    [House Hearing, 108 Congress]
    [From the U.S. Government Publishing Office]

                        H.R. 3245, COMMERCIAL SPACE ACT
                                    OF 2003

    =======================================================================

                                    HEARING

                                   BEFORE THE

                     SUBCOMMITTEE ON SPACE AND AERONAUTICS

                              COMMITTEE ON SCIENCE
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                   __________

                                NOVEMBER 5, 2003

                                   __________

                               Serial No. 108-33

                                   __________

                Printed for the use of the Committee on Science

         Available via the World Wide Web: http://www.house.gov/science

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                                     ______

                              COMMITTEE ON SCIENCE

                 HON. SHERWOOD L. BOEHLERT, New York, Chairman
    LAMAR S. SMITH, Texas                RALPH M. HALL, Texas
    CURT WELDON, Pennsylvania            BART GORDON, Tennessee
    DANA ROHRABACHER, California         JERRY F. COSTELLO, Illinois
    JOE BARTON, Texas                    EDDIE BERNICE JOHNSON, Texas
    KEN CALVERT, California              LYNN C. WOOLSEY, California
    NICK SMITH, Michigan                 NICK LAMPSON, Texas
    ROSCOE G. BARTLETT, Maryland         JOHN B. LARSON, Connecticut
    VERNON J. EHLERS, Michigan           MARK UDALL, Colorado
    GIL GUTKNECHT, Minnesota             DAVID WU, Oregon
    GEORGE R. NETHERCUTT, JR.,           MICHAEL M. HONDA, California
        Washington                       CHRIS BELL, Texas
    FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
    JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
    WAYNE T. GILCHREST, Maryland         SHEILA JACKSON LEE, Texas
    W. TODD AKIN, Missouri               ZOE LOFGREN, California
    TIMOTHY V. JOHNSON, Illinois         BRAD SHERMAN, California
    MELISSA A. HART, Pennsylvania        BRIAN BAIRD, Washington
    JOHN SULLIVAN, Oklahoma              DENNIS MOORE, Kansas
    J. RANDY FORBES, Virginia            ANTHONY D. WEINER, New York
    PHIL GINGREY, Georgia                JIM MATHESON, Utah
    ROB BISHOP, Utah                     DENNIS A. CARDOZA, California
    MICHAEL C. BURGESS, Texas            VACANCY
    JO BONNER, Alabama
    TOM FEENEY, Florida
    RANDY NEUGEBAUER, Texas
                                     ------

                     Subcommittee on Space and Aeronautics

                     DANA ROHRABACHER, California, Chairman
    LAMAR S. SMITH, Texas                BART GORDON, Tennessee
    CURT WELDON, Pennsylvania            JOHN B. LARSON, Connecticut
    JOE BARTON, Texas                    CHRIS BELL, Texas
    KEN CALVERT, California              NICK LAMPSON, Texas
    ROSCOE G. BARTLETT, Maryland         MARK UDALL, Colorado
    GEORGE R. NETHERCUTT, JR.,           DAVID WU, Oregon
        Washington                       EDDIE BERNICE JOHNSON, Texas
    FRANK D. LUCAS, Oklahoma             SHEILA JACKSON LEE, Texas
    JOHN SULLIVAN, Oklahoma              BRAD SHERMAN, California
    J. RANDY FORBES, Virginia            DENNIS MOORE, Kansas
    ROB BISHOP, Utah                     ANTHONY D. WEINER, New York
    MICHAEL BURGESS, Texas               VACANCY
    JO BONNER, Alabama                   RALPH M. HALL, Texas
    TOM FEENEY, Florida
    SHERWOOD L. BOEHLERT, New York
                    BILL ADKINS Subcommittee Staff Director
                     ED FEDDEMAN Professional Staff Member
                  RUBEN VAN MITCHELL Professional Staff Member
                      KEN MONROE Professional Staff Member
                     CHRIS SHANK Professional Staff Member
             RICHARD OBERMANN Democratic Professional Staff Member
                          TOM HAMMOND Staff Assistant

                                C O N T E N T S

                                November 5, 2003

                                                                       Page
    Witness List.....................................................     2

    Hearing Charter..................................................     3

                               Opening Statements

    Statement by Representative Dana L. Rohrabacher, Chairman,
      Subcommittee on Space and Aeronautics, Committee on Science,
      U.S. House of Representatives..................................     6
        Written Statement............................................     7

    Statement by Representative Bart Gordon, Minority Ranking Member,
      Subcommittee on Space and Aeronautics, Committee on Science,
      U.S. House of Representatives..................................     7

                                   Witnesses:

    Mr. Gary C. Hudson, Chief Executive Officer, HMX, Inc.
        Oral Statement...............................................     8
        Written Statement............................................    10
        Biography....................................................    13

    Mr. Michael S. Kelly, Technical Manager, Northrop-Grumman/Xon
      Tech
        Oral Statement...............................................    14
        Written Statement............................................    17
        Biography....................................................    20

    Mr. Raymond F. Duffy, Jr., Senior Vice President, Willis InSpace
      Insurance Underwriters
        Oral Statement...............................................    22
        Written Statement............................................    24

    Dr. Henry R. Hertzfeld, Senior Research Scientist, Elliot School
      of International Affairs, George Washington University
        Oral Statement...............................................    26
        Written Statement............................................    28
        Biography....................................................    30

    Ms. Pamela L. Meredith, Counsel, Zuckert, Scoutt & Rasenberger,
      LLP
        Oral Statement...............................................    31
        Written Statement............................................    32
        Biography....................................................    39

    Discussion
      Passenger Indemnification......................................    40
      Government Responsibility......................................    43
      Effects of Cost on Access to Space.............................    47
      The Purpose of Commercial Human Space Flight...................    48
      Effects of a Loss of a Vehicle.................................    48
      Determining a Balance of Regulation............................    49
      Experimental Certification.....................................    51
      RLV vs. EELV...................................................    52
      Risk...........................................................    52
      Indemnification for Vehicle Operators..........................    56
      Indemnification and Industry Survival..........................    57
      Manned vs. Unmanned Regulation.................................    57

                 Appendix 1: Answers to Post-Hearing Questions

    Mr. Gary C. Hudson, Chief Executive Officer, HMX, Inc............    60

    Mr. Michael S. Kelly, Technical Manager, Northrop-Grumman/Xon
      Tech...........................................................    63

    Mr. Raymond F. Duffy, Jr., Senior Vice President, Willis InSpace
      Insurance Underwriters.........................................    67

    Dr. Henry R. Hertzfeld, Senior Research Scientist, Elliot School
      of International Affairs, George Washington University.........    69

    Ms. Pamela L. Meredith, Counsel, Zuckert, Scoutt & Rasenberger,
      LLP............................................................    73

                 Appendix 2: Additional Material for the Record

    H.R. 3245, Commercial Space Act of 2003..........................    82

    Section Analysis of H.R. 3245....................................    93

    Prepared Statement by James A.M. Muncy, Space Policy Consultant,
      PoliSpace......................................................    95

    A ``Clean Sheet'' Perspective on Promoting and Regulating the
      Commercial Space Flight Industry, by Gary C. Hudson, October
      28, 2003.......................................................   101

    Statement by Jeff Greason, President, XCOR Aerospace.............   107

                    H.R. 3245, COMMERCIAL SPACE ACT OF 2003

                                  ----------

                          WEDNESDAY, NOVEMBER 5, 2003

                      House of Representatives,
                 Subcommittee on Space and Aeronautics,
                                          Committee on Science,
                                                        Washington, DC.

        The Subcommittee met, pursuant to call, at 10:37 a.m., in
    Room 2318 of the Rayburn House Office Building, Hon. Dana L.
    Rohrabacher [Chairman of the Subcommittee] presiding.

                                hearing charter

                     SUBCOMMITTEE ON SPACE AND AERONAUTICS

                              COMMITTEE ON SCIENCE

                         U.S. HOUSE OF REPRESENTATIVES

                        H.R. 3245, Commercial Space Act

                                    of 2003

                          wednesday, november 5, 2003
                             10:30 a.m.-12:30 p.m.
                       2318 rayburn house office building

    A. Purpose

        On Wednesday, November 5, 2003, at 10:30 a.m., the House
    Subcommittee on Space and Aeronautics will hold a hearing to address
    the legal, regulatory, and public policy ramifications of H.R. 3245,
    the Commercial Space Act of 2003, for the emerging commercial human
    space flight industry. The entrepreneurs who comprise this industry
    hope in the near future to provide round trips into space for paying
    customers. H.R. 3245 proposes to regulate and license domestic
    commercial human space flight through the Associate Administrator for
    Commercial Space Transportation (AST) within the Federal Aviation
    Administration (FAA).\1\ The bill also proposes to provide government
    indemnification to commercial human space flight providers for certain
    liabilities incurred from launch mishaps.
    ---------------------------------------------------------------------------
        \1\ In 1985, the FAA created the Office of Commercial Space
    Transportation (OCST) to regulate and promote the commercial space
    transportation industry. In 1995, OCST's authority was transferred to
    the FAA's Associate Administrator for Commercial Space Transportation.
    This office is commonly known as the ``AST.''
    ---------------------------------------------------------------------------
        This hearing will examine the relative merits of regulating
    commercial human space flight through the AST, or the FAA's Aircraft
    Certification and Regulations Office (AVR),\2\ or through another
    Government office and, by extension, the manner in which experimental
    launch vehicles should be regulated. The hearing will also address the
    merits of providing indemnification to commercial human space flight
    ventures. The government already offers indemnification to traditional
    commercial space transportation ventures, such as satellite launch
    operations.
    ---------------------------------------------------------------------------
        \2\ For historical reasons, the FAA's Aircraft Certification and
    Regulations Office is commonly known as the ``AVR.''
    ---------------------------------------------------------------------------

    B. Critical Questions

        The following questions were submitted in advance to all of the
    witnesses:

            1.  Should the government regulate commercial human space
            flight? If so, what should the public policy objectives (e.g.,
            encouraging development of the industry, protecting third
            parties, protecting passengers, etc.) of that regulation be and
            how should they be balanced?

            2.  Should the government offer indemnification for commercial
            human space flight, and if so, against what sorts of liability?
            How should any indemnification relate to existing policies and
            international treaties?

            3.  What changes would you recommend to H.R. 3245? In
            particular, do you support commercial human space flight being
            regulated by the Office of Commercial Space Transportation at
            the Federal Aviation Administration? If not, where and in what
            manner would you propose to regulate commercial human space
            flight?

    C. Witnesses

            1)  Gary Hudson is the Chief Executive Officer of HMX, an
            aerospace services company. Mr. Hudson is the former President
            and Chief Executive Officer of the Rotary Rocket Company.

            2)  Michael S. Kelly is a Technical Manager at Northrop-
            Grumman/Xon Tech, and founder of the Kelly Space and Technology
            Corporation. Mr. Kelly currently heads the Commercial Space
            Transportation Advisory Committee's (COMSTAC) reusable launch
            vehicle working group.

            3)  Raymond Duffy, Jr. is Senior Vice President at Willis
            InSpace Insurance Underwriters.

            4)  Henry Hertzfeld is a Senior Research Staff Scientist at the
            Space Policy Institute Center for International Science and
            Technology Policy at the George Washington University.

            5)  Pamela Meredith is of counsel at the law firm of Zuckert,
            Scoutt & Rasenberger, LLP where she practices aerospace and
            space law. Ms. Meredith also is an Adjunct Professor of
            satellite communications and space law at American University's
            Washington College of Law.

    D. Background

    The Existing Regulatory Regime for Commercial Space Transportation
            Launches
        Any person or private entity wishing to conduct commercial space
    transportation activities (generally, satellite launches) in the United
    States must obtain FAA authorization to do so. Furthermore, U.S.
    citizens must obtain authorization from the FAA to operate launch or
    re-entry sites anywhere in the world. The FAA derives this authority
    from the Commercial Space Launch Act of 1984 (CSLA) and has delegated
    that authority to the AST. The AST has the dual mandate of regulating
    and promoting the commercial space transportation industry in the
    United States.
        When the CSLA was enacted, only expendable launch vehicles (ELVs),
    sounding rockets, and certain types of ballistic missiles were
    available for private sector use. These vehicles typically are used to
    lift satellites into orbit. Since enactment of the CSLA, commercial
    enterprises have pursued the development of reusable launch vehicles
    (RLVs). A reusable launch vehicle is one that is designed to return
    from Earth orbit or outer space to Earth substantially intact. Congress
    amended the CSLA in 1998 to add licensing authority for re-entry
    vehicles, including RLVs. Proponents of the use of RLVs hope that they
    may ultimately provide trans-atmospheric high-speed flight around the
    globe for rapid international travel.
        With developmental RLVs designed to fly human beings into outer
    space, a number of applicants have approached the AST desiring to enter
    the space launch licensing process. The ``hybrid'' design of certain of
    these vehicles and the fact that RLVs are meant to carry human
    passengers makes the question of how they should be regulated
    difficult. For example, some RLV concepts are considered ``hybrids''
    because they combine aviation (for example, wings) and space
    technologies (for example, rocket propulsion). This hybrid quality
    muddies the regulatory lines of authority over RLVs between traditional
    space and aviation regulatory authorities. The fact that human beings
    will be passengers on the RLVs also creates regulatory confusion
    inasmuch as the established regulatory process for licensing commercial
    space launches currently does not contemplate human passengers, while
    aviation regulation has had authority to regulate passenger-carrying
    vehicles in the past.
        Some in the industry believe that the AST should regulate RLVs
    because the vehicles are designed to reach space and this is the
    traditional domain of the AST. However, there have been complaints that
    the AST licensing process is too slow to allow the commercial human
    space flight industry to grow. Moreover, AST has little experience
    regulating aviation technologies and no experience regulating vehicles
    with passengers. As an alternative to regulation by AST, some in the
    industry believe that the AVR should take the lead in regulation. AVR
    has a relatively streamlined process in place for certifying
    experimental aircraft and experience regulating passenger-carrying
    vehicles. Still others in the industry believe that commercial human
    space flight should not be regulated whatsoever or they advocate the
    creation of a wholly new office within the Federal Government to
    regulate commercial human space flight ventures.
        At present, it is not clear what type of regulatory regime would
    (or should) cover commercial human space flight operations.
    Specifically, it is not apparent whether a standard commercial space
    launch license issued by the AST must be issued, or whether an aircraft
    certification, such as an experimental airworthiness certification,
    should be issued by the AVR. It should be noted that the FAA recently
    issued regulations meant to clarify the FAA licensing requirements for
    hybrid RLVs based on the design of the vehicle and that these
    regulations mirror the definitions proposed in H.R. 3245. However, the
    FAA regulations do not (and are not meant to) cover human space flight.
    Regardless, there is an overall concern that uncertainty about the
    applicable regulatory regime may impede the ability of developers of
    systems for commercial human space flight to obtain financing from
    would-be investors.

    Government Indemnification for Commercial Human Space Flight Operations
        In 1988, Congress amended the CSLA to indemnify the commercial
    space launch industry against successful claims by third parties.
    Specifically, the United States currently agrees to pay third party
    claims against licensees in amounts up to $1.5 billion above the amount
    of insurance that a licensee carries. The CSLA's definition of ``third
    party'' excludes all government employees, private employees, and
    contractors involved directly with the launch of a vehicle.
        The CSLA requires that private launch companies purchase sufficient
    liability insurance to cover a minimum amount of damage. This amount is
    determined by the FAA on a case-by-case basis depending on its
    calculation of the ``maximum probable loss'' from claims by a third
    party.\3\ This amount is capped at $500 million for coverage against
    suits by private entities.
    ---------------------------------------------------------------------------
        \3\ In the alternative to purchasing adequate insurance, private
    launch companies must demonstrate that they have adequate resources to
    cover all potential losses.
    ---------------------------------------------------------------------------
        Since the majority of commercial launch activity occurs at national
    launch ranges (for example, Cape Canaveral and Vandenburg Air Force
    Base), the CSLA also requires any insurance policy a company obtains to
    also protect the Federal Government, its agencies, personnel,
    contractors, and subcontractors.
        The liability insurance section of the CSLA requires reciprocal
    waivers of claims between the licensee and its contractors,
    subcontractors, and customers. In effect, the licensee and any other
    organization assisting in the actual launch are preventing from seeking
    damages from one another.
        Since its enactment, the CSLA's indemnification regime has been
    subject to an expiration date. The expiration date already has been
    extended by Congress several times. At present, FAA-licensed launch
    operators are ensured of indemnification under the statutorily
    prescribed procedures through December 31, 2004. H.R. 3245 extends
    indemnification through December 31, 2007.

    International Law Governing Space Launches
        International agreements make clear that the United States bears
    absolute liability for the international consequences of private
    American space launches. By setting insurance requirements based on
    maximum probable loss, as directed by the CSLA, the Government is
    essentially making a risk estimate that its potential liability under
    international agreements will be covered by the insurance purchased.
        The international law governing the United States' outer space
    activities consists of four multinational treaties and ``customary
    space law.'' Two of the treaties, the Outer Space Treaty of 1967 and
    the Liability Convention of 1972, expressly address issues of third
    party liability in the international context. Article VI of the Outer
    Space Treaty places responsibility for all national outer space
    activities on respective government signatories, even when a launch is
    conducted by a private organization. The Liability Convention expands
    the basic international liability concepts set forth in the Outer Space
    Treaty. To date, there have been no claims under international law for
    third-party liability resulting from U.S.-licensed commercial launches.

    The Regulatory and Indemnification Regime Proposed by H.R. 3245
        H.R. 3245 seeks to amend the CSLA by placing authority for the
    regulation of human space flight activities under the AST. As stated in
    its findings, the bill means to ``create a clear legal and regulatory
    regime for commercial space transportation, including an unambiguous
    delineation of regulatory roles and responsibilities.''
        H.R. 3245 recognizes that with the advent of commercial human space
    flight there are two new factors with which to deal in the commercial
    space transportation regulatory and liability risk-sharing regimes:
    passengers and crew. The bill delineates qualifications that passengers
    must meet to be eligible for space flight, but does not contemplate
    qualifications for crew members. The bill also includes a provision
    requiring a reciprocal waiver of liability claims between licensees and
    passengers, but the bill is not clear as to treatment of the crew for
    liability purposes.
        H.R. 3245 broadens the existing indemnification regime for
    commercial space transportation launches to include commercial human
    space flight launches and extends the indemnification regime by three
    years. In addition, the bill directs the Secretary of Transportation to
    arrange for the National Academy of Public Administration (NAPA) to
    conduct a study on the existing liability-risk sharing regime for
    commercial space transportation.
        Chairman Rohrabacher. I hereby call this meeting of the
    Space and Aeronautics Subcommittee to order. And without
    objection, the Chair will be granted the authority to recess
    this committee at any time. Hearing no objection, so ordered.
        At today's hearing, we will examine the topic of commercial
    human space flight as it relates to H.R. 3245, the Commercial
    Space Act of 2003, a bill I have sponsored and Bart Gordon co-
    sponsored. We will explore whether launch vehicles that carry
    people to outer space merits government indemnification,
    especially if those vehicles are private sector vehicles, and
    whether current regulatory processes needed to be--or need to
    be changed or whether legal regimes for protecting passengers
    and crew as well as the uninvolved public are adequate. I
    believe space entrepreneurs offer great hope for our troubled
    space transportation industry by introducing new, innovative
    concepts and yes, as being examples and inspirations to people
    within the industry and within government.
        Testimony given at a joint hearing between this
    subcommittee and its Senate counterpart last July revealed that
    government regulations are pivotal in the early development of
    space entrepreneurial ventures, however, bureaucratic red tape
    simply can't be allowed to impede the growth of such promising
    industries. As Ronald Reagan, a fellow I used to work for, once
    observed when signing the first Commercial Space Act 20 years
    ago: ``We need to cut red tape to see blue sky.'' However,
    there is something about the color of the sky that may not be
    right in that quote, because what we are looking for is not
    blue sky, but we are looking to go beyond blue sky.
        And that said, the FAA's Space Transportation Office has
    announced a determination of a licensed application for the
    first passenger carrying RLV and that it has--this application
    has been completed, which means that the 180-day clock for the
    license approval process has begun for a sub-orbital RLV
    manufacturing company. This is a major first step for the
    industry and a hopeful sign for the future of commercial human
    space flight. I believe H.R. 3245 will help nurture this
    emerging commercial human space flight industry. We owe our
    support to those individuals who continue to push the
    boundaries of the new frontiers that are--that confront us and
    especially those in the commercial space transportation
    industry.
        Critical areas where H.R. 3245 is silent or lacks clarity
    will be examined and explored today so that the legislation can
    be strengthened in preparation for a markup early next year in
    the Full Committee. The bipartisan support already demonstrated
    for this bill demonstrates a bipartisan support for the
    concept, and let us get moving on it. And we may have changes
    based on your testimony today. But if--but the bipartisan
    support will ensure that we do move forward and that we are
    taking your observations and your recommendations that you have
    for us today very seriously. So the expert witnesses we have
    assembled will help us achieve this end.
        [The prepared statement of Chairman Rohrabacher follows:]

                Prepared Statement of Chairman Dana Rohrabacher

        Today's hearing will examine the topic of commercial human space
    flight as it relates to H.R. 3245, the Commercial Space Act of 2003, a
    bill I've sponsored and Bart Gordon co-sponsored. We will explore
    whether launch vehicles that carry people to outer space merits
    government indemnification, whether current regulatory processes need
    to be changed, and whether legal regimes for protecting passengers and
    crew, as well as the uninvolved public, are adequate. I believe space
    entrepreneurs provide a beacon of hope for our troubled space
    transportation industry by introducing innovative concepts.
        Testimony given at a joint hearing between this subcommittee and
    its Senate counterpart last July revealed that government regulations
    are pivotal in the early development of space entrepreneurial ventures.
    However, bureaucratic red tape simply can't be allowed to impede the
    growth of such promising industries. As Ronald Reagan observed when
    signing the first Commercial Space Act twenty years ago, ``we need to
    cut real red tape to see blue sky.''
        That said, the FAA's space transportation office has announced that
    a determination of a license application for the first passenger-
    carrying RLV has been completed. This means that the 180-day clock for
    the license approval process has begun for a sub-orbital RLV
    manufacturing company. This is a major first for the industry, and a
    hopeful sign for the future of commercial human space flight. I believe
    H.R. 3245 will help nurture this emerging commercial human space flight
    industry.
        We owe our support to those individuals who continue to push the
    boundaries of new frontiers in the commercial space transportation
    industry. Critical areas where H.R. 3245 is silent or lacks clarity
    will be explored today, so that the legislation can be strengthened in
    preparation for markup early next year.
        The bipartisan support already demonstrated for this bill will
    ensure its success in moving forward in a careful and deliberative way
    within the Committee. The expert witnesses we have assembled will help
    us achieve that end.

        Chairman Rohrabacher. And now I would turn to our Ranking
    Member, Mr. Gordon, for his opening statement.
        Mr. Gordon. Thank you, Mr. Chairman, and good morning.
        I want to add my welcome to the witnesses to today's
    hearing, and I look forward to a good exchange of views.
        As Chairman Rohrabacher has said in his opening statement,
    we will be discussing a number of provisions in this--in his
    commercial space bill H.R. 3245. I am happy to be an original
    co-sponsor of this bill, as I believe we need to clarify the
    congressional intent with respect to the emerging commercial
    human space flight industry. Of course, as today's testimony
    will bear out, we are dealing with complex issues, and there
    are varying points of view. As I stated at last month's
    Subcommittee markup of this legislation, we all will benefit
    from further discussion and provisions of the Chairman's bill.
    And I welcome today's hearing as an important first step.
        There are several items, in particular, that I hope the
    witnesses will address. For example, at least one of the
    witnesses argues that we should not extend existing
    indemnification provisions to the commercial human space flight
    industry. I hope he will elaborate on this--on his rationale.
    And I would like to hear the other witnesses given their views
    on the topic. In addition, it appears that some of the
    witnesses at today's hearing, and at July's joint hearing with
    the Senate, would argue for a hands-off approach by the
    Government relative to passenger safety on these systems. Will
    such an approach be sufficient? And is there going to be a
    point at which the Government is going to have to get involved
    as it is in the aviation industry?
        I would also like to hear what they think the industry
    should do ensuring safety--or passenger safety if the
    Government is to get involved.
        Well, there is a lot to talk about today, and once again, I
    am glad you are here.
        And Mr. Chairman, I yield back my time.
        Chairman Rohrabacher. Thank you very much.
        And without objection, the opening statements of other
    Members will be put into the written record so we can get right
    to the testimony. Hearing no objection, so ordered.
        I also ask unanimous consent to insert at the appropriate
    place in the record and the background memorandum prepared by
    the Majority staff for this hearing. And hearing no objection,
    so ordered.
        And before beginning, I also ask unanimous consent to
    insert at this point in the record the written testimony that I
    have invited from Jim Muncy on this legislation. Without
    objection, so ordered. [Note: The prepared statement of Mr.
    Muncy appears in Appendix 2: Additional Material for the
    Record.]
        I further ask unanimous consent that the record for this
    hearing remain open until November 12, 2003 so that the public
    may provide additional written testimony for the record on H.R.
    3245 and that testimony may be inserted into the record.
    Without objection, so ordered.
        And we do have a distinguished panel with us today to
    provide their unique perspective on the critical issues that we
    are examining. We have asked them, and I would ask them to
    summarize, if you may, or points to--if you get--if you can
    summarize in five minutes. That means we are going to really
    pay attention to the most important points that you have to
    make, but the longer you go over five minutes, the less
    attention we are going to pay to your most important points. So
    we would hope that you could summarize and focus on those
    things that are most contentious and the things that you want
    to convey. However, your full testimony will be made part of
    the record. And we will be looking at that as we move forward
    with this legislation.
        Our first witness is Gary Hudson, who is the Chief
    Executive Officer of HMX, an aerospace services company. Mr.
    Hudson is the former President and Chief Executive Officer of
    Rotary Rocket Company. And Mr. Hudson, you may now proceed.

    STATEMENT OF MR. GARY C. HUDSON, CHIEF EXECUTIVE OFFICER, HMX,
                                  INC.

        Mr. Hudson. Mr. Chairman, Members of the Subcommittee, I
    have timed this at exactly five minutes, so we will see if I am
    close.
        I have 34 years of experience in promoting commercial space
    transportation, and I always intend, even in my current semi-
    retirement, to continue to speak my mind, so thank you for
    listening.
        Today, there is an argument raging in the emerging launch
    industry: How should piloted space flight vehicles be
    regulated?
        The origin of this debate goes back two decades. At the
    time, private rocketeers faced a number of federal agencies,
    each of whom claimed they were in charge. These ranged from the
    FAA, which had the legitimate authority under the then existing
    law, to the Department of State, which wanted to regulate
    rocket launches under the absurd notion that they were exports.
    The professed goal of the sponsors of the first Commercial
    Space Act was to put an end to this problem and provide a one-
    stop-shop for launch approvals. I supported that unreservedly.
        But I lost the battle to limit the scope of the Act.
    Instead, a completely new entity was created, the Office of
    Commercial Space Transportation, as well as a new concept,
    federal launch license. At the time, some of us complained this
    new entity was not needed, that the existing law was adequate
    with minor revisions, that the new OCST would not be able to
    figure out what to do about piloted reusable rockets. Our
    concerns were brushed aside. They have now emerged as crucial
    to the future survival of an industry in crisis.
        Some may be concerned that I stand in opposition to H.R.
    3245. This is decidedly not so. I do support it, and with
    additions, as you have mentioned, Mr. Chairman, wish to see it
    passed. I applaud those who have worked hard to bring it to
    this body, and I will be happy to work with you to improve the
    wording of the Act to address certain issues. One of these
    issues is the perception of risk.
        It is my duty to remind this committee that there has been
    no third-party injury since the beginning of the Space Age in
    the Western world. During the past 20 years, we have spent tens
    of millions of taxpayer dollars funding AST and, before it,
    OCST. In the next decade, we will spend over $100 million more
    just for regulation. My question to our industry and to this
    Congress is: Have these funds made us safer that if we had
    retained our previous regulatory structure under prior Federal
    Aviation Regulations? I think the answer is unambiguously: No.
        AST has grown increasingly bureaucratic. Launch license are
    now major federal actions. In spite of my warnings and counsel
    of the past five years, we have now reached a crisis.
    Experiment flight-testing of sub-orbital passenger vehicles has
    begun. AST is not up to the challenge of this development.
    Therefore, I recommend its dis-establishment and the
    elimination of the need for U.S. persons to seek launch
    licenses. In its place, I propose we return to the pre-1984 law
    governed by the Federal Aviation Regulations. This will be
    sufficient to protect the safety of third parties and to
    fulfill international obligations. Piloted rocket aircraft of a
    variety of types would then be regulated under the--by the FAA
    under ``experimental'' type certificates. Several rocket
    aircraft have already been issued such type certificates.
        The strongest objection to such an approach comes from my
    good friends and colleagues who wish to begin offering
    passenger rides and who fear the cost of FAA standard type
    certification. I understand their position and I sympathize.
    And I believe a barnstorming era for space transportation is
    desperately needed, but we can reach that result by forthright
    action of a different type.
        Current FAA rules generally prohibit revenue flying of
    experimental aircraft. I propose we simply change the rule.
    Congress can permit certain experimental type certified
    aircraft defined as space vehicles to operate under a limited
    exemption for a period of time, call it 20 years.
    Coincidentally, this time is the same period from the Wright
    Brothers' first flight to the establishment of the first Civil
    Aeronautics Authority by this--Congress in 1926. Some have
    asked: ``How do we protect the passengers on those flights?''
    H.R. 3245 correctly supplies the solution by defining ``space
    flight participants'' as someone who would give their informed
    consent to fly.
        Another issue is liability. In 1972, the U.S. Government
    unwisely assumed responsibility for worldwide third party
    liability from space launches from any U.S. person.
    Fortunately, the letter of the treaty can be satisfied by
    requiring that individual launch operators obtain liability
    insurance. Indeed, this is a current AST requirement.
        Interestingly, a similar system as I propose is in place
    for commercial launches in Russia. There are no launch
    licenses, no environmental impact statements, no two-year
    process costing hundreds of thousands or millions of dollars.
    Provide your insurance certificate, submit proper
    notifications, and you are good to go. How is it that the
    bureaucrats of the former Soviet Empire can be more rational
    and sensible than we?
        And I am afraid the Chairman has stolen my thunder, because
    I say signing the first Commercial Space Act 20 years ago,
    Ronald Reagan said: ``Let us cut red tape to see that blue
    sky.'' And I say let us finally do as he wished.
        Thank you.
        [The prepared statement of Mr. Hudson follows:]
                      Prepared Statement of Gary C. Hudson

    Mr. Chairman, Members of the Subcommittee:

        I have spent thirty-four years of my life promoting commercial
    space transportation, and intend--even in my current semi-retirement--
    to continue to speak my mind. Thank you for listening.
        Today there is an argument raging in the emerging launch industry.
    How should piloted human space flight vehicles be regulated?
        The origin of the debate goes back two decades. At that time,
    private rocketeers faced a number of federal agencies each who claimed
    they were in charge. These ranged from the FAA, which had the
    legitimate authority under the existing law, to the Department of
    State, which wanted to regulate rocket launches under the absurd notion
    that they were ``exports.'' The professed goal of the sponsors of the
    first Commercial Space Act was to put an end to this problem and
    provide a ``one-stop-shop'' for launch approvals. I supported that
    unreservedly.
        But I lost the battle to limit the scope of the Act. Instead, a
    completely new entity was created: the Office of Commercial Space
    Transportation, as well as a completely new concept: ``Federal launch
    licenses.'' At the time, some of us complained that the new entity
    wasn't needed, that the existing law was adequate with minor revisions,
    and that the new OCST would not be able to figure out what to do about
    piloted reusable rockets. Our concerns were brushed aside. They have
    now emerged as crucial to the future survival of an industry in crisis.
        Some in this industry may be concerned that I stand in opposition
    to H.R. 3245. This is decidedly not so. I do support it and, with
    additions, wish to see it pass. I applaud those who have worked hard to
    bring it before this body. I will be happy to work with you to improve
    the wording of the Act to address certain issues. One of those issues
    is the perception of risk.
        It is my duty to remind this committee that there has been no third
    party injury since the beginning of the Space Age in the Western world.
    During the past 20 years, we have spent tens of millions of taxpayer's
    dollars funding AST and before it, OCST. In the next decade we will
    spend over $100 million more. Just for regulation! My question to our
    industry and this Congress is: have these funds made us safer than if
    we had retained our previous regulatory structure under previous
    Federal Aviation Regulations? I think the answer is unambiguously no.
        AST has grown increasingly bureaucratic. Launch Licenses are now
    Major Federal Actions. In spite of my warnings and counsel of the past
    five years, we have now reached a crisis. Experimental flight-testing
    of sub-orbital passenger vehicles has begun. AST is not up to the
    challenge of this development. Therefore, I recommend the dis-
    establishment of AST, and the elimination of the need for US persons to
    seek ``launch licenses.'' In its place, I propose that we return to the
    pre-1984 law governed by Federal Aviation Regulations. This will be
    sufficient to protect the safety of third parties and to fulfill
    international obligations. Piloted rocket aircraft of a variety of
    types will then be regulated by the FAA under ``experimental'' type
    certificates. Several rocket aircraft already have been issued such
    certificates.
        The strongest objection to such an approach comes from colleagues
    who wish to begin offering immediate passenger rides who fear the cost
    of FAA certification. I understand their position, and sympathize. And
    I believe that a barnstorming era for space transportation is
    desperately needed. But we can reach that result by other forthright
    action.
        Current FAA rules generally prohibit revenue flying of experimental
    aircraft. I propose we simply change the rule. Congress can permit
    certain experimental aircraft defined as space vehicles to operate
    under a limited exemption for a period of time--20 years.
    Coincidentally this is the same period from the Wright Brothers first
    flight to the establishment of the first Civil Aeronautics Authority in
    1926. Some have asked how we protect the passengers on these flights?
    H.R. 3245 correctly supplies the solution by defining ``space flight
    participants'' as someone who would give their informed consent to fly.
        Another issue is liability. In 1972 the U.S. government unwisely
    assumed responsibility for worldwide third party liability from space
    launches by any U.S. person. Fortunately, the letter of the treaty can
    be satisfied by requiring that individual launch operators obtain
    liability insurance. Indeed, this is a current AST requirement.
        Interestingly, a similar system is in place for commercial launches
    in Russia. There are no launch licenses, no environmental impact
    statements, and no two-year process costing hundreds of thousands or
    millions of dollars. Provide your insurance certificate, submit proper
    notifications, and you are good to go. How is it that the bureaucrats
    of the former Soviet Empire can be more sensible than we?
        Signing the first Commercial Space Act twenty years ago, President
    Ronald Reagan said we would ``cut red tape to see blue sky.'' Let us
    finally do as he wished.
        Thank you.

    Subcommittee Questions:

    Q1.  Should the government regulate commercial human space flight? If
    so, what should the public policy objectives (e.g., encouraging
    development of the industry, protecting third parties, protecting
    passengers, etc.) of that regulation be and should they be balanced?

    1. This is an excellent question. The air travel industry experienced
    it's ``barn storming'' era and operated for over 20 years before the
    creation of the Civil Aeronautics Administration in 1926. Commercial
    human space flight needs a similar period of minimal regulation to
    reach its full potential. Promotion of the industry should be
    encouraged, and the best means to accomplish this will be a light
    regulatory hand. Regulation should be confined, for at least the next
    twenty years, to protecting third parties. Passengers need no
    protection in the near-term, since no one can be imagined to be
    engaging in this experience who is not appraised of the risks. I favor
    having an ``informed consent'' requirement for these second parties.

    Q2.  Should the government offer indemnification for commercial human
    space flight, and if so, against what sorts of liability? How should
    any indemnification relate to existing policies and international
    treaties?

    A2. I do not believe that the government should provide any
    indemnification whatsoever to first or second parties (vehicle
    operators or passengers). I believe the government should require
    operators of commercial human space flight vehicles to obtain third
    party liability insurance with the U.S. Government as a named insured
    as is currently required. This is consistent with the requirements of
    international law, including the 1972 Liability Convention. I do not
    see why the commercial space industry requires indemnification to
    succeed when third party risks are virtually non-existent. In the past
    fifty years there have been no third party injuries or fatalities from
    space launches in the Western world. Ideally, I would like to see the
    U.S. withdraw from the 1972 Liability Convention or renegotiate it to a
    regime more in keeping with the liability limits that were placed on
    international air travel operations by the Warsaw Convention. There is
    no rational reason why the actions of a U.S. person should implead the
    U.S. government in tort claims.

    Q3.  What changes would you recommend to H.R. 3245? In particular, do
    you support commercial human space flight being regulated by the AST?
    If not, where and in what manner would you propose to regulate
    commercial human space flight?

    A3. I recommend the following changes to H.R. 3245:

            1)  Clarification that vehicle operators, and not the
            government, are to set the medical and other standards by which
            they accept ``space flight participants'' into their programs;

            2)  Dis-establishment of AST.

            3)  Direction to FAA to permit experimental space flight
            vehicles to be operated for profit, with the added requirement
            that third party liability insurance be provided by vehicle
            operators identifying the U.S. government as a ``named
            insured.''

            4)  Elimination of ``launch licenses'' in favor of
            reapplication of FAR 101, with appropriate minor changes, to
            conduct unmanned rocket launches.

        I do not support commercial human space flight being regulated by
    AST. I recommend dis-establishment of AST for the reasons sited in my
    testimony. I recommend that commercial human space flight be regulated
    within the FAA by AVR (Regulation and Certification Group) under the
    ``type certification'' environment used for all other aerospace
    vehicles.

    Additional Frequently Asked Questions:

    Q1.  You favor elimination of AST. Isn't that a radical solution?

    A1. I prefer to think that saving $100 million+ over the next decade,
    by dis-establishing AST now, is the far more rational solution. If
    third parties were really at seriously high risk from space launch
    activity, there would be a legitimate argument for AST's continued
    existence. But the record shows that modern space launch of any type
    (orbital or sub-orbital, manned or unmanned) is essentially free from
    measurable risk to third parties.
        It should also be noted that AST has 70 or 80 staff at any one
    time, who do nothing all day but study what new regulations they think
    might be desirable, process license applications or think up new
    requirements for industry. At the same time, the entire sub-orbital
    human space flight industry does not have as many engineers and
    technicians actually building the vehicles! Regulators actually
    outnumber the people doing the work; this would be considered a parody
    of regulatory behavior in almost any other area of human endeavor. For
    example, what if the FDA had as many regulators as there were
    physicians?

