Lawmakers complain about monopoly space launch deal

Introduction

For six years, the Air Force has relied mostly on a single, high-cost rocket manufacturer to loft its reconnaissance, communications, and GPS satellites into space and it is about to double down. In the fall of 2013, it plans to give the company a new $19 billion contract for all of the Air Force launches scheduled through 2017.

Some members of Congress are upset by the pricetag, however, and key lawmakers — acting with the support of an array of upstart rocket firms — are starting to push back against the Air Force’s plan to reward its contractor with a five-year lock on all launches.

The latest salvo comes from House Intelligence Committee Chairman Mike Rogers, R-Mich., and ranking member C.A. Dutch Ruppersberger, D-Md., who complained in an Aug. 2 letter that the Pentagon’s largest launch project “lacks domestic competition and is unable to compete internationally due to high costs.” The Air Force satellite project is known as the Evolved Expendable Vehicle Launch (EELV) program.

The firm that the Air Force favors is United Launch Alliance, a joint project formed in 2006 by the Pentagon’s top two contractors, Lockheed Martin and Boeing. The Air Force plans to award the $19 billion deal between June and October 2013.

Although it has not explicitly picked ULA yet, only the company’s Delta IV, produced by Boeing, can lift the government’s heaviest payloads, such as telescopic cameras that take images of Earth and GPS satellites used for military intelligence, which reach 50,000 lbs. These will be part of the deal, according to the Air Force.

Cristina Chaplain, who audits the Pentagon’s space programs for the Government Accountability Office, said in an interview the decision will come after the Air Force has confirmed that the contractor can modify certain rockets to limit vibrations capable of harming sensitive satellites.

The contract has aroused controversy partly because it would group both heavy and lighter satellite launches into a single deal, effectively blocking an opportunity for smaller firms to grab some of the lightweight satellite business.

Rogers and Ruppersberger, in their letter, encouraged the Pentagon to consider two other companies before awarding the EELV contract — SpaceX and Orbital. The lawmakers said those two companies opened “an important window of opportunity to make room for new EELV competitors and reap significant cost savings, without sacrificing launch reliability.”

They also pushed for the elimination of a taxpayer-funded subsidy given to ULA that amounts to about $100 million per launch. The subsidy is meant to help with maintenance and overhead for the various U.S. launches handled by ULA, but it’s a financial favor not provided to any other commercial space launch companies.

A September 2011 Government Accountability Office report did not say how much money is at stake but predicted that keeping an option open to contract launches for different-sized satellites to different companies the next five years could drive down costs. According to the report, “competition could incentivize ULA pricing and efficiencies, potentially yielding cost savings to the government.”

Neither Rogers’ nor Ruppersberger’s spokespersons provided an estimate of the savings if the Pentagon took their advice. A spokeswoman for the House Intelligence Committee did not return a request for comment.

Aerospace, ATK, Coleman, Orbital Sciences Corporation and Space Exploration Technologies (SpaceX), have been trying to break ULA’s hold on Pentagon satellite launches since Lockheed and Boeing created the consortium in 2006. The year ULA was formed, SpaceX sued the two contracting giants to challenge the legality of the merger on antitrust grounds, but without success.

On its website, SpaceX claims it could save the Pentagon $1 billion annually if it was allowed to compete on all satellite launches, partly by forgoing the subsidy the government provides to ULA. Figures for launch prices for each company vary greatly depending on the weight and type of the payload.

Tracy Bunko, an Air Force spokeswoman, defended the contracting plan, explaining that it encompasses launches of various sizes and spans a five-year period to give a contractor the chance to buy in bulk and receive a quantity discount from subcontractors. She said ULA presented its best price for a range of six to 10 booster cores per year and over contract periods ranging from three to five years.

But the 2011 GAO report warned that bulk buying could backfire on the Air Force, saying the “expected block buy may commit the government to buy more booster cores than it needs and could result in a surplus of hardware requiring storage and potentially rework if stored for extended periods.”

Reliability is also a consideration for the Air Force. Bunko told Defense Daily that the Air Force will open the contract to competition as soon as at least one of them can meet the government’s risk requirements for launching important national security payloads into space.

According to Bunko, only four of the 46 EELV launches scheduled from 2013 to 2017 qualify as heavy-class. More than 10 times as many fall into smaller weight classes, the Air Force spokeswoman said.

Although Boeing’s $16.1 million and Lockheed’s $15.1 million in 2011 lobbying expenses dwarfs that of SpaceX and Orbital, the smaller companies have been lobbying more heavily on Capitol Hill in the last few years. SpaceX went from spending $163,000 on lobbying in 2006 to $860,000 in 2011, according to data tallied by the Center for Responsive Politics. In that same time, Orbital’s spending on lobbying jumped from $160,000 to $290,000.

Orbital, which maintains a software development facility 17 miles from Ruppersberger’s district in Maryland, has donated $13,000 to the lawmaker from its political action committee since the start of 2009, according to a Center for Public Integrity analysis of campaign finance data from CQMoneyline. Marc Gunderson, an Orbital executive, also gave Ruppersberger the maximum donation of $2,400 in 2010. SpaceX has donated $5,000 to Ruppersberger and $2,000 to Rogers during that same period.

In a statement denouncing the letter from Ruppersberger and Rogers, ULA spokeswoman Jessica Rye said the representatives’ stance “appears to be in response to special interest political pressures promulgated by less capable, unproven launch providers with a much longer history of rhetoric than launch success.”

But Boeing and Lockheed have also given the two representatives campaign donations — and in larger amounts than what SpaceX and Orbital gave. Lockheed’s PAC has donated $20,000 to Ruppersberger and $17,000 to Rogers since 2009. In that period, Boeing’s PAC also gave $20,000 to Ruppersberger and gave $16,000 Rogers.

An industry official at a rival space launch company, speaking on condition he not be named, said the “quantity discount” argument made sense a few years ago when ULA was the sole contractor capable of lifting a wide variety of payloads, but there are now other companies with rockets, such as SpaceX’s Falcon 9 and Orbital’s Antares, that could do the job with medium-sized and smaller loads — and for a cheaper price — without the overhead subsidy provided to ULA.

“The Air Force is going down the road with ULA at hideously exorbitant prices for no apparent reason. Why lock yourself in for the next few years at such high prices?” the industry official said. “They’re in a position where they should be able to leverage for lower prices and less taxpayer money spent on these launches, because there are less expensive rockets that can do the job at a medium class level.”