[Senate Hearing 112-847]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-847

        RISKS, OPPORTUNITIES, AND OVERSIGHT OF COMMERCIAL SPACE

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON SCIENCE AND SPACE

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 20, 2012

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation





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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BARBARA BOXER, California            OLYMPIA J. SNOWE, Maine
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           ROY BLUNT, Missouri
AMY KLOBUCHAR, Minnesota             JOHN BOOZMAN, Arkansas
TOM UDALL, New Mexico                PATRICK J. TOOMEY, Pennsylvania
MARK WARNER, Virginia                MARCO RUBIO, Florida
MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
                                     DEAN HELLER, Nevada
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
             Richard M. Russell, Republican Staff Director
            David Quinalty, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

                   SUBCOMMITTEE ON SCIENCE AND SPACE

BILL NELSON, Florida, Chairman       JOHN BOOZMAN, Arkansas, Ranking
DANIEL K. INOUYE, Hawaii             JOHN ENSIGN, Nevada
JOHN F. KERRY, Massachusetts         ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           MARCO RUBIO, Florida
MARK PRYOR, Arkansas                 KELLY AYOTTE, New Hampshire
MARK WARNER, Virginia


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 20, 2012....................................     1
Statement of Senator Nelson......................................     1
Statement of Senator Hutchison...................................    46
Statement of Senator Boozman.....................................    48

                               Witnesses

William H. Gerstenmaier, Associate Administrator, Human 
  Exploration and Operations, National Aeronautical and Space 
  Administration.................................................     2
    Prepared statement...........................................     3
Pamela Melroy, (Colonel, USAF, (Ret.), Director of Field 
  Operations for FAA Commercial Space Transportation.............    10
    Prepared statement...........................................    11
Gerald L. Dillingham, Ph.D., Director, Physical Infrastructure 
  Issues, U.S. Government Accountability Office..................    16
    Prepared statement...........................................    17
Michael N. Gold, Director, D.C. Operations and Business Growth, 
  Bigelow Aerospace..............................................    31
    Prepared statement...........................................    33
Captain Michael Lopez-Alegria, USN (Ret.), President, Commercial 
  Spaceflight Federation.........................................    35
    Prepared statement...........................................    37

                                Appendix

Hon. John D. Rockefeller IV, U.S. Senator from West Virginia, 
  prepared statement.............................................    59
Aerospace Industries Association, prepared statement.............    59
Response to written questions submitted to William H. 
  Gerstenmaier by:
    Hon. Kay Bailey Hutchison....................................    65
    Hon. John Boozman............................................    70
Response to written questions submitted to Colonel Pamela Melroy 
  by:
    Hon. Bill Nelson.............................................    73
    Hon. Kay Bailey Hutchison....................................    74
    Hon. John Boozman............................................    77
Response to written questions submitted to Gerald L. Dillingham, 
  Ph.D. by:
    Hon. Bill Nelson.............................................    78
    Hon. Kay Bailey Hutchison....................................    79
    Hon. John Boozman............................................    81
Response to written questions submitted to Michael N. Gold by:
    Hon. Kay Bailey Hutchison....................................    82
    Hon. John Boozman............................................    83
Response to written questions submitted to Captain Michael Lopez-
  Alegria, USN (ret.) by:
    Hon. Kay Bailey Hutchison....................................    85
    Hon. John Boozman............................................    87

 
        RISKS, OPPORTUNITIES, AND OVERSIGHT OF COMMERCIAL SPACE

                              ----------                              


                        WEDNESDAY, JUNE 20, 2012

                               U.S. Senate,
                 Subcommittee on Science and Space,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10 a.m. in 
room SR-253, Russell Senate Office Building, Hon. Bill Nelson, 
Chairman of the Subcommittee, presiding.

            OPENING STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Good morning. We are starting promptly 
because the Senate will have a series of votes that will start 
shortly after 11 o'clock and this will be one vote right after 
another in what we call ``vote-orama.'' Obviously, I would wait 
until our Ranking Member got here, but in view of the fact that 
we are so constrained and both Kay and John are on their way, 
let me just say good morning and thank you all for being here.
    This hearing is timely in the risks, opportunities, and 
oversight in commercial space considering the fact that SpaceX 
has had the success that they have, and by the end of the year, 
we expect to see Orbital Sciences launching with cargo to the 
Space Station as well. And so it is a time to step back and 
take a look at what is going on in the whole venture of 
commercial space, what we have learned, what the current issues 
are.
    John, I was saying I was killing time so that we can get 
right on in it. If it is OK with you, we will just dispense 
with the opening statements.
    Now, what I would like you to do so we can get in everybody 
and that we can get in questions, I want each of you to confine 
your remarks to about 5 minutes, and then we will get into it 
and elaborate on your remarks with regard to our questions.
    So let me just say, a star-studded panel. Bill 
Gerstenmaier, the Associate Administrator, is going to talk 
about NASA's perspective on commercial space. Dr. Dillingham 
from GAO is going to speak on some of the work GAO has done 
regarding commercial space and, in particular, a recent study 
that GAO has done. And then we have two Space Shuttle 
astronauts. It turns out that they actually flew together on 
STS-92. Colonel Pam Melroy and Captain Michael Lopez-Alegria. 
And Pam is here representing the FAA and Michael is here on his 
newly appointed being president of the Commercial Spaceflight 
Federation. If you can keep all that crowd together, you are 
Merlin, the magician. And we have Michael Gold from Bigelow, 
and they are developing space habitats.
    So thank you all for being here, and with that, we will 
start with you, Mr. Gerstenmaier.

        STATEMENT OF WILLIAM H. GERSTENMAIER, ASSOCIATE

        ADMINISTRATOR, HUMAN EXPLORATION AND OPERATIONS,

         NATIONAL AERONAUTICAL AND SPACE ADMINISTRATION

    Mr. Gerstenmaier. Thank you very much. Thanks for allowing 
me to represent the team that supports human spaceflight for 
NASA. I look forward to sharing my thoughts on the risks, 
opportunities, and oversight of commercial space.
    First, in order to accept a risk, there must be an 
opportunity or the risk is not warranted. The opportunity 
associated with commercial space is that it allows NASA to 
obtain a critical service for the International Space Station 
with reduced cost and oversight. These two things, reduced cost 
and oversight, are allowing NASA to focus its talents on the 
bigger goals, utilization of the ISS and developing the next 
generation of hardware and skills that will allow us to extend 
human presence into the solar system beyond low-Earth orbit.
    In the past, NASA needed to work hand in hand with our 
contractors not only ensuring the requirements were being met, 
but also helping to design and build the systems needed for 
low-Earth orbit. The hardware and systems needed for low-Earth 
orbit simply did not exist.
    Today that story is very different. There are avionic 
systems, hardware systems, manufacturing tools and techniques 
readily available for use in low-Earth orbit. The ISS has 
developed the techniques needed for sustained human presence 
with reasonable risk in low-Earth orbit. However, the highly 
reliable and maintainable systems necessary for beyond low-
Earth orbit do not yet exist, and NASA is focused on developing 
these systems. The ISS is being used to test and refine many of 
these systems needed for beyond low-Earth orbit. The new 
challenge for NASA is to develop these new techniques and 
systems for beyond low-Earth orbit. The challenge of operating 
days to months away from earth is dramatically more difficult 
than just being hours away in low-Earth orbit.
    In addition to preparing for human journeys beyond low-
Earth orbit, NASA must also use the ISS national laboratory 
activity to expose commercial industry to the advantages of 
space-based research for terrestrial applications. If industry 
can see the direct benefits of space-based research for gaining 
new insight and competitive advantage for products and services 
that these companies are developing for use on the Earth, then 
these commercial companies will want to utilize space without 
Government involvement. ISS is an avenue for companies to 
explore the benefits of space research at low risk and low 
cost. Commercial transportation will be critical to these 
companies using space for research. So NASA is embracing a new 
method of doing business for low-Earth orbit that will enable a 
bigger future for human space exploration and allow use of the 
ISS to its fullest extent.
    Another risk associated with commercial spaceflight is 
assuming the transportation to and from low-Earth orbit is 
easy. The technical challenges will be larger than initially 
anticipated by the companies. NASA will need to allow extra 
time for these services to materialize. NASA, with the support 
of the administration and Congress, correctly anticipated this 
risk by adding STS-135 to add extra margin for ISS cargo. We 
also need to be prepared for a failure or a problem during one 
of these missions. This is normal and we will need to protect 
with adequate margin. Further, we cannot afford a major stand-
down for a problem. We need to anticipate and not overreact to 
these problems. We should learn from these problems and 
continue moving forward without extensive external 
investigations. These problems will occur and should not be 
viewed as a major failure.
    Crew-related transportation, however, will require extra 
safety considerations beyond the safety requirements for cargo. 
Our NASA and industry teams have prepared for this handover to 
industry for years. Working with our international partners on 
ISS allowed NASA experience in working with equivalent 
standards. NASA needed to look at different ways of 
accomplishing tasks and protecting safety. The international 
partners also gave us experience in allowing the approach and 
berthing to ISS on the first flight of a new vehicle. The 
international partner experience gave us techniques that NASA 
is applying on the commercial cargo flights. The NASA team was 
fully ready for this transition to commercial cargo 
transportation.
    NASA is all about doing seemingly impossible tasks. NASA 
does this through preparedness and innovation. We are 
constantly looking for new ways to accomplish our tasks. 
Commercial spaceflight is just one of the many ways we are 
opening up exploration to new partners or finding different 
ways of working with our established partners. We will apply 
lessons learned from the commercial crew and cargo to SLS and 
MPCV. We will continue to challenge our perception of what is 
possible by expanding human presence beyond low-Earth orbit 
while operating and expanding the benefits of space exploration 
to folks here on Earth.
    I look forward to answering your questions. Thank you.
    [The prepared statement of Mr. Gerstenmaier follows:]

Prepared Statement of William H. Gerstenmaier, Associate Administrator, 
   Human Exploration and Operations, National Aeronautics and Space 
                             Administration
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to appear before you today to discuss NASA's views on the 
Risks, Opportunities and Oversight of Commercial Space and our specific 
efforts to support the development of commercial cargo and crew 
transportation systems. NASA has worked closely with commercial 
industry for our entire fifty-four year history. U.S. industry has been 
a part of every NASA program since our inception. As a government 
agency, we contract with industry to best utilize the unique attributes 
of the private sector for each particular activity. NASA investments 
have allowed U.S. industry to develop tremendous capabilities over the 
past five decades that have reduced costs to tax payers and expanded 
U.S. markets, creating billion dollar industries and hundreds of 
thousands of jobs. Space transportation has followed this well-worn 
path: government investment in space launch capability led to 
commercial ownership and operation of nearly all U.S. launch vehicles 
today.
    NASA is pleased with the progress our industry partners have made 
in the development of commercial cargo transportation systems, as 
demonstrated on May 31, 2012, with the successful conclusion of the 
SpaceX demonstration flight to and from the International Space Station 
(ISS); this mission achieved all of the milestones originally intended 
to be met over two separate flights. Moreover, the mission was 
completed at significantly less cost to the American taxpayers than if 
we had pursued a traditional, cost-plus development contract approach. 
Data review and discussions--a required part of the milestone 
activity--are continuing so we can learn as much as possible from this 
mission. The success of our industry partners in these endeavors is 
critical to ensuring the effective utilization of the ISS. U.S. 
commercial cargo resupply capability will ensure the continued 
operation of the ISS and the utilization of its formidable research 
facilities as a U.S. National Laboratory. American commercial crew 
transportation and rescue services will enable the United States to fly 
its own astronauts to and from Station, end our sole reliance on 
foreign governments, and provide needed redundancy in the system. We 
are committed to launching our crew from U.S. soil on spacecraft built 
by American companies as soon as possible. This approach is good for 
our program, international commitments, the American taxpayer, and the 
U.S. economy. Commercial crew transportation will also allow us to 
increase the ISS complement to 7 from 6. This will allow for increased 
utilization on ISS. Partnering with the commercial space industry to 
provide access to low-Earth orbit (LEO) is enabling the Agency to 
increasingly focus on developing its own systems for sending astronauts 
on missions of exploration into deep space, and promote the development 
of an economy in LEO. However, achieving timely success in this 
critical endeavor will require that the industry partners receive 
robust funding from NASA.
International Space Station
    The ISS represents an unparalleled capability for human space-based 
research that cannot be pursued on Earth, as well as a platform for the 
development and test of exploration technologies and systems. The ISS 
supports research across a diverse array of disciplines, and it is also 
a place to conduct technology development efforts. Research and 
Development (R&D) conducted aboard the ISS holds the promise of next-
generation technologies, not only in areas directly related to NASA's 
exploration efforts, but in fields that have numerous terrestrial 
applications as well. The ISS will provide these opportunities to 
scientists, engineers, and technologists through at least 2020. Beyond 
being a feat of unparalleled engineering and construction, as well as 
international collaboration, the ISS is a place to learn how to live 
and work in space over a long period of time and foster new markets for 
commercial products and services. The ISS is a facility in which 
commercial companies can explore the benefits of space-based research 
as part of the ISS National Laboratory. Finally, the ISS will be 
critical to NASA's future missions of exploration beyond LEO.
    The ISS will continue to meet NASA's mission objective to prepare 
for the next steps in human space exploration. The ISS is NASA's only 
long-duration flight analog for future human deep space missions, and 
it provides an invaluable laboratory for research with direct 
application to the exploration requirements that address human risks 
associated with deep space missions. It is the only space-based, 
multinational research and technology test bed available to identify 
and quantify risks to human health and performance; identify and 
validate potential risk mitigation techniques; and develop 
countermeasures for future human exploration.
    In the areas of human health, telemedicine, education, and Earth 
observations from space, there are already demonstrated benefits from 
ISS research. ISS crews are conducting human medical research to 
develop knowledge in the areas of: clinical medicine, human physiology, 
cardiovascular research, bone and muscle health, neurovestibular 
medicine, diagnostic instruments and sensors, advanced ultrasound, 
exercise and pharmacological countermeasures, food and nutrition, 
immunology and infection, exercise systems, and human behavior and 
performance. Many investigations conducted aboard ISS will have direct 
application to terrestrial medicine. For example, the growing senior 
population may benefit from experiments in the areas of bone and muscle 
health, immunology, and from the development of advanced diagnostic 
systems. Telemedicine and reduction in medical device size and 
complexity are needed on ISS. These same needs are present in 
terrestrial medicine today. ISS medical devices have tremendous synergy 
with hardware being developed for hospital and home use today. Vaccine 
development research, station-generated images that assist with 
disaster relief and farming, and education programs that inspire future 
scientists, engineers, and space explorers highlight just some of the 
many examples of research that can benefit humanity.
    On August 31, 2011, NASA finalized a cooperative agreement with the 
Center for the Advancement of Science in Space (CASIS) to manage the 
portion of the ISS that operates as a U.S. National Laboratory. CASIS, 
an independent, nonprofit research management organization, will help 
ensure the Station's unique capabilities are available to the broadest 
possible cross-section of U.S. scientific, technological, and 
industrial communities, developing and managing a varied R&D portfolio 
based on U.S. national needs for basic and applied research; establish 
a marketplace to facilitate matching research pathways with qualified 
funding sources; and stimulate interest in using the national lab for 
research and technology demonstrations and as a platform for science, 
technology, engineering, and mathematics education.
    Through CASIS, users can utilize the unique microgravity 
environment of space and the advanced research facilities aboard 
Station to enable investigations that may give them the edge in the 
global competition to develop valuable, high technology products and 
services. Furthermore, the envisioned demand for access to the ISS 
could increase the demand for the providers of commercial crew and 
cargo systems. Both of these aspects of the U.S. segment of ISS as a 
National Laboratory will help establish and demonstrate the market for 
research in LEO beyond the requirements of NASA.
Commercial Cargo Transportation Systems
    As you know, NASA is developing and procuring cargo resupply 
services under two different approaches: Commercial Orbital 
Transportation Services (COTS) to develop and demonstrate commercial 
cargo transportation systems; and Commercial Resupply Services (CRS) to 
procure cargo resupply services to and from the ISS.
Commercial Orbital Transportation Services
    As part of COTS, NASA has partnerships with Space Exploration 
Technologies, Inc. (SpaceX) and Orbital Sciences Corporation (Orbital) 
using funded Space Act Agreements (SAAs). These agreements include a 
schedule of fixed payment performance milestones culminating in 
demonstration flights to the ISS that validate vehicle launch, 
spacecraft rendezvous, ISS berthing, and re-entry for disposal or 
return safely to Earth.
    Both COTS partners continue to make progress in developing and 
demonstrating their systems.

   In December 2010, as part of the first SpaceX COTS 
        demonstration flight, the SpaceX Falcon 9 rocket successfully 
        launched, and the accompanying Dragon spacecraft successfully 
        orbited the Earth and safely returned to the Pacific Ocean. In 
        December 2011, NASA announced its decision to combine the 
        flight objectives of SpaceX COTS demonstration flights 2 and 3 
        into a single mission. On May 22, 2012, SpaceX launched its 
        second COTS demonstration flight, and three days later, the 
        Dragon spacecraft was berthed to the ISS. The mission, which 
        accomplished the remaining COTS demonstration goals for SpaceX, 
        was brought to a successful conclusion on May 31, with the 
        deorbiting and splashdown of the Dragon capsule and return of 
        the cargo on board to NASA.

   Orbital Sciences Corporation has been using NASA assets at 
        Stennis Space Center for engine acceptance testing and Wallops 
        Flight Facility (WFF) for launch vehicle and spacecraft 
        processing and integration as it prepares for its COTS 
        demonstration flight. Launch Pad 0A at WFF is scheduled for 
        completion and turnover to Orbital in June/July 2012. A short-
        duration hot-fire test of the first stage system is scheduled 
        immediately after launch pad commissioning. Orbital's Antares 
        launch vehicle maiden test flight is scheduled for late summer, 
        and it will include a Cygnus spacecraft mass simulator. 
        Orbital's COTS demonstration mission to ISS is scheduled by end 
        of calendar year 2012.

    Both companies are continuing to make sound progress in these 
activities, and NASA expects to see both the completion of the COTS 
effort and the beginning of operational cargo deliveries to ISS under 
CRS later this year. The SpaceX COTS activity will be complete in 
approximately 60 days after a detailed mission review.
Commercial Resupply Services
    On December 23, 2008, NASA awarded CRS contracts to Orbital and 
SpaceX for the delivery of cargo to the ISS after the retirement of the 
Shuttle. We are planning, based on current commercial cargo schedules, 
for one commercial cargo service flight to be flown in 2012. This 
flight will be in addition to the COTS remaining demonstration flight 
which will carry some cargo.

   NASA ordered 12 CRS flights valued at $1.6B from SpaceX. 
        With the successful completion of all of its COTS milestones, 
        SpaceX is scheduled to fly its first CRS flight in the fall of 
        2012. There are five missions currently in the processing flow, 
        and both cargo and external hardware manufacturing and 
        integration activities are underway. There are three SpaceX 
        cargo missions planned each Fiscal Year from FY 2013 through FY 
        2016. The recently completed COTS demonstration flight included 
        CRS upmass and downmass, delivering to ISS 1,014 pounds of 
        supplies including experiments, food, clothing and technology. 
        On its return trip to Earth, the capsule carried science 
        experiments that will be returned to researchers hoping to gain 
        new insights provided by the unique microgravity environment in 
        the station's laboratories. In addition to the experiments, 
        Dragon returned a total of 1,367 pounds of hardware and cargo 
        no longer needed aboard the Station.

