Space Access 2009 April 2-4 Phoenix, AZ By Rand Simberg Recovering Aerospace Engineer

1. Space Access 2009 April 2-4 Phoenix, AZ By Rand Simberg Recovering Aerospace Engineer Who Fell Off The Wagon Lies, Damned Lies, And Launch CostsorWhy Federal Space Policy Continues To Bind Us To The Mudball

2. Why Am I Talking About Things Like Marginal Costs At Space Access? • Marginal Costs (And Other Economic Concepts) Are A Key Element Of Economic Decisions, Even When We Don't Recognize It • Understanding Their Effects Can Lead To Better Economic Decisions • Lack Of Understanding Of (Or Lack Of Interest In) Economic Issues Like These Has Been Disastrous For Space Policy

3. What Are Marginal Costs? • The Marginal Cost Of An Ongoing Activity Is The Cost That Doesn't Include The Overhead • Overhead Is Something That Has To Be Paid Whether The Activity Is Occurring Or Not • Computed As: Cost(N+1) – Cost(N) • Cost Is Function Of N And; • Where N Is The Number Of Events • Represents The Cost Of Only Doing The Next “N”

4. Three Ways Of Computing Cost Of A Launch • Marginal Cost -- Cost(N+1) – Cost(N) • Average Annual Cost -- Cost/Year/NYear • Average LCC Cost -- LCC/NProgram

5. An Example: Car Costs • All Costs Of Driving (Owning) A Car • Car Payments • Car Insurance • Maintenance • Repair • Fuzzy Dice, Dashboard Jesus, Silvery Silhouette Girls, Wide Whitewalls, Curb Feelers, “Nuke The Gay Whales” Stickers, Jumping Shocks, etc. • Fuel • Marginal Cost Of Driving A Car • Fuel • Average Cost: ~$0.50/Mile (Federal Allowance)‏ • Marginal Cost: ~$0.10/Mile (Fuel Costs)‏

6. Another Example: Restaurants • Restaurants Have Several Fixed Expenses • Rent/Mortgage • Utilities • Employee Salaries • Marketing • Marginal Cost Of Meal • Food • This Is Why Fast-Food Places “Super Size” For So Little Money • Moral: To Save Money And Lose Weight, Don't Eat Out

7. Space Shuttle • Shuttle Has High Fixed Costs Due To “Standing Army” To Support It ($3B-$5B/Year)‏ • Average Cost: ~$1B/flight • Marginal Costs • SRB Refurbishment • ET Replacement • Cryogenic Propellants (< $1M or 0.1%)‏ • Mission-Specific Crew Training • ~$150M/Flight

8. This Explains Cost Disparities • Do Not Believe Any Number You See For Cost Of A Shuttle Flight Until You Know: • Basis Of Overall Budget Estimate (Harder Than You Might Think)‏ • Number Of Flights Assumed • Low Number (~$100M-$200M) Has To Be Marginal Cost • Other Numbers (Half Billion, $600M, $1B) Some Sort Of Unsubstantiated Average

9. How To Reduce Average Costs? • One Theory: Reduce Fixed Costs • DC-X Used Small Crew • Not Realistic For Practical Orbital Vehicle • Problem Is Not Large Standing Army • Boeing Airliner Fleet Has Large Standing Army • Ticket Prices Low Regardless • Army Can Only Be Reduced So Much • Have To Fix Denominator, Not Numerator • GET FLIGHT RATES UP

10. Space Station Example • How Much Do Space Stations Cost? • In Early 1990s, SSF Was Estimated To Cost Thirty Billion Including DDT&E* • Had To Cut Five Billion From Budget • Cost Of Flight-Ready Hardware Was $5B • Implications • Save Five Billion And Have No Station • Add Five Billion And Have Twice The Station • Government Tends To Choose Former Course * Yes, I Know That Doesn't Include Shuttle Launch Costs

11. Which Cost Should We Use? • Depends On Type Of Policy Decision • Existing Launch System • Decisions About Particular Mission Should Be Made On Marginal Cost Basis • Decisions On Major Multi-Flight Development Program (e.g, ISS) Should Use Average Annualized Costs • Developing New Launch System? • Average LCC Cost (Upsets Proponents Of New Systems)‏

