[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.
