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The Final Frontier At Costco Prices


Gazillionaire Elon Musk is a techie highflier in more ways than one. On Nov. 19 the Silicon Valley phenom, who made more than $200 million before he was 32 by selling his founding stakes in PayPal Inc. () and software maker Zip2 Corp., flew on his Falcon 900 jet from his home in Bel Air, Calif., to Boston to deliver a talk at Harvard Business School. The next day it was Manhattan, where he mingled with the glitterati at the opening of Syriana, a movie partially bankrolled by pal and former eBay executive Jeff Skoll. On Nov. 21, Musk made a brief stop in California on the way to Kwajalein Atoll in the Marshall Islands. That exotic spot, he hopes, will be the launchpad -- literally -- of his latest bid for glory: propelling his startup, Space Exploration Technologies Corp., into the big-bucks world of rocketry.

If SpaceX succeeds in lofting its rocket and an Air Force Academy research satellite into orbit, Musk will vindicate his vision and his investment. Financed almost entirely out of his own pocket, the company is the South Africa native's attempt to carve out a lucrative niche in the wildly expensive launch business. Musk believes that he can blast military and commercial satellites into space at Costco prices -- $6.7 million for a small payload and $38 million to $78 million for a heavyweight launch. By comparison, the Air Force's total cost for a Boeing or Lockheed Martin launch of a big payload comes to about $230 million, up from an inflation-adjusted $95 million in 1998.

DELAYS, DELAYS

So far, satellite customers have rewarded Musk's optimism with $200 million in advance launch contracts. The company faces just two problems. While SpaceX, based in El Segundo, Calif., has fired off plenty of press releases, it has yet to get a rocket off the ground. Its first launch, already two years behind schedule, was scrubbed on Nov. 26 because of a balky computer and a liquid-oxygen leak from a valve inadvertently left open. The company expects to try again in mid-December.

SpaceX could face another hurdle as formidable as Earth's gravity. The Defense Dept. may soon sign off on a Boeing-Lockheed joint venture that critics fear could lock up the Air Force's $32 billion heavy-payload launch program, known as Evolved Expendable Launch Vehicles (EELV), until 2011. That would freeze SpaceX and other entrepreneurs out of a huge chunk of the military market.

SpaceX is fighting hard to block the monopoly in the courts and at the Federal Trade Commission, which must approve the deal. But even if his outfit does not get a shot at big military satellites, Musk hopes to thrive by taking on Orbital Sciences Corp. () in Dulles, Va., and the bargain-basement Russians and Ukrainians in the business of lifting smaller commercial payloads. SpaceX's under-$7 million small-payload launches cost one-third to one-half of Orbital Sciences' prices, according to data compiled by the American Institute of Aeronautics & Astronautics.

Such rock-bottom fees -- and a belief in the reliability of SpaceX's gear -- have attracted a range of clients, from an unidentified U.S. intelligence agency to the Malaysian government to Las Vegas-based Bigelow Aerospace. The startup is betting that companies will want to do research on the inflatable space stations it plans to put into orbit. Bigelow figures that SpaceX will work out any glitches, making its scheduled launch in 2008 a bargain worth the risk. "What Elon is doing is not a small leap," says Michael N. Gold, Bigelow's corporate counsel. "He's looking at a significant reduction in price" compared with his rivals.

LIGHT YEARS AHEAD?

Over a double grande latte blended with a half-dozen packs of sugar at the Whole Foods in New York's Time Warner Center, the 34-year-old Musk explains why his blueprint isn't just blue sky. Musk, who holds business and physics degrees from the University of Pennsylvania, insists he's light years ahead of previous space startups, most of which came a cropper because of undercapitalization, a lack of engineering talent, and reliance on dodgy technology.

In contrast, Musk hired what he calls the Michael Jordans of engineering from major players such as Boeing Co. and TRW Inc. () Musk -- a risk-taker who boasts of having driven his McLaren F1 sports car at 215 mph on an airport runway -- has plowed $100 million of his own money into the company, supplemented by smaller investments from friends and relatives. That cushion, he says, gives SpaceX the reserves to withstand three launch failures.

Musk says he has overcome many technical hurdles by simplifying launch hardware. For example, SpaceX uses the same engine on all its stages instead of different units. Its electronics are on chips instead of circuit boards, which reduces wiring glitches. To slice costs, most SpaceX rocket stages are reusable instead of expendable. And SpaceX intends to save money by recovering sections from the ocean instead of rebuilding an entire rocket. Musk also brought a Silicon Valley business model to Southern California, forming a small, innovative, 150-employee company, a sharp contrast to the bureaucratic legions who toil on launches for Boeing and Lockheed Martin Corp. In an age of outsourcing, SpaceX makes its engines and boosters in-house to avoid high-priced suppliers such as Pratt & Whitney (), General Electric (), and Rolls-Royce . If he used those manufacturers' components, Musk says, he would be trapped in "the high-cost culture of the space industry."

Musk's game plan has its skeptics. "Reductions in launch costs have proven remarkably elusive over the last half-century," notes John E. Pike, director of globalsecurity.org, an Alexandria (Va.) think tank. But others think SpaceX has a chance. John R. London III, assistant for project management and development at NASA's Marshall Space Flight Center in Huntsville, Ala., is impressed by the quality of the people SpaceX has hired. "I think they will ultimately be successful," London says. As for problems with the launch at Kwajalein, London is unfazed. "This is not an unusual kind of thing you see when developing new launch systems," he says.

But SpaceX fears it may not get a chance to offer the government its bargain blastoffs. To block the Boeing-Lockheed Martin joint venture, the company is spending as much time in the courtroom as in the cleanroom. While SpaceX lost its first court challenge, the opposition apparently compelled the Air Force to back off its plan, laid out in an internal memo, to shut out everyone but the two giants for launches through 2011. Instead, the Air Force told the Court of Federal Claims in Washington it would dole out contracts only through 2006 and delay awarding later lifts. SpaceX is slated to launch a spy satellite on an EELV-class booster in early 2007 -- thus qualifying to compete for EELV launches in 2007 and later years.

Even then, Boeing and Lockheed Martin will have a competitive edge: The Air Force is footing the bill for their infrastructure costs. The service argues that it needs to subsidize the giants in the wake of the collapse of the commercial launch market to ensure that it has at least two options for lifting its vital payloads. But the huge increase in launch costs is drawing fire from Capitol Hill.

The Air Force's strategy seems particularly clumsy now that demand for commercial launches is poised to bounce back. Aerospace consultant Futron Corp. in Bethesda, Md., predicts that the number of commercial launches will double in the next decade.

For Musk, beating the big guys out of a share of the launch market is just the start. His ultimate goal is to turn everyone into a highflier by making launches so cheap, easy, and common that humans will become, in his words, "a space-faring, multiplanet species." Musk wants to colonize Mars as a backup planet because Earth is vulnerable to manmade and natural disasters. Beachfront property on the Red Planet? Maybe someday. But first, Musk has to get off the beach at Kwajalein and show the doubters that his rockets can soar as high as his rhetoric.

By Stan Crock


Steve Ballmer, Power Forward
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