ECONOMIC CONSIDERATIONS

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ECONOMIC CONSIDERATIONS FOR A REUSABLE LAUNCH
VEHICLE
National Conference Educational Workshop June
11-14, 2002 Phoenix, Arizona Presented by Wayne
A. Johnson Science Applications International
Corporation Huntsville, Alabama wayne.a.johnson_at_sa
ic.com
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Background

• NASA Space Launch Initiative (SLI)
• Managed by NASA Marshall Space Flight Center
• 4.85B FY02-FY06
• Reusable Vehicle Concepts
• Lower Technical/Business Risks
• Increase Safety/Reliability
• Technology Development
• 22 Contracts Let Spring 2001

SLI overview animation
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SLI Schedule
Courtesy NASA
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Stakeholder Perspectives
Stakeholder Issues

• Industry
• - Launch Providers
• - Payload Manufacturers
• Government
• ISS Support
• Crew Rotation
• Logistics
• Asset Deployment/Recovery
• Reconnaissance
• Financiers/Backers
• Bankers
• Brokers
• - Insurers

Architecture Size Market Demand Launch
Price Safety/Reliability Replacement
Shuttle Launch Price Safety/Reliability Retu
rn on Investment Risk
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Acquisition Phase

• DDTE Costs
• Mission Requirements
• Trade Analyses
• Prototypes/Test Units
• Production Costs
• Lean Manufacturing
• Quantities/Element
• Facilities (New/Refurbish)
• Booster/Orbiter/CTV Processing
• Mission Operations
• Runway
• Location(s)
• Temporal (Time Phasing)
• Debt Instruments
• Private/Public Debt
• Internal
• Government Loans/Guarantees
• Interest Rate

Time
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Operations Phase

• Recurring
• - Flight Operations
• Propellants
• Labor
• Insurance
• Non-Recurring Costs
• - Ground Support Equipment
• - Facilities Upgrades
• Flight Rates
• Quantities
• Turn-Around Time
• Operating Revenues
• - Price/Flight
• Facilities
• - Mission Operations

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Market Considerations
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Market Considerations (Contd)

• RLV Faces Competition From Expendable Launch
  Market
• Highly Reliable Launchers
• More Launch Site Choices
• Worldwide Competition
• Government Subsidies
• Tumultuous Commercial Satellite Industry
• - Mergers Acquisitions
• - Regulatory Policies in Emerging Markets
• Uncertainty in Broadband Market
• Excess Transponder Capacity
• Terrestrial Competition
• Negligible RLV Market for Small and Heavy
  Payloads
• - Micro/Small Class (with Expendables
• - Heavy Payloads (25K Lbs.) Are Few Primarily
  DoD
• Projections for Intermediate to Large Markets
  Are Flat
• Long Range Forecasts are Difficult

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Satellite Mass Growth Trend
Predicted satellite mass no greater than 20K lbs
by 2020
Source Futron, Inc.
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Financial Metrics

• Cash Flow
• The difference between incoming revenue and
  outgoing costs over a finite time period.
• This is a good metric for insight into the
  amount of inflows/outflows, their rates
• of increase/decrease, and provides temporal
  insights such as investment
• recovery (break-even) time.
• Discounted Cash Flow
• A cash flow summary that has been adjusted to
  reflect the time value of money.
• This concept takes into account the Present
  Value (PV) and Future Value (FV)
• notions of financial analysis. The PV is what
  future money is worth in todays terms.
• Internal Rate of Return
• - The the discount rate for which total present
  value of future cash flows equals the
• cost of the investment. The IRR is a specific
  calculated interest rate that will
• produce a Net Present Value (NPV) of zero. This
  is an excellent metric to use when
• there is a large initial cash outlay.
• Payback Period
• The length of time required to recover the cost
  of an investment, usually measured in years.

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Cumulative Cash Flow Profile
Revenues Exceed Costs
Max. Loss Exposure

• Government can wait longer to recoup
  investments industry has shorter time
  impositions
• Before/After Tax profiles can differ
  significantly

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Building a Shuttle Replacement Case
No Shuttle Replacement
Shuttle
Yearly Operations Cost
RLV
IOC
Time

• A replacement RLV system must prove to be less
  expensive
• to operate (in the long term) than continuing
  Shuttle operations
• Ongoing shuttle operations require safety and
  performance upgrades
• RLV must be more reliable and safer then Shuttle
  

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A Modeling Approach
Sample Data Only
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Sensitivity Analysis

• FSD Decision in 2006 constant fleet size
• Production, Facilities, Operations costs, Launch
  Prices held constant
• Steady State Operations 5 yrs Post IOC

All other factors equal, financial metrics are
sensitive to acquisition costs
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Sensitivity Analysis

• Acquisition and operations costs held constant
• Constant market prices
• 20 years of operation post IOC
• Adequate Facility Capacity to Accommodate Higher
  Flight Rates

As flight rate is doubled, IRR improves to a
maximum of 13 over the baseline
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Summary

• Costs
• - Acquisition
• - Operations
• - Phasing
• Revenues
• - Prices
• Flight Rates
• - Mission Types
• - Processing Times
• Markets
• Elasticity
• Emerging
• Financial Metrics
• - NPV
• IRR
• Payback Period