[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]


 
                           FUTURE MARKETS FOR
                            COMMERCIAL SPACE

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON SPACE AND AERONAUTICS

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 20, 2005

                               __________

                           Serial No. 109-10

                               __________

            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
RALPH M. HALL, Texas                 BART GORDON, Tennessee
LAMAR S. SMITH, Texas                JERRY F. COSTELLO, Illinois
CURT WELDON, Pennsylvania            EDDIE BERNICE JOHNSON, Texas
DANA ROHRABACHER, California         LYNN C. WOOLSEY, California
KEN CALVERT, California              DARLENE HOOLEY, Oregon
ROSCOE G. BARTLETT, Maryland         MARK UDALL, Colorado
VERNON J. EHLERS, Michigan           DAVID WU, Oregon
GIL GUTKNECHT, Minnesota             MICHAEL M. HONDA, California
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland         RUSS CARNAHAN, Missouri
W. TODD AKIN, Missouri               DANIEL LIPINSKI, Illinois
TIMOTHY V. JOHNSON, Illinois         SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia            BRAD SHERMAN, California
JO BONNER, Alabama                   BRIAN BAIRD, Washington
TOM FEENEY, Florida                  JIM MATHESON, Utah
BOB INGLIS, South Carolina           JIM COSTA, California
DAVE G. REICHERT, Washington         AL GREEN, Texas
MICHAEL E. SODREL, Indiana           CHARLIE MELANCON, Louisiana
JOHN J.H. ``JOE'' SCHWARZ, Michigan  VACANCY
MICHAEL T. MCCAUL, Texas
VACANCY
VACANCY
                                 ------                                

                 Subcommittee on Space and Aeronautics

                   KEN CALVERT, California, Chairman
RALPH M. HALL, Texas                 MARK UDALL, Colorado
LAMAR S. SMITH, Texas                DAVID WU, Oregon
DANA ROHRABACHER, California         MICHAEL M. HONDA, California
ROSCOE G. BARTLETT, Maryland         BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma             SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia            BRAD SHERMAN, California
JO BONNER, Alabama                   JIM COSTA, California
TOM FEENEY, Florida                  AL GREEN, Texas
MICHAEL T. MCCAUL, Texas             CHARLIE MELANCON, Louisiana
VACANCY                                  
SHERWOOD L. BOEHLERT, New York       BART GORDON, Tennessee
                BILL ADKINS Subcommittee Staff Director
                 ED FEDDEMAN Professional Staff Member
                  KEN MONROE Professional Staff Member
                 CHRIS SHANK Professional Staff Member
               ROSELEE ROBERTS Professional Staff Member
         RICHARD OBERMANN Democratic Professional Staff Member
                      TOM HAMMOND Staff Assistant


                            C O N T E N T S

                             April 20, 2005

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

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

                           Opening Statements

Statement by Representative Ken Calvert, Chairman, Subcommittee 
  on Space and Aeronautics, Committee on Science, U.S. House of 
  Representatives................................................     9
    Written Statement............................................    10

Statement by Representative Mark Udall, Ranking Minority Member, 
  Subcommittee on Space and Aeronautics, Committee on Science, 
  U.S. House of Representatives..................................    10
    Written Statement............................................    11

Prepared Statement by Representative Sheila Jackson Lee, Member, 
  Committee on Science, U.S. House of Representatives............    12

                                Panel I:

Mr. Burt Rutan, Scaled Composites, LLC
    Oral Statement...............................................    13
    Written Statement............................................    17
    Biography....................................................    22

Mr. Will Whitehorn, President, Virgin Galactic
    Oral Statement...............................................    23
    Written Statement............................................    26
    Biography....................................................    28

Discussion
  5-10 Year Commercial Space Industry Outlook....................    29
  Regulatory and Approval Process................................    30
  Similarities to Airlines.......................................    31
  Export Controls and Tech Transfer..............................    33
  Economics of Commercial Space..................................    35
  Safety Concerns................................................    37
  Return-to-Flight...............................................    39
  NASA Aeronautics...............................................    40

                               Panel II:

Mr. Elon Musk, Chairman and CEO, Space Exploration Technologies 
  (SpaceX)
    Oral Statement...............................................    44
    Written Statement............................................    46
    Biography....................................................    47

Mr. John W. Vinter, Chairman, International Space Brokers
    Oral Statement...............................................    47
    Written Statement............................................    49
    Biography....................................................    51

Mr. Wolfgang H. Demisch, President, Demisch Associates, LLC
    Oral Statement...............................................    51
    Written Statement............................................    54
    Biography....................................................    55

Dr. Molly K. Macauley, Senior Fellow and Director, Academic 
  Programs, Resources for the Future
    Oral Statement...............................................    56
    Written Statement............................................    58
    Biography....................................................    64

Discussion
  Cost of Access to Space........................................    64
  Emerging Space-based Markets...................................    68

             Appendix 1: Answers to Post-Hearing Questions

Mr. Burt Rutan, Scaled Composites, LLC...........................    72

Mr. Will Whitehorn, President, Virgin Galactic...................    77

Mr. John W. Vinter, Chairman, International Space Brokers........    78

Mr. Wolfgang H. Demisch, President, Demisch Associates, LLC......    80

Dr. Molly K. Macauley, Senior Fellow and Director, Academic 
  Programs, Resources for the Future.............................    81

             Appendix 2: Additional Material for the Record

Statement of Herbert F. Satterlee, III, Chairman and Chief 
  Executive Officer, DigitalGlobe, Inc...........................    84

Statement of Peter H. Diamandis, President and CEO, X Prize 
  Foundation.....................................................    90


                  FUTURE MARKETS FOR COMMERCIAL SPACE

                              ----------                              


                       WEDNESDAY, APRIL 20, 2005

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

    The Subcommittee met, pursuant to call, at 9:35 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Ken 
Calvert [Chairman of the Subcommittee] presiding.



                            hearing charter

                 SUBCOMMITTEE ON SPACE AND AERONAUTICS

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                           Future Markets for

                            Commercial Space

                       wednesday, april 20, 2005
                          9:30 a.m.-12:00 p.m.
                   2318 rayburn house office building

Purpose

    On Wednesday, April 20, at 9:30 a.m., the Subcommittee on Space and 
Aeronautics will hold a hearing to examine the future of the commercial 
space market and the government's role in that future. Last year, the 
President signed into law the Science Committee's Commercial Space 
Launch Amendments Act, which dealt with regulating one aspect of 
commercial space--private, human sub-orbital flights, which are 
generally intended for space tourism.
    The first panel at the hearing will examine the potential for space 
tourism, with a focus on last year's successful flights by 
SpaceShipOne, the world's first privately-built and human-piloted 
spacecraft.
    Built by famed aircraft developer Burt Rutan, SpaceShipOne last 
year won the Ansari X-Prize, a $10 million kitty raised by space 
enthusiasts to stimulate entrepreneurial interest in space flight. 
Rutan's ship was the first to fly to an altitude of more than 100 
kilometers twice in two weeks, beating 25 other teams from seven 
countries.
    Virgin Galactic, founded by the Virgin entertainment and airline 
company owner Richard Branson, has announced plans to buy a fleet of 
spacecraft based on SpaceShipOne's design to carry tourists into sub-
orbital space (an altitude not sufficient to orbit the Earth), possibly 
as early as 2008.
    The second panel will examine the potential of the wider commercial 
space market, which includes rockets to launch satellites and the 
satellites themselves, which provide services ranging from beaming 
images of landscapes and weather patterns, to global communications and 
entertainment. The commercial space market has had a spotty record of 
success. The government is very involved in the commercial space market 
in a variety of ways, including providing permits for launches and 
insuring private parties against catastrophic accidents. Perhaps most 
significantly, the government is a leading purchaser of both satellites 
and launch services.
    Another potential aspect of the commercial market--private 
provision of services for the National Aeronautics and Space 
Administration (NASA) to service the International Space Station--will 
not be a focus of this hearing.

Witnesses:

FIRST PANEL:

Mr. Burt Rutan founded his company Scaled Composites, Inc. in 1982. For 
SpaceShipOne's achievements, Mr. Rutan this month received the Collier 
Aerospace Trophy, the most prestigious prize in aeronautics.

Mr. Will Whitehorn is the President of Virgin Galactic and Group 
Corporate Affairs and Brand Development Director for Virgin Management 
Limited.

SECOND PANEL:

Mr. Elon Musk is the CEO and Chief Technology Officer of Space 
Exploration Technologies (SpaceX) in El Segundo, CA. He formerly 
founded two Internet companies, PayPal and Zip2 Corporation.

Mr. John W. Vinter is Chairman of the International Space Brokers 
(ISB). ISB represents nine of the twenty satellite companies in the 
world and is the only insurance broker that is focused exclusively on 
the space industry.

Mr. Wolfgang Demisch, the founder of Demisch Associates, LLC, is an 
aerospace financial analyst.

Dr. Molly Macauley is a Senior Fellow and Director of Academic Programs 
at the Resources For the Future.

Overarching Questions:

    The Committee will focus on the following questions at the hearing:

        1.  What is the outlook for the various aspects of the 
        commercial space industry over the next five to ten years?

        2.  What should the government do or not do to encourage the 
        nascent commercial space industry?

        3.  How can the commercial space industry avoid some of the 
        pitfalls that have led to unrealized expectations in the past?

Background:

The Rise of Commercial Space Industry and the Role of Legislation
    From the dawn of the space age through much of the 1980s, 
governments dominated efforts in space. Governments financed and owned 
most satellites, which were launched on government-owned vehicles, 
including the Space Shuttle.
    The Challenger accident in 1986, however, helped spur private 
sector ownership of both satellites and launch vehicles. After the 
Challenger accident, for example, government agencies, particularly the 
Department of Defense, viewed the Space Shuttle as too risky to be the 
sole launch vehicle for U.S. Government payloads and began looking for 
alternatives.
    The Science Committee passed the Commercial Space Launch Act (CSLA) 
of 1988, which required NASA to purchase launch services for satellites 
from private companies rather than purchasing the launch vehicle 
itself. The CSLA ensured a market for the nascent launch industry by 
requiring the government to be a customer.
    The CSLA also provided another element intended to foster the 
success of the new industry--indemnification against catastrophic 
accidents. Because a single launch failure had the potential of causing 
billions of dollars of damage should the debris fall on populated 
areas, the private sector argued that no private insurance company 
would offer coverage to a satellite company or launch provider unless 
the government agreed to indemnify (that is, pay for) at least a 
portion of the potential damages.
    The CSLA indemnifies companies for catastrophic losses--losses 
above the amount of damages that private insurers calculate to be the 
maximum probable loss (for which private insurers themselves provide 
coverage) to a ceiling of $1.5 billion. While there is debate over 
whether indemnification is necessary as the satellite launch industry 
matures, Congress last year, led by the Science Committee, extended the 
indemnification provisions of the CSLA through December 31, 2009.
    The CSLA also established a permitting process within the Office of 
Commercial Space Transportation (known as AST), now housed within the 
Federal Aviation Administration (FAA), for all private commercial 
launches.
    Last year, as SpaceShipOne became the first privately funded, 
developed, and operated spacecraft to carry a person into sub-orbital 
space, the Science Committee passed legislation designed to foster a 
commercial space tourism industry. The Commercial Space Launch 
Amendments Act of 2004 gave AST explicit authority to permit launches 
with humans on board and provided guidance on how to use that 
authority. One key provision created a new kind of permit that would 
facilitate flights by experimental vehicles, modeled on the regime 
another part of FAA uses to regulate airplanes. (That part of FAA is 
known as AVR.) Another key provision limited the extent to which AST 
could regulate passenger safety in the near-term. (A summary of the Act 
is attached.)
The Challenges Faced by Commercial Space Industries
    Commercial space industries today include communication satellite 
developers (including radio, television, and telecommunications), 
launch service providers (whose customers include the government), 
satellite imagery companies, and perhaps soon, space tourism companies 
like Virgin Galactic and companies servicing the International Space 
Station.
    One of the first challenges these companies face is securing 
financing. Space assets are expensive, and launching into space is 
fraught with risk. One or two launch failures can drive a company into 
bankruptcy. Finding investors is thus very difficult for new entrants 
in the space business, who frequently must court risk-seeking, ``angel 
investors'' rather than relying on more established financing firms.
    Space industries must also secure insurance. But there are limits 
to the private pool of insurance available, which can pose a challenge 
to newcomers to the space business, who necessarily lack a track record 
to demonstrate their reliability to insurers. Moreover, costly failures 
in one portion of the space industry can affect the availability of 
insurance for the rest.
    Perhaps the greatest challenge commercial space industries face is 
capturing a market large enough to sustain them. Unfortunately, their 
history of success in doing so has been spotty. The commercial 
satellite imagery or remote sensing industry has failed to develop as 
originally expected. But satellite radio seems to be gaining in 
popularity despite the abundance of free competition on more 
traditional airwaves.
    Still, markets can be elusive. For example, optimism for 
communications satellite manufacturers ran high in the 1990s when 
markets opened in China and the former Soviet states, where there was 
little permanent communications infrastructure. Three U.S. companies 
raced to take advantage of the seemingly boundless opportunities. 
Iridium, a Motorola spinoff based in Chicago, was the first company in 
the race. It launched 66 communications satellites into orbit. Next was 
Globalstar, which had planned to launch 48 satellites.
    But the ground-based cell phone industry was quicker. Its 
penetration into the former Soviet and Chinese markets soon rendered 
Iridium's and Globalstar's investments practically useless. Iridum's 
assets were ultimately sold to a group of private investors, which 
continue to own and operate Iridium today. (The Department of Defense 
continued to use Iridium throughout the change in ownership.) A third 
company, Teldesic, had planned to launch 288 satellites, but could not 
attract enough investors after the failure of Iridium and Globalstar.
    As satellite producers saw their fortunes fade so did those 
companies who had hoped to put those satellites into orbit. Lockheed 
Martin and McDonnell Douglas had earlier invested large sums, aided by 
the government, to develop a new generation of launch vehicles. Boeing 
launches Sea Launch and the Delta series of rockets (obtained when 
Boeing took over McDonnell Douglas), and Lockheed launches the Atlas 
series of rockets. The Europeans have a competing Ariane rocket.
    Unlike the Space Shuttle, these rockets are used only once, so they 
are known as Expendable Launch Vehicles (ELVs). The most advanced of 
the Atlas and Delta class vehicles, developed with the U.S. Air Force, 
are known as Evolved Expendable Launch Vehicles (EELVs). Elon Musk is 
developing a series of rockets dubbed Falcon, which he believes will 
launch at a significantly lower cost.
    With the decline of the satellite industry, the rocket 
manufacturers were left with too few customers to easily recoup their 
costs. That has raised the cost of launches to the government. The 
recently released White House Space Transportation Policy is designed 
to find a way to provide enough business to keep two competing U.S. 
entities in the launch market. NASA's pending decisions on how to 
launch its scientific satellites and on how to launch the planned Crew 
Exploration Vehicle would affect the market.
SpaceShipOne
    Burt Rutan's SpaceShipOne is an effort to open a new aspect of the 
commercial space market--space tourism. Rutan had to complete two 
consecutive successful flights to earn the X-Prize. Those flights were 
not trouble-free. The vehicle rolled 29 times during the first flight; 
the vehicle shook but had only a ``little roll'' during the second 
flight, according to the pilot. No one was injured in either case.

Questions Asked of the Witnesses:

    In their letters of invitation, the witnesses were asked to address 
the following questions in their testimony:
Mr. Burt Rutan:

        1.  What is the future of your commercial SpaceShipOne program 
        and do you see other customers beyond Virgin Galactic?

        2.  What should the government do or not do to encourage 
        commercial space endeavors?

        3.  If you develop other vehicles, where would you expect to 
        find investors? Do you think the traditional investors of Wall 
        Street are likely to step forward?

        4.  As you move into the commercial world, how do you expect to 
        be able to get insurance coverage?

Mr. Will Whitehorn:

        1.  When does Virgin Galactic plan to take ownership of the 
        five SpaceShipTwos that it has ordered from Scaled Composites? 
        How soon do you expect to be flying? When do you expect to make 
        a profit?

        2.  What is different in preparing to take ownership of a fleet 
        of spaceships vs. Virgin Atlantic taking ownership of a fleet 
        of airplanes?

        3.  What preparation are you engaged in for the commercial use 
        of these vehicles?

        4.  What, if anything, should the government be doing or not 
        doing to encourage commercial space?

Mr. Elon Musk:

        1.  What business plan do you have to make your launch vehicle 
        a success in the commercial market?

        2.  What do you see as the outlook for commercial space 
        activities in the next five years? The next ten years?

        3.  What, if anything, should the government do or not do to 
        encourage the nascent commercial space industry?

        4.  Are there implications for the commercial space industry as 
        you see it in the President's announced Vision for Space 
        Exploration?

Mr. John H. Vinter:

        1.  What kind of activities does your company include for 
        insurance purposes in its definition of ``commercial space?''

        2.  As insurance brokers, what do you see as the outlook for 
        commercial space activities in the next five years? The next 
        ten years? How do you think we can avoid exaggerated 
        expectations for the industry, such as those that occurred in 
        the low-Earth orbit (LEO) market in the late 1990s?

        3.  What, if anything, should the government do or not do to 
        encourage commercial space endeavors?

Mr. Wolfgang Demisch:

        1.  Considering some of the difficulties in the past for 
        commercial space business, (the low-Earth orbit launches 
        anticipated for Iridium, Teledesic, etc.) and the slow growth 
        of the commercial remote sensing industry, what is your outlook 
        for this nascent commercial space launch business and how do we 
        avoid the failures of the past?

        2.  In the entrepreneurial commercial space arena, when would 
        you expect traditional Wall Street investors to become classic 
        ``risk-reward'' investors, in place of the ``angel'' investors 
        that we see today?

        3.  What, if anything, should the government do or not do to 
        encourage commercial space endeavors?

Dr. Molly Macauley:

        1.  What kinds of activities would you include in ``commercial 
        space?''

        2.  Is the U.S. the leader in ``commercial space?'' How does it 
        compare with the status of international commercial space?

        3.  What do you think the government should do or not do to 
        encourage commercial space?

        4.  What do you see as the outlook for commercial space 
        activities in the next five years? The next ten years?

APPENDIX

             Commercial Space Launch Amendments Act of 2004

    H.R. 5382, the Commercial Space Launch Amendments Act of 2004, is 
designed to promote the development of the emerging commercial human 
space flight industry by putting in place a clear, balanced regulatory 
regime.
    The Act assigns to the Secretary of Transportation jurisdiction 
over commercial human space flight and requires the Secretary to craft 
a streamlined experimental certification process for sub-orbital 
reusable launch vehicles. The Secretary of Transportation must ensure 
that only one license or permit is required to conduct human space 
flights. By its licensing or permitting of flights, the United States 
does not certify the safety of the flights for passengers or crew.
    The Act requires the Secretary of Transportation to protect the 
uninvolved public when licensing commercial human space flights. The 
Act also requires that crew receive training and satisfy medical 
standards. Space flight participants must undergo appropriate medical 
exams and training requirements, and must provide written informed 
consent for their participation. For the first eight years after 
enactment of the legislation, the Secretary of Transportation may issue 
regulations governing the design or operation of a launch vehicle only 
if the design or operation has indicated likely safety problems through 
operational experience.
    The Act extends the existing liability indemnification regime to 
the commercial human space flight industry, but excludes launches under 
an experimental permit.

                         SUMMARY OF H.R. 5382,

             Commercial Space Launch Amendments Act of 2004

    Introduced by Mr. Rohrabacher (CA) and co-sponsored by Mr. Boehlert 
(NY) and Mr. Gordon (TN)
    Key features of the Act include:

          The Act will make it easier to launch new types of 
        reusable sub-orbital rockets by allowing the Secretary of 
        Transportation to issue experimental permits that can be 
        granted more quickly and with fewer requirements than licenses;

          Under the Act, permits will allow an unlimited number 
        of experimental flights, rather than requiring a license for a 
        single launch or small number of launches;

          The Secretary of Transportation must ensure that only 
        one license or permit is required to conduct human space 
        flights;

          The Act will require the Secretary of Transportation 
        to issue regulations for crews relating to training and medical 
        condition;

          The Act will limit requirements for paying passengers 
        (or ``space flight participants'') a medical exam, training, 
        and to being informed of the risks of their participation and 
        providing written, informed consent;

          By its licensing or permitting of flights, the United 
        States does not certify the safety of the flights for 
        passengers or crew;

          For the first eight years after enactment of the 
        legislation, the Secretary of Transportation may only issue 
        regulations governing the design or operation of a launch 
        vehicle if the design or operation has indicated likely safety 
        problems through operational experience;

          The Act will require paying passengers to execute 
        waivers of liability with the Federal Government; and

          The Act will extend the existing liability 
        indemnification regime to commercial human space flight 
        launches, but the bill will not grant indemnification for 
        flights conducted under experimental permits, which will be 
        more lightly regulated.
    Chairman Calvert. Good morning.
    Pursuant to notice, I hereby call this meeting of the Space 
and Aeronautics Subcommittee to order.
    Without objection, the Chair will be granted authority to 
recess the Committee at any time. Hearing no objections, so 
ordered.
    Today, we are going to examine the future of the commercial 
space market. We are going to have two panels. The first will 
examine the success of the world's launch, the hopes of our 
nascent commercial space industry that led to a robust market 
for space tourism.
    Burt Rutan's SpaceShipOne is a manned, reusable launch 
vehicle that has successfully flown twice in two weeks carrying 
the equivalent of three people. His team won the X-Prize in 
October, and last night, his team was awarded the 2005 Collier 
Trophy, congratulations, which recognizes those who have made 
the most significant achievement in the advancement of 
aviation.
    Joining him will be Will Whitehorn, President of Virgin 
Atlantic. Virgin Atlantic will be buying the first fleet of 
five of a derivative of these spaceships that takes space 
tourists into sub-orbital space.
    On the second panel, we have Mr. Elon Musk, the CEO of 
Space Exploration Technologies, or SpaceX. I was most impressed 
with the work his folks are doing when I was touring his 
facility in El Segundo. His company is developing a new family 
of launch vehicles, the Falcon. He will offer his insights on 
the business plan and how he intends to emerge as a success in 
this commercial space business.
    Also, on this panel will be Mr. John Vinter, the Chairman 
of International Space Brokers. He will offer guidelines that 
the insurance community requires for those start-up companies 
and how they must compete with the established aerospace 
companies for insurance coverage.
    Our third panelist is Mr. Wolfgang Demisch, a pre-eminent 
expert and financial analyst in the aerospace industry.
    And finally on this panel, we will have Dr. Molly Macauley, 
a Senior Fellow and Director of Academic Programs at the 
Resources for the Future. Dr. Macauley will examine what the 
government should do or not do to encourage this start-up 
commercial space industry. She will give her predictions on how 
the industry will look in five to 10 years.
    The history of success in the commercial space arena has 
been spotty at best. Today, I want to see how the government 
can be an enabler rather than a hindrance to this important, 
high technology industry. I am proud of the bill that this 
committee was able to get enacted last year, the Commercial 
Space Launch Amendments Act, which Congressman Rohrabacher 
worked very hard to get passed. This committee has had a 
history of interest in the commercial space industry, and I 
plan to continue that interest. I am hoping that we will glean 
information today that will be valuable as we put together our 
NASA authorization in the very near future.
    I look forward to working with the new Administration, Mike 
Griffin, on this objective. I look forward to hearing from our 
witnesses today on this very important topic.
    [The prepared statement of Chairman Calvert follows:]

               Prepared Statement of Chairman Ken Calvert

    In today's hearing, we are going to examine the future of the 
commercial space market. We are going to have two panels. The first 
will examine the success of the world's first private effort to launch 
a person into space and to launch the hopes of our nascent commercial 
space industry that may lead to a robust market for space tourism.
    Burt Rutan's SpaceShipOne is a manned, reusable launch vehicle that 
has successfully flown twice in two weeks carrying the equivalent of 
three people. Last October his team won the privately-funded $10 
million X-Prize for the development of the first private, manned 
spacecraft to exceed an altitude of 100 km twice in two weeks, and last 
night, the team was awarded the 2005 Collier Trophy, an annual award 
that recognizes those that have made the most significant achievement 
in the advancement of aviation.
    Joining Mr. Rutan on this first panel will be Mr. Will Whitehorn, 
President of Virgin Galactic. Virgin Galactic will be buying the 
inaugural ``fleet'' of up to five of the derivative vehicles of 
SpaceShipOne, named SpaceShipTwo. We are very interested in hearing 
when Virgin Galactic plans to take ownership and when they expect to be 
flying tourists into sub-orbital space.
    On the second panel, we have Mr. Elon Musk, CEO of Space 
Exploration Technologies or SpaceX. I was most impressed with the work 
that his folks were doing when I toured his facility recently in El 
Segundo, CA. His company is developing a new family of launch 
vehicles--the Falcon. He will offer his insights on his business plan 
and how he intends to emerge as a success in this commercial space 
business.
    Also, on the panel will be Mr. John Vinter, the Chairman of 
International Space Brokers. He will offer guidelines that the 
insurance community requires for those start-up companies and how they 
must compete with the established aerospace companies for insurance 
coverage.
    Our third panelist is Mr. Wolfgang Demisch, a preeminent expert and 
financial analyst of the aerospace industry. He will address the 
outlook for the commercial space launch industry as well as outline 
when space is likely to be able to attract classic risk-reward 
investors to succeed the ``angel'' investors that we see today.
    And finally, Dr. Molly Macauley, Senior Fellow and Director of 
Academic Programs at Resources for the Future, will examine what the 
government should do or not do to encourage this start-up commercial 
space industry. She will also give her predictions on how the industry 
will look in five and ten years.
    The history of success in the commercial space arena has been 
spotty at best. Today, I want to see how the government can be an 
enabler, rather than a hindrance to this important, high tech industry. 
This committee has had a history of interest in the commercial space 
industry and I plan to continue to promote commercial space. I am 
hoping that we will glean information today that will be valuable as we 
put together our NASA Authorization in the very near future. I look 
forward to working with the new NASA Administrator on this objective.

    Chairman Calvert. And with that, good morning, Mr. Udall. 
You may proceed with your opening statement.
    Mr. Udall. Thank you, Mr. Chairman.
    And good morning to all of us and all of you that are 
assembled here.
    I want to welcome the witnesses as well, and particularly 
extend my congratulations, as did Mr. Calvert, to Mr. Rutan and 
his team on winning the Collier Trophy for their efforts on 
SpaceShipOne. This is a very prestigious and well-deserved 
award, and it puts Mr. Rutan in distinguished company, 
including Orville Wright, the crew of Apollo 11 lunar mission, 
and of course Mr. Rutan himself, because I just recently 
learned that you won the award back in 1986 as well. So 
congratulations. These are impressive accomplishments, and I 
think I speak for all of us when I say we consider you a real 
national asset. And we all hope you keep working and designing 
for many years yet to come.
    Mr. Chairman, as you know, Congress, and this committee in 
particular, has long had a strong interest in promoting the 
growth of a healthy, robust commercial space sector.
    Over the years, there have been some notable successes, 
such as the development of the Nation's commercial satellite 
communications industry.
    There have also been some setbacks.
    For example, the very optimistic projections made in the 
1980's for the emergence of manufacturing in space, solar power 
satellites, and so forth, have not been realized.
    And finally, there are the commercial space transportation 
and commercial satellite remote sensing industries. These are 
industries in which there has been growth over the years as 
well as the promise of exciting new applications and markets on 
the horizon.
    At the same time, the current reality is that both of these 
industries depend significantly on government contracts to 
maintain their viability.
    While the primary focus of today's hearing is on emerging 
commercial space transportation initiatives, I hope that the 
witnesses will share their thoughts on the broader issues 
facing all commercial space companies, whether they be 
entrepreneurial start-ups or established companies fighting for 
market share.
    The question, for example, of what helps determine whether 
a potential commercial space activity succeeds or fails, and 
what should government be doing, as the Chairman mentioned, and 
equally important, what should government refrain from doing if 
it wants to promote a healthy commercial space sector.
    In that regard, I have received some written testimony 
submitted by one of the commercial remote sensing companies, 
DigitalGlobe, that addresses some of those broader issues. Mr. 
Chairman, I would ask unanimous consent that it be entered into 
the record of this hearing. (See Appendix 2: Additional 
Material for the Record, p. 84.)
    Chairman Calvert. Without objection, so ordered.
    Mr. Udall. And I want to thank you for convening this 
hearing, and I look forward to hearing from the witnesses 
today.
    Thank you.
    [The prepared statement of Mr. Udall follows:]

            Prepared Statement of Representative Mark Udall

    Good morning. I want to join the Chairman in welcoming the 
witnesses to today's hearing. And I would also like to extend my 
congratulations to Mr. Rutan and his team on winning the Collier Trophy 
for their efforts on Spaceship One.
    Mr. Rutan, that is a very prestigious and well deserved award, and 
it puts you in very distinguished company, including Orville Wright, 
the crew of the Apollo 11 lunar mission. . .and of course Burt Rutan. . 
.because as I recently learned, you had already won the Collier trophy 
for the first time back in 1986.
    That's a very impressive accomplishment, and I consider you a real 
national asset--I hope you keep working and designing for many years to 
come.
    Mr. Chairman, as you know, Congress--and this committee in 
particular--has long had a strong interest in promoting the growth of a 
healthy, robust commercial space sector.
    Over the years, there have been some notable successes, such as the 
development of Nation's commercial satellite communications industry.
    There have also been some setbacks.
    For example, the very optimistic projections made in the 1980s for 
the emergence of manufacturing in space, solar power satellites, and so 
forth, have not been realized.
    And finally, there are the commercial space transportation and 
commercial satellite remote sensing industries.
    Those are industries in which there has been growth over the years, 
as well as the promise of exciting new applications and markets on the 
horizon.
    At the same time, the current reality is that both of these 
industries depend significantly on government contracts to maintain 
their viability. . .
    While the primary focus of today's hearing is on emerging 
commercial space transportation initiatives, I hope that the witnesses 
will share their thoughts on the broader issues facing all commercial 
space companies--whether they be entrepreneurial startups or 
established companies fighting for market share.
    That is, what helps determine whether a potential commercial space 
activity succeeds or fails? What should government be doing--and 
equally importantly--what should government refrain from doing if it 
wants to promote a healthy commercial space sector?
    In that regard, I have received some written testimony submitted by 
one of commercial remote sensing companies--DigitalGlobe--that 
addresses some of those broader issues.
    I would like to ask unanimous consent that it be entered into the 
record of this hearing. Well, Mr. Chairman, we have a wide range of 
issues to consider, and I look forward to getting the perspectives of 
today's witnesses. Thank you, and I yield back the balance of my time.

