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Competition and EELV: Challenges and Opportunities in New Launch Vehicle Acquisition Part I

Competition and EELV: Challenges and Opportunities in New Launch Vehicle Acquisition Part I. Future in-Space Operations Presentation May 9, 2012 Stewart Money stewart@innerspace.net. Background .

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Competition and EELV: Challenges and Opportunities in New Launch Vehicle Acquisition Part I

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  1. Competition and EELV: Challenges and Opportunities in New Launch Vehicle Acquisition Part I Future in-Space Operations Presentation May 9, 2012 Stewart Money stewart@innerspace.net

  2. Background The United States in 2012 is at a crucial decision point in determining how it will access space for the next decade or longer The Evolved Expendable Launch Vehicle Program is celebrating a remarkable string of successful launches, but there are storm clouds Costs are increasing beyond the point of sustainability A new approach to launch development is on the horizon, but has yet to be proven

  3. The Role of Evolved Expendable Launch Vehicles and NASA NASA is currently dependent on EELV program Atlas V launch vehicles for Medium and Intermediate class Science Mission Directorate Launches 3 out of 4 Commercial Crew proposals use Atlas V Orion flight test scheduled on Delta IV Heavy Numerous Future in Space Operations proposals feature EELV launchers

  4. EELV Program and Acquisition Costs are Rising To Unsustainable Levels • The estimated average total price for a Department of Defense EELV launch varies with annual launch rate, but has risen from $72 million in 2002 to approximately $420 million in FY 2012 • NASA currently pays the per unit cost for each launch acquired, receiving a comparatively reduced price from the actual total cost born by DOD • EELV cost increases are being passed on to NASA in the form of the NLS-II contract prices which are 50% higher than in previous NLS I Contract. Not to exceed price for the Atlas V has increased from $125 million to $334 million • A 2011 NASA OIG Report found the NASA carries a substantial risk of being assessed an additional $100 million per flight million for its share of full program costs currently born by DOD* *NASA OIG Report “Review of NASA’s Acquisition of Commercial Launch Services” 2/17/2011 IG-11-012

  5. Science Budgets Are Flat NASA FY 2013 Budget Estimate Increasing Launch Costs Limit Severely Impact Potential Missions

  6. NASA Programs Dependent on EELV Launch Vehicles are Facing a “Perfect Storm” NASA Advisory Council Science Committee, Meeting Minutes March 3-4, 2011 The intersection of significantly increased launch costs and decreased program funding pose a significant financial risk to current and future space operations In a tightly constrained budget environment resources utilized to pay increased launch costs are necessarily taken from other sources within the overall NASA budget The cancelation of NASA participation in the joint European Space Agency Exo-Mars 2016 mission is a prime example of both trends March 2011 NASA Advisory Council Science Committee meeting minutes contained the following conclusions: “Atlas V price increases are going to have a huge impact on the available number of missions” “We will have to trade science capacity for launch costs”

  7. Delta II Retirement Leaves NASA without a proven Medium Class Launch Vehicle Delta II launched 60% of all science missions between 1997 and 2010 ULA suspended Delta II production in 2007 after Air Force transitioned to EELV launchers. NASA inquiry found continued production would result in unacceptably high launch costs of approximately $200 million for what was historically an $80 million class vehicle 5 Unused heavy configuration cores remain The Intermediate class Atlas V 401 is overqualified and overpriced for Medium class missions previously launched on Delta II

  8. Case in Point : Atlas 401 Series NASA Launch Price Escalation • 1998 EELV Buy 1 Price: $72 million • 2009 LRO/LCROSS : $124 million • 2013 Maven Launch : $187 million • New Launch Order : $209 million • Under 2018 pricing: $251 million • Average DOD cost FY 2012 $420 million* • Future NASA prices exclude Launch Capability Risk Atlas V Pricing from NLS II briefing to NAC meeting 3/3/2011 *4 DOD Launches with No Delta IV Heavy

  9. How Did We Get Here? EELV Program Designed to Reduce costs 25- 50% over heritage vehicles now operates the most expensive launch system in the world