   NASA ordered 8 CRS flights valued at $1.9B from Orbital. The 
        timing of Orbital's first cargo service flight is dependent on 
        successful completion of their COTS demonstration flight 
        milestones by the end of 2012. There are five missions 
        currently in the processing flow, and cargo integration 
        activities and detailed planning have begun. The company is 
        slated to fly one CRS mission in FY 2013, two CRS missions each 
        Fiscal Year from FY 2014 through FY 2016, and one CRS mission 
        in FY 2017.

    NASA is pleased with the steady progress both companies continue to 
make in their cargo vehicle and launch systems development efforts. 
NASA anticipated that our commercial cargo partners would experience 
inevitable start-up challenges associated with these technologically 
ambitious endeavors. Both the Agency and these partners have spent many 
years preparing for the full utilization phase of ISS. We are beginning 
to see the fruits of these transportation planning and development 
efforts this year.
Commercial Crew Program
    The Commercial Crew Program (CCP) will incentivize companies to 
build and operate safe, reliable, and cost-effective commercial human 
space transportation systems. In the near term, NASA plans to be a 
partner with U.S. industry, providing technical and financial 
assistance during the development phase. In the longer term, the Agency 
plans to be a customer for these services, buying transportation 
services for U.S., Canadian, European, and Japanese astronauts to the 
ISS.
Commercial Crew Development
    To date, NASA's investments have been aimed at stimulating efforts 
within the private sector to develop and demonstrate human spaceflight 
capabilities through the Commercial Crew Development (CCDev) 
initiative. Since 2009, NASA has conducted two CCDev solicitations, 
requesting proposals from U.S. industry participants to further advance 
commercial crew space transportation system concepts and mature the 
design and development of elements of the system, such as launch 
vehicles and spacecraft. In the first round of CCDev, NASA awarded five 
funded SAAs in February 2010, which concluded in the first quarter of 
2011. Awardees and the amounts of the awards were: Blue Origin, $3.7 
million; the Boeing Company, $18 million; Paragon Space Development 
Corporation, $1.44 million; Sierra Nevada Corporation, $20 million; and 
United Launch Alliance, $6.7 million. Under these SAAs, companies 
received funding contingent upon completion of specified development 
milestones. All milestones were successfully accomplished by the CCDev 
industry partners.
    During the second CCDev competition, known as CCDev2, NASA awarded 
four funded SAAs that are currently being executed with the following 
industry partners:

   Blue Origin's work involves risk-reduction activities 
        related to development of a crew transportation system 
        comprised of a reusable biconic shaped Space Vehicle launched 
        first on an Atlas V launch vehicle and then on Blue Origin's 
        own Reusable Booster System. The company is working to mature 
        its Space Vehicle design through Systems Requirements Review 
        (SRR), maturing the pusher escape system, and accelerating 
        engine development for the Reusable Booster System. As of May 
        31, 2012, Blue Origin had successfully completed seven of ten 
        milestones and NASA had paid $11.2 million of the $22 million 
        planned for this effort.

   The Boeing Company is maturing its commercial crew 
        transportation system through Preliminary Design Review (PDR) 
        and performing development tests. Boeing's system concept is a 
        capsule-based spacecraft reusable for up to ten missions that 
        is compatible with multiple launch vehicles. Boeing's testing 
        milestones include launch abort engine and orbital maneuvering 
        engine static test firings, landing air bag and parachute drop 
        demonstrations, wind tunnel testing, service module propellant 
        tank and system testing, and launch vehicle Emergency Detection 
        System interface testing. As of May 31, 2012, Boeing had 
        successfully completed ten of sixteen milestones and NASA had 
        paid $85.0 million of the $112.9 million planned for this 
        effort milestones.

   Sierra Nevada Corporation (SNC) is maturing its commercial 
        crew transportation system, the Dream Chaser, through PDR. The 
        Dream Chaser is a reusable, piloted lifting body, derived from 
        NASA's HL-20 concept that will be launched on an Atlas V launch 
        vehicle. SNC's effort also includes fabrication of an 
        atmospheric flight test vehicle, conducting analysis and risk 
        mitigation, and conducting hardware testing. As of May 31, 
        2012, SNC had successfully completed eleven of fifteen 
        milestones and NASA had paid $68.8 million of the $105.6 
        million planned for this effort.

   SpaceX is maturing its flight-proven Falcon 9/Dragon 
        transportation system focusing on developing an integrated, 
        side-mounted Launch Abort System and other crew systems. The 
        uncrewed version of Dragon is already being demonstrated as 
        part of the Commercial Cargo project, and will be used 
        operationally as part of the ISS cargo resupply services 
        effort. As of May 31, 2012, SpaceX had successfully completed 
        seven of eleven milestones and NASA had paid $55.0 million of 
        the $75 million planned for this effort.

    In addition to the four funded agreements mentioned above, NASA has 
also signed SAAs without funding with three companies: Alliant 
Techsystems, Inc. (ATK); United Launch Alliance (ULA); and Excalibur 
Almaz, Incorporated (EAI). The ATK agreement is to advance the 
company's Liberty launch vehicle concept. The ULA agreement is to 
accelerate the potential use of the Atlas V as part of a commercial 
crew transportation system. The EAI agreement is to further develop the 
company's concept for LEO crew transportation. As of May 31, 2012, ATK, 
ULA, and EAI had all successfully completed four of five milestones.
Commercial Crew Integrated Capability
    The next stage of the acquisition lifecycle will be a series of 
competitively awarded agreements with the intent of having no more than 
two and a half (2.5) partners further advance their integrated design 
and development efforts. This effort is referred to as Commercial Crew 
Integrated Capability (CCiCAP) and the specific content, scope, and 
duration of CCiCAP was communicated in an announcement for proposals, 
released on February 7, 2012. The announcement asks industry to propose 
a base period that will run from award through May 2014. This base 
period will include completing major design efforts through critical 
design review for an integrated transportation system, and also major 
risk reduction demonstrations and tests such as uncrewed flight tests, 
abort tests, and landing tests.
    The announcement also calls for industry to propose optional 
milestones beyond the base period to achieve a crewed orbital 
demonstration flight. Goals for such a demonstration flight include 
achieving at least three days on-orbit with a system that could 
accommodate at least four crew members. NASA will decide in the future 
whether to execute and fund any of the proposed optional milestones, 
and the decisions will be based on a number of factors including 
available budget and the partners' progress under the base period.
    NASA is currently in a procurement ``black out'' period for CCiCAP, 
during which the Agency is evaluating proposals. After careful analysis 
of the proposals is completed, NASA expects to announce awards in the 
late-July/August timeframe.
Commercial Crew Certification and Services
    Before a provider can deliver ISS services to NASA, it must be 
certified to ensure that it meets NASA's technical and safety 
requirements. Finally, NASA plans to competitively award services 
contracts to obtain crew transportation and emergency return services 
for the ISS. The details of this acquisition approach are still being 
developed and finalized; due to the nature of the certification 
requirements, NASA anticipates using FAR-based contracts for this 
effort. We intend to have this procurement strategy substantially 
complete by the award of CCiCAP. Current agreements have the FAA 
certifying the launch and entry portions of these missions for public 
safety.
    NASA's acquisition strategy is taking into consideration the need 
to balance commercial design and schedule flexibility with government 
insight and oversight responsibilities throughout all program phases. 
The Agency is using Space Act Agreements to support the development of 
commercial crew transportation capabilities that NASA could eventually 
buy, and will use competitively-awarded FAR-based contracts for the 
certification of available capabilities and to procure crew 
transportation services to and from the ISS. This approach will 
accommodate maturation of the commercial designs and vehicle programs 
at varying rates. Based on the availability of funding and industry 
performance, this strategy allows for adjustments in program scope, and 
enables a domestic capability to transport crewmembers to the ISS 
likely by 2017, based on the readiness of U.S. commercial providers to 
achieve NASA certification.
Human Rating/Safety
    The CCP represents a shift in near Earth space transportation 
operations to the private sector, freeing NASA (and NASA's limited 
resources) to pursue other human spaceflight goals, including 
developing the hardware, and concepts necessary to set out on human 
missions of exploration beyond LEO. The Space launch system and Orion 
vehicle are two of the first systems being developed to explore deep 
space.
    Within this new paradigm, NASA will maintain its stringent safety 
requirements and standards. The Agency has always used contractors to 
build our space systems; however, as we transition to a commercially-
driven marketplace for these services, our partners will take a greater 
responsibility for systems safety. In these programs, NASA is using an 
approach that allows the commercial providers more freedom to pursue 
cost-effective and innovative development approaches, but still allows 
the Agency the appropriate level of insight and oversight to ensure 
that the systems will be safe. Developing crew transportation systems 
to achieve LEO does not require any significant technological 
breakthroughs, but rather only evolutionary development, which is a key 
factor in enabling a unique insight/oversight approach. NASA will 
maintain crew safety by way of a crew transportation system 
certification, and no system will receive this certification until the 
Agency has confidence that our personnel and those of our International 
Partners will be safe.
    NASA is committed to managing the requirements, standards, and 
processes for certification to ensure that commercial missions are held 
to the same safety standards as Government missions. NASA will be 
responsible for defining, managing, reviewing, and approving 
certification plans and verification closure of requirements related to 
CCP missions.
    As an additional ``check and balance'' in the area of safety, all 
CCP activities will be subject to evaluation by organizations 
independent of and funded separately from CCP, including the NASA 
Safety and Mission Assurance independent technical authority, the NASA 
Space Flight Safety Panel which is chaired by a member of the Astronaut 
Office, the NASA Office of the Chief Engineer, the NASA Office of the 
Chief Health and Medical Officer, and the NASA Aerospace Safety 
Advisory Panel. The FAA will protect for public safety.
Challenges
    There are many challenges confronting the development of a viable 
commercial crew transportation system. These include securing stable 
and adequate financial resources, overcoming specific technical issues, 
and finding the optimal level of NASA involvement. The challenge of 
securing stable and adequate funding has been consistently cited as the 
top risk to commercial crew development and NASA's stable support and 
financial commitment is critical to mitigating this risk. For example, 
in the fall of 2009, the Augustine Report concluded, ``. . . unless 
NASA creates significant incentives for the development of the 
[commercial crew] capsule, the service is unlikely to be developed on a 
purely commercial basis.''
    NASA's CCP is designed to reduce the risk for private industry by 
providing a stable market demand, plus adequate financial and technical 
assistance for the development of these systems. NASA believes that by 
providing assistance in both the system development and demand for the 
service, the ``business case'' for commercial human spaceflight 
providers can close for one or more U.S. aerospace companies in a 
manner that also yields a safe and cost-effective capability for 
meeting NASA's crew transportation needs. For these reasons and the 
timing issues discussed earlier, it is important that the Congress 
provide the requested funding level for NASA's commercial crew 
initiative. This Congressional support will incentivize industry in 
obtaining investment capital above the amounts appropriated by Congress 
to NASA.
    In addition to financial challenges, each of the commercial crew 
developers has unique technical challenges associated with its system. 
Given NASA's current understanding of the state of the commercial crew 
development efforts, the Agency is confident that the commercial crew 
developers can overcome these challenges. In order to mitigate the risk 
associated with technical challenges, NASA plans to support multiple 
(but no more than 2.5) commercial providers, thereby obtaining the 
benefits of competition and insulating the Agency in the event a 
commercial provider cannot complete its development effort. In 
addition, NASA plans to be fully supportive of the commercial 
development activities, providing technical assistance, lessons 
learned, and past experience and knowledge in the area of human 
spaceflight development and operations.
    A final challenge is balancing the need for NASA involvement in 
order to obtain a safe and reliable system and allowing the providers 
the freedom to seek innovative and cost effective solutions. Striking 
the right balance will be key to successful and timely delivery of the 
crew transportation systems. NASA insight is critical to ultimately 
certifying the systems as safe crew transportation missions; however, 
we must be careful to avoid excessive oversight which would hinder 
industry's innovative approaches at achieving substantial cost savings 
relative to traditional government development programs.
Coordination with the Federal Aviation Administration
    Both NASA and the Federal Aviation Administration (FAA) envision a 
state where the FAA licenses commercial human spaceflights provided by 
a robust industry, from which NASA and the private sector can purchase 
transportation services. The requirements and processes of these 
separate agencies must be carefully coordinated and aligned to assure 
that both Agencies' roles are accomplished with thoroughness and rigor. 
At the same time, it will be critical to the success of the industry 
ventures to minimize the burden of Government requirements and 
regulations imposed by multiple agencies.
    The nature of the FAA involvement in NASA's commercial crew 
activities will vary through the development and operation of each 
potential flight system. NASA will establish initial certification and 
operations requirements for the services it wishes to acquire from 
commercial providers. NASA will partner with the FAA for the purposes 
of determining common standards and uniform processes to ensure both 
public safety and protection of crews and spaceflight participants for 
the NASA-sponsored missions. NASA and the FAA will work towards 
minimizing the duplication of requirements, developing a streamlined 
process and addressing indemnification issues.
    This will be accomplished by clearly defining roles and 
responsibilities of each Agency, sharing relevant data, and jointly 
performing assessments to enable the commercial partner to be 
successful in support of NASA-sponsored missions and non-NASA 
commercial human spaceflight missions. In support of this, NASA and the 
FAA recently signed a Memorandum of Understanding (MOU) that harmonizes 
standards for commercial space travel of government and non-government 
astronauts to LEO and the ISS. The two agencies will expand 
collaborative efforts to provide a stable framework for the U.S. space 
launch industry, avoid conflicting requirements and multiple sets of 
standards, and advance both public and crew safety.
Indemnification under the Commercial Space Launch Act
    The Administration supports extending the Commercial Space Launch 
Act, as amended, (CSLSA) ``indemnification'' provision, 51 U.S.C. 
Sec. 50915, for commercial launch and reentry operators for five years 
beyond its current statutory expiration date of December 31, 2012. This 
support is in line with the Commercial Space Transportation Advisory 
Committee (COMSTAC) finding that extension of indemnification past 
December of this year is ``critical to the viability of the commercial 
launch industry in the U.S.'' COMSTAC recently issued a recommendation 
reiterating its support.
Conclusion
    Following the example of many successful industries in past, the 
United States is now entering a new era in spaceflight that harnesses 
the innovation and ingenuity of the private sector. This capability 
will provide cargo and crew access to LEO, while NASA once again pushes 
the boundaries of human exploration. The ISS has now entered its 
intensive research phase, and this phase will continue through at least 
2020. In order to realize the promise of this facility, NASA will be 
relying on U.S. industry to provide cargo resupply and disposal 
services, as well as crew transportation and rescue services. And while 
there are still challenges ahead, the recent success of the SpaceX C2+ 
mission is a harbinger of the enormous potential of procuring cargo 
services from private entities. Commercial cargo services will enable 
the delivery and recovery of research equipment and scientific samples 
that will make possible ISS R&D efforts critical to long-duration 
spaceflight, as well as the utilization of the Station as a National 
Laboratory by other U.S. Government and nongovernmental organizations. 
Establishing routine cargo services will be a challenge, but the teams 
are ready for this challenge. ISS has benefits to NASA research as well 
as benefits to the terrestrial population. The international team that 
assembled this tremendous facility can serve as a model for real 
international cooperation.
    The area of commercial crew transportation also faces challenges. 
Human spaceflight is a very difficult endeavor, and NASA's industry 
partners will have the responsibility for the full end-to-end system. 
The Agency cannot guarantee their success; however, NASA is structuring 
an enabling approach that provides the highest probability of success. 
NASA's current path is a solid approach for developing and acquiring 
crew transportation services in a manner that is cost effective, and 
provides for crew safety. We need the support of this Committee to 
authorize the funding required for this effort with appropriate 
oversight that enables full and effective implementation of the 
program. Procuring commercial crew transportation services from U.S. 
industry will allow NASA to focus its resources on the development of 
vehicles that will take our astronauts beyond LEO for the first time 
since 1972. This new deep space exploration era will start with 
increasingly challenging test missions beyond LEO to cis-lunar space, 
which will be used to test systems and retire risks associated with 
longer-duration human missions to multiple destinations, first to near-
Earth asteroids (NEAs), and ultimately to Mars as a part of a sustained 
journey of exploration in the inner solar system.
    Successful U.S. private enterprise and affordable commercial 
operations in LEO will enable expanded markets, increased U.S. jobs, 
lower costs, increased reliability, and a sustainable step in America's 
expansion into space. Exploring space challenges our researchers, 
scientists, students, and engineers to solve problems that are beyond 
our current technical capability. No one nation or individual alone can 
meet these challenges. We must work as a team. Solving these challenges 
bring new benefits to all citizens of the Earth and changes the way we 
think.
    Mr. Chairman, I would be happy to respond to any question you or 
the other Members of the Committee may have.

    Senator Nelson. Thank you, Mr. Gerstenmaier.
    Kay, with your permission, we are going to dispense with 
the opening statements since we are racing the clock, and we 
will put everybody's opening statement in the record.
    Senator Hutchison. Perfect. I want to hear from the 
witnesses and hope we have a chance also for questions. Thank 
you.
    Senator Nelson. Thanks.
    Colonel Melroy?