    Chairman Calvert. I thank the gentleman.
    And we are joined by Mr. Rohrabacher, the former Chairman 
of this subcommittee. Do you have any short comment? I would 
comment that what he is drinking there, ladies and gentlemen, 
is the energy drink. It is----
    Mr. Rohrabacher. This is not beer.
    I figured that your leadership, Mr. Chairman, would 
energize me, but just in case, I brought Red Bull.
    Chairman Calvert. Well, it is appropriate that--at this 
hearing that you have wings. So----
    Mr. Rohrabacher. All right.
    Chairman Calvert. Without objection, the additional 
statements of other Members will be put in the written record 
so we can get right to the testimony.
    Hearing no objection, so ordered.
    [The prepared statement of Ms. Jackson Lee follows:]
        Prepared Statement of Representative Sheila Jackson Lee

Chairman Calvert, Ranking Member Udall,

    I want to thank you for organizing this important Subcommittee 
hearing to discuss the Future Markets for Commercial Space. This is one 
of those topics where we realize the future we only read about is not 
too far from reality. Commercial space encompasses a number of 
different issues, some which are still be developed and others that 
have been an integral part of our lives for quite a while now. The only 
way to advance our prospects in this field is to invest in R&D and put 
our knowledge and skills to use for improving the lives of people.
    Space tourism is a subject that seems like science fiction, but in 
fact that fiction is now close to being reality. SpaceShipOne, the 
world's first privately-built and human-piloted spacecraft built by 
Burt Rutan shows that individuals can indeed take part in space 
exploration. Rutan's ship was the first to fly to an altitude of more 
than 100 kilometers, completing the feat twice in two weeks. Now, 
Virgin Galactic has announced plans to buy a fleet of spacecraft based 
on SpaceShipOne's design to carry tourists into sub-orbital space. 
Clearly, the future is upon us, but realistically it will be many years 
before regular flights into space for individuals will be possible. 
Before we get to that stage, it is vital that we discuss all aspects of 
what this kind of space exploration will entail.
    First among our priorities must be the issue of safety for those 
who would take part in such flights to space. In discussing NASA I have 
long said that safety must be the first priority, now with the prospect 
of average citizens being propelled into space the issue of safety is 
even more paramount. I would suggest that a separate commission be 
organized to discuss the safety parameters that would need to be in 
place to make it feasible for average citizens to enter space. Clearly, 
as time goes on so will the technology that will steadily allow people 
to gain even greater access to space exploration than is being proposed 
by Virgin Galactic. In accordance, guidelines and regulations must be 
put in place to meet the risks associated with such travel. We may be 
entering a new era in individual travel, but just like the passenger 
airplane before it we must ensure the safety of all passengers.
    In regards to space tourism, it is also my belief that such travel 
should not be restricted to only the wealthy. Clearly, these businesses 
make large investments to startup such a complex operation and 
therefore huge fees must be generated to make up the costs. However, 
those who have a passion for space exploration; especially students 
should at least have a chance to experience space exploration. Of 
course, this could not be open to everyone, but even allowing a few 
individuals with lower means but high motivation to take part would be 
a wise investment. I believe in the long run this will be good for 
business and good for the science of space exploration because it will 
only increase the general public's interest in space. We must inspire a 
new generation to want to literally reach the stars, and with our new 
generation of technology this dream is more possible.
    Commercial space has long yielded great dividends in the technology 
of satellites. In today's world we would be lost and confused without 
the aid of these stations in space. However, new technology must emerge 
and the ability for more businesses to use satellite technology must be 
enhanced. Lowering the cost of producing and launching commercial 
satellites would go a long way in bringing new business and therefore 
new revenue streams in to the fold. Together with space tourism, the 
future of commercial space is bright, but we can not relent in our 
pursuit of continued development. Only when we continue to push the 
boundaries of discovery do we yield innovations that affect the lives 
of everyday people.

    Chairman Calvert. I ask unanimous consent to insert, at the 
appropriate place in the record, the background memorandum 
prepared by the majority staff for this hearing.
    Hearing no objections, so ordered.
    Today, we will begin with our first panel: Mr. Rutan and 
Mr. Whitehorn.
    Mr. Rutan, thank you for attending, and you may begin. You 
might--turn your mike on there. That little green button.

                                Panel I:

      STATEMENT OF MR. BURT RUTAN, SCALED COMPOSITES, LLC

    Mr. Rutan. Okay. Thank you very much for the opportunity to 
address the hearing.
    I will attempt to specifically answer the questions that 
showed up in the invitation.
    I want to first point out that I will use the words 
``personal space flight'' here. We tend to use that nowadays 
instead of ``space tourism.'' And personal space flight is just 
access to flight above the atmosphere by the public, generally 
inferred that it is a commercial, revenue-like business.
    I think the markets for personal space flight will take on 
two basic scenarios. The first is one in which commercial 
companies develop lower-cost versions of the classic government 
booster and spacecraft concepts and then conduct commercial 
flights that are funded by passenger ticket sales. This 
activity might properly be compared to trekking outfits that 
take courageous adventurers to the top of Mount Everest. That 
activity survives today even though more than nine percent of 
those who have reached the summit have died on the mountain and 
with the recent rate still at four percent. The safety record 
for all of government manned space flight is hardly better; 
four percent fatality rate for those who have flown above the 
atmosphere, and the fatality rate for government space flight 
for the last 20 years has been much worse than it was for the 
first 20 years.
    This first scenario's approach will result in, I think, a 
very limited market whose size will depend somewhat on the 
ticket prices. However, I do not believe this scenario will 
result in significant volume of operations, being limited by 
the same factors that limit the Mount Everest climbers. I 
believe these systems might begin commercial flight in four to 
six years, flying maybe 50 to 100 astronauts the first year, 
and I think the rate will top out at maybe 300 to 500 people 
per year.
    The second scenario is quite different. It is a scenario in 
which the players do not find the dangers of space flight 
acceptable. They recognize that extensive improvements in 
safety are more important than extensive improvements in 
affordability. Those that attack the problem from this 
viewpoint will be faced with a much greater technical 
challenge: the need for new innovations and breakthroughs. If 
successful, however, they will enjoy an enormous market, not 
one that is limited to servicing only a few courageous 
adventurers. It is likely that systems that come out of this 
approach will be more like airplanes and will operate more like 
airplanes than the historic systems that are used for 
government manned space flight.
    The future plans for my company regarding the new industry 
can not be revealed since they are only at a preliminary stage 
of technical development. They are not fixed--excuse me.
    Chairman Calvert. I apologize.
    Mr. Rutan. No problem.
    Chairman Calvert. They will go off in a second.
    Mr. Rutan. They are not fixed in business deals and, in 
general, the--when we approach these sort of things, we don't 
talk about them in the early years. So we are not ready to put 
out, in a public forum, the--any details on our plans. I could 
share that with you privately, but not publicly.
    I can assure you, however, that our plans do involve this--
do not involve the scenario one approach. Since we believe a 
proper goal for safety is the record that was achieved during 
the first five years of commercial scheduled airline service 
started in 1927. The first five years of commercial airline 
service, while exposing passengers to risks that were high by 
today's standards, were more than 100 times as safe as 
government manned space flight. Achieving that goal requires 
new generic concepts, ones that will come from true research, 
not development programs like the ones we are seeing with 
NASA's exploration plans.
    I can tell you that we do not yet have the breakthroughs 
that can promise adequate safety and costs for manned orbital 
flights. That is why our early focus will be on the sub-orbital 
personal space flight industry. Our recent SpaceShipOne 
research program did focus on the needs for safety 
breakthroughs by providing an air-launched operation in which 
the rocket propulsion is not safety critical and the ``carefree 
re-entry'' concept assures that flight control is not safety 
critical for atmospheric entry. Those are biggies, and those 
are the things that allow us to move into a commercial industry 
in the short-term.
    Another thing I can tell you is that our systems for the 
commercial private space flight industry will be focused on an 
early marketplace with multiple, competing spaceline operators 
in order to bring the experience to the largest possible 
audience. The airline experience has shown us that it is not 
just technology that provides safety, but the maturity that 
comes from a high level of flight activity. Airline safety 
increased by a factor of six within the first five years 
without an accompanying technology increase.
    I am not able to reveal the schedule for the introduction 
of our commercial systems. However, I believe that once revenue 
business begins with these new systems, it will likely fly as 
many as 500 astronauts the first year, by the fifth year, the 
rate will increase to about 3,000 astronauts per year, and by 
the twelfth year of operations, at least 50,000, maybe 100,000 
astronauts will have enjoyed that black sky view from sub-
orbital flight.
    Now that it has been shown that a small private company can 
indeed conduct robust, sub-orbital manned flights with an 
acceptable recurring cost, I do not believe that this industry 
will again be hampered by the inability to raise capital. The 
size of the potential market supports significant investment. 
The main barrier has been the perceived risk that the technical 
problems weren't solvable. Those that develop systems that have 
generic features that point to poor safety will continue to 
have trouble finding capital, as they should. Our ability to 
find funding for our research program, the one that we 
completed last year, was certainly tied to the fact that we had 
a goal of not just to fly in space, but to fly a system that 
could be immediately developed for the commercial market. We 
have had no problem finding investors for our future program, a 
program that involves the development and certification of 
commercial sub-orbital spaceships.
    I believe the ability to insure will be greatly improved if 
the government steps up to the responsibility to require an 
operator to show his passenger safety by adequate flight and 
ground testing. Clearly, insurance will be expensive until it 
is shown that the aggressive safety goals are indeed being 
achieved. With maturity, that safety will continuously improve, 
as it did with airliners.
    Over the last 33 years, my companies have developed 39 
different manned aircraft types. All were developed via 
research flight tests flown over our California desert area, 
and all flights were regulated by the FAA-AVR, which is now--
the airplane folk are who I am talking about, now AVS. We have 
never injured a test pilot nor put the non-involved public or 
their property at risk. In spite of that record, the FAA 
insisted that the Office of Commercial Space Transportation, 
AST, impose their commercial launch license process on our last 
five flights of our 88-flight research-only test program. That 
would have been fine, except that their process bore no 
relation to that historically used for research testing.
    The AST process, focusing only on the non-involved public, 
just about ruined my program. It resulted in cost overruns. It 
increased the risk for my test pilots. It did not reduce the 
risk to the non-involved public. It destroyed our safety policy 
of always question the product, never defend it. And under AST, 
it removed the opportunities for us to seek new innovative 
safety solutions. The main reason for this is that AST, with 
their history of only regulating the dangerous scenario one 
type of systems, applied the process of protecting only the 
non-involved and had no process to deal with the safety and 
prediction of failure for manned aircraft. Their process deals 
primarily with the consequence of failure, where the airplane 
folk, their regulatory process deals with reducing the 
probability of failure.
    The regulatory process was grossly misapplied for our 
research tests, and worse yet is likely to be misapplied for 
the regulation of future commercial spaceliners. The most 
dangerous misapplication might be stifling innovation by 
imposing standards and design guidelines rather than the 
aircraft certification process that involves requiring a 
manufacturer to test to show his safety margins. AST has 
already used NASA and AIAA to develop design guidelines. This 
is an approach that must not be imposed on an industry that is 
still doing basic research. The AST launch license process 
might be applicable for the protection of those on the ground 
during flights of scenario one-like systems, but it will not 
work for the portion of the industry that promises growth and 
sustainability.
    Time here does not allow me to elaborate on that, but I do 
have it included in my handout.
    The basic problem faced by the FAA in dealing with the 
regulatory tasks ahead is funding for hiring staff that are 
familiar with aircraft certification and aircraft commercial 
operations. The FAA Administrator has told me that she is 300 
people short needed for the current demands in regulating 
aircraft, thus it is impossible to shift the job of regulation 
of spacecraft, like mine, to the aircraft organization. I think 
it needs to be shifted to people who know how to regulate the 
systems that are being developed.
    This problem must be solved quickly to support an industry 
that needs a proper research environment to allow innovation. 
The problem can not be solved by adding staff at AST, since 
having more people applying the wrong process is not the 
answer. I believe they are over-staffed now to do the current 
launch license process. Much of the work done in an attempt to 
misapply the expendable booster process to our aircraft was 
repeated numerous times with a staff that were not equipped to 
make relatively easy decisions and incapable of applying the 
needed waiver process. In fact, while my company was already 
flying initial test flights and waiting for time-critical 
responses from AST during 2003 and 2004, AST found time to 
expend extensive resources processing and awarding a launch 
license to a company that did not even have a vehicle in 
construction, nor even funding for the program.
    We have spent considerable resources developing 
recommendations for specific regulatory processes to be applied 
to the new industry, that is a streamlined like certification 
for these new commercial spaceships, but we have not yet found 
interest within the FAA to consider them. We will continue our 
work to solve this problem and will hope to make progress 
within the next two years.
    I want to point out also, this sub-orbital space tourism 
industry has been criticized by some as, well, this is just 
joyrides for billionaires and that--what is this all about? It 
is about fun. I want to tell this group that I am not at all 
embarrassed that we are opening up a new industry that will 
likely be a multi-billion-dollar industry that is focused only 
on fun. I want to remind you, I--when we bought personal 
computers in the late '70s, a lot of people--you know, many 
thousands of people bought these things, and what were they 
for? Balancing our checkbook? Well, in general, they were for 
fun. The vast majority of uses on them were to play games. And 
the fact that it expanded as an industry and of something that 
we really didn't know what they were for, it left it wide open 
for somebody like Al Gore to come along and invent the 
Internet. And then, all of a sudden, the fact that it is out 
there, all of a sudden now here is an application, and the 
application is now our communication, it is our commerce, it is 
our, essentially, everything. And that was an industry in which 
the product was sold for a full decade just for fun. And I 
believe this is going to happen with space flying, also. I am 
not embarrassed that the first decade of personal space flight 
will be for nothing but fun. But I am confident that when there 
are 50,000 people that have left the atmosphere, and when there 
is a lot of capital investment on it, because it is profitable, 
all of a sudden we will get out there and we will solve the 
reasons to make it also safe to go to orbit and to go to the 
moon. And we will also find out new uses for it. There will be 
somebody that comes along and invent an Internet-like reason 
for changing this fun into something that is long lasting and 
significant for our Nation.
    Thank you.
    [The prepared statement of Mr. Rutan follows:]

                    Prepared Statement of Burt Rutan

    Thank you for the invitation to address this important hearing. I 
will attempt to specifically address the subjects outlined in the 
invitation.
    The markets for a future Personal Space Flight industry (access to 
flight above the atmosphere by the public) will likely take on two 
basic forms: The first is a scenario in which commercial companies 
develop lower-cost versions of the classic government booster and 
spacecraft concepts and then conduct commercial flights that are funded 
by passenger ticket sales. This activity might properly be compared to 
the trekking outfits that take courageous adventurers to the top of 
Mount Everest; the activity survives even though more than nine percent 
of those who have reached the summit have died on the mountain, with 
the recent rate still at four percent. The safety record for all of 
government manned space flight is hardly better; four percent fatality 
for those who have flown above the atmosphere, and the fatality rate 
for the last 20 years being much worse than the first 20 years. This 
first scenario's approach will result in a very limited market whose 
size will depend somewhat on the ticket prices. However, I do not 
believe this scenario will result in a significant volume of 
operations, being limited by the same factors that limit the Everest 
climbers. I believe these systems might begin commercial flights in 
four to six years flying maybe 50 to 100 astronauts the first year with 
the rate topping out at maybe 300 to 500 per year.
    The second is a scenario in which the players do not find the 
dangers of space flight acceptable and recognize that extensive 
improvements in safety are more important than extensive improvements 
in affordability. Those that attack the problem from this viewpoint 
will be faced with a much greater technical challenge; the need for new 
innovations and breakthroughs. If successful, however, they will enjoy 
an enormous market, not one that is limited to servicing only a few 
courageous adventurers. It is likely that systems that come from this 
approach will be more like airplanes and will operate more like 
airplanes than the historic systems used for government manned space 
flight.
    The future plans for my company regarding the new industry cannot 
be revealed since they are only at a preliminary stage of technical 
development. I can assure you that they do not involve a `scenario one' 
approach, since we believe a proper goal for safety is the record that 
was achieved during the first five years of commercial scheduled 
airline service which, while exposing the passengers to high risks by 
today's standards, was more than 100 times as safe as government manned 
space flight. Achieving that goal requires new generic concepts; ones 
that will come from true research, not merely development programs like 
the ones we are seeing with NASA's exploration plans.
    I can tell you that we do not yet have the breakthroughs that can 
promise adequate safety and cost for manned orbital flights. That is 
why our early focus will be on the sub-orbital Personal Space Flight 
industry. Our recent SpaceShipOne research program did focus on the 
needs for safety breakthroughs by providing an air-launched operation 
in which the rocket propulsion is not safety critical and the `care-
free re-entry' concept assures that flight control is not safety 
critical for atmospheric entry.
    Another thing I can tell you is that our systems for the commercial 
Private Space Flight industry will be focused on an early marketplace 
with multiple, competing spaceline operators in order to bring the 
experience to the largest possible audience. The airline experience has 
shown us that it is not just technology that provides safety, but the 
maturity that comes from a high level of flight activity. Airline 
safety increased by a factor of six within the first five years without 
an accompanying technology increase. I am not able to reveal the 
schedule for the introduction of our commercial systems. However, I 
believe that once the revenue business begins it will likely fly as 
many as 500 astronauts the first year. By the fifth year the rate will 
increase to about 3,000 astronauts per year and by the twelfth year of 
operations 50,000 to 100,000 astronauts will have enjoyed that black 
sky view.
    Now that it has been shown that a small private company can indeed 
conduct robust, sub-orbital manned flights with an acceptable recurring 
cost, I do not believe that this industry will again be hampered by the 
inability to raise capital. The size of the potential market supports 
significant investment. The main barrier had been the perceived risk 
that the technical problems were not solvable. Those that develop 
systems that have generic features that point to poor safety will 
continue to have trouble finding capital, as they should. Our ability 
to find funding for our research program was certainly tied to the fact 
that we had a goal of not just to fly, but to fly a system that could 
immediately be developed for the commercial market. We have had no 
problem finding investors for our future program that involves the 
development and certification of commercial sub-orbital spaceships.
    I believe the ability to insure will be greatly improved if the 
government steps up to the responsibility to require an operator to 
show his passenger safety by adequate flight and ground testing. 
Clearly, insurance will be expensive until it is shown that aggressive 
safety goals are indeed being achieved. With maturity I expect that 
safety will continuously improve, as it did with airliners.
    Over the last 33 years my companies have developed 39 different 
manned aircraft types. All were developed via research flight tests 
flown over our California desert area and all flights were regulated by 
the FAA-AVR (the airplane folk, now AVS). We have never injured a test 
pilot, nor put the non-involved public or their property at risk. In 
spite of that record, the FAA insisted that the Office of Commercial 
Space Transportation (AST) impose their commercial launch license 
process on the last five flights of our 88-flight research test 
program. That would have been fine, except that their process bore no 
relation to that historically used for research testing. The AST 
process, focusing only on the non-involved public, just about ruined my 
program. It resulted in cost overruns, increased the risk for my test 
pilots, did not reduce the risk to the non-involved public, destroyed 
our ``always question, never defend'' safety policy, and removed our 
opportunities to seek new innovative safety solutions. The main reason 
for this is that AST, with their history of only regulating the 
dangerous `scenario one' type of systems, applied the process of 
protecting only the non-involved and had no process to deal with the 
safety and prediction of failure for manned aircraft. Their process 
deals primarily with the consequence of failure, where the aircraft 
regulatory process deals with reducing the probability of failure. The 
regulatory process was grossly misapplied for our research tests, and 
worse-yet is likely to be misapplied for the regulation of the future 
commercial spaceliners. The most dangerous misapplication might be 
stifling innovation by imposing standards and design guidelines, rather 
than the aircraft certification process that involves testing to show 
safety margins. AST has already used NASA and AIAA to develop design 
guidelines. This is an approach that must not be imposed on an industry 
that is still doing research. The AST launch license process might be 
applicable for the protection of those on the ground during flights of 
``scenario one'' systems, but it will not work for the portion of the 
industry that promises growth and sustainability. Time here does not 
allow elaboration, so I must refer you to the handout.
    A basic problem faced by the FAA in dealing with the regulatory 
tasks ahead is funding for hiring staff familiar with aircraft 
certification and commercial operations. The Administrator has told me 
that she is 300 short in staff needed for the current demands in 
regulating aircraft, thus it is impossible to shift the job of 
regulation of spacecraft like mine for ``scenario two'' to the aircraft 
organization (AVS) who will know how to regulate the systems being 
developed. This problem must be solved quickly to support an industry 
that needs a proper research test environment to allow innovation. The 
problem cannot be solved by adding staff at AST, since having more 
people applying the wrong processes is not the answer. I believe that 
they are over staffed, to do the current launch license process. Much 
of the work done in an attempt to misapply the expendable-booster 
process to our aircraft was repeated numerous times with a staff that 
were not equipped to make relatively easy decisions and incapable of 
applying the needed waiver process. In fact, while my company was 
already flying initial test flights and waiting for time-critical 
responses from AST, during 2003 and 2004, AST found time to expend 
extensive resources processing and awarding a launch license to a 
company that did not even have a vehicle in construction, or even 
funding for the project!
    We have spent considerable resources developing recommendations for 
specific regulatory processes to be applied to the new industry, but 
have not yet found interest within the FAA to consider them. We will 
continue our work to solve this problem and will hope to make progress 
within the next two years.
    Thank you for your attention to my opening remarks. I will be happy 
to answer your questions.

             Regulation of Manned Sub-orbital Space Systems
                 for Research and Commercial Operations

    A summary prepared by Burt Rutan, Scaled Composites

Safety Requirements for the Private Spaceline Industry

          New generic solutions for safety as compared to 
        historic Government manned space operations will be mandatory

          Cannot run a Spaceline without a huge reduction of 
        current risk

Safety Goals: Airline experience as a model

          Risk statistics, fatal risk per flight

                  First 44 years of manned space flight = one 
                per 62 flights

                  First airliners (1927 & 1928) = one per 5,500 
                flights

                  Early airliners (1934 to 1936) = one per 
                31,000 flights

                  Current airliners = one per two to five 
                million flights

                  Modern military fighters = one mishap per 
                33,000 flights

          Logical goal:

                  Better than the first airliners

                  < one percent of the historic government 
                space flight risk

Different Systems Need Different Regulation Methods

          The AST Process

                  To show that the consequence of failure, 
                i.e., the expectation of casualty (Ec) for the non-
                involved public (NIP) is low.

                  Deals with systems that are historically 
                dangerous.

          The AVR (now AVS) Process

                  To show that the probability of failure (Pf) 
                is low.

                  Assures safety of crew and passengers.

                  Deals with systems that need to be reliable.

          The risk method approach by AST

                  Risk is product of failure probability and 
                consequence.

                  NIP risk with dangerous systems is assured 
                only by selection of flight area.

                  Flight crew risk with dangerous systems can 
                be addressed only by flight termination staging.

                  However, since Pf cannot be calculated for 
                immature systems, AST has no acceptable process for new 
                systems that have to be safe enough for commercial 
                passenger service.

          AST Methods for Booster-like systems

                  Computer-flown or remote operation

                  Automation that requires backup via flight-
                termination systems

                  Ground-launched

                  Safety-critical rocket propulsion

                  Un-piloted stages dropped

                  High-scatter landing

          AVR Methods for Aircraft-like systems

                  Human Piloted flight

                  Expendable-like flight-termination systems 
                are not appropriate

                  Runway takeoff

                  Rocket propulsion not safety critical

                  No ``bombing'' of hardware that presents risk 
                to NIP

                  Horizontal aircraft-like runway recovery

          If the safety approach is based on failure 
        consequence it should be regulated by AST.

          If the safety approach is based on failure 
        probability it should be regulated by AVR or by staff 
        experienced in aircraft safety assurance.

          If safety is based on both consequence and vehicle 
        reliability, then consequence should be calculated by AST, but 
        Pf must be accessed by those with aircraft safety regulation 
        experience.

Experimental Research Testing of Airplane-like Systems

          Cannot be addressed by enforcing standards or 
        guidelines--the important need is to allow innovation; to seek 
        safety breakthroughs without regulatory hurdles. Regulators 
        must not be expected to appreciate this need during a research 
        test environment.

          Pf cannot be calculated, thus historic data must be a 
        guide for approval of an adequate test area to meet Ec intent 
        for NIP.

          Environmental requirements, like for aircraft are not 
        needed, but they can be tolerated, with costs not the full 
        burden of the developer.

          The AVR waiver method for all regulations is 
        mandatory. The developer must be able to argue the equivalent 
        safety justification for non-compliance to any regulation. This 
        is critical, especially for an immature industry with 
        indeterminate technical issues.

          The AST launch licensing process is not acceptable 
        due to its costs, its hindrance of innovation and its negative 
        effect on safety policy. The AVR-EAC (Experimental 
        Airworthiness Certificate) method works and must be 
        implemented. The system is based on respect for a developer's 
        safety record and the expectation that he will follow the 
        license rules.

Certification, or Licensing Spacecraft for Commercial Sub-orbital 
                    Passenger Operations

          The manufacturer and the operator cannot accept a 
        scenario in which the FAA has no role in approving the safety 
        of crews or passengers. His responsibility to do adequate 
        testing to assure passenger safety must have acceptance by the 
        FAA. Otherwise he has no unbiased defense at trial following an 
        accident.

          Part 23 & 25 Certification are based on defining 
        conformity. Then, by test and analysis showing adequate margins 
        for the conformed vehicle. Subsequently the holder of the 
        certificate can then produce and operate unlimited numbers of 
        vehicles that conform. The main costs of certification are the 
        issues related to conformity, not the specific tests to show 
        margins.

          Any ethical manufacturer or operator must test to 
        show margins, even in the absence of any government regulation.

          However, initially the manufacturer and operator will 
        build and operate only a very small number of vehicles, thus 
        making the detailed conformity process debilitating. Also, the 
        intensity of the process would interfere with the need to solve 
        new technical problems and to maintain a ``question, never 
        defend'' posture while system technical status is not mature.

          Our proposal: an applicant seeking approval to fly 
        passengers will be required to define the tests needed to show 
        adequate margins for his design and define the required systems 
        safety analysis. He must then obtain acceptance of the test 
        plan by FAA regulators and later get acceptance that the tests 
        were satisfactorily completed. The process will be design 
        specific and repeated for each flight article.

          Conformity of the design, the tools, the systems or 
        the manufacturing process will not be required.

          A manufacturer can select the conformity process as 
        an option if he desires to avoid the individual tests of each 
        production article.

          Conformity may be mandatory after the industry 
        matures (the aircraft certification process).

Lessons from the Regulatory Process During the SpaceShipOne (SS1) 
                    Research Flight Tests

          The Tier1 test program involved 88 flights, 17 for 
        the SS1 and 71 for the White Knight. 83 of those flights were 
        licensed via an AVR-AIR-200 Experimental Airworthiness 
        Certificate. Those flights were done under the authority of the 
        EAC and directed via the information in its Operating 
        Limitations list. The EAC was in effect for the duration of the 
        program, July 2002 to October 2004.

          Five flights of SS1 were flown under the additional 
        authority of an AST Launch License. License was in effect from 
        March 2004 to October 2004.

          The 83 flights flown under the EAC involved the 
        highest risk, both to the pilots and the NIP: first flights of 
        unproven vehicles and nearly all envelope expansion, including 
        first supersonic flight of SS1 to max-q.

          The EAC flights were regulated similar to the 1,800 
        research flights conducted by Scaled on 36 aircraft types over 
        a 30-year period: we were expected to fly within the Ops Limits 
        list, and were trusted to do so. The program allowed the 
        innovation always present in aircraft research, and did not 
        interfere with our `question, never defend' safety policy.

          Development of the new safety innovations were done 
        under the EAC: the new type hybrid rocket motor, the air launch 
        and the `care-free re-entry' feathered concept.

          The EAC process provided an efficient environment for 
        exploratory testing and continued the historic research 
        aircraft record of safety for the NIP.

          The AST Launch License process enforced on the 
        remaining five flights of SS1 was a very different regulatory 
        environment. We were assured streamlining from the 
        certifications needed for commercial operations approvals but 
        were kept in the dark on specifics. The process involved a 15 
        month, three party Ec analysis that failed to arrive at an 
        adequate calculation for Pf, thus rendering the Ec 
        determination to be useless. The process was misguided and 
        inappropriate, at times resembling a type certification effort 
        and left the applicant without the basic information needed to 
        determine status. The regulators requested Ec analysis, then 
        ignored those results without informing the applicant or 
        allowing him to defend, to revise or to resubmit the data. The 
        regulators refused to reveal the government's analysis method 
        for Ec calculation. The `shell game' continued for the majority 
        of the program, resulting in a severe distraction to key test 
        personnel as well as high costs and a disregard for our safety 
        policy. The environment also precluded innovation.

          The Launch License process, as applied to the 
        aircraft research test environment resulted in increased risk 
        for our flight crews, the very people that bear the true risk 
        in experimental flight tests.

          The AST office had no waiver policy, and answered our 
        requests by a written denial from the Administrator without 
        giving the applicant the opportunity to debate or negotiate the 
        technical merits or to get an opinion from the EAC's regulatory 
        staff.

Conclusions

          An applicant for approval to fly research flight 
        tests of piloted, aircraft-like systems must have a defined 
        process, one that allows him to plan his program staffing and 
        financial needs. It is not acceptable to impose undefined, 
        inappropriate forced oversight. The specific EAC process has 
        served the industry well for decades and should be used and 
        enforced by regulators familiar with research aircraft testing.

          The Ec process, developed for protection of 
        population from the dangers of ground-launched, expendable 
        rocket boosters, is not workable for application to piloted, 
        aircraft-like systems during research tests and must be 
        replaced by the AVR method of having test-experienced 
        regulators select an appropriate flight test area for research 
        tests. The Ec process might be justifiable for commercial 
        operations, but it must be regulated by those experienced with 
        commercial aircraft operations.

          Regarding licenses to conduct commercial flights that 
        carry revenue passengers, it is not acceptable for FAA to 
        ignore the approval or acceptance of the vehicle's ability to 
        safely fly people. Regulation must be done by experienced 
        (aircraft experienced) staff.

          The acceptance of the system's probable safety can be 
        done via a vehicle-specific test requirement process for 
        structures and safety analysis for systems, rather than the 
        more expensive Type Certification process that includes full 
        conformity assurance. These processes cannot be defined in 
        advance by specification of standards or by design guidelines, 
        since every new system will have unique features. The testing 
        details and systems safety analysis process must be specific to 
        the vehicle and its intended operation. This process does not 
        have to be significantly more expensive than that which would 
        be done by any ethical manufacturer in the absence of 
        government regulation.