    Q2.  Who would be in charge of regulation if AST is dis-established?

    A2. The same organization that had regulatory responsibility for
    private rocket activities prior to the formation of OCST in 1984, the
    FAA via FAR 101.
        Regarding Unmanned Rockets. Given that unmanned rockets have to be
    launched from specialized facilities established by federal or State
    authorities, that are regulated at the local, county, State and
    national level by environmental rules, air traffic rules and many other
    health/safety laws and regulations, there is simply no need for an
    additional overarching level of bureaucracy to control launch
    facilities or rockets. These facilities establish detailed safety
    regulations to which all launch operators must adhere. AST is not
    needed to assure that launch operators of unmanned rockets abide by
    these rules and regulations, since the operator will not be allowed to
    fly if they fail to comply with range rules. AST adds no safety to
    unmanned operations but costs launch operators hundreds of thousands to
    millions of dollars in added regulatory compliance each year.
        Regarding Human Space Flight Vehicles. Piloted vehicles can be
    regulated as aircraft per the Federal Aviation Regulations. They should
    be allowed to operated from the same categories of airfield that more
    conventional experimental aircraft do; when fully certificated, they
    should be allowed to operate wherever certificated aircraft may,
    subject to noise and emission regulations.

    Q3.  AST says they will ``tailor'' launch licenses to permit
    experimental flights. Isn't this a reasonable solution to the problem
    of experimental flight-testing?

    A3. No. When a research aircraft developer gets experimental type
    certification, the developer may fly as frequently as he wishes, when
    he wishes, and may make modifications to his aircraft during the test
    program without obtaining further certification approval from the FAA.
    By contrast, AST has not yet developed their ``tailored'' rules, but
    appears to want far more restrictions that those which are imposed on
    any experimental aircraft to date, even though the sub-orbital vehicles
    being proposed (or flying) have virtually no potential for third party
    harm. Even if they adopted the exact same rules as FAA/AVR, they would
    be an unnecessary and expensive redundancy. AVR can do the job, with no
    additional staff or funds, if the job is re-scoped away from being a
    ``license'' invoking the specter of a Major Federal Action.

    Q4.  You refer to ``aircraft'' but many piloted space launch concepts
    are not winged airplanes. How would these be regulated?

    A4. According to the legal definitions in the FARs, ``aircraft'' is any
    device that flies in or though the air. Since physically all space
    vehicles must fly through the air on their way to space, they are
    already by definition aircraft. The FARs regulate many types of
    aircraft that are not ``fixed wing'' such as rotorcraft, gliders and
    powered-lift vehicles as well as rockets. In fact, if the current AST
    approach followed the only type of aircraft not covered by the FARs
    would be piloted sub-orbital space launch vehicles. This makes no
    sense. One class of vehicle should not be taken completely outside of
    the FARs simply to justify the existence of an entity (AST) that is not
    needed in the first instance; an exemption should be made to allow that
    specific class to of aircraft to be operated for profit within the
    FARs.

    Q5.  Isn't certification very expensive?

    A5. That depends. Certification costs vary widely, and much nonsense is
    spoken about them. There are many levels of type certification. So
    called ``standard type certification'' is only one of them. It is true
    that the certification costs for a new Boeing commercial aircraft may
    be hundreds of millions of dollars. Smaller, four-place, general
    aviation aircraft are routinely certificated for much less. If this was
    not so, no new general aviation aircraft would be built. Yet new models
    are being introduced every year, ranging from trainers to light jets.
    The perceived impediment of ``standard type certification'' would be
    obviated in the near-term (for the next two decades) if we adopt my
    suggestion to permit experimentally type certificated space vehicles to
    be flown, with limitations, for profit. This is a ``no cost'' solution.
    Full standard type certification would not be mandated for 20 years.
        When one considers the multiplicity of ``plans,'' documents,
    reviews, meetings, tests and acceptances now being required by AST to
    obtain a reusable launch vehicle license, the cost of ``certification''
    vs. the cost of RLV ``licensing'' seems to have become comparable in
    both time and dollars. The ultimate difference is that RLV licensing is
    being done by an entity with no experience providing true certification
    expertise to the operator, while the FAA/AVR has certified thousands of
    different aircraft types. Furthermore, once an operator has a type
    certificate, the vehicle may be flown without any further notification
    or permissions (excepting a flight plan) while AST requires 60 day
    advance notification of every flight, and intrusive and burdensome
    inspections, reviews and further approvals to operate once a license
    has been granted.

    Q6.  Is there any example of experimental type certificated aircraft
    being operated for hire today?

    A6. Yes. The FAA now allows experimental type certificated aircraft to
    be rented to certified flight instructors, who may then use them to
    train student pilots. This is operation for hire and is a recent
    exemption to the rule. The rationale for letting student pilots pay to
    fly in an experimental aircraft is the same as I propose for ``informed
    consent space flight participants;'' that is, the student pilot, by
    virtue of his or her training, knows the risks and is able to make a
    judgment to accept or reject the risks. The sub-orbital or orbital
    space flight participant would be assumed to be capable of the same
    judgment. The space flight participant will not be walking up to a
    ticket window and buying a seat; it is widely expected that they will
    undergo instruction and orientation training by the firms offering the
    flights prior to being accepted to fly.

                          Biography for Gary C. Hudson

        Mr. Hudson, 53, was a founder and Chairman of the Board of
    Directors of Rotary Rocket Company, and is a founding principal of HMX,
    Inc., an aerospace consulting and engineering firm. He is also founder
    and Operating Manager of AirLaunch LLC, a startup currently working on
    a military launch system for the Defense Applications Research Agency
    (DARPA).
        Mr. Hudson has worked in the field of commercial space for over 34
    years with an emphasis on development of innovative low-cost systems.
    In 1981, he built the first large private launch vehicle developed in
    the U.S. He is also the designer of the Phoenix VTOL/SSTO family of
    launch vehicles which led to the DC-X Delta Clipper project. He has
    participated in many launch vehicle projects including support for both
    General Dynamics and Boeing Aerospace Corporation during the SDIO
    program. He has published many papers on space vehicles and systems and
    has authored several studies on low cost propulsion systems. At Rotary
    he managed the successful Roton ATV program, the only piloted reusable
    launch vehicle demonstrator to have flown since the Space Shuttle
    Enterprise.
        In 1994 he co-founded HMX, which designs and develops innovative
    aerospace propulsion systems. In 1995 HMX developed a rocket engine
    propulsion system for Kistler Aerospace Corporation. HMX also provided
    early propulsion support to Scaled Composites for the SpaceShipOne
    project, participated in the NASA Alternate Access to Space concept
    study contract in 2000, and participated in the Phase I Concept
    definition for the DARPA RASCAL project. HMX also developed the DARPA
    MIPCC Test Bed, a sophisticated test facility located at Mojave, CA
    used to qualify the Mach 4 jet engines used in the RASCAL first stage.
        In 1982 he co-founded Pacific American Launch Systems, Inc. where
    he was directly responsible the design and development of the Liberty,
    a small expendable launch vehicle using an innovative pintle rocket
    engine, which underwent prototype engine testing for the U.S. Army
    Strategic Defense Command on behalf of SDIO at Edwards Air Force Base,
    California. During this period he also served as a consultant to the
    United States Air Force's ``Project Forecast II.'' He is a former Board
    Member of the Space Transportation Association, a founder of the STA
    Space Tourism Division, a member of the Board of Advisors of the Space
    Frontier Foundation and has presented testimony before the U.S.
    Congress on several occasions.
        Mr. Hudson has conducted seminars for the U.S. Naval Postgraduate
    School, and the Institute for Space and Astronautical Sciences of Tokyo
    University and taught graduate-level launch vehicle design at Stanford
    University. He is a Fellow of the British Interplanetary Society and a
    Senior Member of the American Institute of Astronautics and
    Aeronautics. In January 1994 he received the ``Laurel'' award from
    Aviation Week & Space Technology ``for the vision, drive and competence
    that have pushed [reusable launch vehicles] to the front of the U.S.
    launcher agenda.''

        Chairman Rohrabacher. You know, I will have to admit, I was
    Ronald Reagan's speechwriter, so----
        Mr. Hudson. I am well aware, Mr. Chairman.
        Chairman Rohrabacher. Thank you very much for your
    testimony. And you have made some very provocative points. I
    thank you very much.
        Our second witness is Mr. Michael Kelly, who is a technical
    manager at Northrop-Grumman. And is it pronounced--is it Exxon?
    Is it like the--do you pronounce it like Exxon like the
    gasoline or----
        Mr. Kelly. No, Xon Tech is the name.
        Chairman Rohrabacher. Xon Tech.
        Mr. Kelly. However, I must say that I am testifying as a
    private individual today.
        Chairman Rohrabacher. All right. And also, with your
    background, however, you are a founder of the Kelly Space
    Technologies Corporation. Mr. Kelly currently heads the
    Commercial Space Transportation Advisory Committee's Reusable
    Launch Vehicle Working Group. And Mr. Kelly, you may proceed,
    and we understand you are speaking for yourself today. Thank
    you very much for being with us.

    STATEMENT OF MR. MICHAEL S. KELLY, TECHNICAL MANAGER, NORTHROP-
                            GRUMMAN/XON TECH

        Mr. Kelly. Thank you, Mr. Chairman and Members of the
    Subcommittee, for giving me this opportunity to once again
    testify on the issues of crucial importance to the future of
    space transportation.
        The issue that we are talking about today is the regulation
    of a future industry: the RLV industry. The first question that
    has been asked is the right one, and that is: ``Does the United
    States Government have any legitimate reason to regulate the
    RLV industry at all?'' Not every activity of human beings needs
    to be regulated. I am glad this was the first question. If
    there is a requirement for government regulation, that
    requirement can be identified, and I believe that all
    subsequent questions can be answered in the context.
        My position is that there is a legitimate requirement for
    the regulation of RLVs or any commercial space flight by the
    Government for only the following reasons: defining and
    enforcing the boundaries of action that protect the lives and
    property of one group of people from the actions of another has
    always been the proper function of government; RLV operations
    are hazardous, the hazards are not all known, I might add, and
    they are hazardous to uninvolved parties domestically and even
    abroad for orbital operations; the job of coordinating national
    and international safety is a large one and it requires the
    action of the Federal Government; and there are other
    international considerations, such as treaty compliance, that
    can be handled only by the Government.
        Now these are the requirements for government regulation,
    and there should be no regulation beyond what is required. When
    it comes to passenger flight, people who have the financial
    means and the desire to fly as passengers on an RLV have the
    absolute right to do so. The government has no legitimate
    authority to restrict that activity.
        Now the office designated to license commercial space
    launch is the FAA/AST, Office of the Associate Administrator
    for Commercial Space Transportation. It was established to
    ensure public safety while promoting the commercial space
    industry. With regard to who should regulate the flight of
    commercial RLVs carrying paying passengers, it should, in my
    opinion, be AST. But the extent of that regulation should not
    reach beyond AST's charter of protecting the lives and property
    of uninvolved parties. In other words, there should be no
    regulation, per se, of human passenger flight, only regulation
    of routine RLV operation.
        I have supported the division of AST from FAA/AVR, which
    regulates aviation, because the two have different and
    incompatible charters. AVR regulates an industry with an 80-
    plus-year revenue history and a 100-year technology history. It
    applies the vast experience gained over that time to ensure
    that anyone can board an airplane as a paying passenger without
    undue fear of losing life and limb and that uninvolved parties
    on the ground do not bear undue risks from the operation of
    aircraft.
        There is no similar body of experience with which to
    regulate RLVs. There has only been one type of reasonable space
    launch vehicle, the X-15, that has ever flown. In an
    accumulated 199 flights, there was one fatal accident and
    several non-fatal incidents and one instance of property damage
    to uninvolved third parties, the only RLV flight experiences
    thus demonstrated the need for a legal authority.
        However, AVR and AST have institutionally different roles.
    AVR regulates a mature industry. AST is a relatively new office
    that regulates an industry that doesn't yet exist and that will
    not exist if regulated as a mature industry. AVR applies
    lessons learned and is slow to allow innovation in commercial
    aviation precisely because it does not wish to stray from what
    has worked. There are virtually no lessons to apply to RLVs,
    and certainly none that would apply to all of the types of RLVs
    that are envisioned or may be envisioned.
        My own personal experience, as a member of the RLV industry
    and as Chairman of the COMSTAC RLV Working Group, is that AST
    is primarily an organization that lives up to its charter of
    protecting the lives and property of uninvolved parties while
    promoting the commercial space industry. There is room for
    improvement. Application of rules is being done for the first
    time, and both AST and developers have to learn how to satisfy
    these rules.
        We are seeing that the rules themselves can be improved.
    The ``Final Rule'' on licensing of commercial RLVs is the best
    we could do at the time. It was written before any RLVs entered
    development. And it is flawed. I, therefore, believe that AST
    should be mandated to periodically perform a zero-base review
    of its rules and revamp them as required. This is the best way
    to continuously incorporate the lessons learned in what will be
    a very long learning process while preventing the resulting
    rules from becoming mountains of corrections of previous
    mistakes.
        From the discussion of licensing and its purpose, the
    question of indemnification can be addressed. Since AST space
    flight licensing requires demonstration of safety of uninvolved
    parties and their property, it is not unreasonable to ask the
    Government to indemnify those flights. In fact, if there is one
    thing I have learned, it is that the only test of seriousness
    is the willingness of people to put up money. If the Government
    issues a launch license and therefore says it is safe for that
    vehicle to fly, that license only has meaning if the Government
    is willing to share the burden of the consequences of an
    accident. Though I support indemnification of the RLV industry
    when it comes to third-party life and property loss, I support
    it with respect to passenger flights with less enthusiasm,
    because it does serve a means of promoting the industry, and
    the risk to the Government is fairly small. As part of the
    changes to indemnification, however, I believe that we ought to
    re-examine the magnitude of what we always thought a realistic
    number was for the maximum probable loss.
        The final issue to be addressed here is where the
    regulatory body for human passenger space transportation should
    be located. I have already stated my position that I believe
    AST to still be the regulatory office of choice and will
    maintain that position as long as AST fulfills its charter.
        Another question is whether AST should be part of the FAA
    or moved to another place. I think the advantages of being
    within the FAA, which regulates the national airspace, are
    overwhelming, and I, therefore, believe that AST should remain
    within FAA with one powerful proviso: when it comes to matters
    of commercial space flight, the Associate Administrator for
    Commercial Space Transportation has to have the last word. Much
    controversy could be avoided and uncertainty removed if such a
    mandate existed.
        The concept of AST as a ``clean sheet of paper''
    organization that can grow with an emerging industry is what I
    supported from the beginning. I see no fundamental flaws and
    nothing that can not be corrected. I think that, overall, we
    are on the right track with AST, and I think that the
    Commercial Space Act of 2003 will play a large, positive part
    in helping AST bring the commercial RLV industry into being.
        [The prepared statement of Mr. Kelly follows:]

                     Prepared Statement of Michael S. Kelly

        Mr. Chairman, and Members of the Subcommittee on Space and
    Aeronautics, thank you for giving me the opportunity to once again
    testify on issues of crucial importance to the future of space
    transportation.
        The issue before us today is the regulation of a future industry,
    the ``Reusable Launch Vehicle'' (RLV) industry, specifically in its
    application to carrying paying passengers. The very first question to
    ask in this regard is: does the United States Government have any
    legitimate reason to regulate the RLV industry at all? Put a different
    way, is there a requirement from the people of the United States for
    such regulation? If so, the requirement can be identified, and all
    subsequent answers can be answered in a context.
        My position is that there is a legitimate requirement for
    regulation of RLVs (or any commercial space flight) by the government,
    for only the following reasons:

              Defining and enforcing the boundaries of action which
            protect the lives and property of one group of people from the
            actions of another has always been the proper function of
            government

              RLV operations do pose a hazard to uninvolved
            parties, domestically and even abroad (for orbital operations)

              The job of coordinating national and international
            safety is a large one, requiring the action of the Federal
            Government

              Other international considerations, such as treaty
            compliance, can be handled only by the government

        These are the requirements for government regulation, and there
    should be no regulation beyond what is required. People who have the
    financial means and the desire to fly as passengers on an RLV have the
    absolute right to do so. The government has no legitimate authority to
    restrict that activity.
        The office designated to license commercial space launch is the
    FAA/AST. It was established to ensure public safety while promoting the
    commercial space industry. With regard to who should regulate the
    flight of commercial RLVs carrying paying passengers, it should in my
    opinion be AST. The extent of that regulation, however, should not
    reach beyond AST's charter of protecting the lives and property of
    uninvolved parties.
        Today there is a licensing regime for commercial RLVs that meets
    the AST charter. It need not be extended in order for RLVs to carry
    paying passengers. The Commercial Space Act of 2003 contains language
    requiring disclosure to paying passengers, and if that is met, those
    passengers are no longer uninvolved third parties. They are as informed
    as the hundreds of astronaut candidates who spend careers competing for
    a ride on the Space Shuttle, knowing full well the dangers involved.
        It is critical to note the difference between travel on an airline
    and a ride on an RLV. An airline is a routine mode of transportation, a
    ``common carrier'' if you will. People have come to expect a degree of
    safety in air travel that is without parallel in transportation, or in
    fact in any other human activity. Space flight is years from being
    routine, or even a mode of transportation per se. Transportation refers
    to reaching a desired destination. Space flight, for the foreseeable
    future, will be an end in itself.
        The type of regulation over a common carrier that demands the level
    of safety of air travel is different in kind from that pertaining to
    what can only be classed as an adventure ride.
        I have supported the division of AST from FAA/AVR, which regulates
    aviation, because the two have different and incompatible charters. AVR
    regulates an industry with an 80+ year revenue history, and a 100-year
    technology history. It applies the vast experience gained over that
    time to insure that anyone can board an airplane as a paying passenger
    without undue fear of losing life or limb, and that uninvolved parties
    on the ground do not bear undue risk from the operation of aircraft.
        That vast experience came at a price, and was applied very late in
    history. There were fatalities among aircraft developers, passengers,
    and uninvolved parties. Even with regulation from AVR, there are still
    fatalities and loss of property among passengers and uninvolved
    parties. I do not question that AVR plays a large role in reducing such
    incidents, and as I have noted, has made air travel a uniquely safe
    human activity. This is possible precisely because there have been so
    many incidents to serve as hard lessons.
        There is no similar body of experience with which to regulate RLVs.
    Only one type reusable space launch vehicle, the X-15, has ever flown.
    Three were built, two survive. They accumulated 199 flights, with one
    fatal accident, several non-fatal incidents, and one instance of
    property damage to an uninvolved third party. Thus, the only RLV flight
    experience has demonstrated the need for a legal authority.
        However, AVR and AST have institutionally different roles and
    outlooks. AVR regulates a mature industry. AST is a relatively new
    office that regulates an industry that doesn't yet exist, and that will
    not exist if regulated as a mature industry. AVR applies lessons
    learned, and is slow to allow innovation in commercial aviation
    precisely because it does not wish to stray from what has worked. There
    are virtually no lessons to apply to RLVs, and certainly none that
    would apply to all the types of RLVs that are envisioned or may be
    envisioned.
        All of the lessons of the RLV industry lie ahead. Learning them
    requires freedom, the freedom of developers to use technology that is
    unfamiliar and unacceptable to AVR, and the freedom to fly paying
    passengers who knowingly accept the risks. These things are not within
    the cultural scope of AVR, and it is unreasonable (and even unwise) to
    expect that to change. AST has a culture that is open to more, by
    disposition as well as charter.
        It is worth asking how AST is performing its role. The experience
    of RLV industry members to date has been mixed. Those in various stages
    of discussions of launch licenses report differing impressions, good
    and bad. Given the wide range of personalities involved, this should be
    no surprise. AST is an organization of human beings, in a new field,
    interacting with other human beings. There are going to be
    disagreements and disappointments.
        My own personal experience, as a member of the RLV industry, and as
    Chairman of the COMSTAC RLV Working Group, is that AST is primarily an
    organization that lives up to its charter of protecting the lives and
    property of uninvolved parties while promoting the commercial space
    industry. There is room for improvement, naturally. Application of
    rules is being done for the first time, and both AST and developers
    have to learn how to do satisfy those rules.
        We are also seeing that the rules themselves can be improved. The
    ``Final Rule'' on licensing of commercial RLVs was written before the
    first commercial RLV entered development, and that rule has already
    proven itself flawed. We in the industry helped write it, and it was
    the best all of us knew how to do at the time. But if we had it to do
    over again, there are things we all now know would be done differently.
        If there is to be a change made to the Commercial Space Act of 2003
    with respect to AST, it would be to mandate that the office
    periodically perform a zero-base review of its rules, and revamp them
    as required. In my view, this is the best way to continuously
    incorporate the lessons learned in what will be a very long learning
    period, while preventing the resulting rules from becoming mountains of
    corrections of previous mistakes.
        There is one onerous aspect of AST that is a consequence of when it
    was formed. Because it was formed after the enactment of the National
    Environmental Protection Act, its licensing activities require NEPA
    compliance. For purposes of research and development flights, this
    places a burden on developers not experienced by experimental aircraft
    designers or, for that matter, by any other researchers. AST licensing
    does not distinguish between R&D flights and operational flights, but
    should. In fact, in my very first testimony before this Subcommittee, I
    advocated a class of license analogous to an Experimental Aircraft
    Certificate that would cover any number of flights confined to a
    certain performance envelope. Both the industry and AST have failed to
    follow through on that concept, but both recognize the need.
    Furthermore, AST has indicated that it will in fact grant such multi-
    flight licenses.
        Whether authority can be granted to AST to apply the grandfathered
    principles of experimental aircraft development to relieve the
    unnecessary burden of NEPA compliance is not something I am qualified
    to judge. In last week's RLV Working Group meeting, the developers and
    AST discussed this at length. The consensus was that statutory relief
    is unlikely, and that the only solution is likely to be a categorical
    exclusion resulting from a string of granted licenses all of which have
    environmental Findings of No Significant Impact associated with them.
    There is no doubt that this will be the outcome, since no activity
    associated with RLV development has ever resulted in anything else. I
    note it here only to lament that there is one intractable drawback to
    AST licensing, one that is not of AST's making. I do not regard that
    one drawback as sufficient justification to place the future of the RLV
    industry in anyone else's hands.
        From the discussion of licensing and its purpose, the question of
    indemnification can be addressed. Since AST space flight licensing
    requires demonstration of safety of uninvolved parties and their
    property, it is not unreasonable to ask the government to indemnify
    those flights. In fact, if there is one thing I have learned it is that
    the only test of seriousness is the willingness of people to put up
    money. If the government issues a launch license, that license only has
    meaning if the government is willing to share the burden of the
    consequences of an accident. If the government is not willing to do so,
    the licensing activity is meaningless, burdensome showmanship.
        By the arguments given above, this means that if the government
    does nothing more than ensuring the safety of uninvolved parties and
    their property, it does not bear the burden of indemnification for
    paying passengers on an RLV. The real question comes down to
    responsible risk taking. Is it responsible of the government to risk
    the taxpayers' money to indemnify an industry when the government does
    not have a certain degree of oversight, or are there factors beyond
    that risk which justify it?
        In my opinion, there are two factors which justify the risk. First,
    the same licensing process that ensures the safety of uninvolved
    parties and their property will in fact reduce the risk of loss of life
    in an RLV accident. The degree of care needed just to get to an RLV
    flight is very high, and there is little doubt that AST will require
    the exercise of even more care for a passenger vehicle if only because
    it will be a large vehicle. Second, the charter of the government to
    promote the industry, with all of its potential economic benefits,
    justifies some risk. Once again, it is a test of seriousness.
        There is an aspect of indemnification that is often overlooked,
    however, and that is reasonableness of the magnitude of the maximum
    probable loss. Though I do not have current figures at my disposal, the
    last number I recall for third-party launch liability insurance was
    $900 million. Whether we are talking about expendable or reusable
    launch vehicles, each has to demonstrate a probability of less than one
    in 30 million casualties per flight in order to receive an AST license.
    This automatically constrains flights to sparsely populated areas. An
    accident affects only a small portion of those areas, yet any
    reasonable appraisal would show that the entire area isn't worth $900
    million.
        Like so many things associated with space flight, the unreasonably
    high limits of loss are the result of a very human trait. When faced
    with an unknown of any kind, human beings automatically assign an
    unquantified, but arbitrarily high risk to that unknown. Only after
    acquiring knowledge based on experience do people begin to place risk
    in the proper hierarchical order. The first part is what has kept us
    from extinction. The second is what allows progress. Unfortunately, the
    placing of risk in proper hierarchical order is sometimes either very
    slow to come, or never happens at all. In those cases, progress either
    lags or ceases.
        In the Western world, there has never been a case of a third-party
    human fatality due to a launch accident. The only property damage of
    which I am aware has been the loss of a cow to a V-2 that strayed into
    Mexico, and the top of a camper sheared off by the wing of an X-15 as
    it made an emergency landing approach that came too low over a highway
    (the latter is the one instance of third-party property damage caused
    by an RLV).
        These do not add up to $900 million.
        I support indemnification of the RLV industry when it comes to
    third-party life and property loss, simply because the government will
    not permit RLV flights unless they meet third-party safety
    requirements. I support indemnification with respect to passenger
    flights, primarily because the risks are mitigated by the licensing
    process. It is with less enthusiasm that I support this indemnification
    as a means of promoting the industry, but the risk to the government is
    fairly small. What I would suggest is a re-examination of just how much
    exposure there is. I do not believe that it is close to the magnitude
    we have always thought, and a realistic assessment may make the
    government more comfortable in assuming this contingent liability.
        The final issue to be addressed is where the regulatory body for
    human passenger space transportation should be located. I have already
    stated my position that I believe AST to still be the regulatory office
    of choice, and will maintain that position as long as AST fulfills its
    charter. Another question is whether AST should be part of the FAA, or
    moved to another place.
        This is a question I've wrestled with for years, and the answer is
    never as clear cut as I would like. There are definite advantages for
    AST to reside within FAA. The latter has the entire National Air Space
    under its jurisdiction, and perhaps the biggest practical concern in
    space flight is coordination with the NAS. Here the lives and property
    at stake are of a large magnitude, but FAA has the infrastructure to
    permit space flights to coexist with the NAS. This coordination extends
    to foreign countries. Replicating the mechanisms already in place would
    be horrendously inefficient, if it were even possible.
        However, there is also the cultural issue to consider. FAA's
    culture is geared toward a technological status quo which makes for
    unparallel safety in aviation, but which is absolutely incompatible
    with the needs of an industry whose technologies are yet to be defined.
    Large organizations can and generally do taint smaller ones. I am
    amazed at the degree of autonomy and cultural identity AST has managed
    to maintain. I have also observed the cost of that maintenance. There
    has been no small amount of energy spent on territorial matters that
    serve no one's interests in the long run.
        I think the right solution is to leave AST in FAA, with one
    powerful proviso: when it comes to matters of commercial space flight,
    the Associate Administrator for Commercial Space Transportation has the
    last word. Much controversy could be avoided, and uncertainty removed,
    if such a mandate existed. To quote one of the developers with whom I
    discussed this matter, the Associate Administrator ``must have a
    bazooka'' to ensure that AST is allowed to fulfill its charter. Given
    the vast resources available to AST within the FAA, however, it should
    remain there.
        The concept of AST as a ``clean sheet of paper'' organization that
    could grow with an emerging industry is what I supported from the
    beginning. There have been many setbacks for the industry in the
    intervening years, and AST has occasionally gotten ahead of itself and
    the industry in its rule-making zeal. But as far as interactions among
    organizations of people go, the AST/industry relationship has been
    remarkably good.
        I see no fundamental flaws, and nothing that cannot be corrected.
    Yes, there are problems, if one regards the inevitable disputes of an
    industry with a regulatory body as problematic. Where an activity of
    AST does not contribute to the end of ensuring the safety of uninvolved
    parties and their property, it should be changed--and given AST's past
    performance, I do not foresee any resistance to this. I would suggest
    mandating periodic zero-base review and rework of rules in order to
    ensure that the AST process does not fossilize.
        What I would not like to see, and what I think is to no one's
    benefit, is a change from a regulatory organization that has achieved a
    substantial degree of understanding of the industry it is regulating to
    one whose regulatory approach is incompatible with that industry.
        I think that, overall, we are on the right track with AST. It has
    the charter and the spirit to safely promote the emerging RLV industry,
    including the passenger RLV industry. The Commercial Space Act of 2003
    will play a large, positive part in seeing that industry come into
    being.

                         Biography for Michael S. Kelly

    PROFESSIONAL SUMMARY:

        Mr. Kelly is launch systems engineer with over twenty three years
    of experience in ballistic missile propulsion systems and reusable
    space launch systems design. Experienced manager and technical lead of
    multiple system development projects.

    MAJOR ACCOMPLISHMENTS:

              Founded a technology development and systems
            engineering and integration company.

              Patented and demonstrated a tow-launched technique
            for space launch vehicles.

              Headed successful effort at establishing FAA
            licensing regulations amenable to the existence of an
            entrepreneurial Reusable Launch Vehicle industry.

              Invented and demonstrated an economical
            thermochemical process and business model for large-scale
            conversion of organic waste to natural gas.

              Led a 100-man systems engineering team, which
            produced a patented modular solid propellant launch vehicle.

    EDUCATION:

    MS, Mechanical Engineering, Perdue University, 1983

    BS, Mechanical Engineering, Perdue University, 1978

    SECURITY CLEARANCE: SECRET/June 2003

    Member, Commercial Space Transportation Advisory Committee (COMSTAC)

    Chairman, COMSTAC RLV Working Group

    Chief Scientist, Law Offices of Mark Cantrell, Space Law Consultants

    NORTHROP-GRUMMAN XONTECH EXPERIENCE:

    Technical Manager, Riverside, CA; June 2003 to Present
        As Technical Manager, supported the Northrop-Grumman Targets and
    Countermeasures proposal to MDA. Capture manager for the development of
    identified business opportunities. Member of the Commercial Space
    Transportation Advisory Committee (COMSTAC), Chairman of the COMSTAC
    Reusable Launch Vehicles Working Group.

    WORK EXPERIENCE SUMMARY:

    Kelly Space & Technology, Inc., Chairman and Chief Executive Officer,
            1993 to July 2003
        Founded KST, a technology development and system engineering and
    integration company. Assisted MoD/BAe in marketing both Polaris A-3 TK
    R and its associated Chevalin equipment module to Army MICOM for
    targets work. Patented tow-launch technique for space launch vehicles.
    Orchestrated the program that demonstrated towed flight of large,
    manned supersonic vehicle, using Air Force and NASA assets, at Dryden
    Flight Research Center. Received contract from Motorola for launch of
    20 Iridium satellites. Incorporation of tow-launch into NASA Space
    Launch Architecture defined by KST under NRA 8-27. Invented and
    demonstrated a high-performance, low-cost, non-toxic monopropellant
    having industrial as well as rocket applications. Invented and
    demonstrated economical thermochemical process and business model for
    large-scale conversion of organic waste into natural gas.
    TRW, Inc., Staff Engineer, Engineering Mechanics Laboratory, 1992-1993
        Identified and developed new business opportunities for TRW in
    System Engineering Support for commercial and governmental launch
    services projects. Initiated and completed several proposals to Japan
    Broadcasting Company for technical oversight on BS-3N launch program,
    and to DARPA on launch pad gas dynamics studies in support of the
    Taurus Program. Prepared the Launch Services segment of the TRW
    Strategic Plan. Initiated a large IR&D program aimed at giving the USAF
    a more cost-effective option for Spacelifter.

    TRW Launch Services Organization, Director of Engineering, 1990-1992
        Invented and patented modular solid propellant launch vehicle. Led
    a 100-man system engineering team in development of the concept for
    application to Iridium, MLV-III, and various other spacecraft programs.
    The concept eventually flew in the form of the Athena.

    TRW Ballistic Missiles Division, Missile Technology Laboratory, Staff
            Engineer, 1989-1990
        Provided general engineering and business development consultation
    to TRW and its customers on a wide range of ballistic missile and
    commercial space launch vehicle initiatives.

    TRW Ballistic Missiles Division, Fluid Mechanics Section, Propulsion &
            Ordnance Engineering, Section Head, 1984-1989
        Supervised a general analytical and hardware development Section
    supporting the Peacekeeper and Small ICBM programs. Work involved all
    aspects of the airborne portion of weapon system development except for
    the re-entry vehicle. Led the writing of the Post Boost Vehicle
    specification. Gained a significant amount of experience in
    governmental procurement practices as a member of the proposal
    evaluation board for the Small ICBM Assembly, Test & System Support and
    Post Boost Vehicle source selections. Helped identify the cause of the
    Small ICBM Flight Test Missile 1 failure, leading to redesign of the
    Stage I nozzle, and new diagnostic techniques for visualizing solid
    rocket motor interior ballistics. Managed an IR&D program which
    successfully developed CFD codes to predict unsteady loads on nozzles
    during hot-flyout stage separation. Performed foreign threat special
    studies. Performed SE/TA function for Evader Replica Penetration Aids
    propulsion system development. Performed engineering support functions
    for Re-entry Systems Launch Program (not to be confused with ``Rocket
    Systems Launch Program'') under ABRES. Assisted MoD/British Aerospace
    in determining reuse options for Polaris A-3 TK R boosters.

    TRW Ballistic Missiles Division, Propulsion & Ordnance Engineering,
            Stage Development Engineer, 1982-1984
        Lead propulsion engineer for the Peacekeeper missile's Stage IV,
    participating in all aspects of development, from component design and
    test through stage and Weapon System Flight Proof Design Review and
    Critical Design Review. Shepherded Flight Test Missile (FTM) 1 through
    processing and flight. Performed ``quick-look'' flight data evaluation,
    prepared and delivered immediate briefing to the BMO Commander for FTM-
    1 through 18. Lead engineer for development of the new Stage IV surface
    tension propellant tank, and participated in zero-G testing of the tank
    aboard the NASA KC-135. Discovered Stage IV regulator failure in FTM-5
    data, a component design flaw that was subsequently corrected.
    Correctly identified the location of the problem for the FTM-15 Stage
    IV before the end of flight; led the tiger team to find the failure
    mechanism; personally found the exact cause of the failure through
    review of the Stage build records. Wrote the Missile Compliance Matrix
    for the Peacekeeper booster at Weapon System Critical Design Review,
    clearing the missile for production.

    TRW Ballistic Missiles Division, Propulsion & Ordnance Engineering,
            Member of Technical Staff, 1980-1982
        Mr. Kelly began his career providing basic engineering review in
    support of the development of the Peacekeeper ICBM's Stage IV.

        Chairman Rohrabacher. Thank you very much, Mr. Kelly.
        Our third witness is Raymond Duffy, a Senior Vice President
    of--at Willis InSpace Insurance Underwriters. So we have the
    insurance industry here to give us their perspective. And we
    appreciate your testimony. You may proceed.

    STATEMENT OF MR. RAYMOND F. DUFFY, JR., SENIOR VICE PRESIDENT,
                 WILLIS InSPACE INSURANCE UNDERWRITERS

        Mr. Duffy. Thank you, Mr. Chairman.
        Actually, I am a broker, not an underwriter, but I place
    the insurance with insurance companies, so I am a little bit
    different.
        Thank you----
        Chairman Rohrabacher. Thank you for that correction.
        Mr. Duffy. Thank you very much, Mr. Chairman.
        I am pleased to have the opportunity today to discuss some
    of the issues concerning H.R. 3245. And I plan on responding to
    the Committee's questions as outlined in the invitation letter,
    but will primarily be responding to question number two
    regarding government indemnification for commercial human
    flight. As my resume indicates, the area of professional
    expertise in which I concentrate is directly involved with the
    insurance coverages that would respond to any launch vehicle
    failure.
        The first question: ``Should the Government regulate
    commercial human space flight?'' I believe that the Government
    should regulate human space flight. Public policy objectives of
    encouraging development of the industry, protecting third
    parties, and protecting passengers are all important, but I
    believe that the regulations should focus primarily on flight
    safety issues. Prior experience for any new launch vehicle has
    shown us that most failures occur during their first three
    flights. Poor results for any new launch program will have a
    detrimental effect, not only on that particular vehicle, but
    also on all future commercial human space flight. Rigorous
    concern for flight safety issues would help assure the public
    that all is being done, even in the unfortunate event of a
    launch or flight failure. This concern would also have a very
    positive effect in the insurance underwriters' decisions as
    they reviewed the insurability of the risk.
        Second: ``Should the Government offer indemnification for
    commercial human space flight, and if so, against what sorts of
    liability?'' The second part of that: ``How should any
    indemnification relate to existing policies and international
    treaties?''
        The Government offer of indemnification should not be
    extended to commercial human space flight. The current
    indemnification protection provided to the commercial space
    industry is unique to commercial industries in the U.S. and
    critical to the success of it. The inclusion of government
    indemnification to commercial human space flight would
    potentially dilute the effectiveness of the indemnification and
    possibly jeopardize the availability of it.
        The commercial space industry is suffering from a
    significant downturn. This downturn is the result of a number
    of factors, including the economy, manufacturing defects, and
    to a significant degree, the technology transfer regulations
    that have been imposed by the Government. The international
    competition offers similar, if not superior, liability risk
    sharing protection to that offered by the U.S. Any loss or
    negative development of the availability of indemnification to
    the commercial space industry would only have the result of
    further damaging its position as world leader.
        The current license requirements for a commercial launch
    under the CSLA require liability insurance to be purchased up
    to the maximum probable loss for the launch site as established
    by the Government. This indemnification would only be used in
    the event that the loss exceeds this. The required insurance is
    available at reasonable cost and would also be available for
    commercial human space flight licensees as well. The severity
    of a launch failure for a commercial human space flight would
    most likely be significantly less than a commercial space
    flight due to the size of the launch vehicle and the location
    of the launch. The cost of the insurance excess of the maximum
    probable loss would be expensive at first, but I believe it
    would be available. The cost of this excess would drop
    following successful experience of the flight vehicle.
        Although the loss of a commercial human space flight would
    not likely be as severe as a commercial launch vehicle failure
    because new vehicles have a high failure rate, the potential
    frequency of loss is significant. If a FAA license for a
    commercial human space flight mission was provided with the
    CSLA indemnification, the frequency of loss, even without the
    severity, could erode the availability of the indemnification
    for the commercial space industry. Historically, government
    contracts have paid for research and development of new launch
    vehicles and absorbed the new launch risk. By the time
    commercial launches take place, the vehicle's bugs have been
    worked out. If the indemnification was provided to commercial
    human space flight without the Government's involvement during
    this initial period, this would also increase the degree of
    risk being covered and erode the availability of the
    indemnification for the commercial space industry.
        At this point, I believe an understanding of the workings
    of the aviation insurance industry would also be helpful.
    Generally, an aviation underwriter writes all lines of aviation
    insurance: airlines, product liability, general aviation, and
    in some cases, space. The annual--the aviation industry's
    insurance premium is less than one percent of the annual
    casualty premium worldwide. The total annual premium for launch
    liability is less than $20 million. If there were a launch
    liability loss greater than that, the loss would be paid from
    all the supporting lines of business. Depending on the severity
    of the loss, payment may even end up coming from the non-
    aviation property and casualty lines. A high frequency of loss
    in this area would quite likely affect the availability of
    coverage for it, just as such a frequency could affect the
    availability of indemnification in the future. The potential
    lack of indemnification in insurance following poor experience
    along with strict regulations could all work toward the
    development of a safer commercial human space flight program.
        Regarding passenger liability, I do not believe that there
    should be any passenger liability protection provided by the
    Government. Except for instances of gross negligence or willful
    misconduct, passengers should assume this risk. It would not be
    appropriate for the Government to extend any protection to
    these people. If someone is willing to participate in
    commercial human space flight at this stage of its development,
    then the risk should be dealt with solely between the passenger
    and the launch provider. It is unlikely there would be any
    commercial insurance available responding to this risk.
        The second part of the question regarding the current risk-
    sharing financial regime that is in place regarding treaties,
    what we have in place is sufficient right now, as indicated in
    the Risk Management Working Group's Report to COMSTAC in
    October of '02.
        The third question: ``What changes would you recommend to
    H.R. 3245? In particular, do you support commercial human space
    flight being regulated by the OCST at the FAA?'' I would
    recommend that the bill transfer the regulation of sub-orbital
    human space flight from the FAA Office of the Associate
    Administrator for Commercial, excuse me, Space Transportation
    to the FAA, the AVR. As I have indicated previously, safety
    concerns for the vehicles would be paramount. The AVR has
    considerable experience in this area and would be more suited
    to promulgate the appropriate regulations.
        Thank you.
        [The prepared statement of Mr. Duffy follows:]
                  Prepared Statement of Raymond F. Duffy, Jr.

