Can SpaceX Really Cut the Cost of Space Travel by 75%?

Not all of the fireworks surrounding SpaceX start on a launch pad.. Image source:SpaceX.

"SpaceX mocks rival in tetchy congressional hearing."

So declared the Financial Times, in a story documenting a heated debate between representatives of Elon Musk's space-tech start-up, SpaceX, and America's dominant space launch provider, United Launch Alliance. Testifying on Capitol Hill, SpaceX COO Gwynne Shotwell promised last week that if the Air Force will allow the company to bid on its launch contracts, SpaceX will put U.S. government satellites into space at a price much cheaper than ULA charges.

How much cheaper? According to a transcript of the proceedings, Shotwell told Congress it would cost "on the order of $80 million to $90 million" apiece to put a Falcon 9 rocket in low Earth orbit, or "$150 million to $160 million" to build and launch a Falcon Heavy (a Falcon 9 rocket with two additional boosters). Averaged across both rocket types, she put the cost at about $120 million.

In contrast, ULA charges taxpayers $400 million every time it launches a rocket into space. Commented Shotwell, "I don't know how to build a $400 million rocket. ... I don't understand how ULA are as expensive as they are."

Neither did I. So I asked.

"I'm not picking on either one of you." Congressman Mike Rogers at the March U.S. House Armed Services Committee hearing of the Subcommittee on Strategic Forces. Source:YouTube stillshot.

$400 million -- follow the moneyUnited Launch Alliance is a joint venture between the space arms of Boeing and Lockheed Martin . To find out just what the deal is with its sky-high prices, I rang up ULA CEO Salvatore "Tory" Bruno and posed the question. His answer was a bit complicated. So let's take it step by step.

First off, SpaceX says it arrived at its "$400 million" estimate by dividing the 28 space launches the Air Force ordered in its ULA block-buy contract(36 rocket cores total -- 24 for single-core launches, plus four "Delta Heavy" launches using three cores each) into the $11 billion purchase price. Easy-peasy.

So: $11 billion divided by 28 launches = ULA charging the American taxpayer about $400 million per launch.

SpaceX has saidthe Government Accountability Office came to the same $400 million conclusion. ULA, however, argues this is bad math. Yes, the block-buy contract in question bought 36 cores -- but that wasn't all it bought. And $11 billion wasn't the total cost, either.

Breaking it downAs Bruno explained, there are at least three parts to the Air Force "block buy" in question:

Manufacture of 36 "new" rocket cores -- which costs $10 billion.
Manufacture of 42 "heritage" cores previously ordered by the Air Force but not yet launched. These will cost $6.6 billion in addition to the $11 billion "block buy."
Launching the cores -- which costs about $1 billion a year, to send up an estimated 10 missions per year. This $1 billion "EELV Launch Capability" or "ELC" paymentis the annual "retainer," or "subsidy," that ULA is often accused of receiving from the government.

Put it all together, and ULA estimates the total cost of building and launching 78 rocket cores for the Air Force will approximate $17.6 billion, or about $225 million per core.

A lot goes into building a ULA Atlas V rocket. Things like aRussian-made RD-180 engine... and $400 million? Image source:ULA.

Expensive any way you cut itNow, "$225 million" is still more than "$120 million," no doubt about it. And Bruno is quick to acknowledge that ULA's prices remain above SpaceX's. Apples-to-apples, for example, he said ULA charges $164 million to build and launch a single-core Atlas V 401, versus SpaceX quoting an $80 million to $90 million price tag for a single-core Falcon 9. But Bruno argued there are good reasons for this -- and good reason to hope ULA can drive its prices down in future years.

For one thing, Bruno said ULA's biggest rockets are bigger and more capable than SpaceX's biggest rockets. Thus, they can do more -- lift more satellites per launch, and lift some satellites that are too big for SpaceX to get off the ground at all. At the upper end of the capability scale, Bruno said ULA's rockets are worth the premium price ($350 million for a Delta Heavy) because they can do things SpaceX cannot.

SpaceX says its new Falcon Heavy will close this gap. But Bruno pointed out that his company is also working under a stricter regulatory regimen ("FAR 15," referring to the "federal acquisition regulations") than the FAR 12 regimen that governs contracts with SpaceX. He argued that working under FAR 15 adds to ULA's costs, and said that if the government will permit ULA to work under FAR 12, then the company's costs will decline.

Finally, Bruno said that prior to SpaceX's arrival, ULA bore the burden of maintaining two families of similar-but-different rockets, so the government would have an alternate rocket to use if one rocket type developed a glitch. Now that SpaceX's Falcon provides a viable "second option," ULA plans to focus on Atlas and retire medium-lift Delta IVs (and eventually the entire Delta line), thereby freeing itself from the cost of maintaining the Delta IV ecosystem.

The upshot for investors... and taxpayersAs ULA's CEO tells it, since taking over the company he has helped to cut its average launch price in half, from $400 million(coincidentally, about the same amount SpaceX says ULA is charging today) to about $225 million. He intends to cut that cost in half again, to $100 million, by retiring the Delta, consolidating five existing launch sites to just two, expanding the customer base (ULA currently gets less than 20% of its revenue from commercial customers, for example), and developing a new rocket engine that iseven cheaper than the Russian RD-180used on the Atlas.

Indeed, ULA is even toying with offering fixed prices for its rockets in the future, permitting customers to "build your own rocket" online -- much like SpaceX does. If that's how this plays out, then ULA has a shot at competing effectively with SpaceX for a business worth billions of dollars in annual revenue to Boeing and Lockheed Martin, and that earns the companies profit margins of 8.7% and 12.7%, respectively (according to data from S&P Capital IQ). If he's right, one day soon, ULA rocket launch costs could approach those offered by SpaceX.

For the time being, though, the truth appears to be that ULA launches are not four times as expensive as SpaceX's. They're only twice as expensive.

But don't expect to see that fact highlighted in the ad brochure.

SpaceX publishes its launch prices right on its website. ULA doesn't... yet. Image source: SpaceX.

The article Can SpaceX Really Cut the Cost of Space Travel by 75%? originally appeared on Fool.com.

Rich Smithdoes not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 303 out of more than 75,000 rated members.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.