                        Biography for Burt Rutan

    Burt Rutan was born in 1943. He received his Bachelor of Science 
degree in Aeronautical Engineering at California Polytechnic University 
in 1965. His education includes the Space Technology Institute at Cal 
Tech and the Aerospace Research Pilot's School at Edwards Air Force 
Base. Mr. Rutan holds, in addition, the honorary degree of Doctor of 
Science from California Polytechnic State University, San Luis Obispo, 
June 1987; Doctoral of Science, honoris causa, from Daniel Webster 
College, May 1987; Doctoral of Humanities, honoris causa, from Lewis 
University, May 1988 and Doctorate of Technology, honoris causa, from 
Delft University of Technology, January 1990.
    Mr. Rutan worked for the U.S. Air Force from 1965 until 1972 as 
Flight Test Project Engineer at Edwards Air Force Base, California. His 
projects ranged from fighter spin tests to the XC-142 VSTOL transport.
    In March 1972, Mr. Rutan became Director of the Bede Test Center 
for Bede Aircraft in Newton, Kansas.
    In June of 1974, at Mojave, California, Mr. Rutan formed the Rutan 
Aircraft Factory (RAF) to develop light homebuilt aircraft. Through 
this company, the VariViggen, VariEze, NASA AD-1, Quickie, Defiant, 
Long-EZ, Grizzly, scaled NGT trainer, Solitaire, Catbird, and the 
world-flight Voyager aircraft were developed.
    In April 1982, Mr. Rutan founded Scaled Composites (Scaled) to 
develop research aircraft. Since its founding, Scaled has been the 
world's most productive aerospace prototype development company, 
developing new aircraft types at a rate of one each year. Past projects 
include the 85 percent scale Starship 1 for Beech Aircraft Corporation, 
the Predator agricultural aircraft for ATAC, the Scarab Model 324 
reconnaissance drone for Teledyne Ryan Aeronautical, the Advanced 
Technology Tactical Transport (ATTT) for DARPA, the 1988 America's Cup 
wing sail, the Triumph light executive jet for Beechcraft, the ARES 
close air support attack turbofan, the Pond Racer, the Pegasus Space 
launch vehicle flying surfaces, the Model 191 general aviation single 
for Toyota, a 40 percent scale B-2 bomber RCS model, General Motor's 
1992 show car (the GM Ultralite), the Bell Eagle Eye prototype tilt 
rotor RPV, the Earthwinds pressurized gondola, the McDonnell Douglas 
DC-X single stage rocket structure, the VisionAire Vantage business 
jet, the Raptor and Raptor D-2 high altitude RPVs for BMDO, a 40-meter 
wind generator for Zond, three NASA X-38 crew return vehicles, the 
Williams, International V-Jet II, the high-altitude Proteus aircraft, 
the Adam Model 309 business aircraft, and the Rotary Rocket Roton 
atmospheric test vehicle. Recent projects include the White Knight and 
SpaceShipOne. On 21 June 2004, with Mike Melvill at the controls, SS1 
flew history's first private manned space flight. On 4 Oct 2004, SS1 
won the $10M X-Prize (two flights within five days flown by Melvill and 
Brian Binnie). The Virgin Atlantic GlobalFlyer designed and built at 
Scaled made its maiden flight in March 2004 and a record setting solo 
world flight in March 2005.
    A few of the awards which Mr. Rutan has received include:

          EAA Outstanding New Design, 1975, 1976 and 1978.

          Presidential Citizen's Medal presented by Ronald 
        Reagan, December 29, 1986.

          Grand Medal of the Aero Club of France, January 29, 
        1987.

          National Medal of the Aero Club of France, January 
        29, 1987.

          Society of Experimental Test Pilots, 1987 J.J. 
        Doolittle Award and 2004 J.J. Doolittle Award.

          Royal Aeronautical Society, British Gold Medal for 
        Aeronautics, December 1987.

          Design News Engineer of the Year for 1988.

          Western Reserve Aviation Hall of Fame, Meritorious 
        Service Award, 2 September 1988.

          The International Aerospace Hall of Fame Honoree, 24 
        September 1988.

          Member, National Academy of Engineering, 1989.

          1987 Robert J. Collier Trophy for ingenious design 
        and development of the Voyager 15 May 1987 and again on 19 
        April 2005 for SpaceShipOne.

          National Aviation Hall of Fame Honoree, 21 July 1995.

          EAA Freedom of Flight Award, 3 August 1996.

          EAA Homebuilders Hall of Fame, 23 October 1998.

          Designer of the Year, Professional Pilot Magazine, 13 
        March 1999.

          Clarence L. ``Kelly'' Johnson ``Skunk Works'' award 
        by the Engineers Council, February 2000.

          2000 Lindbergh Award by the Lindbergh Foundation, May 
        20, 2000.

          Aviation Week & Space Technology magazine's ``Laurel 
        Legend'' and Hall of Fame in April 2002, Current Achievement 
        Award for first privately-funded manned space flight by 
        SpaceShipOne in April 2005.

          Aviation Week & Space Technology magazine's ``100 
        Stars of Aerospace'' (ranked 29th), June 2003.

          Scientific American magazine's ``Business Leader in 
        Aerospace,'' November 2003.

          Time Magazine's ``100 Most Influential People in the 
        World,'' April 18, 2005.

    Chairman Calvert. I thank the gentleman for his excellent 
testimony.
    That--Mr. Whitehorn, and I apologize, President of Virgin 
Galactic, not Virgin Atlantic. I just--it morphed in my mind, 
but----

  STATEMENT OF MR. WILL WHITEHORN, PRESIDENT, VIRGIN GALACTIC

    Mr. Whitehorn. Thank you very much, Chairman Calvert.
    Can I first of all start by moving slightly away from my 
testimony and express my total agreement with Burt Rutan's last 
comment there with regards to the reasons why personal space 
flight, as a concept, is incredibly important?
    Our belief at Virgin Galactic is that the proof of concept 
in creating a profitable business in the private sector without 
government funding to take individuals into space to experience 
the blackness of space, the curvature of the Earth, 
weightlessness, and all of the attendant things that they will 
feel and experience during their two-hour trip to space is not 
just about fun. It is certainly not all about fun for us. We 
see this is as a proof of concept, proof of the idea that it is 
possible to develop viable, reusable space systems that can be 
safe in their operation.
    As a major airline group operating three airlines around 
the world, Virgin Atlantic and its sister companies have not 
taken lightly the idea of venturing into the personal space 
flight market. There has been a lot of handling over the issue 
internally, because we have a worldwide brand and a reputation, 
and we have a reputation for safety in the commercial airline 
industry, which is second to none. In the 20 years we have been 
operating, we have not lost a single passenger. We also operate 
one of the largest rail networks in Europe operating high 
technology tilting trains, which are a new technology to the UK 
market. And we carry 50 million passengers a year in that 
business, and we haven't had a single accident or incident 
involving the death of a passenger on board.
    And for us, the principle of entering this is the principle 
of proving a concept, proving that something can be done in the 
private sector, can be done safely, and through the personal 
space flight experience of the pioneers who do pay at the 
beginning of this process, we believe within five years we can 
create a viable business, which will be profitable, and that 
would allow us to bring down the costs of personal space flight 
to levels which would be affordable across the board in the 
United States and around the world.
    I will move on now to talk a little bit about some of the 
questions that the Subcommittee put to us. You asked us about a 
timetable, and I think my answer to the issue of the timetable 
is pretty similar to Burt Rutan's. The timetable for us depends 
upon the ability to go through the process of completing the 
design of SpaceShipTwo, as we will call it for the purposes of 
today, and proving and testing the vehicle. For us, the issues 
of coming to a contract with Mr. Rutan's company to build 
SpaceShipTwo are bound up in a number of issues of bureaucracy, 
which we are not unhappy about. We believe we can cope with 
them. We have got the Defense Department and the DDTC to deal 
with over the issue of technology transfer. And that is a 
process which has to be completed before we can complete the 
design work with Burt Rutan's company and move towards a final 
contract to construct a fleet of space ships.
    But an outline, our view of the issue is that we would like 
to order at least five SpaceShipTwos, as we will call it for 
the purposes of today, from Mr. Rutan's company, and we would 
like to be in operation before the end of this decade. And we 
would like to be going through a testing process by the end of 
2007 and commercial operation by 2008, if that was possible. 
But we can not allow ourselves to be dictated to by a 
commercial need. The most important factor for us will be 
developing a safe vehicle and operating that vehicle safely. 
And if that can be proved, then we believe that we can take the 
people into space and the people want to go.
    To give you an example of where we believe the marketplace 
is for commercial space tourism, we announced the formation of 
Virgin Galactic formally before the X-Prize flights last 
September, and we, at that state, set up the marketing 
operation to market the flights. We have, since we set up, had 
29,000 applications to fly. That is 29,000 people who said they 
are willing to pay a deposit of up to $20,000 for space flights 
within a range of prices of up to $200,000. We have also had 
100 people who have actually signed terms and conditions with 
us now to pay the full cost of a $200,000 flight up front in 
order to fly in SpaceShipTwo, should that be developed. 
Clearly, if we fail to develop a viable vehicle, they will get 
their money back.
    And moving on to some of the other questions that you 
asked, and the question of profitability for us is a very 
important one. We are not doing this as a rich billionaire's 
toy adventure and as a loss leader or just as a grand 
representation. We are doing this to create a profitable and 
viable business to prove a concept. And we believe that if the 
initial work that we have done on the business plan can be met, 
that this business can be profitable within five years, and the 
cost of space flights could fall by a factor of 75 percent by 
the end of that five-year period. And the pioneers, who are 
going to be the pioneer astronauts who pay to fly commercially 
into space, will help to fund the process of making 
commercially viable personal space flight something that people 
across the country can enjoy and afford in the future.
    And you asked one of the questions about the differences 
between acquiring a fleet of commercial spacecraft compared 
with the process of buying commercial aircraft in the 
commercial airline market and our experience of both. At the 
risk of sounding trite, the short answer is that the 
differences between the process we are going to undertake with 
Burt Rutan's company and buying aircraft from Boeing are chalk 
and cheese. We are in uncharted territory here, and it is 
relatively easy now, on the basis of an output specification 
from an airline, for one of the major manufacturers to provide 
one's needs within the parameters of their manufacturing 
capability. And the business is highly regulated. We work in a 
highly regulated environment in commercial airline operation, 
and rightly so.
    In this area, the area of personal space flights, we are 
going to have to design different ideas as to how we create a 
viable vehicle, and we are going to be working very closely 
with scale composites to come to a contractual arrangement with 
each other, which will work for both parties to ensure that we 
get the thing built and we get it operating viably as quickly 
as possible. But it will not be like buying aircraft in the 
commercial airline market. We are at the experimental cutting 
edge of a new industry here, and between the two of us, with 
our commercial experience and Burt's experimental aircraft 
experience, we are absolutely convinced that we can come up 
with something which will be viable and acceptable in terms of 
safe operation to the FAA and the other organs of government 
who are going to be involved in regulating the venture as it 
unfolds.
    It is--one of the other questions that you asked was the 
question of the space act of last year and issues within that 
act, which are important to us and things that the government 
can do to help. Frankly, the most important thing to say is we 
don't want help from the government. This is an important point 
of principle here that the parties undertaking this venture do 
it in the private sector and do it off their own back. However, 
in a nascent industry like this, enabling by the government is 
a very important thing. And I think one feature of the act that 
we would like to look at more closely is the issue of the 
insurability of this industry. For this industry to be viable, 
the commercial personal space flight industry to be viable, it 
is important that some of the breaks on insurance and support 
from the government in the insurance area are carried through 
beyond the current plan of 2008 to 2009 and that when the 
government looks at this issue, they do extend the insurance 
provisions within the act to cover a longer period of time to 
allow this industry to get going with the kind of support it 
needs. Because with the support of the government, the 
insurability of the third party uninvolved risk is going to be 
a much easier thing to undertake.
    I think the other thing that the government can help us 
with is enabling, enabling the processes that we undertake and 
taking an active role in preventing roadblocks on the way. We 
believe that the FAA is an organization that is well up to the 
job of helping this industry to form and form a safe pattern of 
operation. We believe the Defense Department can take its 
responsibilities to protect the U.S. public very seriously and 
at the same time not hold up this project. We don't see 
roadblocks on the way at the moment, but if they appear, we 
would like the chance to come back before this group and have 
the chance to tell you about it.
    Thank you very much.
    [The prepared statement of Mr. Whitehorn follows:]

                  Prepared Statement of Will Whitehorn

    Chairman Calvert, Ranking Member Udall, and other Members of this 
distinguished subcommittee, on behalf of Virgin Galactic, thank you for 
the opportunity to testify today. Virgin Galactic appreciates the 
chance to explain how, with an unwavering commitment to safety, we plan 
to make available and affordable an adventure of a lifetime. We are 
proud to be on the leading edge of the commercial space industry and 
honored to have Burt Rutan as our future partner.
    I am Will Whitehorn, the President of Virgin Galactic. I also am 
Group Corporate Affairs and Brand Development Director for Virgin 
Management Limited. I have nearly 30 years of aviation experience 
having previously worked for British Airways and Thomas Cook before 
joining Virgin in 1987.
    At the outset, I wish to acknowledge the invaluable leadership the 
House Science Committee and this subcommittee provided last year for 
the nascent commercial space industry. You ensured Congress struck a 
proper balance in the Commercial Space Launch Amendments Act of 2004. 
Had it not been for that sensitivity in crafting a proper regulatory 
oversight regime consistent with the goal of permitting our emerging 
industry to realize its full potential, it is unlikely the Virgin Group 
would have made our considerable commitment to Virgin Galactic.
    Virgin Galactic is a private sector venture. We receive no state 
aid. Frankly, we think that is the way it should be. Entrepreneurs like 
Sir Richard Branson who are willing to shoulder the economic risk and 
challenge of commercializing space will be the most successful 
innovators who lead this industry and chart its course. Government's 
proper role is regulatory oversight and creating a climate in which 
entrepreneurs can translate their vision into reality and innovation 
can flourish.
    The history of Virgin Galactic goes back to the mid-1990s when Sir 
Richard Branson identified that new technologies in composite 
materials, rocketry and computing could easily lead to the development 
of safe, economical reusable spacecraft in the future. At that time, we 
registered the Virgin trademark in the area of space travel. In 1999, 
we registered the Virgin Galactic name.
    Virgin has a long history of working with Burt Rutan going back to 
the early 1990s. When Mr. Rutan informed us he was building a spaceship 
for a private customer to win the X-Prize, we made a commitment to him 
that we would be prepared to develop a commercial version of 
SpaceShipOne should he be successful. Over the last year we have 
negotiated with Paul G. Allen, the visionary and financier behind 
SpaceShipOne, to buy the rights to use his technology. Following the 
successful conclusion of these negotiations, we signed a $21.5 million 
deal for the use of that technology and developed a $100 million 
investment plan to build up to five spaceships at Mr. Rutan's factory 
in Mohave, California. The plan for the ships themselves is being 
developed by Mr. Rutan to a specification created by Virgin Galactic.
    Safety obviously is our first priority. Our commitment to safety 
extends beyond the Virgin name, one of the best-known and most valuable 
brands in the world. Sir Richard Branson has said that he, along with 
his parents, son and daughter plan to travel in Virgin Galactic's first 
space flight. If the Federal Aviation Administration permits me to do 
so, I hope to be on an earlier test flight. Our commitment to safety is 
very real and personal to us. Safety is and will continue to be Virgin 
Galactic's North Star.
    Suffice it to say that the Virgin Group has considerable experience 
in issues regarding passenger carriage and an unwavering commitment to 
safety. Virgin currently operates three separate airlines around the 
world which together carry over 50 million passengers a year. The best 
known of these is Virgin Atlantic Airways whose main business is 
operating scheduled services between the United Kingdom and a variety 
of destinations in the United States, as well as flights to the Far 
East, Africa and Australia. We have an unblemished safety record having 
never lost a single passenger in over 21 years of operation. All of our 
airlines also are profitable without ever having received any state 
subsidy. We also operate the U.K.'s largest long-distance rail company 
which also has an unblemished safety record despite carrying 35 million 
passengers per year at speeds over 125 miles per hour.
    Let me briefly describe the out-of-this-world service Virgin is 
known for that, quite literally, we intend to offer to Virgin Galactic 
customers. It is envisaged that the astronauts we carry will experience 
a two hour trip. Half of that will involve the thrill of climbing to a 
safe altitude with the mother ship and then our astronauts will 
experience the exhilaration of spending an hour on SpaceShipTwo as it 
accelerates to over three times the speed of sound and climbs to well 
in excess of the 100km altitude officially recognized as entering 
space, and becoming one of the few humans to have left the planet. Our 
current plan is to begin operations in Mohave and then develop a second 
site in another location that could possibly be either Florida, Texas 
or New Mexico. The flights will be what is known as sub-orbital. The 
pioneers who become astronauts with Virgin Galactic will initially pay 
$200,000 for the trip but the Company hopes to reduce the cost over 
time as the business develops. Our long-term goal is to develop 
commercial space tourism into an orbital business which could in the 
future carry payloads as well as people into orbit.
    Chairman Calvert, the Subcommittee asked that I address several 
specific questions in my testimony. Let me turn to them now.
    The Subcommittee asked about the timetable for taking possession of 
the Virgin Galactic spacecraft, first flight and expected 
profitability. At this time, Virgin Galactic has a memorandum of 
understanding with Mr. Rutan's company, Scaled Composites, to customize 
the SpaceShipOne vehicle for commercial use. Design work to that end 
continues. However, we have not yet formally ordered the spacecraft. 
After U.S. Government technology transfer issues are clarified and 
addressed if deemed necessary, we hope to place a firm order for the 
spacecraft. At this point, due to uncertainty about possible licensing 
requirements, we are not able to even view Scaled Composites' designs 
for the commercial space vehicle.
    Mr. Chairman, we are not concerned about this lack of clarity on 
the technology licensing issue and the nominal delay it has caused to 
date. Like any nascent industry overseen by government oversight 
agencies faced with issues of first impression, we understand instances 
such as this are to be expected. We are continuing a robust and cordial 
dialogue with the Department of Defense and other agencies that provide 
input on technology licensing issues. We hope a consensus can soon be 
reached that will clear the way for us to move forward with a formal 
order for Mr. Rutan's spacecraft.
    In terms of first flight, we are hopeful Virgin Galactic will begin 
service in either 2008 or 2009. Let me be clear, this is an estimate 
only. As I testified earlier, safety is our North Star and it will 
determine our launch date. We will launch as soon as our safety 
assessments and training dictate we do so, and not a day before. Our 
launch date estimate also assumes prompt clarification of the U.S. 
Government technology licensing issue I just mentioned. The longer it 
remains unresolved, it could adversely impact our projected launch 
date.
    As far as profitability is concerned, our business plan projects 
that we will attain profitability in our fourth or fifth year of 
operation. Importantly, this estimate assumes five spaceships, two 
launch aircraft or mother ships, and two launch bases in the United 
States. If the schedule for deploying any of these assets slips, it 
would negatively impact our target date for profitability.
    Mr. Chairman, the Subcommittee asked that I comment on the 
differences in procuring a commercial spaceship fleet and Virgin 
Atlantic's experience acquiring a fleet of commercial aircraft. At the 
risk of sounding trite, the short answer is everything. Virgin Atlantic 
is a customer of both Boeing and Airbus aircraft. Being a customer of 
commercial aircraft essentially is a passive process. While you can 
request some custom features, the aircraft as designed by the 
manufacturer essentially is a complete unit and customer suggestions 
and requests tend to relate to the margin. Virgin Galactic's 
relationship with Scaled Composites is very different. It is an active 
partnership. It is envisaged that we will work very closely together 
designing the aircraft and sharing our complementary expertise. Simply 
put, it will be a symbiotic relationship where ideas and intellectual 
capital are shared by the customer and manufacturer to ensure a 
successful product that benefits both.
    This active partnership dynamic is precisely why we are so pleased 
to have Burt Rutan as our future partner. Incidentally, in a decade or 
so when the history books are written describing the birth of the 
commercial space industry, I am confident that just as the Boeing brand 
is synonymous with ushering in the age of commercial jet travel, Scaled 
Composites will deservedly receive similar recognition for its 
trailblazing role in our industry.
    Mr. Chairman, let me now turn to the question the Subcommittee 
asked about what preparations we presently are undertaking for the use 
of the spaceships we plan to purchase from Mr. Rutan. We are focused on 
complying fully with the letter and spirit of the Commercial Space 
Launch Amendments Act of 2004. Scaled Composites will have sole 
responsibility to certify the spacecraft. However, together, we are 
engaged in an active dialogue with the Federal Aviation Administration 
on other aspects of our business. At the same time, we are designing a 
program to prepare our astronauts for an incredible sensory experience 
and to allow them to gain the maximum from their journey to space. That 
program will include training in all areas from physiological to 
psychological. We want to ensure our passengers have the optimum 
sensory experience but, even more importantly, that the operation will 
be undertaken with the utmost safety, consistent with safety being our 
absolute priority.
    Finally, Mr. Chairman, you asked what, if anything, should the 
government be doing to encourage commercial space. Let me reiterate a 
point I made earlier. Virgin Galactic is a private venture. Consistent 
with our belief that the proper role for government in encouraging the 
commercial space industry should not include financial subsidies, we 
receive no state aid. We believe there is great potential for mutually 
beneficial partnerships between NASA and private companies involved in 
our emerging industry. In other words, we support public-private 
partnerships. For instance, NASA should seek opportunities to contract 
with private sector manufacturers for cutting-edge designs and outside-
the-box thinking. I am encouraged by signs of progress in NASA's 
willingness to engage with the private sector in idea sharing. This 
spirit of cooperation should be encouraged and broadened whenever 
practical to do so. Virgin Galactic, for example, would welcome the 
opportunity to provide assistance to NASA for aspects of astronaut 
training. If NASA's first instinct is to look to private sector 
commercial space partners for opportunities to work together, I believe 
both NASA and our industry will be the better for it.
    Mr. Chairman, let me conclude by again thanking you, Ranking Member 
Udall, and other Subcommittee Members for the opportunity to testify 
today. Virgin Galactic looks forward to working with you and your 
staff. Burt Rutan has expressed his wish to put the first private 
spacecraft on Mars. It may be several more years before I get the 
chance to address the Subcommittee on that subject! I am pleased to 
respond to your questions today and to keep you apprised of relevant 
developments as we prepare to take-off.

                      Biography for Will Whitehorn

    Will Whitehorn is Brand Development and Corporate Affairs Director 
of Virgin and one of five members of the Management Board of the group. 
He is responsible for the corporate image of Virgin, public affairs, 
global brand development and a number of new business development 
activities most recent being the formation of Virgin Galactic, the new 
Virgin space tourism operator due to launch flights in 2007-8, of which 
he is President. In addition he acts as Richard Branson's spokesperson.
    Aged 45, he joined Virgin Group in 1987, as Head of Corporate 
Public Relations. Previously he was an Account Director at Lombard 
Communications where he had worked on numerous flotation's and bids for 
companies as diverse as Chrysalis Group, Ward White and Grampian 
Holdings. Before entering the public relations industry he had worked 
for British Airways as a helicopter crewman in the North Sea, was a 
Graduate trainee with Thomas Cook Group and finally Market Intelligence 
Officer for the TSB Group flotation. He was educated in Edinburgh and 
graduated from Aberdeen University in 1981 with an honours degree in 
history and economics.

                               Discussion

              5-10 Year Commercial Space Industry Outlook

    Chairman Calvert. I thank the gentleman.
    Now we will open up for questions.
    Mr. Rutan, this is obviously very exciting, and this is 
moving a lot quicker than we imagined just a year ago that we 
would be moving to this next stage of space exploration.
    What is your outlook for the commercial space industry, you 
kind of mentioned this in your testimony, but maybe you would 
like to expand on this, over the next five to 10 years? And how 
do you expect SpaceShipOne or SpaceShipTwo to fair 
commercially? Do you--how--what do you see the vision of this?
    Mr. Rutan. Yes, I did try to summarize that in my opening 
remarks, but I will tell you that we won't sell spaceliners or 
spaceships to spacelines that aren't safe to fly. And we don't 
plan to develop ones that will have large direct operating 
costs, because we don't need to. We believe we have all of the 
technologies demonstrated. There are several new technologies. 
There are probably a couple of new patents in work now relating 
to the new vehicles that will be commercial. But I think our 
risks that we need to take right now are tiny compared to the 
risks that we took in the year 2001 to get to the goals of 
SpaceShipOne. When we have available spaceships that can be 
flown at low direct operating cost per seat and provide the 
real experience, and I want to point out this will not be the 
experience like you saw in SpaceShipOne where you have a small 
cabin and people are strapped down and they have little 
windows. The very first generation of commercial sub-orbital 
spaceships will be experience-optimized. There will be large 
cabins. There will be big windows. There will be--since you 
only have four or five minutes of weightless time, they will 
pull a bar open, and you will float your body about the cabin. 
We think that is extremely important to do on a short space 
flight.
    So we are working very hard on assuring that this will be 
extremely attractive to the public, it will be extremely 
affordable, and it will be at least as safe as the early 
airlines. If we achieve those goals, and I think we really can, 
we don't have tough answers to--in front of us or new 
challenges in front of us to get there, but if we achieve those 
goals, I think this is going to be a much, much bigger market 
than anyone imagines. I think once it is determined that this 
is a business that is profitable, I think very much like the 
early airlines, you will get dozens of businesses wanting to 
be--wanting to compete with Virgin, for example, and wanting to 
be space flight operators. I believe that a lot of those will 
fail either financially or their ability to raise capital or 
their inability to follow--to support and follow the 
maintenance and other guidelines that we will set up. And in 
fact, we are looking at having this not like selling a 
spaceship that says, ``Here, take it and do what you want,'' 
but we are looking at doing it as a franchise, like a Wendy's 
franchise. You buy our product, but you have to follow very 
carefully our rules in how to maintain it and how to operate it 
and the limits of its operation.
    Chairman Calvert. I don't know if you want to use Wendy's 
as an example.
    Mr. Rutan. Well, okay. McDonald's franchise, right. But at 
any rate, the important thing is because of where we stand in 
the marketplace now, I think we will be able to assure that all 
of the operators operate it safely.
    Now I believe, like the early airlines, most of these that 
want to that will try, I think most of these will fall out for 
the same reasons that the early airline companies did. But I 
expect to see that, say, in the--between five and 10 years into 
the operation of these, I expect to see that you will have 
three or four operators with multiple sites that are operating 
reliably, and they are going to be competing with each other, 
and they are going to have an enormous, enormous market. The 
space market has never had any product, any payload that is 
high volume. Generally, nowadays, if you are doing something 
commercial in space, you don't complain a lot that you have to 
pay $80 million to buy a booster, because your payload that is 
in it, you may invest a half a billion dollars to build this 
payload. Well, the payloads for this industry don't cost 
anything. In fact, they pay to fly. That is a totally different 
concept for the space industry. In fact, the payloads can be 
easily reproduced by unskilled labor. And I don't see a limit 
to it, whereas there has been very specific limits to 
everything.
    Another thing, if we reach our goals on affordability and 
safety, it will affect everything else that is done in space. 
For example, as we flow this capability of very high volume, 
very low cost, high safety into the orbital market, all of a 
sudden, those that go out and want to do exploration of the 
planets, instead of being able to afford to build one or two of 
these every couple of years, we can build thousands and 
hundreds and send them everywhere and do real exploration 
because it will be affordable. I have had NASA, two different 
centers, including NASA headquarters, insisting that I keep 
SpaceShipOne flying so that they can fly their payloads on it. 
You know, they have made a lot of these payloads for student 
projects and so on, and they just don't have an ability to fly 
it.
    My position on that has been that NASA certainly has a lot 
more capability to fly science payloads than we do. They have a 
space station. They have a reusable Space Shuttle. The reason 
that they can't fly their own payloads is not my fault. And I 
have refused to do that, because I have refused to have 
anything in my way in order to, as quickly as we can, get an 
operable system that flies safe and flies cheap. And I think it 
is much better for NASA to just wait and buy tickets rather 
than us doing science projects to develop that kind of 
capability along the way. We have put all of this other 
interest and all of this other stuff aside so that we can 
quickly reach the goal. And that goal will help everything 
else.
    Chairman Calvert. Thank you.
    Mr. Udall, a skilled man.
    Mr. Udall. Thank you, Mr. Chairman.
    The testimony that both of you presented was fascinating, 
and I am looking forward to hearing more about your point of 
view.

                    Regulatory and Approval Process

    Mr. Rutan, you talked about some of the challenges working 
through the--an approval process for SpaceShipOne. As you look 
ahead at developing a commercial version of this spaceship, 
have you had any discussions with FAA as to what you will have 
to do to get your vehicle approved for commercial service? And 
would you be willing to talk with us and/or provide some 
specific ideas about changes to the process? And perhaps you 
could do that for the record. Again, we have got limited time 
today, but----
    Mr. Rutan. Absolutely. I have had multiple meetings with 
the FAA Administrator. I have insisted that at least one of 
those meetings including having the airplane people as well as 
the space people, you know, AVR as well as AST, and I did 
succeed last month in having that meeting where all three were 
in the same room. And that was in the FAA Administrator's 
office. It was a meeting of more than two hours, and I made my 
point that the FAA does need to stand up to the responsibility 
for assuring the safety of the passengers. And I believe that 
that process can be structured so that the applicant for flying 
commercial flights can get an acceptance by the FAA that he has 
indeed done his testing and has defined the testing that is 
needed for--to show his margins, his safety margins. I believe 
that can be done with a very minor effect on the cost of the 
developer.
    However, this is a subject that FAA seems to be afraid of. 
They seem to be happy that they are not required under the new 
legislation to certify these ships. And I think it is--really 
comes down to the problem is that they just flat don't have the 
people that are qualified to do it. I don't believe that the 
new ships will go through a conformity process like you do in a 
part 25 certification for airplanes. And we have developed 
specific processes for that as suggestions. And I am--I hope 
to, over this next month or two, have a meeting with the 
working level certification people so we can present this. But 
we have not had that opportunity yet.