    Mr. Chairman, distinguished Committee Members and Staff:

        I'm pleased to have the opportunity today to discuss some of the
    issues concerning H.R. 3245, the Commercial Space Act of 2003.
        I will respond to the Committee's questions as outlined in the
    invitation letter, but will primarily be responding to question #2
    regarding government indemnification for commercial human flight. As my
    resume indicates, the area of professional expertise in which I
    concentrate is directly involved with the insurance coverages that
    would respond to any launch vehicle failure.

    1.  Should the government regulate commercial human space flight? If
    so, what should the public policy objectives (e.g., encouraging
    development of the industry, protecting third parties, protecting
    passengers, etc.) of that regulation be and how should they be
    balanced?

        Government should regulate human space flight. Public policy
    objectives of encouraging development of the industry, protecting third
    parties and protecting passengers are all important, but I believe that
    regulations should focus primarily on flight safety issues. Prior
    experience for any new launch vehicle has shown us that most failures
    occur during the first three flights. Poor results for any new launch
    program will have a detrimental effect not only on that particular
    vehicle but also on all future commercial human space flight. Rigorous
    concern for flight safety issues would help assure the public that all
    was being done even in the unfortunate event of a launch or flight
    failure. This concern would also have a very positive effect on the
    insurance underwriters' decisions as they reviewed the insurability of
    the risk.

    2.  Should the government offer indemnification for commercial human
    space flight, and if so, against what sorts of liability? How should
    any indemnification relate to existing policies and international
    treaties?

        The government offer of indemnification should not be extended to
    commercial human space flight. The current indemnification protection
    provided to the commercial space industry is unique to commercial
    industries in the US and critical to the success of it. The inclusion
    of government indemnification to commercial space flight would
    potentially dilute the effectiveness of the indemnification and
    possibly jeopardize the availability of it in the future.
        The commercial space industry is suffering from a significant
    downturn. This downturn is the result of a number of factors, including
    the economy, manufacturing defects, and to a significant degree the
    technology transfer regulations that have been imposed by the
    government. The international competition offers similar, if not
    superior liability risk sharing protection, to that offered by the U.S.
    Any loss of or negative development of the availability of
    indemnification to the commercial space industry would only have the
    result of further damaging its position as world leader.
        The current license requirements for a commercial launch under the
    CSLA require liability insurance to be purchased up to the maximum
    probable loss for the launch site as established by the government.
    This indemnification would only be used in the event of a loss that
    exceeds this. The required insurance is available at reasonable costs
    and would also be available for commercial human space flight licenses
    as well. The severity of a launch failure for a commercial human space
    flight would most likely be significantly less than a commercial space
    launch due to size of the launch vehicle and the location of the
    launch. The cost for insurance excess of the maximum probable loss
    would be expensive at first, but I believe it would be available. The
    cost of this excess would drop following successful experience of the
    flight vehicle.
        Although the loss of a commercial human space flight would not
    likely be as severe as a commercial launch vehicle failure, because new
    launch vehicles have a high failure rate the potential frequency of
    loss is significant. If a FAA license for a commercial human space
    flight mission was provided with the CSLA indemnification, the
    frequency of loss even without severity could erode the availability of
    the indemnification for the commercial space industry. Historically
    government contracts have paid for the research and development of new
    launch vehicles and absorbed the new launch risk. By the time
    commercial launches take place, the vehicle's bugs have been worked
    out. If the indemnification was provided to commercial human space
    without the government's involvement during this initial period this
    would also increase the degree of risk being covered and erode the
    availability of the indemnification for the commercial space industry.
        At this point I believe an understanding of the workings of the
    aviation insurance industry would be helpful. Generally, an aviation
    underwriter writes all lines of aviation insurance for airlines,
    product liability, general-aviation, and in some cases space. The
    aviation insurance industry's annual premium is less than one percent
    of the annual casualty premium. The total annual premium for launch
    liability is less than $20 million. If there were a launch liability
    loss greater than that, the loss would be paid from all the supporting
    lines of business mentioned. Depending on the severity of the loss,
    payment may even end up coming from the non-aviation property and
    casualty lines. A high frequency of losses in this area would quite
    likely affect the availability of coverage for it, just as such a
    frequency could effect the availability of indemnification in the
    future. The potential lack of indemnification and insurance following
    poor experience along with strict regulations could all work towards
    the development of a safer commercial human space flight program.
        I do not believe that there should be any passenger liability
    protection provided by the government. Except for instances of gross
    negligence or willful misconduct the passengers should assume this
    risk. It would not be appropriate for the government to extend any
    protection to these people. If someone is willing to participate in
    commercial human space flight at this stage of its development than the
    risk should be dealt with solely between the passenger and the launch
    provider. It is unlikely there would be any commercial insurance
    available to respond to this risk.
        As indicated in the Risk Management Working Group Report to COMSTAC
    on October 31, 2002, ``the current risk-sharing regime assigns
    financial responsibility for the most probable third-party damages
    arising from U.S. based launches and those conducted by U.S. commercial
    entities to the launch licensee whose insurance protects the interests
    of the U.S. government as an additional insured. Accordingly, under the
    existing liability risk-sharing regime, the government is afforded
    financial protection in meeting certain of its international treaty
    obligations, up to the maximum probable loss, at no cost to the
    government (or the U.S. taxpayer).'' This would be the same case for
    the commercial human space flight industry if the same approach were
    followed regardless as to whether indemnification is provided.

    3.  What changes would you recommend to H.R. 3245? In particular do
    support commercial human space flight being regulated by the Office of
    Commercial Space Transportation at the Federal Aviation Administration?
    If not, where and in what manner would you propose to regulate
    commercial human space flight?

        I would recommend that the bill transfer the regulation of sub-
    orbital human space flight vehicles from the FAA office of the
    associate administrator for Commercial Space Transportation (AST) to
    the FAA Regulation and Certification Group (AVR). As I've indicated
    previously, safety concerns for the vehicles should be paramount. The
    AVR has considerable experience in this area and would be more suited
    to promulgate the appropriate regulations.

        Chairman Rohrabacher. Thank you very much.
        Our fourth witness is Dr. Henry Hertzfeld, a senior
    research staff scientist at the Space Policy Institute Center
    for International Science and Technology Policy at George
    Washington University. Dr. Hertzfeld, you may proceed. And
    thank you very much for being with us.

    STATEMENT OF DR. HENRY R. HERTZFELD, SENIOR RESEARCH SCIENTIST,
       ELLIOT SCHOOL OF INTERNATIONAL AFFAIRS, GEORGE WASHINGTON
                               UNIVERSITY

        Dr. Hertzfeld. Thank you, Mr. Chairman, Members of the
    Subcommittee.
        Government supervision and regulation of all space flight
    is mandatory. The Congress has an obligation to ensure that
    commercial space flight is as safe as possible for all parties
    involved and that innocent parties, both domestically and
    internationally, are protected. Virtually all space activities
    are global, and by treaty, each nation is responsible for the
    actions of their citizens in space. And it is simply common
    sense in today's security and defense environment that the
    advanced technological capabilities needed to get to space will
    require government knowledge and supervision of those
    activities, whether they be for government or commercial
    purposes. Finally, one must travel through air space to get to
    outer space, which will require close coordination, but not
    necessarily integration, with the existing regulations for
    aviation.
        Only recently has the prospect of commercial human space
    flight been seriously proposed. This could develop into new
    business opportunities in the coming years. The risks of
    commercial space flight are two-fold: financial for investors
    and injury to people and property. In order to encourage
    commercial activity, the Government should be as neutral as
    possible to investors in new space activities, neither
    subsidizing them nor adding new financial regulations to the
    actual investment.
        Up to now, most commercial space activity has included a
    significant amount of government use, mainly communications and
    remote sensing satellites, which provides at least some excuse
    for continuing government indemnification liability.
        However, a purely commercial human space flight, whether
    sub-orbital or in-orbital, has no dual-use purpose. Its market
    will be adventure-seekers or sightseers, and private investors
    will incur the profits or losses. The private company has a
    business interest and an obligation to cover all potential
    liabilities as would be prudent for any profit-oriented
    enterprise in any industry.
        Therefore, the U.S. Government should have no obligation to
    subsidize this type of commercial activity and should incur no
    financial risks from the activities of U.S. citizens involved
    in commercial human space travel.
        This means that the current form of indemnification for
    space activities as enumerated by the FAA in its regulations
    will have to be changed. The types of changes I propose would
    shift the entire liability for commercial human sub-orbital and
    in-orbit activity to the firm. Although the cost of insurance
    might discourage some from entering this industry, this cost is
    only a relatively small fraction of the total cost of a launch
    and would be included in the price of the launch. Those
    incurring the risk should be willing to pay for the risk,
    particularly where there is no direct Government benefit from
    the activity.
        H.R. 3245, as it is now drafted, may establish several
    other bad precedents. It perpetuates the conflict within the
    FAA/AST of being both a promoter and a regulator of the
    industry. It takes a piecemeal approach to regulation by
    focusing on commercial human space activities rather than
    considering the entire spectrum of future aviation, sub-
    orbital, and orbital commercial activities in a comprehensive
    and cohesive framework. And it proposes a definition of space
    and aviation activity that fails to adequately separate
    regulatory functions and jurisdiction.
        Currently, the Office of Commercial Space Transportation at
    the FAA has a dual role of promoting the ELVs and RLVs as well
    as regulating them. Regulations by their very nature may
    counter promotional activities. I believe the time has come to
    separate these activities.
        And there is another serious conflict brewing within the
    FAA regulatory environment itself. The history of the
    development of space is very different from that of aviation.
    The legal structure of the two sectors is also very different.
    Even though one has to fly through air to get to space, the
    same companies build both aircraft and spacecraft, and the
    Government R&D structure in aerospace is focused primarily in
    one agency, that does not mean that the two activities are the
    same and should be regulated by the same agency.
        H.R. 3245 only addresses commercial human space flight.
    Other new developments that will affect both aviation and space
    include: high altitude platforms that may have functions that
    compete with low-Earth orbit satellites, unmanned aircraft,
    space launches that use airplanes for the first stages, et
    cetera. Also, by separating commercial human space activities
    from the transportation of cargo into sub-orbital and orbital
    locations, different regulations could emerge for virtually
    identical physical launches. The borders between aviation and
    space and the regulatory framework will become fuzzy.
        In fact, the potential of using high altitudes, those
    higher than current commercial airplanes use but lower than
    entering orbit, for purposes other than transporting people or
    cargo from one point on Earth to another is an area that has
    great commercial and security implications and potential.
    Regulations currently are not well formulated about the
    commercial use of those altitudes. I would recommend the
    Congress study the entire spectrum of space supervision and
    regulatory options.
        One option that could be considered would be to establish
    an independent regulatory agency for space activities,
    something on the model of the Nuclear Regulatory Commission or
    the Federal Communications Commission. This would separate the
    promotion of commercial activity from its regulation and the
    problems of air versus space regulation could be coordinated
    through actions of two relatively equal and independently
    separate organizations.
        The, as yet, unsolved problem of what should be classified
    under aviation and what should be space for regulatory actions
    has always been a contentious situation with many proposals,
    but no solutions. H.R. 3245 addresses this issue by using a
    definition that has now been prepared by the FAA--now been
    proposed by the FAA in a proposed rule making issued just a
    couple of weeks ago. Previous attempts at definitions have
    focused on either a physical description of where space begins
    or on a functional approach. The physical definition is very
    imprecise. The functional approach is one that is most commonly
    used where if an activity is meant to reach outer space, it is
    regulated as a space activity, even if it never reaches space.
    If it is not destined for outer space, then it is regulated
    under aviation regulations, where appropriate.
        The proposed definition is still not the solution to the
    problem. One issue involves regulating the payload, the
    ultimate reason for the launch. Will a definition of space that
    is based on the vehicle lead to unintended increased
    jurisdiction over payloads as well? Another issue is the
    situation where a commercial firm could be required to obtain
    both an aviation certificate and a space launch license.
        In conclusion, until the reliability of space vehicles
    improves greatly, it is clear that the commercial space launch
    industry is not mature nor is it similar enough to commercial
    aviation aircraft to be part of the aviation regulatory regime.
    At some future time, it is possible that aviation systems and
    space systems can be handled together. The time is yet to come,
    and by forcing round pegs into square holes at this juncture,
    the Congress could be inhibiting both human and non-human
    commercial space development rather than encouraging it.
        Thank you.
        [The prepared statement of Dr. Hertzfeld follows:]

                    Prepared Statement of Henry R. Hertzfeld

        Government supervision and regulation of all space flight is
    mandatory. The Congress has an obligation to insure that commercial
    space flight is as safe as possible for all parties involved and that
    innocent parties both domestically and internationally are protected.
    Virtually all space activities are global. By treaty, each nation is
    responsible for the actions of their citizens in space. And, it is
    simply common sense in today's security and defense environment that
    the advanced technological capabilities needed to get to space will
    require government knowledge and supervision of those activities,
    whether they be for governmental or for commercial purposes. Finally,
    one must travel through air space to get to outer space, which will
    require close coordination, but not necessarily integration, with the
    existing regulations for aviation.
        Only recently has the prospect of commercial human space flight
    been seriously proposed. This could develop into a new business
    opportunity in the coming years. In order to encourage commercial
    activity, the Government should be neutral as possible to investors in
    new space activities--neither subsidizing them nor adding new financial
    regulations to the actual investment. The risks of commercial space
    flight are two-fold: financial for investors and injury to people and
    property. The Government does have an obligation to insure that
    commercial space companies fully protect non-participants and
    government property while maintaining some basic standards for the
    safety of its employees and customers.
        Up to now most commercial space activity has included a significant
    amount of government use (mainly communications and remote sensing
    satellites), which provides at least some excuse for a continuing
    government indemnification liability.
        However, purely commercial human space flight, whether sub-orbital
    or in-orbit has no dual-use purpose. Its market will be adventure-
    seekers or sightseers and private investors will incur the profits or
    losses. The private company has a business interest and an obligation
    to cover all potential liabilities as would be prudent for any profit-
    oriented enterprise in any industry.
        Therefore, the U.S. Government should have no obligation to
    subsidize this type of commercial activity and should incur no
    financial risks from the activities of U.S. citizens involved in
    commercial human space travel.
        This means that the current form of indemnification for space
    activities as enumerated by the FAA in its regulations on financial
    responsibility will have to be changed. At present, the FAA determines
    the maximum probable exposure for third-party liability from a
    commercial launch activity and requires the private company to
    indemnify that activity up to that amount (which can be as high as $500
    million per flight). Between that figure and a cap of $1.5 billion, the
    U.S. Government is obligated to pay for third party damage. Above the
    cap, the payment options are not specified. The types of changes I
    propose would shift the entire liability for commercial human sub-
    orbital and in-orbit activity to the firm. Although the cost of
    insurance might discourage some from entering this industry, this cost
    is only a relatively small fraction of the total cost of a launch and
    would be included in the price of a launch. Those incurring the risk
    should be willing to pay for the risk, particularly where there is no
    direct Government benefit from the activity.
        H.R. 3245, as it is now drafted, may establish several bad
    precedents. It perpetuates the conflict within the FAA/AST of being
    both a promoter and regulator of the industry. It takes a piecemeal
    approach to regulation by focusing on commercial human space activities
    rather than considering the entire spectrum of future aviation, sub-
    orbital, and orbital commercial activities in a comprehensive and
    cohesive framework. And it proposes a definition of space and aviation
    activity that fails to adequately separate regulatory functions and
    jurisdiction.
        Currently the Office of Commercial Space Transportation at the FAA
    has a dual role of promoting the ELV (and RLV) industry as well as
    regulating it. Regulations by their very nature may counter promotional
    activities. As commercial space activities expand (e.g., commercial
    human sub-orbital and eventually possible orbital flights), these two
    roles become even more difficult to accomplish within the same Office
    than before. I believe the time has come to separate these activities.
    Promotion of U.S. industry has traditionally been the province of the
    U.S. Department of Commerce. If the DOT/FAA is to regulate space
    without conflict, the promotional activities should be transferred
    elsewhere.
        And, there is another serious conflict brewing within the FAA
    regulatory environment itself. The history of the development of space
    is very different from that of aviation. The legal structure of the two
    sectors is also very different. Even though one must fly through air to
    get to space, the same companies build both aircraft and spacecraft,
    and the Government R&D structure in aerospace is focused in one agency,
    that does not mean that the two activities are the same and should be
    regulated by the same agency. As it now stands, different offices
    within the FAA must compete for regulatory authority. As commercial
    space matures, the conflicts will become much greater. This is
    wasteful, and will lead to sub-optimal solutions for the aviation
    industry, for the space industry, and for U.S. competitiveness
    internationally.
        H.R. 3245 only addresses commercial human space flight. Other new
    developments that will affect both aviation and space include: high
    altitude platforms that may have functions that compete with low Earth
    orbit satellites, unmanned aircraft, space launches that use airplanes
    for first stages, etc. Also, by separating commercial human space
    activities from the transportation of cargo into sub-orbital and
    orbital locations, different regulations could emerge for virtually
    identical physical launches. The borders between aviation and space and
    the regulatory framework will become fuzzy.
        In fact, the potential of using high altitudes (those higher than
    current commercial airplanes use, but lower than entering orbit) for
    purposes other than transporting people from one point on Earth to
    another is an area that has great commercial (and security) potential.
    Regulations currently are not well formulated about the commercial use
    of these altitudes. It appears that the uses of these altitudes will be
    functionally and competitively closer to space uses than aviation, but
    the means of getting there may be more like aircraft than spacecraft.
    As this activity develops, the question of where and how it should be
    regulated is open to debate. Because commercial human space activity is
    only one part of this debate, setting precedents now for the regulation
    of these activities in a piecemeal fashion may create disincentives and
    confusion for other near-term innovative commercial activities in this
    region of the atmosphere. I would recommend that the Congress study the
    entire spectrum of space supervision and regulation options.
        One option that the Congress might consider would be to establish
    an independent regulatory agency for space activities on the model of
    the FCC or the NRC. This would separate the promotion of commercial
    space from its regulation. And the problems of air vs. space regulation
    could be coordinated through actions of two equally independent and
    separate organizations. This would eliminate wasteful turf wars within
    an agency and would not prematurely force space regulations into
    aviation regulation, which, as it is now formulated, is not the
    appropriate model for space activities.
        The as yet unresolved problem of what should classified under
    aviation and what should be space for regulatory actions has always
    been a contentious situation with many proposals but no solutions. H.R.
    3245 addresses this issue by using a definition that has now been
    proposed by the FAA in a proposed rule-making in the Federal Register
    (Vol. 68, No. 202, October 20, 2003). Previous attempts at definitions
    have focused on either a physical description of where space begins or
    on a functional approach. The physical definition is imprecise. The
    functional approach is the one most commonly used where if an activity
    is meant to reach outer space it is regulated as a space activity (even
    if it never reaches space). If it is not destined for outer space, then
    it is regulated under aviation regulations, where appropriate.
        The proposed definition is still not the solution to the problem.
    Other problems and issues are raised by the construction of a
    definition based on the design of the vehicle involved. One issue
    involves regulating the payload--the ultimate reason for the launch.
    Currently the FAA reviews each payload for safety. Will a definition of
    space that is based on the vehicle lead to unintended increased
    jurisdiction over payloads as well? Another issue is the situation
    where a commercial firm could be required to obtain both an aviation
    certification and a space launch license. This likely will be expensive
    and time consuming. It is also counter to the intent of Congress to
    create a simpler, more commercially friendly regulatory regime that
    encourages firms to engage in innovative space and aviation activities
    and encourages future financial commitments from both entrepreneurs and
    from the investment community.
        In conclusion, until the reliability of space vehicles improves
    greatly, it is clear that the commercial space launch industry is not
    mature nor is it similar enough to commercial aircraft to be part of
    the aviation regulatory regime. The current FAA space launch licensing
    regime is oriented toward issuing a license for each space mission
    (i.e., launch), while in the aviation world a Certification of Flight
    Worthiness certifies that a particular vehicle is safe to fly
    commercially. By creating an independent space regulatory agency that
    could include authority over commercial human space activity as well as
    high altitude activities (at least those that are not related to
    transporting humans from one point to another on Earth), the pressures
    to move too quickly toward integration with aviation regulation would
    be eased.
        At some future time it is possible that aviation systems and space
    systems can be handled together. That time is yet to come, and by
    forcing round pegs into square holes at this juncture, the Congress
    could be inhibiting both human and non-human commercial space
    development rather than encouraging it.

                        Biography for Henry R. Hertzfeld

        Dr. Henry R. Hertzfeld, Senior Research Scientist at the Space
    Policy Institute, George Washington University, is an expert in the
    economic, legal, and policy issues of space and advanced technological
    development. He has served as a Senior Economist and Policy Analyst at
    both NASA and the National Science Foundation, and has been a
    consultant to many agencies and organizations. He is the co-editor of
    Space Economics (AIAA 1992), as well as many articles on space economic
    and legal issues. Dr. Hertzfeld holds a B.A. from the University of
    Pennsylvania, a M.A. from Washington University, and a Ph.D. degree in
    economics from Temple University. He also has a J.D. degree from the
    George Washington University and is a member of the Bar in Pennsylvania
    and the District of Columbia.

        Chairman Rohrabacher. My, my, we do have different points
    of view here, don't we? And I see that the great thing about
    being on that side is you can give your opinions but in the
    end, the guys on this side have to make up the final decision.
    And sometimes it is not 90/10. Sometimes it is 45/55. But for
    most of the laws that we have to deal with, it is 45/55. So----
        Mr. Wu. Yes, but Mr. Chairman, if I may interject, we may
    make some legislative decisions, but some of the folks out
    there actually wind up building the stuff, so that----
        Chairman Rohrabacher. All right.
        Mr. Wu [continuing]. Proves its own challenge.
        Chairman Rohrabacher. All right.
        Well, we appreciate all of you, and we have one final
    witness: Pamela Meredith, who is counsel at the law firm of
    Zuckert, Scoutt & Rasenberger, LLP, where she practices
    aerospace and space law. Ms. Meredith also is an adjunct
    professor of Satellite Communications and Space Law at American
    University's Washington College of Law. Thank you very much for
    being with us today, Ms. Meredith. And you may proceed.

    STATEMENT OF MS. PAMELA L. MEREDITH, COUNSEL, ZUCKERT, SCOUTT &
                            RASENBERGER, LLP

        Ms. Meredith. Thank you very much, Mr. Chairman and Members
    of the Subcommittee.
        I suppose there is a reason why you put Gary Hudson and me
    on opposite sides of the table here. Thank you for inviting me
    to speak on this very important subject of commercial human
    space flight and the regulation of it and, in particular, H.R.
    3245.
        I commend the Committee for taking these early steps to lay
    the legal foundation for the development of a commercial human
    space flight industry.
        Let me say that I am here today speaking in my own personal
    capacity, and I do not represent my firm or any clients of the
    firm. And the views I express here are entirely my own.
        I have submitted testimony for the record, and this, what I
    am doing here now is summarizing the points of that testimony.
        Commercial human space flight should be regulated by the
    Government. The Commercial Space Launch Act, which this
    committee was instrumental in creating, provides a good
    framework for that regulation with a few modifications. The
    FAA's Space Office is the appropriate regulator for commercial
    human space flight. There are some revisions required for the
    Commercial Space Launch Act to be appropriate for regulating
    human space flight. And those revisions need to accomplish the
    four following objectives: one is to make clear that the FAA's
    Space Office has the authority to license human space flight;
    the second is create or establish protection, safety
    protection, that is, reasonable safety protection for
    passengers and crew; and establish reasonable liability and
    insurance protection for passengers and crew; and finally to
    regulate only to the extent necessary. Those are the four
    objectives that need to be achieved by revisions of the
    Commercial Space Launch Act.
        Now looking at your bill H.R. 3245, the purpose of that
    bill, the stated purpose of that bill, is the opening of outer
    space to the American people. And to truly accomplish that
    goal, the bill needs to meet the four objectives I just
    outlined.
        The bill does make clear that the FAA's Space Office has
    the authority to license human space flight. The bill creates a
    safety regime where the entire safety focus is on the general
    public to the exclusion of passengers and crew. In other words,
    with the exception of medical standards and a requirement for
    training, the FAA's Space Office would be examining--would not
    be examining the passengers' safety on board the vehicle, but
    rather the innocent bystanders, the third parties, the innocent
    bystanders that may be injured in a launch accident. Now is
    that the kind of safety regime that promotes the bill's goal of
    opening up space to the American people? I am just posing the
    question.
        As far as liability is concerned, the bill provides for
    assumption of risk by passengers and crew. The bill provides
    for the passenger to assume the risks inherent in human space
    flight. It appears that the bill will require the passenger to
    waive its rights to claim against the launch company and its
    contractors and subcontractors in the event the passenger is
    injured. It is a little bit unclear how the bill is going to
    accomplish that goal. There are some things in the bill that
    need to be clarified, but that seems to be the thrust of it.
        Also, the passenger could be held liable to third parties
    who are injured on the ground, those are the innocent
    bystanders, in the event of a launch accident. In such a case,
    the passenger would not be protected by the launch company's
    liability insurance. That liability insurance would protect the
    launch company and the launch company's contractors and
    subcontractors but would not protect the passengers the way the
    bill is structured. Also the way the bill is structured, the
    passenger would not have the benefit of the government
    indemnification, which again protects the launch company and
    other launch participants for any damage or any liability above
    the insured amount. One can pose the question: In essence, the
    passenger gets the worst of all worlds; is this the kind of
    legal regime that promotes the goal of opening space to the
    American people?
        [The prepared statement of Ms. Meredith follows:]

                    Prepared Statement of Pamela L. Meredith

    1.  Should the government regulate human space flight? If so, what
    should the public policy objectives (e.g., encouraging development of
    the industry, protecting third parties, protecting passengers, etc.) of
    that regulation be and how should they be balanced?

    Summary Answer: The government should regulate commercial human space
    flight. The Commercial Space Launch Act of 1984, as amended and
    recodified\1\ (``CSLA''), provides an appropriate general framework for
    the regulation of human space flight. Some revision of the act is
    desirable to clarify that the CSLA applies to human space flight and
    necessary to establish reasonable safety and liability regimes for
    human space flight.
    ---------------------------------------------------------------------------
        \1\ Title 49, Transportation, Subtitle IX, Commercial Space
    Transportation, Chapter 701, Commercial Space Launch Activities, 49
    U.S.C.  70101-70121.
    ---------------------------------------------------------------------------

    Current Regulation of Commercial Space Transportation

        The Department of Transportation, and by delegation the Federal
    Aviation Administration's Associate Administrator for Commercial Space
    Transportation (``FAA/AST''),\2\ licenses and regulates launches and
    re-entries\3\ under the CSLA.\4\ The FAA/AST licenses and regulates
    launches and re-entries ``[c]onsistent with the public health and
    safety, safety of property, and national security and foreign policy
    interests of the United States.. . .'' \5\
    ---------------------------------------------------------------------------
        \2\ See 49 C.F.R.  1.47(v) (providing that the Federal Aviation
    Administrator ``is delegated authority to. . .[c]arry out the functions
    vested in the Secretary by 49 U.S.C. Subtitle IX''); see also 50 Fed.
    Reg. 9036 (Mar. 6, 1985) (delegating authority under the CSLA to the
    Director of the Office of Commercial Space Transportation) and 60 Fed.
    Reg. 62762 (Dec. 7, 1995) (transferring the Director of Commercial
    Space Transportation's CSLA authority to the FAA Administrator).
        \3\ A license is required to ``launch a launch vehicle'' or ``re-
    enter a re-entry vehicle.'' 49 U.S.C.  70104(a)(1). A launch vehicle
    is ``(A) a vehicle built to operate in, or place a payload in, outer
    space; and (B) a sub-orbital rocket.'' Id.  70102(7). A re-entry
    vehicle is ``a vehicle designed to return from Earth orbit or outer
    space to Earth, or a reusable launch vehicle designed to return from
    Earth orbit or outer space to Earth, substantially intact.'' Id.
    70102(14).
        \4\ The FAA/AST's licensing and regulatory authority extends to: 1)
    launches/re-entries in the U.S.; 2) launches/re-entries by U.S. persons
    or entities anywhere in the world; 3) launches/re-entries by U.S.
    controlled foreign entities on the high seas or from international air
    space, unless there is an agreement that a foreign government will
    license the launch/re-entry; and 4) launches/re-entries of U.S.
    controlled foreign entities in foreign countries if there is an
    agreement that the U.S. will license the launch or re-entry. 49 U.S.C.
     70104(a). The FAA/AST also licenses and regulates launch sites and
    re-entry sites. Id.
        \5\ Id.  70105(a)(1).
    ---------------------------------------------------------------------------
        Initially, the FAA/AST's authority applied only to launch
    operations. The authority was extended by a 1998 amendment to the CSLA
    to include re-entry operations.\6\ The purpose of the amendment was to
    ``establish a statutory framework for the licensing of commercial re-
    entry activities.. . .'' \7\ Prior to the adoption of that amendment,
    this committee noted: ``Currently, there is no licensing procedure to
    conduct re-entry from space. Such re-entry is vital if new technologies
    in reusable launch vehicles are to be exploited and the opportunity to
    conduct commercial experiments in space for return to Earth is to be
    taken.'' \8\
    ---------------------------------------------------------------------------
        \6\ Commercial Space Act of 1998, Pub. Law 105-303,  102, 112
    Stat. 2843, 2846-2851 (1998).
        \7\ Commercial Space Act of 1997, H.R. Rep. No. 105-347, at 20.
        \8\ Civilian Space Authorization Act, Fiscal Years 1998 and 1999,
    H.R. Rep. No. 105-65, at 23. The Committee pointed out that the FAA/AST
    had previously taken the position that ``a re-entry [was] subject to a
    launch license requirement on the grounds that re-entry entailed the
    placing of a launch vehicle in a sub-orbital trajectory `from Earth
    orbit [and that the FAA/AST had] since abandoned that position.. . .''
    Id., at 60; see also Commercial Space Act of 1997, H.R. Rep. No. 105-
    347, at 21 (providing the same).
    ---------------------------------------------------------------------------
        It is not entirely clear that the FAA/AST's licensing authority
    under the CSLA extends to human space flight. There is no explicit
    mention or clear embrace of humans, whether crew or passengers, in the
    CSLA. At the same time, there is no prohibition on the licensing of
    humans. The FAA/AST appears to have taken the position that it has the
    authority to license human space flight.\9\
    ---------------------------------------------------------------------------
        \9\ See, e.g., Financial Responsibility Requirements for Licensed
    Re-entry Activities, Notice of Proposed Rule-making (``NPRM''), 64 Fed.
    Reg. 54448, 54457 (Oct. 6, 1999) (providing that ``[w]ith the
    development of RLV technology comes the possibility of crewed or
    piloted launch vehicles whose operations would be subject to FAA
    licensing''). In the same NPRM, the FAA solicited comments on the
    subject of a ``regulatory program that would. . .address passenger
    safety.'' Id.
    ---------------------------------------------------------------------------
        A license under the CSLA is required ``to launch a launch vehicle.
    . .or to re-enter a re-entry vehicle.'' \10\ Launch means ``to place or
    try to place a launch vehicle or re-entry vehicle and any payload from
    Earth (A) in a sub-orbital trajectory; (B) in Earth orbit in outer
    space; or (C) otherwise in outer space.. . .'' \11\ A ``payload'' means
    ``an object that a person undertakes to place in outer space by means
    of a launch vehicle or re-entry vehicle.. . .'' \12\ While the term
    ``payload'' does not include humans, the definition of ``launch'' does
    not preclude humans.
    ---------------------------------------------------------------------------
        \10\ 49 U.S.C.  70104(a).
        \11\ Id.  70102(3).
        \12\ Id.  70102(9).
    ---------------------------------------------------------------------------

    The Need to Regulate Commercial Human Space Flight

        There are at least two reasons why the government should, or would
    want to, regulate commercial human space flight. First, the Treaty on
    Principles Governing the Activities of States in the Exploration and
    Use of Outer Space, Including the Moon and Other Celestial Bodies\13\
    (``Outer Space Treaty''), to which the United States is a party,
    provides that States ``bear international responsibility for national
    activities in outer space, including the Moon and other celestial
    bodies, whether such activities are carried on by governmental agencies
    or by non-governmental entities.. . .'' \14\
    ---------------------------------------------------------------------------
        \13\ Outer Space Treaty, done Jan. 27, 1967, 18 U.S.T. 2410.
        \14\ Id., art. VI.
    ---------------------------------------------------------------------------
        The ``activities of non-governmental entities. . .shall require
    authorization and continuing supervision.. . .'' \15\ The treaty does
    not distinguish between manned and unmanned flight. The treaty does not
    specify the kind or degree of regulation required; rather it leaves
    that to each State party to decide with respect to its national space
    activities.
    ---------------------------------------------------------------------------
        \15\ Id.
    ---------------------------------------------------------------------------
        Second, there are public policy reasons for regulating commercial
    human space flight. The government has an interest in ensuring that
    such flight is consistent with fundamental public policy objectives,
    such as public safety, national security, and foreign policy interests
    of the United States. This Committee made note of precisely these
    public policy concerns when adopting the CSLA:

             Government supervision over the activities of private parties
            who provide commercial launch services must be exerted to
            safeguard life and property, to prevent actions that would
            jeopardize national security and foreign policy, and to ensure
            that U.S. treaty obligations, such as those in the Outer Space
            Treaty, are met.\16\
    ---------------------------------------------------------------------------
        \16\ Commercial Space Launch Act, H.R. Rep. No. 98-816, at 8.

        While it may be clear that some government regulation of commercial
    human space flight is in order, questions remain as to when to
    regulate; how to regulate; and how much to regulate. The answer to the
    first question depends on the state of the commercial human space
    flight industry. In other words, how imminent is commercial human space
    flight? The issue of how and how much to regulate depends to a large
    extent on the policy objectives the government seeks to achieve. It
    also depends on the general philosophy and approach to regulation of
    high technology commercial endeavors.

    Public Policy Objectives of Commercial Human Space Flight Regulation

        The policy objectives of the CSLA are to: 1) ``promote economic
    growth and entrepreneurial activity through the use of the space
    environment. . .;'' 2) ``encourage the United States private sector to
    provide launch vehicles, re-entry vehicles, and associated services. .
    .;'' and 3) provide for licensing and regulation of launches and re-
    entries consistent with ``the public health and safety, safety of
    property, and national security and foreign policy interests of the
    United States.''\17\
    ---------------------------------------------------------------------------
        \17\ 49 U.S.C.  70105(b)(1)-(3).
    ---------------------------------------------------------------------------
        These policy objectives also support human space flight. To
    accomplish these objectives with respect to human space flight, the
    following key ingredients of human space flight regulation should be
    considered:

              A clear articulation of the FAA/AST's authority to
            license and regulate commercial human space flight. Private
            sector initiatives are generally encouraged by regulatory
            certainty and discouraged by regulatory uncertainty.

              Reasonable safety protection of passengers and crew.
            The FAA/AST has interpreted its public health and safety
            mandate under the CSLA as directed at the public at large, and
            not extending to launch service participants, e.g., launch site
            personnel. The question is whether the FAA's safety mandate
            should extend at least to passengers in order to establish
            reasonable safety protection. A regime with virtually no safety
            oversight of passengers may not be sustainable if the goal
            truly is to promote an industry of public space travel.

