NASA and government-funded companies such as Boeing and Lockheed Martin were the only players in the space transport industry for decades. These organizations received tons of “cost-plus” contracts from the US government (1). What incentives did they have to be more efficient? None. They would reduce their revenues by lowering their costs. As a result, private satellite operators had to pay very high prices to put their satellites into orbit.
Elon Musk founded SpaceX to disrupt the industry by offering low-cost access to space. And he certainly did.
This is SpaceX. Source: SpaceX
In 2012 SpaceX became the first privately-funded company to send supplies to the astronauts in the International Space Station (2). The contract with NASA for this service is valued at $1.6 billion (3). But sending cargo to the International Space Station is just one piece of business for SpaceX. The company also launches satellites to orbit at a ridiculously low price. SpaceX charges $61.2 million to launch a telecommunications satellite to orbit, which results in $4,653 per kilogram of satellite. United Launch Alliance – a joint venture of Lockheed Martin and Boeing – charges between $14,000 and $39,000 per kilogram (4). Launching a satellite with SpaceX is even cheaper than doing so with Long March, the Chinese rocket. That is why Space has won $7 billion in contracts with customers such as Orbcomm, AsiaSat, and the US Air Force (5).
SpaceX Dragon capsule docking to the International Space Station. Source: NASA
How can SpaceX offer such low prices?
People. SpaceX is the first venture of Elon Musk in the space industry. Not having preconceived ideas has allowed him to come up with innovate solutions to reduce costs in his rockets. The same is true for his more than 4,000 young employees, with an average age of 30 (6). It is not just a coincidence that the age of the majority of the employees in NASA working in the Apollo 11 program was between 20 and 30 (7). Today, it is around 47 (8). Young people are more likely to innovate!
Processes. SpaceX has a very short supply chain. The company is vertically integrated and 70% of its rockets are manufactured in-house (9). It is much cheaper than buying space components from traditional vendors thanks to new techniques such as 3D printing. And what if they are not able to produce some parts at SpaceX? It is easy. They will buy from companies that have never worked for the space industry and will do some testing to make sure that these parts will work in space, thus lowering costs of purchase. This vertically integrated supply chain allows SpaceX to have huge control of costs.
In-house manufacture of the Dragon capsule. Source: SpaceX
Products. The Atlas V – one of the most successful rockets of United Launch Alliance – has three different engines. To produce these engines, they need three different lines, thus multiplying the cost by three. SpaceX designed its Falcon 9 rocket maximizing commonalities. The engines of the Falcon 9 are almost identical, as well as the fuel tanks.
Falcon 9 engines showing commonality in the rocket design. Source: SpaceX
The “old” space industry had to rely on four different players to launch a satellite to orbit: the satellite manufacturer, a launch operations provider, the rocket manufacturer, and the supplier of engines for the rocket. For instance, NASA would provide launch services (launch pad…) for the Atlas V rocket of United Launch Alliance – which has an engine produced by NPO Energomash, a Russian company! (10) – to put a satellite of the US Navy into orbit. SpaceX already integrates three of these four roles and is already working on its own satellites to provide the whole world with Internet.
Sustainability of the Business and Operating Models
SpaceX is in a virtuous circle. The more flights the company sells, the more resources it has to invest in the development of more efficient space vehicles. The objective of SpaceX is the reusability of its rockets – today they are expendable. If the company could reuse its Falcon 9 for several launches, the cost could be reduced to “$200,000 to $300,000 per flight in fuel and oxygen versus a $60 million rocket”, Elon Musk said (11). SpaceX is already working on Falcon 9 Reusable rocket.
Flight test of the Falcon 9 Reusable. Source: Space X
Today, American astronauts have to travel to Baikonur, Kazakhstan to fly to the International Space Station in a Russian rocket. SpaceX is working on the Dragon V2 – thanks to funding from the NASA Commercial Crew Development program – to provide the US with its own launch vehicle after the retirement of the Space Shuttle in 2011 (12). Boeing is also developing its human-rated space capsule, the CST-100. Which company will win this new space race? Only time will tell.
(1) Is SpaceX Changing the Rocket Equation, Andrew Chaikin, Air & Space Magazine, January 2012, http://www.airspacemag.com/space/is-spacex-changing-the-rocket-equation-132285884/?no-ist
(3) First Contracted SpaceX Resupply Mission Launches with NASA Cargo to Space Station, NASA, October 2012, http://www.nasa.gov/home/hqnews/2012/oct/HQ_12-355_SpaceX_CRS-1_Launch.html
(4) What it took for Elon Musk’s SpaceX to disrupt Boeing, leapfrog NASA, and become a serious space company, Tim Fernholz, Quartz, October 2014, http://qz.com/281619/what-it-took-for-elon-musks-spacex-to-disrupt-boeing-leapfrog-nasa-and-become-a-serious-space-company/
(5) SpaceX Signs New Commercial Launch Contracts, Press release, September 2015, http://www.spacex.com/press/2015/09/14/spacex-signs-new-commercial-launch-contracts
(6) NASA, SpaceX Aim To Launch Private Era In Orbit, Nell Greenfieldboyce, NPR, May 2012, http://www.npr.org/2012/05/18/152953776/nasa-spacex-aim-to-launch-private-era-in-orbit
(7) The Giant Leaps Symposium, Dick Dahl, AeroAstro Magazine Highlight, MIT, http://web.mit.edu/aeroastro/news/magazine/aeroastro6/apollosymposium.html
(8) NASA Looks to Rebalance Aging Workforce, Nancy Atkinson, Universe Today, April 2009, http://www.universetoday.com/28471/nasa-looks-to-rebalance-aging-workforce/
(9) Production at SpaceX, SpaceX, September 2013, http://www.spacex.com/news/2013/09/24/production-spacex
(10) RD-180 Engine, ULA, http://www.ulalaunch.com/faqs-rd-180.aspx
(11) SpaceX Profitable as Musk Pulls In NASA Contracts, Google Cash, John Lippert, Bloomberg Business, March 2015, http://www.bloomberg.com/news/articles/2015-03-04/spacex-profitable-as-musk-pulls-in-nasa-contracts-google-cash
(12) SpaceX Wins NASA Contract to Complete Development of Successor to the Space Shuttle, Press release, April 2011, http://www.spacex.com/press/2012/12/19/spacex-wins-nasa-contract-complete-development-successor-space-shuttle