                        Similarities to Airlines

    Mr. Udall. Thank you.
    If I could, I would move to Mr. Whitehorn.
    You have got a background in the airline industry. Would 
you talk a little bit about what aspects of your operations 
that you think will be similar to the airline industry and 
which aspects would be different?
    Mr. Whitehorn. Yes. I mean, I think when we look at issues 
such as the certification of the spacecraft, I mean, Burt 
Rutan's company, Scaled Composites, will be responsible for 
certifying the SpaceShipTwo, which we have developed into a 
commercial business. So I won't talk about those issues at all. 
We will leave that to Burt.
    We will receive--we have engaged in an active dialogue as 
well with the FAA at the moment, which is in a much happier 
area, which is the area of what the passenger experience will 
be and the program to prepare the astronauts for flight and the 
regime that we will operate in terms of the safety of those 
astronauts, what we will need to do on the medical front to 
ensure they are fit to fly. We are planning to buy a system 
from Burt Rutan, which would allow 80 percent of the population 
of the world to fly in terms of medical areas. And in terms of 
age, it would be open to anybody of any age to fly. But 
obviously, from the point of view of the FAA, we will come up 
with a set of standards and guidelines as to what we will deem 
acceptable. And what the legislation allows us to do is to work 
in quite an open forum on those issues of the guidelines as to 
what the passenger will have to experience.
    Where I think this differs from the commercial airline 
industry is that the commercial airline industry has been 
regulated now for the best part of 70 years, properly 
regulated, in the United Kingdom and the United States. And the 
difference here is that there is no precedent to base things 
upon. The precedent of the past is to look at the best that has 
happened in the world of commercial aviation and try and apply 
the important principles of that but not create rules before we 
know exactly the direction of where we are going is, but to try 
and develop the rules that will be there for the future in as 
open a forum as possible between the parties involved in this 
industry. And I think that is achievable. I think the FAA has 
an open attitude to those aspects. And I think that when it 
comes to the certification of the craft itself, that is Mr. 
Rutan's area, the principles around how it operates the 
business will be our area, as the commercial operator. And you 
know, I think the principles of safety for us are paramount. 
The principles that we do want to create an experience for the 
customers that they can have confidence in, and the kind of 
sophisticated individuals we are dealing at the moment have an 
understanding of risk, but they are expecting an experience, 
which will be along the lines--I mean, as Burt said, the early 
days of commercial aviation, back in the 1920s and 1930s, or 
somewhere around where private aviation got after the second 
world war in the USA in terms of the level of safety. That is 
what the audience expects that we are addressing this product 
to. And I think that our north star in safety is going to be 
ensuring that the standards that we introduce to service at the 
beginning of the operation of this by the end of this decade 
are standards that then can be improved by experience all of 
the time.
    And if one starts from a prescription of where you begin, 
you are never going to get to the position of creating 
guidelines that can be improved and developed with experience. 
And one of the things I am encouraged by, though, is in that 
particular area I think the FAA is spot on in the way it is 
working.
    Mr. Udall. Thank you.
    Chairman Calvert. Mr. Rohrabacher.
    Mr. Rohrabacher. Well, I thank you very much. And let me 
just sing the praises of Burt Rutan, who, of course, everybody 
sings the praises of Burt Rutan. I don't know if you are Hans 
Solo or Charles Lindbergh, but whoever you are, Mr. Rutan, you 
are an historic person, and it has been my honor to have had 
the opportunity to know you and to watch with amazement some of 
the things you are doing. So thank you very much for being just 
a role model to young--the young people in America and old 
people in America as well.
    Mr. Rutan. Well, thank you, Dana. I consider myself someone 
that just hides out in the high desert in California and has as 
much fun as I can. And I don't look at it that way at all, but 
thank you very much.
    Mr. Rohrabacher. Well, I would hope that when people are 
studying in our universities and in our high schools that when 
they pick people out to study and to see what type of person 
they were and to use as examples for--I would certainly hope 
that the education community takes a look at Burt Rutan and 
makes him a full chapter in the book, because that is what our 
young people need.
    Mr. Rutan. I believe that the education, which has--NASA 
has spent a lot of money over the last three decades on trying 
to keep the interest in education, I believe that problem will 
totally disappear once there is a growing industry out there 
and kids can not just kind of be prompted to dream about being 
an astronaut, they will be making their plans to fly. And once 
you have that, I think we are going to get an enormous amount 
of increase in those that go to school to learn engineering and 
science and those that deal with all of the aspects of this new 
industry. And I don't think our education problem will be a 
problem at all once there is something real that is going on.
    Mr. Rohrabacher. Okay. Thank you very much.
    The--I had to leave a few moments ago, because Lieutenant 
General Arnold, who is the command of the Space Missile Center 
there in Los Angeles, was--needed to meet me right outside the 
room here. And I think that it is significant, and you 
mentioned this in your testimony in passing, that in the past--
as in contrast to the past, where there were spin-off effects 
from America's defense spending to the private sector. You 
believe that there is going to be a great spin-off or 
collateral effect for national defense and other type of issues 
from the private sector investment in space.
    Mr. Rutan. I have got an example that supports that, and 
let me just state that I don't think the primes--Lockheed and 
Boeing, for example, I don't think they know it yet, they will 
be developing large numbers of low-cost launch capabilities. 
And the reason I say that is we have an example in front of us 
that I really truly believe is a parallel and that is in the 
late '70s, IBM did not know that in a few years they would be 
building tens of thousands of $700 computers. They really 
didn't know that. They found out that they had to force 
themselves into that market. They had to realize that, ``Hey, 
we are not just a company that makes a handful of mainframe 
computers.'' And they changed very quickly, and they got in and 
they competed. And I think that is going to happen also as this 
paradigm changes to where there are the benefits of cost and 
safety and an enormous lot of activity.
    Mr. Rohrabacher. Which leads me to a question for Mr. 
Whitehorn. And of course, let me applaud you, as well. Very 
rarely do we have a witness come here before us in Washington 
saying that they aren't asking for any help.
    Mr. Whitehorn. Well, that is because I come from the United 
Kingdom, and if you ask the government for any help, they just 
don't get it.
    Mr. Rohrabacher. But I noted--I think we noted two things 
here. Number one, you were asking, basically, correct me if I 
am wrong, for making sure that we have definitions of liability 
that will permit your business to succeed. And I think that 
that is something that we understand.

                   Export Controls and Tech Transfer

    Number two, you also mentioned tech transfer, just in 
passing. Is there a problem? And again, there are military and 
security implications to the craft that is being developed, 
because obviously, frankly, what Burt is developing here as 
something for the general public has some very great 
implications for the security of the United States and the free 
world. Are there problems with transfer to Britain, to a 
British company and----
    Mr. Rutan. Yes, I thought that Britain--or that England was 
a relatively friendly nation to America. And at least reading 
the papers, you would see that. But when you try to export 
designed things that are tied to either rockets or the avionics 
that go in rockets, we have seen this as an extremely difficult 
thing. And it has been one of the reasons that we have had to 
move away from the basic concept of this being a foreign-funded 
development of the ship, even though it is a very friendly 
country. And I have been to London. I found these people seem 
to like us, too.
    Mr. Rohrabacher. Well----
    Mr. Rutan. But let me point out----
    Mr. Rohrabacher. And people will be able to get to London a 
lot quicker in your----
    Mr. Rutan. First of all, I don't think we are going to have 
this problem in the short term now by developing the ship here. 
And if we fly them within the United States, I think that 
problem will be minimized. However, relatively soon, and I 
think this will happen in the first decade of commercial 
operations, there will be requests, and very serious, well-
funded requests. We have gotten them even from the guys 
building that new city outside of Dubai. They want to run space 
lines in their country. And when you take something that does 
have some technologies that would transfer over--that could be 
transferred over into a weapon, even though these technologies 
are all really in the public domain, we run into very severe 
restrictions. We have wrestled with this problem in terms of 
technology transfer to Virgin Atlantic for about five months 
now. And it has been--it doesn't seem to meet logic, and it has 
been difficult. I think--and as a result of that, we are 
discouraging, until there are routine commercial operations 
going on in this country, and it can be shown that for the same 
reasons that we sell airliners that we don't want to have 
technology, that they don't have to have the technology in 
order to operate a spaceline. And I think that is not going to 
work on the early stages, because we just flat can not export 
it. But I believe once there is routine operations going on 
this country, then we will be able to surpass those roadblocks 
and be able to set up sites in Dubai or in Australia or in 
Europe.
    Mr. Rohrabacher. Mr. Chairman, just one note, and I know my 
time is up, and that is I have been a long-time advocate of a 
two-tiered system of technology transfer controls where 
countries like Australia and England and other countries that 
are totally friendly to the United States should not have the 
type of restrictions on them as compared to a country that 
poses a potential threat to the United States. And thus, it 
should be a totally free market with those countries.
    Chairman Calvert. The gentleman----
    Mr. Rohrabacher. Thank you very much.
    Chairman Calvert. The gentleman is correct, however, you 
know, there are still some burn marks from 1812 over at the 
Capitol. We may have to send Virgin a bill for cleaning some of 
that up.
    Mr. Whitehorn. I would just like to add a couple of 
comments to what Burt said there. We don't envision a problem 
with the DDTC or with the Department of Defense. We are having 
a robust and very friendly dialogue on this issue. But we have 
made it clear to them that we are not planning to export the 
vehicles, and we are planning to operate the vehicles only in 
the USA to start with. But if you look at the marketplace, and 
I think back to Burt's point about Boeing selling aircraft 
around the world or Lockheed selling aircraft around the world, 
the market for this is worldwide. Of the 29,000 people who have 
registered that wish to pay the deposit, only 40 percent are 
from the U.S. Now a lot of the people are going to be coming 
from other parts of the world to fly in the U.S., but this 
could be an export industry for the U.S. And you know, this 
country has a balance of payments problem, there is no doubt 
about it. And you know, you have to look to the methodologies 
which you are adopting in terms of every aspect of export of 
technology from this country, because, you know, it is the 
export of technology, which is the lifeblood of an industrial 
country. And at the moment, there are issues to deal with on 
this front.
    Chairman Calvert. I thank the gentleman.
    Mr. Costa.
    Mr. Costa. Thank you very much, Mr. Chairman and the 
Ranking Member for having this hearing today. I think it really 
focuses on a very important growing technology that I think all 
of us are excited about. And I, too, want to commend Burt Rutan 
as the recipient, for the second time, of the Collier Trophy. 
It just goes to show that kids that grow up in Silicon Valley 
can do good, as a native not far away from Fresno. We are very 
proud of all of those accomplishments, obviously.
    I have two questions, and I think it was important in 
your--both--Mr. Rutan, your testimony, and Mr. Whitehorn, to 
remind us of the history of aviation in the 1920s and the 
1930s. Douglas and Northrop and a little company in San Diego 
called Ryan that built an airplane for a fellow named 
Lindbergh, and how that whole relationship developed between 
entrepreneurs who had a vision and had a dream to fly and the 
partnerships, the public partnerships that later developed. 
Obviously, if it weren't for the establishment of the Federal 
Postal System giving contracts to the fledging airlines of 
those days, because the passengers certainly weren't paying for 
the airlines to come together, but if you could get a postal 
route, it made a big difference. And that whole evolution 
process, and I think there are certainly applicable lessons to 
be learned as we develop this industry, as you so well stated, 
Mr. Rutan, in your comments, and you as well, Mr. Whitehorn.

                     Economics of Commercial Space

    Two questions. One, and I don't know if you are yet at this 
level in terms of developing your economic model. You talk 
about 27,000-plus interested parties that have indicated, and 
we hear the number thrown around about $200,000 per flight per 
individual, and say, maybe half of those actually end up 
purchasing a ticket. And you can do the math, obviously, but 
have you done any economic models in terms of the multiple 
impact? I spent some time in high-speed rail and others, and 
they like to talk about a two-to-one factor, for every dollar 
spent, there are $2 benefit in return in terms of the ripple 
impact to other economic sectors or subcontractors or the like. 
Have you developed anything like that yet at this point in 
time?
    Mr. Whitehorn. No, we haven't done it at this stage. I 
mean, what we have done is we have taken Burt's costs in the 
development of SpaceShipOne and some feasibility work that Burt 
did for us last year before we signed the contract with them to 
buy the technology. And we have modeled. We believe that with 
it--for the expenditure of $120 million, we can get to a viable 
business and that the early pioneers will pay $200,000 to fly 
on this model, and we believe that by year five we can be 
reducing those costs very considerably. And from the point of 
view of the individuals, we believe that eventually we could 
get it down to $25,000 or $30,000 after a number of years per 
flight per person.
    In terms of the economic impact outside of Virgin 
Galactic's own business plan and Burt's own business is he uses 
us as the launch customer, as Boeing would describe it. And our 
status as a launch customer will obviously give Burt the basis 
on which to invest in developing further projects. And we, in a 
symbolic relationship, would envision ourselves developing an 
orbital business eventually out of the Virgin Galactic 
business.
    My personal view is that the developments that we undertake 
together, Burt as the manufacturer and ourselves as the 
customer, will have a considerable effect on the industry as a 
whole, on the space industry in the United States. NASA, for 
example, you know, will be able to help us by being a customer. 
But the reason they should come to us as a customer is because 
we can do for them what needs to be done more efficiently than 
they can do it themselves. And that is how public-private 
partnerships work. One thing that the UK has actually excelled 
in the past 20 years is privatizing its publicly owned 
industrial structure and creating partnerships between the 
public sector and the private sector. If you look at our 
National Health Service in Britain, for example, it was run 
like a Soviet operation 10 or 15 years ago. Everything was done 
inside the health service. Now 10 billion pounds worth, so 
about $20 billion worth, of contracts per year are let by the 
National Health Service, which is a publicly owned institution, 
to the private sector. I don't think NASA has gotten as far as 
that in terms of its attitude to the private sector yet.
    Mr. Costa. Yeah.
    Mr. Whitehorn. But when it does, and when organizations, 
such as NASA, buy in more and more from the private sector, as 
this industry develops, and I don't mean the Lockheed or Boeing 
private sector.
    Mr. Costa. Right.
    Mr. Whitehorn. I mean, not the primes, but the new industry 
that emerges, I think you will see a ripple effect in terms of 
investment. But it is too early to model that for the moment.
    Mr. Costa. Thank you. And----
    Mr. Rutan. Could I comment briefly on the launch customer 
point that----
    Mr. Costa. Sure.
    Mr. Rutan.--Will made? I think it is extremely important to 
us that we have a Virgin as a launch customer, because if I 
would look back before Richard Branson's interest in this, my 
business model assumed that this business would start off from 
a low-credibility standpoint, both from developing and building 
spaceships and for those that operate them. I didn't dream and 
expect that a Jet Blue or a United or American Airlines would 
come in and buy spaceships early in this game. I just--my gut 
told me that they will pass on that. The fact that a major 
world airline has stepped up and has told us that they want to 
buy the first five spaceships and that they want to operate, 
and they have already gone out and done market surveys and so 
on, that fact that an airline, not just whatever else would--
you would think would be there, has stepped up has given me the 
ability to go out and get the investment that is needed to 
develop and certify the spaceships. So I didn't expect that we 
would start off from that strength. The fact that we have a 
launch customer, which is a successful, major airline is 
absolutely huge.
    Mr. Whitehorn. I have to add, of course, that Virgin 
Atlantic is just another normal airline. As they say in Denmark 
about Carlsberg, it is probably the best airline in the world.
    Mr. Costa. Mr. Chairman, I know my time has run out, but I 
do have a technology application question that Mr. Rutan might 
want to respond to later on to the Committee, but I--in terms 
of the application of this technology, I know there has been a 
lot of investment by NASA and by some other companies on 
hypersonic space flight to bridge the continents, and I would 
like to have a better understanding of whether or not there is 
an application of this technology to that at a later stage. And 
you can maybe do that in a written statement or whatever suits 
the Chairman.
    Chairman Calvert. Certainly. We could move into our next--
Mr. Honda.
    Mr. Honda. Thank you, Mr. Chairman and Ranking Member.
    Let me just piggyback on my colleague's question, and maybe 
you could answer that question at the same time that--piggyback 
on the question that I am going to ask.
    First of all, I--you know, as a kid that grew up watching 
Flash Gordon in his young adult, the--you know, Star Trek and 
all of that sort of stuff, I find this subject very 
interesting.
    A quick comment on NASA. I think NASA will probably be in a 
position to do more partnering if this Administration had the 
foresight to invest more into the projects that we have, 
because currently we are looking at massive cuts, and massive 
cuts that would affect young people who would consider space 
flight and manned space flight if we were to invest properly in 
a more healthy way into this area. That is a personal comment, 
because I agree with both of you that NASA has a great role to 
play. And as a schoolteacher, I do believe that NASA has a role 
to play in terms of education and primary research.

                            Safety Concerns

    Having said that, along with Mr. Costa's question, in terms 
of research in manned space flights, do you believe that there 
are--that humans can be subjected to unknown kinds of exposures 
that we haven't even thought of as of yet that we should be 
looking at in terms of safety and long-term safety, whether it 
is intercontinental, high-speed, supersonic travel or orbital 
space flights? What would be your reaction to that?
    Mr. Rutan. Well, there is nothing that is unknown about 
what we are going to put humans exposed to in order to have 
this sub-orbital industry grow and be healthy. We know all of 
the answers to those things. They are very straightforward. 
They are very acceptable, and they are--you--by the way, you do 
want to expose someone to forces in order for it to be fun. And 
the--there are now showstoppers out there at all. Now as we 
move on and go to the planets where you have long-term exposure 
to radiation and so on, there are serious things that need 
solutions, but that is not for the work that we are likely 
going to be doing this decade. That is the next step. But I 
don't see any roadblocks at all on technologies, and I don't--I 
do not believe we need any research work done at NASA to 
support the sub-orbital private space flight industry. I 
believe when the private space flight industry moves to taking 
people to the moon and the planets, NASA will be a very strong 
player, because they do need to get back into their role of 
doing basic research rather than running the airline. And I see 
a big role for NASA as we go to low-Earth orbit, and 
particularly as we go above low-Earth orbit. And I think Mr. 
Musk will comment more on his, because he is working on orbit, 
and we are not. But for this new industry that we have been 
developing here on this panel, we don't see a role at all for 
NASA.
    Mr. Whitehorn. If I can just add to that, very quickly. I--
one of the things we are working with the FAA at the moment is 
the guidelines. And one of the guidelines is that we explain to 
the customers exactly what the risks are. And those risks are 
known, so the risk of----
    Mr. Honda. Oh, okay.
    Mr. Whitehorn.--gamma radiation, for example, will be 
explained to the customers. And you know, you are talking about 
a level of risk of a CT scan for a flight on a sub-orbital 
craft.
    Mr. Honda. So you have research on that, then?
    Mr. Whitehorn. There is plenty of research on it, which 
goes back decades now. And the research in the airline industry 
and the research that was done around the introduction of 
Concord back in the 1970s is all perfectly relevant to this 
particular situation. I mean, the only risks we don't know 
about is, you know, the possibility that we might meet aliens 
since there will be several thousand flights rather than just a 
few hundred over 40 years.
    Mr. Honda. Well, that is a buzzword in this country.
    Thank you.
    Chairman Calvert. Thank you.
    Mr. Wu.
    Mr. Wu. Thank you very much, Mr. Chairman.
    I have a couple of questions, but I just want to start by 
saying that, you know, my dad was in the aerospace industry. By 
then, the industry was already fairly mature, and names like 
Northrop and Boeing were institutions rather than individuals, 
but by having an affection for whatever field I am in, I dig 
into the history. And it was interesting for me to find the 
individuals behind those institutions, and that was a romantic 
era when the founders of these great institutions were first 
starting their businesses.

                            Return-to-Flight

    I want to salute you all for your cutting-edge work, and I 
truly believe that Mr. Whitehorn, Mr. Rutan, you and Mr. 
Branson will be remembered in the aerospace pantheon with the 
likes of Jack Northrop and others, and I really want to 
recognize that.
    And Mr. Rutan, it was a long time ago, but I made a 200-
mile drive to see Voyager land in the Mojave Desert, and that 
was one of the great moments of my life to see that aircraft 
come in. It is just really terrific. I try to explain its 
significance to my son when we see it at the Air and Space 
Museum. He is less than completely impressed right now, but I 
think--he is seven, and----
    Mr. Rutan. I believe the Voyager pilot is with us in the 
audience today, too, my brother, Dick.
    Mr. Wu. Well, you flew it really nice, straight, and level 
all of the way in. And you did walk away from the landing, 
which is a very good thing. Thank you. It is very, very 
impressive.
    I really want to ask you all a couple of questions apart 
from commercial space and what you have been working on, 
because, you know, sometimes in the course of your work and 
your extensive background, you can shed valuable light on other 
organizations and other processes. And the two things I wanted 
to check with you about are really NASA and federal programs.
    As you know, the launch window for the next Shuttle opens 
approximately May 15, and I was wondering if either of you, 
particularly Mr. Rutan, but either of you, have any commentary 
as you have observed. I mean, I know you all have been very 
busy, but if you have observed the NASA return to space--return 
to flight efforts, if you have any observations to share with 
us. And then I have one other question after that.
    Mr. Rutan. Well, I feel very privileged to have an 
appointment this afternoon with the new NASA Administrator, 
even though he has only been on the job a couple of days. So I 
believe there is likely going to be major changes on what we 
believe is ahead, and I would prefer to not guess, at least 
until I have had a chance to give him my thoughts and to have a 
better idea of what is likely to happen at NASA. But I believe 
there will be major changes in what NASA's activities were 
otherwise going to be because Mike Griffin is on board. So I 
really don't think it would be appropriate for me to guess on 
that until I have a little more information.
    Mr. Whitehorn. I would like to make a general comment.
    I think it is incredibly important for the future of space 
that NASA returns to space flight. I think there is an enormous 
psychological impact. And you know, one of the comments that 
was made earlier was about in education. When I was brought up 
as a young lad in Scotland, my parents told me that I would 
probably go to space when I grew up and that they wouldn't be 
alive to see it, but I would. The generation beyond my 
generation grew up not believing they would ever go to space. 
They ceased to believe it, because the whole attitude to space 
became, ``Robots will do it, because robots are going to be 
cheaper,'' and scientists decided that robots were where space 
was going. And to be honest with you, the psychological impact 
of that around the globe was that people actually stopped 
believing in the whole idea of the exploration of space, 
because why do human beings want to pay through their tax 
dollars to fund something that they are never going to get the 
chance to ever experience themselves? However, science has 
moved on. Our understanding of our own planet has moved on 
enormously in the last 20 years, and people have realized that 
our tenure on this planet is pretty limited, that you know, 
there will be catastrophic events that could damage 
civilization itself, and that they happen on a more regular, 
say, precept than we had thought of 30 or 40 years ago.
    So the idea that we can't ever leave this planet is a 
psychologically damaging one to the whole concept of 
civilization, development, and science and technology itself. 
So not only is this private sector venture incredibly 
important, but also NASA's return to space flight is incredibly 
important, and I think we should laud them for, hopefully, what 
will be a great event around May the 15th or shortly 
afterwards. And it was interesting, my son went to see 
SpaceShipOne the Christmas before last. And he went back to his 
school in England, and the schoolteacher was asking, ``What did 
you do in the Christmas holidays?'' of all of the boys in the 
class and the girls in the class. And he said he had been to 
see the spaceship and his dad might be building one. And the 
science teacher sent him out of the class. And the difference 
between two years ago and now is that he has had a letter of 
apology about that and--thanks to Burt succeeding in the X-
Prize, and also, you know, if you look at the attitude to space 
at the moment, the interest there was in the Mars mission, 
because this government announced that you were going to intend 
to go to Mars with human beings, and the worldwide coverage of 
the Mars Explorer last year was dramatically different to the 
previous coverage of the early missions to Jupiter, for 
example, in the late '80s and early '90s, which didn't attract 
that much public interest or attention. The fact that human 
beings are going out beyond this planet is the incredibly 
important principle that NASA has to re-establish and it is 
doing so now, which is to be lauded.
    Mr. Wu. Thank you very much.
    And Mr. Chairman, with your forbearance, if I can get out 
my second question.
    The--if--and I look forward to hearing, Mr. Rutan, your 
observations in private after you have had your meeting. And 
Mr. Whitehorn, I completely agree with you about the importance 
of NASA's return to flight. It has tremendous symbolic as well 
as real significance, and I think the whole Nation, the whole 
world, will be holding its breath. And that is why it is so 
important.

                            NASA Aeronautics

    The other thing that gets a whole lot less attention and 
that is that we talk all of the time about space, but we forget 
about the aeronautics mission of NASA. And I was wondering if 
either of you have views about whether NASA has under-
emphasized its aeronautics mission perhaps at the expense of 
either American competitiveness or world aviation.
    Mr. Rutan. Well, before NASA, there was NACA. And NACA did, 
indeed, support the industry by providing wind tunnels and 
providing basic research, really very well focused on the kinds 
of things that a manufacturer would need in order for him to go 
out and build an airplane and compete and to build the 
industry. NACA never did run an airline. NASA now is running 
the only airline that America has in space. So it is a 
considerably different thing. I don't think just by throwing 
more funding to NASA you are going to get help on the 
aeronautics. I think you are going to have to be specific, and 
you are going to have to identify the resources that NASA has 
for aeronautics, which one of the wind tunnels are critical, 
and the ones that are critical need to be--remain open so that 
the developers all of the way down to--all of the up from 
Boeing and all of the way down to Scaled Composites can use 
these facilities, because they are national assets that we have 
spent money for.
    In general, though, in terms of the research done at the 
individual level, say, calculations and so on, at NASA, what 
has happened is because the airline industry and the military 
airplane development industry is so competitive, you will look 
inside Northrop and Boeing and so on and you will find better 
skills there of these technologies than you find looking inside 
the labs at NASA. So I am not a proponent of keeping a lot of 
that alive if it is not something that flows good information 
out to the U.S. manufacturers. I don't see a benefit there. But 
I think at least on the short term, we have got to make sure 
that the wind tunnels that are important and the assets that 
are important that the government owns, that they not be just 
thrown away.
    Mr. Whitehorn. I would agree with Burt's testimony.
    I would also add that I think one of the issues that NASA 
has had to face over the last 45 years is that it really hasn't 
had a clear output specification of what it should be doing 
from government on behalf of the people of the States. I mean, 
it is, to me, very, very interesting that NASA had--if you look 
at the 1970s and 1980s, it was very direction-less for a long 
period of time. And it was also part of a Cold War that existed 
between the Soviet Union and the USA, and people forget that 
these days. It was forced to do things by government by using 
tax dollars, which were part of the Cold War itself, rather 
than part of the exploration of space. And I think NASA, for 
the first time in, probably, two decades, has a very clear 
direction at the moment, but it mustn't be thinking in that 
clear direction about the mechanics of achieving it using the 
ideas of the past. It mustn't get stuck into the rut of, 
``Well, we have got to do this so we have got to build this 
type of rocket, because that is the way you do it.'' It should 
really be thinking about, you know, if the best way to do it is 
to build something out of paper mache and send it into space, 
because that will work more effectively and be more cost-
effective and safer, then that is the way we should think about 
doing it. And I think that attitude and that cultural change in 
NASA you can definitely see happening at the moment from the 
outside.
    Chairman Calvert. I thank the gentleman. I thank the 
gentleman for his questions.
    Mr. Wu. I thank the witness, and I thank the Chairman for 
his forbearance.
    Chairman Calvert. Okay. We are spending a little more time 
on this panel than we expected, but it is very interesting. Mr. 
Bartlett has joined us. Does the gentleman have any other 
questions or----
    Mr. Bartlett. I am sorry I couldn't have been here for the 
whole hearing. Thank you all very much for coming.
    Are you making an argument, maybe, that you ought to be--we 
ought to be rethinking NASA and its mission when you note that 
the aeronautical area has--now has large companies, very 
competitive, that are able to attract skills that it is 
difficult for the government to match? I have a general 
philosophy that government needs to be only where they need to 
be, and if we don't need to be in an area, maybe we shouldn't 
be there.
    Mr. Rutan. Well, I don't think that it is NASA's role to do 
development, and I don't think it is NASA's role to run an 
airline or a spaceline. I think it is NASA's role to do basic 
research to discover--to allow the discovery of breakthroughs. 
The problem that we have is if you define research, like I 
think it should be defined, and that is if there is something 
out there that you are trying to achieve and you want to put 
funding in to achieve it, if half of the people that look at 
that goal look at it from the standpoint of, ``Oh, man, that is 
tough. And, God, it would be neat if you could do it, and I 
think you can do it.'' And then the other half of the 
technologies looked at--technologists look at that and they 
say, ``Well, hell, that is impossible.'' Okay. I believe at 
that level, then to go after it, you are doing research. But if 
everybody says, ``Oh, yeah, that will work, and we are just 
here to kind of refine it,'' then all you are doing is 
development. And that is my argument with this exploration 
program now is they are not out there looking for the 
breakthroughs. They are not out there looking for things that 
can make big differences. They are really--NASA is doing 
development, because NASA, in general, and it may be somewhat 
of things imposed by them by accident committees. It may be 
some things that are imposed on it by you folks who pass out 
their money. But they just flat are scared to death of failure, 
and if they are scared to death of failure, you are incapable 
of doing research. I think NASA ought to be funded to do 
research to support America's airline industry and America's 
military development industry, and that means that most of what 
they do are things that are expected to fail. And that takes a 
whole different culture and a whole different idea. That is 
what NASA ought to do.
    Mr. Bartlett. I come from a science background. I 
appreciate very much your understanding that there is no 
unsuccessful experiment.
    Mr. Rutan. Right.
    Mr. Bartlett. If it doesn't work, that is a success. You 
learn----
    Mr. Rutan. Right.
    Mr. Bartlett.--that it doesn't work, so you have got to try 
something else next time.
    Mr. Rutan. And if you are afraid to fly it, you never learn 
anything.
    Mr. Bartlett. That is right. You know, and people who don't 
come from a science background have a lot of trouble 
understanding that, that there is no unsuccessful experiment. 
If it didn't work, it didn't work, so we will try something 
else next time.
    But for people who are--who want to avoid failure, they see 
an experiment that--where you didn't prove your hypothesis, 
where the data did not support your hypothesis, they see that 
as a failure, and so they don't want to do it. And when you 
have that kind of timidity, you are not going to push the 
envelope very far very fast.
    Mr. Rutan. The X-34 is a very good example. Here is 
something that was funded all of the way through, essentially 
ready to fly, and then was not flown because it was deemed to 
be risky. And you know what happened shortly after we had some 
failures in some Mars missions, and they decided, ``Listen, we 
don't like it, because it is risky, so we don't fly it.'' And 
that is, essentially, what happened. If they had have flown 
that and made a smoking hole in the desert, you would learn 
something from it. When you don't fly it, you have wasted all 
of your money and you have defined certain failure of your 
goals.
    Mr. Bartlett. I appreciate your concern.
    Thank you very much, Mr. Chairman.
    Chairman Calvert. I thank the gentleman.
    I certainly thank this panel. Mr. Rutan, again, 
congratulations for your accomplishments.
    Mr. Whitehorn, thank you for putting some risk capital 
behind this, and that is what entrepreneurship is all about.
    I am going to have a question--a couple of questions, one 
that I will--because we--in the interest of time, about the 
long-term prospects for space tourism on full orbital flights. 
And if I can put that in writing to you and get a written 
response what kind of technologies need to be developed and 
what do you see is a timeline for something like that.
    With that, again, thank you very much for your testimony. 
It is very interesting. We have spent more time on this than we 
thought, but you were very kind to stay here, and it was very 
interesting for us. Thank you very much.
    Mr. Rutan. Thank you.
    Chairman Calvert. Okay. Our next panel: Mr. Elon Musk is 
the CEO and Chief Technology Officer for Space Exploration 
Technologies, SpaceX; Mr. John W. Vinter is Chairman of the 
International Space Brokers, ISB; Mr. Wolfgang Demisch, the 
founder of Demisch Associates, LLC, Aerospace Financial 
Analyst; and Dr. Molly Macauley, Senior Fellow and Director of 
Academic Programs at Resources for the Future.
    Of course, Mr. Musk is known for inventing, what is it, 
PayPal and very successful and now is investing his money in 
something that is even more interesting, and that is space 
exploration.
    With that, Mr. Musk, we are going to try to stay on our 
traditional schedule now of five minutes of testimony and five 
minutes for questions. We kind of let that go with the last 
panel, but we are going to stick to it this time.
    So Mr. Musk, thank you very much for coming, and you may 
begin your testimony.

