Ford v. Ferrari—in Space!

By Bhavya Lal

May 30, 2020, marked the first time in history that human beings were launched into Earth orbit on a privately owned rocket. The SpaceX mission, called Demo-2 because it was intended to certify SpaceX’s hardware and capabilities to manage missions to the International Space Station (ISS), demonstrated a flawless launch and recovery of the main booster rocket. Although the mission will not be over until the crew returns safely to Earth, the launch was a fundamental break in the short history of human spaceflight, in which every one of the nearly 600 people from over 40 countries who have ever gone into orbit have done so on board government-owned and -operated rockets.

The SpaceX launch drew enormous media interest, and tens of millions of people around the world watched it live. Forbes magazine raved breathlessly in a prelaunch editorial: “If you’ve ever dreamed about a future of space travel it’s time to tighten your seatbelt because the future starts next week.” What exactly is the significance of privately led human spaceflight in the larger context of the American space enterprise?

Beyond instilling national pride in launching American astronauts on American rockets from American soil for the first time in almost a decade—especially during a time of social turmoil—the event highlighted a profound shift already underway in the US space enterprise: the privatization of functions previously considered inherently governmental. Although similar kinds of changes have occurred with mixed outcomes in a variety of industries, I argue that this transformation, in addition to providing cost savings and enabling greater innovation, may ultimately push the boundaries of the art-of-the-possible and expand the human footprint in space.

Let’s understand what was actually done. Historically, the National Aeronautics and Space Administration has had private aerospace companies build space systems (e.g., rockets, vehicles, control systems) using “cost-plus fee” contracts, paying the companies expenses plus an additional profit. In such contracts, the government specified not only the outcome it was seeking but also the details of the systems it would subsequently own and fully control. The Apollo program (which cost about $260 billion in today’s dollars), the Space Shuttle program (about $200 billion), and the International Space Station program (about $100 billion) exemplify this cost-plus approach. The approach allowed the United States to attain global preeminence in space over the past 60 years, and has broad institutional support. However, its critics believe that with growing capabilities in the private sector, the approach has lost some of its sparkle; it keeps costs high, they argue, reducing both the pace and volume of science and exploration that would otherwise be feasible.

The launch has highlighted a profound shift already underway in the US space enterprise: the privatization of functions previously considered inherently governmental.

Around 2006, NASA decided to experiment with a new contracting approach in which it specified the solution it was seeking without specifying the details of the system to be used—“Get x kilograms of cargo to the Space Station,” for instance. The approach, where the selected contractors received payment only on completion of verifiable milestones, worked: two companies, SpaceX and Orbital Sciences Corporation (now Northrup Grumman Innovation Systems) developed rockets and capsules to carry cargo to the ISS, with the government paying well under a billion dollars—a bargain, comparatively—for the development. Today, NASA owns no vehicles to transport cargo to the ISS, and instead pays these companies a per-use transportation fee. The experiment was so successful that NASA has added a third company to the list of providers, and NASA studies note that SpaceX can carry one kilogram of cargo to the ISS at a third the cost of the Space Shuttle.

Buoyed by the cargo program’s emerging success, in 2010, as the Space Shuttle was entering its final retirement phase, NASA initiated a similar program to launch astronauts. The agency inked agreements in 2014 with two companies, Boeing and SpaceX, to develop crew transportation to and from the ISS. The SpaceX launch last week was a successful milestone of NASA’s Commercial Crew Program. Once Boeing completes work on its Starliner capsule (the status of which is currently unclear, with an uncrewed test flight failing to reach the ISS in December 2019), NASA’s program would result in two options for transporting astronauts to the ISS, at a total cost to the government of about $5 billion to $6 billion. According to NASA officials, had they used the traditional development approach, the agency would have spent $20 billion to $30 billion more than this amount. Going forward, NASA will own no systems to go to the ISS and instead will pay SpaceX about $55 million per astronaut per trip.

Today, NASA owns no vehicles to transport cargo to the ISS, and instead pays these companies a per-use transportation fee.

The SpaceX crew transportation system is not only less expensive than the Space Shuttle, but is also expected to be safer, exceeding benchmarks required by NASA. Although the jury is still out until the crew of this SpaceX launch returns safely, this seems to be a victory for both the American taxpayer and the nation’s space program. SpaceX intends to take not only NASA astronauts to the ISS but also private spaceflight participants, leveraging government investment to commercialize its now-proven launch services.