       STATEMENT OF PAMELA MELROY, (COLONEL, USAF (RET.),

              DIRECTOR OF FIELD OPERATIONS FOR FAA

                COMMERCIAL SPACE TRANSPORTATION

    Col. Melroy. Chairman Nelson, Ranking Member Boozman, and 
Senator Hutchison, thank you for inviting me to speak with you 
today.
    America recently witnessed a turning point in 
transportation to low-Earth orbit when a domestic commercial 
company, SpaceX, launched its Falcon 9 rocket from Cape 
Canaveral. The Dragon capsule successfully berthed with the 
International Space Station and later safely reentered the 
Earth's atmosphere, demonstrating the ability to deliver and 
return cargo for NASA.
    Both the launch and the reentry of the SpaceX mission were 
licensed by the Federal Aviation Administration's Office of 
Commercial Space Transportation.
    The Office was established in 1984 with a mission to ensure 
protection of the public during commercial launch and reentry 
activities. I have spent the lion's share of my career in space 
operations, and I can assure you that even with a rigorous 
framework of safety measures, space transportation is not 
without risk. Therefore, the FAA requires operators to purchase 
insurance to cover the maximum probable loss that a launch or 
reentry could cause to third parties and their property. By 
statute, claims by or against spaceflight participants are not 
covered by this insurance, since it is only for third-party 
damages.
    In the case of a very low probability event with a 
likelihood of happening of less than 1 in 10 million, the 
second tier of the risk-sharing regime would result in the 
conditional U.S. Government payment of third-party claims in 
excess of maximum probable loss insurance. After hearing that 
mouthful, you can understand why it is commonly referred to as 
indemnification.
    The Government's liability exposure is capped at $1.5 
billion, adjusted for inflation, with payments subject to 
congressional appropriation.
    The U.S. Government has never been called on to make a 
payment since indemnification became law in 1988. Congress has 
maintained the regime's functionality and effectiveness over 
the past 24 years by enacting five extensions. The FAA supports 
extending the indemnification provision for an additional 5 
years. A stable regulatory environment and predictable, risk-
based financial responsibility requirements are critical to 
investor confidence and cost-effective business plans.
    In addition to financial risk allocation, planning is in 
place for how to respond in the event of an accident. The FAA, 
the National Transportation Safety Board, and the Air Force 
have a joint memorandum of agreement that calls out our roles 
and responsibilities in the event of a mishap investigation. We 
value this partnership, respect each other's expertise, and are 
confident that our many joint exercises and discussions have 
prepared us to work together effectively in the future.
    With regards to human spaceflight, by law, the FAA may not 
propose regulations for occupant safety until October of 2015. 
We anticipate that a comprehensive occupant safety regulatory 
framework will be a major undertaking and will involve 
significant public comment and input.
    NASA is planning to contract with the private sector to 
transport NASA astronauts to the ISS, as you heard from Mr. 
Gerstenmaier. The FAA and NASA have signed an historic 
agreement addressing commercial space travel of astronauts to 
and from the ISS. We have agreed that FAA licensing for public 
safety will be required for operational flights to the ISS. 
Crew safety and mission assurance will remain NASA's 
responsibility. This approach allows us to integrate our areas 
of expertise, and share lessons learned as progress is made. We 
are grateful to NASA for paving the way for commercial crew 
transportation, and recognize that industry will benefit from 
our cooperation.
    As the industry evolves, and the Government's reliance on 
commercial vehicle increases, it may be necessary to revisit 
some of the statutes and regulations that govern commercial 
space transportation. We look forward to working with the 
interagency community and with Congress to ensure the domestic 
commercial space transportation industry will continue to 
create jobs, fuel innovation, and drive economic growth.
    Again, I am grateful for this opportunity to speak before 
you today, and I am happy to answer any questions you may have.
    [The prepared statement of Ms. Melroy follows:]

Prepared Statement of Pamela Melroy (Colonel, USAF, Ret.), Director of 
        Field Operations for FAA Commercial Space Transportation
    Chairman Nelson, Ranking Member Boozman, and Members of the 
Subcommittee:

    Good morning. Thank you for inviting me to speak with you today.
    America recently witnessed a turning point in transportation to 
low-Earth orbit, when a domestic commercial company, SpaceX, launched 
its Falcon 9 rocket from Cape Canaveral, placing its Dragon capsule on 
a successful course to berth with the International Space Station 
(ISS). This flight successfully demonstrated SpaceX's ability to 
deliver cargo for NASA. Later, Dragon safely re-entered the atmosphere 
and splashed down off the West Coast of the United States, 
demonstrating the domestic commercial ability to bring back scientific 
samples and other supplies. Both the launch and reentry for the SpaceX 
mission were licensed by the Federal Aviation Administration's (FAA) 
Office of Commercial Space Transportation.
    The Office was established by statute in 1984, with a mission to 
ensure protection of the public, property, and the national security 
and foreign policy interests of the United States during commercial 
launch and reentry activities--like those demonstrated by SpaceX. The 
Office also has a Congressional mandate to encourage, facilitate, and 
promote commercial space transportation. In carrying out our safety 
responsibilities, we develop and issue regulations; grant licenses, 
permits, and safety approvals; and conduct safety inspections during 
every licensed or permitted launch. We grant licenses for launch, 
reentry, and the operation of launch and reentry sites or 
``spaceports,'' as they are popularly known. We issue permits for 
experimental reusable suborbital rockets launched or reentered for 
demonstrating compliance with license requirements, testing new design 
concepts, equipment, or operating technologies, and crew training. By 
law, permitted activities are not eligible for the government's 
conditional provision of payment of third-party claims exceeding a 
launch operator's required financial responsibility, also commonly 
referred to as ``indemnification.''
Keeping Pace with Market Growth
    The growing importance of the FAA's mission is evident, given 
recent expansion of commercial space transportation industry activity 
and the promise of more to come. In the suborbital domain, several new 
commercial providers expect to enter regular service within the next 
five years. We are funding a study, to be released this summer, to 
evaluate the potential growth in commercial suborbital activity. As for 
Earth-to-orbit commercial transportation, initiatives are on the verge 
of expanding well beyond traditional unmanned satellite launches. The 
most advanced of these new initiatives includes SpaceX cargo flights 
servicing the ISS and similar services by Orbital Sciences Corporation, 
through their contracts with NASA's Commercial Resupply Services (CRS) 
program. Like those of SpaceX, Orbital Sciences' flights will be 
licensed by the FAA. NASA estimates that commercial manned flights can 
be accomplished within the next five years. Beyond vehicle development 
and operations, several states are creating or expanding spaceports and 
the associated infrastructure to service evolving markets.
    Typically, space operations require years for development. As a 
result, an accurate understanding of the full extent of the FAA's 
activities requires considering not only launches but also extensive 
pre-launch preparatory functions. For example, there were limited 
licensed launch operations in Fiscal Year (FY) 2011, involving three 
licensed launches and two permitted launches. However, intense 
preparation and testing also occurred, which we expect will result in 
increasing licensed and permitted launch operations in FY 2012 and FY 
2013. In FY 2012, two licensed launches have already taken place. As 
for pre-launch licensing and permitting activity, in FY 2011 there were 
two new licenses, five license renewals, and one new permit. So far in 
FY 2012, we have already issued three new licenses, one license 
renewal, and one new permit. In addition, we are carrying out 
evaluations of three license applications and one permit application, 
as well as ten pre-application consultations for licenses and permits. 
This activity, coupled with informal inquiries from current and 
potential commercial launch developers, demonstrates a continued 
interest in commercial space operations.
    Highlighting the increasing volume of the FAA's ``behind-the-
scenes'' activities helps demonstrate not only market potential but 
also the growing workload of the Office of Commercial Space 
Transportation's dedicated professional staff. Field Offices are 
critical both to our understanding of transportation operations and to 
enhancing our key relationships with other U.S. Government entities, 
such as NASA and the Air Force. To address this need, we are moving 
headquarters staff to field assignments, recruiting new field 
personnel, and adding contractor support where appropriate to maximize 
efficiency. By increasing our field presence, FAA provides operational 
safety oversight, speeds up communications and efficiency, and 
strengthens partnerships with the many stakeholders in commercial space 
operations.
    Further reinforcing the FAA's commitment to the commercial space 
transportation industry, the Office of Commercial Space Transportation 
funds research through the FAA's Center of Excellence in Commercial 
Space Transportation. This initiative is a dynamic research partnership 
comprised of government, academia, and industry that involves matching 
U.S. Government and private-sector funding to pursue a variety of 
projects relating to a broad spectrum of areas vital to industry safety 
and growth. The Office of Commercial Space Transportation also carries 
out a variety of education and outreach initiatives, designed to 
increase awareness of opportunities for companies, investors, potential 
transportation customers, and the general public.
Public Safety Protection
    The FAA authorizes and oversees launch, reentry, and the operation 
of launch and reentry sites. Since 1989, we have licensed 207 launches 
with no loss of life, serious injuries, or significant property damage 
to the general public. Safety inspection is a core function of FAA 
oversight. Inspections involve the monitoring of all licensed and 
permitted commercial space transportation activities. Activities 
include those conducted by the licensee/permittee, its contractors and 
subcontractors. FAA inspectors use approved safety inspection plans, 
templates, and checklists to conduct and document inspections. A safety 
inspection encompasses more than flight activities alone. Inspectors 
also monitor and participate in mission dress rehearsals, safe and arm 
checks, flight termination system installation and checkout, accident 
investigation, and other activities related to public safety. 
Inspections are coordinated with other relevant agencies.
Liability Risk-Sharing Regime
    Even with a rigorous framework of safety measures, space 
transportation is not without risk. As part of its licensing and 
permitting mission, the FAA administers financial responsibility and 
risk-sharing requirements for commercial launch and reentry operators. 
The Commercial Space Launch Act requires a licensee or permittee, any 
customer, contractors, and subcontractors, and the government to waive 
claims among themselves. In this ``cross-waivers'' arrangement, each 
party involved in a launch agrees not to bring claims against the other 
parties and is financially responsible for damage or loss it sustains 
to its own property. With the exception of the U.S. Government, each 
party is also responsible for claims associated with death or injury to 
its own employees, resulting from activities carried out under a 
license or permit.
    Beyond first party losses, the risk-sharing regime places the first 
tier of risk of financial loss due to third-party damages squarely on 
the commercial company. The operator must cover the maximum probable 
loss that a launch or reentry could cause to third parties and their 
property. The FAA calculates a required amount of financial 
responsibility to ensure coverage of this maximum probable loss, or 
``MPL.'' We assess the risk that a license applicant's proposed launch 
or reentry activity might pose to ``third parties''--in other words, 
the public on the ground not involved in the launch or reentry. The MPL 
methodology is based on a variety of carefully integrated factors, 
including historical experience with unmanned expendable launch 
vehicles and their payloads. Our office assesses the debris field 
resulting from a series of assumed failures along a launch or reentry 
trajectory, models the probability of failure of the activity, and 
ascertains the presence of property or potential casualties. The 
maximum financial responsibility requirement that the FAA could require 
of an operator is $500 million for claims by third parties, and $100 
million for claims for U.S. Government property. Commercial launch 
companies generally demonstrate financial responsibility through the 
purchase of private liability insurance. By statute, the insurance 
policy must name all launch participants as additional insureds. This 
includes the U.S. Government and its contractors and subcontractors 
participating in launch. Also, by statute, claims by or against space 
flight participants are not covered by this insurance, which is only 
for third-party damages.
    Only in the case of a very low probability event--one with a 
likelihood of happening of less than 1 in 10 million--would the second 
tier of the risk-sharing regime be activated. This second tier provides 
for the conditional U.S. Government payment of claims in excess of the 
amount of financial responsibility required of a commercial company. As 
mentioned above, this statutory risk balancing mechanism is commonly 
referred to as ``indemnification.'' Here, the government's liability 
exposure is capped at $1.5 billion, adjusted for inflation since 1988, 
and payments are subject to Congressional appropriation. This coverage 
is for third-party claims only; space flight participants, or the loss 
of the property of the launch operator, are not covered by this tier. 
Any claims above this amount would comprise a third tier of risk, which 
is the responsibility of the commercial company.
    Since the financial responsibility and risk-sharing regime for 
launch activities became law in 1988, there has not been a need for any 
liability payments. Congress has maintained the regime's functionality 
and effectiveness over the past twenty-four years by enacting five 
extensions of the regime. In 1998, Congress broadened the regime to 
include reentry in addition to launch. Ongoing support for extension of 
the regime is a testament to bipartisan efforts recognizing the need 
for developing a strong commercial launch industry to serve government 
and commercial interests.
Importance of Extending ``Indemnification''
    The FAA supports extending the ``indemnification'' provision for 
five years beyond its current statutory expiration date of December 31, 
2012. This support is in line with the 2011 Commercial Space 
Transportation Advisory Committee (COMSTAC) finding that extension of 
indemnification past December of 2012 would be ``critical to the 
viability of the commercial launch industry in the US.'' COMSTAC issued 
a recommendation in May of 2012 reiterating its support for extension.
    Should the indemnification provision expire, all other portions of 
the financial responsibility and risk-sharing framework would remain in 
force. Accordingly, the FAA would continue to be charged with licensing 
launches and reentries subject to minimum financial requirements. The 
remaining statutory requirements would only provide license applicants 
with an amount of financial responsibility that represents the maximum 
probable loss without regard to the maximum possible loss.
    If the indemnification provision were to expire, increased demand 
for private insurance to address more than the maximum probable loss 
could lead to higher insurance costs. Companies with fewer resources 
could struggle to manage risk, and investors could be discouraged from 
providing capital to companies with catastrophic risk exposure, further 
restricting access to capital and suppressing growth. A stable 
regulatory environment, including predictable, risk-based financial 
responsibility requirements and certainty in allocating risk, is 
critical to securing investor confidence and willingness to place 
capital at risk.
    The current financial responsibility and risk-sharing framework was 
created with Congress recognizing the emergence of foreign launch 
services made competitive through government subsidies and preferential 
foreign national laws. The emerging U.S. commercial launch industry 
requires a stable and predictable risk-sharing program, including 
government indemnification of claims in excess of maximum probable 
loss, in order to plan future operations and encourage investment. 
Maintaining the current risk-sharing regime through a five year 
extension of indemnification would contribute to meeting this need. 
Fostering growth of this vital industry will produce public benefit in 
the form of national security, technological capacity, and national 
pride, by enabling domestic access to space for government and 
commercial users and contributing to U.S. aerospace preeminence.
Accident Investigation
    In addition to providing for appropriate government-industry risk 
sharing, planning is in place for the investigational procedures that 
will be necessary in the event of an accident. The FAA requires 
licensees to comply with their previously approved accident 
investigation plan, including immediate notification to the FAA 
Washington Operations Center in the event of a fatality or serious 
injury, or notification within 24 hours in the event of a mishap, which 
includes both accidents and incidents.
    The FAA has also established a strong working relationship with the 
National Transportation Safety Board (NTSB) to familiarize the NTSB 
with commercial space flight. The NTSB has supported the FAA in 
developing plans for managing a mishap investigation as well as 
training and preparing the commercial space industry for a mishap. The 
FAA Office of Commercial Space Transportation Mishap Program Manager 
works directly with the NTSB on a frequent basis. Additionally, the 
FAA, NTSB and the Air Force have a joint Memorandum of Agreement (MOA) 
that calls out roles and responsibilities for mishap investigation. 
This MOA has been in place for several years. The FAA and NTSB, in 
coordination with NASA, the Air Force, and commercial space flight 
companies have reviewed mishap scenarios on a frequent basis at both 
the eastern and western launch ranges, in order to exercise roles and 
responsibilities in the event of a launch or reentry mishap. The NTSB 
will respond to a commercial space launch or reentry accident in a 
similar fashion to that in the commercial airline industry, if the FAA 
declares an accident has occurred in accordance with established FAA 
regulatory definitions in 14 C.F.R. Part 401. In the event of an 
accident, the FAA is prepared to carry out its investigatory 
responsibilities as outlined in the joint MOA. We value this 
partnership, respect each other's expertise, and are certain that the 
many discussions and joint exercises have prepared us to work together 
effectively in the future.
Approaches to Human Space Flight
    As human space flight begins to evolve, the current financial 
responsibility and risk-sharing regime is well suited to cover emerging 
activities such as commercial crew. Since MPL coverage only applies to 
third-party damage, the MPL estimate would not be impacted by whether 
the launch includes a commercial crew or space flight participants. The 
MPL is not an estimate of risk to crew or space flight participants, 
but rather, to third parties, including members of the public and non-
flying U.S. Government employees. Space flight participants and crew 
are not third parties.
    By law, the FAA may not propose regulations for occupant safety 
until October 2015, except under certain circumstances. We anticipate 
that occupant safety regulations will be a major undertaking, and will 
require a comprehensive regulatory framework to eventually be proposed 
through a suite of rulemaking activities. Implementing this framework 
will take time, and will involve significant public comment and input.
    NASA is planning to contract with the private sector to transport 
NASA astronauts to the ISS within a few years. NASA and the FAA have 
agreed that FAA licensing will be required for operational flights to 
the ISS. Recently, the FAA and NASA signed a historic agreement to 
coordinate standards for commercial space travel of government and non-
government astronauts to and from low-Earth orbit and the ISS. The two 
agencies will collaborate to expand efforts that provide a stable 
framework for the U.S. space industry, avoid conflicting requirements 
and multiple sets of standards, and advance both public and crew 
safety. The agreement establishes policy for operational missions to 
the ISS. Commercial providers will be required to obtain a license from 
the FAA for public safety. Crew safety and mission assurance will be 
NASA's responsibility. This approach allows both agencies to 
incorporate experience and lessons learned as progress is made. Beyond 
this, the FAA's role involving flights carrying NASA astronauts is 
still under consideration. We are grateful to NASA for paving the way 
for commercial crew transportation, and recognize that industry will 
benefit from our cooperation to ensure compatibility between 
operational requirements for NASA missions and regulations for 
commercial customers.
    The FAA's top priority is public safety, and, when the time 
arrives, will extend to appropriately protect occupants from risks. 
However, we must also leverage our existing knowledge of human space 
flight safety in a way that does not restrict innovation. This is in 
accordance with the Congressional mandate that human space flight 
regulatory standards evolve as the industry matures so that regulations 
neither stifle technology development nor expose crew or space flight 
participants to avoidable risks.
Planning for the Future
    As the industry evolves, and the Government's reliance on 
commercial vehicles changes, it may be necessary to revisit some of the 
statutes and regulations that govern commercial space transportation. 
Specifically, the FAA's statutory authority may require expansion and 
adjustments to definitions to ensure public safety. For example, there 
may be a need for greater regulatory authority in the areas of 
transportation on orbit as well as launch and reentry. We look forward 
to working with the interagency community and Congress as the industry 
matures and evolves.
    The U.S. commercial space industry continues to achieve new 
milestones. Beyond servicing the ISS, companies may soon be 
transporting participants to commercial orbital facilities like those 
being developed by Bigelow Aerospace.
    As the pace of change accelerates, the current launch liability 
risk-sharing regime remains good public policy and should be extended. 
As Congress has recognized, the development of the commercial space 
transportation industry enables the United States to retain its 
competitive position internationally, contributing to the national 
interest and U.S. economic well-being. Extending indemnification and 
the current risk-sharing regime will continue to enable industry to 
attract and maintain a growing customer base, in the face of 
international competitors offering robust protection against risk.
    With the help and leadership of Congress, the domestic commercial 
space transportation industry will continue to move forward--fueling 
innovation, creating jobs, and driving economic growth.
    Again, I am grateful for this opportunity to speak before you 
today, and I am happy to answer any questions you may have.

    Senator Nelson. Thank you, Colonel.
    Dr. Dillingham?