                               Panel II:

STATEMENT OF MR. ELON MUSK, CHAIRMAN AND CEO, SPACE EXPLORATION 
                     TECHNOLOGIES (SPACEX)

    Mr. Musk. All right. Thank you. There we go. All right.
    Chairman Calvert, distinguished Members of the Committee, 
thank you for having me here. It is an honor to be here.
    I will address the questions as directly as possible.
    The first one is: ``What is the SpaceX business plan?''
    SpaceX is dedicated to improving the reliability and cost 
of access to space for the greater purpose of helping us become 
a space-faring civilization one day. Without dramatic 
improvement in those two inseparable metrics, cost and 
reliability, we will never exceed the great deeds our Nation 
accomplished for all humanity with the Apollo program.
    Although the ultimate goal of SpaceX is to provide heavy-
lift, super-heavy lift, in fact, and manned launch vehicles, we 
have chosen to focus our initial efforts on a small rocket 
capable of launching satellites to low-Earth orbit. This 
vehicle, the Falcon I, is effectively a sub-scale technology 
test bed, ensuring that the inevitable areas of development 
occur at a small scale and without people on board.
    However, the Falcon I, which has the lowest cost per flight 
in the world, and is entirely American built, is also showing 
strong market demand in its own right. We already have three 
firm contracts for launch and expect to close another two 
before Falcon I performs its maiden flight later this year. 
Once Falcon I has a few flights under its belt and the 
satellite producers have time to adjust, I think it is quite 
possible that there will be more flights of Falcon I than any 
other orbital launch vehicle in the world.
    It is also worth noting that the Falcon I is the only semi-
reusable rocket in the world, apart from the Space Shuttle. 
However, reusability is not currently factored into the price. 
As we refine that process, we may be able to make further cost 
reductions and hope to make further cost reductions in the cost 
per flight of Falcon I. As far as reliability is concerned, the 
Futron Corporation, which is used extensively by NASA and the 
FAA, concluded that the Falcon I, despite being low cost, had 
the second highest design reliability of any American rocket. 
It was tied with the most reliable version of the Boeing Delta 
IV and Lockheed Atlas V. The highest design reliability rank 
was held by our Falcon V design, which will be the only 
American rocket that can lose any engine or motor and still 
complete its mission, which I think is really quite crucial.
    The Falcon V, scheduled for first flight next year, is a 
medium-lift rocket designed to carry people as well as 
satellites. As such, the design margins will meet or exceed the 
NASA requirements for manned spacecraft. In fact, my current 
instruction to the design crew is that they exceed the NASA 
specs. My hope is that this vehicle will provide the United 
States with an all-American means of transporting astronauts to 
orbit and ensure that we are beholding to no one once the Space 
Shuttle retires.
    All in all, I see an increasingly positive future for 
commercial space activities over the next five to 10 years.
    But what should the government do or not do to encourage 
the nascent commercial space industry?
    The most important thing that the government should do is 
adopt a nurturing and supportive attitude towards new 
entrepreneurial efforts. In particular, the government should 
seek to purchase early launches as well as offer prizes for 
concrete achievements. Evidence for the tremendous power of 
prizes can be found throughout history, most recently, 
obviously, with the X-Prize and the best evidence being the 
prior panel.
    Regarding purchasing early launches, the Defense Department 
has been very supportive and has done the right thing at every 
level, purchasing two of the four launches we have sold to 
date. But regrettably, NASA has not yet procured a launch and 
has provided less financial support than the Malaysian Space 
Agency, who has bought and paid for a flight on Falcon I.
    However, I am very much heartened by the recent 
confirmation of Dr. Griffin as the new NASA Administrator. I am 
confident that his outstanding technical ability, dedication, 
and diverse experience will invigorate our space program. With 
a finite budget and entrenched interests to fight, Dr. Griffin 
will be forced to make some difficult decisions in the year 
ahead. I urge Congress to give its full support to Dr. Griffin 
when he does so.
    As far as what the government should not do, I think it is 
important to minimize the regulatory burden required for space 
launch activities. And a comment made by Mr. Rohrabacher early 
on regarding the ITAR rules and having ITAR apply only to 
certain countries and not to others with--you know, we are in 
close military alliance, I think makes a lot of sense. But 
right now, we have the greatest difficulty just dealing with 
people from New Zealand and from the UK and from Canada. I 
mean, for goodness sake, it just becomes a bit silly. I really 
think we need to--there is an urgent need for reform in that 
area. I think, unfortunately, the American industry is really 
being harmed by this. And so it--but in general, we should do 
no more than is necessary to protect the uninvolved public, I 
think, as far as regulation is concerned. It sometimes seems to 
me that our society is paving the road to hell one regulation 
at a time.
    And are there implications for the commercial space 
industry as you see it in the President's announced Vision for 
Space Exploration?
    Well, the NASA budget is unlikely to see significant 
increases in years ahead, and in fact, will face severe 
pressure from entitlements just when we really need to spend 
money on the moon and Mars in, say, 10 or 20 years. Compounding 
the problem, U.S. launch prices have been increasing every 
year. So this places NASA in a financial vice, a continually 
tightening financial vice.
    Unless we can reverse the trend of rising costs, we are 
going to accomplish less and less every year. So therefore, the 
only way that our country can meet the President's Vision, or 
really, any interesting objectives in space, is to encourage 
the development of new, low-cost access to space. If we can't 
afford to get there, the Vision will remain--or will become 
nothing more than a mirage.
    [The prepared statement of Mr. Musk follows:]

                    Prepared Statement of Elon Musk

    Chairman Calvert and distinguished Members of the Committee, thank 
you for inviting me to testify today on Future Markets for Commercial 
Space. It is an honor to be here.

What is the SpaceX Business Plan?

    SpaceX is dedicated to improving the reliability and cost of access 
to space for the greater purpose of helping us become a true space-
faring civilization. Without dramatic improvement in those two 
inseparable metrics, we will never exceed the great deeds our nation 
accomplished for all humanity with the Apollo program.
    Although the ultimate goal of SpaceX is to provide super-heavy lift 
and manned launch vehicles, we have chosen to focus our initial efforts 
on a small rocket capable of launching satellites to low-Earth orbit. 
This vehicle, the Falcon I, is effectively a sub-scale technology test 
bed, ensuring that the inevitable errors of development occur on a 
small scale and without people on board.
    However, the Falcon I, which has the lowest cost per flight in the 
world for a production rocket and is entirely American built, is also 
showing strong market demand in its own right. We already have three 
firm contracts for launch and expect to close another two before Falcon 
I performs its maiden flight later this year. Once the Falcon I has a 
few flights under its belt and the satellite producers have time to 
adjust, I think it is quite possible that there will be more flights 
per year of Falcon I than any other vehicle in the world.
    It is also worth noting that the Falcon I is the only semi-reusable 
rocket in the world, apart from the Space Shuttle. However, reusability 
is not currently factored into the price. As we refine that process, 
the cost of Falcon I will decline over time. As far as reliability is 
concerned, the Futron corporation, which is used extensively by NASA 
and the FAA, concluded that Falcon I had the second highest design 
reliability of any American rocket. It was tied with the most reliable 
version of the Boeing Delta IV and Lockheed Atlas V. The highest design 
reliability rank was held by our Falcon V design, which will be the 
only American rocket that can lose any engine or motor and still 
complete its mission.
    The Falcon V, scheduled for first flight next year, is a medium 
lift rocket designed to carry people as well as much larger satellites. 
As such, the design margins will meet or exceed NASA requirements for 
manned spacecraft. My hope is that this vehicle will provide the United 
States with an all American means of transporting astronauts to orbit 
and ensure that we are beholden to no one once the Shuttle retires.
    All in all, I see an increasingly positive future for commercial 
space activities over the next five to ten years.

What should the government do or not do to encourage the nascent 
                    commercial space industry?

    The most important thing that the government should do is adopt a 
nurturing and supportive attitude towards new entrepreneurial efforts. 
In particular, the government should seek to purchase early launches as 
well as offer prizes for concrete achievements. Evidence for the 
tremendous power of prizes can be found throughout history, most 
recently with the X-Prize.
    Regarding purchasing early launches, the Defense Department has 
been very supportive and has done the right thing at every level, 
purchasing two of the four launches we have sold to date. Regrettably, 
however, NASA has not yet procured a launch and has provided less 
financial support than the Malaysian Space Agency, who has bought and 
paid for a flight on Falcon I.
    However, I am very much heartened by the recent confirmation of Dr. 
Griffin as the new NASA Administrator. I am confident that his 
outstanding technical ability, dedication and diverse experience will 
invigorate our space program. With a finite budget and entrenched 
interests to fight, Dr. Griffin will be forced to make some difficult 
decisions in the years ahead. I urge Congress to give its full support 
to Dr. Griffin when he does so.
    As far as what the government should not do, I think it is 
important to minimize the regulatory burden required for space launch 
activities. We should do no more than is necessary to protect the 
uninvolved public. It sometimes seems to me that our society is paving 
the road to hell one regulation at a time.

Are there implications for the commercial space industry as you see it 
                    in the President's announced Vision for Space 
                    Exploration?

    The NASA budget is unlikely to see significant increases in coming 
years and in fact will face severe pressure from entitlements in the 
next decade. Compounding the problem, U.S. launch prices from existing 
contractors are increasing every year, sometimes significantly.
    Unless we can reverse the trend of rising costs, NASA will be 
placed in a continually tightening financial vice, accomplishing less 
and less each year. Therefore, the only way that our country can meet 
the President's Vision in a meaningful way is by encouraging the 
development of new, low cost access to space. If we can't afford to get 
there, the Vision will become nothing more than a mirage.

                        Biography for Elon Musk

    Elon is the CEO & Chief Technology Officer of Space Exploration 
Technologies (SpaceX), which is developing a family of launch vehicles 
intended to reduce the cost and increase the reliability of access to 
space ultimately by a factor of ten. The company officially began 
operations in June 2002 and is located in the heart of the aerospace 
industry in Southern California.
    SpaceX is the third company founded by Mr. Musk. Prior to SpaceX, 
he co-founded PayPal, the world's leading electronic payment system, 
and served as the company's Chairman and CEO. PayPal has over sixty-
five million customers in 38 countries, processes tens of billions 
dollars per year and went public on the NASDAQ under PYPL in early 
2002. Mr. Musk was the largest shareholder of PayPal until the company 
was acquired by e-Bay for $1.5 billion in October 2002.
    Before PayPal, Mr. Musk co-founded Zip2 Corporation in 1995, a 
leading provider of enterprise software and services to the media 
industry, with investments from The New York Times Company, Knight-
Ridder, MDV, Softbank and the Hearst Corporation. He served as 
Chairman, CEO and Chief Technology Officer and in March 1999 sold Zip2 
to Compaq for $307 million in an all cash transaction.
    Mr. Musk's early experience extends across a spectrum of advanced 
technology industries, from high energy density ultra-capacitors at 
Pinnacle Research to software development at Rocket Science and 
Microsoft. He has a physics degree from the University of Pennsylvania, 
a business degree from Wharton and originally came out to California to 
pursue graduate studies in high energy density capacitor physics & 
materials science at Stanford.

    Chairman Calvert. I thank the gentleman for his testimony.
    Mr. Vinter.
    If the gentleman would turn on his microphone.

STATEMENT OF MR. JOHN W. VINTER, CHAIRMAN, INTERNATIONAL SPACE 
                            BROKERS

    Mr. Vinter. Yes.
    Good morning, Mr. Chairman. Thank you. Members of the 
Subcommittee, good morning as well.
    My name is John Vinter, Chairman of International Space 
Brokers. Our office is in Rosslyn, and we have subsidiary 
offices in London and Paris. I am pleased to testify before the 
Subcommittee.
    My company represents a ``who's who'' of satellite users, 
including, in the U.S., Intelsat, XM Satellite Radio, 
Worldspace, AT&T, Bigelow, Kistler, and SpaceX. Additionally, 
we represent SES Astra in Luxembourg, Telesat Canada, New Skies 
Satellites in the Netherlands, Optus in Australia, Star One in 
Brazil, and Singapore Telecom. We have also managed the third-
party liability program for the Shuttle when they were flying 
commercial missions.
    I am also the Chairman of COMSTAC, the DOT's Commercial 
Space Transportation Advisory Committee.
    You have asked me today to address three questions: ``What 
kind of activities does your company include for insurance 
purposes in its definition of commercial space?'' ``As 
insurance brokers, what do you see as the outlook for 
commercial space activities in the next five years, 10 years? 
How do you think we should avoid exaggerated expectations in 
the industry, such as those that occurred in the low-Earth 
orbit market in the late 1990s?'' and finally, ``What, if 
anything, should the government do or not do to encourage 
commercial space endeavors?''
    With respect to commercial space, we include any space 
activity which does not directly involve the U.S. Government as 
an insured. We address satellite insurance and risk management 
needs from ``cradle to grave.''
    For us, commercial space begins with the arrival of people 
or equipment at the various launch sites, continues through 
launch, deployment, testing, and on-orbit operations of 
satellites through the end of their expected lives. These are 
the areas of risk where we spend the majority of our time and 
where satellite owners spend the majority of their insurance 
money. The launch itself is generally the riskiest and most 
expensive phase of any commercial space endeavor. In simple 
terms, our objective is to cover the risk of loss or damage to 
the satellites, including failure of the launchers or failure 
of the satellite to work according to the specifications. In 
general, as a comment, the market wishes to see successful 
first flights before insuring.
    We also provide liability coverage for damages to third 
parties caused by launch and related activities and accidents. 
Again, commercial space insurance begins with arrival of 
equipment or people at the launch site and continues through 
on-orbit operations. As with the satellite coverage above, 
activities prior to arrival at the launch site are best covered 
in non-space insurance markets.
    We also insure persons, for example, astronauts, tourist 
visitors to the Space Station, and individuals who have flown 
on the Shuttle. We also can insure various contingencies such 
as acts of governments, and yes, we could probably even insure 
a space prize.
    As insurance brokers, what do you see the outlook for 
commercial space in the next several years?
    We see space activities evolving and growing, albeit not 
very fast. The world's satellite manufacturers and launch 
vehicle providers have considerable excess capacity. There does 
not seem to be sufficient demand to absorb this excess in the 
near future. For the next several years, we think there will be 
approximately 15 to 20 commercial launches a year. We see, 
however, more human activities in space, the X-Prize being the 
first, and no doubt the America's Prize will be the second. And 
other incentive programs I am sure will generate an increase in 
activities.
    I hope Mr. Rutan and Mr. Whitehorn, the other gentleman 
from Virgin Galactic, are widely successful and very active. 
The insurance community will be there for them, but it still 
remains to be seen.
    What, if anything, should the government do?
    Well, with respect the government involvement to encourage 
space endeavors, I offer the following. I would suggest the 
government maintain the current liability risk-sharing regime 
of private insurance, government indemnification in excess of 
private insurance, and cross waivers. This regime was 
established in the late '80s and was renewed last year for an 
additional five-year period. This system, in my judgment, is 
working very well. It has been adopted by non-U.S. launch 
organizations. I know there are doubters, but I believe this is 
very essential to the commercial launch business in the U.S.
    I also would recommend we take another look at the 
International Traffic in Arms Regulations as regards to 
commercial space to see if they really achieve what they are 
meant to achieve. We handle these matters for some of our 
clients, and the people who review the matters for licensing 
and monitoring are doing an excellent job and in a very timely 
fashion. The practical impact is not so clear. From the 
insurance point of view, this is an essential area, because 2/3 
of the insurance market is located outside the country, and it 
appears that the same underwriters show up on every program, 
but they have to be individually cleared for every program. I 
believe that the U.S. industry would benefit if the process can 
be streamlined. I should also point out the whole process is 
pushing satellite business overseas as non-U.S. operators find 
it increasingly difficult to cope with the whole process.
    I believe the use of government ranges and government 
purchases of commercial space services, where feasible, seems 
to be working well. I would, of course, defer to others, such 
as Mr. Musk, for their comments.
    In this age of deficit spending, I would be hesitant to 
recommend additional public spending, but perhaps it could be 
considered by way of providing seed money for promising new 
technology.
    This concludes my testimony. I will, of course, be pleased 
to answer any questions. Thank you.
    [The prepared statement of Mr. Vinter follows:]

                  Prepared Statement of John W. Vinter

    My name is John Vinter, Chairman of International Space Brokers, 
Inc. My office is in Rosslyn, VA, and we have subsidiary offices in 
London and Paris. I am pleased to testify before the House Committee on 
Science, Subcommittee on Space and Aeronautics.
    My company represents a ``Who's Who'' of satellite users, including 
the following: In the U.S., Intelsat, XM Satellite Radio, Worldspace, 
AT&T, Bigelow, and SpaceX. Additionally, we represent SES Astra in 
Luxembourg, Telesat Canada, New Skies Satellites in the Netherlands, 
Optus in Australia, Star One in Brazil, Singapore Telecom in Singapore, 
and others. We also have managed the Shuttle third party liability 
insurance program for NASA.
    I am also the Chairman of COMSTAC, the Department of 
Transportation's Commercial Space Transportation Advisory Committee, 
advising the FAA's commercial space transportation office. In my 
career, I have been fortunate, in separate career phases, to work for 
both a satellite company having the need for insurance as well as an 
underwriter company providing insurance coverages. Today, I am a broker 
representing the above mentioned clients, and others, in the purchase 
of insurance from the international space insurance market. You have 
asked me to address the following questions:

        1.  What kind of activities does your company include for 
        insurance purposes in its definition of ``commercial space''?

        2.  As insurance brokers, what do you see as the outlook for 
        commercial space activities in the next five years? Next 10 
        years? How do you think we should avoid exaggerated 
        expectations for the industry, such as those that occurred in 
        the low-Earth orbit (LEO) market in the late 1990s?

        3.  What, if anything, should the Government do or not do to 
        encourage commercial space endeavors?

What kind of activities does your company include for insurance 
                    purposes in its definition of ``commercial space''?

    With respect to ``commercial space'' activities, we include any 
space activity which does not directly involve the U.S. Government as 
an insured. We address satellite insurance and risk management needs 
from ``cradle to grave.''
    For us, commercial space begins with the arrival of people or 
equipment at the various launch sites, continues through launch, 
deployment, testing, and on-orbit operations of satellites through the 
end of their expected lives. These are the areas of risk and insurance 
where we spend the majority of our time and where satellite owners 
spend the majority of their insurance money. The launch itself is 
generally the riskiest and most expensive phase of any commercial space 
endeavor to insure. In simple terms, our objective is to cover risks of 
loss or damage to the satellites, including failure of the launchers, 
or failure of the satellite to work according to its specifications.
    We also provide liability coverage for damages to third parties 
caused by launch related and satellite operational accidents. Again, 
commercial space insurance coverage begins with the start of launch 
site activities and continues through on-orbit operations. As with the 
satellite coverage above, activities prior to arrival at the launch 
site are best covered in non-space insurance markets.
    We also ensure persons, for example, the lives of various 
astronauts and tourists/visitors to the Space Station, including 
individuals who fly or have flown on the Shuttle.
    From time to time, we also insure contingencies such as acts of 
government, and other causes, that could affect the ability to launch 
for various reasons.

As insurance brokers, what do you see as the outlook for commercial 
                    space activities in the next five years? Next 10 
                    years? How do you think we should avoid exaggerated 
                    expectations for the industry, such as those that 
                    occurred in the low Earth orbit (LEO) market in the 
                    late 1990s?

    As brokers, we see space activities evolving and growing, albeit 
not very fast. The world satellite manufacturers and launch vehicle 
providers have considerable excess capacity at the moment. There does 
not seem to be sufficient demand to absorb this excess in the near 
future. For the next several years, it would appear there will be 
approximately 15 to 20 commercial launches per year. We see, however, 
more human activities in space, the X-Prize being the first of what is 
expected to be a significant increase in the number of humans going 
into space. I have no doubt that the America's Prize, and, hopefully, 
other incentive programs will generate an increase in activities, 
although it is hard to determine how long this will take.
    Going into space is expensive and involves significant risk. The 
implications of the low-Earth orbit projects in the late '90s adversely 
affected the financial markets. I have no doubt that the financial 
community will demand sound business plans before advancing significant 
sums of money. As it is well known, space is very exciting and will be 
the subject of much discussion. Unfulfilled expectations can't be 
avoided. I do not know whether a solution will exist to deal with the 
ups and downs of expectations. Perhaps getting together with the 
insurance industry for their opinions may be of value in minimizing the 
potential financial risks.

What, if anything, should the government do or not do to encourage 
                    commercial space endeavors?

    With respect to government involvement to encourage space 
endeavors, I offer the following thoughts.
    I would suggest the government maintain the current liability risk 
sharing regime of private insurance/government indemnification in 
excess of private insurance and cross waivers. This regime was 
established in the late 1980s and was renewed last year for an 
additional five-year period (P.L. 108-428). This system, in my 
judgment, is working very well and has been adopted by non-U.S. launch 
service organizations. I know this regime has doubters but failure to 
maintain this regime, I believe, in the long run could significantly 
harm the U.S. commercial launch business.
    I would also recommend that the International Traffic In Arms 
Regulations, as regards to commercial space activities, be reviewed to 
see if they really achieve what they are meant to achieve. We handle 
these matters for some of our clients and the people who review such 
matters for licensing and monitoring are doing an excellent job and in 
a very timely fashion. The practical impact of these regulations should 
be noted. From the insurance point of view, it is important to 
recognize that two thirds of the market is located outside of the 
country and the same underwriters appear on most of the programs. It 
could benefit U.S. industry if the ITAR process can be streamlined. 
However, I should point out the whole process is pushing satellite 
business overseas as non-U.S. operators find it increasingly difficult 
to cope with the process, particularly, in a tough competitive 
environment.
    I believe the use of government ranges and government purchases of 
commercial space related services, where feasible, seems to be working 
well. I would defer to others for their comments in this regard.
    In this age of deficit spending, I would be hesitant to recommend 
additional public expenditure for commercial space projects but perhaps 
it could be considered by way of providing seed money for promising new 
technology and so forth.
    This concludes my testimony. I would, of course, be pleased to 
answer any questions. Thank you for this opportunity.

                      Biography for John W. Vinter

Professional Background:

    John Vinter is Chairman of International Space Brokers, Inc. (ISB). 
He has been involved with virtually all aspects of satellite business 
for over thirty years. Mr. Vinter was appointed to the Department of 
Transportation's Commercial Space Transportation Advisory Committee 
(COMSTAC) in January 2000. In July 2003, he was appointed as COMSTAC 
Chairperson by FAA Administrator, Marion Blakey and assumed the 
official duties of Chair at the last meeting in October 2003.
    Mr. Vinter founded ISB in February 1991, in conjunction with three 
prominent insurance brokerage organizations. Since its founding, ISB 
has consistently maintained a 30-40 percent market share in this 
business.
    From March 1984 to February 1991, Mr. Vinter was responsible for 
the space underwriting activities for INTEC (now AXA Space). INTEC was 
the underwriting manager for CIGNA and a large number of insurers and 
re-insurers worldwide. As Executive Vice President, Mr. Vinter was lead 
underwriter for many of the world's major programs. His underwriting 
activities were such that INTEC was able to achieve an underwriting 
profit six out of seven years and a market share of 20-25 percent.
    From August 1976 until February 1984, Mr. Vinter held a variety of 
positions with Satellite Business Systems where he was Director of 
Administration, Contracts and Procurement. In this capacity he was 
responsible for Satellite Business Systems' business transactions 
involving contractual relationships with its customers, contractors, 
insurers and launching agencies. He was also responsible for the risk 
management function of the company. In connection with this activity he 
negotiated the contract for the first HS-376 satellite as well as the 
first commercial Shuttle launch services agreement with NASA for which 
he then purchased the first Shuttle third party liability and launch 
insurance.
    From July 1968 to August 1976, Mr. Vinter held a number of 
management positions within Communications Satellite Corp. in which he 
was responsible for the negotiation, procurement and administration of 
major satellite and ground system procurements.

Education:

    John Vinter has an A.B. degree in Economics from Georgetown 
University and a M.S. degree in Telecommunications Operations from 
George Washington University.

    Chairman Calvert. I thank the gentleman.
    Mr. Demisch, you may begin your testimony.

   STATEMENT OF MR. WOLFGANG H. DEMISCH, PRESIDENT, DEMISCH 
                        ASSOCIATES, LLC

    Mr. Demisch. Thank you, Mr. Chairman.
    Mr. Chairman, Members of the Subcommittee, and honored 
guests, thank you for the opportunity to appear before you 
today. My name is Wolfgang Demisch. I am a principal in Demisch 
Associates LLC, a financial consultantcy in the aerospace 
sector.
    You have asked me to address the outlook of the commercial 
space launch business as well as to forecast when space would 
attract classic risk-reward investors to succeed the ``angel'' 
investors, such as Paul Allen, who funded SpaceShipOne that we 
see today. The goal is to help the Committee recommend what the 
Congress could or should do to encourage commercial space 
endeavors as called for in the NASA charter.
    Your hearings come at a challenging time for commercial 
space. The benefits of commercial space are just embedded in 
the economy. They are taken for granted by anybody who goes for 
a hike with a GPS, for instance, but they just haven't been 
well rewarded in the financial area. To highlight the issue, 
over the last four years, essentially all of the world's civil 
communications fleet has changed hands for an aggregate price 
roughly equal to one-year NASA budget. That has been a 
disappointing return for the investors, and that is without 
factoring the costs of things like Iridium or Beale or Kistler. 
The only consolation is the buyers are probably a roll call of 
the smartest investors in the world, people like KKR and 
Carlyle and Apollo, and clearly, they see outstanding risk-
reward in space right now, and but notably in the space 
communication segment.
    The fact that there are smart buyers for space 
communication doesn't change the reality that access to space 
remains too costly for most commercial endeavors. Price per 
pound to low-Earth orbits in the $10,000 class, essentially 
unchanged from the $1,000 a pound achieved by the Saturn V in 
the 1970s. That translates, incidentally, on a tourism basis, 
directly into the $20 million a head paid by the guys who flew 
on the Russian boosters, and I might note that that was a 
bargain. They didn't pay for life support. If NASA were to do 
the same thing, if Congress was encouraging them, they would 
probably have to charge five to eight times as much.
    So I think the message is space launch is on a much lower 
productivity track than microelectronics or computing, and that 
is despite Congress's long-term funding support of new space 
launch technology: the reusable Shuttle, the commercially-
derived EELV. No savings were achieved. I am unaware, 
regrettably, of any credible proposal for substantial cost 
reductions. The propulsion breakthrough, which I think would be 
necessary in the technical basis to achieve such a 
breakthrough, isn't in sight. I think it would be prudent to 
set policy on the basis that no substantial launch cost 
reductions are to be expected.
    It will stay expensive until we get something like the 
proposed space elevator that Clarke, among others, has written 
about. I think that is a plausible technology, and so I 
enthusiastically applaud NASA's Centennial Challenge program, 
which will help mobilize the need of talents and materials and 
power technology that would underpin that kind of a 
transformation. And I think that is worthy of your support, but 
in the interim, I think it will remain uneconomic to send up 
anything other than information up and down from space. Absent 
some astonishingly serendipitous discovery, a cancer cure, for 
instance, space access, I think, would grow in line with the 
general economy.
    And I think the more promising approach to improving the 
efficiency of space flight is to accept that it is hugely 
costly; about 10 pounds of space payload is equal to one man 
year at current engineering rates, and at that price, it is 
really worthwhile to invest to shrink the payload weight that 
is needed to perform a specific task. NASA has used this 
technique with pretty good success to trim the mission costs of 
its interplanetary probes. And while it has limitations, 
because, you know, antenna size and also people don't scale 
down like they might, nevertheless, it is pretty powerful, 
especially when you combine several satellites in the station 
keeping system to ambulate the performance of a bigger 
platform. There is lots of space for better improvement: better 
batteries, better solar cells, lighter structures, more 
efficient communications, and has direct spinout both to the 
military as well as eventually to the larger economy. I think 
that that kind of effort deserves your support.
    In general, I have to say Congress has been consistently 
supportive of commercial space. It has shied away from the kind 
of direct operating incentives we saw in the beginning of the 
civil air transport industry, but nevertheless, Congress has 
been very generous. I consider, for instance, you know, the 
duopoly allocation for the satellite radio business or, for 
that matter, the enormous frequency allocation, which was 
granted Teledesic when they had their broadband project, and 
those kind of in-kind supports that is essentially the modern 
day equivalent of land grants to the railroads that financed 
the transcontinental railroads in the 19th century. I think it 
is important, but I think it is inadequate, to catalyze a major 
new industry of the scope and stability that is needed to 
transform commercial space into the kind of risk-reward 
investor as opposed to ``angel'' investor area that you are 
seeking. Commercial space today is centered on communications 
and broadcasts and the new broadcasts are being brought into 
service, like XM Radio and Sirius, and as that happens, 
existing services, like DirectTV, get forwarded into larger 
media powerhouses and the investment feasts on those 
enterprises is not controlled by the space investment. It is 
controlled by other factors.
    I do think there are other drivers for commercial space 
initiatives that respond to Congressional mandates regarding 
national security, for instance. It is interesting that right 
now there is no effective surveillance of the millions of 
containers that flow across our borders. In fact, industry 
can't even find about 1/3 of them. So the TSA and Customs have 
begun to institute some monitoring. These are big boxes, you 
know, I mean, sort of house-sized, able to contain anything, 
germ warfare labs. The monitoring doesn't really watch these 
trailer-sized structures either while they are in transit or 
when they are in the U.S. There are proposals for satellites to 
offer that capability to maintain that watch worldwide. It 
requires each container be equipped with a suitable black box 
that checks its status and reports intrusions. And once that is 
there, there is also, of course, obvious commercial spin-offs 
from that. You can monitor the environment. You can monitor the 
temperature. You can check the--see that the product quality is 
maintained. When you have a container of beer and it goes to 
160 degrees, it is probably not going to be good beer. But it 
also gives you a straight commercial payoff. You can include 
the documentation for fast Customs clearance.
    That kind of monitoring, I think, will be routine in the 
decade, because it responds--is driven by a pressing security 
need. There are other initiatives, for example, to switch a lot 
more of the air traffic control to satellite-based navigation 
and communications. That will take longer. But I think that 
getting the infrastructure support, which provides steady and 
reliable revenues, that is the kind of thing risk-reward 
investors seek and will accept. I think that may begin the 
transition the Committee is talking about.
    Thank you for your attention. I am available for any 
questions.
    [The prepared statement of Mr. Demisch follows:]

