. The figure below shows what this might look like. We used to joke that Teledesic would “darken the sky.” In July 1997, Teledesic selected Boeing to be the prime contractor, beating Lockheed, and Boeing engineers quickly resized the constellation to 288 satellites.
For a time, I was the Lockheed capture manager for Teledesic launch services. This was before I was drafted onto the Atlas V development program. Our solution was a modernized version of Titan, a configuration that was much like the never fielded heavy version of Atlas V. One feature of our vehicle was the composite payload fairing (PLF) supplied by the Swiss company Contraves (now part of Ruag). That feature did eventually get incorporated into Atlas V. I took many trips to Teledesic’s headquarters on the shores of Lake Washington near Seattle.
A unique aspect of launching these large constellations was the requirement for a dispenser, the structure within the PLF to hold and deploy multiple satellites. In one of our briefings of different concepts we showed a graphic of a huge pez dispenser (remember pez candy?) with Bill Gates’ head on top. Got big laughs. I wish I had saved it.
Once I moved to Atlas V, the marketing responsibility moved to Lockheed International Launch Systems (ILS) and the solutions shifted to Proton (ILS, since sold by Lockheed, continues to be the marketing arm of Proton) and Atlas V. To reduce the cost per satellite as much as possible, we created a whole new version of Atlas V consisting of a 5 meter PLF (from Contraves) and strap-on solid rocket motors (SRM). The original configuration had up to 4 SRMs, but in a frenzy of last minute marketing/engineering we increased it to 5 to squeeze a few more satellites and lower our cost even further. Increasing to six would have required wholesale design changes due to the location of the engine feedline and avionics pod. My systems analysis team was responsible for figuring out how to fly such an asymmetric configuration, and convincing management that we weren’t completely nuts. Furthermore, I convinced them that we could fly with any number of SRMs, up to five. To date, all versions: 0, 1, 2, 3, 4 and 5 SRMs have successfully flown—although I admit it is somewhat disconcerting to see the single SRM version crab off the pad. (I know it will work just fine…)
Teledesic raised a billion dollars (of the estimated $9B cost) and managed to launch one test satellite (in 1998). However, faced with the direct evidence of the business failures of Iridium and Globalstar, Teledesic folded in 2002. By then, ILS had managed to sell them a single launch service, which was eventually executed by ICO in 2008, a venture founded by Craig McCaw from the wreckage of Teledesic.
The Evolved Expendable Launch Vehicle program
The US Air Force (AF) EELV program began in 1994 with the release of the Moorman Report. A team, led by General Tom Moorman, conducted a study to determine what to do about the military’s aging and increasingly expensive launch fleet. At the time, the military used three separate systems for launch depending on the size of the spacecraft. Delta II was used for the smaller satellites like GPS. Titan was used for the largest satellites including many of the most sophisticated spacecraft for the Intelligence Community. Atlas was used for spacecraft in between the capabilities of Delta II and Titan. Moorman presented four options: 1) maintain the existing systems; 2) evolve the existing systems; 3) develop a new expendable system; 4) develop a new reusable system. The Air Force chose option two and in 1995 released the first Request for Proposal (RFP). Four companies were awarded 15-month study contracts: Lockheed Martin, Boeing, McDonnell Douglas and Alliant Techsystems, with the idea that just one would be the eventual winner.
Phase II of the program began in December 1996 with the competitive selection of Lockheed Martin and McDonnell Douglas for $60M Pre-Engineering & Manufacturing Development (pre-EMD) contracts. It was at the beginning of the pre-EMD phase that I joined the program. The circumstances were interesting and worth relating. The Lockheed Martin concept was a family of vehicles based around the Common Core Booster powered by the Russian RD-180 engine, Atlas V. During phase I, the LM team had struggled to meet the mass to orbit requirement of the heavy (three core) version of the system. However, the severity of the performance shortfall was not fully communicated in LM’s proposal for the pre-EMD phase. After award, the AF discovered the issue, was justifiably furious and threatened to cancel the contract. LM’s response was to completely change the management team while assuring the AF that the issue would be resolved ASAP. I was part of that “second wave” as we called it. The “first wave” was shown the door. My first assignment was to lead an emergency performance improvement program.
In 1997, in the face of the general industry optimism with respect to the commercial launch market and the big LEOs, the Air Force decided that they would keep two winners. Furthermore, instead of a single winner receiving a $1.6B development contract, each winner would receive only $500M and had to make up the balance of the cost with private investment. Clearly, this was far less attractive to Lockheed Martin and Boeing (who had just bought McDonnell Douglas). A senior Lockheed executive who complained was told to play along or else risk other more lucrative AF business like the F-22. Those of us in the trenches had drunk the big-LEO Kool-Aid and wasted no time building business models to justify the investment.