              Reasonable qualification criteria for crew and
            passengers. Given the high-risk nature of space flight at this
            stage of industry development, qualification criteria may be
            advisable for both crew and passengers. The FAA already imposes
            certain qualification requirements on ground-based launch
            safety personnel, which may be applied or adapted for crew.
            Qualification criteria for passengers should be designed to
            ensure a minimum level of safety for the passenger, while not
            being so burdensome as to discourage human space flight.

              Reasonable liability and insurance protection for
            passengers and crew. The liability regime for passengers should
            be compatible with the current CSLA provisions for commercial
            space transportation, which have worked well. At the same time,
            the regime must offer the necessary liability and insurance
            protection to promote commercial human space flight. The
            current regime, as set forth in the CSLA, has three major
            components: 1) cross waivers; 2) third party liability
            insurance; and 3) indemnification:

                      The CSLA requires the licensee to enter into
                    cross waivers of liability with its customers whereby
                    each party agrees not to sue the other and to assume
                    responsibility for loss or damage it sustains and for
                    injury, loss or damage sustained by its employees.\18\
                    The licensee and customer must each extend these
                    waivers to their respective contractors and
                    subcontractors involved in launch/re-entry services
                    requiring them not to sue the other party or the other
                    party's contractors and subcontractors.\19\
    ---------------------------------------------------------------------------
        \18\ Id.  70112(b); 14 C.F.R.  440.17 and Part 440, Appx. B,
    Agreement for Waiver of Claims and Assumption of Responsibility
    (``Waiver Agreement''). The purpose of the cross waivers is: ``(1) to
    limit the total universe of claims that might arise as a result of a
    launch; and (2) to eliminate the necessity for all these parties to
    obtain property and casualty insurance to protect against these
    claims.'' Commercial Space Launch Act Amendments of 1988, S. Rep. No.
    100-593 (1988), at 14.
        \19\ 14 C.F.R.  440.17(b); Waiver Agreement, supra note 18,  4.

                      The CSLA requires the licensee to obtain
                    third party liability insurance in an amount stipulated
                    by the FAA/AST.\20\ This insurance must protect not
                    only the licensee, but also the United States, the
                    licensee's contractors and subcontractors and the
                    customer, as well as the contractors and subcontractors
                    of the customer.\21\
    ---------------------------------------------------------------------------
        \20\ 49 U.S.C.  70112(a).
        \21\ Id.  70112(b).

                      The CSLA provides that indemnification is
                    available against third party claims above the insured
                    amount, subject to certain conditions.\22\ See question
                    2, below.
    ---------------------------------------------------------------------------
        \22\ See infra notes 37-39 and accompanying text (describing
    indemnification under the CSLA).

               Should a passenger be required to sign a liability waiver by
            which it relinquishes its rights to sue the licensee and other
            launch participants assuming the passenger is injured? \23\ The
            benefit of such a waiver would be that the passenger could not
            get sued by the licensee or other launch participants.
            Currently, launch customers, which are required to sign
            waivers, protect themselves through insurance. Is it reasonable
            to expect passengers to take out life insurance? Would such
            insurance even be available (at a reasonable price) for a risky
            activity such as space flight? Or should the licensee be
            required to indemnify the passenger through limited ``carrier''
            liability?
    ---------------------------------------------------------------------------
        \23\ See Martin Marietta Corp. v. International Telecomm. Satellite
    Org., 991 F.2d 94, 100 (4th Cir. 1992) (providing that ``neither the
    language of the [CSLA] Amendments nor their legislative history
    reflects a Congressional intent to protect parties from liability for
    their own gross negligence'').

               Should crew members be required to sign liability waivers?
            Assuming crew members are the employees of the licensee, such
            employees are not now required to sign waivers. While the
            employees are not full beneficiaries of the waivers, they are
            afforded some protection.\24\ Precisely how far this protection
            extends and whether it would be adequate is not entirely clear.
    ---------------------------------------------------------------------------
        \24\ For example, the customer agrees to hold such employees
    harmless from any liability arising out of claims from customer's
    contractors and subcontractors. Waiver Agreement, supra note 18,
    5(b).

               Should passengers be considered third parties and, thus,
            beneficiaries of the licensee's third party liability insurance
            in the event of an accident resulting in passenger injury or
            death? If not, should the passenger be protected as an
            additional insured from claims by third parties? Should the
            passengers be entitled to CSLA indemnification? Or should the
            licensee be required to indemnify the passenger through limited
    ---------------------------------------------------------------------------
            ``carrier'' liability?

               The same questions apply to the crew. Assuming crew are
            employees of the licensee, the FAA/AST does not consider them
            third parties.\25\
    ---------------------------------------------------------------------------
        \25\ Compare the FAA's definition of ``third party'' in 14 C.F.R.
    440.3(a)(15)(ii) (providing specifically that U.S. government personnel
    are third parties).

              Minimal regulation. Private industry is best served
            by minimal regulation, i.e., regulation only as necessary to
            serve essential public policy objectives. This is especially
            true for evolving high technology industries, such as, space
            transportation. Excessive regulation can stifle technological
            development. The technology should drive the regulation, not
            vice versa. The CSLA espouses this approach. It provides that
            launch and re-entry should be regulated ``only to the extent
            necessary. . .to ensure compliance with international
            obligations of the United States and to protect the public
            health and safety, safety of property, and national security
            and foreign policy interests of the United States.'' \26\
    ---------------------------------------------------------------------------
        \26\ 49 U.S.C.  70101(a)(7). (Emphasis added).

    2.  Should the government offer indemnification for commercial human
    space flight, and if so, against what sorts of liability? How should
    any indemnification relate to existing policies and international
    ---------------------------------------------------------------------------
    treaties?

    Summary Answer: There appears to be no reason to treat a human space
    flight differently than unmanned flight as far as indemnification of
    the licensee and its contractors, subcontractors, and customers and the
    customers' contractors and subcontractors are concerned. However,
    whether the passenger and crew should be entitled to indemnification
    depends on the broader liability regime selected for these individuals.

    International Treaty Obligations

        The United States may be held internationally liability for damage
    caused by launch vehicles or their payloads, or the component parts of
    launch vehicles or payloads, under certain conditions. This liability
    is imposed by the Outer Space Treaty\27\ and the Convention on
    International Liability for Damage Caused by Space Objects\28\
    (``Liability Convention'') and general principles of international law.
    ---------------------------------------------------------------------------
        \27\ Under the Outer Space Treaty, ``[e]ach State Party to the
    Treaty that launches or procures the launching of an object into outer
    space [or] from whose territory or facility an object is launched, is
    internationally liable for damage to another State Party by such object
    or its component parts.. . .'' Outer Space Treaty, art. VII.
        \28\ Liability Convention, done Mar. 29, 1972, 24 U.S.T. 2389.
    ---------------------------------------------------------------------------
        The Liability Convention provides that a launching state is
    ``absolutely liable to pay compensation for damage caused by its space
    object on the surface of the Earth or to aircraft in flight.'' \29\
    Absolute liability means that it is not necessary to prove fault. ``In
    the event of damage being caused elsewhere than on the surface of the
    Earth to a space object of one launching State or to persons or
    property on board such a space object by a space object of another
    launching State,'' liability is based on fault.\30\
    ---------------------------------------------------------------------------
        \29\ Id., art. II.
        \30\ Id., art. III.
    ---------------------------------------------------------------------------
        Liability rests with the ``launching state,'' which is defined as
    the State ``which launches or procures the launching of a space object
    [or a] State from whose territory or facility a space object is
    launched.''\31\
    ---------------------------------------------------------------------------
        \31\ Id., art. I(c).
    ---------------------------------------------------------------------------
        Liability under the Outer Space Treaty and the Liability Convention
    applies to the United States, as a party to these treaties. The
    treaties do not impose liability directly on private companies, such as
    launch companies and their contractors or customer. Nor do they impose
    liability directly on private individuals, such as crew or passengers.
    On the other hand, the United States may be held liable under the
    treaties for the activities of these entities and individuals because
    the United States bears ``international responsibility'' under the
    Outer Space Treaty for national activities in space.\32\
    ---------------------------------------------------------------------------
        \32\ See supra note 14 (setting forth the international
    responsibility of the United States for its national activities in
    space pursuant to the Outer Space Treaty, art. VI).
    ---------------------------------------------------------------------------
        Needless to say, the Outer Space Treaty and Liability Convention
    are not the only sources of liability for the licensee and its
    contractors, subcontractors and customers, or for passengers. These
    parties could also be held liable under private tort law, even for
    damage in a foreign country.\33\
    ---------------------------------------------------------------------------
        \33\ See Liability Convention, art. XI.2 (providing that
    ``[n]othing in this Convention shall prevent a State, or natural or
    juridical persons it might represent, from pursuing a claim in the
    courts or administrative tribunals or agencies of a launching State'').
    ---------------------------------------------------------------------------

    Current Indemnification Regime for Commercial Space Transportation

        The CSLA requires that a launch or re-entry licensee obtain third
    party liability insurance (or demonstrate financial responsibility) to
    compensate claims from third parties for the ``maximum probable loss.''
    \34\ The FAA/AST determines the amount of insurance required.\35\ That
    amount shall not exceed $500 million.\36\ In practice the FAA/AST
    requires considerably less. The amount varies from launch vehicle to
    launch vehicle.
    ---------------------------------------------------------------------------
        \34\ 49 U.S.C.  70112(a)(1)(A).
        \35\ Id.  70112(a)(2).
        \36\ Id.  70112(a)(3)(A)(i).
    ---------------------------------------------------------------------------
        The CSLA provides for indemnification for claims above the insured
    amount, subject to certain conditions. Adopted as part of the 1988
    Amendments to the CSLA, the indemnification provision allows:

             To the extent provided in advance in an appropriation law or
            to the extent additional legislative authority is enacted
            providing for paying claims. . .the Secretary of Transportation
            shall provide for the payment by the United States Government
            of a successful claim. . .of a third party. . .resulting from
            an activity carried out under the license.. . .\37\
    ---------------------------------------------------------------------------
        \37\ Id.  70113(a)(1).

        The limit of the indemnification is $1.5 billion above the
    insurance amount.\38\ The indemnification is available for claims of a
    third party against the licensee or a contractor, subcontractor or
    customer of the licensee, as well as a contractor or subcontractor of
    the licensee's customer.\39\
    ---------------------------------------------------------------------------
        \38\ Id.  70113(a)(1)(B).
        \39\ Id.  70113(a)(1).
    ---------------------------------------------------------------------------
        The rationale behind the indemnification was that there was not
    sufficient commercial insurance available at a reasonable price to
    protect against third party liability resulting from a catastrophic
    launch accident. Congress reasoned that ``[t]he potential unlimited
    liability that the commercial launch industry faces from third party
    claims is a deterrent to the development of a domestic commercial
    [launch] industry.'' \40\ Congress stated:
    ---------------------------------------------------------------------------
        \40\ Commercial Space Launch Act Amendments of 1988, S. Rep. No.
    100-593 (1988), at 17.

             Commercial operators cannot be expected to provide hundreds of
            millions of dollars in liability self-insurance to gain a
            license to operate launch vehicles. Nor can domestic commercial
            operators be expected to pay exorbitant premiums which would
            eliminate any possible profit from these operations or make
            their services noncompetitive with foreign launch services.\41\
    ---------------------------------------------------------------------------
        \41\ Id., at 11.

        The indemnification was intended to be temporary, that is, ``to
    facilitate the transition of the Nation's launch industry from a
    Government activity to a commercial activity.'' \42\ A sunset provision
    in the CSLA provides that the indemnification expires unless the
    request is received by December 31, 2004.\43\ The proposed legislation,
    H.R. 3245, provides for a three year extension of the
    indemnification,\44\ a short horizon given the long lead time involved
    in space projects.
    ---------------------------------------------------------------------------
        \42\ Id., at 22.
        \43\ 49 U.S.C.  70113(f).
        \44\ H.R. 3245,  5. A Senate bill provides for an extension of the
    indemnification provision to December 31, 2009. S. 1260,  3.
    ---------------------------------------------------------------------------

    Government Indemnification for Commercial Human Space Flight

        The question of whether the Government should indemnify human space
    flight is twofold. First, the question is whether the current
    indemnification regime should distinguish between manned and unmanned
    flight in terms of providing indemnification in favor of the types of
    parties that currently benefit from the indemnification. These parties
    include the licensee and its customer and their respective contractors
    and subcontractors. There does not appear to be a reason to
    distinguish, as the rationale that supports indemnification of unmanned
    flights applies equally to manned flights.
        Second, the question is also whether passengers should benefit from
    the indemnification, assuming they may be liable to third parties for
    any damage they cause. The answer to this question depends on the
    broader liability regime selected for them. If they are required to
    sign waivers, and if they are considered non-third parties and
    additional insureds under the licensee's third party liability
    insurance, it may be reasonable to extend the indemnification to them.
    On the other hand, if they are considered third parties that may sue
    the licensee and its contractors and subcontractors, or if they are
    otherwise indemnified through some type of ``carrier'' liability, it
    may not make sense to also extend the indemnification to them.

    3.  What changes would you recommend to H.R. 3245? In particular, do
    you support commercial human space flight being regulated by the Office
    of Commercial Space Transportation at the Federal Aviation
    Administration? If not, where and in what manner would you propose to
    regulate commercial human space flight?

    Summary Answer: I would recommend: 1) Careful consideration of the
    possible implications of extending the FAA/AST's authority to human
    space flight through an amendment of CSLA definition of ``payload;'' 2)
    Careful consideration of whether the proposed safety regime for
    passengers is adequate to achieve H.R. 3245's goal of opening outer
    space to the American people; and 3) Clarification of the liability
    regime established by H.R. 3245 and consideration of whether it is
    adequate to achieve the bill's goal.

    The Objectives of H.R. 3245

        The articulated goal of H.R. 3245 is ``the opening of outer space
    to the American people and their economic, scientific, and cultural
    enterprises is a priority goal which should guide Federal Space
    investments, policy development, and regulatory action.'' \45\ To
    achieve this goal, H.R. 3245 should, at a minimum, accomplish these
    objectives: 1) clarify the FAA/AST's authority to license human space
    flight; 2) provide reasonable safety protection for passengers and
    crew; 3) impose a reasonable liability regime on passengers and crew;
    and 4) regulate only to the extent necessary.
    ---------------------------------------------------------------------------
        \45\ H.R. 3245,  2(3).
    ---------------------------------------------------------------------------

    Licensing Authority for Commercial Human Space Flight

        H.R. 3245 attempts to clarify that the FAA/AST has the authority to
    license commercial human space flight under the CSLA. The bill does so
    by amending the definition of ``payload'' to include an ``individual,''
    and not just an ``object,'' as is currently the case. As noted above,
    the CSLA authorizes the FAA/AST to license the launch of a launch
    vehicle or re-enter a re-entry vehicle and any payload.\46\ The new
    definition makes passengers and crew a payload.\47\
    ---------------------------------------------------------------------------
        \46\ See supra note 3 (providing that the FAA has the authority to
    license the launch of a launch vehicle and the re-entry of a re-entry
    vehicle).
        \47\ H.R. 3245 does not define ``individual,'' but makes it
    implicitly clear that the term encompasses both crew and passengers,
    which the bill calls ``space flight participants.'' The bill defines
    crew as ``an individual or individuals carried within a launch or re-
    entry vehicle who performs a function necessary for the protection of
    public safety.'' H.R. 3245,  3(c)(2). A space flight participant means
    ``an individual who is not crew carried within a launch or re-entry
    vehicle during a launch or re-entry.'' Id.,  3(c)(4).
    ---------------------------------------------------------------------------
        The implication of including crew and passengers as payloads is
    that the FAA/AST has so-called ``payload determination'' authority over
    crew and passengers under the CSLA. That means that the FAA/AST has the
    authority to ``prevent the launch or re-entry [of these individuals] if
    [the FAA/AST] decides the launch or re-entry would jeopardize the
    public health and safety, safety of property, or national security or
    foreign policy interests of the United States.'' \48\ It will be
    necessary to carefully consider other potential consequences of
    including ``individuals'' in the definition of ``payload.''
    ---------------------------------------------------------------------------
        \48\ 49 U.S.C.  70104(c). The FAA has this authority for payloads
    that are not otherwise subject to U.S. government licensing or
    authorization. 14 C.F.R.  415.51.
    ---------------------------------------------------------------------------

    Safety Protection for Passengers and Crew

        H.R. 3245 takes the position that Federal regulation of human space
    flight ``should focus on protecting the safety of the general,
    uninvolved public, while allowing involved persons to assume risks
    which are inherent to human space flight activities.'' \49\ In other
    words, H.R. 3245 provides that the FAA/AST's public health and safety
    mandate be directed at the general public, to the exclusion of
    passengers and crew. Accordingly, the FAA/AST's ``payload
    determination'' as to whether the launch would ``jeopardize public
    health and safety'' presumably would focus on whether the passenger/
    crew poses a hazard to the public at large, and not whether the space
    flight would be safe for the passenger or crew.
    ---------------------------------------------------------------------------
        \49\ H.R. 3245,  2(6); see also id.,  4 (providing that the focus
    of commercial human space flight regulation should be on ``protecting
    the safety of the general public, while allowing space flight
    participants who have been trained and meet license-specific standards
    to assume an informed level of risk'').
    ---------------------------------------------------------------------------
        H.R. 3245 does temper this laissez-faire safety treatment to some
    extent by imposing qualification requirements on passengers, designed
    to protect their safety, such as medical standards and a requirement
    for training. The question is whether this safety regime is
    sustainable. In other words, is this minimalist approach to safety
    regulation adequate to promote the bill's goal of opening outer space
    to the American people?

    Liability Regime for Passengers and Crew

        Again, H.R. 3245 takes the position that federal regulation of
    human space flight should ``allow[ ] involved persons [presumably
    passengers] to assume risks which are inherent to human space flight
    activities.'' \50\ The first question is whether the bill as now styled
    achieves that objective. A separate question is whether such a
    liability regime is sustainable and whether it promotes the goals H.R.
    3245 is trying to accomplish.
    ---------------------------------------------------------------------------
        \50\ H.R. 3245,  2(6).
    ---------------------------------------------------------------------------
        The liability treatment of passengers and crew in the bill is
    incongruous. H.R. 3245 treats passengers and crew as non-third parties,
    while at the same time depriving them of the protections afforded to
    other non-third party participants in launch and re-entry services.
    H.R. 3245 amends the CSLA definition of ``third party'' to make clear
    that ``crew and passengers'' are not third parties. These individuals
    are added to a list of non-third parties, which includes the licensee,
    the customer and their respective contractors and subcontractors. Yet,
    crew and passengers do not benefit from the protection as additional
    insureds under the licensee's third party liability insurance, as do,
    e.g., the licensee's contractors, subcontractors, and customer.
    Passengers and crew also do not benefit from the CSLA indemnification.
        It is not clear whether passengers or crew will have to sign the
    CSLA liability waiver. The waiver applies to the licensee and its
    ``customers'' and their contractors and subcontractors that are
    ``involved in launch services.'' Are passengers and/or crew
    ``customers?'' The FAA defines customer as ``the person who procures
    launch services. . .,'' \51\ which is true of a passenger, but not
    crew. It would be a stretch to apply the remaining portion of the
    ``customer'' definition--providing that ``any person who has placed
    property on board the payload'' is a customer--to crew.
    ---------------------------------------------------------------------------
        \51\ 14 C.F.R.  440(a)(3).
    ---------------------------------------------------------------------------
        Even assuming passengers meet the definition of ``customer,'' are
    passengers ``involved in launch services?'' The waiver applies only to
    parties ``involved in launch services.'' Furthermore, H.R. 3245's
    addition of ``passengers'' to a list of non-third parties that already
    contains ``customers'' suggests that passengers are not considered
    customers for purposes of the liability waiver under the bill. If the
    bill's intention was to extend the waiver to customers, that purpose
    may not have been achieved.

                        Biography for Pamela L. Meredith

    Title: Co-Chair, Space Law Practice Group

    Practice Areas: Commercial Space Contracts, Administrative Law,
            Insurance, Policy and Legislation

    Education: Persbraten Gymnasium (Artium, 1975); University of Oslo
            School of Law (J.D. equivalent, 1981); McGill University, Air &
            Space Law Institute (LL.M., 1983)

        Pamela L. Meredith advises clients on commercial space project
    planning, implementation, risk management, and contract dispute
    resolution issues. She has written numerous articles and a textbook on
    related topics and is a frequent speaker at satellite communications
    and space law conferences in the U.S. and internationally.
        Ms. Meredith is also an Adjunct Professor of Satellite
    Communications and Space Law at American University's law school in
    Washington, D.C.--a course she started in 1989.
        As part of her space law practice, Ms. Meredith drafts and
    negotiates commercial and U.S. government space contracts, including
    launch contracts, satellite manufacturing contracts, transponder lease
    agreements, and contracts for supply of spacecraft components and
    launch vehicle subsystems. She represents both U.S. and foreign
    companies and a foreign government.
        Ms. Meredith advises on space project risk management and space
    insurance issues, including policy wording, coverage disputes, and
    insurance defense. Ms. Meredith also has testified as an expert witness
    for insurers in commercial space contract litigation.
        Ms. Meredith advises on U.S. government export licensing and
    regulatory matters. She helps obtain licenses and approvals from the
    U.S. State Department. These include DSP-5 and DSP-83 licenses and
    approvals for Technical Assistance Agreements, Manufacturing Licensing
    Agreements, and retransfers of technology.
        Ms. Meredith assists in obtaining launch licenses from the Federal
    Aviation Administration (FAA) and advises on FAA regulatory issues,
    including rule-makings. She also monitors Congressional legislative
    developments that may impact FAA launch licensing and regulation.
        Ms. Meredith assists in obtaining licenses and other approvals for
    communications satellite services before the Federal Communications
    Commission (FCC). Ms. Meredith has assisted or advised on some aspect
    of most of the FCC rule-making proceedings for communications
    satellites in the 1980s and 1990s, including fixed satellite service
    (C-, Ku-, Ka- and V-bands) and mobile satellite service (geostationary,
    big LEO and little LEO). She has also testified as an expert witness in
    litigation concerning the interpretation of FCC regulations.
        Ms. Meredith is a Member of the District of Columbia and New York
    bars. She chairs the American Institute of Aeronautics and
    Astronautics' (AIAA) Legal Aspects Committee.

    Select Publications:

    Textbook:
    Space Law: A Case Study for the Practitioner: Implementing a
            Telecommunications Satellite Business Concept (Martinus
            Nijhoff, 1992). (384 pages, co-authored: P.L. Meredith & G.S.
            Robinson).

    Articles:

    American Journal of International Law, 1984, ``The Legality of a High
            Technology Missile Defense System: The ABM and the Outer Space
            Treaties.''
    National Legal Center for the Public Interest, 1986, ``Domestic
            Commercialization of Space: The Current Political Atmosphere.''
            (Co-authored).
    Nordic Journal of International Law, 1986, ``The Legality of Launch
            Vehicle Passage Through Foreign Airspace.''
    Proceedings of the XXXII Colloquium on the Law of Outer Space, 1989,
            ``A Comparative Analysis of United States Domestic Licensing
            Regimes for Private Commercial Space Activities.''
    Journal of Space Law, 1989, ``Status of the `Patents in Space'
            Legislation in Congress.''
    Proceedings of the XXXIII Colloquium on the Law of Outer Space, 1990,
            ``Implementing a Telecommunications Satellite Business Concept:
            Overview and Relative Timing of Legal Actions.''
    California Western Law Review, 1990, ``Privately-Owned Commercial
            Telecommunications Satellites: Licensing and Regulation by the
            Federal Communications Commission.''
    The American University Journal of International Law and Policy, 1991,
            ``Legal Implementation of Space Debris Mitigation Measures.''
    Proceedings of the XXXIV Colloquium on the Law of Outer Space, 1991,
            ``Risk Allocation Provisions in Commercial Launch Contracts.''
    The Air and Space Lawyer, 1992, ``Implementing a Telecommunications
            Satellite Business Concept: The Necessary Legal Steps.''
    Proceedings of the XXXV Colloquium on the Law of Outer Space, 1992,
            ``Spacecraft Motion Management (SMM): Institutional and Legal
            Frameworks.''
    Cambridge University Press, 1994, ``A Legal Regime for Orbital Debris:
            Elements of a Multilateral Treaty.''
    Proceedings of the XXXVII Colloquium on the Law of Outer Space, 1994,
            ``Damage Caused by Orbital Debris to a Commercial Satellite:
            Liability Issues Raised by a Hypothetical Case Scenario.''
    Satellite Finance, 1998, ``Financing a Communications Satellite
            Venture: Assessing the Regulatory Risk'' (with Rachel B.
            Trinder).
    Journal of Space Law, 1999, ``Space Technology Exports: The Current
            Political Climate'' (with Sean P. Fleming).

                                   Discussion

                           Passenger Indemnification

        Chairman Rohrabacher. Thank you very much for your
    testimony. And all of the witnesses, you have our appreciation.
        We now will proceed with questions. And as Chairman, I will
    kick them off. I would like to--the point you just made, Ms.
    Meredith, about passengers and their indemnification, so a
    passenger, as you see it now, would be in need of
    indemnification for not being held responsible for a crash? Is
    this true with a passenger on an airplane today or would it be
    true of a passenger in something else?
        Ms. Meredith. Well, you know, Mr. Chairman, I have got to
    be careful here. I am here talking about space law and not
    aviation law. It is not my expertise, so I can't really tell
    you about aviation liability. But all I am saying is if the
    goal of the bill is to promote the opening of space to the
    American people, we have to be careful that we don't create a
    regime that allows only the super wealthy to take advantage of
    the opportunity because others will not be able to put in place
    the insurance they will need to cover themselves to go up on a
    space ride.
        Chairman Rohrabacher. Well, I understand. The whole issue
    of indemnification, I understand that I--it was not something
    that I thought of as being something that had anything to do
    with passengers. And maybe someone--is there anyone else on the
    panel--maybe Mr. Duffy knows this answer, do we need--Ms.
    Meredith suggests that we need to make sure that the--we
    specifically state that the passengers have indemnification,
    are not liable for damages caused if the vehicle crashes. Do
    you see that as well?
        Mr. Duffy. Well, I don't know where this--the bill that is
    being proposed veers away from the CSLA, but looking at the
    existing CSLA, the customers are included and the definition as
    the insured under the launch licensee so the customers are
    protected the same way everybody else is. And I would allocate
    the customer to the passenger at that point, so----
        Chairman Rohrabacher. So do you believe that problem is
    taken care of? Ms. Meredith, do you----
        Ms. Meredith. Well, I tell you what. The way the bill is
    structured today, it is not entirely clear that the passenger
    would be a customer under the Act. That is--we could go into
    the--I have gone into the details of that in my written
    testimony, but it----
        Chairman Rohrabacher. Okay. Let----
        Ms. Meredith [continuing]. Is not entirely clear.
        Chairman Rohrabacher. Okay. Let me ask the panel, would
    we--for those who agree that there should be indemnification,
    we all agree that--you all agree that--believe indemnification,
    that passengers should be included in that indemnification, is
    that correct, for those of you who agree with indemnification?
    I think Mr. Hudson is opposed to that or says it is not
    necessary.
        Mr. Hudson. Well, I think it is not necessary, but there--
    --
        Chairman Rohrabacher. Right.
        Mr. Hudson [continuing]. Will be indemnification anyway,
    because the companies will be buying it, so the customers
    would, in fact, be included in that policy.
        Chairman Rohrabacher. Okay. But do we--so maybe we need to
    make sure, as this bill proceeds, that we put something
    specifically into making sure there is no doubt in someone's
    mind, because we know if there is doubt at all, lawyers get
    rich off doubt, don't they? And we wouldn't want to see that
    happen, would we? Sorry, Bart.
        So--but Mr. Kelly, did you have something to say on that?
        Mr. Kelly. I--Pamela raises an excellent point. I hadn't
    considered the passenger, particularly a well-heeled passenger
    probably has more money than the launch vehicle operator----
        Chairman Rohrabacher. Mr. Tito, there you go.
        Mr. Kelly. Mr. Tito may well be held liable for causing the
    vehicle to have been built in the first place and then riding
    as a passenger in it. And unless this is made clear, yes, he
    would be open to liability beyond what he deserves.
        Chairman Rohrabacher. Well, I think as this bill proceeds,
    we will take that recommendation to heart and make sure that
    that is crystal clear. And that is very important.
        I--the idea that government license and government
    regulation is the trade-off, that indemnification goes with
    regulation and license, that is an interesting philosophical
    point, and I--it is not one that--I was a little--I--the Chair
    has been looking at indemnification as a gift bestowed upon
    certain people in the society, and the basic points today by
    the panel seems to indicate that if you are going to regulate
    somebody and you are going to license somebody, that person has
    a right to expect something in return. Indemnification is part
    of that. But now, of course, that doesn't--how does that work
    in comparison with other industries?
        Mr. Hudson. The reward, Mr. Chairman, is usually the
    profitability to your company or the ability to be in business
    if there is a----
        Chairman Rohrabacher. Right.
        Mr. Hudson [continuing]. Staked control of an industry, as
    in this case. In aviation, for example, there is no additional
    indemnification that I am aware of for, say, airline operators.
        Chairman Rohrabacher. The panel will enlighten us on that,
    if they----
        Dr. Hertzfeld. Well, I believe there are many industries,
    particularly the pharmaceutical industry. They are heavily
    regulated, pharmaceuticals for the Food and Drug
    Administration, and yet they are liable for civil suits if
    something goes wrong.
        Chairman Rohrabacher. Right. And also--well, we also have
    the nuclear power industry, which is regulated, and then we
    give them indemnification because we--do we not? I mean, they
    are--very, very--my staff is indicating that there are
    industries, but very few industries, that get such
    indemnification.
        Mr. Duffy. Right, they are very--I mean, in fact, I believe
    the nuclear regulatory industry is primarily 85 804
    indemnification that way through the government contracts and
    such. But to my knowledge, this is the only industry that has
    indemnification in excess of the required insurance unless
    somebody knows something----
        Chairman Rohrabacher. And there is an hour--to be fair to
    Ms. Meredith's point, if you are going to have indemnification
    of unmanned rockets and if you were going to indemnify this
    industry in terms of just putting cargo up, it makes no sense
    to have a double standard and to try to convince the industry--
    to make it harder for the industry to put someone--a human
    being as their cargo that--to have a regulatory rule here or a
    series of regulations that then makes it harder for the
    aerospace industry to actually build a rocket and launch a
    system that has a human being on it as compared to just cargo.
    That doesn't make any sense. And your analysis should have
    really, you know, shot out at me there, because that is logic
    as--until I heard you just testify, it didn't really hit home.
        So we will probably have a second round, but we now go to
    Mr. Gordon.

                           Government Responsibility

        Mr. Gordon. Thank you, Mr. Chairman.
        Just quickly following up on your--I guess your question
    concerning the legitimate concern that if the Federal
    Government does authorize a--or give a license for flight, then
    there is some responsibility. I would agree that there is some
    responsibility that goes with that. I would disagree with Mr.
    Kelly that thinks that it ought to be indemnification. I mean,
    again, we have already cited that we don't do that for
    airlines, we don't do it for trucking. When I get my personal
    driver's license, we don't. There may be a reason to do that.
    Indemnification, there may be a reason for us to do it, but it
    is not a logical jump from just because we authorized it. So--
    but I think we do need to give some consideration as to whether
    there are other legitimate reasons for indemnification.
        Let me go to the idea of passenger risk. There seems to be
    two general feelings here. One is that there is an absolute
    assumption of risk. The passenger says, you know, ``I know what
    the odds are. Here I am, you know, signing up. And let us go,''
    versus the idea that, once again, if there is going to be some
    type of licensing from the Federal Government that there should
    be at least some general guidelines as to that. So let me ask
    the panel just by a raise of hands, how many of you think that
    it is just a complete assumption of risk for passengers? Okay.
    And how many of you think that the Federal Government has some
    responsibility to the passenger? Raise your hand. All right. So
    you are going both ways here?
        Mr. Duffy. Just--no, I--just a little clarification. In
    what capacity? In--to regulate properly? Absolutely, I believe
    that the Federal Government has a duty that way.
        Mr. Gordon. Well, again, Mr. Chairman, I will just make an
    editorial comment since we are trying to put a bill together
    here. I certainly feel that in terms of a test pilot that is
    being paid that they know what they are getting into. I think
    that a passenger, you know, we regulate ferris wheels and, you
    know, all kinds of different types of equipment. I feel that
    there needs to be some type of a minimum responsibility. Again,
    there is an assumption that this is risky and it can't be
    beyond, you know, other than risk, but I am a little hesitant
    to just say, you know, ``Thrill seekers, bring your millions on
    over and, you know, you have got a one in five chance and you
    can brag to all of your buddies if you make it.'' I think we
    have a little bit more responsibility than that. Where that
    lies, I am not sure, but if we are going to license it, we have
    got to have a little more responsibility.
        Yes, sir, Mr. Hertzfeld?
        Dr. Hertzfeld. Yes, sir. I think we--the confusion here is
    over whether the Government has any financial stake in the
    indemnification scheme. In terms----
        Mr. Gordon. Indemnification, I think, is another matter.
    Indemnification is more third party.
        Dr. Hertzfeld. Right.
        Mr. Gordon. The question I posed was the paying passenger,
    whether or not there is an absolute assumption of risk so that
    the Government would have no responsibility to set any kind of
    guidelines. And you seem to think that there--by a show of your
    hand, you said there was that absolute assumption of risk,
    that----
        Dr. Hertzfeld. Um-hum.
        Mr. Gordon [continuing]. There is no government role here
    for the passenger--as passenger.
        Dr. Hertzfeld. There certainly could--no. There certainly
    could be a government role in requiring a company to have
    insurance to cover, for example, the third party liability
    issues that----
        Mr. Gordon. Right. I want to talk about that, but I only--
    --
        Dr. Hertzfeld. Okay.
        Mr. Gordon [continuing]. Have a short bit of time. Right
    now, I am focused just on the paying passenger.
        Dr. Hertzfeld. Okay. The--just as the Government takes on
    some responsibility these days in the cigarette industry and
    other industries, if there is a potential liability, a
    potential safety risk, the Government certainly could have a
    role in protecting passengers that--in its licensing authority.
        Mr. Gordon. So here--I mean, this really is sort of
    strange. You are saying that there is an absolute assumption of
    risk with the passenger, that the passenger takes all of the
    risk and that there should be no government regulation as to
    any level of safety, yet you are saying if the Government--if
    the passenger takes that absolute risk, then we ought to still
    have some indemnification?
        Dr. Hertzfeld. No, no.
        Mr. Gordon. I mean, that doesn't make any sense to me.
        Dr. Hertzfeld. I am simply saying the passenger is a free
    agent. They can buy a ticket or not buy a ticket. If they buy a
    ticket, then one presumes that the company will have various
    levels of insurance that will apply to the passenger or the
    passenger themselves can purchase insurance on the flight. And
    that is different from whether the Government assumes any risk
    itself. As a condition of flying, it can require, and does
    require, participants to purchase insurance.
        Mr. Gordon. On airlines? On buses?
        Dr. Hertzfeld. Companies have liability insurance, and
    passengers may or may not, but the risks there are clearly
    different. And the risk--the third-party risks are also
    different there.
        Mr. Gordon. So you are going to say to me, as a taxpayer,
    that I have got to guarantee indemnification here, but I don't
    have anything to say about the rules which they are going to be
    flying?
        Dr. Hertzfeld. I am not sure that I follow the logic there,
    because----
        Mr. Gordon. Well, that is because I am not following your
    logic.
        Dr. Hertzfeld. Okay.
        Mr. Gordon. You----
        Dr. Hertzfeld. Yeah.
        Mr. Gordon. Okay. Are you saying that the Federal
    Government should have some responsibility, not the third
    parties, but to the paying passenger?
        Dr. Hertzfeld. Only in the most general sense to the
    company that you--that the company has to provide certain
    safety--go through certain safety requirements----
        Mr. Gordon. Okay. So now you are saying that the Federal
    Government would set what those standards are?
        Dr. Hertzfeld. Possibly, yes, minimal standards for the
    safety of the flight.
        Mr. Gordon. Okay. So you shift--you have shifted positions
    then?
        Dr. Hertzfeld. Slightly.
        Mr. Gordon. So you are no longer the absolute--so now we
    have got three to two absolute take assumption of risk. Does
    anybody else want to--do you all three, any of you want to
    modify your position?
        Mr. Duffy. Just, Mr. Gordon----
        Mr. Gordon. Yes.
        Mr. Duffy [continuing]. The Government would have a duty to
    provide regulations that would create a safe environment for
    the flight.
        Mr. Gordon. Okay. So now we are two to three then?
        Mr. Duffy. Right. But that--there would be an assumption of
    risk on the passenger as far as any liability arising out of
    that flight, any liability through him, anything that happened
    arising out of that flight----
        Mr. Gordon. Once there is a certain threshold----
        Mr. Duffy. The same as with an airline.
        Mr. Gordon. Okay. So now we are two to three here. So you
    all two--the ones on the left, once again, are you still in the
    position that there is an absolute assumption of risk?
        Mr. Kelly. Yes, there is. The Government's regulation of
    space launch, once again, is--requires demonstration of a level
    of safety to third parties and their property that
    automatically, if satisfied, demonstrates that--or at least
    mitigates the risk to a third party. H.R. 3245 requires
    disclosure of the safety record of an RLV to a potential
    passenger. Until you know--until you have experience flying
    these things, you can not dictate, in advance, safety
    standards, because there are no standards. There is nothing----
        Mr. Gordon. But there is a difference between----
        Mr. Kelly. No, no, no----
        Mr. Gordon. You are not talking about paying passengers to
    be the test pilots, are you?
        Mr. Kelly. In effect, that is what they are, and that is
    what barnstorming passengers were in the early days of
    aviation. There are people who do things that are very risky,
    and the Government----
        Mr. Gordon. So----
        Mr. Kelly [continuing]. Does not regulate that nor should
    it.
        Mr. Gordon [continuing]. Is the paying passenger going to,
    for lack of a better term, drive the vehicle?
        Mr. Kelly. No. No, no, no.
        Mr. Gordon. Okay. Well, since--so then if they are not--so
    the barnstormers were the ones that were really testing the
    equipment?
        Mr. Kelly. Absolutely.
        Mr. Gordon. So the passengers aren't doing anything--there
    are no--there is no testing there, so there----
        Mr. Kelly. No.
        Mr. Gordon [continuing]. Is no benefit. The passenger
    doesn't bring any value added?
        Mr. Kelly. The--other than paying for the flight. That is
    his benefit, and that is what will propel the industry.
        Mr. Gordon. All right. I am getting ready to go a little
    longer, because----
        Chairman Rohrabacher. That is all right.
        Mr. Gordon. So just to--so then, I guess--so we are two to
    three, but our two, I guess, you would say that by virtue of
    getting the licensing that that is where the Federal Government
    would come in with a certain standard level of safety?
        Mr. Kelly. And they already do, yes.
        Mr. Gordon. Okay. Now Mr. Hudson, would you agree with
    that?
        Mr. Hudson. I promise I will not change my vote. The--but
    let us put some temporal perspective on this. We are looking
    back at 100 years of aviation this year. What--where we are is
    looking forward at 100 years of space flight that has not yet
    occurred. From the time the Wright Brothers first flew to 1926,
    there was no regulatory authority in this Nation whatsoever,
    and that was the barnstorming era. That is where you could pay
    your $5 at a county fair and be taken up in a jenny that was
    surplus from World War II. And people did that. Some died. It
    was through that period of time until, actually, the
    unfortunate death of Knute Rockne, that real regulation did not
    occur in the commercial aviation industry. And that wasn't
    really seriously codified until the FARs in 1963. And we have a
    long period of time where we learned and where, unfortunately,
    people died.
        There are some enterprises, adventure enterprises, for
    example, climbing Everest, which, if you go out as a climber,
    you won't even be accepted unless you have some level of
    training and experience. And 100 people climbed every year
    paying $50,000 to $100,000, and 10 percent of them die. We
    don't expect that kind of injury or fatality rate in future
    sub-orbital or orbital flight, but the possibility always
    exists. Those people accept that risk for some period of time,
    and that is why I recommended a period of, perhaps, 20 years
    where the risk might decline, maybe, after 10 years and you go
    to a new set of standards.
        Mr. Gordon. But you said even the Everest folks had to get
    a license?
        Mr. Hudson. No, they do not, sir. They--the companies that
    mount the expeditions at Summit Everest will look at you and
    say, you know----
        Mr. Gordon. Yeah, but I mean they require a certain--they
    don't just--it is not just--there are still certain
    requirements.
        Mr. Hudson. Only imposed by the companies on the
    participants, not by any federal agency.
        Mr. Gordon. So is there any indemnification?
        Mr. Hudson. I am certain people go out and try and buy it.
    I don't know that you could get very much at that rate.
        Mr. Gordon. All right. Thank you.
        Excuse me for taking so long. I----
        Chairman Rohrabacher. No, that is all right. I--just to
    note that my family--I am the first Rohrabacher not to have
    been born on a small farm ranch and my family--people in my
    family were always working people and pretty poor. And my dad
    always reminded me when I was a kid about the day that he saw
    the plane land--the barnstormer land at the carnival and how
    they scraped up the money and from--everybody in the family put
    their money together so that he could get in that plane and go
    up on a flight, and of course, my father later became a
    military officer during World War II and a pilot and stayed--
    and, you know, it uplifted our family. That one little
    experience uplifted our family beyond what our family had ever
    been before. And so when we are talking about these types of
    situations, we are talking about uplifting humankind. And if he
    couldn't have gone on that flight because there had been some
    kind of restriction that, after all, this barnstormer hadn't
    passed all of his tests and didn't have the money to put down
    on some things, then his airplane would never have landed in
    that carnival in the first place or if they would have said,
    ``You know, you can go up, but if something happens to the
    plane, as the passenger, you are going to have to pay for the
    guy's cows that you run into,'' or something like that. It
    probably would have been a $10 ticket and dad never would have
    made it up. And well, you wouldn't have me here today. So there
    are pluses and minuses for all of that.
        But with that said, we will go to Mr. Bell from Texas, who
    probably has some other homely anecdotes as well.

