Recently, 6 aerospace companies got together in a parnership with NASA's Langley Research Center to look at the markets for future commercial space launch vehicles. The study had the objective of examining individual market segments and how they might expand if lower prices were charged to customers. The final report of the Commercial Space Transportation Study (CSTS), done by Boeing, General Dynamics, Lockheed, Martin Marietta, McDonnell Douglas and Rockwell has now been released.
The CSTS is several hundred pages thick. It is a public document, but because of its physical size and specialized nature has only a limited distribution. Courtesy of a kind correspondent in one of the companies, I have a copy. Most of the study consists of a detailed examination of the current and future potential state of various markets (communication satellites, science missions, fast package delivery, tourism etc. etc.) at various assumed transportation costs. Each market survey deserves a separate posting describing the findings. Here are some of the details of the CSTS Conclusions and Recommendations.
The principle information of interest is an overall market model for future commercial space transportation. The market model is separately presented for an assumed new launcher of four payload classes (10,000, 30,000, 55,000 and 100,000 pounds). For each payload class, the number of flights per year "captured" by the vehicle at different market prices (expressed in $ per pound to low earth orbit) is given. The number of flights per year is derived by bringing together in some manner the number of flights generated by the individual market segment studies. Each market segment study was done by a different team, and the market predictions from each market segment study aren't necessarily in a consistent format. The methodology by which the results of the various market segment studies were combined is not explicitly given, and it is thus not evident how the total number of captured flights in the Conclusions section breaks down into market segments. It seems reasonable to assume that in any such exercise, there is lots of room for legitimate disagreement on how to do the calculations - the final published numbers may thus perhaps seem to be overestimates by some parties, and underestimates by others.
The following data are the market model presented by the CSTS in its Conclusions section. The first and third columns are directly from the report, while the second and fourth columns are directly calculated from the data. All payloads are to a nominal low earth orbit. Many of the payloads are destined for higher orbits, and are assumed to carry their own upper stage. LEO masses for these payloads include the mass of the payload and of an assumed upper stage. The market model in this posting is the "medium" model, referring to the market size having a "medium" probability of being achieved. The Conclusions also give a "High" or conservative market model (not shown in this posting), which has a high probability of being achieved - this market model necessarily shows a lower flight rate than the "medium" model. The market price shown below as $5000 per pound is actually listed in the model as the "current" price - I have substituted "$5000" as this seems from a graph in the Conclusions to be the numerical values of the "current" price.
Vehicle payload capability 10,000 lb to low earth orbit $ revenue per annual flights annual revenue per lb flight ($M) captured ($M) 5000 50 5 250 1000 10 48 480 600 6 81 486 400 4 269 1,076 Vehicle payload capability 30,000 lb to low earth orbit $ revenue per annual flights annual revenue per lb flight ($M) captured ($M) 5000 150 5 750 1000 30 38 1,140 600 18 82 1,476 400 12 161 1,932 Vehicle payload capability 55,000 lb to low earth orbit $ revenue per annual flights annual revenue per lb flight ($M) captured ($M) 5000 275 3 825 1000 55 21 1,155 600 33 70 2,310 400 22 95 2,090 Vehicle payload capability 100,000 lb orbit $ revenue per annual flights annual revenue per lb flight ($M) captured ($M) 5000 500 2 1,000 1000 100 10 1,000 600 60 41 2,460 400 40 41 1,640
- I am told by someone who worked on the study that the markets for the different launcher sizes are not additive, but represent the market captured by a single new low cost vehicle which is only in competition with existing launchers. The flights captured column for a 30,000 pound class launcher will thus presumably include both multi payload launches of 10,000 lb class payloads, and launches of segments of larger payloads which otherwise might have been launched in one piece on a 55,000 or 100,000 lb launcher.
- For a cost of $5000 per pound (the current cost), a new vehicle captures only a few flights, with the number captured being only a fraction of the projected flights shown elsewhere in the study for assured markets such as communication satellites. This presumably represents competition from existing launchers. For all launch vehicle classes, there is a sharp increase in payloads captured in moving from $5000 per pound (current costs) to $1000 per pound. This presumably results not only from the generation of new business due to market elasticity, but from the capturing of payloads from other launchers so that the new launcher controls most or all of a market segment.