           STATEMENT OF GERALD L. DILLINGHAM, Ph.D.,

           DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES,

             U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Dr. Dillingham. Thank you, Mr. Chairman, Ranking Member 
Boozman, Senator Hutchison, for inviting GAO to appear before 
you this morning.
    My testimony focuses on four aspects of the U.S. commercial 
space launch industry: first, the trends and forecasts in the 
industry; second, the challenges that FAA faces in overseeing 
and promoting the industry; third, some of the factors that 
Congress may want to consider as it determines the future of 
commercial space launch indemnification for third parties; and 
fourth, some of the challenges to U.S. global competitiveness 
as the industry grows and matures.
    With regard to the industry trends, as detailed in our 
written statement, the number of FAA-licensed launches has been 
generally lower since a peak of 22 launches in 1998. Our work 
shows that, despite the low number of launches in recent years, 
important commercial spaceflight research and development 
activities continue to take place. The number of commercial 
space launches is expected to increase in the years ahead as 
NASA begins procuring commercial cargo transportation services 
to the International Space Station and private industry 
continues developing vehicles for space tourism. Additionally, 
private companies and State governments have been developing 
spaceports to accommodate the anticipated space tourism flights 
and expand the Nation's launch capacity.
    With regard to the second area of our testimony, we have 
identified several challenges that FAA will need to address as 
it carries out its oversight responsibilities for a changing 
and maturing space launch industry. These challenges include 
ensuring that it has the proper mix of skills and personnel in 
place to effectively handle industry growth. FAA must also 
ensure that its regulations on licensing and safety 
requirements at Federal launch sites for expendable launch 
vehicles will also be suitable for operations at commercial 
spaceports. The agency must also be mindful of potential 
conflicts of interest in overseeing the safety of commercial 
space launches while promoting the industry. And with the 
transformation of the Nation's air traffic control system to 
NextGen, FAA will need to accommodate spacecraft that are 
transitioning to and from space through the national airspace 
system.
    With regard to the factors that Congress may want to 
consider with regard to indemnification, our written statement 
discusses: first, the potential increased cost for the Federal 
Government of this risk-sharing regime as a result of the 
expected increase in manned commercial launches; second, the 
Federal Government's potential exposure to liability as a 
result of FAA's process for calculating maximal probable loss; 
and third, the lack of Federal indemnification coverage for on-
orbit activities.
    We have also identified some factors that may have a 
negative impact on U.S. global competitiveness. These factors 
include relatively high U.S. launch prices when compared to 
other countries--such as China, Russia, and France--and the 
limitations on U.S. technology exports, which could affect 
launch company abilities to sell their services abroad.
    And finally, Mr. Chairman, there is also the fact that the 
commercial space launch industry operates without the benefit 
of a national strategy. The situation has resulted in multiple 
Federal agencies having responsibilities for space activities, 
and most have developed their own strategies for meeting their 
responsibilities. A national strategy could identify and fill 
any gaps in Federal policy.
    Thank you, Mr. Chairman. This concludes my oral statement. 
I will be pleased to respond to any questions from you, the 
Ranking Member, or Senator Hutchison.
    [The prepared statement of Dr. Dillingham follows:]

 Prepared Statement of Gerald L. Dillingham, Ph.D., Director, Physical 
      Infrastructure Issues, U.S. Government Accountability Office
                                                      June 20, 2012

   Highlights of GAO-12-836T, a testimony before the Subcommittee on 
Science and Space, Committee on Commerce, Science, and Transportation, 
                              U.S. Senate

Commercial Space Transportation
Industry Trends, Government Challenges, and International 
        Competitiveness Issues
Why GAO Did This Study
    The commercial space launch industry is changing as NASA plans to 
begin procuring commercial cargo transportation services to the 
International Space Station later this year and companies are 
developing vehicles that could carry passengers for space tourism 
flights. FAA is responsible for overseeing the safety of commercial 
space launches and promoting the industry. A catastrophic commercial 
space launch accident could result in injuries or property damage to 
the public, or ``third parties.'' In anticipation of such an event, 
launch companies are required to purchase launch insurance, per 
calculations done by FAA and, under the Commercial Space Launch Act, 
the Federal Government is potentially liable for claims above that 
amount of purchased insurance. Unless reauthorized, the indemnification 
provision expires this year.
    This testimony addresses (1) trends and forecasts in the commercial 
space launch industry and challenges FAA faces in overseeing and 
promoting the industry, (2) preliminary information on issues 
concerning Federal indemnification for third party losses, and (3) 
challenges to global competitiveness for the U.S. commercial space 
launch industry. This statement is based on a past GAO report and 
testimonies on commercial space launches, updated with information GAO 
gathered from FAA and NASA on industry trends and recent FAA and NASA 
actions, and on-going work on Federal indemnification. GAO is making no 
recommendations in this statement.
What GAO Found
    Since a peak of 22 U.S. commercial space launches in Fiscal Year 
1998, the annual number of launches generally ranged from 4 to 9 
launches. The number of commercial space launches is expected to 
increase in the next 8 years as the National Aeronautics and Space 
Administration (NASA) plans to procure 51 launches from commercial 
cargo companies to resupply the International Space Station. FAA also 
expects space tourism to begin in the next several years, although no 
companies have applied for a FAA launch license and companies 
developing these services have experienced delays in the past. FAA 
faces several challenges overseeing the commercial space launch 
industry. For example, FAA expects its licensing and oversight 
responsibilities to expand in anticipation of an increased private 
sector role, suggesting that FAA and Congress must remain vigilant so 
that potential conflicts in FAA's safety oversight and industry 
promotion roles do not occur. Also, as the commercial space launch 
industry grows and FAA continues to implement NextGen--FAA's effort to 
develop a more automated, aircraft-centered, satellite-based air 
traffic management system--the agency will have to manage a mix of 
earth-based aircraft and space vehicles. FAA has begun to consider 
integrating spaceflight operations into NextGen. In past work, GAO 
recommended that FAA take several actions to improve its oversight of 
commercial space launches, including monitoring indicators of space 
tourism safety. FAA has taken some steps to address the 
recommendations.
    Several factors have implications for Federal indemnification 
policy. For example, under the current policy, the potential increase 
in the number of commercial space launches increases the probability of 
a catastrophic accident and the possibility of a cost to the Federal 
Government. Also, GAO's preliminary work has raised questions about the 
soundness of the method currently used by FAA to calculate the amount 
of insurance that launch companies must purchase: FAA has not updated 
crucial components, such as the cost of a casualty, and its method is 
outdated, according to insurance industry officials and risk modeling 
experts. If the current indemnification policy is eliminated, the 
actual effects on the global competitiveness of the U.S. commercial 
space launch industry are unknown, in part, because it is not known 
whether launch customers might choose foreign launch companies over 
U.S. companies. However, launch companies said that the lack of 
government indemnification would decrease their global competitiveness 
by increasing launch costs.
    The competitiveness of U.S. commercial space launch companies is 
affected by higher launch prices than those charged by companies in 
other countries and U.S. export controls, which affect U.S. companies' 
ability to sell services abroad. The U.S. Government has responded to 
foreign competition by providing the U.S. launch industry research and 
development funds, use of Federal launch facilities, and 
indemnification for a portion of third-party claims.
 Prepared Statement of Gerald L. Dillingham, Ph.D., Director, Physical 
      Infrastructure Issues, U.S. Government Accountability Office
    Chairman Nelson, Ranking Member Boozman, and Members of the 
Subcommittee:

    Thank you for the opportunity to testify today on the commercial 
space industry. Historically, commercial space launches took place 
primarily at Federal launch sites and carried payloads (generally 
satellites) into orbit using unmanned vehicles that were only used 
once. The Federal Aviation Administration (FAA) is responsible for 
overseeing the safety of these launches and promoting the industry. 
Over the last several years the industry has begun to change. For 
instance, several companies are in the process of developing and 
testing manned, reusable launch vehicles for commercial space tourism. 
In addition, since the Space Shuttle fleet was retired in 2011, the 
National Aeronautics and Space Administration (NASA) plans to begin 
procuring commercial cargo transportation services to the International 
Space Station (ISS) later in 2012. With the successful mission of 
SpaceX's Dragon last month, the capability to do so has been 
demonstrated. NASA also intends to procure commercial manned launches 
to carry its astronauts to the ISS beginning in 2017.\1\ Private 
companies and states are developing commercial spaceports--sites used 
for commercial (nongovernment) spacecraft launches to support the 
expected growth in commercial space launches. To foster a competitive 
environment for the U.S. space launch industry, the Federal Government 
provides, under the Commercial Space Launch Act Amendments of 1988 
(CSLAA),\2\ among other things, potential indemnification for a portion 
of third party liability claims that could arise from a catastrophic 
launch-related incident that results in injury or damage to uninvolved 
people or property.\3\,\4\ This legislation expires at the 
end of 2012, and Congress will need to determine whether to end, 
reform, or continue current commercial space launch indemnification.
---------------------------------------------------------------------------
    \1\ Since NASA retired its Space Shuttle program in July 2011, it 
lacks a domestic capability to send crew and cargo to the ISS. To 
maintain the ISS through 2020, as required by the NASA Authorization 
Act of 2010, NASA is relying on international partners and commercial 
vehicles to transport cargo. Pub. L. No. 111-267, Sec. 501 All 
commercial cargo missions for NASA thus far have been demonstration 
missions conducted under Space Act agreements, which involve NASA 
providing significant funds to private industry partners to stimulate 
the development of large-scale commercial space transportation 
capabilities. Pub. L. 85-568, 72 Stat. In order to transport crew, NASA 
is currently purchasing seats on the Russian Soyuz vehicle. However, 
NASA has awarded a number of Space Act agreements to domestic private 
sector companies to stimulate development and demonstration of 
commercial human spaceflight capability, with an eventual goal of 
procuring crew transportation services in 2017. For more information on 
utilizing the ISS, see GAO, NASA: Significant Challenges Remain for 
Access, Use, and Sustainment of the International Space Station, GAO-
12-587T (Washington, D.C.: Mar. 28, 2012). For more information on 
Space Act agreements, see GAO, Key Controls NASA Employs to Guide Use 
and Management of Funded Space Act Agreements Are Generally Sufficient, 
but Some Could Be Strengthened and Clarified, GAO-12-230R (Washington, 
D.C.: Nov. 17, 2011).
    \2\ Pub. L. No. 100-657, 102 Stat. 3903 (1988).
    \3\ 51 USC Sec. 50915.
    \4\ The Federal Government, subject to appropriations, provides 
indemnification for losses that exceed the maximum probable loss up to 
a limit of $1.5 billion adjusted for post-1988 inflation; in 2012, this 
amount was approximately $2.7 billion. For each launch, FAA determines 
the maximum probable loss, which is the amount of third party losses 
against which a launch company must protect by buying third party 
liability insurance.
---------------------------------------------------------------------------
    My testimony today focuses on: (1) trends and forecasts in the U.S. 
commercial space launch industry, (2) challenges FAA faces in 
overseeing and promoting the industry, (3) preliminary information on 
factors for Congress to consider as it determines the future of 
commercial space launch indemnification, and (4) challenges to U.S. 
global competitiveness as the commercial space industry grows and 
matures. This statement is based on our prior testimonies and report on 
commercial space issues and has been updated with information we 
gathered from FAA and NASA on industry trends and recent FAA and NASA 
activities.\5\ It is also based on on-going work we are conducting for 
this committee and the U.S. House of Representatives' Committee on 
Science and Technology. Additional information on our scope and 
methodology is provided in each issued product. We conducted the work 
on which this is based in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives.
---------------------------------------------------------------------------
    \5\ See GAO, Commercial Space Launch Act: Preliminary Information 
on Issues to Consider for Reauthorization, GAO-12-767T (Washington, 
D.C.: June 6, 2012); Commercial Space Transportation: Industry Trends 
and Key Issues Affecting Federal Oversight and International 
Competitiveness, GAO-11-629T (Washington, D.C.: May 5, 2011); 
Commercial Space Transportation: Development of the Commercial Space 
Launch Industry Presents Safety Oversight Challenges for FAA and Raises 
Issues Affecting Federal Roles, GAO-10-286T (Washington, D.C.: Dec. 2, 
2009); and Commercial Space Launches: FAA Needs Continued Planning and 
Monitoring to Oversee the Safety of the Emerging Space Tourism 
Industry, GAO-07-16 (Washington, D.C.: Oct. 20, 2006).
---------------------------------------------------------------------------
Background
    In 1984, the Commercial Space Launch Act required the Secretary of 
Transportation to ``encourage, facilitate, and promote commercial space 
launches by the private sector.'' \6\ Under the Act, FAA was charged 
with regulating the U.S. commercial space launch industry, which it 
does through licensing, compliance monitoring, and safety inspection 
activities. FAA licenses all commercial launches and reentries that 
take place in the United States and overseas by U.S. citizens or 
companies to ensure the safety of the public and property, to ensure 
compliance with international obligations of the United States, and to 
protect the national security and foreign policy interests of the 
United States.\7\ FAA is also responsible for licensing the operation 
of all U.S. spaceports from which commercial launches may occur. In 
addition to its safety oversight and regulatory responsibilities, FAA 
is tasked with facilitating the strengthening and expansion of the U.S. 
space launch infrastructure. In 2004, the Commercial Space Launch 
Amendments Act of 2004 \8\ gave FAA the specific responsibility of 
overseeing the safety of space tourism. However, FAA is prohibited from 
regulating crew and passenger safety before October 2015, except in 
response to high risk incidents, serious injuries or fatalities, or an 
event that poses a high risk of causing a serious or fatal injury.
---------------------------------------------------------------------------
    \6\ 51 U.S.C. 50903.
    \7\ FAA issues four types of licenses: a launch license (for 
expendable launch vehicles), a reusable launch vehicle mission license, 
a reentry license, and a launch or reentry site operator license. The 
first three types of licenses are issued to the operator of a launch 
vehicle, and the fourth is issued to the operator of a spaceport. FAA 
also issues experimental permits for test flights of reusable launch 
vehicles.
    \8\ Pub. L. No 108-492.
---------------------------------------------------------------------------
    Other Federal agencies also support the commercial space launch 
industry. NASA supports the industry by providing infrastructure and 
operations support and encouraging private sector investment in its 
launches and other activities. The Department of Defense (DOD), through 
the Air Force, provides infrastructure, operations support, guidance, 
and safety oversight for government and commercial launches at its 
launch sites. The Department of Commerce (Commerce) is also responsible 
for promoting the commercial space industry.
    In addition, similar to other countries such as China, France, and 
Russia, the U.S. Government provides indemnification for a portion of 
claims by third parties for injury, damage, or loss that result from 
FAA-licensed commercial launch-related incidents, provided Congress 
appropriates funds for this purpose.\9\,\10\ Prior to 
issuing a launch or reentry license, FAA determines the amount of third 
party losses against which a launch company must protect by buying 
third party liability insurance. FAA determines this by calculating the 
maximum probable loss, which is an estimate of the maximum third party 
losses likely to occur from a commercial space launch.\11\ The Federal 
Government, subject to appropriations, provides indemnification for 
losses that exceed the maximum probable loss up to a limit of about 
$2.7 billion.\12\ Parties involved in launches--for example, passengers 
and crew--are not considered third parties, and thus damages to them 
would not be covered under the indemnification program.\13\ The 
commitments of the United States or other countries to pay third party 
claims have never been tested. Globally, there has never been a third 
party claim for damages from a commercial space launch failure that 
reached the level of government indemnification.
---------------------------------------------------------------------------
    \9\ 51 USC 50914(a)(1)(A).
    \10\ China, France, and Russia provide more indemnification 
coverage than the United States. These countries each have an 
indemnification regime in which the government states that it will 
assume a greater share of the risk compared to that of the United 
States because each country places no limit on the amount of government 
indemnification.
    \11\ More specifically, the maximum probable loss is based on 
estimates of losses from events having greater than a 1 in 10 million 
chance of occurring.
    \12\ The $2.7 billion limit on the Federal Government's liability 
is for 2012; this amount is adjusted for inflation each year.
    \13\ A crew includes any employee who performs activities directly 
relating to the launch, reentry, or other operation relating to the 
vehicle that carriers human beings. 51 U.S.C Sec. 50902(2). A 
passenger--also called a spaceflight participant--is an individual who 
is not crew, carried aboard a launch vehicle or reentry vehicle. 51 
U.S.C Sec. 50902(17).
---------------------------------------------------------------------------
The Number of FAA-Licensed Space Launches Peaked in 1998, but an 
        Increase Is Anticipated
Launch Trends
    Since 1989, FAA has licensed 207 commercial space launches. Since a 
peak of 22 launches in Fiscal Year 1998, the annual number of launches 
generally ranged from 4 to 8 launches. (See fig. 1.) Space launches by 
private sector companies were relatively high in the late-1990s as U.S. 
commercial launch companies responded to the increase in global demand 
for commercial satellite launch services. Since then, the demand for 
commercial launches has generally declined, except for slight increases 
in Fiscal Years 2004 and 2008. The increase in Fiscal Year 2004 was due 
in part to the inclusion of 4 demonstration flights by SpaceShipOne and 
the increase in Fiscal Year 2008 was due, in part, to the return to 
service of one of the most common launch vehicles following a failure 
in the previous year.\14\ Since Fiscal Year 2009, FAA has licensed 13 
commercial space launches, including the launch of the Falcon 9 rocket 
that carried the Dragon capsule that docked with the International 
Space Station last month.
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    \14\ SpaceShipOne, which resembles an airplane, was launched from 
an airplane into space, where it traveled nearly 70 miles above the 
earth, and returned to the original launch site.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: GAO analysis of FAA data.
    Note: These numbers include launches by Sea Launch--a multinational 
consortium that is licensed by FAA because one of its principals is a 
U.S. company. The numbers also include 5 launches by SpaceShipOne--4 in 
Fiscal Year 2004 and 1 in Fiscal Year 2005--which were not FAA-licensed 
as they were demonstration flights. All launches were orbital, except 
those of SpaceShipOne, which were suborbital.

    Despite the low number of licensed launches in recent years, 
according to FAA, research and development activity in commercial 
spaceflight continues and the tests associated with this activity are 
not captured in launch numbers. According to industry experts that we 
spoke with, since 2006 the commercial space launch industry has 
experienced a steady buildup of research and development efforts, 
including ground tests and low-altitude flight tests of reusable 
rocket-powered vehicles that are capable of numerous takeoffs and 
landings. (See fig. 2 for examples of commercial spacecraft being 
developed.) These activities do not require licensing. In 2006, FAA 
began issuing experimental permits to companies seeking to conduct test 
launches of reusable space launch vehicles that could be used for 
manned commercial flights.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Sources: Virgin Galactic (left); Blue Origin (middle); and XCOR 
Aerospace (right).

    The number of commercial space launches is anticipated to increase 
in the years ahead as NASA begins procuring commercial cargo 
transportation services to the ISS and private industry continues 
developing vehicles for space tourism flights. As previously noted, 
SpaceX recently completed the first commercial mission to deliver cargo 
to the ISS and bring back scientific samples and other supplies. (See 
fig. 3.) As a result of this success, SpaceX will begin to fly its 12 
missions under NASA's Commercial Resupply Services contract for 
delivery of cargo to the ISS. Orbital Sciences Corporation has also 
been awarded a contract for cargo resupply missions to the ISS through 
2016, but has yet to conduct any demonstration missions. Together, the 
companies are scheduled to complete about 39 percent of NASA's planned 
launches to the ISS through 2020. (See table 1.)


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    Source: NASA.--------------------------------------------------------------------------------------------------------------------------------------------------------

           Table 1.--NASA's Planned Launches to Resupply the ISS from 2012 to 2020 (as of March 2012)
----------------------------------------------------------------------------------------------------------------
                 Vehicle                    2012   2013   2014   2015   2016   2017   2018   2019   2020   Total
----------------------------------------------------------------------------------------------------------------
European Automated Transfer Vehicle (ATV)      1      1      1      0      0      0      0      0      0       3
 a
Japanese H-II Transfer Vehicle (HTV) a         1      1      1      1      1      1      1      1      1       9
SpaceX                                         2      2      2      3      3      0      0      0      0      12
Orbital                                        1      2      1      2      2      0      0      0      0       8
Follow-on commercial resupply b                0      0      0      0      0      5      5      5      4      19
Total                                          5      6      5      6      6      6      6      6      5      51
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of NASA data.
a The ATV and HTV are unmanned vehicles that have flown to the ISS.
b NASA does not have contracts with commercial providers or negotiated agreements with international partners
  for flights from 2017 through 2020.

    FAA expects space tourism activity to begin in the coming years 
and, while companies are developing vehicles to provide space tourism 
services, the industry has experienced delays in its development in the 
past. The prospect for commercial space tourism materialized in 2004 
with the successful flights of SpaceShipOne, which have been the only 
manned commercial flights to date. Virgin Galactic, which formed a 
joint venture with Scaled Composites to develop SpaceShipTwo, is the 
farthest along among the space tourism companies and has taken deposits 
from more than 500 customers to reserve a place on a future flight. 
However, Virgin Galactic has not yet applied to FAA for a launch 
license and its planned schedule for flights has experienced delays in 
the past. The planned and anticipated increase in launches, from NASA 
and potentially from space tourism, has implications for FAA's 
oversight responsibilities and the Federal Government's potential 
liability in providing third party indemnification, as we discuss later 
in this statement.
Commercial Spaceports
    In the United States, private companies and state governments have 
been developing additional spaceports to accommodate the anticipated 
space tourism flights and expand the Nation's launch capacity. There 
are currently eight nonfederal FAA-licensed spaceports as well as two 
private facilities each with one resident launch provider--Blue Origin 
and Sea Launch--which are termed sole-site operators. (See fig. 4.) In 
addition, state governments and local communities have proposed 
establishing commercial spaceports in six additional locations.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Sources: FAA and GAO.
    a Private facility with a sole site operator.