12. Hubble Example • Launch Cost For Hubble Decision Should Be Marginal Cost • Shuttle Flying Anyway For ISS, With Standing Army • Cost Of Flying One Additional Mission Appropriate • Rand's Opinion: Hubble Repair Upgrade Not Worth The Money, Even At $150M For Launch Cost (Doesn't Consider Payload Costs)‏ • High Opportunity Costs (Could Probably Get Better Hubble-Like Results For Less Money Some Other Way)‏ • O'Keefe Made Right Decision For Dumb Reason (Crew Safety)‏

13. Exploration Example • Is Shuttle Competitive For Supporting Future Series Of Human Exploration Missions? • Have To Use Average Annual Costs (Plus Potentially Consider Costs Of Restarting Production And Building Additional Orbiters)‏ • Have To Include “Cost Of Unreliability” (We'll Be Replacing A Few)‏ • Answer: No

14. New Vehicle Development Decision • Consider Sunk Development Costs For Existing Vehicle For Overall Average Cost Per Flight? • No • Consider DDT&E Costs For New Vehicle For Overall Average Cost Per Flight? • Yes • Difference Is One Cost In Past, Other In Future • This Is Why It's Hard To Justify New Launch Systems, At Least For Low Activity Rate

15. One Final Example • Decision To Buy A Launch On One Commercial Provider Versus Another • Do We Use... • Marginal Cost? • Average Cost?

16. One Final Example • Decision To Buy A Launch On One Commercial Provider Versus Another • Do We Use... • Marginal Cost? • Average Cost? Neither. We Use PRICE

17. Quick Review • Cost • Accumulation Of Labor And Resources Required To Produce An Outcome • Value • Subjective Number Depending On Evaluator • Price • Agreed-Upon Transaction Cost Between Buyer And Seller For Good Or Service

18. Low Marginal Cost Implies Unit Costs Highly Dependent On Activity Level • Billions Spent On EELV Development To Reduce Costs Twenty Percent • Market Reduction Early In Decade Resulted In Fifty Percent Increase In Per-Launch Price • Ergo, Flight Rate Much More Important Parameter Than Vehicle Design In Driving Launch Costs, Even For Expendables

19. Marginal Cost Discriminates • Expendables Have High Marginal Cost • Have To Build New Vehicle Every Flight • Sets Minimum Average Cost Per Flight • Reusables In Theory Have Low Marginal Cost • Just Refuel, Like Car Example • Potentially Low Average Cost For High Flight Rate • Shuttle Worst Of Both Worlds • Partially Expendable (Where Most Marginal Cost Is)‏ • Low Flight Rate, So Can't Take Advantage Of Reusability

20. What Does It Mean For VSE? • Ares-I/Orion Projected Total LCC Of Up To $50B • Will Require Fifty Flights To Reduce Average Cost To $1B/Flight (> 10 Years@ 4 Flights/Year)‏ • Doesn't Include Costs Of Other Constellation Elements (Ares V, Altair, EDS, etc.)‏ • Marginal Costs Of Lunar Missions Will Be Billions, Average Costs Much Higher • Not Affordable, Not Sustainable • Ergo, Not In Keeping With Aldridge Commission Recommendations

21. Consider Alternative To Redoing Apollo • All Architectures Considered By Majors In Concept Exploration And Refinement (CE&R) Studies Were Low Flight Rate • None Of Them Envisioned More than A Couple Crewed Lunar Missions Per Year • Why Should This Excite The American People? • Why Not Consider Infrastructures That Scale To Allow Mass Movement Of Humans And Cargo To/From Moon (i.e., Low Marginal Cost)?

22. Have To Break Out Of Expendable Mind Set • Only Full Reusability Allows Low Marginal Cost • Only Propellant Depots – LEO, Lagrange Points, LLO, Lunar Surface – Allow Reusability All The Way To Moon And Back • Reusability for In-Space Elements Much Easier Than For Launch Systems (No Entry Thermal Issues, No Need For Landing Systems, etc.)‏ • Why Not Consider This Alternate Architecture, Which Could Surely Be Done For Less Than $50B?

23. Need To Break Out Of Apollo Groove • Need Low, Not High-Marginal Cost Architecture • Biggest Mistake Of Aldridge Commission And White House Was Not Forbidding NASA From Developing New Launch Systems For VSE • Need To Figure Out How To Go To The Moon With Launch Systems We Have, And Not Launch Systems We'd Like To Have • Generate Huge Competitive Market For Propellants, Hardware, People To Finally Drive Down Launch Costs