  10. Part I : Origins of EELV • Roots of the program go back to National Space Policy of July, 4 1982 which required all branches of government including DOD to use the Shuttle where possible • A Titan 34D fails in August 1985, another Titan 34D fails April 1986 • Challenger accident January 1986, Leaves DOD without primary means of space access. Air Force restarts heritage launch vehicle acquisition, but looks for a better option • Air Force Commissions a study led by General Thomas Moorman • Study looks at four options in relation to current launch costs with particular emphasis on emerging commercial trends

  11. Moorman Study Comparative Cost Chart

  12. Moorman Study Results • Recommendation is evolved expendables, separation of responsibilities • 1994 National Space Policy DOD will tale the lead on new expendable launch vehicle projects, and NASA will maintain lead role on reusable launch vehicles and crew systems • 1995 Air force issues Request for Proposals with intention to down select to one winner, goal is to reduce heritage vehicle costs by 25-50% • 1996 Air Force down selects to two finalists • Boeing offers all new domestic Delta IV with cryogenic first stage • Lockheed Martin offers Atlas V, powered by Russian RD-180 main engine • Both entries feature common booster core heavy lift variants • “Dial a rocket” strap-ons for enhanced basic performances • Commercial Space Act of 1998 Requires NASA to purchase commercial products wherever possible, guaranteeing a customer for new program

  13. Key Development: DOD Switches To a Two Vendor Strategy November 1997 Program change is based projected expansions in the commercial launch market, and promoted as offering four key benefits 1. Lower prices through competition over the program’s lifespan 2. Continued innovation through contractor investment 3. Reduced overhead costs spread over a wider commercial base 4. Assured Access for DOD through the use of two distinct supply chains 1998 Initial launch award “Buy 1” Average Price $72 million Boeing Delta IV: 19 Launches Lockheed Martin Atlas V: 9 Launches Three distinct events lead to almost immediate escalation in prices

  14. Number 1: Collapse of the Commercial Satellite Market Futron Corporation 2005 Study Geostationary Launches Futron Corporation “The Declining Role U.S. Role in the Commercial Launch Industry” June 2005

  15. Commercial Launch Market Collapses Highlights Questionable Business Decisions Contractor business plans were based on achieving and sustaining an unreasonable share of a market that never materialized Projected increases in satellite launches drove numerous commercial ventures during the mid 1990’s, but by the time EELV programs were in development the collapse was already well underway. Iridium filed for bankruptcy in August 1999 Later appeals for subsidy portray the market collapse more as an uncontrollable “Act of God” rather than a clear and present business risk Failed to respond to Ariane V dual manifesting strategy

  16. Number 2 : Expendable Launch Vehicle Failure Response • During EELV development phase; another round of launch vehicle failures occur in the late 1990’s • DOD conducts Broad Area Review • Finds the Titan failures are caused by “going out of business syndrome” • Strong emphasis placed on a successful heritage ELV fly out • Imposes a large degree of oversight on EELV program underway, and starts the budget climb

  17. Number 3 : Document Theft and RepercussionsUndermine Premise of Competition • June 1999: Boeing reveals it is in possession of proprietary information regarding the Atlas V, but states it is limited to two non critical documents • March 2002: Lockheed Martin informs the Air Force that Boeing has more information than was disclosed • March 2003: USAF sends a letter to Boeing demanding it make a complete disclosure. It has 10 boxes, roughly 35,000 pages of material • June 2003: Lockheed Martin files suit under RICO statutes, potentially devastating to Boeing • July 2003: USAF revokes 7 launches awarded to Boeing and awards them to Lockheed Martin. Boeing will not be allowed to bid on next round

  18. EELV Early Operational Developments • 2001 Launch cost estimates have increased to 87-107 million per flight • 2002 Atlas V, Delta IV successfully introduced • First report of additional $350 -400 million ‘infrastructure payments” • 2003 Price increases trigger a Nunn- McCurdy Cost Breach • 2005 DOD average cost rises to $170 million per launch Atlas V 8/21/2002 First Launch Delta IV 11/20/2002 First Launch CreditBoeing Credit Lockheed Martin