    Both states and FAA have provided support for the development of 
commercial spaceports. States have provided economic incentives to 
developers to build spaceports to attract space tourism that could in 
turn provide economic benefits to localities. For example, New Mexico 
provided approximately $209 million to construct Spaceport America \15\ 
and the Florida Space Authority, a state agency, invested over $500 
million in new space industry infrastructure development at Cecil Field 
Spaceport, including upgrades to the launch pad, a new space operations 
support complex, and a reusable launch vehicle support complex. In 
addition, Virginia recently enacted legislation to provide $9.5 million 
annually to support the capital needs, maintenance, and operating costs 
of facilities owned and operated by the Virginia Commercial Space 
Flight Authority--including the Mid-Atlantic Regional Spaceport--and 
has provided state tax exemptions for companies launching payloads from 
the spaceport or doing space-related business activities in Virginia. 
However, according to a senior FAA official, continued state support 
for spaceports in the current fiscal environment has been mixed. The 
official added that although there are eight licensed spaceports, there 
has not been launch activity at all of them. Until there is a launch 
provider that begins operations and brings revenue to a spaceport, 
support is difficult to justify. In addition, Federal support for 
spaceports has been affected by the fiscal environment. In 2010, FAA 
distributed a total of $500,000 in appropriated funds to four 
spaceports in the first Commercial Space Transportation Grants. Since 
then it has drawn from its operations budget to sustain the program.
---------------------------------------------------------------------------
    \15\ Approximately $133 million came from state appropriations. The 
remainder came from tax bonds collected from Dona Ana and Sierra 
counties in New Mexico.
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FAA Faces Several Significant Challenges as It Oversees a Changing 
        Commercial Space Launch Industry
    As it oversees a changing commercial space launch industry, FAA 
faces various challenges. These include addressing a potential growth 
in its licensing and oversight workload, ensuring that its safety 
regulations are equally suitable for commercial spaceports and Federal 
launch sites, avoiding potential conflicts between its dual roles of 
safety oversight and industry promotion, and adequately accommodating 
space flight in its air traffic management system.
Potential Industry Growth and FAA's Workload
    FAA expects its licensing and oversight responsibilities of 
commercial space launches to expand in the next few years with the 
licensing of NASA-contracted launches as NASA begins this year to use 
new commercially-developed and operated vehicles to deliver cargo and 
later crew to the ISS. NASA plans to contract with commercial launch 
companies for these services. FAA and NASA announced on June 18, 2012, 
that FAA will license NASA-contracted vehicles and services. FAA 
expects the number of commercial launches to increase as private 
companies work toward providing flight services to paying passengers. 
FAA requires either a launch and a reentry license or a permit. As 
mentioned earlier in this statement, manned commercial launches have 
not occurred since 2004, and Virgin Galactic is the company closest to 
developing a vehicle for space tourism, but it has not filed for FAA 
licenses. Therefore, it is not clear when FAA's workload would be 
affected by space tourism.
    As of November 2011, FAA's workload included 15 active launch 
licenses, 8 active launch site operator licenses, and 2 active 
experimental permits. FAA evaluates applications for launch licenses by 
reviewing the safety, environmental, payload, and policy implications 
of a launch and determining the launch company's insurance liability or 
financial responsibility. FAA's licensing process is described in fig. 
4.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: GAO presentation of FAA information.

    According to FAA officials, FAA's Office of Commercial Space 
Transportation has 72 full-time staff, as of June 2012, to oversee 
commercial space launches. FAA's Fiscal Year 2013 budget request 
includes resources to hire an additional 10 safety experts to evaluate 
license applications, conduct safety inspections, and provide oversight 
in its field offices.
    FAA expects its workload to increase over the next several years as 
it begins to develop safety regulations for commercial human 
spaceflight. Although a moratorium on FAA regulations for passenger 
safety has been extended to October 2015, we have previously 
recommended that FAA identify and continually monitor indicators of 
space tourism industry safety.\16\ Although FAA was not able to address 
our recommendation directly because there have been no launches with 
passengers, it is taking other steps--e.g., reviewing NASA's 
certification of space launch vehicles as worthy of transporting humans 
(i.e., human rating) and its own aircraft certification processes--that 
will help FAA be prepared to regulate passenger safety. We believe that 
these are reasonable preliminary steps to regulate crew and passenger 
safety.
---------------------------------------------------------------------------
    \16\ GAO-07-16.
---------------------------------------------------------------------------
Suitability of Safety Regulations for Spaceports
    As noted earlier, spaceports are being developed to accommodate 
anticipated commercial space tourism flights. However, FAA faces 
challenges related to regulating commercial spaceports. Specifically, 
FAA must ensure that its regulations on licensing and safety 
requirements for launches and launch sites, which are based on safety 
requirements for expendable launch vehicles (i.e., vehicles that are 
only used once and do not return to Earth) at Federal launch sites, 
will also be suitable for operations at commercial spaceports. We have 
reported that the safety regulations for expendable launch vehicles may 
not be suitable for space tourism flights because of differences in 
vehicle types and launch operations, according to experts we spoke 
with.\17\ Similarly, spaceport operators and experts we spoke with 
raised concerns about the suitability of FAA safety regulations for 
commercial spaceports. Experts told us that safety regulations should 
be customized for each spaceport to address the different safety issues 
raised by various types of operations, such as different orbital 
trajectories and differences in the way that vehicles launch and return 
to earth, whether vertically or horizontally. To address these 
concerns, we reported that it will be important to measure and track 
safety information and use it to determine if the regulations should be 
revised. We did not make recommendations to FAA concerning these issues 
because the Commercial Space Launch Amendments Act of 2004 required the 
Department of Transportation (DOT) to commission an independent report 
to analyze, among other things, whether expendable and reusable 
vehicles should be regulated differently from each other, and whether 
either of the vehicles should be regulated differently if carrying 
passengers. The report, issued in November 2008, concluded that the 
launch of expendable vehicles, when used to lift reusable rockets 
carrying crew and passengers, as well as launch and reentry of reusable 
launch vehicles with crew and passengers should be regulated 
differently from the launch of expendable vehicles without humans 
aboard. The report also noted that the development of a data system to 
monitor the development and actual performance of commercial launch 
systems and to better identify different launch risk factors and 
criteria would greatly assist the regulatory process.\18\
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    \17\ We recommended that FAA develop a formal process for 
consultations between its Office of Commercial Space Transportation and 
Office of Aviation Safety about licensing reusable launch vehicles. In 
response, the two offices developed an agreement defining their roles 
and responsibilities regarding the review of hybrid aircraft/launch 
vehicles. See GAO-07-16.
    \18\ The Aerospace Corporation, et al., Analysis of Human Space 
Flight Safety, Report to Congress (El Segundo, CA: Nov. 11, 2008).
---------------------------------------------------------------------------
Dual Oversight and Promotion Roles
    In 2006, we reported that FAA faced the potential challenge of 
overseeing the safety of commercial space launches while promoting the 
industry.\19\ While we found no evidence that FAA's promotional 
activities--such as sponsoring an annual industry conference and 
publishing studies of industry trends--conflicted with its safety 
regulatory role, we noted that potential conflicts may arise as the 
space tourism sector develops. We reported that as the commercial space 
launch industry evolves, it may be necessary to separate FAA's 
regulatory and promotional activities. Recognizing the potential 
conflict, Congress required the 2008 DOT-commissioned report to discuss 
whether the Federal Government should separate the promotion of 
commercial human spaceflight from the regulation of such activity. The 
2008 commissioned report concluded there was no compelling reason to 
remove promotional responsibilities from FAA in the near term (through 
2012) noting that FAA allocated approximately 16 percent of the 
commercial space budget in Fiscal Year 2008, which was significantly 
less than what was allocated for activities directly related to safety. 
FAA's requested allocation for promotional activities is 12 percent of 
the commercial space budget request for Fiscal Year 2013, according to 
an FAA official. The report further stated that periodic review of the 
issue was warranted as the commercial space launch industry changed. We 
continue to concur with the commissioned report's assessment and see no 
need for Congress to step in at this time to require a separation of 
regulatory and promotional activities since resource allocations for 
promotion remains at a relatively low level, and few commercial space 
launches are occurring. However, FAA and Congress must continue to 
remain vigilant that a situation in which FAA jeopardizes the public 
interest by subordinating it to that of the commercial space launch 
industry does not occur.
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    \19\ GAO-07-16.
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Spaceflight and NextGen
    NextGen--FAA's efforts to transform the current radar-based air 
traffic management system into a more automated, aircraft-centered, 
satellite-based system--will need to accommodate spacecraft that are 
transitioning to and from space through the national airspace system. 
As the commercial space launch industry grows and spaceflight 
technology advances, FAA expects that the agency will need tools to 
manage a mix of diverse aircraft and space vehicles in the national 
airspace system. In addition, the agency will need to develop new 
policies, procedures, and standards for integrating spaceflight 
operations into NextGen. For example, FAA will have to define new upper 
limits to the national airspace system \20\ to include corridors for 
flights transitioning to space; establish new air traffic procedures 
for flights of various types of space vehicles, such as aircraft-
ferried spacecraft and gliders; develop air traffic standards for 
separating aircraft and spacecraft in shared airspace; and determine 
controller workload and crew rest requirements for space operations. 
FAA has begun to consider such issues and generally includes them in 
its concept of operations for NextGen.
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    \20\ The national airspace system currently extends to 60,000 feet 
above mean sea level.
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Factors Congress Should Weigh Concerning Commercial Space Launch 
        Indemnification
    Several factors have implications for Federal indemnification 
policy. These include the potential for manned launches, the soundness 
of FAA's calculation of maximum probable loss, a gap in the 
indemnification policy, and the potential effects that ending Federal 
indemnification could have on the global competitiveness of the U.S. 
commercial space launch industry.
Potential Manned Launches
    Our ongoing work indicates that the expected increase in manned 
commercial launches raises a number of issues that have implications 
for the Federal Government's indemnification policy for third party 
liability. First, the number of launches and landings covered by 
Federal indemnification could increase with NASA's planned manned 
launches, which will be FAA licensed. NASA expects to procure from 
private launch companies two manned launches per year to the ISS from 
2017 to 2020.\21\ In addition, the development of a space tourism 
industry may also increase the number of launches and landings covered 
by Federal indemnification, but the timing of tourism launches and 
landings is uncertain.
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    \21\ NASA-contracted launches for its science missions are not 
currently covered by CSLAA; rather, NASA requires its launch 
contractors to obtain insurance coverage for third party losses. The 
amount of the insurance required by NASA is the maximum amount 
available in the commercial marketplace at reasonable cost, but not to 
exceed $500 million per launch. The facts and circumstances for claims 
in excess of this amount would be forwarded by NASA to the Congress for 
its consideration 51 U.S.C. Sec. 20113 (m) (2). NASA-contracted 
launches for the Commercial Resupply Services to the ISS will be 
licensed by FAA under CSLAA, and will be covered by CSLAA 
indemnification.
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    According to insurance company officials with whom we spoke, the 
potential volume of manned launches for NASA and for space tourism 
could increase the overall amount of insurance coverage needed by 
launch companies, which could raise insurance costs, including those 
for third party liability.\22\ By increasing the number of launches, 
the probability of a catastrophic event is also increased, and any 
accident that occurs could also increase future insurance costs, 
according to insurance company officials. A catastrophic accident could 
also result in third party losses over the maximum probable loss, which 
would invoke Federal indemnification, provided Congress appropriates 
funds for this purpose.
---------------------------------------------------------------------------
    \22\ Launch providers obtain insurance in addition to that for 
third party liability, including coverage of assets, such as the launch 
vehicle.
---------------------------------------------------------------------------
    Second, because newly developed manned launch vehicles have a 
limited launch history, they are viewed by the insurance industry as 
more risky than ``legacy'' launch vehicles. Insurance company officials 
told us that a launch vehicle such as United Launch Alliance's Atlas V, 
which launches satellites and may be used for future manned missions, 
is seen as less risky than new launch vehicles, such as SpaceX's Falcon 
9, which could also be used for manned missions. According to insurance 
company officials with whom we spoke, they expect to charge higher 
insurance premiums for newly developed launch vehicles than legacy 
launch vehicles given their different risk profiles. Insurance company 
officials' opinions varied as to when a launch vehicle is deemed 
reliable--from 5 to 10 successful launches. They also told us that 
whether vehicles are manned is secondary to the launch vehicle's 
history and that the launch's trajectory--over water or land--is also 
considered in determining risk and, consequently, the price and amount 
of third-party liability coverage.
    Third, having people on board a space vehicle raises issues of 
informed consent and cross waivers, which could affect third party 
liability and the potential cost to the Federal Government. CSLAA 
requires passengers and crew on spaceflights to be informed by the 
launch company of the risks involved and to sign a reciprocal waiver of 
claims (also called a cross waiver) with the Federal Government--
meaning that the party agrees not to seek claims against the Federal 
Government if an accident occurs. CSLAA also requires cross waivers 
among all involved parties in a launch. Two key issues dealing with 
cross waivers include the estates of spaceflight passengers and crew 
and limits on liability for involved parties. One issue is the estates 
of spaceflight passengers and crew, which are considered third parties 
to a launch, are not covered by informed consent and cross waiver of 
claims, according to two insurance companies and one legal expert. 
Another issue, according to two insurance companies and two legal 
experts, requiring cross waivers among passengers, crew, the launch 
company, and other involved parties may not minimize potential third 
party claims as they would not place limitations on liability.
Maximum Probable Loss
    The potential costs to the government under CSLAA--that is, the 
Federal Government's exposure to liability--depends on FAA's maximum 
probable loss calculation, which assesses a launch's risk. If the 
calculation is understated, then the government's exposure to liability 
is higher; conversely, if the calculation is overstated, then launch 
companies are required to purchase more insurance than intended. 
Therefore, it is important that FAA use an appropriate process for 
determining the maximum probable loss. Our preliminary work identified 
several issues that raise questions about the soundness of FAA's 
maximum probable loss methodology:

   FAA uses a figure of $3 million when estimating the cost of 
        a single potential casualty--that includes either injury or 
        death--which FAA officials said has not been updated since they 
        began using it in 1988. Two insurers, as well as 
        representatives of two risk modeling companies that specialize 
        in estimating damages from catastrophic events, said that this 
        figure is likely understated. Because this number has not been 
        adjusted for inflation or updated in other ways, it may not 
        adequately represent the potential current cost of injury or 
        death caused by commercial space launch failures.

   FAA's methodology for determining potential property damage 
        from a commercial space launch starts with the total cost of 
        casualties and adds a flat 50 percent to that cost as the 
        estimate of property damage, rather than specifically analyzing 
        the number and value of properties that could be affected in 
        the event of a launch failure. One insurer and two risk 
        modelers said that FAA's approach is unusual and generally not 
        used to estimate potential losses from catastrophic events. For 
        example, officials from both modeling companies noted that the 
        more common approach is to model the property losses first and 
        derive the casualty estimates from the estimated property 
        losses. One modeler stated that FAA's method might 
        significantly understate the number of potential casualties, 
        noting that an event that has a less than 1 in 10 million 
        chance of occurring is likely to involve significantly more 
        casualties than predicted under FAA's approach. Moreover, a 
        2007 FAA review conducted with outside consultants said that 
        this approach is not recommended because of observed instances 
        where casualties were low yet forecasted property losses were 
        very large.

   More broadly, FAA's method does not incorporate what is 
        known in the insurance industry as ``catastrophe modeling.'' 
        One modeler told us that catastrophe modeling has matured over 
        the last 25 years--as a result of better data, more scientific 
        research, and advances in computing--and has become standard 
        practice in the insurance and reinsurance industries. 
        Catastrophe models consist of two components: a computer 
        program that mathematically simulates the type of event being 
        insured against and a highly detailed database of properties 
        that could potentially be exposed to loss. Tens of thousands or 
        more computer simulations are generated to create a 
        distribution of potential losses and the simulated probability 
        of different levels of loss. In contrast, FAA's method involves 
        estimating a single loss scenario. FAA officials told us that 
        they have considered the possibility of using a catastrophe 
        model. However, they expressed concern about whether the more 
        sophisticated approach would be more accurate, given the great 
        uncertainty about the assumptions--such as the probability and 
        size of potential damages--that must be made with any model. 
        Also, both experts and FAA officials told us that developing a 
        catastrophe modeling capability would entail significant costs.