                       Effects of Cost on Access to Space

        Mr. Bell. None to rival that, Mr. Chairman.
        But I think you make an interesting point that you are--you
    were talking about poor people having opportunity to fly and
    enjoy that experience. And Ms. Meredith, I thought you made an
    excellent point during the course of your testimony that you
    would hate to see this turn into a system where only the super
    wealthy in our society could take advantage of it. But as this
    legislation is proposed, don't you think that is exactly the
    type of system that we would be creating?
        Ms. Meredith. Yes----
        Mr. Bell. Microphone, please.
        Ms. Meredith. I think that is what the bill, as it is
    structured now, is creating, yes, with the waivers and the lack
    of any insurance and indemnification protection.
        Mr. Bell. Does anybody disagree with Ms. Meredith's
    assessment?
        Mr. Hudson. Well, since I am at the other end of the table,
    I guess I will disagree.
        Mr. Bell. You don't have to just because you are sitting
    there.
        Mr. Hudson. No, but it--there is history there, so we can
    friendly disagree on this subject. No, I think that the facts
    of physics are what may exclude poor individuals in the near-
    term from flying on sub-orbital or orbital space vehicles. Try
    as we might, the best engineers and the best minds of this
    country in aviation and space have bent their will to this, and
    we are still talking about ticket prices for sub-orbital flight
    that might be $100,000 and ticket prices going to orbit that
    will be several millions. We are not going to change that in
    the next two decades, so----
        Mr. Bell. So what do you disagree with that she is saying?
    I mean----
        Mr. Hudson. Well, I am saying that I don't believe that you
    can create an egalitarian structure that allows anybody to fly
    just because of insurance issues or indemnification issues. I
    don't--I think that is in the noise of the actual cost of
    engaging in the activity.

                  The Purpose of Commercial Human Space Flight

        Mr. Bell. And correct me if I am missing something, but all
    we are really talking about here is a way to make money, are we
    not? I mean, what are--I guess if there are other great
    purposes behind this type of commercial space flight, I would
    love to be educated in that regard, because it sounds like we
    are just opening it up for a way to pump millions into--for
    private individuals to--or private companies to take folks into
    space. Am I missing something?
        Mr. Kelly. Well, one of the things that we are doing is
    allowing those people who have the desire and the money or the
    means to go into space. And the first one of these people,
    Dennis Tito, put up, from what I have heard, $15 million to $20
    million of his own money to fulfill a lifelong dream. He
    couldn't do it in this country, because no one would let him,
    so he had to go to Russia to do it. I say that if people have
    the money and the desire to go into space, that if there is a
    means available, there is no reason why in this country they
    shouldn't be able to avail themselves of that means. This
    legislation allows them to do that.
        Why there should be any concern about this initially being
    for wealthy people is a little puzzling to me. Every single
    product that comes along from the automobile to the personal
    computer is affordable only to very well heeled individuals to
    begin with. And it is only through the growth of markets and
    the growth of demand that the cost of things comes down. And
    those wealthy individuals are the ones who, through their early
    purchases, pay for the development of these industries and
    allow them to become available to everyone. So I would
    encourage private passenger space flight early on, just as
    aviation was only available to wealthy people in the early days
    of the airlines, so space is going to be available only to
    wealthy people until, as Gary pointed out, we can get a better
    handle on how to do it economically.

                         Effects of a Loss of a Vehicle

        Mr. Bell. Does anybody else wish to comment on that?
        I guess what concerns me, though, too, is the downside that
    seems to be somewhat overlooked in all of this, in the case of
    an accident, Mr. Duffy, if you could, explain one part of your
    statement I--because I didn't understand this. ``Although the
    loss of a commercial human space flight would not likely be as
    severe as a commercial launch vehicle failure because new
    launch vehicles have a high failure rate, the potential
    frequency of loss is significant.'' Are you--what are--exactly
    are you saying?
        Mr. Duffy. Sure. Thank you. We are talking from the
    concepts that I understand so far, we are talking about a
    relatively smaller launch vehicle than we would with, you know,
    the Delta IIs or Delta IVs or any of the Atlases.
        Mr. Bell. Okay.
        Mr. Duffy. So severity is the amount of damage that the
    vehicle would do in the event of a loss, number one. And number
    two, and that is an important point, and I am glad you brought
    it up. Historically, all of the launch vehicles that we have,
    we use in the United States today for commercial space flight,
    have been subsidized by the U.S. Government military in order
    to get to where they are today. So all of that R&D cost, we
    have gone through it all. They have worked out all of the bugs.
    And before there is anything that goes up for a commercial
    launch, it has been true--tried and tested. In this
    environment, there isn't the money there coming from the
    Federal Government, so these guys are going to be trying things
    without that testing. So the likelihood--in my opinion, the
    likelihood of a loss is greater because of that. There is no
    R&D going on. The people themselves are going to be
    experiencing this, these barnstormers. So the likelihood of
    frequency is greater because of that.
        Mr. Bell. And Mr. Chairman, I know my time is--if I could
    ask one other--but you are not attempting to downplay what the
    impact would be in case of some type of fatal accident
    associated with commercial space flight, are you? Don't you
    think that could have a rather devastating impact on the
    overall space program and people's view of space even though
    they have assumed the risk?
        Mr. Duffy. Absolutely, in fact, that is a comment I make in
    my statement that--but yes. I mean, initially, if--and that is
    why I feel that it is so important for some government
    involvement in the regulations so it is safe that if there is a
    high frequency of failure with the initial stages of human
    space flight that that could very seriously damage the public's
    outlook on it and the future of it in general.
        Mr. Bell. Thank you, Mr. Chairman.
        Chairman Rohrabacher. Thank you.
        We have an active Member of this subcommittee, Mr. Wu of
    Oregon. And you may proceed.

                      Determining a Balance of Regulation

        Mr. Wu. Thank you, Mr. Chairman.
        And I just want to make a couple of general comments and
    then toss something out for our panel's consideration and
    response. I think that under the Chairman's questioning and Mr.
    Gordon's questioning, this legislation, which I am a supporter
    of, and this industry, potential industry, which I am a
    supporter of, I would like to see both succeed, but there are
    clearly some significant issues of indemnification, liability,
    regulation that we need to work out over time. And I intend to
    do more homework on my own to work on some of those things and
    hopefully get some good counsel and advice from you all, too.
    It troubles me a little bit this image of putting up customers/
    passengers as potential test pilots. I mean, when you take
    someone to Disneyland, you know, you kind of think that they
    have run the Matterhorn a few times before they put the paying
    customer on the Matterhorn. And we know from Disneyland that
    even Disneyland isn't perfect, but you know, it has been run a
    few times.
        So what we have here is kind of a spectrum where at one end
    is what the Chairman has described as the barnstorming scenario
    of wide open, unregulated--well, and who knows what the
    liability and indemnification scenarios would be. That is one
    end. And the other end is highly regulated, carefully worked
    out indemnification and so on and so forth. And you have a full
    spectrum here. And the challenge is we have got to work it out
    and get it right, because if we don't work it out and get it
    right, the industry won't take off. And if we get it wrong, you
    know, there is more risk and so on. I just want to point out
    that, you know, I used to be a tech lawyer and did a bunch of
    copyright and patent work. And I believe that for the first
    while, folks could get their music in the jukeboxes and not pay
    royalty on it, and that was to get the jukebox industry going.
    So there was this period from 1903 to 1926 when there was
    virtually no regulation of aviation. I just want to point out
    that we put folks into space, as I recall, around 1960, '61, or
    '62. So it has been 40 years, and the question is whether, you
    know, after four decades, maybe the physics makes this a
    different process but whether it is appropriate to proceed
    somewhere between the barnstorming scenario and the highly-
    regulated, carefully worked out liability scenario. And I just
    want to toss that out for the panel to discuss where on that
    continuum do you think we ought to be at this point in time and
    that is doable for the industry and is good public policy for
    the long term, because I do believe that there is an
    inspirational factor in letting people get into space. As the
    Chairman said about his father, and as--since one astronaut
    told me, we wouldn't let folks, civilians, get into our stuff,
    but you know, the Russians were a little bit more strapped so
    they cut a deal, and I think that was inspirational to a whole
    lot of folks. And there is that important function.
        I want to toss that out to you all to discuss about where
    we should be on this continuum at this point in time.
        Ms. Meredith. Okay.
        Mr. Wu. We have the two ends of the continuum right here.
        Ms. Meredith. I guess we have two different sides of the
    continuum here. Okay, Gary?
        Mr. Hudson. I yield.
        Ms. Meredith. I think you are making an excellent point,
    and your point is we need a balance, because we need a
    sustainable regime here. We don't need something that will work
    for a year and then we have a fatal accident and then we have
    to rethink it all. I think we need a balance in our safety
    regulation. Again, we can't just look to people outside the
    vehicle. We have to have some safety scrutiny of the person,
    the passenger that is riding on the vehicle. That is the one
    thing. And in the liability side, there has to be a sharing of
    liability. Everything can not be on the passenger, because I
    don't think you have a sustainable regime that way. Maybe some
    indemnification by the Government, some indemnification of the
    passenger by the launch company that limited liability, and
    perhaps some by the passenger. The passenger is paying the
    price of the ride. But there has to be a balance, and I think
    that is the key, finding that right balance that creates a
    sustainable regime.
        Mr. Wu. We could make it more interesting and jump to the
    other end and then come back across the room. Please, Mr.
    Hudson?
        Mr. Hudson. Thank you.
        No one is suggesting at this table, I am certain, or in the
    industry, that we start flying passengers as test pilots. There
    is no suggestion of that whatsoever. All the responsible
    operators, and that includes everyone that is in the business
    at the moment, because you don't go into the business without
    spending millions of dollars, you are not irresponsible if you
    do that, there is too much visibility in your--on your actions,
    all responsible operators have test programs. Some have
    suggested as many as 1,000 flights, test flights, prior to
    actually carrying a paying passenger. In testimony before
    this--before the Joint Committee hearing last summer. Others
    have programs of 20, 30, 40 flights with fully qualified test
    pilots. Those flights are ongoing today. At least one company
    has flown four or five times already. So the space flight
    participant in the barnstorming era, which may be an
    unfortunate characterization of----
        Mr. Wu. Okay. But that one is going to stick. It is too
    colorful not to.
        Mr. Hudson. Indeed, and--but I don't think it is a
    pejorative term or a negative term, frankly. I think it is
    representative of where we have to be for these near-term
    flights where you may be flying 50 people a year or 20 people a
    year or 100 people a year. As we learn, those people, to a
    degree, are part of the experiment. They are part of the grand
    experiment of opening the space frontier to all of humanity for
    the rest of time. And if we impose upon them a regulatory
    structure that is as burdensome as we currently put on, say,
    commercial passenger aviation, that future will be closed off,
    at least in this country.

                           Experimental Certification

        I would finally state that the recommendation that I make
    with regard to experimental type certification is precisely the
    environment that you have to operate in. During the
    experimental type certification, every aircraft gets this. If
    Boeing goes out and builds a new triple seven, the very first
    one that they develop, they fill out one sheet of paper. It
    takes 42 minutes. And they have one FAA-designated
    airworthiness representative come out, look at it, stamp the
    piece of paper, and they fly. And they will fly 1,000 flights
    before they carry a revenue passenger and get full type
    certification.
        We can do exactly the same thing with sub-orbital and
    orbital rockets. And as we move through that type certification
    process, ultimately, at some point, you reach the same level of
    maturity as the commercial airline industry. We will not reach
    it, we can not mandate it, we can not pull it out of a hat in a
    time scale, in my view, of less than, probably, two decades.
    Perhaps one decade, but that is being optimistic. It is more
    likely two, maybe even three. So we have to create an
    environment to allow people to take those risks in the near-
    term to make sure that Aunt Minnie can fly into orbit in 2050
    to visit her grandchildren.
        Mr. Wu. With the indulgence of the Chairman, would any of
    the other panelists, Mr. Kelly, Mr. Duffy, Dr. Hertzfeld, would
    you like to comment or are we----

                                  RLV vs. EELV

        Mr. Kelly. Just a couple of quick comments. First, I want
    to differentiate between the reusable launch vehicle, which I
    think is an unfortunate term. I have tried to get it banned
    without success, but--and the space launch industry, as we know
    it, with expendable launch vehicles. Reusable launch vehicles
    are just that. As Gary said, they may fly up to 1,000 times
    before carrying the first revenue passenger. An expendable
    launch vehicle only flies once, and there is no such thing as
    an existing expendable launch vehicle despite the fact that
    satellite customers often say, ``Well, I want to fly on an
    existing launch vehicle.'' There is only a design, and the
    vehicle itself only exists once.
        That is the difference between the safety record that an
    RLV can achieve and what an ELV can achieve, according to Mr.
    Duffy. You may have failures early in flight, but if the
    vehicle is not destroyed, then that same vehicle will fly many,
    many, many times, and that vehicle will be the one that has the
    flight safety record. By the time you go to fly passengers, you
    know everything about that vehicle, at--what it does, what it
    is going to do, and therefore, you can make a very sound
    judgment as to what the risks are. And this is part of the
    reason that they included a flight safety record in H.R. 3245.
    I believe that that provision alone, along with the FAA/AST
    licensing requirements, are sufficient to guarantee the safety
    of passengers.
        I do not think that you need to go beyond that, because to
    do so would be to place a more onerous burden, certainly a huge
    financial burden on the developers that would prevent them from
    ever getting to the point where they could carry paying
    passengers.

                                      Risk

        There is a final comment, and that is I have always been
    puzzled at the supposition that one fatal accident in the
    commercial reusable launch vehicle industry, fatal passenger
    accident, would be the end of the industry. That would separate
    that industry from every other activity undertaken by human
    beings. If there were a case--I can't think of a case where an
    entire activity of human beings has been shut down by one fatal
    accident, but that seems to be the perception. If that were the
    case, there would be no automobile travel, there would be no
    aircraft travel, there wouldn't be--you wouldn't be able to get
    out of bed in the morning, because everything involves risk.
    And to say that this industry of all activities would be shut
    down as the result of a single fatal accident is just, to me,
    not credible.
        Mr. Duffy. I will just make a couple comments quickly from
    the insurance perspective.
        There is a required insurance that is under the CSLA for
    commercial launch vehicles. Underwriters understand that. And
    you have to remember that in the world, there are a very
    limited number of underwriters who participate in this kind of
    a risk. And to be honest, only a couple of those underwriters
    who participate in it really truly understand it. It is--absurd
    as that may seem. There are, maybe, two or three in London,
    maybe one or two in the States, and that is it. And all of the
    other underwriters are followers. And they trust the lead
    underwriters on what their judgment is. So it is key that you
    understand that there is a very tiny number of people who
    really have any true understanding of how this all works.
        If there was a regime in place similar to what we have for
    the CSLA where the launch company, the subcontractors, the
    Government, and the customer or passenger, whatever, were
    included in that program, and then the license would require
    that the--this program was purchased up to the maximum probable
    loss, that is it is under the CSLA, as determined by the
    Government, they figure out what is the worst probable loss for
    this location. What is the worst thing that can happen here?
    And that is the amount of insurance they have, and everybody is
    protected in that. Underwriters will buy that.
        They won't buy it cheaply. It is--I spoke to two
    underwriters last week. One is the largest domestic
    underwriter, and the other one is--got bought by a British
    company, but they used to be as big as the other one. And one
    said, ``Well, yeah, I think we could do something, but, you
    know, it will be expensive.'' And the other one say, ``No way
    would I touch that,'' in the beginning. So really what we are
    doing is we are going over to London now and we are going to
    get participants over there and get those guys involved,
    because they are more likely to participate in something like
    this, especially in the initial stages. So it is not something
    that you can buy off of the shelf. It is something you are
    going to have to put together.
        And secondly, the success of the industry is so critical to
    the availability of insurance. If you take the worldwide
    premium, that is the number of dollars that companies pay to
    the underwriters for launch liability, that is the Boeings,
    that is the Lockheeds, that is the orbitals here in the States,
    because those are the only three companies that launch. That is
    it. And then you have got the Russians. You have got the
    Chinese. You have got the Japanese and a little bit with the
    Australians. All of those countries, by the way, have regimes
    that are similar to what we have here. That total premium is
    less than $20 million. And they are providing limits in the
    area of 500. So what I mentioned in my remarks earlier is that
    if a loss occurs, it is going to have to come from the other
    sectors. It is going to come from airlines and general aviation
    or products liability and everywhere else. That is the only way
    they are going to pay it. And then what is going to happen is
    the results are going to be so skewed because they really don't
    expect a loss in this area. That is why they are charging so
    little premium, and the availability is--will be in question
    down the road.
        So again, I go back to the safety issues. It is very
    critical that the safety issues are observed and critiqued and
    dealt with critically, because that, in itself, could blow the
    whole thing out of the water. And I am very cautious of the
    expense factor that these guys are up against. I mean, this is
    a tough road to hoe. They don't have any federal R&D money, and
    that is the killer. And you know, Mr. Kelly could tell you more
    companies than I could that have failed already in the last
    four or five years because they didn't have the money. They
    were trying to do it themselves. It is so difficult, especially
    in this environment--economy, not environment. I am sorry.
    Economy.
        Thank you.
        Mr. Wu. Dr. Hertzfeld.
        Dr. Hertzfeld. I think we have to start with the premise
    that space is risky business. It is complicated. The failure
    rate of launch vehicles doesn't--is relatively high. It doesn't
    approach the safety record of commercial aviation. It doesn't
    even come close to it. And the barnstorming type of image is
    wonderful, and it is out there, and it does stimulate people,
    and it is certainly something good to have in our minds. Yet I
    agree with the balanced approach, because society itself in the
    United States is not in a barnstorming era. We are not in the
    1910's or '20's or even '30's. We have developed a very
    sophisticated set of regulations to protect people, to protect
    life in all sorts of industries, not just space and aviation.
    So that--there is going to have to be a compromise met between
    people fully--people and companies just out there doing
    whatever they want to do and at the same time abiding by a lot
    of regulations, not just aviation and space ones. Environmental
    ones are big, for example, also.
        One significant failure that costs human lives in human
    lives in commercial space flight could be catastrophic to the
    industry. And I think, as an example, when the Concord accident
    occurred a couple of years ago, they didn't fly the Concord for
    one full year. What company, particularly a small company, can
    survive without any revenues from their flight operations for a
    full year? And if we are talking small companies, in
    particular, in the sub-orbital human environment, it could very
    well be the end of them. After the Challenger incident, there
    were a number of small entrepreneurs involved in commercial
    experiments on the Shuttle. Many of them had to shut down
    because the Shuttle was not flying for a year or more.
        So the risk is out there. They may be normal business
    risks, but space is riskier than other--many other endeavors,
    and we have to--we can't forget that. And the testing involved
    is expensive and costly. It is not launching--it is not taking
    off from an airport the way we can test a commercial aircraft.
    So that--as I said, I believe there is a balance that has to be
    met, but I don't think we can go back to an era of the 1920's
    at this point.
        Thank you.
        Mr. Wu. I thank the Chairman for his indulgence, and I
    thank the panel for all of your thoughtful commentary. Thank
    you, Mr. Chairman.
        Chairman Rohrabacher. All right. And so just a couple of
    things. First of all, I would like to--one other anecdote. When
    I was a kid, I used to go out to the desert and rent
    motorcycles and I would ride all over. You know. It would be a
    great thing. It would be fun. You know. A group of friends of
    mine would be out there riding motorcycles. And you know, hey,
    it was dangerous, but we signed off. We were over 18, so we
    signed off and said, ``If something happens to us, no problem.
    You rented to us. We can't sue you.'' So we had the opportunity
    to actually have a pretty good life. I mean, it was really
    something I will never forget, and it was fun, and not to
    mention the drinking we did at night, but that is another whole
    other issue, which no one would sign off on, I guess. And by
    the way, when we were 18, we were permitted to drink in
    California in those days. So--well, we shouldn't get into that
    stuff.
        But anyway, the point I want to make is when I go back now
    to the desert and the kids who are--you know, want to go out
    and experience what I did, they can't do it. They can't do it.
    So you have a generation now of young people who do not have
    the opportunity to rent a motorcycle and go out in the desert
    and do what I did. I think that is tragic. And the reason they
    can't is because they can no longer sign away this right to
    sue. You know. And I think, if anything, we have got--at least
    in this industry, at least when somebody is going up on top of
    a rocket and into space, they should be able to sign away their
    right to sue knowing that that is part of what you have to--in
    order to have the experience, that is what you have got to do.
    So I would hope that at least that is some kind of a consensus.
    Is that a consensus that people should have that right to sign
    away their right to sue? Does anyone disagree with that? If you
    are going to be a passenger, you should have that right. Okay.
        Now something--and by the way, I would hope that whatever
    we do and whatever we come up with, whatever--and the bill has
    been--actually, we just put this bill through the process to
    get the discussion going. And obviously, this thing is going to
    be hotly debated and worked on by everybody in the Committee,
    and there will be lots of changes. And people are looking right
    now to try to make sure we do what is right. But I would hope
    that whatever comes out in this process, when you have got a
    fellow like Dick Rutan, who is an historic figure in the
    aviation business, he is out there, and he wants to put
    something into space not with any government subsidies, doing
    it with his own money, I would hope that there is something--
    that what we do in Washington, DC isn't something that prevents
    entrepreneurs like that and frontiersmen like that from doing
    it, from getting the job done. And if it is, if something we
    are doing here is going to keep his efforts grounded and
    prevent him from his accomplishments, there is something wrong.
        Mr. Wu. Mr. Chairman, may----
        Chairman Rohrabacher. Sure.
        Mr. Wu. Will the gentleman yield for a moment?
        Chairman Rohrabacher. Absolutely, Mr. Wu.
        Mr. Wu. I think the Chairman and I, at least for a period
    of time, grew up in roughly the same geographic area. And I
    remember those motorcycles in the desert, although I think I
    might have followed the Chairman by just enough time that the
    commercial operations were gone and--but private people were
    loaning motorcycles to each other going through the desert. But
    I want to bring that back home to something that the panelists
    said, which is I think back also to--I think they were called
    minibikes. Do you remember those?
        Chairman Rohrabacher. Right.
        Mr. Wu. They were kind of like a motorcycle--no, I am
    sorry, a lawnmower engine, a little tiny tire, and you get on
    those and they would go, I don't know, 20, 25, 30 miles an
    hour. And there are these large housing tracks in southern
    California near where the Chairman currently lives. And we
    would zip through those neighborhoods at what, at my age, now
    seem like hair-raising speeds, but we never thought about some
    of the risks. And I don't recall ever putting on a helmet. And
    the point is, you know, my wife won't let the kids get on the
    bikes, on pedal bikes, without a helmet. And some things evolve
    over time, Mr. Chairman, and----
        Chairman Rohrabacher. Well, there is a----
        Mr. Wu [continuing]. We just need to find the right
    balance.
        Chairman Rohrabacher. But there is a halfway point between
    not being able to sign away your liability and requiring you to
    wear a helmet to make sure it is relatively safe. And I think
    that is what your whole presentation is about is where do you
    draw that line, which, of course, is what we are trying to do.

                     Indemnification for Vehicle Operators

        So now a couple final questions for the panel. First of
    all, should--let us just--with a show a hands, should the
    Government indemnify the vehicle operators for these new manned
    space private operations? Should the--there be a government
    indemnification for the people who are operating this vehicle?
    And if you could--so if we could just go down yes or no.
        Mr. Hudson. No.
        Mr. Kelly. Yes.
        Chairman Rohrabacher. Mr. Kelly?
        Mr. Duffy?
        Mr. Duffy. No.
        Dr. Hertzfeld. No.
        Chairman Rohrabacher. No.
        Ms. Meredith. Yes.
        Chairman Rohrabacher. Okay. How about should there be an
    indemnification of the passengers or a crewmember?
        Mr. Hudson. No.
        Mr. Kelly. I would have to--I can't give a yes or no to
    that, because the panel is--the point that I haven't had time
    to assimilate, but----
        Chairman Rohrabacher. Okay. That is fair.
        Mr. Duffy?
        Mr. Duffy. Private only, not government.
        Chairman Rohrabacher. Okay. So if Mr. Tito goes up, he is
    indemnified? Nobody can----
        Mr. Duffy. If he buys insurance.
        Chairman Rohrabacher. Nobody can--right. Nobody can sue Mr.
    Tito, but----
        Mr. Duffy. Any--you can sue anybody. It doesn't----
        Chairman Rohrabacher. Well, yeah. Okay.
        Ms. Meredith. Yes, I think they should have
    indemnification. I don't see why they should be in any other
    different position than a satellite owner customer.
        Chairman Rohrabacher. Okay. That was a very important point
    in your testimony, as I have mentioned.
        And finally, is indemnification necessary for a prosperous
    industry? Or will this industry thrive without indemnification?
        Mr. Hudson. Yes.

                     Indemnification and Industry Survival

        Chairman Rohrabacher. So you think it needs
    indemnification?
        Mr. Hudson. No, I would say I believe the industry will
    thrive without.
        Chairman Rohrabacher. It will thrive, because I was going
    to say, it sounded contradictory----
        Mr. Hudson. Right.
        Chairman Rohrabacher [continuing]. With what you said
    earlier.
        Mr. Kelly.
        Mr. Kelly. I think the industry can thrive without
    indemnification. I think it is a question of fairness to
    provide indemnification if you are going to give permission to
    fly.
        Mr. Duffy. I don't believe it is necessary.
        Dr. Hertzfeld. The industry could survive.
        Ms. Meredith. I think the industry is greatly helped by
    indemnification, because all of the foreign competitors have
    it.
        Chairman Rohrabacher. Okay.
        Mr. Duffy. There aren't any foreign competitors who are
    launching people in space, though. That is----

                         Manned vs. Unmanned Regulation

        Chairman Rohrabacher. Okay. Well, this is--and now I do
    have one other thing here. Now in terms of the FAA and it seems
    to me--do we need more than a--okay, the point that you made,
    should we have--should there be more regulation required of a
    manned space flight than of a space flight that is not manned?
    In other words, could--should we require two approvals be
    necessary to launch a vehicle with manned space flight perhaps,
    a two-tiered approach, or can--should we just require the same
    type of safety that we require from someone launching an
    unmanned vehicle?
        Mr. Hudson. I certainly don't believe there should be two
    tiers of regulation. I think----
        Chairman Rohrabacher. The same? It should be about the
    same?
        Mr. Hudson. Whatever we adopt ultimately should apply to
    both piloted and--or human space flight and non-human space
    flight.
        Chairman Rohrabacher. Okay.
        Mr. Kelly?
        Mr. Kelly. I don't believe that we should adopt anything
    more than is required for normal RLV licensing, which already
    covers eventualities, such as passengers somehow being in a
    safety-critical position that would affect the flight and cause
    third-party damage. There isn't anything more that is needed.
        Chairman Rohrabacher. Okay.
        Mr. Duffy?
        Mr. Duffy. Well, I believe that the--that regulations would
    be needed in order to make it the equivalent of the aviation
    industry and generally the airline industry, perhaps not to
    that degree, but certainly to make it safe. It is paramount----
        Chairman Rohrabacher. Yes. Are airplanes--the question is
    do--when you have a cargo airplane, if you have just a line
    that carries only cargo, do they have to have the same
    regulations as those carrying passengers or is it further--is
    it more restrictive of airplanes--are the regulations more
    restrictive of airplanes that carry passengers as compared to
    cargo?
        Mr. Hudson. They are essentially comparable, but there is--
    there are slight differences. There can be slight differences.
        Chairman Rohrabacher. Slight differences. Okay.
        Mr. Hertzfeld?
        Dr. Hertzfeld. I don't think a two-tiered system is good,
    but there may be some modifications to accommodate humans on
    what exists now, if you need it.
        Ms. Meredith. I think some minimum regulation of the safety
    of the passenger is in order.
        Chairman Rohrabacher. Okay. Well, I want to thank all of
    you for helping us today. And you have certainly stimulated a
    lot of thought, and we are taking this very seriously, because
    we don't want to see Dick Rutan or any of these other
    entrepreneurs or wildcat-ers or barnstormers, whatever you want
    to call them, grounded because of something we are doing or not
    doing here in Washington. We want to make sure we are doing the
    right thing, and if there is an impediment, it is because it is
    the right thing to do and not because we have just been
    frivolous with our regulations. So we are taking this issue
    very seriously, and you have helped us today immensely.
        So please be advised that the Subcommittee Members may
    request additional information for the record, and I would ask
    other Members who are going to submit written questions do so
    within one week of this hearing.
        And now is there something else I need to say officially to
    end the hearing? Okay. So again, thank you very much, and this
    concludes the hearing. And we are now adjourned.
        [Whereupon, at 12:21 p.m., the Subcommittee was adjourned.]

                                  Appendix 1:

                                  ----------

                       Answers to Post-Hearing Questions

    Responses by Gary C. Hudson, Chief Executive Officer, HMX, Inc.

    Questions submitted by Chairman Dana Rohrabacher

    Q1.  H.R. 3245 directs the Secretary of Transportation to arrange for
    the National Academy of Public Administration (NAPA) to conduct a study
    on the existing liability-risk sharing regime for commercial space
    transportation.

    Q1a.  Given that the Federal Aviation Administration issued a study
    regarding the liability risk-sharing regime for U.S. commercial space
    transportation in April 2002, is another study necessary? If so, what
    new or additional information is needed?

    A1a. I believe that a new study of the liability risk-sharing regime
    for U.S. commercial space transportation is unnecessary.

    Q1b.  Should any new study be limited to the liability-risk sharing
    regime for commercial human space transportation (as opposed to the
    entire commercial space transportation industry)?

    A1b. Not applicable in view of (1a) response above.

    Q2.  Since its enactment, the commercial space launch indemnification
    regime has been subject to an expiration date. H.R. 3245 extends
    indemnification by three years through December 31, 2007. What
    effect(s) would a phase-out or elimination of the indemnification
    regime have on the U.S. commercial space transportation industry
    generally and the emerging commercial human space flight industry in
    specific?

    A2. The history of third party liability claims related to U.S.
    commercial space launch accidents is almost non-existent. Given this, I
    do not believe that elimination of the indemnification regime would in
    fact cause any significant harm to the existing space launch industry.
    From a practical point of view, I also do not believe that there would
    be significant harm to the emerging industry, but it is always possible
    that there might be limited perceptual harm. (By this I mean some
    investors or customers might fear that they would be impleaded in any
    suit that alleges damage from launch or re-entry accidents, and this
    might cause them to withdraw support or business form a smaller launch
    provider who would not otherwise have the resources to prevail in a
    major legal action. This concern would be frankly overblown, but
    nonetheless might exist for unsophisticated backers and customers.)

    Q3.  Your testimony argues that the aviation experimental certification
    model should be used to regulate commercial human space flight.
    Presumably, however, the vehicles used for commercial human space
    flight will differ considerably from experimental aircraft in terms of
    design and purpose. Given this assumption, how might the experimental
    aircraft regulatory model be adapted for commercial human space flight?

    A3. The differences between ``conventional'' experimental aircraft and
    commercial human space flight vehicles are ones of perception rather
    than actual third party risk. First, there is really no such thing as a
    conventional experimental aircraft. Such machines range the gamut from
    lightweight amateur home-built aircraft to rocket powered vehicles (EZ-
    rocket) and supersonic aircraft (including SpaceshipOne's recent flight
    under experimental rules). They also include 777 class aircraft prior
    to FAA issuance of standard type certification permitting revenue
    service and converted and modified military jets. Second, the real
    question is how much damage to third parties can such vehicles produce?
    I have heard no evidence from FAA/AST or any other presumed
    knowledgeable party that suggests that a vehicle of the class of
    SpaceShipOne (to offer a specific example) can in fact produce any more
    damage than a light business jet or a heavy turbine aircraft, both of
    which may be flown in the experimental category. In fact, the worst-
    case accident that could be cased by SpaceShipOne would be a nose over
    flight into the ground under rocket thrust immediately after release
    from its carrier aircraft. Ironically, this accident could occur right
    now, as SpaceShipOne flies under an experimental certificate. In fact,
    as it flies higher and faster, it offers less risk to third parties
    since the aircraft is more likely to break up in the air from
    aerodynamic loads, producing a larger debris field but smaller mass of
    individual debris elements each with a reduced potential for harm.
    Therefore to answer the question, I believe that there are no human
    space flight vehicles being considered for which the risk is greater to
    third parties than for aircraft which currently operate under AVR
    experimental type certificates, nor are there likely to be any built in
    the foreseeable future.

    Q4.  Your testimony advocates the elimination of ``launch licenses'' in
    favor of reapplication of FAR 101 to conduct unmanned rocket launches.
    Please describe how this approach would work in practice. What are the
    benefits of this approach?

    A4. It is important to distinguish between unmanned rockets (sub-
    orbital or orbital) and piloted human space flight vehicles. I propose
    extension of experimental certificates to the latter class of vehicles.
    I also proposed in my testimony to dis-establish the FAA/AST office. If
    this were done, some mechanism must be in place to allow a minimalist
    regulatory regime that permits launch of unmanned rockets. I proposed
    that the old FAR 101 be once again employed. The first large launch
    vehicle built in this country was approved for flight (not licensed)
    under FAR 101. The procedure at that time (1981) was to file a request
    for flight approval with a regional FAA office following the procedures
    outlined in the FAR. Once done, approval was almost always granted on a
    time scale measured in a few days. My total cost for the application
    was $2,000, all for legal fees. We chose to use an attorney for our
    first application in order to be assured of meeting all the
    requirements, but subsequent applications could have been done
    administratively, and would have cost virtually nothing. One can
    compare this form of approval with current launch licensing which can
    cost a million dollars per flight in time and effort, including five
    hundred or (more likely) thousands of hours of applicant's time just to
    prepare the application, plus taking two or more years to issue,
    according to AST's own briefings. If there was evidence that AST's
    procedures had enhanced the public safety, an argument might be made
    for their continued existence, but there is no evidence of any public
    safety benefit. There is only the cost to taxpayers measured at $100
    million over the past twenty years and that much again for the next
    decade, plus the inhibitory effect of their policies as are now being
    seen on the only flying human space flight vehicle project in this
    country.