- Lowering the cost of flights to $600 or $400 per pound generates additional flights by attracting new payloads. However, the total available revenue grows only slowly as the number of flights expands, as cheaper flights generate less revenue per flight. Thus, in the 10,000 pound launcher class, going from $1000 per lb to $400 per pound increases the number of flights more than 5 fold but only doubles the revenue. When the cost of flights gets very low, the larger launchers even suffer a reversal in fortune where the cheaper they are priced, the less revenue is gained.
- A priori, the annual revenue shown above must pay for such items as:
- the infrastructure of the launch company
(offices, buildings, salaries)
- taxes, licenses etc.
- construction and amortization of launch facilities
(or facility rental)
- flight preparations and operations for each launch
- the consumables of each flight (propellants and other fluids)
- inspection, repair, and replacement and certification operations
if the launcher is reusable
- new hardware for each flight if the launcher is expendable
- payback of the development costs of the launcher
The CSTS developed a financial model for the payback of investments. Its assumptions include:
- a 5 year development period, with outlays distributed 10%, 20%, 30%, 30%, 10% over this period
- capture of the assumed launch market over a 3 year period (25%, 50%, 100% at the end of each year)
- depreciation of the tangible assets of the company over a 7 year period beginning in the first year of operation
- a maximum allowable period for recovering the development cost of 10 years (presumably from the date of initial operations)
- a cost of capital of 8%, and a marginal Federal tax rate of 34%
- constant 1993 dollars to allow the analysis to ignore the effects of inflation
The CSTS evaluated commercial feasibility by the internal rate of return generated by a hypothetical investment in a new launcher. The Conclusions section states:
"Private investment in space transportation can only be a feasible venture if the investors can be repaid. One measure of success is the internal rate of return (IRR). An IRR of 15% to 25% over the first 10 years of operations has been selected as the target value to evaluate commercial feasibility."
The CSTS then gives a two graphs, from which it is possible using a ruler and some patience to determine the annual payback which is required for different investments, assuming different required IRRs.
The following data are derived by interpolation of data taken from graph 4.1.3-3 in the CSTS Conclusions section. Their estimated accuracy is plus or minus 5%.
Investment Required Annual Payback for various IRR
$M 15% IRR 20% IRR 25% IRR
1000 340 480 660
2000 680 960 1320
3000 1020 1440 1980
4000 1360 1920 2640
5000 1700 2400 3300
- The market model shown earlier in this posting indicates that the maximum annual revenue from a new launcher is on the order of $1,000 million to $2,000 million. If 50% of the revenue from a new launcher is devoted to payback of development costs, then the maximum revenue available for this purpose ranges roughly from $500 million to $1000 million per year, depending on the launcher size and cost per pound to orbit. The annual revenue for repayment of development costs might be very much lower than this if the new launcher has high operating costs. It could also be somewhat higher than this, but not by a large ratio as there is an absolute upper limit set by the total available revenue, even assuming that operating costs were zero.
- Some major aerospace companies have estimated the investment for an SSTO vehicle to be around $5000 to $6000 million (although some people think that it can be done for less if the project is structured correctly). With an upper limit of say $1000 million annual revenue available for investment payback, a new launcher requiring $5000 million to develop and requiring annual paybacks of $1700 to $3300 million clearly cannot be a commercial success if the CSTS financial and market models are reasonably correct.
- The Conclusions section of the CSTS states in part:
"This market study did not address the cost of space launchers, nor the technical requirements to achieve specific launch costs goals. However, this analysis indicates that as a commercial investment measured at standard industrial investment return levels, the investment cost for a new space launch system must be kept in the range of a few billions of dollars."
"This indicates a potential paradox in the commercial space transportation market. High flight rates appear to be necessary to reduce the price per flight. However, reduced prices per flight reduces the revenue per flight, and consequently the cash flow available for investment payback."
"We have not been able to prove the commercial space market elastic enough to enable the revenues per flight to be greater than the combined payback and operations costs per flight for a completely commercially developed system."
"To attract commercial investment it appears that some form of government participation will be necessary"
It isn't clear from the CSTS study itself what is thought by the CSTS participants to be the development cost of the "completely commercially developed system" - the Conclusion merely state that such a system isn't economically feasible.
Bruce Dunn (bpdunn@home.com)