    FAA officials said that they believe the maximum probable loss 
methodology is reasonable and produces conservative results. The same 
officials noted that they periodically evaluate their current maximum 
probable loss methodology, but acknowledged that they have not used 
outside experts or risk modelers for this purpose. They agreed that 
such a review could be beneficial, and that involvement of outside 
experts might be helpful for improving their maximum probable loss 
methodology. As we finalize our review of CSLAA indemnification policy, 
we will address any additional Federal actions needed in response to 
our analysis.
Gap in Federal Indemnification
    Officials from the insurance industry and space launch companies, 
as well as an expert, characterized the lack of coverage of on-orbit 
activities--that is, activities not related to launch or reentry, such 
as relocating a satellite from one orbit to another orbit--as a gap in 
Federal indemnification, but they did not agree on the need to close 
this gap. FAA licenses commercial launches and reentries, but does not 
license on-orbit activities. Federal indemnification only applies to 
FAA-licensed space activities. One expert noted that Federal oversight 
of on-orbit activities may be needed to provide consistency and 
coordination among agencies that have on-orbit jurisdiction. He pointed 
out that the Federal Communications Commission and the National Oceanic 
and Atmospheric Administration have jurisdiction over their satellites 
and NASA has jurisdiction over the ISS. Thus, according to the expert, 
there should be one Federal agency that coordinates regulatory 
authority over on-orbit activities. On the other hand, officials from 
two launch companies told us that they did not believe that on-orbit 
activities need to be regulated by FAA or that Federal indemnification 
coverage should be provided.
    According to senior agency officials, FAA may seek statutory 
authority over on-orbit activities, although not for satellite or 
spectrum usage. An insurer told us that having FAA in charge from 
launch to landing would help ensure that there were no gaps in 
coverage. According to this insurer, this would help bring stability to 
the insurance market in the event of an accident as involved parties 
would be clear on which party is liable for which activities. Congress 
would decide whether FAA's on-orbit authority would include licensing 
on-orbit activities. If FAA were granted the authority to license on-
orbit activities, this would increase the potential costs to the 
Federal Government for third party claims as its exposure to risk would 
increase.
Indemnification and U.S. Competitiveness
    Our on-going work indicates it is difficult to predict how 
insurance premiums or other costs might change as well as the 
availability of coverage if indemnification were eliminated. In 
addition, we do not know whether or to what extent launch customers 
might choose foreign launch companies over U.S. companies. Furthermore, 
it is difficult to separate out the effects of withdrawing 
indemnification on the overall competitiveness of the U.S. commercial 
space launch industry. Many factors affect the industry's 
competitiveness, including other U.S. Government support, such as 
research and development funds, government launch contracts, and use of 
its launch facilities, in addition to the third party indemnification.
    Our work to date suggests that while the actual effects on 
competition of eliminating CSLAA indemnification are unknown, several 
launch company representatives and customers with whom we spoke said 
that in the absence of CSLAA indemnification, higher costs and 
increased risk would directly affect launch companies and indirectly 
affect their customers and suppliers. The same participants said that 
two key factors--launch price and launch vehicle reliability--generally 
determine the competitiveness of launch companies. According to two 
launch customers, launch prices for similar missions can vary 
dramatically across countries. For example, two customers said that a 
similar launch might cost about $40 million to $60 million with a 
Chinese company, about $80 million to $100 million with a French 
company, and approximately $120 million with a U.S. company. Other 
considerations also would be involved in selecting a launch company, 
according to launch customers with whom we spoke. For example, some 
said that export restrictions for U.S. customers could add to their 
costs or prevent them from using certain launch companies. One launch 
customer also said that it considers the costs of transporting the 
satellite to the launch site as well as other specific aspects of a 
given launch.
    U.S. launch company representatives said that the lack of 
government indemnification would decrease their global competitiveness 
by increasing launch costs. Those officials said their costs would 
increase as a result of their likely purchase of greater levels of 
insurance to protect against third party losses, as the launch 
companies themselves would be responsible for all potential third party 
claims, not just those up to the maximum probable loss amount. Some 
launch companies told us that they would likely pass additional costs 
on to their customers by increasing launch prices. Two launch customers 
told us that in turn, they would pass on additional costs to their 
customers.
    Launch company representatives and customers said that ending CSLAA 
indemnification would also decrease the competitiveness of U.S. launch 
companies because launch customers would be exposed to more risk than 
if they used launch companies in countries with government 
indemnification. For example, representatives from several launch 
companies and customers said that if some aspect of the launch payload 
is determined to have contributed to a launch failure, they could be 
exposed to claims for damages from third parties and therefore might be 
more likely to use a launch company in a country where the government 
provides third party indemnification. Some also noted that the 
increased potential for significant financial loss for third party 
claims could cause launch companies, customers, or suppliers to decide 
if it was no longer worthwhile to be involved in the launch business, 
resulting in lost jobs and industrial capacity. Lastly, one industry 
participant pointed out that some suppliers, such as those that build 
propulsion systems, have to maintain significant amounts of 
manufacturing capacity whether they build one product or many. If there 
are fewer launches, the cost of maintaining that capacity will be 
spread among these fewer launches, resulting in a higher price for each 
launch. To the extent that the Federal Government is a customer that 
relies on private launch companies for its space launch needs, it too 
could face potentially higher launch costs.
Alternatives for Addressing Space Launch Risk
    Because launch failures and changing market conditions could change 
the amounts of coverage available in the private market, you have 
expressed interest in other possible ways of managing catastrophic 
risk. While we have not conducted specific work to analyze the 
feasibility of alternative approaches for providing coverage currently 
available through CSLAA, FAA and others have looked at possible 
alternatives to CSLAA indemnification and we have examined different 
methods for addressing the risk of catastrophic losses associated with 
natural disasters and acts of terrorism.\23\ These events, like space 
launch failures, have a low probability of occurrence but potentially 
high losses. Some methods involve the private sector, including going 
beyond the traditional insurance industry, in providing coverage, and 
include the use of catastrophe bonds or tax incentives to insurers to 
develop catastrophe surplus funds. Other methods aid those at risk in 
setting aside funds to cover their own and possibly others' losses, 
such as through self-insurance or risk pools.\24\ Still other methods, 
such as those used for flood and terrorism insurance, involve the 
government in either providing subsidized coverage or acting as a 
backstop to private insurers.\25\
---------------------------------------------------------------------------
    \23\ See FAA, Liability and Risk-Sharing Regime for U.S. Commercial 
Space Transportation: Study and Analysis and Aerospace Corporation, 
Study of the Liability Risk-Sharing Regime in the United States for 
Commercial Space Transportation. See also GAO, Catastrophe Insurance 
Risks: The Role of Risk-Linked Securities and Factors Affecting Their 
Use, GAO-02-941 (Washington, D.C.: Sept. 24, 2002); Catastrophe 
Insurance Risks: The Role of Risk-Linked Securities, GAO-03-195T 
(Washington, D.C.: Oct. 8, 2002); and Natural Disasters: Public Policy 
Options for Changing the Federal Role in Natural Catastrophe Insurance, 
GAO-08-7 (Washington, D.C.: Nov. 26, 2007).
    \24\ See GAO, Catastrophe Insurance Risks: Status of Efforts to 
Securitize Natural Catastrophe and Terrorism Risk, GAO-03-1033 
(Washington, D.C.: Sept. 24, 2003). Self-insurance occurs when an 
entity assumes the risk for its losses and can involve the formation of 
an insurance company solely for that purpose. Risk pooling occurs when 
two or more entities agree to set aside funds to help pay for the 
others' losses.
    \25\ See GAO, Flood Insurance: FEMA's Rate-Setting Process Warrants 
Attention, GAO-09-12 (Washington, D.C.: Oct. 31, 2008) and Terrorism 
Insurance: Status of Efforts by Policyholders to Obtain Coverage, GAO-
08-1057 (Washington, D.C.: Sept. 15, 2008).
---------------------------------------------------------------------------
    Use of any such alternatives could be complex and would require a 
systematic consideration of their feasibility and appropriateness for 
third party liability insurance for commercial space launches. For 
example, according to a broker and a risk expert, a lack of loss 
experience complicates possible ways of addressing commercial space 
launch third party liability risk, and according to another risk 
expert, any alternative approaches for managing this risk would need to 
consider key factors, including the

   number of commercial space launch companies and insurers and 
        annual launches among which to spread risk and other associated 
        costs;

   lack of launch and loss experience and its impact on 
        predicting and measuring risk, particularly for catastrophic 
        losses; and

   potential cost to private insurers, launch companies and 
        their customers, and the Federal Government.

    As such, alternatives could potentially require a significant 
amount of time to implement.
Several Factors Hinder the Competitiveness of the U.S. Commercial Space 
        Launch Industry
    The competitiveness of the U.S. commercial space launch industry is 
affected by high launch prices and export controls, which affect its 
ability to sell its services abroad. Based on several measures of 
global competitiveness, the U.S. commercial space launch industry has 
generally trailed Russia and France in recent years. For example, in 8 
of the last 10 years, U.S. commercial space launch companies generated 
less revenue that either Russia or France. U.S. companies generated no 
commercial launch revenue in 2011 because they conducted no 
launches.\26\ (See fig. 5.)
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    \26\ The one FAA-licensed launch that occurred in 2011 was by Sea 
Launch, which is a multinational company, not a U.S. company.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Source: GAO analysis of FAA data,
    Note: International revenue data for 2012 is not available.

    We previously reported that as the U.S. commercial space launch 
industry expands, it will face key competitive issues, including high 
launch prices and export controls, that affect its ability to sell its 
services abroad.\27\ Foreign competitors have historically offered 
lower launch prices than U.S. launch providers, as mentioned previously 
in this statement. The U.S. Government has responded to foreign 
competition by providing the commercial launch industry support, 
including research and development funds, government launch contracts, 
use of its launch facilities, and, as already discussed, 
indemnification for third-party losses that exceed the maximum probable 
loss.\28\
---------------------------------------------------------------------------
    \27\ GAO-07-16.
    \28\ There have been no commercial space launch accidents that 
resulted in third-party losses that required government 
indemnification.
---------------------------------------------------------------------------
    Industry representatives that we interviewed told us that export 
licensing requirements affect the ability of the U.S. commercial space 
launch industry to sell launch vehicles abroad because they can deliver 
chemical, biological, and nuclear weapons. In previous work, a senior 
Commerce official told us that the U.S. commercial space launch 
industry had asked Congress to consider amending the statute that 
restricts space manufacturing items for export. A change in statute 
would allow for the Department of State (State) and DOD to review 
individual items for export, as they do for other industries.
    Finally, the commercial space launch industry operates without the 
benefit of a national strategy. Numerous agencies--including FAA, NASA, 
State, and Commerce--are responsible for space activities and have 
developed their own strategies. A national space launch strategy could 
identify and fill gaps in Federal policy concerning the commercial 
space launch industry, according to senior FAA and Commerce officials. 
According to those officials, the need for an overall U.S. space launch 
policy, which includes commercial space launches, was being discussed 
within DOT and across other departments as part of the administration's 
review of national space activities, but developing a national policy 
had not yet begun. Guidance on launch acquisitions will, however, be 
included in the updated National Space Transportation Policy, which is 
currently under development and a date for issuance has not been 
publically announced.
Concluding Observations
    In closing, despite the decrease in FAA-licensed commercial 
launches since Fiscal Year 1998, commercial space launch is a dynamic 
industry with newly developing vehicles and missions. As the 
realization of space tourism nears and NASA relies more heavily on 
commercial providers to deliver cargo and crew to the ISS, the number 
and types of flights may increase, which will have implications for FAA 
oversight and Federal indemnification support. As we previously 
recommended, FAA should continue to take steps to gather and review 
launch data that will enable it to be prepared to regulate human 
spaceflight when the regulation moratorium expires in 2015. In 
addition, as the industry changes and grows, continually assessing 
Federal liability indemnification policy to ensure that it protects 
both launch companies and the Federal Government will be important. As 
we complete our analysis of Federal indemnification, we will more fully 
address any additional Federal actions needed in response to these 
developments. Finally, the potential changes to the industry may 
present the conditions under which a subsequent review of FAA's dual 
role in promoting and overseeing commercial space launch safety is 
warranted.
    Chairman Nelson, Ranking Member Boozman, and Members of the 
Subcommittee, this concludes my prepared statement. I would be pleased 
to answer any questions at this time.

    Senator Nelson. Thank you, Doctor.
    Mr. Gold?

            STATEMENT OF MICHAEL N. GOLD, DIRECTOR,

              D.C. OPERATIONS AND BUSINESS GROWTH,

                       BIGELOW AEROSPACE

    Mr. Gold. I would like to thank you, Chairman Nelson, 
Ranking Member Boozman, and Senator Hutchison, for this 
opportunity to testify.
    Also, since I do not get to do this every day, I would like 
to take a moment to acknowledge my fellow witness, Bill 
Gerstenmaier, whose steady hand and tireless quiet leadership 
has made him one of the most respected and admired leaders in 
the space industry today.
    Unlike Mr. Gerstenmaier, this is the first time a Bigelow 
Aerospace official has testified before Congress. I, therefore, 
would like to begin with some background on our company.
    Bigelow Aerospace was founded in the spring of 1999 by 
Robert T. Bigelow with a mission to revolutionize space 
commerce via the development and deployment of inflatable or, 
as we prefer to call them, expandable space habitats. 
Expandable habitats provide greater volumes than traditional 
metallic structures, as well as enhanced protection from 
radiation and physical debris. When NASA ran out of funding for 
their own inflatable habitat program more than a decade ago, 
Bigelow Aerospace picked up the torch and rescued this 
promising technology which we will use to construct the world's 
first private sector space station.
    In order to prove and demonstrate our designs and 
capabilities, Bigelow Aerospace deployed two sub-scale 
prototype habitats, Genesis I and Genesis III, a scale model of 
which is to my left, and they were launched in 2006 and 2007 
respectively. And I still cannot believe I got the models 
through security.
    [Laughter.]
    Mr. Gold. These launches were conducted in Russia aboard a 
converted Russian nuclear missile and launched from an active 
Russian nuclear missile site. Having spent the better part of 3 
years traveling back and forth to Siberia, I can assure you 
that we were not going there to enjoy the pleasant weather. 
Instead, Bigelow Aerospace was driven to Russia by one simple 
issue: price.
    At the right price, we believe there is a substantial 
business case for commercial human spaceflight activities. 
Specifically, Bigelow Aerospace is focusing on what we term 
sovereign clients,'' which are international space agencies, 
foreign governments or companies that wish to enjoy the 
benefits of orbital human spaceflight services. Bigelow 
Aerospace is actively courting these sovereign entities to 
lease space aboard our first station which will be comprised of 
a single or potentially several BA 330 habitats.
    Bigelow Aerospace is also a strong supporter of 
microgravity research and development. We have conducted 
extensive discussions with numerous public and private 
officials both in the U.S. and abroad and we believe there are 
real and substantial benefits that companies and countries can 
enjoy, particularly in the pharmaceutical and biotech sectors, 
by gaining access to orbital microgravity R&D facilities.
    However, to seize these opportunities, pricing must be kept 
under control, and in the aerospace world, prices are driven to 
a surprising degree by the laws and regulatory framework that 
hardware is developed and operates under.
    I would like to take this opportunity now to address a few 
of these critical issues.
    First and foremost, there has been a great deal of debate 
over the use of Space Act Agreements versus the Federal 
Acquisition Regulations. Recently, Congressman Wolf and 
Administrator Bolden reached an understanding that NASA would 
continue to use SAAs through CCiCap and that future commercial 
crew procurements would be implemented under the auspices of 
the FAR. Such a strategy directly parallels the successful 
cargo programs of COTS and CRS. This was not just a compromise, 
but was always the right thing to do and we applaud Congressman 
Wolf's and Administrator Bolden's efforts which have only made 
the commercial crew program stronger.
    That being said, I would be remiss if I did not bring to 
the Committee's attention what I believe to be a gross 
distortion of the law surrounding Space Act Agreements. 
Specifically, a review of relevant agency policy directives and 
GAO decisions demonstrate that NASA can mandate safety 
requirements under the auspices of a SAA. The current belief at 
NASA is that the Government cannot enjoy direct benefits of any 
kind from a Space Act Agreement and that to levy safety 
requirements would violate this inherent limitation. I believe 
that such an interpretation of the law is simply wrong. Per 
NASA's own policy directives, funded SAAs are to be used--and I 
quote--to accomplish an agency mission. Moreover, in reviewing 
this very issue, the GAO stated that SAAs can be used so long 
as the principal purpose of the program is to stimulate the 
commercial market from which both the private sector and the 
Government can purchase services. These GAO decisions appear to 
actually encourage NASA to share requirements since, if the 
transportation systems are to eventually support Government 
acquisitions, this would be impossible to accomplish without 
companies fully understanding and complying with the agency's 
mandatory safety needs. Because there are differing legal 
opinions on this topic I would strongly encourage the Committee 
to reach out to the ultimate arbiter of this issue, the GAO, 
for their advice and guidance.
    Of equal importance to how a system is procured is who 
regulates it. We at Bigelow Aerospace have always been staunch 
advocates for strong, common sense safety practices. We believe 
that there is no better place for regulatory authority to 
reside than with the FAA-AST. Led by the very capable Dr. 
George Nield and supported by an exceptional staff, including 
my fellow witness and astronaut, Pam Melroy, the FAA-AST has 
experience in working with civil, commercial, and military 
launches and thereby has an unparalleled broad swath of 
knowledge to draw upon. In stark contrast to the FAA, NASA is 
not a regulatory agency. Administrator Bolden himself has made 
it publicly and explicitly clear that NASA should never become 
a regulatory agency. In order to enjoy the opportunity 
presented by commercial space, the risk of regulatory confusion 
must be eliminated as quickly as possible. Therefore, we hope 
that the Committee will work with the FAA, NASA, and commercial 
space companies to firmly ensconce regulatory authority over 
commercial space activities with the FAA since the AST is the 
only Federal entity with the staff, capabilities, and 
background to effectively play this role.
    I hope this testimony has been helpful and look forward to 
answering any questions the Committee may have.
    [The prepared statement of Mr. Gold follows:]

 Prepared Statement of Michael N. Gold, Director, D.C. Operations and 
                   Business Growth, Bigelow Aerospace
    I appreciate this opportunity to testify in regard to the oversight 
of commercial space activities, particularly because the pace of 
Bigelow Aerospace's development and our ability to attract customers 
are both inherently tied to the future success of the commercial crew 
program. However, before addressing the opportunities and risks that we 
see ahead I will begin by providing some brief background on our 
company. Bigelow Aerospace was founded in the spring of 1999 by Robert 
T. Bigelow. A Las Vegas native, Mr. Bigelow is dedicating his time and 
a significant amount of his personal fortune to Bigelow Aerospace's 
mission to revolutionize space commerce via the development and 
deployment of inflatable, or, as we prefer to call them, expandable 
space habitats. Expandable habitats provide greater volumes than 
traditional metallic structures, as well as enhanced protection from 
radiation and physical debris. Moreover, expandable habitats deliver 
these benefits while using less rocket fairing space, mass, and money. 
When NASA ran out of funding for expandable habitats more than a decade 
ago, Bigelow Aerospace picked up the torch and rescued this promising 
technology, which we will use to construct the world's first private 
sector space station.
    In order to prove and demonstrate our designs and capabilities, 
Bigelow Aerospace deployed two sub-scale prototype habitats, Genesis I 
and Genesis II, which were launched in 2006 and 2007 respectively. To 
fly these spacecraft Bigelow Aerospace contracted with ISC Kosmotras, a 
joint Russian-Ukrainian company that takes decommissioned SS-18s (the 
old backbone of the Soviet nuclear arsenal and designated `Satan' by 
NATO) replaces their nuclear warheads with commercial fairings, and 
subsequently uses this retrofitted rocket, called the ``Dnepr'', for 
global commercial space launch. In 2004, Bigelow Aerospace contracted 
with Kosmotras to launch the Dnepr with our unique expandable habitat 
prototypes from an active nuclear missile base in Siberia. Having spent 
the better part of three years traveling back and forth to this nuclear 
missile site, I can assure you that we were not going there to enjoy 
the good weather. Instead, Bigelow Aerospace was driven to Russia by 
one simple issue, price. While I cannot divulge the cost of our 
launches, I can tell the Committee that Kosmotras offered us a price 
that was a third of the closest domestic competitor. A lack of 
competitive pricing is one of the greatest risks that the commercial 
crew and cargo programs will face.
    If reasonable costs are maintained for crew transportation systems 
we believe there is a substantial business case for commercial human 
spaceflight. Specifically, Bigelow Aerospace is focusing on what we 
term `sovereign clients', which are international space agencies or 
foreign governments that wish to enjoy the benefits of human 
spaceflight and orbital activities. Bigelow Aerospace is actively 
courting these sovereign clients to lease space aboard our first 
station which will be comprised of two or more BA 330 habitats (BA 330 
habitats provide roughly 330 cubic meters of internal volume and can 
support a crew of up to six). Bigelow Aerospace is also a strong 
supporter of microgravity research and development. We have conducted 
numerous discussions with public and private officials, both in the 
U.S. and abroad, and we believe that there are real and substantial 
benefits that companies and countries can enjoy, particularly in the 
pharmaceutical and biotech sectors, by gaining the capability to 
conduct microgravity R&D.
    However, as mentioned previously, pricing remains a principal 
programmatic risk, and this is certainly true for either the sovereign 
client or the microgravity market. Non-competitive domestic rocket 
pricing is what drove Bigelow Aerospace overseas previously, and is a 
real and present threat to prevent the next generation of commercial 
space activities from taking root here in America. Therefore, in its 
oversight of the commercial crew and cargo programs, we strongly urge 
this Committee to focus as much as possible on price, ensuring that 
both the commercial crew and cargo programs deliver services at costs 
that allow for the development of a truly commercial space industry.
    In regard to the costs of space transportation systems, hardware 
expenses often have little to do with the actual pricing of services, 
which are driven to a surprising degree by the laws and regulatory 
framework that they are developed and operate under. I would like to 
take this opportunity to briefly address several of these issues.
    First and foremost, there has been a great deal of debate over the 
use of Space Act Agreements versus the Federal Acquisition Regulations 
(``FAR''). Recently, Congressman Frank Wolf and Administrator Charles 
Bolden reached an understanding that NASA would continue to use Space 
Act Agreements (``SAAs'') throughout the life of the Commercial Crew 
Integrated Capability (``CCiCap'') program while future commercial crew 
procurements would be implemented under the auspices of the FAR. 
Congressman Wolf also asked that the FAR strategy be developed now in 
order to eliminate any gap between CCiCap and the actual procurement of 
services. Such a strategy directly parallels the successful cargo 
program comprised of the Commercial Orbital Transportation Services 
(``COTS'') initiative and the Commercial Resupply Services contracts, 
wherein cargo delivery capabilities were developed and demonstrated via 
the SAA-driven COTS program, leading to the immediate implementation of 
a FAR-based procurement for services under CRS. What Congressman Wolf 
and the Administrator laid out wasn't just a compromise, but was always 
the right thing to do, and we applaud their efforts.
    However, I would be remiss if I did not bring to the Committee's 
attention what I believe to be a gross distortion of the law 
surrounding Space Act Agreements. Specifically, a review of relevant 
GAO decisions and policy directives demonstrate that NASA can in fact 
conduct certifications and mandate safety requirements under a SAA. 
NASA's current understanding of the situation is that the government 
cannot directly benefit in any way from a SAA and that to levy safety 
requirements would therefore violate this inherent limitation. I 
believe that such an interpretation of the law is simply wrong. Per 
NASA's own policy directives, funded SAAs are meant to be used to 
``accomplish an Agency mission''. Moreover, in reviewing this very 
issue the GAO stated that SAAs can be used so long as the principal 
purpose of the program is to stimulate a commercial market from which 
both the government and private sector can purchase services. To meet 
our needs, Bigelow Aerospace has certainly shared our requirements with 
potential crew transportation providers, and I see nothing in the 
relevant GAO decisions that would prevent NASA from doing the same. As 
a matter of fact, the GAO decisions appear to actually encourage NASA 
to integrate the Agency's requirements, since if these transportation 
systems are to meet not just private sector needs but support 
government acquisitions as well, this would be impossible to accomplish 
without receiving mandatory Agency safety requirements. Per his 
dialogue with Congressman Wolf, Administrator Bolden has stated that 
the primary purpose of the commercial crew program is to service the 
International Space Station. In other words, this program is being used 
to accomplish an Agency mission, and therefore no artificial 
limitations should placed on what NASA can do relative to safety and 
certification regimes under SAA auspices. Since there are differing 
legal opinions on this topic, I would strongly encourage this Committee 
to reach out to the ultimate arbiter of the issue, the GAO, for their 
advice and guidance.
    Of equal importance to how a system is procured is who regulates 
it. We at Bigelow Aerospace have always been staunch advocates for 
strong, commonsense safety practices, and we believe that there is no 
better place for Federal regulatory authority to reside than with the 
Federal Aviation Administration's Office of Commercial Space 
Transportation (``FAA-AST''). Led by the very capable Dr. George Nield, 
and supported by an excellent staff including my fellow witness and 
astronaut Pamela Melroy, the FAA-AST has experience in working with 
civil, commercial, and military launches, and thereby has an 
unparalleled broad swath of knowledge to draw upon. In stark contrast 
to the FAA, NASA is not a regulatory agency, and Administrator Bolden 
himself has made it publicly and explicitly clear that NASA is not and 
should never become a regulatory agency. In order to enjoy the 
opportunity presented by commercial space the risk of regulatory 
confusion must be eliminated as quickly as possible. Therefore, we hope 
the Committee will work with the FAA, NASA, and commercial space 
companies to firmly ensconce regulatory authority over commercial space 
activities with the FAA-AST, since the AST is the only Federal entity 
with the staff, capabilities, and background to effectively play this 
role.
    Yet another regulatory risk is America's obsolete and 
counterproductive export control regime. Second only to gravity, the 
International Traffic in Arms Regulations (``ITAR'') had the greatest 
chance of preventing our spacecraft from leaving the Earth. With the 
recent release of the Section 1248 report, both the Department of 
Defense and the Department of State are now on the record that export 
control reform can be implemented without risking national security. As 
a matter of fact, I believe export control reform is unique in that it 
would bolster both national defense and commerce simultaneously. To 
address this problematic issue that has festered for over a decade, I 
urge the Members of this Committee to support including export control 
reform measures within the Fiscal Year 2013 National Defense 
Authorization Act. I would also like to enter into the Congressional 
record the attached law review article published in 2009 addressing the 
Constitutional shortcomings of the ITAR.
    Finally, I would like to end my testimony by addressing the future 
opportunity that continuing a balanced approach for NASA's human 
spaceflight activities will provide. Expandable habitats were 
originally developed to take astronauts to Mars, and we would very much 
like to see this technology come full circle and again be used for 
beyond-Low Earth Orbit (``LEO'') exploration activities. Our BA 330s 
could be stationed at L1 or L2, or serve as habitats on the surface of 
the Moon. Moreover, expandable habitat technology is eminently 
scalable, and we could leverage heavy-lift capacity to, in a single 
launch, place massive structures in space that could provide roughly 
2,100 cubic meters of internal volume. Like NASA, Bigelow Aerospace 
desperately needs commercial crew capability to support our LEO 
operations, but we also could make great use of a heavy-lift system to 
support U.S. Government and international human exploration activities. 
Commercial crew and heavy-lift should not be viewed as competitors but 
instead as complimentary capabilities, with both playing a vital role 
in supporting America's future in space.
    I hope this testimony has been helpful, and look forward to 
answering any questions the Committee may have.