    Questions submitted by Representative Bart Gordon

    Q1.  Section 4 of H.R. 3245 includes a provision that says:

             ``The Secretary of Transportation shall. . .focus the
            Department's regulation of commercial human space flight
            activities on protecting the safety of the general public,
            while allowing space flight participants who have been trained
            and meet license-specific standards to assume an informed level
            of risk.''

    Q1a.  That language would appear to preclude DOT from regulating
    passenger safety on commercial passenger-carrying spacecraft. Do you
    consider that to be an appropriate public policy? Why or why not?

    A1a. In the near-term, commercial human space flight vehicles will
    carry only space flight participants who have decided to travel in such
    vehicle for sport or entertainment purposes. The vehicles will not be
    used for the common carrier purpose of point-to-point transportation of
    people or cargo. In light of this fact, I believe that it is
    appropriate public policy to regulate such vehicles only for the
    purpose of protecting the interest of third parties, and not the space
    flight participants. For example, we do not regulate the sport of
    mountain climbing, because all the participants take part of their own
    free will. Likewise, we do not regulate auto racing, even though we do
    regulate travel by automobile.

    Q1b.  If you think that DOT should not regulate passenger safety at the
    present time, is there any point in the future when the government
    should become involved in such regulation?

    A1b. DOT should regulate commercial passengers on space flight vehicles
    when the vehicles are used for point-to-point flight for the purpose of
    transportation and not sport. That time lies fairly far into the future
    at the current pace of progress.

    Q2.  What information do you believe a commercial human space flight
    company would have to provide to allow a potential passenger to give
    his or her ``informed consent''? For example, what constitutes
    sufficient information on a vehicle's safety record, if the vehicle has
    only flown a statistically insignificant number of times?

    A2. I believe that a commercial space flight company offering sport
    rides to a paying or nonpaying customer should be obliged to inform the
    participant of the experimental nature of the vehicle, and to state
    clearly that it has not be subjected to FAA or government
    certification. (This is done for experimental aircraft today.) I also
    believe that the records and flight history of the particular vehicle
    type and tail number should be available for inspection by the
    participant or their agent.

    Q3.  H.R. 3245 says that a license holder may launch a paying passenger
    into space only if ``the space flight participant has received training
    and met medical or other standards specified in the license.''

    Q3a.  Do you agree with the provision?

    A3a. I strongly believe that government has no public policy interest
    in requiring any space flight participant to have met any medical
    standards. We do not require such training or medical certification for
    other extreme sports.

    Q3b.  Who should set the standards and determine the appropriate level
    of training?

    Q3c.  Who would certify that the training had been done?

    Q3d.  Should the specified standards be uniform across the industry? If
    not, how would you make it work in practice?

    A3b,c,d. In view of this response, questions (b) through (d) are not
    applicable. I would like to also point out that medical standards and
    training requirements may well be imposed upon potential space flight
    participants by the operators of some human space flight vehicles, but
    they will be doing so for insurance purposes.
                       Answers to Post-Hearing Questions
    Responses by Michael S. Kelly, Technical Manager, Northrop-Grumman/Xon
            Tech

    Questions submitted by Chairman Dana Rohrabacher

    Q1.  H.R. 3245 directs the Secretary of Transportation to arrange for
    the National Academy of Public Administration (NAPA) to conduct a study
    on the existing liability-risk sharing regime for commercial space
    transportation.

    Q1a.  Given that the Federal Aviation Administration issued a study
    regarding the liability risk-sharing regime for U.S. commercial space
    transportation in April 2002, is another study necessary? If so, what
    new or additional information is needed?

    A1a. The study performed by the Federal Aviation Administration
    regarding liability risk-sharing for U.S. commercial space
    transportation in April 2002 is a thorough, extremely competent work.
    There is more basic information and detailed, thoughtful analysis in
    the 289 pages of the published report than anyone, me included, has had
    time to fully absorb and process. I do not believe that it is in the
    taxpayers' interest to endlessly repeat work already done, particularly
    in a case, such as this, when the original work was done so well.
        There are certainly new questions regarding human space
    transportation that have arisen since the FAA study was published. Ms.
    Meredith's point regarding third party suits against wealthy
    passengers, raised in the 5 November 2003 hearing, is a case in point.
    I do not believe, however, that such questions yet merit a formal
    government study. They are things best debated, for the time being,
    within the industry itself.

    Q1b.  Should any new study be limited to the liability-risk sharing
    regime for commercial human space transportation (as opposed to the
    entire commercial space transportation industry)?

    A1b. The question correctly notes that the scope of the FAA study was
    very broad, and suggests that a more sharply focused study pertaining
    to human space flight may be needed. Once again, I do not believe that
    there are questions pertaining to human space flight that have as yet
    achieved either the level of definition or the urgency to merit a
    federal study.

    Questions submitted by Representative Bart Gordon

    Q1.  Section 4 of H.R. 3245 includes a provision that says:

             ``The Secretary of Transportation shall. . .focus the
            Department's regulation of commercial human space flight
            activities on protecting the safety of the general public,
            while allowing space flight participants who have been trained
            and meet license-specific standards to assume an informed level
            of risk.''

    Q1a.  That language would appear to preclude DOT from regulating
    passenger safety on commercial passenger-carrying spacecraft. Do you
    consider that to be an appropriate public policy? Why or why not?

    A1a. I disagree to some extent that DOT is precluded from regulating
    passenger safety on commercial passenger-carrying spacecraft. The
    language ``allows'' people who have been trained ``and meet license-
    specific standards [emphasis added]'' to assume an informed level of
    risk. This inherently builds the potential for a regulatory mechanism
    into passenger safety on commercial passenger-carrying spacecraft, in
    that it allows the possibility of a license not to the liking of FAA to
    be denied.
        The current licensing rule, as well as the Commercial Space Act of
    2003, do no give FAA the authority to deny licenses on the grounds of
    passenger safety, but the potential is there should future legislation
    and subsequent rule-making put it in place.
        However, the basic assumption of the question, that DOT is
    precluded by H.R. 3245 from regulating passenger safety, is correct. I
    do consider that appropriate public policy. Nowhere in the Constitution
    is the United States government given the authority or power to protect
    people from the consequences of their own choices and actions. That
    Congress occasionally does pass legislation attempting enforce such
    ``protection'' is not proof that such legislation is legitimate. All it
    means is that Congress has acted outside of its authority.\1\
    ---------------------------------------------------------------------------
        \1\ The government does not, for example, regulate hang-gliding,
    mountain-climbing, roller-coasters and other thrill rides, etc. Nor
    should it.
    ---------------------------------------------------------------------------
        It is not the business of the government to ``allow'' people to do
    things they want to do. On the contrary, it is the people who allow the
    government to do what it does (through the Constitution and its
    processes), and to stop it when it exceeds its authority. Any
    regulation of voluntary activity for the purpose of protecting people
    from the consequences of their own actions exceeds the authority of the
    government, and is a threat to basic human freedom.

    Q1b.  If you think that DOT should not regulate passenger safety at the
    present time, is there any point in the future when the government
    should become involved in such regulation?

    A1b. I do not believe there is ever a need for such regulation.

    Q2.  What information do you believe a commercial human space flight
    company would have to provide to allow a potential passenger to give
    his or her ``informed consent''? For example, what constitutes
    sufficient information on a vehicle's safety record, if the vehicle has
    only flown a statistically insignificant number of times?

    A2. This is good question, because the answer provides the foundation
    for the responses to questions 1a and 1b.
        In any sales/purchase transaction between two private parties, it
    is the moral obligation of the seller to disclose pertinent information
    and of the buyer to ask enough questions to make an informed purchase
    agreement. When it comes a transaction involving significant risk to
    life and limb, such as purchase of a ride in a space plane, the moral
    obligations on the parts of each party are elevated significantly. A
    seller who hides a poor safety record, or portrays the level of risk as
    anything other than what it is, is a villain. A buyer who doesn't ask
    if what he is doing is risky is a fool.
        A seller of rides in space, mountain-climbing expeditions, scuba-
    diving trips, etc., who fails to disclose known risks or, worse, known
    problems, is open to legal action should an accident ever occur. Such a
    person is a fraud, who can and should be taken to task.
        Anyone who buys such an experience without asking what the risks
    are is either foolish, or considers the burden of thinking about asking
    questions to be greater than suffering the loss of his or her own life.
    There is no way to protect such people, other than to deprive the rest
    of the population of its basic human right to travel in space by
    forbidding it.
        Aside from the inevitable lawsuits that will result when people
    start flying as passengers in space (and they are inevitable), the best
    protection for both seller and buyer is full disclosure. The question
    of what constitutes sufficient information if the vehicle has flown a
    statistically insignificant number of times is an excellent one. It
    reflects the fact that ``full disclosure'' is not a static term, since
    the information possessed even by the seller is limited by his or her
    flight experience.
        This is important to note, because it is a fact. In other words, as
    much as we may wish it were otherwise, as much as we may desire to
    provide all the answers, it is a fact of reality (and therefore
    unchangeable by legislation) that we will not have all of the answers
    in the beginning. More and more flight experience will provide the
    sellers with the experience they need to run a safe operation, the
    prerequisite to a profitable business.
        There is no need for a regulatory requirement on the level of
    disclosure, since the market will ultimately control it. Furthermore,
    any attempt to impose such a requirement will guarantee one thing:
    there will never be a case of passenger injury in space flight, because
    there will never be any passenger space flight.
        The burden on RLV developers imposed by the relatively simple
    launch licensing rule now in effect is almost insurmountable, and
    threatens the future of the industry. That is in part due to the fact
    that, when we crafted the rule, we did not know how to ask all the
    right questions. Mind you, I supported the rule-making process, and
    thought--in fact, still think--that we did a very good job. Now that we
    have more information, we find that the rule is too vague in some
    areas, and too specific in areas where no specificity is physically
    possible. All parties are doing what they can to deal with these
    problems.
        Setting any regulatory requirement on level of disclosure will beg
    unanswerable questions. An unanswerable question will, of course, never
    be answered, and if passenger space travel must await answers that
    never come, it will never happen.
        All human activity involves risk. The degree of risk, and how it is
    perceived, both change with experience. When people approach anything
    they do not understand, they assign it an arbitrarily high,
    unquantified level of risk. This is a survival trait of the species
    (not unique to ours, I might add). As we gain knowledge of things, we
    tend to place their levels of risk in a more realistic hierarchy, and
    even quantify those risks where possible. What we consider a risk may
    turn out not to be so, while risks we hadn't considered will always
    manifest. Furthermore, as we gain experience doing anything, the degree
    of risk itself changes. It tends to decline with practice. Technology
    improvements, historically, drive risk down. But this entire dance of
    activity and risk has one absolute prerequisite: we have to engage in
    the activity.
        There is no shortcut to this process. We cannot sit around and
    think about things forever and expect risk to go down. There is no
    substitute, in reality, for the activity itself. There is no regulatory
    magic wand that will prevent accidents from happening, apart from
    stifling all human activity to the extent that no one ever takes a
    risk. That is contrary to human nature, and to American nature in
    particular.
        In my own dealings with people, I always believe in giving them any
    information they want to make a good decision. I don't understand how
    anyone can operate on any different set of rules. If I were offering
    passenger space flight, I would give passengers as much information as
    they could absorb, and, in fact, more that they would probably want or
    need. I would do so even if it cost a sale--in fact, I have done so,
    even when it cost a sale. It is not in anyone's interest to do
    otherwise. But it is even less in peoples' interests to attempt to
    regulate such disclosure.

    Q3.  H.R. 3245 says that a license holder may launch a paying passenger
    into space only if ``the space flight participant has received training
    and met medical or other standards specified in the license.''

    Q3a.  Do you agree with the provision?

    A3a. From the standpoint of good practice, I don't see how anyone could
    disagree with providing training to or requiring necessary medical
    standards of a passenger on a commercial space flight. I am uneasy
    about placing it into law, simply because it opens a door to the
    government taking future regulatory action that it has no
    Constitutional authority or moral right to take.

    Q3b.  Who should set the standards and determine the appropriate level
    of training?

    A3b. Standards for training in other hazardous activities, such as
    scuba diving, parachuting, hang-gliding, etc., are often set by
    industry associations. Initially, each flight provider will set his or
    her own standards.
        In fact, it is part of the natural evolution of business that
    individual companies set the standards initially, and the ones who do
    the best job of it have their standards adopted by the rest of the
    industry.

    Q3c.  Who would certify that the training had been done?

    A3c. Initially, the company itself will certify that the individual is
    fully trained. Do not equate this with ``rubber stamping.'' Any
    certification that is genuinely required (and no one, at this time,
    knows what is, or even if any is) will emerge as the industry evolves,
    and those companies that provide it will survive while those that do
    not will not.
        In all likelihood, one or more industry associations will
    ultimately emerge that will set standards for both training and
    certification of training, if indeed it is necessary. I must stress,
    however, that no one knows or could know at this time if any training
    is required, let alone what it would be.

    Q3d.  Should the specified standards be uniform across the industry? If
    not, how would you make it work in practice?

    A3d. Once again, it is not a given that any training is required, nor
    is it a given that passengers need to meet any medical requirements.\2\
    One of the reasons why it is not a given is that there is no single
    design solution for a passenger spacecraft.
    ---------------------------------------------------------------------------
        \2\ In fact, I would turn that question around and ask how such
    requirements could be imposed in the face of the Americans With
    Disabilities Act.
    ---------------------------------------------------------------------------
        It is impossible to predict what technologies will win in the
    marketplace. Assuming, however, that at some point a spacecraft design
    solution emerges that becomes widely adopted, and requires training of
    passengers, there will unquestionably emerge an industry association
    that will provide standards.
        This is happening with Reusable Launch Vehicles as I write. The
    American Institute of Aeronautics and Astronautics has a working group
    that is now working to set various standards for RLVs. Though a bit
    premature (given that there is nothing to standardize), this sort of
    practice is the standard for standards in all industries. I would
    expect nothing different in the passenger space flight industry.

                       Answers to Post-Hearing Questions

    Submitted to Raymond F. Duffy, Jr., Senior Vice President, Willis
            InSpace Insurance Underwriters

        These questions were submitted to the witness, but were not
    responded to by the time of publication.

    Questions submitted by Chairman Dana Rohrabacher

    Q1.  H.R. 3245 directs the Secretary of Transportation to arrange for
    the National Academy of Public Administration (NAPA) to conduct a study
    on the existing liability-risk sharing regime for commercial space
    transportation.

    Q1a.  Given that the Federal Aviation Administration issued a study
    regarding the liability risk-sharing regime for U.S. commercial space
    transportation in April 2002, is another study necessary? If so, what
    new or additional information is needed?

    Q1b.  Should any new study be limited to the liability-risk sharing
    regime for commercial human space transportation (as opposed to the
    entire commercial space transportation industry)?

    Q2.  Since its enactment, the commercial space launch indemnification
    regime has been subject to an expiration date. H.R. 3245 extends
    indemnification by three years through December 31, 2007. What
    effect(s) would a phase-out or elimination of the indemnification
    regime have on the U.S. commercial space transportation industry
    generally and the emerging commercial human space flight industry in
    specific?

    Q3.  Presumably, the vehicles used for commercial human space flight
    will differ considerably from experimental aircraft in terms of design
    and purpose. Given this assumption, how might the experimental aircraft
    regulatory model be adapted for commercial human space flight?

    Q4.  H.R. 3245 includes pre-qualification criteria for space flight
    participants, but none for crew members.

    Q4a.  Are the pre-qualification criteria listed for passengers in H.R.
    3245 sufficient? Should criteria be added or deleted?

    Q4b.  Should the bill include pre-qualification criteria for crew
    members?

    Questions submitted by Representative Bart Gordon

    Q1.  Section 4 of H.R. 3245 includes a provision that says:

             ``The Secretary of Transportation shall. . .focus the
            Department's regulation of commercial human space flight
            activities on protecting the safety of the general public,
            while allowing space flight participants who have been trained
            and meet license-specific standards to assume an informed level
            of risk.''

    Q1a.  That language would appear to preclude DOT from regulating
    passenger safety on commercial passenger-carrying spacecraft. Do you
    consider that to be an appropriate public policy? Why or why not?

    Q1b.  If you think that DOT should not regulate passenger safety at the
    present time, is there any point in the future when the government
    should become involved in such regulation?

    Q2.  What information do you believe a commercial human space flight
    company would have to provide to allow a potential passenger to give
    his or her ``informed consent''? For example, what constitutes
    sufficient information on a vehicle's safety record, if the vehicle has
    only flown a statistically insignificant number of times?

    Q3.  H.R. 3245 says that a license holder may launch a paying passenger
    into space only if ``the space flight participant has received training
    and met medical or other standards specified in the license.''

    Q3a.  Do you agree with the provision?

    Q3b.  Who should set the standards and determine the appropriate level
    of training?

    Q3c.  Who would certify that the training had been done?

    Q3d.  Should the specified standards be uniform across the industry? If
    not, how would you make it work in practice?

    Q4.  Your testimony focuses on a number of insurance issues.

    Q4a.  What is the current state of the insurance industry that writes
    insurance for aviation and space activities?

    Q4b.  Do you see the outlook for that insurance industry changing--
    either for better or for worse--over the next few years? Why?

    Q4c.  Is insurance for space activities getting more expensive or less
    expensive?

    Q4d.  What do you think the impact of new commercial human space flight
    companies seeking insurance will be on the overall situation in the
    insurance industry?
                       Answers to Post-Hearing Questions
    Responses by Henry R. Hertzfeld, Senior Research Scientist, Elliot
            School of International Affairs, George Washington University

    Questions submitted by Chairman Dana Rohrabacher

    Q1.  H.R. 3245 directs the Secretary of Transportation to arrange for
    the National Academy of Public Administration (NAPA) to conduct a study
    on the existing liability-risk sharing regime for commercial space
    transportation.

    Q1a.  Given that the Federal Aviation Administration issued a study
    regarding the liability risk-sharing regime for U.S. commercial space
    transportation in April 2002, is another study necessary? If so, what
    new or additional information is needed?

    A1a. The FAA study on liability and risk-sharing was well-done and
    thoroughly covered the history, legislation, regulations, and issues.
    There should be no need for another large comprehensive study of this
    topic so soon after that study. However, the FAA is responsible for
    promoting the launch vehicle industry and therefore the recommendations
    reached in that study regarding the necessity of retaining and
    extending the current indemnification scheme were, perhaps, a foregone
    conclusion since the launch vehicle industry considers this
    indemnification extremely important.
        It might be beneficial to commission a study by an objective,
    disinterested party on the relative merits of either continuing,
    modifying, or eliminating the government indemnification. NAPA might
    not be the most objective organization in this regard since it has a
    long history of studies of space for NASA and other space-related
    agencies. I would suggest an organization within the insurance industry
    (possibly one involved in insuring nuclear facilities since there are
    direct parallels between the evolution of the PriceAnderson Act and
    government space indemnification) or a major university business school
    with a strong insurance department.

    Q1b.  Should any new study be limited to the liability-risk sharing
    regime for commercial human space transportation (as opposed to the
    entire commercial space transportation industry)?

    A1b. The study should approach commercial human space flight as a sub-
    issue under the general framework of space indemnification. The package
    of regulations on insurance for space activities should be integrated
    into a logical unit rather than a series of ad hoc rules.

    Q2.  Since its enactment, the commercial space launch indemnification
    regime has been subject to an expiration date. H.R. 3245 extends
    indemnification by three years through December 31, 2007. What
    effect(s) would a phase-out or elimination of the indemnification
    regime have on the U.S. commercial space transportation industry
    generally and the emerging commercial human space flight industry in
    specific?

    A2. It is hard to determine what the effect would be. Since many
    foreign nations which compete with U.S. launch vehicles do indemnify
    their launches for third-party liability risks, it is clear that
    eliminating that subsidy would make U.S. launches less competitive, at
    least in the near-term. However, there are many other factors behind
    risk-taking and indemnification in the space industry that may provide
    arguments minimizing this anti-competitive effect.
        First, third-party liability insurance is not that expensive for
    large companies and for proven launch vehicles. Payouts for third-party
    damage worldwide have been extremely small over the entire history of
    space launches and the probability of significant damage is low.
        Second, since the U.S. is the preeminent space faring nation, most
    other nations have followed the U.S. example in many areas of space
    licensing and regulations. There are, of course, major differences
    among nations, but it is quite possible that, over time, if the U.S.
    eliminated the indemnification provisions others would follow. However,
    all nations, including the U.S., would still be ultimately liable for
    this type of damage from a vehicle launched from their nation (or for
    which their citizens were significantly involved). That would put the
    burden of the regulatory agency within each nation to require financial
    responsibility for each launch sufficiently high that the governments
    would not have to provide additional funds in the event of a lawsuit.
    Governments, however, would still be the insurer of last resort.
        Third, currently most U.S. launch vehicles are covered by P.L. 85-
    804 (government indemnification for ultra hazardous activities
    connected with national security). The details of this are complex, but
    without this indemnification it is likely that the EELV and other new
    launch vehicles would not have been built. The question is one of dual-
    use: if the vehicles covered by this law are used for purely civilian
    activities, can P.L. 85-804 be used? It may be possible for vehicles
    necessary for defense purposes, but new sub-orbital human-rated
    vehicles without military uses would clearly not be covered by P.L. 85-
    804. This area needs to be further studied.

    Q3.  H.R. 3245 includes pre-qualification criteria for space flight
    participants, but none for crew members.

    Q3a.  Are the pre-qualification criteria listed for passengers in H.R.
    3245 sufficient? Should criteria be added or deleted?

    A3a. I am not an expert in this area.

    Q3b.  Should the bill include pre-qualification criteria for crew
    members?

    A3b. It is logical that criteria for crew members should be established
    for reasons of the safety of passengers and other crew members. The
    question of what criteria are most appropriate might more properly be
    addressed by a regulatory body after considerable study and industry
    inputs.

    Questions submitted by Representative Bart Gordon

    Q1.  Section 4 of H.R. 3245 includes a provision that says:

             ``The Secretary of Transportation shall. . .focus the
            Department's regulation of commercial human space flight
            activities on protecting the safety of the general public,
            while allowing space flight participants who have been trained
            and meet license-specific standards to assume an informed level
            of risk.''

    Q1a.  That language would appear to preclude DOT from regulating
    passenger safety on commercial passenger-carrying spacecraft. Do you
    consider that to be an appropriate public policy? Why or why not?

    A1a. As I read the language, it may not preclude the regulation of
    passengers and passenger safety. It depends on the interpretation of
    ``space flight participants'' coupled with an interpretation of what
    type and extent of ``risk'' is to be considered sufficient to meet a
    criteria of ``informed.'' If the definitions are set low (i.e., all
    conceivable types of risk are included in the requirement of being
    informed; all possible people are included as space flight
    participants, etc.), then the license procedure of the DOT may be
    comprehensive and include regulations concerning passengers. In effect,
    protecting the general public from harm can be viewed from the
    perspective that any passenger who many be marginal in any sense
    (physical, mental, security, financial, etc.) can be seen as a
    potential danger to the safety of the flight and therefore to the
    general public.
        Given that possibility, given the sensitivity of the U.S.
    Government to security issues, and given that any rocket launch can be
    seen as a possible national security threat (just as any commercial
    airplane flight is now viewed after 9/11), the wording of the language
    in the bill should be more precise and should include at least a narrow
    opening for the DOT to regulate some aspects of passenger safety on
    spacecraft.
        I think the intent of the bill is to allow incentives for risk-
    takers and entrepreneurs to fly in spacecraft. That could be
    accomplished by establishing regulations that only affect the safety of
    others, defined as both other passengers, employees of the company
    providing the launch and their contractors, and the general public. If
    drafted carefully, this could open up risk-taking in several important
    areas: financial, and personal. There should (other than requiring
    either the person and/or the launch company to have a necessary amount
    of third-party liability insurance) be enough flexibility to allow a
    person to risk his or her life and money on the flight but not endanger
    others.
        The use of the term, space flight participant, is interesting and a
    good choice of words. In the U.N. Treaty on the Rescue of Astronauts,
    there is no definition of an astronaut. However, the language of the
    title of the treaty is different from the body of the treaty where the
    term ``personnel of a spacecraft'' is used. That enables the Treaty to
    cover Astronauts, Cosmonauts, Pilots, Passengers, Mission Specialists,
    etc. and makes no distinction between nations, languages, civilians,
    government employees, etc. By using the term ``participant'' in H.R.
    3245, a similar comprehensive coverage to anyone onboard (and possibly
    those on the ground supporting the flight) is included.
        In today's environment, it is good public policy to protect safety
    while permitting economic and financial risk-taking. By trying to
    deregulate (or not regulate) this activity using a model loosely built
    on the aviation era of the 1920s--very laissez-faire in all aspects--
    the Congress would be out of sync with the basic regulatory and legal
    foundation of industry and activity today. Space flight today is not
    the same as aviation was in its early days and the free-wheeling model
    is not appropriate. Congress should attempt to provide as much
    entrepreneurial freedom as possible for space, but not try to recreate
    something that can't be recreated.

    Q1b.  If you think that DOT should not regulate passenger safety at the
    present time, is there any point in the future when the government
    should become involved in such regulation?

    A1b. I have suggested above limited regulation. That could be expanded
    later if conditions warranted.

    Q2.  What information do you believe a commercial human space flight
    company would have to provide to allow a potential passenger to give
    his or her ``informed consent''? For example, what constitutes
    sufficient information on a vehicle's safety record, if the vehicle has
    only flown a statistically insignificant number of times?

    A2. I have no strong opinion on this. Regulations on what information
    should be provided will depend on many factors and this would probably
    best be determined through a fact-finding study and a mutually agreed
    upon set of standards between the DOT and industry. Clearly, over time,
    these factors would change and therefore the law should allow for an
    administrative process to determine the standards. For example, a
    vehicle's safety record (number of successful launches) is only part of
    the picture. What about cabin conditions (air quality, for example),
    exposure to radiation (can depend on flight path, latitude, season of
    the year, and activity of the sun), financial responsibility of the
    company and its subcontractors, etc.?

    Q3.  H.R. 3245 says that a license holder may launch a paying passenger
    into space only if ``the space flight participant has received training
    and met medical or other standards specified in the license.''

    Q3a.  Do you agree with the provision?

    A3a. Yes. As in my answer to Question 1, the safety of others may be
    involved. A good quick example is the well-known risk factors
    associated with radiation. A woman who is pregnant is at much higher
    risk and even today would be excluded from flying on the Shuttle or
    other space vehicles.

    Q3b.  Who should set the standards and determine the appropriate level
    of training?

    A3b. This would have to be the regulating agency such as the DOT. If
    standards are set, there can always be put in place a system for a
    waiver of the rule in the case where an individual is both willing to
    take a risk and that risk would pose no danger to others. (For example,
    if a person with a disability that ordinarily would preclude him or her
    from the flight could prove on a case-by-case basis that their
    disability would not cause harm to others.)

    Q3c.  Who would certify that the training had been done?

    A3c. The regulatory agency could establish a mechanism for doing this--
    either through their own procedures or by accepting the certificate of
    a qualified private sector person or firm.

    Q3d.  Should the specified standards be uniform across the industry? If
    not, how would you make it work in practice?

    A3d. General standards should be established. The system should be
    flexible enough to accommodate different types of flights and different
    specifics for vehicles and situations.

    Q4.  In your testimony you state that the cost of insurance ``is only a
    small fraction of the total cost of a launch and would be included in
    the price of a launch. Those incurring the risk should be willing to
    pay for the risk, particularly where there is no direct Government
    benefit from the activity.''

    Q4a.  What do you estimate that fraction would be?

    A4a. I was referring to the cost of third party liability insurance as
    currently provided for commercial communications satellite launches.
    (This is the only large commercial activity in space right now and
    therefore is the best example for comparison, even if there are
    significant differences between this and human flight). When the cost
    of the satellite itself, the launch, and insurance are added together,
    they are small in comparison to the total revenues generated over the
    long (5- to 15-year) lifetime of the satellite. This is why
    communications companies consider space a profitable investment and
    make money on the investment even with the very high current launch
    costs.
        Liability insurance is also much less of a problem for large
    companies than for smaller ones and for new start-ups. There is no
    current market for insurance for human space flight of the type that
    would be covered by H.R. 3245. It is highly probable that insurance
    costs would be high in the initial years (until a track-record of
    success would be developed). And, since revenues from human space
    flight are flight-specific, insurance and launch costs in general
    cannot be amortized over many years as with communications satellites.
    Furthermore, insurance costs fluctuate with the availability of
    insurance generally (i.e., the pool of available insurance funds varies
    depending on the payouts for other events such as major hurricanes or
    other disasters) and predicting the possibility availability and cost
    of insurance for human space flight in advance is difficult.

    Q4b.  Would that fraction be significantly smaller if the
    indemnification regime in existing law were extended to commercial
    human space flight activities, or would there be no appreciable impact?

    A4b. See above. The cost would be greater for human space flight, at
    the very least as a percentage of revenues.

    Q4c.  Would the absence of government indemnification have any impact
    on the ability of a commercial human space flight company to get
    insurance?

    A4c. Possibly. The real question is whether the government should
    subsidize commercial human space flight where there is no apparent
    direct connection between a government purpose and the flight. Up to
    now virtually all spacecraft in orbit have some government interest.
    Even the purely commercial communications satellites provide necessary
    back-up capabilities for the military and security interests of the
    U.S. Government. Human space flight is aimed at recreation and at
    entertainment. It should be left up to Congress to determine whether
    that economic activity has a sufficient public purpose to warrant
    indemnification.
        I think that making the public purpose argument for commercial
    human space flight would be difficult. There is no reason why the full
    cost of liability insurance should not be born by the company. By
    requiring through regulation that a company purchase ``enough insurance
    to cover all potential third party losses,'' the government would set a
    precedent for commercial operations that helps to develop a full-cost
    profit basis for the future. And, even though other nations might
    subsidize this type of insurance, it is quite possible that if the U.S.
    as the leader in space sets this commercial precedent, others will
    follow.
        Clearly, if a third party is damaged in another country by a U.S.
    space flight, the U.S. Government could still be liable under U.N.
    Outer Space Treaties. The likelihood of an incident and payout by the
    government is low, but not zero, even if the government removes the
    indemnification from commercial human space flight. That possibility
    alone will require some regulation on determining how much insurance is
    ``enough'' for each flight or category of flight by a regulatory
    agency. The current DOT/FAA assessment of requiring ``maximum probable
    loss'' would probably not provide a high enough insurance threshold and
    an assessment approaching a limit of ``maximum possible loss'' might
    have to be substituted. How much of a financial difference this would
    make in the cost of insurance is indeterminate since insurance would be
    purchased on a specific vehicle and/or series of flights. It would,
    nevertheless, be more expensive.

                       Answers to Post-Hearing Questions

    Responses by Pamela L. Meredith, Counsel, Zuckert, Scoutt &
            Rasenberger, LLP

        This response addresses some but not all of the questions, or
    aspects of the questions, of Representatives Dana Rohrabacher and Bart
    Gordon. Clearly, the answers to each of the questions could easily be
    the subject of a lengthy dissertation, which is not the purpose of this
    brief response. The response is based on the text of H.R. 3245 provided
    for the November 5, 2003 hearing.

    Questions submitted by Chairman Dana Rohrabacher

    Q1.  If an accident were to occur due a commercial human space flight
    launch by a U.S. citizen or company resulting in harm to the space
    flight participants (passengers) and crew, as well as harm to foreign
    or domestic ``third parties,'' in what jurisdictions might claimants
    bring suit and against whom? What domestic laws, international laws,
    treaties, or agreements might be implicated?

    A1. Without Commercial Space Launch Act (``CSLA'')\1\ waivers of
    liability, the passenger could be sued by, and could itself sue, the
    launch company and its contractors and subcontractors involved in
    launch services, as well as fellow passengers. H.R. 3245\2\ does not
    impose a waiver requirement with respect to passengers.\3\ The
    passenger could also be sued by ``third parties'' (innocent bystanders)
    who are injured or whose property is damaged. The passenger would not
    have the benefit of third party liability insurance protection or
    United States Government Indemnification (``USG Indemnification'') as
    H.R. 3245 is currently drafted. The passenger could be held liable to
    these parties for negligence, gross negligence, reckless conduct, or
    willful misconduct under applicable U.S. state tort laws for any injury
    or damage he or she caused.
    ---------------------------------------------------------------------------
        \1\ 49 U.S.C.  70101-70121 (2003).
        \2\ Commercial Space Act of 2003, H.R. 3245, 108th Cong.
    (introduced Oct. 2, 2003) (``H.R. 3245'').
        \3\ See id.  3(d)(2) (rewording some of the cross waiver
    provision, but making no mention of passengers).
    ---------------------------------------------------------------------------
    Passengers With CSLA Waivers
        The CSLA mandates waivers among the launch company, the satellite
    customer, and their respective contractors or subcontractors.\4\
    Section 3(d)(2) of H.R. 3245 does not make clear that the CSLA waiver
    applies to passengers; although, it appears from the preamble of H.R.
    3245 that the intention is to extend the waiver to passengers.\5\
    ---------------------------------------------------------------------------
        \4\ See 49 U.S.C.  70112(b)(1) (requiring that the launch company
    ``make a reciprocal waiver of claims with its contractors,
    subcontractors, and customers. . .''). See also 14 C.F.R.  440.17 and
    Part 440, Appx. B, Agreement for Waiver of Claims and Assumption of
    Responsibility (``Waiver Agreement'') (implementing the requirements in
    49 U.S.C.  70112(a) ). The purpose of the cross waivers is: ``(1) to
    limit the total universe of claims that might arise as a result of a
    launch; and (2) to eliminate the necessity for all these parties to
    obtain property and casualty insurance to protect against these
    claims.'' Commercial Space Launch Act Amendments of 1988, S. Rep. No.
    100-593 (1988), at 14.
        \5\ H.R. 3245  2(6).
    ---------------------------------------------------------------------------
        If passengers are required to sign reciprocal waivers of the kind
    currently mandated by the CSLA, then the launch company, fellow
    passengers, and the launch company's contractors and subcontractors
    involved in launch services would be precluded from suing the
    passenger.
        Likewise, the passenger would be precluded from suing the launch
    company and its contractors and subcontractors involved in launch
    services, as well as fellow passengers.
        In most U.S. jurisdictions, the waiver would not preclude recovery
    by the passenger where the launch company or its contractors or
    subcontractors have acted with gross negligence, reckless disregard for
    the consequences of their actions, and/or willful misconduct.\6\
    ---------------------------------------------------------------------------
        \6\ See, e.g., Martin Marietta Corp. v. International Telecomm.
    Satellite Org., 991 F.2d 94, 100 (4th Cir. 1992) (providing that
    ``neither the language of the [CSLA] Amendments nor their legislative
    history reflects a Congressional intent to protect parties from
    liability for their own gross negligence''). In this case, Martin
    Marietta invoked a contractual waiver of liability to defend against
    INTELSAT's claims that Martin Marietta had been negligent and grossly
    negligent in failing to launch INTELSAT'S satellite into the correct
    orbit.
    ---------------------------------------------------------------------------
    Passengers Without CSLA Waivers
        If passengers are not required to sign reciprocal waivers, they
    could be sued by, e.g., the launch company and fellow passengers for
    negligence, gross negligence, reckless conduct, or willful misconduct
    under applicable U.S. state tort laws for any injury or damage they
    caused. A fellow passenger who is a foreign national may in addition be
    able to sue in a foreign country under foreign law. Note that the
    passenger's liability exposure could be significant in the early years
    of space travel as the passenger may have access to, or even be
    expected to oversee or operate, vehicle control interfaces and
    equipment.
        Conversely, passengers would be able to sue the launch company and
    its contractors and subcontractors involved in launch services, as well
    as fellow passengers. Possible causes of action would include
    negligence, gross negligence, reckless conduct, or willful misconduct,
    as well as strict products liability with respect to the launch
    company. Breach of contract or breach of warranty would likely be
    precluded by protections in the contract between the launch company and
    the passenger.