Returning to the question I posed initially: what does this milestone say about the future of spaceflight, especially given the growing venture capital investments in space start-ups, which at least until COVID-19 hit were at record high levels—almost $6 billion in 2019 alone? I posit that the commercial cargo and crew programs are signs of two major changes in the space sector. First, these programs’ successes showed that “solutions-oriented” contracting approaches can reduce the total cost of development: with a goal-oriented contract rather than a cost-plus contract, the incentive is to engineer systems that are cheaper to produce and operate in order to generate greater profits. This approach also reduces cost to government as the private sector takes over some of the burden of developing, maintaining, and operating space infrastructure: the government need not own any space technology systems and can simply purchase tickets to a destination, just like it does for earthbound civil servant business travel.

Second, and more important, because private entities have made investments in and now own space systems and the underlying technologies and intellectual property, they are motivated to find customers other than the government, as well as to develop new and lower-cost applications of these products and services. Traditional aerospace contractors typically do not have such inducements: they are incentivized to fulfill government contracts, and not even on time or on budget, since in many cases there is no major penalty for missing deadlines. Ultimately, these new incentives within the private sector will likely push the boundary of the art-of-the-possible in space beyond what government managers can envision, and the footprint of space activities will grow apace.

There is some evidence that as a result of privately led activities, the US space footprint is indeed expanding, and not just in the launch sector. The “smallsat” revolution (and the use of small satellites for previously unheard-of applications such as near real-time simultaneous imaging of the entire Earth) was one the government missed; it was instead initiated and led by private entities, including universities. Examples of private-sector ingenuity abound. Some private entities, no doubt leveraging government investment, are developing affordable on-orbit services for satellites, such as the ability to inspect them if they stop functioning, repair them if they break, or refuel them if they run out of propellant. A private company recently attached what is essentially a power pack to a communications satellite nearing the end of its life, giving the satellite new life and its owner the potential to make hundreds of millions of dollars in additional revenue.

Many of these emerging activities wouldn’t come to fruition in a government-led enterprise, mainly because the government doesn’t prioritize some kinds of innovations, such as those that reduce cost or could increase risk. The Air Force failed to develop a rocket with a reusable engine, for instance, not because it couldn’t but because such a rocket would be less fuel-efficient and carry smaller payloads. That it might also reduce launch costs was not a requirement, and therefore the innovation was not pursued. Private companies pursuing rocket development, on the other hand, are hugely incentivized to pursue reusable engines, precisely because they have the potential to reduce costs and allow them to make more money. To use an analogy, the private sector has no reason to build a Ferrari if a Ford will do. NASA has been asking aerospace companies to build custom Ferraris for decades; the agency is in the process of realizing that it can make and do more with rented Fords.

The government doesn’t prioritize some kinds of innovations, such as those that reduce cost or could increase risk.

The shift to private ownership is important, but it does not mean governments have lost their relevance; indeed, their role in the space ecosystem is as important as ever. As with many complex technological systems, what enables today’s commercial space activities is many years of long-term, risky, and often expensive public investment. Even now, most private activities depend heavily on the government. Not only do large portions of research and development come from the government via contracts and grants, but as the commercial cargo and crew programs demonstrate, governments are often the private space industry’s largest and most reliable customers. Space-based imagery companies, for example, have found fewer customers among businesses and individuals than they had anticipated. And although designers and builders of private space stations may look to wealthy tourists as patrons, they see governments around the world as anchor tenants to help balance their books.

The SpaceX launch provided continuing evidence that solutions-based contracts can add value not only for the government but also for the broader space enterprise. But determining which activities would benefit from having the private sector play a greater role should be a matter of data and analysis—not dogma. It will be necessary to carefully analyze when solutions-based approaches work better. Indeed, there will be times when a Ford won’t do, and a Ferrari is necessary and appropriate. The key is to continue to experiment with these cross-sectoral partnerships that reduce costs and induce more innovation in the space ecosystem such that the United States can, as the late presidential science advisor John Marburger noted, incorporate “space into our economic sphere of influence.”