  19. Formation of United Launch Alliance. The creation of Monopoly and the Should Cost Era In May 2005, with program costs increasing, and rising subsidies under criticism, Boeing and Lockheed Martin begin promoting a joint effort. Lockheed Martin offer to drop a potentially crippling lawsuit over document theft if the merger is approved but will re-instate if it is not. Result is a “shotgun marriage” United Launch Alliance is formed over initial objections from Federal Trade Commission and intense opposition from watchdog groups which predict monopoly will lead to even higher prices Competitive aspect of two vendor strategy, already distorted by re-assignment of launch awards is completely abandoned. “Should Cost” accounting now replaces competitive procurement as primary means to contain pricing Air Force promises renewed competition “by the end of the decade.” * * Lt. Gen. Brian Arnold. Space.com, 4/11/2005 “EELV launches dished out evenly..”

  20. After Corporate Consolidation, Ongoing Mission Success but Launch Costs Continue to Rise Atlas 5 production is moved to Decatur, Alabama Boeing Delta IV plant. “Assured access “ rationale of two separate and distinct launch efforts is further undercut. 2006: EELV Program faces a second Nunn-McCurdy cost breach. DOD responds by moving program from development to sustainment, bypassing deeper scrutiny 2007: ULA suspends Delta II production as GPS satellite fleet is launched, moves launches to Atlas V 2009: With Shuttle program approaching final flights, ULA begins signaling that prices will increase substantially in preliminary discussions for NASA NLS-II procurement to begin in 2010. 2010: Air Force and ULA begin to promote a large multi year block buy beginning with the next round of procurement in 2012.

  21. Part II : Where Are We? Proposed Block Buy, GAO Report And a measured response

  22. EELV Proposed Block Buy Ignites Controversy • In response to escalating launch prices the Air Force announces it will alter acquisition strategy to a block buy of 8 cores per year for 5 years to allow larger production runs and to strengthen industrial base • Price averages $375 million per core • March 2011 meeting results in Memorandum of Understanding between USAF/NRO/.NASA to coordinate on launch acquisition, but NASA declines to participate in block buy commitment, citing NLS-II • At the same meeting a new entrant certification strategy promised by 7/31 but is not forthcoming • SpaceX completing two Falcon 9 launches in 2010, wants opportunity to bid on EELV contracts • September 2011 GAO releases a report on the block buy bringing the issue under increased focus “DOD Needs to Ensure New Acquisition Strategy Is Based on Sufficient Information” (GAO-11-641)

  23. Background of GAO Report • Requested by House Defense Appropriations Sub Committee • GAO Study examined 5 other government studies of EELV program made within previous two years which were used to support block buy rationale • Key Focus of GAO Study: The Air Force and other agencies preparing reports relied on a ULA vendor survey to provide the information supporting the block buy rationale without performing independent analysis ”At no time did DOD ask to see any of the source data.” • ULA provided data based on a flawed survey methodology, reflecting strong bias towards desired results

  24. GAO Questions ULA Vendor Survey on Health of Industrial Base Supporting the Block Buy • ULA Vendor Survey “Neither designed nor administered in manner consistent with sound survey methodology practices” • Included cover letter from ULA CEO which gave views on DOD’s “inefficient method” for acquiring launch vehicles and the need to “Justify a new strategy which will enhance our collective business” • ULA provided “suggested” responses for open ended risk assessment questions because “we wanted certain answers” and then presented the responses to DOD implying they were raised independently by suppliers • GAO report found that for 75% of the respondents, EELV business comprised 15% or less of their total business

  25. GAO Findings on Proposed Block Buy Structure • DOD “Did not perform any risk analysis to see if 40 cores would be needed.” • DOD and ULA were “At a loss to explain the selection of 5 years for the block buy. “ • Would require five new purchases each year regardless of actual launch rate • Based on historical launch rates, the block buy would create a “bow wave” of unused cores necessitating additional storage and refurbishment expense • NASA purchased cores would be in addition to block buy regardless of actual usage rate