    Suits Against Passengers by ``Third Parties'' on the Ground
        Passengers could be sued by third parties on the ground. Most
    likely, such a suit would be directed at the launch company, but could
    include the passenger as well. The launch company and passenger could
    be held liable for their negligence, gross negligence, reckless
    conduct, or willful misconduct. The launch company could in addition be
    held strictly liable on the theory that launch activity is ``abnormally
    dangerous,'' as could conceivably the passenger if it were concluded he
    or she essentially acted as a pilot.\7\ The suit would typically be
    brought in the state where the launch company resides or where the
    injury/damage occurred.
    ---------------------------------------------------------------------------
        \7\ See Restatement (Second) of Torts  519 (2003), which provides:
    (1) One who carries on an abnormally dangerous activity is subject to
    liability for harm to the person, land or chattels of another resulting
    from the activity, although he has exercised the utmost care to prevent
    the harm. (2) This strict liability is limited to the kind of harm, the
    possibility of which makes the activity abnormally dangerous. For
    example, according to the Restatement: any flight by aircraft, together
    with ascent to or descent from the flight, is activity of such
    character that both the operator of the aircraft and its owner if he
    has consented to or permitted the operation are subject to strict
    liability for physical harm to the land, or to persons or chattels on
    the ground. Id., at  520A. However, as far as flying is concerned,
    there is a trend away from imposing strict liability for damage on the
    ground, based on the view that flying has become routine and should no
    longer be considered ``abnormally dangerous'' activity. See William J.
    Appel, Annotation, Strict Liability, in Absence of Statute, for Injury
    or Damage Occurring on the Ground Caused by Ascent, Descent, or Flight
    of Aircraft, 73 A.L.R.4th 416 (1989). This trend would likely not
    benefit launch activity.
    ---------------------------------------------------------------------------
        If injury or damage occurs in a foreign country, that country may
    bring a claim on behalf of a national who has suffered injury or damage
    against the United States under the Treaty on Principles Governing the
    Activities of States in the Exploration and Use of Outer Space,
    Including the Moon and Other Celestial Bodies\8\ (``Outer Space
    Treaty'') and the Convention on International Liability for Damage
    Caused by Space Objects\9\ (``Liability Convention''), assuming that
    the foreign country is a party to these treaties. The Liability
    Convention imposes strict liability for any damage on the surface of
    the Earth.\10\ The injured party may also claim directly under U.S. or
    foreign law, through U.S. or foreign courts.\11\
    ---------------------------------------------------------------------------
        \8\ Outer Space Treaty, done Jan. 27, 1967, 18 U.S.T. 2410.
        \9\ Liability Convention, done Mar. 29, 1972, 24 U.S.T. 2389.
        \10\ Id., art. XII.
        \11\ See id., art. XI.2 (providing that ``[n]othing in this
    Convention shall prevent a State, or natural or juridical persons it
    might represent, from pursuing a claim in the courts or administrative
    tribunals or agencies of a launching State'').
    ---------------------------------------------------------------------------
        Launch companies licensed under the CSLA are required to obtain
    third party liability insurance in the amount determined by the Federal
    Aviation Administration's (``FAA'') Associate Administrator for
    Commercial Space Transportation.\12\ The specific coverage amount,
    which cannot exceed $500 million,\13\ depends on the launch vehicle and
    launch location, but typically would be less than $200 million.
    ---------------------------------------------------------------------------
        \12\ 49 U.S.C.  70112(a)(2).
        \13\ Id.  70112(a)(3).
    ---------------------------------------------------------------------------
        The CSLA requires that such insurance must protect the launch
    company and the satellite customer, as well as their respective
    contractors and subcontractors as additional insureds.\14\ As H.R. 3245
    is currently drafted, passengers would not be protected by the third
    party liability insurance.
    ---------------------------------------------------------------------------
        \14\ Id.  70112(a)(4)(c).
    ---------------------------------------------------------------------------
        Under the CSLA, launch companies and the satellite customer, as
    well as their respective contractors and subcontractors are entitled to
    indemnification in the event liability to third parties exceeds the
    insured amount, subject to certain conditions.\15\ The indemnification
    cap is $1.5 billion above the insured amount.\16\ Under H.R. 3245,
    passengers are not entitled to such indemnification.
    ---------------------------------------------------------------------------
        \15\ Id.  70113.
        \16\ Id.  70113 (a)(1)(B).
    ---------------------------------------------------------------------------
    Suits Against Crew
        Assuming crew are employees of the launch company, they are not
    required to sign waivers. Crew members nonetheless are offered some
    protection under the waiver, as the satellite customer and its
    contractors and subcontractors are prevented from bringing suit against
    launch company personnel. However, assuming crew members are
    contractors or subcontractors to the launch company, they are covered
    by the CSLA waiver and protected by the launch company's third party
    liability insurance, as well as USG Indemnification.

    Q2.  H.R. 3245 includes pre-qualification criteria for space flight
    participants, but none for crew members.

    Q2a.  Are the pre-qualification criteria listed for passengers in H.R.
    3245 sufficient? Should criteria be added or deleted?

    Q2b.  Should the bill include pre-qualification criteria for crew
    members?

    A2a.b. Pre-qualification criteria seem to be in order, especially given
    the proposed lack of focus in H.R. 3245 by the FAA on passenger safety.
    The pre-qualification standards must not be so severe as to stifle the
    development of the industry and frustrate the legislation's purpose to
    open space to the American people.

    Pre-qualification Criteria for Passengers
        H.R. 3245 proposes that:

               [t]he holder of a license under this chapter may launch or
            re-enter a space flight participant [i.e., passenger] only if--

            1)  the space flight participant has received training and met
            medical or other standards specified in the license[; and]

            2)  the space flight participant is informed of the safety
            record of the launch or re-entry vehicle type.. . .\17\
    ---------------------------------------------------------------------------
        \17\ H.R. 3245  (3)(d)(1)(B).

        The adequacy of these criteria must be viewed in light of the
    regulatory focus proposed by the bill. H.R. 3245 states the FAA shall
    ``focus on protecting the safety of the general, uninvolved public,
    while allowing involved persons to assume risks which are inherent to
    human space flight activities.'' \18\ In other words, the FAA will not
    be required, or permitted, to regulate the safety of passengers onboard
    the vehicle, but only the safety of the general public.
    ---------------------------------------------------------------------------
        \18\ Id.  2(6).
    ---------------------------------------------------------------------------
        With this proposal, the FAA will not examine or regulate safety of
    the passenger compartment. Essentially, what happens to the passenger
    onboard the vehicle is not an issue for the FAA. For example, the FAA
    will not examine whether the levels of noise, vibration, temperature or
    toxic fumes are suitable for human exposure. Accordingly, if the
    passenger returns to Earth deceased as a result of toxic fumes in the
    passenger compartment, the FAA will have successfully carried out its
    safety mandate, assuming there is no incident to the general public.
        Is this sound public policy? Is it acceptable in today's society
    that a regulatory agency turn a blind eye to the safety of persons
    engaged in the regulated activity? While this is the FAA's approach to
    satellite payloads--the FAA is not concerned with ``mission success''--
    it may not be suitable for passengers. First, satellite customers are
    better equipped to scrutinize the launch environment than most
    passengers. Second, how can one compare a lost life to a lost
    satellite?
        If a ``hands-off' regulatory approach to passenger safety
    nonetheless is adopted, passenger qualification, training, and informed
    consent become all the more critical. Not only are the legislative
    criteria important, but their careful and considered implementation and
    enforcement is key. YET, THE CRITERIA CANNOT BE SO STRINGENT AS TO
    FRUSTRATE THE VERY PURPOSE THE BILL IS INTENDED TO PROMOTE, NAMELY
    ``THE OPENING OF OUTER SPACE TO THE AMERICAN PEOPLE,'' \19\ THAT IS,
    THE PUBLIC AT LARGE.
    ---------------------------------------------------------------------------
        \19\ Id.  2(3).
    ---------------------------------------------------------------------------
    Pre-qualification Criteria for Crew
        The carrier would have a business interest in ensuring that the
    crew is properly qualified and trained. The FAA would have the
    authority to review crew qualifications under its mandate to ensure
    public safety.\20\ It currently does so in connection with launches of
    satellite payloads. If the FAA's authority is extended to cover
    passenger safety, crew qualification should be similarly extended.
    ---------------------------------------------------------------------------
        \20\ 49 U.S.C.  70105(b).

    Q3.  Should passengers be considered ``third parties'' who could seek
    damages from the licensee in the case of an accident? What are the
    ---------------------------------------------------------------------------
    benefits and drawbacks of such an arrangement?

    Q3a.  Should the licensee be required to indemnify the passenger
    through limited ``carrier'' liability as additional insured?

    Q3b.  Should passengers be entitled to indemnification against claims
    that may be made against them by third parties?

    A3a,b. The term ``third party'' has a particular meaning within the
    CSLA regime. Merely making the passenger a ``third party'' does not
    solve the problem. Applying the same regime to passengers as is today
    applied to satellite customers is one possible approach. That includes
    waivers, third party liability insurance protection, and USG
    Indemnification. Alternative approaches should also be considered,
    including waivers combined with ``carrier'' indemnification of the
    passenger against third party liability. Partial waivers are also
    possible, e.g., where the passenger is permitted to sue the launch
    company and its contractors and subcontractors, but not the fellow
    passengers or crew.

    Significance of ``Third Party'' Designation Under CSLA
        The CSLA currently establishes a regime whereby it distinguishes
    between: 1) persons who are ``involved in launch services;'' and 2)
    third parties. The first group includes the licensee, i.e., the launch
    company and its contractors and subcontractors; the satellite customer
    and its contractors and subcontractors; and the U.S. Government and its
    contractors and subcontractors, involved in launch services or re-entry
    services. Third parties are defined as any party other than those
    included in the first group.\21\
    ---------------------------------------------------------------------------
        \21\ Id.  70102(16). Note, however, that U.S. Government employees
    are also considered third parties. 14 C.F.R.  440.3(a)(15)(ii).
    ---------------------------------------------------------------------------
        These two groups are subjected to different treatment. Those in the
    first group are:

              required to sign liability waivers;\22\
    ---------------------------------------------------------------------------
        \22\ 49 U.S.C.  70112(b).

              protected by third party liability insurance that the
            launch company is required to obtain;\23\ and
    ---------------------------------------------------------------------------
        \23\ Id.  70112(a)(3).

              with the exception of the U.S. Government and its
            contractor and subcontractors, entitled to USG Indemnification
            for third party liability subject to the conditions spelled out
            in the CSLA.\24\
    ---------------------------------------------------------------------------
        \24\ Id.  70113(a)(1).

        As a general rule, third parties may bring suit against any party,
    and they are not protected by the launch company's third party
    liability insurance\25\ or by USG Indemnification.
    ---------------------------------------------------------------------------
        \25\ An exception exists for U.S. Government employees, who are
    considered third parties. Id.  70112(a)(4). See supra note 21
    (considering U.S. Government employees as third parties).
    ---------------------------------------------------------------------------
    Passengers as Third Parties Under CSLA
        If passengers are considered ``third parties'' under CSLA, they
    would not be required to sign waivers; they would not be protected by
    the launch company's third party liability insurance against suits from
    other third parties; and they would not be entitled to USG
    Indemnification.
        The result would be that the passenger could get sued by the launch
    company and its contractors and subcontractors and fellow passengers.
    At the same time, the passenger would be entitled to sue the launch
    company and its contractors and subcontractors for injury or damage it
    suffers.
        A passenger with third party status under the CSLA could also be
    sued by other third parties. The passenger would not then have the
    benefit of the launch company's third party liability insurance or USG
    Indemnification. However, the passenger would be entitled to seek
    indemnification from the launch company and its contractors and
    subcontractors, if these were the parties that caused the injury or
    damage. Whether the passenger would be successful is another matter.
    Treating Passengers Like Satellite Customers Is a Possibility
        If passengers were treated like satellite customers under the CSLA,
    they would be required to sign waivers; they would be protected by the
    launch company's third party liability insurance against suits from
    third parties; and they would be entitled to USG Indemnification.
    Creatine Alternative Passenger Protection Under H.R. 3245
        It is possible to design an alternative risk allocation and
    liability protection scheme for passengers. Several variations are
    possible:

              Waiver and Carrier Indemnification

               One possibility is to combine a CSLA waiver with mandated
            launch company indemnification for third party liability.

                      The CSLA waiver would preclude: 1) the passenger
                    from suing the launch company and its contractors and
                    subcontractors and fellow passenger for injury and
                    property damage; and 2) the launch company and its
                    contractors and subcontractors and fellow passengers
                    from suing the passenger.

                      The passenger would be entitled to mandated
                    contractual indemnification by the launch company from
                    and against third party liability. This could be in the
                    form of a legislative requirement to indemnify, hold
                    harmless, and defend the passenger from and against any
                    third party claims, suit, or liability the passenger
                    may be subjected to as a result of space travel
                    activities. This requirement could be accompanied by a
                    requirement that the launch company name the passenger
                    an additional insured under the third party liability
                    insurance that the launch company is required to take
                    out under 49 U.S.C.  70112(a). This model would not
                    include USG Indemnification of the passenger.\26\
    ---------------------------------------------------------------------------
        \26\ Depending on the circumstances and the interpretation of 49
    U.S.C.  70113, the USG Indemnification available to the launch company
    might cover the launch company for its indemnification of the
    passenger.

              Limited Waiver by the Passenger and Carrier Liability
    ---------------------------------------------------------------------------
            With Cap

               Another possibility is to allow the passenger to sue the
            launch company and its contractors and subcontractors but not
            its fellow passengers. This could be coupled with a prohibition
            on suits against the passenger by the launch company and its
            contractors and subcontractors and fellow passengers. As for
            third party liability, either the model applicable to satellite
            customers or the model discussed immediately above could be
            used.

    USG Indemnification of the Licensee/Carrier
        In any event, USG Indemnification should apply to the company
    operating the vehicle for human space flight. This is consistent with
    the treatment of expendable launch vehicle companies in the U.S. and
    around the world.

    Questions submitted by Representative Bart Gordon

    Q1.  Section 4 of H.R. 3245 includes a provision that says:

             ``The Secretary of Transportation shall. . .focus the
            Department's regulation of commercial human space flight
            activities on protecting the safety of the general public,
            while allowing space flight participants who have been trained
            and meet license-specific standards to assume an informed level
            of risk.''

    Q1a.  That language would appear to preclude DOT from regulating
    passenger safety on commercial passenger-carrying spacecraft. Do you
    consider that to be an appropriate public policy? Why or why not?

    Q1b.  If you think that DOT should not regulate passenger safety at the
    present time, is there any point in the future when the government
    should become involved in such regulation?

    A1a,b.
        I agree that the quoted bill language directs the FAA to focus on
    the safety of the general public to the exclusion of the passenger. I
    am concerned that this approval may not be sound public policy. Is it
    acceptable in today's society for a regulatory agency to turn a blind
    eye to the safety of persons engaged in regulated activity? Moreover,
    could the very purpose that the bill is trying to serve--namely ``the
    opening of outer space to the American people''--be frustrated if an
    accident were to happen, as it would have a chilling effect on further
    human space flight.
        Under H.R. 3245, the FAA will not have the mandate to examine or
    regulate safety of the passenger, including the passenger compartment.
    The passenger's safety would simply not be an issue for the FAA. For
    example, the FAA would not examine whether the levels of noise,
    vibration, toxic fumes, or temperature are suitable for human exposure.
    That decision would be left to the vehicle operator and the passenger.
    Accordingly, if the passenger returns to Earth dead as a result of
    toxic fumes in the passenger compartment, the FAA would have carried
    out its safety mandate successfully, assuming there is no incident to
    the general public.
        While this is the FAA's approach to satellite payloads under the
    CSLA--the FAA is not concerned with ``mission success''--it may not be
    suitable for passengers. Satellite customers are better equipped to
    scrutinize the launch environment than most passengers. Furthermore,
    how can one compare a lost life to a lost satellite?
        Some FAA evaluation and regulation to ensure passenger safety may
    be in order. HOWEVER, THAT REGULATION MUST BE MINIMAL SO AS NOT TO
    STIFLE THE DEVELOPMENT OF A NASCENT INDUSTRY. Furthermore, the
    regulation must be balanced against the medical and training criteria
    imposed on the passenger, For example, a healthy and fit person who is
    trained will likely have a higher tolerance for certain conditions in
    the passenger compartment than a person without such physical fitness
    and training.

    Q2.  What information do you believe a commercial human space flight
    company would have to provide to allow a potential passenger to give
    his or her ``informed consent''? For example, what constitutes
    sufficient information on a vehicle's safety record, if the vehicle has
    only flown a statistically insignificant number of times?

    A2. H.R. 3245 requires that a ``space flight participant [be] informed
    of the safety record of the launch or re-entry vehicle type.'' \27\
    ---------------------------------------------------------------------------
        \27\ H.R. 3245  3(d)(1)(B).
    ---------------------------------------------------------------------------
        Your question suggests--and clearly this will be the case--that the
    passenger will not have a statistical basis upon which to make an
    informed decision on vehicle safety. Assuming the passenger is not a
    flight safety engineer or otherwise able to make a professional
    evaluation of passenger safety, the informed consent becomes
    meaningless. Rather, the consent takes the character of an assumption
    of risk. On the other hand, if the FAA could undertake some measure of
    passenger safety evaluation, the passenger could make an informed
    decision based on the agency's findings. The approach chosen by H.R.
    3245 presupposes that the launch company will have sufficient economic
    and business incentive to ensure passenger safety.
        Passengers should have access to the launch license application
    filed with the FAA. The CSLA requires launch companies to submit an
    application to the FAA prior to launch.\28\ The FAA evaluates the
    application to determine whether the launch is ``[c]onsistent with the
    public heath and safety, safety of property, and national security and
    foreign policy interests of the United States.. . .'' \29\ Again, the
    FAA's safety focus is currently on the general public, not the
    satellite payload. Likewise, under H.R. 3245, the safety focus would be
    on the general public to the exclusion of the passenger.
    ---------------------------------------------------------------------------
        \28\ 49 U.S.C.  70105(a)(1).
        \29\ Id.

    Q3.  H.R. 3245 says that a license holder may launch a paying passenger
    into space only if ``the space flight participant has received training
    ---------------------------------------------------------------------------
    and met medical or other standards specified in the license.''

    Q3a.  Do you agree with the provision?

    Q3b.  Who should set the standards and determine the appropriate level
    of training?

    Q3c.  Who would certify that the training had been done?

    Q3d.  Should the specified standards be uniform across the industry? If
    not, how would you make it work in practice?

    A3a,b,c,d. Some medical and training criteria may be in order in the
    beginning years of commercial human space flight, as such flight is
    likely to involve certain physical rigors and to require some measure
    of cooperation by the passengers.
        It would make sense to have the same regulatory agency that
    licenses the launch also set the medical and training qualification
    standards. The launch operator could certify that the training had been
    done. The certification should be subject to FAA oversight. From a
    regulatory perspective, uniform standards make sense. However, given
    the infancy of the industry and the variety of vehicles being proposed,
    some vehicle flights may warrant additional passenger training and
    physical fitness criteria.

    Q4.  Would the cross-waivers of liability against death or personal
    injury of a passenger contained in H.R. 3245 still hold if there were
    allegations of negligence?

    A4. As presently drafted, H.R. 3245 does not provide for a waiver of
    liability with respect to passengers. See answer to Chairman
    Rohrabacher's Question No. 1.
        In most U.S. jurisdictions, the waiver would not preclude recovery
    by the passenger where the launch company or its contractors or
    subcontractors have acted with gross negligence, reckless disregard for
    the consequences of their actions, or willful misconduct.\30\
    ---------------------------------------------------------------------------
        \30\ See supra note 6.

    Q5.  Section 70104 of Title 49 of the U.S. Code states that a U.S.
    company planning to launch a launch vehicle or re-enter a re-entry
    ---------------------------------------------------------------------------
    vehicle outside of the United States will need to get a license.

    Q5a.  If the U.S. Code is expanded to cover commercial human space
    flight activities, would a U.S. company that was offering rides on the
    Russian Soyuz spacecraft in a partnership with a Russian company need
    to get a license from the U.S. Department of Transportation? If not,
    why not?

    Q5b.  If so, how would DOT enforce the terms of the license?

    A5a,b. The CSLA provides for U.S. licensing in the following
    circumstances:

              launches from or re-entries in the U.S.;

              launches and re-entries anywhere by U.S. citizens and
            U.S. entities;

              launches or re-entries by U.S.-controlled entities on
            the high seas, unless there is an agreement between the U.S.
            and a foreign country that the foreign country shall have
            jurisdiction; and

              launches or re-entries by a U.S. controlled entity in
            a foreign country, if there is an agreement between the U.S.
            and the foreign country that the U.S. shall have
            jurisdiction.\31\
    ---------------------------------------------------------------------------
        \31\ 49 U.S.C.  70104.

        Assuming, the U.S. company and the Russian company have created a
    partnership or joint venture company to actually conduct the launch in
    Russia and the partnership/venture is U.S.-controlled, then the FAA
    will not license the venture unless there is an agreement between
    Russia and the U.S. that the FAA will license the venture.\32\
    ---------------------------------------------------------------------------
        \32\ Id.  70104(a)(4).
    ---------------------------------------------------------------------------
        If, however, the launch or re-entry were to take place in the
    United States, an FAA license would be required.
        The venture or partnership between Lockheed Martin and the Russian
    companies Energia and Khrunichev to launch satellites on the Proton
    rocket from Baikonur, Kazakhstan, does not to my knowledge require a
    license from the FAA. On the other hand, the partnership of Boeing and
    Russian, Ukrainian, and Norwegian companies--Sea Launch--to launch from
    the high seas is licensed by the FAA.

                                  Appendix 2:

                                  ----------

                       Additional Material for the Record

                        Sectional Analysis of H.R. 3245

                Summary of the ``Commercial Space Act of 2003''

        The bill clarifies the regulatory framework for commercial human
    space flight. The bill extends the existing commercial space
    transportation indemnification regime by three years, through December
    31, 2007, and mandates a study on the liability risk-sharing regime for
    commercial space transportation. The bill specifies that the licensing
    authority for private-sector remote sensing systems within the Commerce
    Department be delegated to the Office of Space Commerce. The bill
    authorizes to be appropriated $11,523,000 and $11,000,000 for fiscal
    years 2004 and 2005, respectively, for the FAA Office of Commercial
    Space Transportation. The bill also authorizes to be appropriated
    $1,800,000 and $2,000,000 for fiscal years 2004 and 2005, respectively,
    for the Department of Commerce's Office of Space Commerce.

    Section 1. Short Title.

    Section 2. Findings.

        This section makes certain findings regarding the U.S. commercial
    space transportation industry and commercial sub-orbital human space
    flight in general.

    Section 3. Amendments.

        This section authorizes to be appropriated $11,523,000 and
    $11,000,000 for FY 2004 and FY 2005, respectively, for the FAA Office
    of Commercial Space Transportation. The bill amends the Commercial
    Space Launch Activities Act (Title 49, U.S.C., Subtitle IX, Chapter
    701) to clarify the regulatory purview of the FAA Office of Commercial
    Space Transportation to include licensing of commercial human space
    flight by defining certain terms relevant to commercial human space
    flight. These terms include the following: crew, space flight
    participant, sub-orbital rocket, and sub-orbital trajectory.
        This section directs that the holder of a commercial human space
    flight license may launch or re-enter a space flight participant only
    if the participant has received training and met medical or other
    standards specified in the license, the participant is informed of the
    safety record of the launch or re-entry vehicle type, and the launch or
    re-entry vehicle is marked in a manner to identify it as a launch or
    re-entry vehicle rather than an aircraft. This section also includes a
    provision requiring a reciprocal waiver of liability claims between the
    holder of a license, its contractors, subcontractors, and its customers
    (``space flight participants'').

    Section 4. Regulatory Framework.

        This section directs the Secretary of Transportation to undertake
    efforts to create a streamlined, cost-effective, and enabling
    regulatory framework for the U.S. commercial human space flight
    industry that is clearly distinguished from the Transportation
    Department's regulation of air commerce, focuses its regulation of
    commercial human space flight on protecting the safety of the general
    public, and allows space flight participants who are trained and meet
    license-specific standards to assume an informed level of risk. The
    Secretary is directed to report to Congress within six months after the
    date of enactment of this bill on progress made in implementing this
    section.

    Section 5.  Commercial Space Transportation Indemnification Extension.

        This section amends existing law by extending the existing
    commercial space launch indemnification regime by three years, through
    December 31, 2007.

    Section 6.  Liability Regime for Commercial Space Transportation.

        This section directs the Secretary of Transportation to enter into
    an arrangement with the National Academy of Public Administration
    (NAPA) not later than 60 days after enactment of this bill to conduct a
    study on the liability risk-sharing regime in the United States for
    commercial space transportation. The study shall recommend
    modifications and actions required for alternative approaches to the
    current liability risk-sharing regime. The study results shall be
    transmitted to the Congress not later than 18 months after enactment of
    this bill.

    Section 7. Office of Space Commerce.

        This section redesignates the Office of Space Commercialization as
    the Office of Space Commerce. The section also authorizes the
    appropriation of $1,800,000 for FY 2004 and $2,000,000 for FY 2005 for
    the Office of Space Commerce.

    Section 8. Delegation of Licensing Authority.

        This section requires the Secretary of Commerce to delegate the
    authority to license private-sector remote sensing space systems
    operators provided under current law to the Director of the Office of
    Space Commerce. This section also amends current law by adding
    additional functions and duties to the Office of Space Commerce.

                     Prepared Statement of James A.M. Muncy

    Preface

        I very much appreciate the opportunity to present my views on H.R.
    3245, the Commercial Space Act of 2003. To make this testimony as
    useful as possible for Members and staff, I have structured it in the
    form of a ``Frequently Asked Questions'' document, essentially a
    tutorial on the issues underlying the legislation along with my
    recommended positions on those issues. I have also attached a copy of
    my recent Space News column as further background.

    What's the historical context for this legislation?

        When the Congress crafted the Commercial Space Launch Act of 1984,
    it demonstrated bipartisan foresight in promoting the emergence of a
    now-vital commercial space transportation industry. For two decades,
    the role and capabilities of that industry have grown to encompass the
    launch of nearly all military and civilian spacecraft as well as many
    commercial satellites. While only commercial launches by U.S. providers
    are licensed by the Department of Transportation, the CSLA's creation
    of a streamlined, ``one stop shop'' to regulate and promote the
    industry has enabled it to serve public as well as private interests.
    From time to time, the Congress has amended the CSLA to add new
    statutory authority or clarify the mission of the Office of Commercial
    Space Transportation (OCST) based on new industrial, technological or
    policy developments.
        Today, the nascent sub-orbital reusable launch vehicle (RLV)
    industry seeks to pioneer new commercial human space flight market
    opportunities, as well as offer microgravity research, remote sensing/
    surveillance, and micro-satellite launch services.

    So will OCST will regulate and promote these new RLVs?

        Unfortunately, in 1995 the previous Administration transferred the
    OCST into the Federal Aviation Administration, a much larger and, by
    all accounts, more bureaucratically conservative organization.
    Coincidentally, Congress had removed the FAA's promotional authority
    regarding commercial aviation in 1996. This confluence of events, along
    with a lack of clear definitions for important terms in the original
    CSLA (`sub-orbital rocket' and `sub-orbital trajectory') has created
    some confusion over regulatory jurisdiction within the FAA, which in
    turn has hindered private investment in the sub-orbital RLV industry.
        On July 24, 2003, a joint hearing before the Senate Subcommittee on
    Science, Technology and Space and the House Subcommittee on Space &
    Aeronautics featured strong and unanimous testimony that this
    jurisdictional issue should be resolved by legislation that would
    define key terms and restore the sole authority of the Office of
    Commercial Space Transportation to regulate and promote this industry.
        It is this need to create a predictable and enabling business
    environment for the emerging U.S. sub-orbital RLV industry that calls
    for enactment of the Commercial Space Act of 2003.

    Is this all just about space tourism?

        No. While sub-orbital RLVs do not, by definition, fly all the way
    into Earth orbit like the Space Shuttle, they can provide a scientific
    experiment with a few minutes of microgravity time or an environmental
    sensor with a high enough altitude to collect timely data over a large
    region. Furthermore, using low-cost expendable upper stages, sub-
    orbital RLVs can provide affordable launch services for small (<250 kg)
    satellites or scientific probes, a class of spacecraft that
    universities can often afford to build but not launch.
        That said, travel and tourism is one of America's largest
    industries, and the adventure travel market is its fastest growing
    sector. If we have learned anything from the few successes and many
    failures of ``space commercialization,'' it is that we need to identify
    and promote space activities which have a large terrestrial market.
    Communications satellites paid off because there was a pre-existing
    demand for long-distance communications, which then continued to grow
    as space technology lowered prices and improved quality. Direct
    broadcast satellites are paying off because there is a preexisting
    demand for affordable and diverse entertainment and information. So
    too, expanding America's adventure travel industry into space will tap
    into a pent-up market demand, thus winning significant private
    investments in sub-orbital RLVs.
        Of course, the benefits of giving more Americans the opportunity to
    experience space flight go well beyond new jobs and profits. As the
    public reaction to Dennis Tito's 2001 flight to the International Space
    Station proved, the American people believe that they too have ``the
    right stuff'' and might one day be able to fly into space, even if they
    choose not to. The more real this opportunity becomes, the more
    children will be inspired to study math and science so they can
    participate in this exciting future.

    If NASA can't build a new RLV. . .how can entrepreneurs?

        The cost and difficulty of developing a heavy-lift (i.e., Shuttle-
    class) RLV that could carry astronauts, modules, or large satellites
    into space is indeed daunting. NASA's own estimates for a 2nd
    Generation RLV ran over $30 billion before that program's cancellation
    in 2002.
        Furthermore, the limited market for launching satellites is not
    encouraging large orbital RLV development today because the demand for
    those launch services cannot grow quickly enough to repay investors for
    the high costs of developing orbital RLVs. That is one of the tragic
    mistakes of NASA's RLV development efforts over the past decade:
    assuming that commercial industry would invest in a capability it
    cannot financially justify simply because NASA wants to get that
    capability on the cheap. (The other mistake is the assumption that
    better technology will somehow overcome this economic reality.)
        On the other hand, sub-orbital RLVs are smaller, simpler, easier,
    and (therefore) much cheaper to develop. And unlike satellite launch,
    the space adventure travel market does appear to be large enough to
    justify these much-lower development costs. Of course, sub-orbital RLVs
    can't solve NASA's real and pressing space transportation problems
    today, or anytime soon.
        But one day these vehicles and markets may grow up and enable a
    true revolution in access to orbital space, much as home-built personal
    computers eventually displaced the ``mainframes'' of the old 1970's
    data processing industry.

    How should the Federal Government regulate sub-orbital RLVs?

        Answer #1: Moderately, and primarily to protect the uninvolved
    general public, while allowing investors and adventure-seeking
    customers to take informed risks so the industry can ``grow up.''
        Answer #2: Not at all like it regulates commercial aviation, which
    is a mature, well-established industry that provides commodity
    transportation services for the general public.
        Answer #3: Not exactly the way it regulates the current expendable
    launch vehicle (ELV) industry either, because sub-orbital RLVs aren't
    as big or potentially destructive as ELVs, they will become inherently
    more reliable via reusability, and--of course--they will carry human
    beings and not just satellites as payloads.

    What part of the Federal Government should regulate sub-orbital RLVs?

        As is so often the case, who you give the job to will determine how
    well the job gets done. This is the key issue H.R. 3425 seeks to
    answer. While some proposed sub-orbital RLVs look every bit like a
    Goddard, Heinlein, or Von Braun rocket, others look a lot like
    airplanes. They may have wings, use aerodynamic lift during their
    flight profiles, and even take off and land horizontally at runways.
    But they are not at all conventional aircraft, and must not be
    regulated as if they were.
        American aviation will celebrate 100 years of success next month.
    The level of safety we enjoy today is not simply the result of tough
    regulation but rather that regulation enforces safety-promoting best
    practices that have evolved over time based on real-world experiences
    from millions of flights. Of course, the FAA has built up a very large
    bureaucracy over this time in order to carry out its regulatory duties:
    some 50,000 employees. In 1996 the Congress even took away the FAA's
    job of ``promoting'' aviation so it could focus on doing its regulatory
    and airspace management jobs more effectively, allowing more passengers
    to fly more places more safely and affordably.
        All of these facts disqualify the aviation side of the FAA from
    providing the modest, enabling regulatory framework that the sub-
    orbital RLV industry needs during its formative years.

    But isn't the FAA in charge of regulating launch vehicles too?

        Yes, and that is an Executive Branch mistake Congress should fix.
    The Commercial Space Launch Act created a separate Office of Commercial
    Space Transportation reporting directly to the Secretary. A misguided
    attempt to ``flatten'' government in 1995 ended up transferring OCST
    into the very organization the CSLA's sponsors never wanted involved in
    regulating space transportation, namely the FAA. OCST is now the Office
    of the FAA Associate Administrator for Commercial Space Transportation,
    but this 50-person office's de jure independence is de facto
    circumscribed by living inside a 50,000 person bureaucracy. To be sure,
    there may be some unplanned synergies or efficiencies made possible by
    this situation, but those have been demonstrably overwhelmed by the
    legal, bureaucratic, and cultural barriers to effective action this
    reorganization created.
        As witnesses testified on July 24th, the mere possibility that a
    sub-orbital RLV company might have to win regulatory approval of both
    the aviation and space launch sides of the FAA has already delayed or
    prevented private investment in this industry.

    How can Congress fix this confusion?

        First and foremost, the Congress needs to confirm its original
    intent in enacting the CSLA. All commercial space transportation
    ventures--including sub-orbital RLVs carrying human space flight
    participants--should be regulated by one organization that also has the
    mandate (and temperament) to promote the growth and competitiveness of
    the industry as a whole.
        Enacting into law the FAA's recently-published definitions of
    ``sub-orbital rocket'' and ``sub-orbital trajectory'' will give clear
    regulatory jurisdiction to the FAA's Associate Administrator for
    Commercial Space Transportation. Those (and other useful) definitions
    are already contained in H.R. 3245, and must be preserved in the final
    enacted legislation.

    Do any RLV companies prefer the aviation side of FAA to the space side?

        No. One funded RLV developer has loudly complained that he should
    be allowed to fly a sub-orbital RLV as easily as he has flown earlier
    experimental aircraft, i.e., with minimal government oversight.
    However, he has applied for a launch license. No credible industry
    official claims it would be easier to obtain commercial aircraft type
    certification for revenue-earning operations carrying space flight
    participants than it would be to get a launch license.

    So are experimental aircraft rules easier for flight-testing of RLVs?

        They may be easier to get than a launch license, but they don't
    allow for the kind of flight profile even early sub-orbital RLVs will
    display. For one thing, RLVs will fly faster than the speed of sound,
    and eventually at hypersonic speeds. FAA environmental rules do not
    allow experimental aircraft to do so without a special waiver.
        More importantly, the legal regimes under which aircraft and
    spacecraft operate are completely different. The Warsaw Convention
    limits private and public liability for aviation accidents. The U.N.'s
    Space Liability Convention makes the ``launching state'' (i.e.,
    government) wholly liable for damage caused by any space object. Should
    the U.S. government allow a private RLV developer to incur
    international liability for taxpayers without having to obtain a
    federal launch license?
        (See also my attached October 27, 2003, Space News column.)

    What about expertise in regulating passenger flights?

        Some inside the FAA's Office of Regulation and Certification (FAA/
    AVR), which oversees airplanes and airlines, have said they should have
    a role in licensing of passenger-carrying RLV flights, because only
    they have expertise in passenger regulation. This is precisely the sort
    of regulatory confusion that stifles private investment in sub-orbital
    RLVs.
        Actually, the only governmental organizations with experience in
    regulating human space flight are NASA, Russia's Rosaviacosmos, and the
    emergent Chinese space program. And the only nation with expertise in
    commercial human space flight is Russia. So FAA/AVR has no claim to
    relevant expertise.
        Obviously, the federal role in sub-orbital RLV flights carrying
    space flight participants cannot be as laissez-faire as the wholly
    unregulated days of airplane barnstorming. However, OCST (also known as
    FAA/AST) is perfectly capable of working with industry to set license-
    specific standards for training and medical qualification, as called
    for in H.R. 3245. AST does not need AVR looking over its shoulder.

    What's this ``indemnification'' thing, anyways?

        Because the U.S. government and rocket companies are both liable
    under international law for damages caused by a space transportation
    accident, the Congress created a risk-sharing regime for so-called
    ``excess third party claims'' in its 1988 amendments to the CSLA.
    Usually referred to as indemnification, the regime provides for the
    following mutual protection. First, industry has to buy liability
    insurance or demonstrate financial resources to pay the ``maximum
    probable loss'' (MPL) from a licensed launch or re-entry activity, and
    to use this coverage to protect the Federal Government from its legal
    exposure. In exchange, the Federal Government promises to indemnify the
    launch operator for up to $1.5 billion in ``excess claims'' above the
    MPL, after which the launch operator's financial responsibility
    continues.

    Why did the Congress create this regime?

        After the Challenger accident in 1986, national policy decided to
    transfer the launch of all commercial and most military and civilian
    satellites from the Space Shuttle to the nascent commercial ELV
    industry. However, industry wasn't willing to ``bet the company'' by
    assuming total liability for the improbable (less than one in ten
    million) but huge losses that could result from a catastrophic launch
    accident. So far the regime has worked well, and never cost the
    government a penny.

    Should the government indemnify space tourist rides, though?

        First of all, the government is not protecting a sub-orbital RLV
    company from a lawsuit by its customer in the event of a tragic
    accident. Those ``second party'' liability issues will be handled by
    contractual cross-waivers and insurance.
        Second, and more importantly, the government currently indemnifies
    U.S. entertainment companies that launch direct broadcast satellites on
    Ukrainian rockets by the Boeing-led Sea Launch consortium. Is fostering
    private investment in domestic reusable launch vehicles any less in the
    national interest than ``subsidizing'' people who watch the Playboy
    channel via satellite?

    How should the government protect RLV ``passengers''?

        The very use of the word passenger, instead of the term used by the
    International Space Station partnership and in H.R. 3245--space flight
    participant--conveys an inappropriate notion of everyday
    transportation. Sub-orbital RLV flights are, we all hope, going to
    become frequent and affordable opportunities for people to experience
    space flight, but they are not--at least not initially--going to be a
    means of transportation between points A and B.
        Furthermore, these are inherently new kinds of vehicles. They
    certainly aren't aircraft, but they also are very different from
    traditional ICBM-derived ELVs. Nobody has the knowledge base to write
    the level of safety regulations for RLVs that existed for aircraft even
    50 years ago, because we haven't flown many (or arguably any) RLVs yet.
        That said, no one expects sub-orbital RLVs to enjoy (or endure) the
    same two-plus decades of laissez-faire that existed for the early
    aviation industry. America is less risk-tolerant in 2003 than 1903, and
    commercial human space flight will not be granted an exception to
    cultural reality.
        What the Federal Government can and should do is foster the
    gathering of knowledge that will lead to safer vehicles by allowing
    persons to voluntarily assume an informed risk in order to achieve
    their dream of experiencing space flight. That requires that the
    government take an affirmative role in requiring each RLV operator to
    propose vehicle-specific training and medical requirements during the
    license application process, as well as mandating the disclosure of the
    safety record of the RLV type to space flight participants before they
    can be carried for revenue.
        This is a common-sense, evolutionary approach that will allow
    government and industry to both learn how to promote safety, instead of
    trying to arbitrarily impose safety ahead of time.

    What, if anything, would you change about H.R. 3245?

        Frankly, the legislation as written provides most if not all
    required statutory authority and jurisdictional clarity to help enable
    a growing sub-orbital RLV industry. Of course, there are other current
    or potential governmental barriers to success that could be addressed
    in legislation.
        First and foremost is the issue of further empowering OCST to its
    job of regulating and promoting the U.S. commercial space
    transportation industry by moving it out of the FAA and creating it as
    a separate modal administration within the Department of
    Transportation. I cannot imagine a stronger signal of political support
    for this industry than for Congress to decide that industry merits its
    own distinct Commercial Space Transportation Administration, with a
    Presidentially-appointed and Senate-confirmed Administrator that
    reports directly to the Secretary of Transportation.
        Not only would a CSTA be free of jurisdictional interference from
    OCST's more powerful siblings inside the FAA, but more importantly it
    would be free of the FAA's dominant bureaucratic and hyper-regulatory
    culture.
        To some extent, Section 4 of H.R. 3245 invites the Secretary of
    Transportation to take executive action that would produce this very
    result. By directing the Secretary to propose an enabling regime which
    promotes as well as regulates the nascent commercial human space flight
    industry, the Congress is setting forth the appropriate ``performance
    requirements'' that could justify a ``separate modal administration''
    design solution. Arguably the existing language is sufficient, and may
    be as far as the Congress is willing to go at this time.