               Prepared Statement of Wolfgang H. Demisch

    Mr. Chairman, Members of the Subcommittee, honored guests. Thank 
you very much for the opportunity to appear before you today. My name 
is Wolfgang Demisch, I am a principal in Demisch Associates LLC, a 
financial consultancy oriented towards the aerospace sector and I have 
been active in aerospace financial matters since the early 1970's.
    You have asked me to address the outlook for the commercial space 
launch business, as well as to forecast when space would attract 
classic risk-reward investors to succeed the `angel' investors we see 
today, investors such as Paul Allen, who funded the Spaceship 1 
development. The goal is to help the Committee recommend what the 
Congress could or should do to encourage commercial space endeavors, as 
called for in the NASA charter.
    Your hearings come at a challenging time for commercial space. 
While the benefits of commercial space are now so embedded in our 
economy that they are taken for granted by anyone who goes on a hike 
with a GPS, to give just one example, they have not been well rewarded 
in the financial arena. To highlight the problem, over the past four 
years, the bulk of the world's civil communications satellite fleet has 
changed hands, for an aggregate price roughly equal to one year's NASA 
budget. This represents a disappointing return to the industry 
sponsors; even without factoring in the additional losses on 
restructured projects such as Iridium or the costs of now quiescent 
launch ventures such as Beale or Kistler. The consolation, if any, is 
that the buyers, firms such as KKR, Carlyle and Apollo, are almost a 
roll call of the world's most astute investors. Their actions 
demonstrate that they see outstanding risk-reward value in commercial 
space, notably the communications segment, where substantial purchases 
could be made.
    That commitment to space based communications however does not 
invalidate the painful reality that access to space remains too costly 
for most commercial endeavors.
    At present, the price per pound to low Earth orbit is in the 
$10,000/lb class, depending on the vehicle. It is not much changed, on 
an inflation adjusted basis, from the roughly $1000/lb achieved by the 
Saturn V booster in the 1970's. Today's price translates readily into 
the $20 million fare paid to Russia by the first space tourists, who 
arguably got a bargain, as their life support and training was 
included. NASA would have to charge several times as much to cover its 
costs, if the Congress were ever to encourage such a use of NASA's 
fleet.
    Clearly space launch costs are on a much lower productivity track 
than the microelectronics or computing sectors. This is so despite 
Congress' solid support of cost reduction efforts, first with the 
reusable Space Shuttle, then with the commercially derived EELV, 
neither of which achieved the savings anticipated. Regrettably, I am 
unaware of any credible proposal to achieve the desired substantial 
cost reductions. The propulsion breakthrough, which would be a 
prerequisite for a much better cost performance, is not in sight. Hence 
it would seem prudent to set policy on the basis that no substantial 
launch cost reductions are to be expected.
    Access to space will stay expensive until we can achieve something 
like the proposed space elevator that Arthur C. Clarke, among others, 
has written about. This seems a plausible technology. Consequently, I 
enthusiastically applaud NASA's Centennial Challenge program, which 
will, I believe, help mobilize the needed talents to realize the 
materials and power technologies that underpin such a transformative 
capability. This effort, although still far from fruition, is worthy of 
your consideration in my view.
    In the interim, perhaps for the next two or three decades, it will 
remain uneconomic to send anything other than information up into or 
back down from space. This suggests that absent some astonishingly 
serendipitous discovery, a cancer cure for instance, entry to space 
will grow about in line with the general economy, rather than some 
multiple thereof. It also suggests that there is not much to be gained 
from an effort to force feed the launch sector
    A more promising approach to improving the economic efficiency of 
space flight, in my opinion, is to accept that space payload is hugely 
costly, 10 pounds per man-year at current engineering rates. At that 
price, it is worthwhile to invest to shrink the payload weight needed 
to perform the desired task. NASA has used this technique with 
considerable success to trim the mission cost of its interplanetary 
probes. While the approach has limitations, because of antenna size and 
power requirements, because of packaging constraints as well as because 
of people life support needs for manned systems, it is surprisingly 
powerful, especially when considering that several smaller spacecraft 
can cooperate to emulate the performance of a larger platform. There is 
plenty of scope for payload improvement, including better sensors, more 
efficient solar cells and batteries, lighter structures and more 
efficient communications. The product applications exists in the 
broader defense market as well as in space, plus such improvements 
eventually find application in the larger economy. While unglamorous, 
such initiatives are well suited to the NASA culture and likewise 
deserve your continued support.
    Congress has been consistently supportive of commercial space. 
While it has thus far shied away from the kind of aggressive operating 
incentives that early in the last century helped bring the national air 
transport system into existence, Congress has been generous, even 
beyond the massive launch vehicle investments. For instance, Congress 
allowed duopoly positions for the satellite radio business, just as it 
blessed the enormous frequency allocation granted Teledesic to support 
their space based broadband project.
    Such in kind support, reminiscent of the land grants that financed 
the transcontinental railroads in the 19th century, remains an 
important component for commercial space ventures, but appears 
inadequate to catalyze major new industries of the scope and stability 
needed to transform commercial space into a risk-reward investor's area 
of interest. Commercial space enterprises are currently centered on the 
communications and broadcast sectors. While there have been new 
services brought into being here, most recently the direct radio 
broadcasters Sirius and XM Radio, others such as DirecTV have been 
acquired by larger media powerhouses. For these entities, space is a 
minor component of the overall investment thesis.
    There may however be other drivers for commercial space, 
initiatives that respond to Congressional mandates regarding national 
security for instance. For example, there is not at present any 
effective surveillance of the millions of containers that flow across 
our borders. While the TSA and U.S. Customs have begun to institute 
some monitoring, both at the point of origin as well as at the port of 
entry, there is no watch on these trailer sized structures while in 
transit or while in the U.S. Satellites offer the capability to 
maintain that watch worldwide, provided each container is equipped with 
a suitable black box that checks its status and reports intrusions. 
This type of self-assessment is of course readily extended to include 
measurements of commercial interest, such as temperature or vibration, 
which then facilitates better product quality control, as well as of 
course electronic documentation for faster and easier customs 
clearance.
    Such monitoring will, in my view, be a matter of routine within the 
decade, because it responds to a more pressing security need. Other 
initiatives, for instance to shift much more of the air traffic control 
responsibility to satellite based navigation and communications links, 
will take longer to achieve broad acceptance. However, services such as 
these, providing critical infrastructure support, appear to be the kind 
of reliable revenue generators that risk-reward investors eagerly 
accept. They may begin the transition the Committee asked about.
    Thank you for your attention.

                   Biography for Wolfgang H. Demisch

    Mr. Demisch is an owner of Demisch Associates LLC, an aerospace 
financial consultancy. He has over 30 years experience as an analyst 
and banker in the Aerospace and Technology sectors. While a research 
analyst covering aerospace and computer technology, he frequently was 
ranked a leader in these fields by Institutional Investor Magazine. He 
later established and managed the U.S. Equity Research department for 
UBS. He subsequently moved to the investment banking side of the 
business, where he helped implement transactions such as the 2002 
purchase of GE Americom by Societe Europeenne des Satellites. He has 
served on the NASA Advisory Council and numerous NASA panels, including 
small satellite technology, space station alternatives and commercial 
uses of space. In 2003 he established Demisch Associates LLC to provide 
advisory services for investors considering acquisitions in the 
aerospace and technology sectors. A frequent guest on financial TV and 
speaker at industry meetings, he is a member of Wall Street Week with 
Louis Rukeyser's Hall of Fame. He has served on the Board of Directors 
of SAIC, an employee-owned professional services company, since 1991. 
He is a graduate of Princeton University and the Harvard Business 
School.

    Chairman Calvert. Thank you.
    Dr. Macauley, you may begin your testimony.

STATEMENT OF DR. MOLLY K. MACAULEY, SENIOR FELLOW AND DIRECTOR, 
          ACADEMIC PROGRAMS, RESOURCES FOR THE FUTURE

    Dr. Macauley. Thank you.
    Good morning, Mr. Chairman, and Members of this 
subcommittee. Thank you for the opportunity to join you today.
    Much of the discussion this morning has centered on getting 
things and people into space. I have been asked to broaden 
discussion a bit to consider these as well as other kinds of 
activities included in the commercial space industry. I have 
also been asked to discuss U.S. leadership in these activities, 
and probably most important, the role of government, including 
what government should not do in encouraging commercial space.
    My written comments address all of these three topics, and 
they have some very specific discussion of past regulatory and 
legislative initiatives, the legislative initiatives taken and 
spearheaded by this subcommittee. And the testimony also has 
some detailed discussion about directions for the future.
    So, in the interest of time, I will just summarize the 
general themes here.
    And I offer my comments with a great deal of humility. I am 
not a pioneer in building space technology and making a 
business work like my colleagues this morning. So I offer my 
comments with humility. What I and other analysts try to do, 
though, is innovate in the case of public policy. And actually, 
in the past couple of years, there has been a great deal of 
innovation in public policy in the U.S. Government at the 
Federal, State, and local level, and these have direct 
applicability to space policy making.
    Generally, they are incentive-based approaches. They 
generally work. They generally work well. In particular, what 
they try to do is to minimize the costs imposed on industry, 
but, at the same time, do some of the things government is 
supposed to do, such as protecting the environment to some 
degree, providing some reasonable amount of worker or consumer 
safety, generally provide opportunities but without dictating 
choice, and in short, to balance the interests of the taxpayer 
with specific interests of industry.
    So some of these examples of policy innovations, say, in 
the last decade have been highly successful tradable permits in 
the case of industries that have to meet environmental 
regulation, auctions of portions of the electromagnetic 
spectrum by the Federal Communications Commission to improve 
access to and use of spectrum, vouchers to permit consumer 
choice, the move towards performance standards meeting a level 
of overall performance rather than government dictating exactly 
how every nut and bolt used by industry should comply with 
safety regulations, and of course the role of prizes and cash 
incentives.
    I think it is very important to point out that government 
policy making for space in the form of Congressional 
legislation, again spearheaded by this subcommittee in the 
past, as well as some presidential policy directives and some 
regulation of various commercial space activities has, in many 
cases, already promulgated incentive-based policies like these. 
We already have on the books some provisions for space 
transportation vouchers. In some cases, we are moving towards 
performance standards. There are provisions for government 
purchases of Earth and space science data and space 
transportation services and now, most recently, we are 
experimenting with prizes. In all cases, the statutory intent 
has been to support commercial space.
    Now to be sure, not all of these initiatives have worked. 
The example perhaps most notable is the attempt to transfer to 
commercial operations. But the policy experiments are being 
attempted. And in terms of government's future role, I 
recommend that a philosophy of incentives like these and 
sometimes established as experimental or demonstration policy 
programs, the counterparts to technology pathfinders underlie 
future approaches.
    In the interest of quickly summarizing my other comments, 
let me use two examples.
    The first. Recently Google joined with a company called 
Keyhole to offer three-dimensional maps on our PCs and our 
BlackBerrys for finding things ranging from street directions 
to restaurants to ATM machines. For some neighborhoods, these 
maps are so detailed, you can see your neighbors' trashcans. 
But the real advantage of Google and Keyhole is that the maps 
are easy to use and they are very well annotated. Even though 
the underlying satellite imagery and aerial photography data 
can consist of many terabytes, they are very complicated to 
manipulate and geographically rectify these data, and they are 
very hard for a consumer not trained in photogrammetry, let 
alone map reading, to understand. The factors, then, are these: 
ease of use, low-cost ease of use, annotation, and a corporate 
partnership that brings with it, ready-made, a large consumer 
market.
    The second example. A newcomer to commercial space is 
satellite radio, XM and Sirius. They had to obtain FCC licenses 
and frequency allocations, contract for commercial launch 
services and insurance, obtain permits for and then install and 
maintain an initial network of hundreds of terrestrial 
repeaters for ground coverage in drop-out areas. They also had 
to design and test radio antennae and in-car technology. Then 
they had to attract GM, Honda, Sony, Wal-Mart, Best Buy, 
Circuit City, and RadioShack for their supply and market 
chains. And they still weren't done. They needed programming. 
They needed content. So they are signing up Major League 
Baseball, NASCAR, CNN, Fox News, and Howard Stern, literally 
hundreds of kinds of programs.
    The points of these examples are these.
    Businesses can succeed or fail despite of or independent of 
space policy. Commercial space success depends as much on the 
usual business challenges: strategy, customer relations, 
contracting practices, understanding consumer markets, as on 
challenges that are space unique. Space businesses also depend 
on innovation in non-space commercial markets, like 
electronics, information technology, entertainment, 
automobiles, retail services. And space businesses also face 
policies related to export restrictions, as have been mentioned 
earlier, national security concerns, and regulation in 
financial, environmental, occupational, and employment sectors.
    And a good space policy, I think, will be familiar with 
these other pressures brought to bear on our U.S. industry to 
understand the big picture of what space business in this 
context is all about.
    So in conclusion, I would just like to say that I think to 
confer with the titans of space industry, as we have done 
today, is essential for good policy making. It may also be 
useful to confer with titans in other types of U.S. industries 
that are directly related to the success of our space 
businesses. And finally, good space policy is necessary, but it 
won't always be sufficient for business success nor at fault 
for business failure.
    Thank you.
    [The prepared statement of Dr. Macauley follows:]

                Prepared Statement of Molly K. Macauley

    Good morning, Mr. Chairman and Members of the Committee on Science, 
Subcommittee on Space and Aeronautics. I am Molly K. Macauley, a Senior 
Fellow at Resources for the Future (RFF), a research organization 
established in 1952 and located here in Washington, DC. RFF is 
independent and nonpartisan, and it shares the results of its policy 
analyses with members of all parties in the executive and legislative 
branches of government, as well as with business advocates, academics, 
members of the press, and interested citizens. My comments today 
represent my own views, it should be noted, and not those of RFF, which 
takes no institutional position on legislative or regulatory matters.
    My training is in economics and I have worked as a space analyst 
for 20 years. I have written extensively about space economics and 
policy, serve on numerous NASA and National Academy of Science panels, 
and have had the opportunity to meet with your committee several times 
in past years. Thank you for the opportunity to meet with you today, 
Mr. Chairman. I am honored to be part of this distinguished panel. 
Moreover, I am grateful that you are seeking perspectives about the 
role of government in space commerce.
    I've been asked to consider these topics: the kinds of activities 
included in ``commercial space;'' U.S. leadership in these activities 
and the outlook during the coming years for the industry; and the role 
of government, including what government should not do in encouraging 
commercial space.
    My overall observation is that U.S. commercial space policy to date 
has been appropriately supportive of U.S. industry and sets a good 
precedent for the future. The interests of the taxpayer and industry 
are most likely to flourish mutually by way of a conservative approach 
to legislative and regulatory intervention, coupled with an innovative, 
incentive-oriented philosophy. I also recommend the usefulness of 
demonstration or pathfinder, experimental approaches to policy.

WHAT KINDS OF ACTIVITIES ARE INCLUDED IN ``COMMERCIAL SPACE?''

    Some of the promise of commercial space has been more than 
realized, accompanied by new and perhaps unexpected consumer markets. 
Some promise has been less successful, often for a variety of reasons 
independent of government actions.
    Looking backward for just a moment is useful. A decade ago, the 
Wall Street Journal and USA Today had vastly expanded their geographic 
distribution by a new method: using satellites to transmit the papers 
to local printing presses across the country for early morning 
publication. The satellite distribution technology was so novel that 
the papers included at the top of their front page, ``Via Satellite,'' 
to impress upon readers that the news was hot off the press even if the 
news had originated thousands of miles away. A much more routine use of 
space by the commercial media was the satellite pictures of cloud cover 
and hurricanes on the daily TV news. In another routine use of space, 
telecommunications companies routed some long-distance telephone calls 
by way of satellite, although microwave or undersea fiber optic cable 
sent most calls. Satellites also enlarged the market for cable 
television. Sometimes to the dismay of neighbors, many consumers had 
erected large satellite dishes in their yards to receive cable TV. 
Reflecting the by-then wealth of experience of commercial satellite 
makers in serving these markets, Fortune magazine, in its list of ``100 
Things America Makes Best,'' included communications satellites by 
Boeing.
    In another related market, the satellites supplying these services 
were commercially launched, fueling the commercial space transportation 
industry. In other markets, some bulky, expensive, and complex global 
positioning satellite (GPS) receivers were finding use in ground 
surveying and in navigation for civil aviation. The entrepreneurs 
proposing the first commercial remote sensing space system worked with 
policy-makers to forge entirely new regulatory and legislative policy 
to obtain licenses for their service and were preparing for launch. 
There were also business plans for markets in space burials and for 
commercial materials processing on the Shuttle and Space Station.
    Today, just a decade later, the novelty of commercial 
communications satellites has worn off so that the newspaper covers 
don't remind readers of the transmission technology (although the 
technology is still essential and new comsats are routinely launched 
for existing and new services). Residential satellite dishes are much 
smaller and hardly noticeable perched on apartment balconies and 
corners of rooftops. There are now some thirty-two commercial satellite 
operators around the world. They support 176 million Americans for whom 
cell phones, pagers, BlackBerrys and high-speed connection to the 
Internet are as essential as a morning cup of coffee. Most of these 
services use at least some satellite relays in addition to terrestrial 
network technologies. Backpackers and passenger cars carry lightweight, 
increasingly lower cost, and highly capable GPS receivers. Satellite 
radio receivers are in cars, homes, and boats and hand-held satellite 
radios accompany joggers. XM Satellite and Sirius Satellite radio 
companies along with SpaceShipOne are the most prominent among new 
entrants in commercial space markets. XM has just announced that it is 
also joining with AOL for Internet radio service. Both XM and Sirius 
point out that after eighty years of AM radio and sixty years of FM 
radio technology, their digital technology offers the first new radio 
broadcast medium.
    In the case of commercial space remote sensing, industry is 
struggling financially. For a variety of reasons, the industry has had 
trouble building a civilian consumer market and has instead relied 
heavily on sales to government, including contacts for data purchases 
by the National Geospatial Intelligence Agency and other national and 
foreign government security departments.
    But the recent acquisition by Google of Keyhole Corporation, a 
California-based digital mapping company, is a new and promising 
direction for remote sensing. Keyhole uses satellite and aerial maps 
and, most important, easy-to-use software. A person (untrained in the 
complexities of photogrammetry) can zoom-in for detail on satellite and 
aerial pictures by way of a personal or laptop computer and even 
simulate 3D maps to find hotels, parks, ATMs, and subway stops at home 
or when traveling. One reviewer noted that in some cases a consumer can 
even zoom in enough to see a neighbor's trash cans. In remote sensing, 
then, companies are finally treating the market not as ``users'' but as 
``consumers.'' Keyhole, together with the innovative software known as 
Ajax that manages the complexity of all of the data and interfaces 
between hardware and software components, simplifies and annotates 
otherwise complicated digital imagery.
    In the commercial space transportation industry, ideas and 
technology have moved from conventional rockets to an innovation like 
Sea Launch, and from unmanned commercial vehicles to the promise of 
SpaceShipOne in serving payloads in the form of people not packages.
    These examples of satellite radio, the Google-Keyhole arrangement, 
and innovations in space transportation technology and markets 
represent a particular and significant development relevant to 
Congressional and public policy perspectives on commercial space. This 
development is the hard work of industry in blending space-based 
technology with existing technologies and markets on Earth, complete 
with having to comply with the regulations that govern those 
technologies and markets. In other words, commercial space is not a 
stand-alone industry and it can succeed or fail on market conditions 
and other public policy wholly independent of commercial space policy.
    By way of illustration, satellite radio had to: obtain FCC licenses 
and frequency allocations; contract for commercial launch services and 
insurance; obtain permits for and then install and maintain an initial 
network of 800 terrestrial repeaters for ground coverage in drop-out 
areas; design and test radio, antenna, and in-car technology; attract 
GM, Honda, Sony, WalMart, Best Buy, Circuit City, and Radio Shack, 
among other companies, to build its supply and market chain; and sign 
up major league baseball, NASCAR, CNN, Fox News, Howard Stern, and 
other programming. No space technology has a stand-alone supply network 
or consumer market.

U.S. LEADERSHIP IN COMMERCIAL SPACE--STATUS AND OUTLOOK

    Most experts contend that some of the best commercial space 
products as well as significant innovation continue to come from U.S. 
companies. But these observers also acknowledge that ``U.S.-made'' can 
be misleading. For instance, companies routinely employ foreign-born, 
U.S. trained engineering talent. In addition, increasingly, and due in 
part to export restrictions, markets are typically larger for U.S.-made 
components rather than entire finished products.
    Space-related markets are markedly more competitive than in past 
decades. Space transportation markets now include suppliers in Europe, 
China, Russia, Ukraine, Japan, and India--all now offer commercial 
launch services. Israel and Brazil also have their own launch 
capability. According to data maintained by the Office of Commercial 
Space Transportation in the Federal Aviation Administration, in the 
past ten years, the U.S. share of the worldwide commercial launch 
market has averaged about 30 percent to 40 percent of total launches 
and about a third of total revenue (of a $1 billion total market in 
2004, the U.S. share was about $375 million). The total number of 
launches in the past five years has been smaller than in previous 
years, largely due to longer-lived satellites and a decline in the 
number of small satellites launched to nongeostationary orbit. For 
example, in 2004, U.S. companies launched six out of a total of 15 
worldwide commercial launches.
    Joint arrangements between U.S. and foreign companies are 
increasing. For instance, Boeing has a share of launch revenue from its 
partnership in Sea Launch, which had three launches valued at $210 
million in 2004. In commercial remote sensing, U.S. companies have 
entered into distribution agreements to market foreign data from SPOT 
and Radarsat.
    The international mobility of engineering talent, increasing 
activity by other countries in commercial space launch markets, and 
joint arrangements such as those noted above are trends that are likely 
to continue in coming years. During 2004-2013, the Office of Commercial 
Space Transportation expects a total of about 23 commercial launches 
per year, on par with past years. Industry trends may include 
continuing coupling of space-based and ground-based technologies and 
markets--the ``XM'' model. Commercial companies have also proposed the 
first commercial deep space science mission and commercial space 
operations and telemetry, tracking, and control systems. In the case of 
Earth observations, a major initiative impelled by the G-8 heads of 
state in June 2003 has led to a ten-year plan for an integrated global 
Earth observation system (GEOSS) among the governments of more than 30 
countries. A separately established organization is working closely 
with industry to identify opportunities to support GEOSS in the coming 
decade.

WHAT MIGHT GOVERNMENT DO (OR NOT DO) TO ENCOURAGE COMMERCIAL SPACE?

    The Congress and executive branch have generally been extremely 
supportive of commercial space. The legacy of policy initiatives to 
nurture the industry is rich with examples. Table 1 lists key 
legislation, regulation, and policy directives that have included 
provisions specifically addressing commercial space. These initiatives 
have included (but not been limited to) a host of innovative, market-
like approaches: vouchers to fund launch purchases by space science 
researchers, to enable them to choose a launch vehicle best tailored to 
their payload; government purchases of Earth and space science data and 
launch services; and most recently in the Commercial Space Launch 
Amendments Act of 2004, initial steps toward allowing private and 
commercial passengers to undertake space travel.
    The twenty-year legislative and regulatory history of commercial 
space has generally and been responsive to industry concerns. To be 
sure, not all initiatives taken so far have worked in practice. For 
example, transferring the land remote sensing system (Landsat) to 
private operation or identifying a commercial company to build and 
operate a follow-on system (the Landsat Data Continuity Mission) did 
not work out for a variety of reasons. However, the policy emphasis on 
data buys has formed the basis for the purchases of commercial space 
remote sensing data under contracts worth about $1 billion with 
national security agencies. By way of the Centennial Challenges 
project, the National Aeronautics and Space Administration (NASA) is 
now offering prizes for space technology development. NASA also has 
funding in its FY 2006 budget request for commercial transportation of 
crew and cargo to the International Space Station.



    In the future, consideration could be given to potentially strong 
incentive-oriented approaches when government oversight of commercial 
space activities is deemed necessary. These approaches include 
financial incentives, performance standards that nurture adoption of 
alternative technologies rather than requirements that specify 
technologies to achieve performance, rational pricing policy for access 
to government assets, and reliance on private markets for insurance 
when appropriate. Table 2 lists market-like policies that have been 
taken or are currently used, or that might be used in the future in 
designing space policy. These approaches include performance standards, 
prizes, private market insurance, auctions, voucher, and government 
purchases of commercially produced goods and services. The objective of 
policy options such as these is to encourage flexibility, discourage 
government intervention when private institutions (such as insurance 
markets) could suffice, and ensure a ``fair playing field'' between 
government space and commercial space activities.
    I know from Chairman Calvert's recent comments at the 21st National 
Space Symposium this month that there is concern about sectors of the 
U.S. space program working in isolation from the others. These sectors 
would include the civil, national security, and commercial space 
activities. This is a familiar problem. For instance, in the case of 
energy policy, the Department of Energy, the Federal Energy Regulatory 
Commission, the U.S. Nuclear Regulatory Commission, the National 
Highway Safety Administration, the Environmental Protection Agency, and 
the Minerals Management Service all have great influence on energy 
markets. These agencies' decisions affect what fuels are used to 
generate electricity, what fuel efficiency targets cars must meet, what 
mixtures of gasoline may be sold, and where oil and natural gas can be 
produced.
    Our space and space-related agencies now range from the national 
security complex to NASA, the Department of Interior and the U.S. 
Geologic Service, the Department of Commerce and the National Oceanic 
and Atmospheric Administration, the Federal Aviation Administration, 
and the Federal Communications Commission. The Departments of State and 
Energy, together with the Department of Commerce, are key champions of 
the GEOSS program (described above). The Department of Energy also 
plays a role in space power systems.
    To some extent, our space sectors have mutually benefited from this 
mix. For instance, GPS is owned and operated on the defense side but 
routinely used by the civil and commercial sectors. Remote sensing/
Earth observation information was championed by NASA and the 
infrastructure, data, R&D, data validation, and information products 
from NASA's Earth science activities over four decades are routinely 
used by the defense and commercial sectors. Commercial satellite 
telecommunications were advanced markedly by industry but are routinely 
used by the defense and civil sectors.
    Some steps could be taken to better integrate the large scale and 
scope of government space and space-related activity. For instance, 
establishing prizes for innovation of use to all three space sectors--
civil, commercial, and national security--makes sense provided all 
three sectors have at least a few desirable innovations in common. 
These requirements could range from space transportation to space-based 
navigation for on-orbit activities that may include autonomous 
refueling and repair. They may also include developments in Earth 
science in mapping and meteorology, for which prizes could be offered 
for new and faster algorithms to turn data into actual information 
products for the battlefield or the oil field (for geologic 
exploration). These prizes could be jointly funded and developed by the 
civil and national security sectors with input from the commercial 
community.
    Another step, and one that has been taken in the past, is 
establishment of a space-dedicated cabinet council. In the past, such 
an effort has been inadequate to overcome differences in goals, 
leadership and decision-making. Nor did previous interagency efforts 
adequately include provision for industry representation, which if 
optimally designed would include representatives from ``other than the 
usual suspects'' by seeking participation of non-space companies 
(perhaps WalMart, Microsoft).




SUMMARY OBSERVATIONS

    Some of the alternatives outlined in Table 2 address different 
types of risk (financial and safety), export issues, and other topics 
not addressed at length in this testimony. With these omissions in 
mind, some general guidelines for public policy and commercial space 
include:

        --  Balance financial risk taken by industry compared with 
        asking the public to underwrite risk (for example, in the case 
        of upcoming deliberations on continuation of commercial launch 
        indemnification)

        --  Balance personal risk taken by crew, passengers, and third 
        parties in commercial space transportation

        --  Maintain familiarity with the non-space commercial markets 
        upon which commercial space relies (for example, computing 
        hardware, software, wireless connectivity, telecommunications 
        capacity enhancements and cost reductions, consumer retail 
        markets)

        --  Routinely seek out the opinions of non-space industry 
        leaders in information technology, telecommunications 
        technology, entertainment, automobiles, education, retail 
        services, and other consumer markets to appreciate the larger 
        context in which commercial space operates

        --  Intervene when necessary and appropriate in legislative and 
        regulatory policy in non-space commercial markets upon which 
        commercial space relies (for instance, spectrum and orbital 
        access, environmental and occupational safety/health 
        regulation)

        --  Balance export policy, national security concerns, and 
        other restrictions on international trade in space goods and 
        services

        --  Build or build-on inter-agency relationships among the 
        myriad government offices that are involved directly or 
        indirectly in space technology, policy, and operations

        --  Acknowledge that commercial space success depends at least 
        as much if not more on normal business challenges (business 
        strategy, customer relations) as on challenges that are space-
        unique or that pertain to government commercial space policy

        --  Accept that some commercial ventures will fail 
        independently of supportive legislative, regulatory, or other 
        policy

    In conclusion, the supportive legacy of U.S. commercial space 
policy has set a good precedent for the future. The interests of the 
taxpayer and U.S. industry are most likely to flourish mutually by way 
of a conservative approach to legislative and regulatory intervention, 
coupled with an innovative, incentive-oriented philosophy amenable to 
demonstration or pathfinder, experimental approaches to policy.

                    Biography for Molly K. Macauley

    Dr. Macauley is a Senior Fellow at Resources for the Future in 
Washington, DC. Her research focuses on economics of and policy issues 
in space transportation, Earth science and remote sensing, space risk, 
space debris, space power technology, and the roles of the government 
and private sectors in space. She has published over 50 articles, 
lectured widely, and testified before Congress on these topics. Dr. 
Macauley also chairs the Board of Advisors of the Thomas Jefferson 
Public Policy Program at the College of William and Mary and has served 
on the Board of Directors of Women in Aerospace. She is a member of the 
International Academy of Astronautics and the Aeronautics and Space 
Engineering Board of the National Academy of Sciences, and has been 
honored by the National Space Society as one of the Nation's ``Rising 
Stars'' in space policy. She has also received commendation from the 
National Aeronautics and Space Administration for contributions to 
development of commercial space remote sensing. In addition, Dr. 
Macauley spearheaded the Space Shuttle flight of replica of a standard 
of George Washington; that standard is now on display at Mount Vernon. 
Dr. Macauley has taught for many years in the Department of Economics 
at Johns Hopkins University and consults for a variety of aerospace and 
other companies. She has a Bachelor's degree in economics from the 
College of William and Mary and Master's and doctoral degrees from 
Johns Hopkins University.