    Senator Nelson. Thank you, Mr. Gold.
    Captain Lopez-Alegria?

    STATEMENT OF CAPTAIN MICHAEL LOPEZ-ALEGRIA, USN (RET.), 
          PRESIDENT, COMMERCIAL SPACEFLIGHT FEDERATION

    Mr. Lopez-Alegria. Chairman Nelson, Ranking Member Boozman, 
and Senator Hutchison, thank you for the opportunity to testify 
today on the exciting future of commercial spaceflight.
    Last month, Space Exploration Technologies launched the 
Dragon spacecraft atop its Falcon 9 rocket to the International 
Space Station, successfully completing the demonstration phase 
of its Commercial Orbital Transportation Services agreement 
with NASA. For the first time since the Space Shuttle retired, 
the world watched as Americans accomplished a new achievement 
in space. With the Shuttle Orbiters headed for their final 
homes, Dragon showed us that America's leadership in space is 
alive and well and that by partnering with commercial 
spaceflight companies, NASA continues to do great things.
    But recent success is not limited to SpaceX. While Dragon 
was berthed to the Space Station, the Sierra Nevada Corporation 
conducted a captive carry test of its winged Dream Chaser 
vehicle for the first time, and United Launch Alliance, Blue 
Origin, and others in NASA's commercial crew program are also 
making strong progress. We expect to see more exciting 
accomplishments in the months to come.
    The Commercial Spaceflight Federation is the industry 
advocate for companies that are working to make commercial 
human spaceflight a reality. The CSF's members include 
spaceports, vehicle builders, service providers, robotic 
explorers, and suppliers that are building a web of commercial 
activity in space. The industry builds on two venerable 
American traditions: our entrepreneurial and inventive spirit 
and our half-century of leadership in human spaceflight.
    In commercial spaceflight, as in any nascent high-tech 
industry, approaches to solve thorny problems vary greatly. 
Safety is paramount for all our members, and it is important to 
permit the industry to mature before allowing regulation to 
artificially limit technical approaches and, by extension, 
stifle innovation. To that end, we support the language in the 
Commercial Space Launch Amendments Act of 2004 that allows 
industry the space to rapidly innovate and adopt technical and 
safety improvements without the threat of regulation unless 
based on data from a serious safety incident, and we applaud 
the extension of this learning period to at least October 2015.
    Further, we support the extension of the FAA regime that 
shares third party liability risk with launch providers 
required to purchase extensive insurance policies and the 
Government stepping in above that level. Termination of this 
regime would require American launch providers to purchase 
greater amounts of insurance. Simply put, that expense will 
either be passed on to the customers, putting the U.S. 
providers at significant market disadvantage vis-a-vis their 
Russian, French, and Chinese competitors, or be absorbed, 
causing likely unsustainable reductions in revenue. Either 
scenario could well lead to their exit from the market and 
result in the Federal Government paying the full cost of 
maintaining the national defense-related launch industry base, 
not to mention the significant loss of high-tech American jobs.
    Having commanded the International Space Station, I share 
with this committee an understanding of its great value to 
America and indeed to the world, and I want to especially thank 
Senators Nelson and Hutchison for your tireless support over 
the many years. The ISS represents an unparalleled capability 
for space-based research and technology demonstration, but its 
full utilization potential is dependent on robust cargo and 
crew transportation. To this end, we support the highest 
possible funding for NASA's commercial crew program in the 
Fiscal Year 2013 and beyond to restore our national crew 
access, to bring NASA investment in high-tech jobs back to 
America, and to ensure that this gap in American human 
spaceflight capability ends soon and forever.
    Space is no longer exclusively the domain of professional 
astronauts. I launched on a Soyuz in 2006 to the ISS with one 
spaceflight participant, and I landed 7 months later with 
another. In fact, every single available seat on the Soyuz has 
been sold with unfulfilled demand even as the price has 
increased over the years. According to Space Adventures, the 
CSF company that brokered these flights, the market demand for 
similar voyages on an American vehicle would be 5 to 10 times 
greater. As the CSF's members develop a U.S. commercial crew 
capability and plans for private on-orbit facilities progress, 
we expect this market to flourish.
    In the suborbital arena, many companies are competing to be 
the first to launch a reusable vehicle to space since 
SpaceShipOne. Space flight has the unique ability to inspire 
students and suborbital commercial spaceflight will open space 
to a large population of young people as prices for small 
experimental payloads to suborbit will be within reach for 
foundations and even school districts. With frequent, regular 
flights to space, citizen-astronauts will be teachers and 
mentors to countless pupils inspiring the next generation of 
science, technology, engineering, and mathematics students.
    I greatly appreciate the opportunity to provide testimony 
for this hearing and I look forward to working with all of you, 
and your staff, as the Commercial Spaceflight Federation 
promotes the development of this promising American industry, 
pursues ever-higher levels of safety, and shares best practices 
and expertise throughout the industry.
    [The prepared statement of Mr. Lopez-Alegria follows:]

   Prepared Statement of Captain Michael Lopez-Alegria, USN (Ret.), 
              President, Commercial Spaceflight Federation
Introduction
    Chairman Nelson, Ranking Member Boozman, and Members of the 
Subcommittee, thank you for inviting me to testify on behalf of the 
commercial spaceflight industry.
    Last month, SpaceX launched a Dragon spacecraft atop its Falcon 9 
rocket to the International Space Station (ISS), successfully 
completing the demonstration phase of its Commercial Orbital 
Transportation Services (COTS) agreement with NASA. For the first time 
since the Space Shuttle retired last year, the world watched as 
Americans accomplished a new achievement in space. People across the 
country cheered when Dragon launched, berthed and landed safely, and 
all of us here joined them. With the Shuttle orbiters headed for their 
final homes, Dragon showed the American people that America's 
leadership in space is alive. By partnering with commercial spaceflight 
companies for cargo and crew companies in addition to its other great 
work, NASA continues to do great things.
    At the same time, many other companies are making progress here on 
Earth and in the skies, using similar, innovative partnerships with 
NASA. Two days before Dragon was unberthed from the Space Station to 
return home, Sierra Nevada Corporation flew its winged Dream Chaser 
vehicle for the first time in a captive carry test. Not long before, 
another commercial aerospace company, Boeing, tested its CST-100 
capsule by dropping and landing it with parachutes and airbags. The 
Commercial Crew Program is moving forward rapidly, and we expect to see 
more exciting accomplishments in the months to come.
    In the suborbital arena, many companies are competing to be the 
first to launch a reusable vehicle to space since SpaceShipOne, 
including Armadillo Aerospace, Blue Origin, Masten Space Systems, 
Virgin Galactic and XCOR Aerospace. The reusability and quick 
turnaround of these vehicles will offer frequent opportunities for 
scientists and the interested public to launch to space on a regular 
schedule, on safe and reliable vehicles, for a relatively affordable 
price. This will improve the value of research conducted on other 
platforms while transforming STEM education. In addition, these 
suborbital vehicles will speed learning and likely form the basis for 
fully reusable orbital systems that hold the promise to fundamentally 
transform the space industry.
    The Commercial Spaceflight Federation is the industry organization 
for the companies that are competing in these new space races, 
companies that are working to make commercial human spaceflight a 
reality. The Federation's members are spaceports, vehicle builders, 
launch services providers, robotic explorers, suppliers and many others 
that are building a web of commercial activity in space. The industry 
is concentrated in the United States, and builds on two venerable 
American traditions: our entrepreneurial and inventive spirit, 
epitomized by heroes like Benjamin Franklin, Orville and Wilbur Wright, 
and the many creators of the modern Internet; and our half-century of 
leadership in human spaceflight, from Mercury, Gemini and Apollo to the 
Space Shuttle and the International Space Station.
    These companies are made up of people who are passionate about 
space, who were inspired by NASA to reach for the stars, and who are 
living their dream: To open up space to the American people, and help 
NASA explore the solar system. Across the nation, we have seen how our 
excitement engages young people, giving them pride in their country and 
encouraging them to enter Science, Technology, Engineering and 
Mathematics disciplines.
    On behalf the members of the Commercial Spaceflight Federation, I 
would like to provide this subcommittee with our observations and 
recommendations on the following issues: commercial partnership in NASA 
programs; the importance of extending the current risk-sharing regime; 
and overall commercial space regulation as it relates to the safe, 
efficient growth and promotion of the industry. Finally, I will discuss 
several market sectors that will benefit from safe, reliable U.S. space 
transportation capabilities and provide the basis for future market 
growth.
NASA Programs
    When Dragon was berthed to the Space Station last month, the media 
declared the dawn of a new commercial space age. Those who have been 
paying attention know that this is not the true beginning, but perhaps 
the end of the beginning. SpaceShipOne flew in 2004, winning the X 
Prize and sounded the starting gun for a new suborbital space race. 
NASA started the COTS program in 2006 to develop a reliable and 
affordable American capability to resupply the Space Station through 
public-private partnerships codified in Space Act Agreements. Congress 
supported and funded the program, displaying faith in America's 
tradition of ingenuity, invention and competition.
    Those who work on complicated NASA programs often must overcome 
tough technical and organizational challenges to achieve their goal. 
The COTS program has proven that complex tasks can be accomplished with 
Space Act Agreements, offering NASA a new tool that it can deploy in 
other areas. NASA's projects are generally big--big ideas, big 
vehicles, big teams and big costs. Because Space Act Agreements are 
milestone-based, companies are only paid when they perform and NASA is 
able to remove a company for not progressing according to those 
milestones. Because they are fixed-price, the cost of schedule delays 
is borne by the companies, rather than the taxpayers. The success of 
the COTS program shows that a lean team can accomplish a big mission, 
and has set the stage for commercial companies to move beyond hauling 
cargo to carrying crew.
    NASA's Commercial Crew Program is also a public-private partnership 
with commercial space companies that utilizes competition to develop 
safe, affordable, and reliable systems to carry astronauts to and from 
the ISS and relieve our reliance on our Russian partners. As the 
program has progressed, NASA has worked with Congress to plan its full 
arc, culminating in an outline for the program that preserves 
competition while ensuring that NASA has the insight it needs to 
certify the vehicles to carry NASA astronauts. The companies in this 
competition believe that with appropriate funding and management, they 
can fly crew to the ISS by as early as 2015. We hope that with a shared 
agreement on the program plan, Congress will see fit to fund the 
Commercial Crew Program as close to the President's request as 
possible. Every year that the Commercial Crew Program is delayed or its 
milestones prolonged due to funding, NASA sends approximately $400 
million to Moscow. Keeping this domestic program strong will reduce our 
dependence on aging Russian infrastructure, protect our investment in 
the ISS, fully realize the its potential, and create jobs here at home.
    At the same time, NASA is working hard with another sector of the 
industry--the suborbital vehicle builders. Companies like XCOR 
Aerospace, Virgin Galactic, Masten Space Systems, Blue Origin, and 
Armadillo Aerospace are racing to safely and efficiently launch 
scientists and citizens on reusable vehicles that can reach the edge of 
space. These vehicles will provide high-quality microgravity and access 
to the upper atmosphere at a reasonable price for scientists across the 
country, and a life-changing view of the Earth and weightless 
experience for participants.
    NASA's Flight Opportunities Program has agreed to purchase flights 
on these vehicles for scientists and engineers who have experiments 
that require microgravity or access to space. Because suborbital 
launches will be flexible, safe, affordable and frequent, they offer an 
opportunity to perform scientific experiments that otherwise wouldn't 
fly and test instruments in real environments, supplanting ineffective 
ground or expensive flight testing, and developing new technologies 
faster.
    By making a small commitment through the Flight Opportunities 
Program, NASA has provided certainty to the market and demonstrated 
that suborbital vehicles are exciting new tools for science and 
engineering. There has been one rocket flight under this program 
already, and in the next two years we expect to see many more, out of 
spaceports across the country.
    Finally, NASA works with many innovative companies on specific 
projects that bear great fruit for the Nation. NASA's Innovative Lunar 
Demonstrations Data (ILDD) program is leveraging and incentivizing 
private sector investment in exploration beyond Earth orbit, extending 
a COTS-like model to lunar exploration, so that risk remains with the 
private sector and fixed-price payment is made only for successful 
completion of pre-determined milestones. One of our members, Moon 
Express, and five other U.S. companies were selected by NASA for the 
ILDD program in 2010, with the first private lunar robotic landings 
anticipated in 2014 or 2015. The data from this program will contribute 
to NASA's efforts to create a sustainable and affordable space 
exploration program beyond low-Earth Orbit.
FAA Risk-sharing Regime
    Under the Commercial Space Launch Amendments Act (CSLAA), the 
industry is regulated by the Federal Aviation Administration's Office 
of Commercial Space Transportation (FAA AST). FAA played an important 
role in the recent SpaceX mission to the space station, licensing both 
the launch and the re-entry of the Dragon spacecraft.
    The CSLAA designates the FAA AST as the licensing agency for 
commercial space launch and reentry. As described in greater detail 
below, in order to obtain a launch license, a provider is required to 
purchase insurance against possible damage to third parties that could 
result from a launch or reentry. It also provides for risk sharing by 
the U.S. Government should third-party damages exceed the required 
insurance amount. To date, third-party claims have never surpassed the 
required insurance amount; therefore, this provision has had zero cost 
on the taxpayers since it was instituted in 1988.
    The FAA AST's insurance requirements are based on their calculation 
of the Maximum Probable Loss (MPL), which is the maximum amount of 
damage to the uninvolved public that could possibly be done in any 
launch or entry of the vehicle in 99.99999 percent of cases. The 
company must purchase insurance up to the MPL. Above this figure, which 
averages around $100 million and has a maximum of $500 million, the 
Federal Government may provide additional coverage for the next $2.7 
billion, dependent on expedited Congressional appropriation. If there 
were to be any damage above this level, the liability would be the 
responsibility of the parties involved with the launch, such as the 
launcher and payload provider. The coverage provided by the CSLAA's 
risk-sharing regime only applies to damage to uninvolved third parties. 
It does not cover damage suffered by the launch provider, payload 
provider, crew, or spaceflight participants.
    This regime has been in place since 1988 and it is important to 
provide certainty to the marketplace. The launch industry's primary 
foreign competitors in Russia, Europe, and China receive even stronger 
liability protections from their governments (see Table 1). In fact, 
none of the other large spacefaring nations has a limit on the total 
amount of government risk sharing. The law expires at the end of the 
2012 calendar year, and in order to protect and enhance American 
competitiveness in the launch market, it is important that it be 
extended.