  26. GAO On Pricing Data “DOD analysis on the health of the U.S. industrial base is minimal” Should Cost review indicates a 4 x price increase in RS-68 “but is unable to attribute the rise in prices to specific and identifiable costs increases” Block buy risked “ locking in” high prices for major components, principally from Pratt and Whitney Rocketdyne for RS-68 and RL-10 which could subsequently be lowered depending on future NASA heavy lift development “Unable to obtain detailed technical or pricing data on the Russian RD-180”

  27. GAO on Mission Assurance Fees • Mission Assurance is credited with launch success but “nearly every person and organization involved has a different definition of mission assurance” • EELV program office asserts actually quantifying the costs of mission assurance would itself be cost prohibitive • “Mission assurance comprises numerous activities to ensure launch success, but DOD has little insight into the sufficiency or excess of these activities” • Regarding specific mission assurance activities ULA “Neither motivated nor incentivized to find efficiencies in its operations”

  28. Timeline of Congressional Response to GAO Audit and Proposed Block Buy 10/14/2011 Defense Armed Services Committee issues “hold” letter to USAF regarding the block buy 10/24/2011 USAF alters block buy strategy slightly and announces intent to seek a price matrix from ULA, looking for a “sweet spot” 12/31/2011 Senator John McCain inserts amendments into Defense appropriations bill effectively reclassifying EELV program in development – signed into law USAF announces a “bridge buy” of seven launch vehicles for 2013, with larger announcement to come 1/27/2012 Senator McCain issues follow up letter requesting independent assessment of matrix pricing 4/16/2012: USAF reports Nunn-McCurdy Cost Breach of EELV program

  29. NEW ENTRANT CERTIFICATION STRATEGY • Oct 14 2011 USAF Announces New Entrant Certification Strategy • Follows framework established in MOU between USAF/NRO/NASA and allows each agency to certify levels of risk and cost for including new competitors. • Initial commitment to competition appears weak with genuine consideration deferred until at least after 2018. • Undersecretary of Air Force: ”We are committed to providing a level playing field.” - Difficult to reconcile this commitment with continuance of the billion dollar plus launch capabilities contract U.S. Air Force Website, New entrant certification strategy announced, 10/34/2011 Under Secretary Erin Conaton

  30. Under Pressure EELV New Entrant Strategy Evolves • FY 2012 House and Senate appropriations bills include strong language encouraging competition • 3/5/2012 Washington Post reports that the Air Force has set aside two launch opportunities in 2014 for which ULA will not be allowed to bid. One is for Deep Space Climate Observatory formerly Triana, which has been sitting in storage for years, other is an undefined Air Force Instrumentation package • Report cites a dozen other future launches opportunities set aside as well with multiple bidders expected • Same article cites current EELV launch costs at $420 million per flight Deep Space Climate Observatory

  31. RD -180 Engine and the U.S. Industrial Base The entire rationale for the block buy rests on the assertion that the U.S. industrial requires support Accepting the industrial base argument requires a willful suspension of disbelief which somehow excludes SpaceX, the Falcon 9 and the all U.S Merlin engine as part of the base, while includingthe Russian RD-180 EELV’s continued reliance on the RD-180 Russian main engine for the Atlas V not only maintains a political vulnerability, but must be understood as contributing to the very weakness the program regards as problematical by perpetuating the retreat from indigenous hydrocarbon capability RD-180 acquisition actually supports Russian and Ukraine commercial launch base via commonality with Zenit and Sea Launch engines produced in the same factory

  32. Evaluating EELV The EELV program has achieved a record of clear success in terms of launch reliability, but that factor alone is not unique to the EELV Atlas II, introduced 1988 conducted 63 launches for a perfect launch record Ariane V has conducted 46 consecutive successful launches dating back to 2003 and prior to SpaceX had effectively eliminated the United States from world commercial launch market The question is reliability at what price? Quoting Air Force Deputy Undersecretary Rickard Mckinney “Its obvious the prices we are paying are just too high”

  33. Author’s Articles Cited in Presentation Competition and the future of the EELV program The Space Review, 12/12/2011 Competition and the future of the EELV program (part 2) The Space Review, 3/12/2012 Following SpaceX down the rabbit hole The Space Review, 4/18/2011 An American fable The Space Review, 10/10/2011 stewart@innerspace.net Cover Credit SpaceX Concluding Credit American Airlines

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