                               Discussion

                        Cost of Access to Space

    Chairman Calvert. Thank you. Thank you for your testimony.
    Mr. Musk, as I was listening to the other testimony, I 
noticed an emotional response at one moment where Mr. Demisch 
said that we should set policy on the basis that no substantial 
launch cost reductions will be expected. And I know from 
discussions with you, you hope to reduce those launch costs 
through your business. So I thought I would give you an 
opportunity to comment on that.
    And since you are one of the newest entrants into the 
launch market, based on your experience, how would you 
characterize the U.S. Government's regulation of the launch 
industry, in general? And what should the government possibly 
do to enable this industry to succeed?
    So with that, I will----
    Mr. Musk. Certainly. Well, I think the fact that we are 
offering the Falcon I launch vehicle at a price of 
approximately $6 million, which, thanks to the current U.S. 
dollar, is quite a bargain on the international market. We are 
actually--we only cost, effectively, about three million 
pounds. The--this compares with the next best U.S.--or the next 
best U.S. launch vehicle being the Pegasus from Orbital 
Sciences, which has a NASA list price of about $30 million. Our 
vehicle does 50 percent more payload, has a better payload 
environment, has more volume. In fact, on every meaningful 
dimension, it is superior and yet it is about 1/5 of the cost.
    So I think that is, you know--clearly indicates that 
significant improvement is possible. We expect to do the same 
thing with our medium-lift vehicle, Falcon V, and we expect to 
make some announcements about a heavy-lift vehicle in the--
later this year and with similar price reductions on the order 
of four to five over the current U.S. launch vehicle costs. And 
those we consider starting points. We are going to go down from 
there.
    As far as the--what the U.S. Government can do as--from a 
regulatory standpoint, you know, I think there is currently a 
fairly large body of regulation regarding expendable launch. It 
is quite onerous. It adds quite a bit to our cost per launch. 
And I think the U.S. Government should do its best to minimize 
and constantly be trying to reduce that body of regulation. 
Regulation just tends to--it is like atrophy. It just keeps 
growing. Unless there is an active force to contain it, it just 
gets worse and worse every year.
    And then to the point that I mentioned in my testimony, I 
think we really need to do something about ITAR. I think that 
is really harming the U.S. industry.
    Chairman Calvert. Yeah, I am going to give you the 
opportunity to answer a question.
    There are people, and you have probably heard this, Mr. 
Musk, because of your own considerable personal wealth, I heard 
the phraseology ``angel.'' You are probably considered one of 
those folks, and that--you know, you have more capability 
financially than most to do this that--are you in this for the 
business, or are you in this--because, you know, I am sure you 
heard this behind your back, are you in this for a hobby? So I 
want you to have the opportunity to answer this question for 
the record, because----
    Mr. Musk. Certainly.
    Chairman Calvert.--I think you should--you deserve that.
    Mr. Musk. I certainly--well, if it is a hobby, it is the 
most expensive hobby I could possibly conceive of. You know, in 
fact, the--I have--there is a joke in the space industry, which 
is how do you make a small fortune in the launch business, if 
you start with a large one? And I have heard that joke so many 
times that I started to--just for amusement, when people ask me 
why I started the company, I would say, ``Well, you know, I had 
a large fortune, and I was trying to make it small very 
quickly, and this seemed like a good way to do it.''
    But the serious answer is that this really is a business, 
which I expect to be really quite profitable. I think we could 
hit a positive cash flow as soon as the--late this year or 
early next year, which would mean that, if we were able to do 
so, we would have achieved positive cash flow in our third or 
fourth year of operation, which is unusually good for any 
business, and I would say particularly good for the launch 
business.
    So I think I am really quite convinced that there is a 
solid business there. You know, we are doing our best to 
solicit business throughout the world. You know, we--the 
Malaysian launch, we competed against the Russians for that and 
won. You know, that was a tough one. We have got a couple of 
other international launches we expect to win. We are working 
hard to earn NASA business. So I am--we are trying to get as 
much business as possible in order to drive that cost even 
lower than it is today.
    Chairman Calvert. Thank you.
    Mr. Rohrabacher.
    Mr. Rohrabacher. One thousand dollars a pound on Saturn V? 
Is that in today's dollars or then-dollars?
    Mr. Demisch. Then-year dollars.
    Mr. Rohrabacher. Then-dollars? So it is----
    Mr. Demisch. So adjustment for inflation, it is about 
$10,000.
    Mr. Rohrabacher. So it is about the same, then?
    Mr. Demisch. Yeah, it hasn't--things haven't changed much. 
I think if Mr. Musk can achieve the kind of overhead reductions 
that I think are necessary to get the costs down to something 
which is a little bit closer to materials and engineering 
content, it would be a tremendous gain. It hasn't been possible 
for any of the other players, maybe perhaps because of 
regulatory issues, but----
    Mr. Musk. If I--this is an interesting point, which I 
suspect that members may not be aware of.
    Do you know what the cost of propellant is on our rocket? 
Propellant is usually the dominating cost. It--you know, gas--
jet fuel is the dominating cost in airliners. The cost of 
propellant for our rocket is $50,000 a launch. That shows you 
there is a huge amount of room for improvement. And we should 
be getting to the point where that cost actually matters as 
opposed to being an accounting error on the launchcrafts.
    Mr. Rohrabacher. Well, of course--Mr. Musk, how old are 
your children now?
    Mr. Musk. They are one.
    Mr. Rohrabacher. I am--you have two babies that are one, 
and I have three babies that are one week from being one. Now 
do you foresee our babies being able to go to college on the 
Moon?
    Mr. Musk. Well, I think college on the moon may be 
challenging, but if they can actually have the potential to go 
there at all, that is really part of what I am working hard to 
try to achieve is that there should be the possibility that, 
you know--that any citizen can go to space, go beyond orbit, 
even to the Moon and going to Mars. I think it would be really 
a very dismal future where that possibility was closed.
    Mr. Rohrabacher. I noticed when the other panelists were 
talking, there was a lot of--I am sorry. You did sound a little 
pessimistic, sir, but--about the development of technology and 
overcoming this, but I think that what we hear from Mr. Rutan 
and Mr. Musk, who are on the business end of this, is that the 
technology development will be there. They are confident. I 
mean, I noted confidence in both Mr. Rutan and Mr. Whitehorn in 
terms of technology. What they don't seem to be confident in is 
government policy that will permit them the type of technology 
development to overcome problems.
    Mr. Demisch. I think that I will defer to Mr. Musk in one 
nanosecond, but the challenge really has been that there are--
we are living with the same technology in space propulsion and 
have, really, since--probably the Shuttle is the most advanced 
engine of any space vehicle currently flying. And so that sets 
your underlying engineering merit. And then the question is how 
cheaply can you build it. And that then becomes a question of 
how costly and complicated is it and what is your overhead 
weights on your people and all of the rest of these things.
    Mr. Rohrabacher. You know, I think every time that 
humankind has said that, they have been wrong. And let me just 
note, and Mr. Rutan is not on the stand now, but I will never 
forget when he talked about when he--I had a group of people 
there to hear a lecture by him in my District, when he talked 
about how he has changed the way that there is re-entry and how 
that the implications on that--of that. I mean, this is not 
just a mechanical change. It is actually a change of concept.
    Mr. Demisch. I think Mr. Rutan is a genius in aviation. I 
think that that is--I bless his efforts, and I hope that this 
committee can encourage NASA to give people like him a lot more 
space in the aeronautics arena, because it--God knows it needs 
it, where industry would just be fading before our very eyes in 
terms of employment and so on. It would be nice if we had 
people like Mr. Musk in the space frontier. All I am saying is 
the underlying technical merit of the boosters hasn't changed. 
The only real way for drastic improvement is something 
completely different, like an elevator. That I think is 
technically doable over time. So it is not there yet, but at 
least it is conceptual.
    Mr. Rohrabacher. Well, that is--there is a revolutionary 
idea: the elevator into space. But let me know. I never looked 
at that.
    Thank you.
    Mr. Chairman, if you would just indulge me one more note, 
and that is that what we have heard today is that there are 
some things we can do, and the--Mr. Musk has made it very clear 
that export control is--as our witness of the first panel 
mentioned export control, I--and we are talking about people 
who understand the importance of freedom here and are not 
suggesting that we do anything that puts our country in 
jeopardy by making these technologies available to potential 
enemies. But I think it behooves us and the Subcommittee to 
become a force, as I have tried to be, in the international 
relationships to try to push these barriers aside for countries 
that are friendly to the United States and pose no future 
danger to us. And it is something that we could do that would 
really help these folks out. This is one of the regulations----
    Chairman Calvert. And I would be happy to work with you on 
this. I am on the Armed Services Committee, and you are on the 
International Relations Committee. We--and this committee. We--
between that, we ought to be able to work out some streamlining 
to make this process work a little more simpler.
    Mr. Rohrabacher. And one on--other note is that Mr. Musk 
did, I would like to note, mention the concept of prizes as a 
means of developing new technologies. And I have a bill for 
that, and I would hope our new head of NASA, who we are all 
mystic about, he also takes a positive view towards that 
approach, and perhaps we could work something out, and move in 
that area as well in developing new technologies by prizes for 
them rather than having the government bureaucracy telling 
people how to turn the screws and seeing the actual development 
process.
    So thank you very much, Mr. Chairman.

                      Emerging Space-based Markets

    Chairman Calvert. I thank the gentleman.
    I am going to have a question for all of the panelists.
    And looking into the future, do you see evidence of newly 
emerging markets or products that will rely on space-based 
assets? And if so, what might they be? And we will put it 
another way. Are there products or services coming into the 
marketplace in the next five to 10 years that are likely to 
spur the additional space-based infrastructure?
    And I think I will start with you, Mr. Musk, and just head 
on down the panel.
    Mr. Musk. Sure. I think that there are a couple trends that 
I see. One is in the small satellite arena of doing things with 
the smaller, lower-cost satellites rather than with gigantic, 
very expensive satellites. I think we are seeing that trend. We 
are certainly seeing that trend and the interest in our small 
launch vehicle. I think as the--as time goes by, there is 
greater and greater interest in more broadcast, more 
communications, more exploration. I see a--really a very 
positive future for space. And it is--for those that are 
pessimistic, I think it is--bearing in mind that space is a 
very cyclic business, and so when--and once--people are prone 
to become very optimistic at the top of the cycle and very 
pessimistic at the bottom of the cycle. And you need to 
remember that it is a cyclic business.
    Chairman Calvert. It sounds like real estate.
    Mr. Musk. Yeah. Buy low, sell high.
    Chairman Calvert. Mr. Vinter.
    Mr. Vinter. Yes, sir.
    I echo what Elon is saying about small satellites replacing 
big satellites. The big satellites have proved to be very, very 
difficult to produce, taking three and four years to get out of 
the factory, whereas the smaller ones could come out in a year 
or a year and a half. So that is definitely a trend.
    There is also, I think, going to be a big interest in so-
called KA band, and this is an application where there is 
interaction, you know, back and forth over the Internet. And we 
are seeing a number of people today who are really interested 
in KA band. And there are a couple of experimental packages 
that--and one operational package already flying with us. And I 
think that if it takes off, it will be--probably very 
interesting.
    Mr. Demisch. I think that there is still a tremendous 
opportunity for growth, or just start off with trying to use 
your cell phone. I mean, the service is still terrible any way 
you slice it, and so there is need for a better service, and 
the only way you really get it is to have it coming down from 
above rather than from the buildings on the side. And the other 
thing is, of course, I think the kind of really high-speed 
mobile links, as you sort of start to see TV on your cell phone 
and so on, again, the best place to do it is from up above. I 
think the underlying concept that was behind Teledesic remains 
sound, and I don't know that their business plan is close to 
being resurrected, but a lot of work has been done there. And I 
think that that is going to see a lot more future. And the 
other thing is I just think that the combination of 
surveillance and tracking for monitoring and national security 
purposes is, in fact, going to be a large growth market over 
the course of the coming decade.
    Dr. Macauley. I come from a research organization where my 
colleagues specialize in agriculture, energy, water, and I 
argue with them, and they are gradually coming to agree, that I 
think that space is every bit as an important and natural 
resource as those. And it is a natural resource that is really 
unique. It is an incredibly unique environment. It has 
fundamental attributes that make it a very difficult place to 
be for a long period of time, but nonetheless it is a resource 
that we are still learning a lot about. And I remember eight 
years ago when we would get USA Today or the Wall Street 
Journal, right under the headline, it said, ``via satellite,'' 
which meant in order to get these newspapers to remote places 
around the world in time for people's morning coffee, the text 
of the newspapers was sent via satellite to regional printing 
presses. And now we don't see that underneath the Wall Street 
Journal or USA Today. They are still using that technology, but 
it is embedded so much in our way of life, and similarly with 
much of our communications activities. So space, as a place 
through which to bounce signals, is very much a part of our 
life. Will it ever be a place where we turn to the dreams of a 
decade ago of doing materials processing? I remember hearing, 
similar to those today, where we had entrepreneurs thinking 
about space as a unique environment in which to do some very 
interesting materials processing. And then what happened was 
when 3M and other companies stepped up to the plate to try it 
out, it took so long to get there, to get through the process 
of getting your assets into space and getting the experiments 
done that we had accomplished the innovation here on Earth much 
more quickly.
    So once we get to space more quickly and can stay there for 
sustained periods of time routinely, we may see some of those 
visions, which were very visionary, recycle back. And then 
today, the extensive discussion about not just a place through 
which to bounce signals but a place to actually send us all 
and, perhaps, someday to live, if not visit. I think that--
yeah, I think the future of space is very bright, subject to a 
lot of other things that have to happen in a business sense to 
make it work and subject to sound government role.
    Chairman Calvert. Well, thank you.
    And I want to thank this panel. We are living in an 
exciting time, and I am looking forward to working with all of 
you in the future. And I am looking forward to, Elon, coming 
out to your launch here shortly, and I wish you all of the 
success in the world.
    And I, again, thank this panel for coming today. We are 
adjourned.
    [Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]

                              Appendix 1:

                              ----------                              


                   Answers to Post-Hearing Questions

Responses by Burt Rutan, Scaled Composites, LLC

Questions submitted by Representative Mark Udall

Q1.  As you understand it, what steps will you have to go through to 
get the commercial version of your spaceship approved for commercial 
service by the FAA? Which office of the FAA will you be coordinating 
with?

A1. In my opening remarks I did outline what I believe the proper steps 
for government approval of commercial spaceships. My handout also 
included more detail on the subject and is attached for your reference. 
(See Attachment)

Q2.  In your testimony you indicated that you have a number of proposed 
changes to the licensing process that you think would make sense. 
Please provide your proposed changes for the record.

A2. Our main emphasis is that FAA needs to staff the regulatory office 
with personnel experienced in the research testing and certification of 
commercial aircraft. These personnel are found at AVS, not at AST.

Questions submitted by Representative Sheila Jackson Lee

Q1.  Some of those who have argued for an ``informed consent'' approach 
to safety for the emerging Personal Space Flight industry make an 
analogy to the ``barnstorming'' days of aviation when a formal 
structure for regulating safety did not yet exist but the aviation 
market continued to grow dramatically. It doesn't seem from your 
testimony that you agree with that analogy. Is that true? If you don't 
agree, why not?

A1. We are not among those who have argued that informed consent is 
adequate. Two things need to happen for a healthy, sustainable private 
space flight industry.

        1.  A level of safety at least as good as the early airliners.

        2.  Some form of FAA approval for the flight vehicle's safety 
        as regards the paying passengers, not just the uninvolved 
        public.

    We believe the industry might be stillborn after the first fatal 
accident if these two items are not provided.

Questions submitted by Representative Jim Costa

Q1.  One of the goals of previous hypersonic R&D programs such as the 
National Aerospace Plane was to cut travel times between widely 
separated locations such as the west coast of the United States and 
Asia. Would a commercial version of the sub-orbital spaceship you have 
developed be able to contribute to that goal? Why or why not?

A1. Sub-orbital rockets, flying parabolic missions will work nicely for 
flying people outside the atmosphere. However, they are limited to 300 
or 400-mile trips. Air breathing, high altitude propulsion or space 
planes that skip along the atmosphere's extremities would be needed for 
travel between widely separated locations.

Attachment

             Regulation of Manned Sub-orbital Space Systems
                 for Research and Commercial Operations

    A summary prepared by Burt Rutan, Scaled Composites

Safety Requirements for the Private Spaceline Industry

          New generic solutions for safety as compared to 
        historic Government manned space operations will be mandatory

          Cannot run a Spaceline without a huge reduction of 
        current risk

Safety Goals: Airline experience as a model

          Risk statistics, fatal risk per flight

                  First 44 years of manned space flight = one 
                per 62 flights

                  First airliners (1927 & 1928) = one per 5,500 
                flights

                  Early airliners (1934 to 1936) = one per 
                31,000 flights

                  Current airliners = one per two to five 
                million flights

                  Modern military fighters = one mishap per 
                33,000 flights

          Logical goal:

                  Better than the first airliners

                  < one percent of the historic government 
                space flight risk

Different Systems Need Different Regulation Methods

          The AST Process

                  To show that the consequence of failure, 
                i.e., the expectation of casualty (Ec) for the non-
                involved public (NIP) is low.

                  Deals with systems that are historically 
                dangerous.

          The AVR (now AVS) Process

                  To show that the probability of failure (Pf) 
                is low.

                  Assures safety of crew and passengers.

                  Deals with systems that need to be reliable.

          The risk method approach by AST

                  Risk is product of failure probability and 
                consequence.

                  NIP risk with dangerous systems is assured 
                only by selection of flight area.

                  Flight crew risk with dangerous systems can 
                be addressed only by flight termination staging.

                  However, since Pf cannot be calculated for 
                immature systems, AST has no acceptable process for new 
                systems that have to be safe enough for commercial 
                passenger service.

          AST Methods for Booster-like systems

                  Computer-flown or remote operation

                  Automation that requires backup via flight-
                termination systems

                  Ground-launched

                  Safety-critical rocket propulsion

                  Un-piloted stages dropped

                  High-scatter landing

          AVR Methods for Aircraft-like systems

                  Human Piloted flight

                  Expendable-like flight-termination systems 
                are not appropriate

                  Runway takeoff

                  Rocket propulsion not safety critical

                  No ``bombing'' of hardware that presents risk 
                to NIP

                  Horizontal aircraft-like runway recovery

          If the safety approach is based on failure 
        consequence it should be regulated by AST.

          If the safety approach is based on failure 
        probability it should be regulated by AVR or by staff 
        experienced in aircraft safety assurance.

          If safety is based on both consequence and vehicle 
        reliability, then consequence should be calculated by AST, but 
        Pf must be accessed by those with aircraft safety regulation 
        experience.

Experimental Research Testing of Airplane-like Systems

          Cannot be addressed by enforcing standards or 
        guidelines--the important need is to allow innovation; to seek 
        safety breakthroughs without regulatory hurdles. Regulators 
        must not be expected to appreciate this need during a research 
        test environment.

          Pf cannot be calculated, thus historic data must be a 
        guide for approval of an adequate test area to meet Ec intent 
        for NIP.

          Environmental requirements, like for aircraft are not 
        needed, but they can be tolerated, with costs not the full 
        burden of the developer.

          The AVR waiver method for all regulations is 
        mandatory. The developer must be able to argue the equivalent 
        safety justification for non-compliance to any regulation. This 
        is critical, especially for an immature industry with 
        indeterminate technical issues.

          The AST launch licensing process is not acceptable 
        due to its costs, its hindrance of innovation and its negative 
        effect on safety policy. The AVR-EAC (Experimental 
        Airworthiness Certificate) method works and must be 
        implemented. The system is based on respect for a developer's 
        safety record and the expectation that he will follow the 
        license rules.

Certification, or Licensing Spacecraft for Commercial Sub-orbital 
                    Passenger Operations

          The manufacturer and the operator cannot accept a 
        scenario in which the FAA has no role in approving the safety 
        of crews or passengers. His responsibility to do adequate 
        testing to assure passenger safety must have acceptance by the 
        FAA. Otherwise he has no unbiased defense at trial following an 
        accident.

          Part 23 & 25 Certification are based on defining 
        conformity. Then, by test and analysis showing adequate margins 
        for the conformed vehicle. Subsequently the holder of the 
        certificate can then produce and operate unlimited numbers of 
        vehicles that conform. The main costs of certification are the 
        issues related to conformity, not the specific tests to show 
        margins.

          Any ethical manufacturer or operator must test to 
        show margins, even in the absence of any government regulation.

          However, initially the manufacturer and operator will 
        build and operate only a very small number of vehicles, thus 
        making the detailed conformity process debilitating. Also, the 
        intensity of the process would interfere with the need to solve 
        new technical problems and to maintain a ``question, never 
        defend'' posture while system technical status is not mature.

          Our proposal: an applicant seeking approval to fly 
        passengers will be required to define the tests needed to show 
        adequate margins for his design and define the required systems 
        safety analysis. He must then obtain acceptance of the test 
        plan by FAA regulators and later get acceptance that the tests 
        were satisfactorily completed. The process will be design 
        specific and repeated for each flight article.

          Conformity of the design, the tools, the systems or 
        the manufacturing process will not be required.

          A manufacturer can select the conformity process as 
        an option if he desires to avoid the individual tests of each 
        production article.

          Conformity may be mandatory after the industry 
        matures (the aircraft certification process).

Lessons from the Regulatory Process During the SpaceShipOne (SS1) 
                    Research Flight Tests

          The Tier1 test program involved 88 flights, 17 for 
        the SS1 and 71 for the White Knight. 83 of those flights were 
        licensed via an AVR-AIR-200 Experimental Airworthiness 
        Certificate. Those flights were done under the authority of the 
        EAC and directed via the information in its Operating 
        Limitations list. The EAC was in effect for the duration of the 
        program, July 2002 to October 2004.

          Five flights of SS1 were flown under the additional 
        authority of an AST Launch License. License was in effect from 
        March 2004 to October 2004.

          The 83 flights flown under the EAC involved the 
        highest risk, both to the pilots and the NIP: first flights of 
        unproven vehicles and nearly all envelope expansion, including 
        first supersonic flight of SS1 to max-q.

          The EAC flights were regulated similar to the 1,800 
        research flights conducted by Scaled on 36 aircraft types over 
        a 30-year period: we were expected to fly within the Ops Limits 
        list, and were trusted to do so. The program allowed the 
        innovation always present in aircraft research, and did not 
        interfere with our `question, never defend' safety policy.

          Development of the new safety innovations were done 
        under the EAC: the new type hybrid rocket motor, the air launch 
        and the `care-free re-entry' feathered concept.

          The EAC process provided an efficient environment for 
        exploratory testing and continued the historic research 
        aircraft record of safety for the NIP.

          The AST Launch License process enforced on the 
        remaining five flights of SS1 was a very different regulatory 
        environment. We were assured streamlining from the 
        certifications needed for commercial operations approvals but 
        were kept in the dark on specifics. The process involved a 15 
        month, three party Ec analysis that failed to arrive at an 
        adequate calculation for Pf, thus rendering the Ec 
        determination to be useless. The process was misguided and 
        inappropriate, at times resembling a type certification effort 
        and left the applicant without the basic information needed to 
        determine status. The regulators requested Ec analysis, then 
        ignored those results without informing the applicant or 
        allowing him to defend, to revise or to resubmit the data. The 
        regulators refused to reveal the government's analysis method 
        for Ec calculation. The `shell game' continued for the majority 
        of the program, resulting in a severe distraction to key test 
        personnel as well as high costs and a disregard for our safety 
        policy. The environment also precluded innovation.

          The Launch License process, as applied to the 
        aircraft research test environment resulted in increased risk 
        for our flight crews, the very people that bear the true risk 
        in experimental flight tests.

          The AST office had no waiver policy, and answered our 
        requests by a written denial from the Administrator without 
        giving the applicant the opportunity to debate or negotiate the 
        technical merits or to get an opinion from the EAC's regulatory 
        staff.

Conclusions

          An applicant for approval to fly research flight 
        tests of piloted, aircraft-like systems must have a defined 
        process, one that allows him to plan his program staffing and 
        financial needs. It is not acceptable to impose undefined, 
        inappropriate forced oversight. The specific EAC process has 
        served the industry well for decades and should be used and 
        enforced by regulators familiar with research aircraft testing.

          The Ec process, developed for protection of 
        population from the dangers of ground-launched, expendable 
        rocket boosters, is not workable for application to piloted, 
        aircraft-like systems during research tests and must be 
        replaced by the AVR method of having test-experienced 
        regulators select an appropriate flight test area for research 
        tests. The Ec process might be justifiable for commercial 
        operations, but it must be regulated by those experienced with 
        commercial aircraft operations.

          Regarding licenses to conduct commercial flights that 
        carry revenue passengers, it is not acceptable for FAA to 
        ignore the approval or acceptance of the vehicle's ability to 
        safely fly people. Regulation must be done by experienced 
        (aircraft experienced) staff.

          The acceptance of the system's probable safety can be 
        done via a vehicle-specific test requirement process for 
        structures and safety analysis for systems, rather than the 
        more expensive Type Certification process that includes full 
        conformity assurance. These processes cannot be defined in 
        advance by specification of standards or by design guidelines, 
        since every new system will have unique features. The testing 
        details and systems safety analysis process must be specific to 
        the vehicle and its intended operation. This process does not 
        have to be significantly more expensive than that which would 
        be done by any ethical manufacturer in the absence of 
        government regulation.
                   Answers to Post-Hearing Questions
Responses by Will Whitehorn, President, Virgin Galactic

Questions submitted by Representative Sheila Jackson Lee

Q1.  It has long been my belief and contention that space exploration 
is something that should not be limited. This principle has generally 
applied to space exploration by nations, but today we face the prospect 
of space tourism where individuals would be the ones who get to explore 
space. I feel strongly that this opportunity should not just go to the 
rich, but also to others who have a passion for space exploration; 
especially students should at least have a chance at this. I believe in 
the long run this will be good for business and good for the science of 
space exploration because it will only increase the general public's 
interest in space. Does Virgin Galactic have any plans to provide the 
chance to explore space to even a select few individuals who may not 
have the means to pay for such a flight?

A1. Representative Jackson Lee, let me assure you that Virgin Galactic 
shares your concern that financial barriers alone should not limit 
commercial space travel to only the most financially able. Virgin 
Galactic is committed to making seats available on our spacecraft each 
year for individuals who cannot afford to pay the commercial price for 
this adventure of a lifetime. Our plans to accomplish this shared goal 
are in the early stages. I will provide more details to you and the 
Subcommittee as they crystallize. At this point, we are in discussions 
with the National Space Society to receive its input. Internally, we 
also are exploring opportunities to make tickets available every year 
for other charitable purposes. As our plans solidify, we will keep you 
and the Subcommittee advised.

Q2.  You come from a background in the airline industry. As you look 
forward to operating commercial passenger-carrying spaceships, what 
aspects of your operations do you think will be similar to those of 
airlines, and what will be different? In particular, how will the 
safety and maintenance practices you plan to follow in your Virgin 
Galactic operation differ from those you follow in Virgin Atlantic?

A2. Lest there be any confusion, commercial operations for Virgin 
Galactic and Virgin Atlantic will differ markedly in many significant 
respects. Running a commercial space business is dramatically different 
than running a scheduled commercial airline. Differences aside, the 
most important common thread Virgin Galactic and Virgin Atlantic share 
is Virgin's unwavering commitment to safety. With respect to the 
airlines Virgin operates around the world and the passenger rail 
service we operate in the United Kingdom, the Virgin brand has become 
synonymous with safety. We have never lost a passenger. This fact is 
our proudest accomplishment. Similarly, safety will be Virgin 
Galactic's North Star.
    Virgin Galactic will differ from Virgin Atlantic in a number of 
significant operational respects. For instance, it will not operate 
point-to-point service and it will not be subject to the Federal 
Aviation Administration's (FAA) customary regulatory structure for 
commercial carriers. These differences aside, the safety procedures we 
envision will bear some similarities to the lessons we have learned 
from our safe and successful airline ventures. For example, Virgin 
Galactic's pilots will be expected to develop a pre-flight safety check 
protocol similar to that used by our commercial airline pilots. 
Similarly, we intend to have maintenance practices and spacecraft check 
procedures similar to those jointly used by operators and manufacturers 
in the commercial airline industry. One key area of difference will be 
Virgin Galactic's pre-flight focus on the health, safety and security 
of our passengers. Working closely with the FAA's Office of Commercial 
Space Transportation, we plan to develop pre-flight guidelines that 
will be rigorously followed.

                   Answers to Post-Hearing Questions

Responses by John W. Vinter, Chairman, International Space Brokers

Questions submitted by Representative Mark Udall

Q1.  In the past, we have heard the concern expressed that new 
commercial space ventures would not be able to find insurance because 
of the risk presented to insurers from potential launch failures. Is 
that still a concern?

A1. Underwriters are not unduly concerned about launch failures. They 
recognize that launch failures are part of the unique circumstances 
with respect to space ventures. What underwriters are concerned about 
is untried and unproven technology. Underwriters generally are quite 
willing to insure developed technology. Thus, in most cases, 
underwriters wait to see one or two successful launches before 
committing underwriting capacity for subsequent launches. The thesis 
being that a new launch vehicle or other untried technology should 
first be proven to work before seeking insurance. That said, 
occasionally the market will sometimes insure new technology but at a 
very much higher price.

Q2.  How will the insurance market for commercial passenger-carrying 
spaceships differ from that for expendable launch vehicles that launch 
unmanned satellites?

A2. The market will consider the reliability for commercial passenger-
carrying spaceships in much the same way that it does for expendable 
launch vehicles that launch unmanned satellites. The space market is 
primarily a property market. It will rate each spaceship and/or launch 
vehicle on its own merits. Thus, today whether we are discussing Space 
Shuttles, the Atlas or the Delta, the market will rate the launch 
system on its own merits. In due course as passenger-carrying 
spaceships prove themselves to be working, the likelihood is that 
eventually passenger-carrying spaceships will be treated very much like 
airline planes and their passengers are treated today.

Q3.  As you look at the emerging commercial human space flight industry 
being described by Mr. Rutan and Mr. Whitehorn, how important will 
demonstrating adequate safety margins in advance of flight operations 
be if they want to get insurance? Are there any regulatory approaches 
to safety that would be more likely to make it easier to get insurance? 
Less likely?

A3. As stated in the answer to Question 1 above, the market would want 
to see successful demonstration of the vehicles carrying humans before 
making significant commitment to such vehicles. I should point out from 
the beginning that the market has insured humans on the Space Shuttle 
and indeed tourists on the Russian Soyez vehicle. A regulatory regime 
much like the FAA regime for aviation will most likely be rewarded by 
the market and the demonstration of successful flights will be the 
determining factor in these circumstances.

Q4.  In your testimony you mentioned the potential impact of current 
export control policies on the U.S. commercial space industry.

          Please elaborate on the nature of your concern with 
        the present situation.

          What would you do to fix the problem?