    Anything else?

        My second suggestion would be to authorize and direct OCST to
    create a less burdensome licensing process for the experimental flight
    test of RLVs. Available only to non-revenue, developmental flights,
    this regime could be modeled on the FAA's minimalist regulation of
    experimental aircraft. Certainly OCST could be encouraged to waive or
    reduce those requirements which do not impact on public safety and
    which are within its control.
        However, the largest single burden in the licensing process is not
    any requirement created by OCST itself, but rather the legally-imposed
    mandates of the National Environmental Policy Act (NEPA). Because
    issuing a launch, re-entry, or site operator license constitutes a
    ``major federal action,'' an environmental assessment of the cumulative
    impact of the licensed space transportation activity must be conducted
    before the license can be issued.
        It is this requirement that forces Elon Musk's company, SpaceX, to
    pay to count the sea lions near the Vandenberg Air Force Base launch
    site, as he testified to on July 24th. It is this requirement that
    could cost space ports hundreds of thousands of dollars before a single
    RLV flight can take place from their isolated location. It is this
    requirement that leads a few to wish they could launch RLVs under the
    ``categorical exemption'' (or ``CATEX'') provided to aviation under the
    NEPA.
        There is no way Congress could or would absolve OCST (and the sub-
    orbital RLV industry) from its NEPA responsibilities. But Congress
    could, conceivably, take two affirmative steps. First, legislation
    could direct OCST to use all available resources to pursue a CATEX for
    RLV operations with other federal agencies. Of course, there are no
    guarantees here, and a strong legislative solution would trigger a
    referral to committees more concerned about protecting the EPA's (and
    their) jurisdiction than commercial space transportation.
        The other option would be to take the same approach but seek a
    waiver of NEPA or other lessening of the environmental assessment
    burden only for research and development (i.e., experimental flight
    testing) of RLVs. Because these test flights could be more constrained
    (in location and quantity), presumably the environmental impact would
    be much more limited in amount and duration.
        Of course, the issue is not actual environmental impact (all
    licensed launches have had a Finding of No Significant Impact), but the
    NEPA's requirement of a lengthy and costly assessment for both the
    launch activity and the launch site, include all possible future
    licensed activities at the site. That burden should not be levied on
    non-revenue R&D activities.
        Perhaps it would be possible for the Science Committee, given the
    Chairman's and Ranking Member's senior positions on two other
    committees of relevant jurisdiction, to explore possible solutions to
    this problem over the next few months. However, I would not recommend
    that this issue slow down passage of H.R. 3245 beyond early 2004.

    Conclusion

        On behalf of the emerging commercial sub-orbital RLV industry, let
    me once again state my appreciation for the time and attention given
    these issues by the Subcommittee. H.R. 3245 as introduced is an
    excellent start at crafting enabling bipartisan legislation that will
    help this industry create huge economic, scientific, and even national
    security benefits for the United States. Hopefully the Full Committee
    on Science can hold a perfecting mark-up very early next year, followed
    by House passage, conference, and enactment into law as soon as
    possible.

         A ``CLEAN SHEET'' PERSPECTIVE ON PROMOTING AND REGULATING THE
                        COMMERCIAL SPACE FLIGHT INDUSTRY

                                 Gary C. Hudson
                                October 28, 2003
        For the purposes of this white paper, I will generally assume that
    the current space flight promotional and regulatory structures of the
    United States Government (USG) do not exist. While naive, a thought
    experiment that allows for the possibility of a ``do-over'' positively
    serves to focus our attention on first principles rather than waste
    time and effort parsing existing rules and regulations.
        I make one initial assumption: that it is in the interest of the
    Congress and the American people to foster a healthy, growing space
    flight industry. Like the history of its predecessor, the air travel
    industry, the benefits seem obvious: the more frequently we fly and the
    more varieties of machines we fly, the lower the cost per flight. This
    is the way we will learn about making space flight safe and reliable
    and the result will be increased economic potential for the Nation.
    When we fly both frequently and safely, we begin to implement the
    dreams of a true commercial space frontier that generates wealth and
    helps provide for our future prosperity and security.
        However, the desire to fulfill international treaty obligations and
    to protect public safety has led us to a cul-de-sac in the road to a
    hopeful future. We have stumbled in our ability to promote the space
    flight industry, imposing an unclear, overly bureaucratic regulatory
    environment that is stiffing innovation, progress and commerce. We need
    to rethink our approach from first principles; that is the purpose of
    this white paper.
        The key question is how do we get from our present condition (no
    routine, affordable space flight) to a robust, innovative industry that
    creates new technologies and new commercial opportunities for our
    citizens? I believe the answer is to emulate the model that has given
    the United States--and with it the World--safe and cheap air travel.
    The process that has been used for the past one hundred years to bring
    us to the era of modern air travel can be profitably analyzed and
    adapted to provide the same boon for commercial space flight.
        First I will discuss promotion of the industry, since the matter
    can be dealt with fairly expeditiously and because there is little
    debate about the desirability of some degree of industry promotion.
        Industry Promotion. If we ask the ``first principles'' question,
    ``why should the USG promote commercial space flight?'' the simplest
    answer is to help U.S. companies employ, grow and generate revenue. If
    we assume that no entity currently exists to promote commercial space
    flight, how would the nascent commercial space flight industry best be
    served? Responsibility for promotion of commercial activities resides
    principally within the USG Department of Commerce. Such promotion is
    helpful only to the extent that it produces substantive results
    assisting U.S. companies in identifying opportunities and penetrating
    new markets. While there is tremendous potential to promote the growth
    of commercial space markets, including space tourism, the bulk of the
    current market for space launch services is in sales to the USG. The
    establishment of a DOC Office of Commercial Space (OCS) chartered to
    assist commercial space enterprises in doing business with other
    elements of the USG would provide the first step. We could consider
    this a ``one-stop-shop'' to assist companies in identifying USG
    business opportunities such as bidding on launches or spacecraft that
    serve USG needs.
        To be clear, I am thinking of this office as an advocate for the
    companies rather than as a contracting office. For example, NASA is
    obligated by statute to purchase commercial space transportation
    services if offered by private entities rather than to develop its own
    systems. In the absence promotion and awareness, NASA routinely flouts
    this law. A Commerce Department Office of Commercial Space should be
    tasked by the Congress to insure that NASA and other USG agencies meet
    their statutory obligations. This will open opportunities for existing
    and emerging companies to provide commercial space transportation
    services as the Congress envisioned. Since emerging space flight
    companies do not have the resources to challenge taxpayer-financed
    legal departments at organizations such as NASA, the only fair way to
    exert real leverage on behalf of the emerging industry is to use
    government lawyers to deal with government lawyers. Hopefully just the
    threat of such a challenge would be enough to ensure it never reach the
    stage of legal action, and most matters would be addressed at the level
    of interagency policy board interactions.
        DOC OCS would also administer any incentive programs that the
    Congress might establish in the future. For example, loan guarantees
    and insurance indemnifications have been proposed or passed previously.
    Without addressing the merits of either, I would assign the DOC OCS the
    responsibility for administering such programs. Likewise, should the
    Congress ever decide to establish prizes or other incentive programs of
    any kind, DOC OCS would be the point of interface and administration.
        Industry Regulation. If we then approach the question of regulation
    from first principles we have to ask the question: ``why regulate?''
    After all, Jefferson was famous for teaching ``that government which is
    best, governs least.'' The air travel industry experienced it's ``barn
    storming'' era and operated for over 20 years before the creation of
    the Civil Aeronautics Administration in 1926.
        It is believed by some that ``licensing'' by the USG of private
    actions in space (including space flight) is required to meet our
    obligations under the Outer Space Treaty. From first principles, one
    might question the desirability of continuing to adhere to an archaic
    and restrictive international agreement promulgated principally by
    diplomats of the former Soviet Union at the height of the Cold War.
    Their goal was to limit the ability of Western countries with free
    societies from maximally exploiting the benefits of private space
    flight. Asking for repeal of the Outer Space Treaty seems beyond the
    charter of this white paper, but we can fulfill the letter of the
    Treaty through a very mild regulatory regime. So, in the final
    analysis, the Outer Space Treaty alone is no bar to a sensible and
    adequate regulatory environment. I argue that a generic ``approval''
    process, which does not rise to the level of a major or significant
    federal action, can provide the international fig leaf necessary for
    treaty compliance. Addition of an insurance requirement with the USG as
    a ``named insured'' can solve the liability issue created by the
    Treaty.
        Past USG legislation refers to three specific elements that warrant
    establishment of regulatory oversight of space flight operators. First,
    and most obvious to virtually all observers is public safety. In
    addition, ``national security'' and ``foreign policy interests'' are
    also called out as justification. I will deal with public safety
    momentarily, but first it is helpful to address the other two issues,
    since they can be linked.
        Much bad law is promulgated in the name of ``national security.''
    The best national security comes from a technologically vibrant and
    healthy growing economy. We can best defend ourselves when we are both
    rich enough to pay for the best defense, and when we can employ the
    most capable technology in our defense. Often time we damage our
    security and our international competitiveness in the name of
    ``national security'' and ``foreign policy interests.'' The matter of
    export controls comes to mind. While this is not the forum for that
    particular debate, it needs to be recalled that the European Ariane
    program exists almost exclusively because, for ``national security and
    foreign policy'' reasons thirty years ago we elected to reject a French
    application to launch a Symphonie dual use communication satellite on
    an American booster. This decision led directly to the creation of the
    Ariane and its capture of half of the world launch market for two
    decades. Rejection did not make us any more secure than we would have
    been had we made a decision that would have prevented a united Europe
    from funding a highly competitive and subsidized commercial
    launcher.\1\ And it hurt us badly from a commercial launch business
    viewpoint.
    ---------------------------------------------------------------------------
        \1\ In a perfect world, I would not unduly restrict the overseas
    transfer of finished space launch components or systems (these being
    different than the technology or know-how to fabricate same) to
    countries who have shown they are not a near- or long-term threat to
    the U.S. (How to make this distinction? As historians note, no liberal
    democracy has ever gone to war against another. Let the Department of
    State certify acceptable countries and the matter is solved.)
    ---------------------------------------------------------------------------
        The need to act with regard to rockets and public safety is a far
    less controversial issue. One hundred years of air travel has resulted
    in a busy, crowded airspace that requires coordinated efforts to
    maintain safety. Few would argue that some form of regulatory oversight
    is reasonable. At the same time, few voices currently call for any but
    third-party protection. (First parties are the vehicle operators.
    Second parties are passengers or ``space flight participants.'' Third
    parties are people with no relationship to the activity. Once the
    industry is mature, some degree of protection for second parties
    comparable to that in operation for civilian transport aircraft will be
    appropriate, but that time is decades in the future.)
        Thinking from ``first principles,'' let us bound the public safety
    problem by asking the question ``why do we need the USG to regulate
    third party protection for space flights?'' What is the risk to the
    public if all forms space flight were completely unregulated by the
    USG? We face many of our current problems because of our inability to
    understand risk, and our perception is that it is high. Lack of a
    technical understanding of how space vehicles operate and how much
    damage they can cause seems at the root of this problem. The problem is
    further exacerbated by the way we visualize failure. Specifically, if
    one sees the explosion of a launcher, that explosion fills the screen
    of our television, simply because the cameraman is doing his job. This
    drama hides the truth. Insurance statistics, as evidenced by market
    rates of third party liability insurance, tell the real truth. No third
    party is injured in these failures! No third party was injured by the
    breakup of the Columbia, even though 200,000 pounds of debris fell over
    several states. So low was the risk that humans would be harmed, that
    only about 40 percent of the orbiter was even recovered; 60 percent
    burned up or fell and will never be found. And this is not merely the
    luck of the draw. Analysis of the impact to human life if the breakup
    had occurred one orbit later, placing it above Dallas-Fort Worth, has
    shown essentially identical results.
        A number of constraints are present already on any space flight.
    For the vast majority of sub-orbital or orbital flights, space flight
    is an expensive proposition. The cheapest space flights are ones that
    do not go to orbit. In this case, a few efforts are currently underway
    to build small X-prize-class sub-orbital launchers. Yet the cheapest of
    these cost a few million to a few tens of millions of dollars, not a
    sum to be spent by irresponsible individuals or organizations. There
    are airspace restrictions imposed by the FARs. One can't simply build a
    rocket in the suburbs and launch from one's driveway. Another
    constraint is insurance. Suppliers often choose not sell propellant,
    avionics and other materials to builders who appear to lack common
    sense or minimal third party liability insurance. Even today, some X-
    prize contenders can't purchase the propellants they require because
    the manufacturers are afraid of liability, not from third parties, but
    from the flight crew or operator's employees who might sue if injured
    in ground or flight test. These and similar constraints on wild or
    irresponsible behavior are acting totally in the absence of any
    burdensome USG regulation.
        Under FAR 101, provision existed for unmanned rocket flight
    approval by local FAA offices with only a fraction of current AST
    oversight requirements. In fact, we know this approach works, since
    many quite large amateur rockets, not to mention the U.S.'s first
    commercial rocket in 1981 and another in 1982, operated in a regulatory
    environment of exactly this nature. No injuries to any third parties
    resulted from this lightly regulated activity prior to the creation of
    Office of Commercial Space Transportation in 1984.
        However, assuming that meeting our obligations under the Outer
    Space Treaty demands some further USG oversight, an option might be for
    the USG to establish minimum third party insurance requirements in
    order to obtain ``approval'' to operate space vehicles. Establishing
    this standard is straightforward--such calculation is a minor part of
    current licensing. The amounts set for ``maximum probable loss'' have
    so far been eminently reasonable, usually well below $100 million. This
    amount is readily available on the world market. I myself bought a
    comparable amount of third party liability insurance for less than
    $100,000 in 1981. I bought this insurance, not because of a USG
    mandate, but rather because our customer asked us to do so. (Note that
    I am not talking about ``launch insurance'' or that type of insurance
    that protects a spacecraft owner from launch failure and pays a claim
    if the launch vehicle fails to deliver the spacecraft to the desired
    orbit. There is a limited pool for such insurance, and premiums are
    very much higher than for third party liability insurance.) These
    premiums reflect the market knowledge that there has never been a third
    party claim of any magnitude in the history of Western space launch
    programs.
        Once a maximum probable loss calculation was performed by the
    designated regulatory entity, I would recommend that it be reviewed and
    approved or at least concurred with by the aforementioned DOC OCS. This
    safeguard would prevent unreasonable regulators from subverting the
    process. I would also recommend that the entity setting the insurance
    standard be required to make the determination in writing within 30
    days of a request for a determination, that the term of the
    determination be for a period of at least five years with a review at
    the one year mark to allow for the lowering of the requirement if the
    record of the vehicle or system so warrants, and that a appeals process
    including the DOC OCS be included in the law. Finally, a
    Congressionally set upper bound on the determination is needed, perhaps
    to be set at $500 million. However, no taxpayer-funded indemnity should
    be provided for amounts that exceed the Congressional upper limit. To
    do otherwise simply removes the incentives of third party plaintiff to
    settle any claims for reasonable amounts.
        It is tempting to stop here and not explore more involved
    regulatory oversight of the type we currently see. But if we desire
    more oversight, at a minimum the scope and force of the regulation
    should be limited in keeping with the real, and not the imagined risk,
    posed by commercial space vehicles. It should be comparable to
    regulations imposed on equivalent vehicles in a similar industry.
        Every year, thousands of new experimental aircraft are licensed by
    the FAA via a one-page ``experimental'' type certification application,
    in addition to a one-hour or shorter inspection often times conducted
    by an FAA Designated Airworthiness Examiner who might not even by a
    government employee. Many of these aircraft crash each year. Usually
    pilots and passengers are killed and occasionally third parties as
    well. Experimental type certification applies equally to small home-
    builts, converted war-birds as big as a B-17, exotic aircraft built for
    research purposes and even jumbo jets prior to completing ``standard''
    type certification that allow them to be sold and operated in passenger
    revenue service.
        It is easy to show that the economic promise of the commercial
    space industry exceeds that of amateur built aircraft whose owners
    currently use the experimental type certification process. (I am not
    denigrating the social or economic value of these thousands of amateur-
    built aircraft, but simply making the point that the total dollars
    currently generated by commercial space launch already exceeds the
    market size of the home-builts by a substantial fraction. Once a
    growing space flight industry expands, that disparity will become even
    more obvious.) Since a third party casualty or fatality is just as hurt
    or dead if injured or killed by a Lancair-IV crash as they would be if
    they were the victim of an out of control SpaceShipOne, there is a
    gross disparity in the law if we treat space flight vehicles
    differently from experimental aircraft. Our failure is in our
    perception of an accident event, not in the results.
        It is no challenge to say that space flight vehicles fail more
    often. Perhaps that is true; the casualty numbers suggest it is also
    irrelevant. Injured is injured, dead is dead. One might contend that
    space launch vehicles make bigger smoking holes in the ground, and thus
    have a higher potentiality for damage than a home-built. But this is
    also misleading. It is true that most (but by no means all) space
    flight vehicles carry flammable fuel (usually the same as commercial
    jets use) and oxidizers (such as the liquid oxygen that is stored in
    large tanks outside of every hospital in this country) and the
    unplanned mixing and combustion (or rarely detonation) of these
    propellants can be spectacular. Yet it should be remembered that most
    explosions of space flight systems are planned; they are the result of
    the system working, and the termination of flight in this manner
    prevents unmanned rockets from going where they are not wanted. It is
    quite rare that a rocket blows up on its own due to a systems failure;
    even so it is not unusual for such a problem to occur even with
    certificated passenger airliners, i.e., TWA 800 that suffered a fuel
    tank explosion, or several other similar accidents. The mere fact that
    rockets can produce larger explosions than some experimental aircraft
    does not change the fact that at any conceivable launch rate over the
    next few decades, with any imaginable failure rate, they can never
    exceed the currently acceptable casualty losses of the existing
    experimental aviation community.
        The space launch industry labors under another burden not faced by
    experimental aircraft operators. When a developer wishes to design and
    build a new aircraft, no mater how big, fast or dangerous it may be,
    there is no requirement for any involvement of the National
    Environmental Protection Act. By creating a licensing regime specific
    to launch vehicles (as distinct from the approval process for aerospace
    vehicles controlled under the FARs), the USG has introduced the wild
    card of ``Major Federal Action'' now interpreted as requiring an
    environmental review, assessment or impact statement for each launch
    license. For the few dozen licenses issued to date, the results of
    these reviews have always been ``FONSI'' or Finding of No Significant
    Impact. The Congress can mandate that enough is enough and that no
    further review will be required for each license, or they can dispense
    with licensing altogether and simply designate launch systems as
    aerospace vehicles already exempt from NEPA under the FARs, not
    requiring such review. Millions of dollars continue to be wasted
    conducting these time-consuming reviews that have no measurable
    benefits. (The FAR already cover launch systems of all types, by
    definitions long-standing. An aircraft, according to the FAR, is a
    device that flies through the air under power. Power plant is
    irrelevant. Finally, the FARs also define what a rocket is. These
    definitions date from 1963.) So where do we go from here?
        The establishment of OCST was promoted on the grounds that it would
    streamline a chaotic approval process. At the time, some alleged that
    as many as nineteen federal agencies had regulatory authority over
    launchers. While that number never proved to be anything but a sound
    bite, and flying in the face of approvals that had been granted to
    previous large commercial rockets a few years earlier, it is true that
    some USG entities did propose rather tortured interpretations of their
    regulatory authority. The most notorious was the Department of State,
    which proposed to regulate launches under the export control provisions
    of ITAR. It is necessary to make certain that these spurious claims do
    not resurface, and it may be that legislation will be needed to further
    clarify the situation. The details are beyond my scope for the moment,
    but will deserve near-term attention when and if any of the ideas in
    this memo are implemented.
        My recommendation is to dis-establish FAA/AST and to let the FAA
    local FSDOs once again control unmanned rocket flight under FAR 101 as
    was done prior to the creation of OCST in 1984. Insertion of a maximum
    probable loss calculation and third party insurance requirement into
    FAR 101 would be trivial. There would be no measurable impact on the
    safety of the public, but we would save $11 million per year now spent
    on AST or more than $100 million in the next decade alone.
        But, what about piloted reusable space vehicles that carry
    passengers? They can also be handled quite simply. The chief objection
    that many have had to dis-establishing FAA/AST and giving all its
    functions to FAA/AVR is that experimental aircraft cannot be operated
    for hire and that full standard type certification is too expensive for
    new operators. Given that the Congress can direct the FAA to change any
    provision of the FARs, a simple solution would be to provide permission
    for any experimental aircraft to be operated for hire, provided the
    passenger is fully informed of the risks, the aircraft is not operated
    as a scheduled transportation service under part 121 of the FARs\2\ and
    the maximum probable loss calculation for third partly liability
    insurance is applied. This approach eliminates the claim that under AVR
    new operators would not be able to achieve the early revenues needed to
    attract investors and fund vehicle improvements. The industry can be
    allowed to operate this way for some designated number of years--the
    barnstormers era--and then evolve an appropriate regulatory environment
    as experience is gained and the industry matures. Based on our
    experience with the development of the air travel industry, I suggest a
    period of twenty years until this provision sunsets.
    ---------------------------------------------------------------------------
        \2\ If the FAA/AVR objects to this provision, they can be reminded
    that they are currently letting owners of experimental aircraft hire
    out experimental aircraft to flight instructors who then use them for
    pilot training. A sub-orbital or even orbital ``space flight
    participant'' can easily assume equivalent risk as a student pilot. A
    suitably controlling definition might also be developed that doesn't
    permit experimental aerospace craft to be flown for hire unless they
    are designed to operate over >50 Km altitude, to insure that only space
    vehicles benefit from this provision.
    ---------------------------------------------------------------------------
        Different provisions for piloted and unpiloted vehicles should be
    handled in the same way that FAA currently handles UAVs and piloted
    aircraft. Once deemed operational, vehicles will be flown--not on
    individual ``launch licenses''--but instead after the filing of a
    flight plan in the same way an aircraft operator files for IFR
    operation. This is also how the FAA intends for UAVs to be integrated
    into the National Airspace System.
        In this way the barnstorming phase of the commercial space industry
    can be nurtured, with demonstrably no new risk to the public, while
    providing an easy transition from experimental operations to early
    revenue service for ``informed consent space flight participants.''
    Ultimately the industry would be fully integrated into the successful
    air transport enterprise that has provided the benefits of air travel
    to all Americans.
        In the next few decades we would be able to amend that phrase to
    ``the benefits of air and space travel.''

    Implementation

        Specific steps that should be taken to implement the philosophy
    espoused by this memo are:

            1)  Dis-establish the current AST organization. End the
            practice of launch licensing.

            2)  Confirm that unmanned rockets fall under the purview of the
            FAR 101 and that piloted rockets of all types fall under the
            FARs for experimental certification.

            3)  Confirm that to operate any unmanned rocket or piloted
            rocket, an operator need only obtain permission from the FAA
            per either FAR 101 for unmanned systems or applicable FARs for
            piloted vehicles.

            4)  Establish that experimental aerospace vehicles can be
            operated for hire with limitations to focus this provision on
            human space flight if deemed necessary.

            5)  Confirm that launch, space flight, operation to or on other
            celestial bodies and re-entry are not exports for the purposes
            of export control regulations. Further confirm that no other
            permits, licenses or approvals are required from the Federal
            Government to operate aerospace vehicles.

            6)  Establish an advocacy office with DOC to promote and
            represent the industry especially within the Federal
            Government.

                       Prepared Statement of Jeff Greason
                           President, XCOR Aerospace

    1.  Indemnification and licensing are not and should not be linked.
        The Federal Government licenses many private activities without
    indemnifying those activities against some or all legal claims.
    Indemnification is not the quid pro quo for licensing; it is the quid
    pro quo for industry purchasing insurance that protects the government
    from the most probable third party claims.
        .Quite unlike the early history of aviation, the U.S. government
    has chosen to accept a strict liability standard for space through the
    U.N. Space Liability Convention. As Mr. Hudson pointed out in his
    November 5th testimony, that was an unwise decision and not one for
    which industry should bear the burden. That is what has driven the U.S.
    government to force companies to purchase expensive insurance in
    amounts dictated by the U.S. government. Indemnification against excess
    claims beyond Maximum Probable Loss (MPL) is a way of mitigating the
    damage done to the industry by these choices. If the government wants
    to move towards a different third-party liability regime, withdrawing
    from the Liability Convention, establishing a limited liability regime
    similar to the Warsaw Convention, and removing the requirement to
    purchase MPL insurance, then there will be no justification for (and no
    need for) indemnification.
        It has always been our belief that the launch operator is the sole
    party responsible for third party liability risk. Ms. Meredith made an
    excellent point during the November 5 hearing that this may require
    clarification. H.R. 3245 may benefit from additional language making
    clear that passengers and crew are not responsible for risks to third
    parties. In addition it also should be made clear that third party
    indemnification would not apply to passengers since they are not liable
    and are customers, rather than licensed launch operators.

    2.  Sub-orbital vehicles do not pose the same third party risks as
            current launch vehicles.
        The Federal Government has spent billions of dollars on basic
    research to make expendable launch vehicles (ELVs) possible. In
    addition the government has spent billions of dollars making sub-
    orbital vehicles possible by funding the Mercury program, X-15 program,
    sounding rocket programs and even current efforts such as DARPA's
    RASCAL and FALCON programs. Sub-orbital RLV (reusable launch vehicle)
    companies now are poised to bring the taxpaying public some return on
    that investment.
        Total third party risk from launch vehicle operations is a function
    of four factors: how reliable the vehicle is, how much destructive
    potential a vehicle has, where the vehicle flies, and how frequently
    the vehicle flies.
        Despite the fact that ELVs are `more mature,' they are not
    inherently more reliable than emerging sub-orbital RLVs concepts, and
    in fact can never be. By its very nature, each ELV is a different
    vehicle which can only be fully tested in actual use. Because of their
    high cost per vehicle, a launch provider may never conduct a single
    non-revenue test flight of a new vehicle, so there is some increased
    risk associated with early flights. It is this inherent complexity and
    risk that necessitates the so-called ``advantage'' of billions of
    dollars of federal subsidies and ``standing armies'' to provide
    oversight of ELV development and operations.
        RLVs, on the other hand, can be affordably tested in an incremental
    way. Inexpensive empirical proof of reliability can supplant expensive
    analytical assumptions about reliability. Furthermore, over time an
    individual vehicle (as well as a specific design) can establish a clear
    and well-defined reliability track record. The need to attract
    customers, plus a regulatory mandate to publish the safety record, will
    promote greater testing and deliver greater reliability for the
    industry as a whole.
        In a sub-orbital vehicle, the profit per flight is low enough that
    it takes roughly one thousand flights to make back the vehicle
    replacement cost. Therefore, anyone with hull loss probability worse
    than one per thousand flights would go bankrupt very quickly. Simple
    economics dictate that vehicle reliability will be at least ten times
    that of the ELV industry.
        Because they are so much larger, carry more fuel, and require much
    more performance, ELVs can cause much greater damage from a worst-case
    accident than would a sub-orbital RLV. In fact, the huge potential for
    damage mandates the current systems approach to ELV safety: destroy the
    vehicle (and payload) before any observed failure can worsen and lead
    to catastrophic consequences. RLVs, on the other hand, can and will be
    designed to ``fail safe.''
        Related to this is the issue of where ELVs and RLVs will fly. Many
    ELVs are launched from Cape Canaveral, and their launch operations are
    regularly constrained by that spaceport's closeness to significant
    population centers along the East coast of Florida. Sub-orbital RLVs,
    on the other hand, will initially be able to fly in restricted airspace
    over sparsely populated terrain. They will only begin to overfly more
    populated areas after they have built up significantly greater
    reliability than is possible for ELVs.
        Lastly, the notion that the frequency of sub-orbital RLV flights
    will somehow outweigh all the other factors and therefore create more
    total risk than for ELVs is patently false. First, sub-orbital RLV
    flight frequency will be lower during the initial flight test regime.
    But more importantly, it is the frequency of sub-orbital RLV flights
    that creates both higher and more precisely-definable reliability.
    Furthermore, each time a RLV flies it risks not only the mission value
    but also the capital asset value of the RLV. Since one flight will only
    earn back a fraction of a percent of the RLV's construction or
    replacement cost, simple economics will mandate reliability at least an
    order of magnitude greater than ELVs.

    3.  Increased sub-orbital flights will strengthen the 3rd party
            liability insurance industry for space transportation, not
            threaten it.
        With fewer than 20 launches per year the current space insurance
    industry has economic factors that are inherently unique. Most insured
    industries have many times more insurable events. For example, millions
    of homeowners have fire insurance. Therefore the risk is spread out
    over many policies. Anything that increases the number of insured
    events in the space transportation industry will lower, not increase,
    the risk to the insurers. The more flights, the greater the usefulness
    of actuarial methods for assessing risk. This will make it easier for
    the insurance industry to set rates appropriate to the actual
    demonstrated level of risk.
        Sub-orbital RLVs, whether passenger-carrying or not, are already
    held to extensive regulations to ensure their third-party liability
    risk is no greater than that of ELVs. No changes from the current AST
    approach is needed for this, and the risk of insurance claims is no
    higher for incrementally testable sub-orbital RLVs than for ELVs.
    Indeed, many types of failures that have destroyed ELVs would only
    abort the mission for an RLV.

    4.  The Federal Government has a compelling public interest in
            fostering a sub-orbital RLV industry.
        There is a perception that commercial human space flight and sub-
    orbital RLVs are a ``single use'' technology; that they will fly a few
    rich tourists and have no other application or benefits. That is
    incorrect.
        In the beginning, only the rich owned automobiles. The nascent
    airline industry likewise only carried the rich, and the airmail.
    Opening up any new market is a boon first to the wealthy customers
    (including DOD and NASA), then to a greater audience. A new ability to
    fly reusable rocket vehicles will benefit the entire space
    transportation industry and the U.S. government's strategic goals in
    space. Since the U.S. government has its own space launch capabilities
    (Shuttle, Titan, and now EELV), the primary benefit the government
    receives from commercial ELV operations is support of the industrial
    base. The more commercial activity, the less the U.S. government has to
    pay to maintain these capabilities and infrastructure. Sub-orbital RLV
    efforts will create private support for the aerospace industrial base.
    This is in addition to the benefits of high technology job creation
    resulting from a vibrant RLV and commercial human space flight
    industry. Indeed, while the workforce of the existing aerospace
    industry is aging, it may be critical to the continued competitiveness
    of the United States in aerospace that we foster the creation of
    exciting new aerospace industries such as commercial human space flight
    that will once again attract the best engineers and technicians.
        Second, there is a clear U.S. government requirement for sub-
    orbital RLV capabilities. In civilian space, microgravity and science
    payloads have flown on expendable sub-orbital rockets since the
    beginning of U.S. space efforts and that activity continues today.
    Budget constraints have cut back sounding rocket flights in recent
    years. Adding low cost, reusable commercial sub-orbital capability will
    restore this research tool. In military space, current DOD efforts such
    as the RASCAL and FALCON programs employ sub-orbital components, some
    reusable and some expendable, for satellite launch and for sub-orbital
    delivery of military packages or munitions. Commercial RLVs will
    develop the technology base for DOD systems of the future, at no cost
    to the taxpayer. Industry can only develop these capabilities if
    customers pay for them; and human space flight participants can provide
    that critical customer base. Initial flights will be expensive because
    vehicle development will have to be paid for, therefore the revenue
    will come from customers who can afford a high price.
        Third, if commercial human space flight is allowed to proceed, it
    will soon enter the normal development cycle of ever-increasing safety
    and efficiency that we see in all other areas of technology. Early
    aircraft, cars, computers, VCRs, and televisions were at first all very
    expensive. The research and development were funded by the initial
    customers who paid a high price for them. If nobody had paid that high
    initial price, these commodities would have never developed into their
    current ubiquitous cheapness and utility. The United States government
    has funded space technology development for more than 40 years, yet
    access even to brief space experiences remains a distant dream for U.S.
    citizens. Allowing industry to offer space flight to risk-tolerant
    adventurers means that soon ordinary citizens can realize their dreams
    in space. This will also open a new frontier for the United States and
    for all humanity.

    5.  The regulatory and promotional functions of AST are not in
            conflict.
        It is true that AST has two distinct public policy goals:
    protecting public safety AND enabling a competitive U.S. commercial
    space transportation industry. These goals are not so much in conflict
    as they are complementary. Since frequent early failures would damage
    the industry, it is in the industry's interest to work towards greater
    reliability.
        Furthermore, effective streamlined regulation is often the best way
    to enable an emerging industry, just as the early aviation industry
    approached the Federal Government seeking regulation during the 1920s.
    The primary ``promotional'' activity of AST is to develop regulations
    which protect public safety without killing the industry. Without a
    promotion responsibility AST would have absolutely no need to consider
    the burden to the industry while developing regulations. If safety is
    the sole concern, not allowing anyone to fly is a legitimate approach.
        Commercial aviation went from 1926 to 1995 with the same agency
    carrying the promotion and regulation mission. Clearly this did not
    pose a major threat to public safety, and it did result in a successful
    and safe aviation industry.

    6.  While the government may take steps to promote safety, space flight
            participants must be responsible for their own risk and must
            decide how much risk is acceptable to them.
        Sub-orbital trips are not a ride at Disneyland (fake adventures
    meant to mimic real-world adventures). Sub-orbital rides are similar to
    climbing mountains or scuba diving: real adventures with their own
    inherent risks the participant willingly takes, in order to have a
    once-in-a-lifetime experience.
        However, we are not advocating a ``hands off'' policy. The Federal
    Government can and should take steps to set us on the road towards
    ever-increasing participant safety. Setting a specific level of safety
    now will result in either setting the requirement too low, removing
    incentives to push safety as hard as possible, or too high, crippling
    the industry. Indeed, different vehicle concepts will have different
    initial safety records that may not reflect their potential in well-
    developed systems.
        Requiring vehicle operators fully to disclose safety records
    facilitates continuous safety improvement without falling into the trap
    of a single one-size-fits-all standard that will ultimately fail to
    ensure passenger safety. At the November 5 hearings, Mr. Duffy
    correctly pointed that most accidents on launch vehicles happen in the
    first three flights. Reusable Launch Vehicles will probably fly ten
    times that number before the first passenger-carrying flight. This is a
    great virtue of RLV's low reflight cost: a level of demonstrated
    reliability that the ELV industry simply cannot afford.
        Barring additional massive government spending, the only way to get
    the sub-orbital industry off the ground is to allow companies to
    innovate and take risks. A single accident could wipe out a company,
    but not a robust industry with multiple launch operators. By making
    safety records public, customers will gravitate to the safest
    providers. It was not until 1934 that public disclosure of accident
    causes was required of aviation; space vehicles already have accidents
    investigated by NTSB and disclosed. H.R. 3245 in its current form,
    requiring public disclosure of a carrier's safety record, imposes on
    the space industry a safety measure resisted by air carriers for
    decades during the early history of aviation.
        All three current RLV launch license applicants plan a substantial
    flight test program; Scaled Composites has already done many flights of
    their test program and plans many more, XCOR has done 15 flights of a
    test vehicle developed for the purpose of flight-testing technology and
    laid out plans for a more extensive test program for their sub-orbital
    vehicle in their license application to AST. The fear that space flight
    participants would somehow fly on an untested vehicle is unfounded, and
    forcing disclosure of safety records will drive less-safe vehicles from
    the market.

    7.  It is neither necessary nor desirable to address all possible
            future concerns in H.R. 3245 today.
        Some critics of H.R. 3245 have raised additional issues for
    consideration or pointed out that H.R. 3245 does not address all
    problems which may arise in the future. While we agree that H.R. 3245
    does not address all possible future concerns, we see no reason for it
    to do so. The Commercial Space Launch Act of 1984 has been amended
    before and it will be amended again. During the history of aircraft
    regulation, the legal structure governing regulation changed many
    times. It is inevitable that as the industry develops and lessons are
    learned, the regulation and the law governing the industry will change.
    It is enough for H.R. 3245 to address the immediate concerns raised by
    the emergence of commercial human space flight and sub-orbital RLVs;
    the future will undoubtedly develop differently than we expect. The
    important thing is to create a good initial framework on a timely
    basis, and we believe H.R. 3245 meets this test very well.

    8.  Commercial human space flight is far from mature; it is just about
            to begin.
        While government efforts have carried humans into space since 1961,
    true commercial human space flight has yet to begin, and that early
    state of the industry must be kept in mind in considering H.R. 3245.
    Currently, astronauts aboard NASA vehicles face a risk one million
    times greater than the risk faced by passengers on commercial aircraft.
    Government space flight efforts rest on expendable or semi-expendable
    craft in which major elements are newly manufactured for each flight
    and, by their nature, cannot be tested in a realistic environment
    before use. It is the absence of such testing which makes quality
    control in ELVs such a demanding task requiring the resources of a
    large organization. Given that background, it is not surprising that in
    the 40 years of government human space flight there has been little if
    any significant improvement in safety.
        Simple economic necessity will drive the operators of RLVs to a
    higher safety requirement than government space flight efforts. Unlike
    governments, private companies simply cannot afford a high rate of
    loss-of-vehicle accidents; if vehicles crash often and must be
    substantially repaired or replaced, the company will go broke. Previous
    space technology has never been driven to meet commercial requirements
    such as not throwing away expensive assets, and we have not yet seen
    even the beginning of progressive improvement in safety. Therefore, we
    truly are starting from scratch: we have the resource of the
    technologies developed over the last 40 years, but not the benefit of
    an operational track record in relevant systems. The last 40 years of
    expendable launch vehicle technology bear the same relationship to RLVs
    as vacuum tubes did to transistors; the basic circuit principles were
    similar, but the implications for system design were very different.