More Thoughts on the Lockheed/Bigelow "Deal"

Now that I’ve had a chance to put forward some back-of-the envelope analysis showing why I think Lockheed could possibly meet the $10M/ticket price range that Bigelow is trying to achieve, I want to put a few more thoughts down.

One of the common refrains I’ve heard from many commenters are of the “Big Evil Lockheed is trying to scare away SpaceX and RpK, and steal their markets”. I’m not sure how realistic that fear really is. The most important consideration is that fact that in order to really be price competitive, Lockheed has to get almost all of the Bigelow contract. I’d be surprised if they could eke out any profit at all at a $10M/ticket price if they didn’t get at least 12 out of the 16 flights per year that Bigelow is planning on post-2012. However, Bigelow isn’t dumb enough to tie himself to a single flight contractor, so it’s an open question if Lockheed really could lock up enough flights to make the $10M/ticket rate feasible.

If you look at Lockheed’s revenue for their Atlas V program vs my estimate of a $40M internal marginal cost per booster, you see that their fixed costs are likely in the $200-500M/year range. SpaceX on the other hand has barely passed the $100M mark after about four years of operation, including major engine and vehicle development. There’s a chance that in the rush to build the Falcon IX and Dragon, that they might get a big more bloated, but it’s unlikely that they’ll up their total burn rate by that large of a margin. The upshot is that SpaceX probably only needs 3-5 flights per year in order to make a profit at their current targetted Falcon IX prices (which is less than half of the optimistic price for a high flight rate Atlas V). So, if SpaceX actually manages to get their technical act together and start flying reliable vehicles (which alas is still an if not a certainty), they can likely offer a better price without having to take anywhere near as large a share of the market.

That I think bodes well for SpaceX. Having to hold most of the market to keep yourself profitable means that LM’s hold on the Bigelow contract pretty much depends on them not having competition–which is unrealistic. If you can really demonstrate a $1B+ per year market for space transportation, do you really think that is going to scare investors away from the market? Especially when it’s fairly obvious that at $10M per person, LM is probably almost as low as it can go pricewise?

Right now, the biggest threat to SpaceX’s existance is itself (the same applies to RpK). They’ve got a talented team, but they have to execute, and execute reliably. Fortunately, between the potential Bigelow market and the COTS market, there may be enough incentive for Musk to focus on getting his core business in order, and profitable instead of stary-eyed focusing on trying to build ever bigger (and likely far less profitable) launch vehicles. Some real competition is going to force them to actually put a lot of time and effort into their Falcon IX/Dragon line, trying to get the price down, the reliability up, flight rate up, and internal costs down. As Henry Spencer put it, now that Lockheed is trying to enter the market, doing a slightly better Atlas isn’t good enough–mammals have to act truly mammalian. I think SpaceX can do it.

Another key point worth bring up again about this supposed Lockheed/Bigelow “deal” is that it is not an actual launch contract. Bigelow and Lockheed have both agreed to look into things, but Bigelow has no obligation whatsoever to buy even a single Atlas V flight at this point. If SpaceX and RpK both biff it, or if Lockheed actually manages to get some real “fur” so to speak, they might wrap up the contract (or most of it) at some point in the future, but at the moment, the competition is still wide open. In fact, it’s also worth mentioning that Bigelow and SpaceX already have a similar arrangement in place. If SpaceX doesn’t screwup themselves, Lockheed is only going to be able to force them out if they can prove that have such a better system than SpaceX that Bigelow is willing to go with a sole-source supplier. That just doesn’t seem very likely. Bigelow isn’t NASA or the US government. He’s not stupid.

Going back to the Lockheed “scaring away investors” idea, I have a few more things to mention. First off, investors like to see competent competitors. If there are now competitors in the field, it scares investors because they think “Lockheed and Boeing are both talented firms–if they aren’t interested in this market, is there really a market?” By jumping into the fray, Lockheed has if anything greatly increased the credibility of this market just by showing that they think it deserves serious study and internal investment. Additionally, both SpaceX and RpK just got awarded pretty darned hefty contracts to develop a capability that would meet Bigelow’s needs as well as NASA’s. SpaceX has received enough pre-orders this year to be cashflow positive. There still are some substantial technical risks, but by the time they have to start bringing in serious outside investment, many of those risks should be substantially mitigated. If I were a saavy investor (which judging by the amount of times I’ve had to eat Carl Buddig meats on the cheap store-brand bread over the past few weeks, I can safely say is not the case), looking at SpaceX’s position vs Lockheed’s I’d consider SpaceX to be a fairly reasonable bet (though I’d still diversify). RpK on the other hand is in a slightly different category. A lot of their vehicle is done, and they also got a lot of government money now, however they don’t really have a huge amount of their own capital to back that up, which puts them in a little stickier of a position. But once again, their cost structure is likely more amenable to hitting the $10M/ticket price at a much lower flight rate than Lockheed could.

So where does this leave us? Basically, while Lockheed has a chance at taking this prize, they have a lot of hard work on their hand, and the greatest threat to SpaceX or RpK is still nobody but themselves.

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Jonathan Goff

Jonathan Goff

President/CEO at Altius Space Machines
Jonathan Goff is a space technologist, inventor, and serial space entrepreneur who created the Selenian Boondocks blog. Jon was a co-founder of Masten Space Systems, and is the founder and CEO of Altius Space Machines, a space robotics startup in Broomfield, CO. His family includes his wife, Tiffany, and five boys: Jarom (deceased), Jonathan, James, Peter, and Andrew. Jon has a BS in Manufacturing Engineering (1999) and an MS in Mechanical Engineering (2007) from Brigham Young University, and served an LDS proselytizing mission in Olongapo, Philippines from 2000-2002.
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3 Responses to More Thoughts on the Lockheed/Bigelow "Deal"

  1. jv says:

    There’s one question which doesn’t seem to be answered – What launch vehicle can be used to launch Nautilus? Wouldn’t Bigelow actually need at least something like Atlas V Heavy?

  2. Jon Goff says:

    JV,
    Good question. I asked them when I took a tour of their factory last year. They said that they would prefer to launch it all at once on either an Atlas V Heavy, Delta IVH, or Falcon IX S9, or even the Stick. However, the guy I asked said that if push came to shove, they could probably launch the bare-bones module on a vehicle that was much smaller, and then fit it out on-orbit.

    ~Jon

  3. HaloJonesFan says:

    My thought about the “spaceflight market” is that it’s a big damn sky up there, and there’s probably room enough for everyone. It’s the American West–if it gets to crowded in one spot, just move to another spot!

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