A4. The concern with the current ITAR arrangement is that non-U.S. 
satellite operators are favoring European suppliers of the satellites 
over U.S. suppliers in large measure because of the complication of the 
ITAR regime. The current ITAR regime limits the amount of information 
available to non-U.S. owners. Thus, all other factors being equal, a 
non-U.S. customer will buy a European satellite because it is much 
simpler to buy such satellite. I am aware of a number of instances 
where this happens to be true.
    Please note I am talking of standard commercial communication 
satellites. With respect to launch vehicles and Earth observation 
satellites and new high technology equipment, I do not suggest any 
change to the current regime. In particular, launch vehicles and Earth 
observation satellites can be deemed weapons and as such, should be 
controlled to the maximum extent possible. With respect to standard 
communication satellites, however, I should point out that such 
satellites are in production in Europe without restrictions and nothing 
is gained from strictly controlling technical information with respect 
thereto.
    With respect to these satellites, consideration should be given to 
removing such satellites from the Munitions List. If there is a 
particular technology, by all means this technology should be 
protected. If the concern is of a particular country such as China, 
then it should be specified as such. The above comments are made as an 
observer of the current situation and it does not have an insurance 
connotation.
    With respect to the non-U.S. underwriter community (approximately 
2/3 of the market is overseas), I suggest an annual license be adopted 
for each underwriter for all projects. A license is now issued to each 
underwriter for each launch to be insured or each satellite on-orbit, 
no matter how similar the satellites are. While the current government 
employees are very efficient in processing licenses, it seems a waste 
of time. A streamlined approach would be simpler.
                   Answers to Post-Hearing Questions
Responses by Wolfgang H. Demisch, President, Demisch Associates, LLC

Questions submitted by Chairman Ken Calvert

Q1.  The Federal Government invests large sums of money in space and 
aeronautics research and development. From an economic perspective 
which has a greater return on investment for the U.S. economy, 
investments in space or investments in aeronautics? Are there specific 
areas within either space or aeronautics that have a particularly high 
return on investment?

A1. The economic contribution of the aeronautics sector substantially 
exceeds that of the space segment, both in terms of direct sales as 
well as when factoring in the associated business activity. Moreover, 
because a substantial fraction of the federal space funding is 
committed to support manned space operations, an investment whose goals 
are primarily social rather than economic, the returns on space 
spending are further diluted. Historically, the Congress has not 
wavered in its steadfast support of advanced technology development, 
with aerospace a leading beneficiary. Experience has shown that 
advanced technology brings enormous social benefit through the new 
industries and jobs that it makes possible. Hence at the national level 
it has been the Congress's choice to support ambitious new technology 
and leave marginal improvements to industry. To achieve a better return 
on its aerospace investment, the Congress may find it useful to take a 
wider perspective on the challenges facing the aeronautics and space 
communities. In civil aeronautics, the aerodynamics and structures 
technology is mature.
    One limiting factor is the need for manual control of each 
individual flight. This is both economically burdensome, (crew costs, 
along with fuel and capital, are one of the three largest elements in 
the air carriers direct operating cost) and a safety/reliability issue, 
particularly in general aviation. A more aggressive push to achieve 
automatic fight, with increased safety standards from what we now 
accept, should be a national goal Deployment would presumably start 
with the cargo carriers, but should spread very quickly as it would 
transform airline economics and greatly improve the utility of general 
aviation. Achieving this capability requires at the very least seamless 
cooperation between the FAA and NASA, plus superior software 
integration, but the payoff is very large.
    Feasibility is clearly demonstrated by the growing numbers of 
military UAVs now routinely deployed in the U.S. and abroad.
    In the military aerospace segment, strategists are seeking much 
higher speed flight vehicles and very long endurance systems. Much 
better materials and more efficient power sources are prerequisites for 
these efforts. unfortunately, although NASA has much experience in 
these issues, the NASA effort in these areas is small and shrinking. 
The success of the X-43 program last year is not being pursued, even 
though the return on investment from operational hypersonics for the 
country appears compelling.
    The returns on space investments are often smaller simply because 
of time. The most promising commercial space businesses are 
communications and Earth observation both substantially regulated and 
hence subject to long delays before new technology can be brought to 
market. For instance, the Ka band communications now beginning to be 
offered were demonstrated in the 70s by NASA's experimental and very 
successful ATS III satellite. To rebuild the Nation's technology 
reserves and to restore NASA to its proper role as a technology 
generator for the national economy, in my opinion, it would be 
beneficial to encourage really challenging goals, objectives that 
cannot be met with off the shelf systems. one such goal could be deep 
space, to send probes out towards nearby stars, recognizing that such a 
mission would last perhaps centuries. The task would set new standards 
for advanced propulsion, ultra light structures, sensors and power 
systems, plus extreme reliability. Another goal might be comprehensive 
and ongoing multi-spectral Earth observation. To properly assess the 
implications of the geyser of environmental, economic and military data 
such a system would generate represents the data management challenge 
of the century, but the rewards are proportionate.

                   Answers to Post-Hearing Questions

Responses by Molly K. Macauley, Senior Fellow and Director, Academic 
        Programs, Resources for the Future

Questions submitted by Chairman Ken Calvert

Q1.  The Federal Government invests large sums of money in space and 
aeronautics research and development. From an economic perspective 
which has a greater return on investment for the U.S. economy, 
investments in space or investments in aeronautics?

A1. I appreciate the importance of this question, as the answer should 
guide budgetary allocations for both of these fields. However, I have 
not and do not know of any economic analyses comparing these 
investments on an apples-to-apples basis (that is, with comparable 
methods, time periods, and other modeling criteria).

Q2.  Are there specific areas within either space or aeronautics that 
have a particularly high return on investment for the overall economy?

A2. Although I am not aware of studies that can provide an answer, the 
field of economics usually argues that government investment, as 
differentiated from private sector investment, has the higher return 
and the less potential to crowd out private investment when made on 
innovation that is generic, hence hard for private investors to capture 
a return.

Questions submitted by Representative Mark Udall

Q1.  What future markets do you see for the commercial remote sensing 
industry?

A1. I see at least three markets. One market is providing services to 
operational civil and military government agencies, as implemented by 
funding awards to the commercial industry from the National Geospatial 
Intelligence Agency. On the civil side, the Federal Government has yet 
to provide a ``one-stop'' agency through which government can arrange 
for imagery purchases to support activities of the EPA, DOI, Dept. of 
Agriculture, Dept. of Energy, and other agencies. Yet the market seems 
to be there. For instance, while not a federal agency data purchase, 
the State of Hawaii has recently arranged to buy Quickbird imagery from 
DigitalGlobe to map rainy terrain in Kauai County. It is key that the 
imagery had to be of adequate resolution to meet the requirements of 
FEMA's Digital Flood Insurance Rate Map (see Space News, 6 June 2005, 
p. 13). It is also worth noting that the products that the commercial 
remote sensing industry provides are derivatives of sensor 
instrumentation and spacecraft bus designs pioneered by NASA's four 
decades' of remote sensing science and technology.
    A second market is sales to commercial markets--agribusiness, real 
estate, utilities, etc. Here, the commercial markets are still coming 
up to speed in terms of having the expertise and technology in place 
for making use of imagery. At the same time, the commercial imagery 
world needs to better develop and market its products for the 
commercial sector. The commercial imagery world still is quite 
provincial in producing products with limited general appeal.
    A third market yet to be tapped is that of providing imagery and 
other data from space assets for the purpose of monitoring compliance 
with domestic environmental regulation and international environmental 
agreements.

Q2.  What do you consider to be the biggest obstacles to growth and 
sustainability of the commercial remote sensing industry?

A2. I see the biggest obstacles to be:

        --  failure to market more consumer-oriented, easy to use and 
        understand products. This calls for better annotation of 
        imagery as well as a Microsoft-approach to product design.

        --  failure to think outside the government procurement 
        mechanisms to exercise more mainstream, consumer-oriented 
        pricing and marketing

        --  a possible concern about innovation and R&D, typically the 
        role of NASA. Cutbacks in the Earth science budget may not 
        ensure that our remote sensing industry remains state-of-the-
        art.

                              Appendix 2:

                              ----------                              


                   Additional Material for the Record


                 Statement of Herbert F. Satterlee, III
        Chairman and Chief Executive Officer, DigitalGlobe, Inc.

    Mr. Chairman, Mr. Ranking Member, and Members of the Subcommittee, 
I would like to thank you for the opportunity to discuss the future 
market for commercial space and specifically as it pertains to the 
remote sensing and satellite imagery industry. I am the Chairman and 
Chief Executive Officer of DigitalGlobe, a commercial remote sensing 
and satellite imagery and information company based in Longmont, 
Colorado.
    There are three commercial imagery companies currently operating in 
the United States, each with one satellite on orbit. Launched in 2001, 
DigitalGlobe's QuickBird satellite offers the world's highest 
resolution imagery commercially available at 61 centimeter resolution. 
Thornton, Colorado-based Space Imaging and Dulles, VA-based ORBIMAGE 
operate the IKONOS and OrbView3 satellites respectively, both at 
approximately one meter resolution. All three companies provide 
unclassified, high resolution satellite imagery to government and 
commercial customers worldwide for a variety of market applications 
such as defense and intelligence, homeland security, agriculture, 
forestry, oil and gas, environmental assessment, disaster planning, 
mitigation and recovery, flood insurance mapping, transportation and 
more.
    Despite the vast range of potential markets for commercial 
satellite imagery, the industry has been slower to develop than 
originally anticipated. Still, the industry sees steady commercial 
growth with each fiscal quarter, and increased interest and demand from 
government and commercial customers. Strong U.S. Government anchor-
tenant commitments have helped this industry maintain momentum as it 
develops commercial markets, and a continued commitment from the U.S. 
Government will be necessary until the full commercial market develops. 
These markets will not fully develop until we address the expensive and 
risky nature of the commercial space business which inhibits the 
realization of the industry's full potential. The cost of access to 
space has been a tremendous barrier to entry, and will continue to 
stifle industry's progress in making this business profitable. In order 
for the U.S. commercial satellite imagery industry to remain 
competitive with foreign and other domestic competitors and achieve its 
maximum potential, the cost of access to space needs to be 
significantly reduced.

Access to Space is a Competitive Discriminator

    DigitalGlobe, clearly the leading commercial satellite imagery 
company in the remote sensing industry, has been in operation since 
2001 with the launch of our QuickBird satellite. DigitalGlobe won the 
industry's largest-ever U.S. Government contract in 2003, and just 
recently signed the biggest, most prominent commercial contract the 
industry has ever seen. However, in recognizing these accomplishments 
and celebrating our successes, we must not forget the long, tumultuous 
road we've traveled and the challenges that lie ahead for DigitalGlobe 
and the entire industry.
    Because of the tremendous cost associated with launching and 
operating commercial satellite imaging systems, it is an extremely 
risky business. One of the most significant challenges in successfully 
getting three companies to orbit has been the cost of access to space 
(including the consequent insurance premiums). All three of the 
commercial U.S. operators struggled to enter the market, each having 
experienced at least one launch or on-orbit failure. Approximately 
fifty percent of the cost to put DigitalGlobe's QuickBird system in 
orbit was related to launch and insurance costs, totaling tens of 
millions of dollars. Access to space in the past has been one of 
biggest barriers to building a successful commercial industry, and it 
will continue to be a major discriminator in the future.
    Although the commercial satellite imagery industry has several 
benefits over its market rival, the aerial photography industry, it 
nevertheless experiences a major competitive disadvantage. The cost to 
develop and fly a commercial aerial photography sensor in an airplane 
is far less expensive than the cost to build and launch a commercial 
imaging satellite; yet, to stay viable, commercial satellite imagery 
providers must offer pricing competitive to that of the aerial 
photography companies.
    Not only does our industry see competition from domestic 
competitors, but also from foreign satellite imagery providers. Foreign 
competitors are gaining a foothold in the global marketplace, and 
subsidization from foreign governments is a significant contributing 
factor. The U.S. companies make up the only truly commercial industry, 
having launched three satellites, all financed through private capital. 
Foreign providers enjoy partial or full subsidization from their 
governments, enabling them to more quickly realize a profit.
    As the Commission on the Future of the Unites States Aerospace 
Industry identified, ``the cost to orbit is an essential ingredient for 
progress.'' The cost of access to space needs to be significantly 
reduced in order for the U.S. commercial satellite imaging industry to 
remain competitive with foreign and other domestic competitors.

The U.S. Government-Industry Partnership: A Mutual Reliance

    In part because of the high cost for access to space, the 
commercial satellite imagery operators have had to rely on significant 
U.S. Government contracts to sustain the industry while we grow the 
commercial markets. Long-term U.S. Government commitments such as the 
National Geospatial-Intelligence Agency's ClearView and NextView 
contracts have been key factors in allowing the industry to attract the 
private investment necessary to serve fixture commercial markets. 
Industry seeks a similar level of commitment from the U.S. civil 
government agencies to help grow our businesses and markets.
    While the U.S. Government has made a significant investment in the 
industry, it receives tremendous value in return. As President Bush's 
2003 Commercial Remote Sensing Space Policy recognized, a robust 
commercial satellite imagery sector will ``advance and protect U.S. 
national security and foreign policy interests,'' ``foster economic 
growth, contribute to environmental stewardship, and enable scientific 
and technological excellence.'' To this end, the President directed 
U.S. Government agencies to ``rely to the maximum practical extent on 
U.S. commercial remote sensing space capabilities'' and ``develop a 
long-term, sustainable relationship between the United States 
Government and the U.S. commercial remote sensing space industry.'' By 
entering into long-term partnerships with industry and increasing its 
reliance on commercial satellite imagery, the U.S. Government is able 
to realize increased cost savings, streamline requirements among 
agencies and reduce duplication of efforts.
    U.S. Government reliance on commercial satellite imagery drives 
further demand for and consumption of the technology. For example, as 
the industry entered into the marketplace several years ago, the 
initial demand from the defense and intelligence community was slow to 
materialize. However, the reliance on commercial imagery during 
military operations in Afghanistan and, even more so, in Iraq 
demonstrated that commercial products and services were of even more 
value than many had previously imagined. The ability to share 
unclassified commercial imagery with coalition troops and allies was 
invaluable, and the capacity of the industry to provide imagery to 
troops on the ground sometimes within a few hours of collection was 
remarkable. Because the use of commercial satellite imagery in these 
two campaigns was proven to be highly successful, the defense and 
intelligence communities have accelerated the convergence of commercial 
technology with national imagery architectures, and will increasingly 
rely on commercial sources to meet their mapping and intelligence 
needs.




    Another area where commercial satellite imagery was a significant 
factor in helping to complete a vital mission for the U.S. Government 
and others throughout the world was during the Southeast Asian tsunami 
crisis in December of 2004. Within hours of the event, commercial 
satellite imagery of the devastated areas flowed via Internet 
connection to U.S. and global emergency relief organizations. 
DigitalGlobe offered newly collected imagery along with archived data 
of the same geographic areas from our ImageLibrary, enabling relief 
workers to assess the magnitude of the damage, navigate the altered 
landscape, determine where infrastructure and medical facilities 
previously existed or needed to be constructed, and decide on their 
next courses of action.






    Data stored in the ImageLibrary is not only valuable for before-
and-after assessments such as this, but also for assistance in pre-
event emergency planning. For example, archived, yet current satellite 
imagery could be extremely useful in emergency response planning for 
future tsunamis, earthquakes, hurricanes, forest fires, or other 
disasters. Satellite imagery together with digital geographic 
information systems (GIS) containing features such as key 
infrastructures like roads, airports and utilities, and key 
installations like hospitals, shelters, fire departments, and schools 
can be helpful in planning evacuation and emergency scenarios.




Cultivating Commercial Markets

    The global exposure that the tsunami and military operations 
provided the commercial satellite imagery industry has not only been 
instrumental in increasing the U.S. Government reliance on the 
technology, but also in cultivating new commercial markets. For 
example, the news media's use of commercial satellite imagery during 
Operation Iraqi Freedom captured the attention of the oil and gas 
industry, which is now investigating the use of the technology for 
vulnerability assessment, infrastructure security and exploration 
purposes. And, State and local governments have focused more of their 
attention on satellite technology for emergency planning and relief, 
and homeland security purposes. Agriculture is another example of a 
market with huge growth potential for our industry. By utilizing new 
and archived commercial satellite imagery to assess crop and soil 
conditions and detect change, growers can make faster, better informed 
and more accurate crop management decisions, resulting in greater 
productivity and higher revenues. The insurance industry can benefit 
from utilizing high resolution commercial satellite imagery and 
elevation data to determine flood, fire or other hazardous zones. Even 
professional consumers such as realtors can use commercial satellite 
imagery and other GIS technology to map and identify potentially 
lucrative land development opportunities by being able to analyze 
traffic patterns, population growth, census data, and key 
infrastructure placement. And in addition to commercial businesses, 
satellite imagery has even reached the individual consumer market with 
the recent deal made between DigitalGlobe and the Internet search 
engine Google to provide Internet surfers with current satellite 
imagery of almost any researched location on Earth. The list of 
potential commercial and consumer markets for commercial satellite 
imagery goes on and on: forestry, environmental assessments, 
transportation, port and airport security, economic development, etc.

Conclusion

    After experiencing many bumps along the road, the U.S. commercial 
satellite imagery industry is experiencing steady growth and success. 
However, the industry has had to put its future into the hands of the 
U.S. Government. Without long-term U.S. Government commitments, U.S. 
companies' plans to begin their next generation systems might still 
only be ideas and briefing charts. Instead, the C1earView and NextView 
programs have turned those charts into hardware for both DigitalGlobe 
and ORBIMAGE by allowing our companies to attract the hundreds of 
millions of dollars in private investment required to build and launch 
our future generation systems.
    Having more commercial satellite imaging assets in space multiplies 
the benefit for both the U.S. Government and the vast array of 
potential commercial customers. However, with launch and insurance 
costs remaining extraordinarily excessive, government budgets facing 
deficiencies, and foreign and domestic competition looming, the U.S. 
commercial imagery industry still faces significant challenges. More 
must be done to lower the cost of accessing space, or the commercial 
satellite imagery industry will be challenged to realize its full 
potential and provide the innovative solutions on which its government 
and commercial customers have begun to rely.

                Biography for Herbert F. Satterlee, III
                 Chairman and Chief Executive Officer,
                             DigitalGlobe

    Mr. Satterlee joined the DigitalGlobe team in 1998, bringing more 
than 25 years of experience in business and finance management for 
space, defense and remote sensing programs. In the face of two 
satellite failures prior to the successful launch of QuickBird in 2001, 
Satterlee rebuilt DigitalGlobe by refocusing the management team, 
boosting employee morale and confidence, leading the company out of 
near bankruptcy and securing the financing necessary to move forward 
with plans to build and launch QuickBird. Under Satterlee's direction, 
DigitalGlobe became fully operational and began serving customers in 
2002. Also under Satterlee's leadership, DigitalGlobe was granted a 
quarter-meter imaging license by the U.S. Government, and was awarded 
the NextView contract by the National Geospatial-Intelligence Agency in 
2003. Satterlee will help lead DigitalGlobe and the commercial remote 
sensing industry into the next generation of imaging with the 
construction and launch of the WorldView system no later than 2006. 
Satterlee is member of board of directors for USGIF, on the advisory 
committee for National Satellite Land Remote Sensing Data Archive, The 
National Oceanic and Atmospheric Administration's (NOAA's) Advisory 
Committee on Commercial Remote Sensing (ACCRES), and a member of MAPPS 
and ASPRS.
    Satterlee previously served as CEO of RESOURCE21 LLC, a Denver-
based remote sensing information products company. There, Satterlee led 
the development of aircraft-derived imagery information products for 
the agriculture industry. Prior to that, Satterlee spent 19 years 
working for Boeing Company, where he held several senior management 
positions. He received a Bachelor's degree in business administration, 
with a specialization in finance, from Washington State University, and 
an executive Master's of business administration degree from the 
University of Washington.

About DigitalGlobe

    DigitalGlobe is an Earth imagery and information company located in 
Longmont, Colorado. With superior image resolution and unmatched 
customer service, DigitalGlobe makes it easier than ever to use spatial 
information to improve decisions in markets such as agriculture, civil 
government, environment, infrastructure, exploration, visualization-
simulation, and intelligence.
    DigitalGlobe offers the world's highest resolution commercial 
satellite imagery, the largest image size, and the greatest on-board 
storage capacity of any satellite imagery provider. In addition, the 
company's comprehensive ImageLibrary houses the most up-to-date images 
available. DigitalGlobe established market leadership with the 2001 
launch of its QuickBird satellite, and will continue its legacy with 
the construction and launch of WorldView--the industry's next-
generation commercial satellite imaging system.
    DigitalGlobe's comprehensive geo-information product store--at 
digitalglobe.com--delivers data for many types of project requirements. 
Through this online store, customers can access a wide variety of 
imagery and derivative information products, including 61-centimeter 
panchromatic and 2.4-meter multi-spectral imagery--the highest 
resolution satellite imagery commercially available.
    In addition to technical superiority, DigitalGlobe distinguishes 
itself through its commitment to quality, fairness and customer 
satisfaction, and prides itself on being the most reliable and 
responsive provider of satellite imagery and information products for 
commercial and government applications.
    DigitalGlobe's Basic Imagery products are designed for users with 
advanced image processing capabilities. DigitalGlobe supplies QuickBird 
camera model information with each Basic Imagery product, permitting 
users to perform sophisticated photogrammetric processing such as 
orthorectification and 3D feature extraction. Basic Imagery is the 
least processed image product of the DigitalGlobe product suite.
    Standard Imagery products are designed for users with knowledge of 
remote sensing applications and image processing tools and require data 
of modest absolute geometric accuracy and/or large area coverage. Each 
Standard Image is radiometrically calibrated, corrected for sensor and 
platform-induced distortions, and mapped to a cartographic projection.
    Orthorectified Imagery products are designed for users who require 
imagery products that are GIS-ready or have a high degree of absolute 
geometric accuracy for analytical applications. Each Orthorectified 
Image is radiometrically calibrated, corrected for sensor, platform-
induced, geometric and topographic distortions, and mapped to a user-
specified cartographic projection. Additionally, customers may choose 
to have these imagery products digitally mosaiced, edge-matched, and 
color-balanced to create seamless wide-area coverage. The panchromatic, 
natural color, and color infrared versions of Orthorectified Imagery 
are well suited for visual analysis and as backdrops for GIS and 
mapping applications, while the multi-spectral version is best used for 
image classification and analysis.
    In addition to imagery products, DigitalGlobe provides product 
solutions for environment/natural resources, civil government, 
visualization-simulation, infrastructure, agriculture and other 
markets. The products include cloud-free mosaics, vegetation maps, 
bundled and merged products. DigitalGlobe also partners with industry 
leaders to provide value-added imagery and information products.
               Prepared Statement of Peter H. Diamandis,
                 President and CEO, X Prize Foundation
    Chairman Calvert and Members of the Committee, thank you for 
permitting me to submit this testimony on market development for 
personal space flight.
    Today I wish to brief you on three subjects pertinent to your 
discovery of the marketplace for space and our ability to meet the 
needs of that market in the near future: First, the X-Prize 
Competition; second, the critical need to support an emerging new crop 
of space entrepreneurs; and third, the need to embrace an increased 
level of risk in our exploration of space.

The X-Prize Competition:

The Power of a `Prize' to drive the market
    There is a large and vibrant marketplace of individuals willing to 
pay for the opportunity to fly into space. Recent surveys consistently 
indicate that more than 60 percent of the U.S. public would welcome the 
opportunity to take such a trip. The Futron organization quantifies 
this public space flight market at more than $1 billion per year, over 
the next 20 years.
    On October 4, 2004, Burt Rutan and the Mojave Aerospace team, 
supported by private financing from Mr. Paul Allen, won the ANSARI X-
Prize Competition--proving to the world that sub-orbital flight was 
possible to develop in the private sector, safely, and at low cost. 
But, this is one vehicle. I support the notion that the market will not 
be served until there are multiple vehicles offering a diversity of 
competing spaceships serving this market.
The X-Prize Competition
    In 1995, I proposed an idea that would spur the industry into 
motion to develop these myriad spacecraft. We funded the $10 million X-
Prize and it was offered to the first private team to privately build a 
ship and fly three adults to 100 kilometers altitude, twice within a 
two-week period. The prize was purposefully funded to support the 
development of a spaceship capable of meeting the current market 
demand.
    We announced the X-Prize Competition in May 1996 in St. Louis, 
under the Arch with then NASA Administrator Dan Goldin and 20 
astronauts, business leaders and visionaries. Twenty-seven teams from 
seven nations signed up to compete over the next eight years. During 
this time, 150 individuals deposited funds to reserve a ride on the 
winning vehicle. The market for private space flight was born.
    The result of the X-Prize competition was a miraculous rise in the 
public's demand for space flight, coupled with the private sector 
stepping forward with private funding to develop the vehicles. 
Additionally, the prize maximized investment. For the promise of a $10 
million prize, more than $50 million was spent by the competing teams 
in research, development, and testing. Dozens of real spacecraft were 
actually built and tested. Compare this to a $10 million investment 
from a government procurement program, which historically has resulted 
in one or two paper designs.
    This is Darwinian evolution applied to spaceships. Rather than 
paper competition with selection boards, the winner was determined by 
the ignition of engines and flight of humans into space. Best of all, 
we didn't pay a single dollar until the results were achieved.
    The bottom line is that prizes work!
NASA's Centennial Challenges
    I'm also very proud of the critical role that the success of the X-
Prize Competition played in inspiring NASA to create the newly 
announced Centennial Challenges. These annual NASA prizes will help 
encourage out-of-the-box thinking that is sorely needed in our risk-
adverse space community. While the annual budget for NASA's Centennial 
Challenges is only $25 million today, I imagine and ask for the 
Committee's support for a future where 2.5 percent of the NASA budget, 
some $400 million, would be offered each year. And, what would be truly 
exciting is to see NASA combine its efforts in research with the 
development efforts of the private sector--resulting in a two-tiered 
system of space flight.
    Entrepreneurs can solve the problems that large bureaucracies 
cannot. Prizes offer NASA and the U.S. Government both fixed-cost 
science and fixed-cost engineering. More importantly, prizes offer NASA 
the passion and dedication of the entrepreneurial mind that cannot be 
purchased at any price.
    I encourage the Committee to fully embrace and support the use of 
prizes for NASA's future Orbital, Moon and Mars initiatives.

Public Support drives the economic engine

    As a result of the ANSARI X-Prize Competition, the front pages of 
Forbes, Investors Business Daily, Wall Street Journal, Wired, The 
Washington Post and the New York Times began to report on a new breed 
of space entrepreneurs. Companies representing the X-Prize teams, XCOR, 
SpaceX, Zero Gravity Corporation and Space Adventures captured both 
public attention and investor interest. For our space community, these 
companies were the early versions of Apple, Microsoft and Netscape. 
These companies embodied the entrepreneurial ``can-do'' spirit of 
America. When the X-Prize was won, it was the number two story of the 
year in 2004, headlining more than 300 newspapers and media outlets 
worldwide.
    Most of the new space companies, including Zero Gravity Corporation 
which I founded, are focused on one specific market: Personal Space 
Flight. Many of us believe that it is the only commercial market that 
makes near-term sense. Call it space travel or barnstorming, the fact 
is that the public will pay for a chance to fly into space. This is a 
mass market that can yield a profit while developing breakthroughs in 
launch operations. These two areas are the very essence of what is most 
needed to develop a hearty industry.
    The reason that space flight is so expensive today is simple--there 
just isn't enough of it. The commercial launch market for satellites is 
pathetically small, only 15-25 per year. The number of human space 
launches is even smaller: four Space Shuttle flights and four Soyuz 
flights.
    What we need is not dozens, but thousands of space flights per 
year. Flights that teach us about launch operations--how to refuel, re-
tool and re-launch a fleet of reusable vehicles.
    I recognize that the vehicles resulting from the X-Prize are only 
sub-orbital ships, only one-thirtieth the size of today's orbital 
ships, but the lessons we will learn from these vehicles are critical. 
We will learn about operations, an area in which we are sorely lacking.
    Everyone knows that the reason the Space Shuttle costs so much to 
operate is not the fuel, but its dependence on a standing army of 
10,000-plus professionals. We have people, watching people watching 
people in order to increase safety margins.
    In stark contrast, the reason that a crew of six can turn around a 
Boeing 737 for its next flight in 20 minutes is the operational 
robustness achieved through millions of flights conducted during the 
first 50 years of aviation. Flights that began with 10-minute hops 
across farmers' fields grew over time to transatlantic journeys. Our 
space program has in essence skipped the learning stages of these 10-
minute hops and went straight to orbital shots. We need to practice and 
learn, but we cannot achieve the flight rates and experience base we 
need with the Space Shuttle or the Crew Exploration Vehicle or any 
other large government program.
    The next generation of X-Prize vehicles will soon be competing in 
the X-Prize Cup--an annual competition for rocket-powered aircraft and 
future spacecraft. The X-Prize Cup is a partnership established between 
the X-Prize Foundation and the State of New Mexico under the vision of 
Governor Bill Richardson--specifically to support the new generation of 
space entrepreneurs. During X-Prize Cup week, there will be an 
Education Day with thousands of students learning about space, rocket 
demonstrations and eventually races, and an exposition of space-related 
technologies. In 2005, we will ``Countdown to the X-Prize Cup'' at the 
Las Cruces International Airport from October 6-9.
    I urge the Committee to join our efforts to recognize the need to 
support the creation of personal space flight, if for no other reason 
than to enable a high flight-rate and teach us about low-cost, safe and 
frequent operations of rocket powered vehicles. NASA and the DOD should 
embrace this new generation of sub-orbital vehicles to learn all they 
can. Fly them frequently. Learn. Support America's space entrepreneurs.

ACCEPTING RISK:

    Finally I'd like to address the issue of risk. In contrast to 
individuals who speak about reducing risk, I want to speak in favor of 
taking more risk.
    There is no question that the ANSARI X-Prize Competition involved 
risk--so does going to the moon or Mars or opening any portion of the 
space frontier. BUT, this is a risk worth taking!
    As Americans, many of us forget the debt we owe to early explorers. 
Tens of thousands of people risked their lives to open the `new world' 
and the American West. Thousands lost their lives crossing the ocean 
and then the plains--but we are here today because of their courage.
    Space is a frontier and crossing new frontiers is inherently risky! 
As explorers and as Americans, we must have the right to take risks 
that we believe are worthwhile and significant. We owe it to ourselves 
and to future generations. It is also critical that we take risk to 
develop technology. It is critical that we allow for failure. Without 
risk and without failure, we cannot initiate and realize the very 
breakthroughs we so desperately need.
    A breakthrough, by definition, is something that was considered a 
``crazy idea'' the day before it became a breakthrough. If it wasn't 
considered a crazy idea, then it really wasn't a breakthrough, but an 
incremental improvement. Remember those immortal words, ``Failure is 
not an option''. . .if we live and work in an environment where we 
cannot fail, than breakthroughs may not be an option either.
    In summary, I urge the Committee to support those efforts that will 
allow us to realize our dreams of space exploration. Support prizes as 
the most efficient mean to foster and enable breakthroughs in 
technology and embrace risk. Help the American people understand that 
space exploration is risky--but a risk worth taking.
    Let's let space explorers be heroes once again.
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