Independent study of launch market says U.S. Air Force should support three domestic providers

Space

In response to concerns about its launch procurement strategy, the Air Force asked RAND to conduct an analysis of the heavy lift launch market.

WASHINGTON — An independent study of the space launch market commissioned by the U.S. Air Force suggests the service should support three providers in the short term to ensure it has access to space over the next decade.

The study, prepared by the RAND Corp., looked at the impact of U.S. Air Force space launch acquisition decisions on the heavy lift launch market. It does not recommend that the Air Force change its decision to award national security launch contracts to just two providers later this year. But it does argue that the Air Force should find a way to keep a third supplier in the national security market as a fallback.

RAND is a federally funded research and development center. The study findings were briefed to Air Force leaders in July but the report has not been publicly released. A copy was obtained by SpaceNews.

Having a viable third provider at least until 2023, the study says, would give the Air Force breathing room until there’s more clarity on future commercial launch demand and until the Air Force can be certain that the launch vehicles that are being developed for the National Security Space Launch program are ready on time.

The Air Force intends to award five-year contracts in mid-2020 to two providers to split approximately 30 national security launches starting in fiscal year 2022. The upcoming acquisition of launch services is known as Phase 2 Launch Service Procurement.

“Considerable concerns have been raised regarding acquisition decisions for this procurement,” says the study. “These concerns led the USAF to ask us to perform an independent analysis of the heavy lift launch market to assess the impact its near-term decisions might have on domestic launch service providers.”

United Launch Alliance, SpaceX, Blue Origin and Northrop Grumman are competing for the two Phase 2 contracts.

Except for SpaceX, the other three bidders are offering newly designed rockets that are projected to be ready by 2021. RAND says there is significant risk that the vehicles will be late and the Air Force should prepare for that eventuality.

The Air Force is now in the process of certifying ULA’s Vulcan, Northrop Grumman’s OmegA and Blue Origin’s New Glenn.

These new entrants face significant development risks, says the study. “The underlying engines that make space flight possible have traditionally been a high development risk item. Engine risks for the new entrants are intertwined because of Vulcan’s selection of the BE-4 engines also used on New Glenn and the GEM-63 engines also used on OmegA. Therefore, for all of these entrants, we assume that first launch dates are highly uncertain.”

Based on historical data and probability models, RAND says first launch dates for these vehicles could slip by one year or longer.

The study says the Air Force can lower the risk that vehicles won’t be ready to launch satellites when Phase 2 starts in 2022 in several ways. One is to exercise remaining options with ULA and SpaceX under the previous Phase 1A contract to secure access to legacy launch systems.

“Alternatively, the USAF could mitigate the risk by selecting a third provider under the Phase 2 contract. In either case, the USAF would be supporting a third provider as recommended in this report,” the study says.

Supporting three providers until 2023 would be “prudent preparation for a future with only two U.S. providers of NSS-certified heavy lift launch, at least one of which may have little support from the commercial marketplace,” says RAND.

According to the study, “supporting three providers in the short run has longer-term benefits in that it provides time for U.S. firms to adapt and position themselves in the launch markets and allows market forces (not the USAF) to determine which firms are strongest, and thus survive, and which should exit.”

Uncertainty in commercial market

Another reason for supporting three suppliers is to help U.S. providers stay competitive in the commercial market, RAND argues.

The research team found that the number of launches worldwide grew to 71 in 2018 from 47 in 1998. However, the portion over which launch providers compete — the so-called addressable share — remained steady during that period at an average of 20 launches a year.

RAND analysts predict the commercial addressable market share held by U.S. firms is expected to drop as Arianespace and Russia field new launch vehicles that are better suited to heavier launch. This is of concern to the U.S. Air Force because its Phase 2 strategy assumes launch providers will have a healthy commercial business.

The simulations ran for the study suggest that the market share held by U.S. firms might drop to as few as four to seven launches a year as early as 2025, RAND says, making it likely that national security launches will be the dominant source of demand for U.S. heavy lift launch over the next decade.

The national security launch market forecast is stable at seven to nine launches a year for the futures RAND analyzed.

Researchers did not develop a forecast for the demand in NASA launches. Historically, it has averaged three to five launches a year, but it is “highly bursty,” says the study. The total U.S. non-addressable demand currently averages 12 launches a year, with national security launches making up the majority.

RAND predicts the launch demand from proliferated broadband constellations will be modest. Heavy lift launch is the preferred method for building out these initial constellations because it provides an efficient and cost-effective means of populating entire planes within a constellation, requiring fewer launches. However, says the study, small and medium lift launches are the preferred methods for replenishing or replacing satellites once initial constellations are completed because of variable demand in the number and orbits of the satellites.

Air Force has power to shape market

The study cautions that the Air Force should discourage launch providers from bidding low just to get the work. As the buyer with the greatest demand for heavy lift launch from U.S. providers, the Air Force has monopsony power in this market. “To avoid a future in which providers sell to the USAF at a loss and then a need to consolidate (which was seen prior to the ULA merger), the USAF must carefully balance its accountability to sustain a healthy launch market and its accountability to reduce the cost of national security launches.”

RAND also suggests the Air Force should reconsider its decision to cut off development funds to companies that don’t win Phase 2 procurement contracts.

Three development contracts were awarded in October 2018 to mature the designs of the Vulcan, New Glenn, and OmegA launch vehicles.

“In the early prototyping phase, government investments help firms mature their offerings,” the study says. “A withdrawal of funds during the completion phase, as contemplated by the USAF for competitors not selected for Phase 2 contracts, could induce firms to abandon their efforts to enter the commercial market and provides an opportunity for foreign competitors to enter or expand their offerings.”

The study recommends that the Air Force “continue to support as many entrants as it can afford to enter or continue in the heavy lift launch market.”

This support need not be expensive, the study says. “Sometimes it is only the removal of prohibitions that is needed.”

A non-monetary means of supporting U.S. firms might be removing restrictions on use of surplus intercontinental ballistic missile engines for commercial launches, for example.

Another would be for Congress to make the 2022 ban on Russian-designed and Russian-manufactured engines contingent on the successful launch of alternative certified launch vehicles.

The U.S. Air Force for years has relied on ULA’s Atlas 5 rocket. But the Atlas 5 is powered by a Russian engine and under U.S. law, the Air Force is prohibited after 2022 from purchasing rockets with engines designed or manufactured in Russia.

RAND suggests that if no launch service provider selected under Phase 2 has successfully launched by 2021, Congress should consider delaying the ban.

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