In June 1998, two development contracts of $500M each were awarded to Lockheed Martin and Boeing. These contracts were under the Other Transaction Authority (OTA) of the FAR. This innovative acquisition approach levied top level performance requirements but left the details up to the contractors. Insight was achieved by a small government team. (This approach was much like what NASA did later for COTS). In addition, the companies submitted proposals for the initial 28 missions. These were awarded in October 1998, nineteen going to Boeing and only nine to Lockheed Martin. Those of us on the Lockheed side were shocked and bitterly disappointed. With both Atlas and Titan, we were the incumbents and had the expertise for the big complicated missions. The other guys had only ever launched the small Delta II.
It turns out Boeing had offered very low prices predicated on huge production rates of dozens per year serving the commercial market. Lockheed had done the same but was a bit more cautious. For example, Boeing built a new manufacturing plant in Decatur Alabama sized to build 40 Delta IV cores per year. Lockheed facilitized for “only” 19 Atlas cores. The precision of the number 19 is an indication of the false rigor we had put into our market analysis.
Much drama ensued over the next few years. Having won no heavy missions and having no commercial demand for the heavy, LM renegotiated its development contract to eliminate both the heavy and the west coast capability. Boeing received a heavy demo launch and LM’s west coast launches in consideration. Later, Boeing was found to have obtained and used LM pricing data in its proposal. This violation of the Procurement Integrity Act cost Boeing some of its west coast launches and a new contract for LM to develop west coast capability. As you can imagine, animosity between the two contractor teams was intense.
Nevertheless, the technical work went well. The first launch of Atlas V occurred in August 2002 from complex 41 at the cape. It was one of the highlights of my career. By then, I had become the Chief Systems Engineer and Director of the Systems Engineering and Integration Team. It was my responsibility to ensure all the myriad different pieces worked together as intended. We launched on the first launch attempt at first second of the launch window. The Eutelsat commercial communications satellite was deployed perfectly in its intended orbit. Amazingly, there were no significant flight data findings. Everything worked just as predicted. I was at the press sight giving interviews during the launch. My most memorable quote was “Whoo hoo” as we got word of the successful spacecraft separation.
I could keep going. The history of EELV continues to this day amid even more drama, some of which I will cover in subsequent posts. But let me take stock of where the program stood at the time of the first launches in 2002 (Delta IV first launched in November 2002). From the perspective of the US government, the program was an amazing success. It got two independent launch systems, each capable of launching most or all of the required missions. They invested a total of $1.2B in the development, including the initial phases. In return, they extracted about $4B in contractor investment. All the cost risk was born by the contractors. Each system was fielded on time and worked perfectly the first launch (and have been essentially 100% successful since). The prices for the initial 28 launches were less than the 50% cost reduction target from the heritage systems. A great deal for the taxpayers.
From the contractor perspective, things were not so rosy. Both had invested very large sums in the expectation of a burgeoning commercial market. By 2002, however, the big-LEO bubble had collapsed—in conjunction with the dot com bubble. Iridium and Globalstar had declared bankruptcy, Teledesic had folded its tent. Both Boeing and LM counted on this market to recover their investment and to support the prices they bid on the initial 28 AF launches. Making matters worse, the 28 launches were already starting to slip as government satellite development programs experienced massive delays. Eventually, some of these slips exceeded 10 years!
In summary, both companies were hemorrhaging money with no clear way to stop the bleeding. It took four years, threats to exit the business, wholesale contract restructuring, and the shotgun marriage of the two company’s launch divisions into United Launch Alliance (ULA) before the business situation stabilized. Even under ULA it was only in the last couple of years that the Atlas V investment was recovered. With ULA’s plans to retire Delta IV, Boeing’s full investment will never be recovered.
Coincidently, 2002 was also the year that SpaceX was founded. Over time, that small startup became the next disruptive force in the launch market. But that is the story of the next post, Commercial Space 3.0.
Lesson Learned #3: Beware the terrestrial competitor who has a scalable business model. Competing with terrestrial businesses from space is fraught with peril. The terrestrial business model is generally scalable. The cell phone company can put in some cell towers, gain some customers (revenue), then put in some more—on a timescale measured in months. The space business (in the mode of Iridium) must get everything fielded before any revenue accrues. The timescale is measured in years.
Lesson Learned #4: Be deeply suspicious of your own market analysis. You should start from the premise that all commercial space business models suck (See Lesson Learned #1). I still shake my head at the wild market analyses we used to justify the investment into Atlas V and Delta IV. We were assuming that the worldwide launch market would grow by 4 to 5 times its then size in just a few years. The fact that everyone got it wrong is little consolation. If it seems too good to be true, it probably is. Compounding the problem was that each side assumed they alone would garner the lion’s share of that new market and priced accordingly. Obviously, in the real world, the market will be shared among many competitors, some of whom don’t have to recover investment or make a profit. (See Lesson Learned #2).