                         Table 1.--Liability Risk-Sharing Regimes for Various Countries
----------------------------------------------------------------------------------------------------------------
                           Third Party
                            Liability        Number of    Launch Licensee's  Required     Limit on  Government
       Country              Insurance        Tiers of        Third- Party Liability         Risk  Assumption
                          Requirements     Risk-Sharing         Insurance ($US)
----------------------------------------------------------------------------------------------------------------
United States                        Yes             3             MPL, not exceeding        Up to $2.7 billion
                                                                         $500 million
----------------------------------------------------------------------------------------------------------------
France                               Yes             2                    $72 million                  No limit
----------------------------------------------------------------------------------------------------------------
China                                Yes             2                   $100 million                  No limit
----------------------------------------------------------------------------------------------------------------
Russia                               Yes             2               $80-$300 million                  No limit
                                                                  (vehicle dependent)
----------------------------------------------------------------------------------------------------------------
Japan                                Yes             2               $42-$168 million                  No limit
                                                                  (vehicle dependent)
----------------------------------------------------------------------------------------------------------------
*Vedda, J.A. ``The Study of the Liability Risk-Sharing Regime in the United States for Commercial Space
  Transportation.'' The Aerospace Corporation, August 2006.

    If the risk-sharing provision expires, American launch providers 
may have to purchase additional insurance from risk-averse insurers, or 
if that is not available, exit the market. In addition, this would act 
as a deterrent for any new entrants into the marketplace. If these 
companies become uncompetitive on the world market, high-tech American 
jobs will be lost. America's share of the commercial launch market is 
currently not large, but companies with competitive pricing and 
reliable services are demonstrating that America can recapture 
commercial launch market share that it has ceded over the last three 
decades.
    Because of the safety measures taken by industry, the regulations 
issued by the FAA AST and the very small probability of significant 
damage (1 in 10 million), the Federal Government has never had to pay 
one cent in the 24 years the regime has been in place. Highly unlikely, 
but damaging, risks are the hardest to insure in any insurance market, 
and the space insurance market is relatively small. This creates a 
potential market failure that the government can solve with minimal 
risk and virtually no cost, and we encourage you to extend the risk-
sharing regime for as long as possible to provide certainty to launch 
companies and customers whose plans are often made years in advance.
    The Government Accountability Office (GAO) has suggested certain 
changes to the calculation of the MPL. We have no objection to making 
modifications to that calculation, and look forward to working with FAA 
AST and Congress to accomplish that, as long as the benefit outweighs 
the cost. It should be noted that there are many endemic uncertainties 
in the calculation of any loss of this type, and an exceptionally 
detailed analysis could be an unwise use of taxpayer funds if it leads 
to no more precision in calculating the MPL.
Regulation
    Over its two decades of existence, the FAA AST has appropriately 
focused its efforts on promoting the commercial space industry, 
protecting the uninvolved public from harm and encouraging continuous 
safety improvement throughout the industry. CSF has worked closely with 
the agency to make certain that vehicles are safe for participants and 
the uninvolved public. AST has issued several regulations to improve 
safety, and we are developing industry consensus standards to ensure 
that best safety practices are shared throughout the trade.
    Congress passed the Commercial Space Launch Amendments Act in 2004, 
which directed the FAA AST to issue regulations to protect third 
parties and the crew of any manned vehicle, and established an informed 
consent regime for spaceflight participants. In the absence of specific 
data indicating a safety risk, the FAA AST was constrained from 
regulating for passenger safety ``in the dark,'' until an eight year 
learning period had passed. That learning period was broadly supported 
by the Congress for good reason--to enable a new industry to mature, 
and to provide the regulator with real-world data on which to base 
sound regulatory policy.
    Many observers expected there would be many commercial human 
spaceflights by the time the learning period expired in 2012, which 
would allow FAA to regulate with a robust set of data about safety. 
Unfortunately, the industry did not develop as quickly as expected, 
largely due to industry behaving with extreme caution and developing 
safe systems prior to any flight. Consequently, no commercial human 
spaceflights have occurred since 2004, providing no data on which to 
develop sound regulatory policy. For this reason, we thank Congress for 
acting in January to extend the learning period through October 1, 
2015, with an eye toward restoring the original intent of the learning 
period provision.
    Despite the passage of time, the concerns that led to the 
establishment of the learning period are still valid. There are no hard 
data from commercial human spaceflights on which to base regulations. 
Spacecraft designs are in flux, and regulations would be very difficult 
to draft in a way that would not eliminate some potential designs, most 
of which are impossible to evaluate at this point. In addition, in a 
nascent industry like commercial spaceflight, safety lessons are 
learned and applied rapidly, and regulation could easily fall behind. 
These factors mean that regulation should be data-driven and careful, a 
conclusion that has been implemented in the establishment of the 
learning period.
    We share a concern with FAA AST that the end of the learning 
period, whenever it may come, represents a drastic change in regulatory 
environment. Recently, based on continued requests from CSF and in 
compliance with Congressional report language, FAA AST has started to 
provide industry with information on the general approach that it is 
planning to take toward regulating for spaceflight participant safety 
when the learning period expires. We support those efforts 
wholeheartedly and look forward to ongoing conversations with FAA AST 
and Congress about our common goal of protecting spaceflight 
participants, crew and the public. We also encourage FAA AST to work 
with us to share data that they have gathered on safety issues with the 
industry, in a form that does not compromise confidential or 
proprietary information, so that best practices can be quickly and 
effectively spread throughout the industry.
    There are other existing regulations that have a detrimental impact 
on American aerospace companies and our national security. The 
International Traffic in Arms Regulations (ITAR) have been ripe for 
reform for many years, and the House recently took the first step in 
that direction by including a provision in the National Defense 
Authorization Act of 2012 that would allow the President to remove 
communications satellites and other related technologies from the U.S. 
Munitions List so that they could be more appropriately regulated 
through the Department of Commerce.
    Over the last decade, much of the commercial space launch business 
has moved overseas. There are many reasons for this, including 
subsidies from foreign governments, but ITAR has also played a major 
role. The U.S. market share of satellite exports has decreased from 75 
percent in 1995 to 40 percent in the last decade since the regulations 
went into effect. Returning some of that business would not only 
strengthen our defense industrial base but restore the U.S. market 
share and ultimately result in the creation of high-tech jobs here in 
America.
    Therefore, we strongly support efforts to reform ITAR by returning 
to the President the ability to move satellites and related items from 
the U.S. Munitions List to the Commerce Control List, where they can be 
more appropriately regulated as dual use items. We particularly support 
the immediate removal of commercial space items, such as manned 
suborbital vehicles, from the Munitions List, and we look forward to 
working with Congress and the Executive branch to create an export 
control regime that better protects our national security and keeps 
high-tech jobs here in America.
Federal Government Demand for Commercial Services
    The International Space Station is an invaluable resource to the 
science and research community if it is fully utilized. It will also be 
an important market for both commercial launch service providers and 
researchers. Current NASA plans involve the purchase of six seats per 
year aboard Soyuz flights to the ISS at a cost of about $400 million 
per year. The result is that at any one time there are three Unites 
States Orbital Segment astronauts available to perform utilization 
tasks in addition to their other duties.
    Due to the necessity of performing spacecraft operations, 
maintenance and other tasks, these three crewmembers are having a 
difficult time achieving the NASA target of 35 research hours per week. 
Indeed, a November 2009 GAO report cited ``limited crew time as a 
significant constraint for science on board the ISS.'' The ISS is 
outfitted and will be provisioned to increase its full time crew 
complement from six to seven. The fourth USOS crewmember will 
dramatically increase the research capacity of the ISS.
    All of the vehicles being proposed in the Commercial Crew Program 
have the capacity to carry seven crewmembers. While four would remain 
aboard as long duration astronauts, there are many options under 
consideration for the remaining three seats: They could be used for 
short duration sortie missions by NASA or other international partner 
astronauts; they could be likewise filled by highly specialized 
researchers in a program akin to the use of payload specialist aboard 
the Space Shuttle; they could be filled with science-related up-mass 
that is critical to onboard research; or they could be sold to non-
professional space flight participants to offset the costs to NASA. The 
realization of cost-effective and reliable commercial service to the 
ISS will provide NASA with myriad flexible options to optimize the 
utilization of our national orbital asset.
    NASA Administrator General Charlie Bolden testified in March that 
he expects ISS to operate past 2020 and that conversations were already 
under way with international partners on this topic. Equipment 
reliability aboard the ISS has surpassed engineering expectations, and 
there are no immediate maintenance concerns that could require 
deorbiting. NASA and our international partners have yet to identify 
any technical reason the ISS would need to close down before 2028. 
Given the large investment the American taxpayers have made, we support 
measures to preserve and extend the ISS and believe that there will 
continue to be an ISS commercial crew market beyond 2020.
    In addition, regardless of the long-term fate of the ISS, we 
believe that NASA and other government agencies will have a long-term 
need for cost-effective, reliable and safe crew and cargo access to 
low-Earth orbit. Two hundred years after Lewis and Clark set off to 
find the Northwest Passage, the Federal Government continues to require 
the services of geologists, naturalists and other scientists in the 
Western states. We expect that NASA and the rest of the Federal 
Government will similarly continue to have a need, and as prices drop 
and volume increases, those markets will grow.
    Finally, suborbital spaceflight companies will also provide 
services to the Federal Government, from testing of components that 
will later fly on high-value missions for NASA or DoD, to science 
experiments that test microgravity regimes that are otherwise much more 
expensive to achieve. And these examples are just the start--as the 
capability arises, many more may arise. As one example, in 2007 NASA 
Administrator Michael Griffin said, ``If I was still at the helm of 
NASA when [suborbital spaceflight] became available, I would guarantee 
you that we would use it to begin entry-level training of astronauts.''
Other Demand for Commercial Services
    Historically, space has been the domain of science, defense and 
communications. Scientists have been studying the Earth, the solar 
system and the universe, through spacecraft for decades, but in many 
ways that study has only just begun. Scientists at universities and 
research centers across the country are interested in flying 
experiments, interplanetary probes and satellites to space. Scientists 
in countries that do not have active space programs have wanted to fly 
missions to space for years, but have had little opportunity.
    Furthermore, a 2010 Avascent study found that astronauts from only 
50 of the world's 195 nations have gone to space, and very few of those 
nations have had continued access. But many nations and companies see 
astronauts and space research as valuable commodities, and they 
represent a largely untapped market for commercial space. These 
customers are interested in access to space for scientific and 
industrial research, but also for public relations, advertisement and 
other purposes.
    Over the last decade, private astronaut access to space has become 
a reality. Space Adventures, a member of the Commercial Spaceflight 
Federation has sold several trips to the ISS on Russia's Soyuz rocket 
to private individuals. In fact, every additional seat available on the 
Soyuz has been sold, with unfulfilled demand, even as the price has 
increased over the years. As our members develop an American commercial 
crew capability, and plans for private on-orbit facilities progress, we 
expect that market to flourish. According to a market analysis 
performed by Futron in 2010, 60 percent of surveyed individuals are 
more likely to fly on a more convenient American vehicle than the Soyuz 
alternative.
    On the suborbital front, the Southwest Research Institute, another 
CSF member, has purchased six seats on suborbital vehicles, with 
options for more, to allow researchers to perform experiments that 
would otherwise be unattainable. Other researchers have expressed great 
interest as well, with more than 400 people attending the Next-
Generation Suborbital Researchers Conference in February. Competitors 
in the Google Lunar XPRIZE competition, who are planning to return data 
from rovers on the Moon, are also looking for rides to space. As 
capabilities increase, flight rates rise and prices fall, we expect a 
great deal more interest.
    The commercial satellite market is an international market with 
many billions of dollars in revenue each year. Historically, satellite 
providers have only been able to choose from a limited set of 
commercial space capabilities, primarily launch and on-orbit maneuvers. 
However, as new techniques emerge from the commercial space sector, we 
expect the commercial satellite industry to become a customer for a 
wider set of services.
    Spaceflight has a unique ability to inspire students, and 
commercial spaceflight offers the opportunity to open space to a large 
population of young people as prices for small experimental payloads to 
suborbit may be just a few thousand dollars, well within reach for 
foundations and even school districts. With frequent, recurring flights 
to space, citizen-astronauts could be teachers and mentors to countless 
pupils and more students could have a role in an experimental payload 
that flies to space. Many education programs could be birthed from 
safe, reliable flights to space, stimulating the next generation of 
STEM students.
    The first airplane companies could not conceive of the many uses 
that their vehicle would one day be put to, uses that now include rapid 
package delivery and commuting to work. An early computer pioneer named 
Howard Aiken said in 1952, ``[o]riginally one thought that if there 
were a half dozen large computers in this country, hidden away in 
research laboratories, this would take care of all requirements we had 
throughout the country.'' Clearly, we do not have certain knowledge in 
any detail of the markets that will emerge for the commercial space 
industry. What we can say is that the currently available markets for 
government and private access to space are large enough for a 
successful industry and that there are many possible avenues for 
growth.
    Many of our member companies were founded by experienced business 
leaders who have led highly successful companies involved in many 
sectors of the economy. They have invested a large amount of their 
capital into these businesses. If they did not believe there would be a 
market outside of the government, that level of investment would be 
unlikely. It is difficult to predict several years ahead what the most 
important sector of an emerging market will be, and it is likely that 
our members have somewhat different opinions on each sector. However, 
we believe that markets have been demonstrated to exist and that they 
will grow rapidly as capabilities increase, volume increases and prices 
are reduced.
Conclusion
    The last month has been an important one for commercial space, with 
successes and exciting new announcements across the industry. I greatly 
appreciate the opportunity to provide testimony for this hearing and I 
look forward to working closely with all of you and your staff as the 
Commercial Spaceflight Federation promotes the development of this 
promising American industry, pursues ever higher levels of safety, and 
shares best practices and expertise throughout the industry.

    Senator Nelson. Thank you all. This is very good.
    This is an important time for us to have this hearing 
because we are in the state of change from a reliable system of 
the Space Shuttle now bringing in commercial but, in parallel, 
continuing NASA's mission of exploring the heavens, of getting 
outside of low-Earth orbit. And it is all coming into the 
consciousness of the American people. The success of SpaceX, as 
we already mentioned, and on July 2, the first piece of flight 
hardware for the big rocket arrives, and it will be arriving at 
the Kennedy Space Center and will be assembled. And its first 
test flight will occur in 2014. And of course, this is NASA's 
program that they refer to as the space launch system with the 
capsule being dubbed Orion. So this is a very important time 
that we get it right and that the success that we have had thus 
far is quite promising.
    I am going to ask just a couple of questions and turn it 
over to my colleagues and I will wrap up.
    But, Mr. Gerstenmaier, since you all rotate three 
astronauts to and from the station every 6 months--most of 
these commercial vehicles are designed to hold seven people. So 
how many commercial crew flights per year is NASA planning to 
buy, and how many seats will NASA make use of on each flight? 
And then I want to talk to you about how much cost savings that 
you are looking for that we are going to achieve per seat over 
and above what we currently pay to the Russians on Soyuz.
    Mr. Gerstenmaier. In terms of flights to ISS, we are 
anticipating staying with the rotation period of about 180 days 
as we have had. So that would be about two flights per year. We 
would definitely increase the crew size on ISS to seven crew 
members. We currently have six crew members on ISS. We would 
add one more. The Space Station was designed to operate at a 
full complement crew of seven. We think that will increase the 
research capability on board station, allow us to do more 
national lab research and be more effective in utilizing the 
Space Station. So we will definitely use four seats from the 
commercial providers.
    In terms of the other seats, we are still off investigating 
what makes sense. Would it be better to carry some cargo in 
those seats? Would it be better to carry crew, other 
participants? Could we do other things with those? We are still 
off investigating what the right mix is.
    We are also exploring a little bit what the right duration 
is. We may do some extended missions on board Space Station on 
the order of a year or so, and that is to gain some experience 
with the kind of durations we may need in space for Mars-type 
missions.
    So we are still off looking at those exact numbers, but I 
would say we are on the order of about two flights per year 
with a confirmed four seats on those flights. And then we are 
looking at how we could use those other seats effectively.
    In terms of prices, we are still working that through the 
commercial crew program. We will see what the commercial 
providers come in at. We have budgeted the seat price at 
roughly what we pay for the Soyuz activity. That is just a 
budgeting number. That is not what we expect the seats to cost. 
We expect there to be a cost reduction, but I think it is a 
little too early for us to pick a particular value for that 
cost reduction.
    Senator Nelson. In light of Mr. Gold's experience of going 
and finding a much cheaper rocket, do you expect those costs to 
come down considerably? In his case it was cargo. In your case 
we are asking the question about crew.
    Mr. Gerstenmaier. Again, I believe the prices will be 
cheaper than what we will have to pay for the Soyuz vehicle in 
terms of seat price. Exactly how much that is a function of the 
design, the ops concept, and all of the work that comes in 
front of us. So, you know, we have got a lot of work in front 
of us. We put our safety requirements out for the commercial 
providers to go look at. We are in the middle of this 
commercial crew capabilities activity where we are going to go 
on to the next phase of SpaceX with some providers to move 
forward. And until we really get a chance to see what those 
numbers are, it is tough to speculate exactly what that delta 
will be, but I expect it to be less expensive than Soyuz.
    Senator Nelson. Under what appears to be going to be the 
number coming out of the NASA appropriations bill for 
commercial crew, $525 million, with a down select to two and a 
half competitors, when do you think that with $525 million --
what is the realistic time that we will first launch crew? Is 
it 2016?
    Mr. Gerstenmaier. What we have done is in the President's 
budget, which we have submitted to you where we show 
essentially a higher number in 2013, but say, if we just had 
the $525 million in 2013 and then we had an increase in the 
following years, in 2014, 2015, 2016, and 2017, if we get that 
increase similar to what the President had requested and what 
we have requested in our submit to you, if we get those kind of 
levels, we think we would have crew available in the 2017 
timeframe. Some of our providers think they can deliver crew 
earlier than 2017. We have heard estimates as early as 
potentially 2015. But from a NASA perspective, we kind of have 
to protect for the worst case. So we want to make sure that we 
have looked at the outer bounds of that so if there are 
schedule delays or problems that have occurred, which are 
routine in our business--as you can see, even with cargo some 
of the flights are a little later than the commercial companies 
had projected. But we are protecting for that 2017 date with 
the hopes that the commercial providers can do better than that 
and deliver earlier than the 2017. But we will need funding on 
the level of what we have asked for in the President's request.
    Senator Nelson. It is true that some of the competitors are 
saying that they could go earlier. Whether it is 2015 or 2017 
and being able to deliver seven crew members, then I think the 
obvious thing is that you get around to 2020 and the Space 
Station is not going to be deactivated.
    Before I turn it over to Senator Hutchison, would you just 
reaffirm for everyone that they understand some of the 
magnitude of the experiments that are going on on the Space 
Station such as a vaccine for salmonella that is in its final 
FDA trials here on Earth that was developed on board the 
properties of near 0 G on the station and a vaccine for MRSA 
that is in its first stages of FDA trials here on Earth? Would 
you confirm or expand on that?
    Mr. Gerstenmaier. One of the unique properties we see in 
space is that viruses and bacteria mutate into a variety of 
forms in space. And we are not exactly sure why that occurs. We 
have some researchers that are looking at the phenomenon, why 
it occurs. But the industry is potentially able to take 
advantage of that because you get a variety of salmonella that 
can then be returned to the Earth. They can then look at that, 
determine which genes get turned on, and then essentially 
modify that salmonella such that it is strong enough to cause 
an immune reaction in a human system but not actually give you 
the disease. So, therefore, you are able to create a vaccine in 
a much shorter amount of time than you could ever in ground-
based research because you take advantage of the fact that you 
end up with a whole variety of virus and bacteria.
    As you discussed earlier, it also can apply to MRSA, to 
other things, to influenza viruses, et cetera. So this offers a 
potential avenue of a way to get better pharmaceutical or 
better drug productions for us in general. So it is much like 
when we went to Africa to look for new plant species and things 
to create new drugs. We are now using the unique properties 
that these viruses and bacteria do in space to essentially 
create a new industry.
    There are also areas in materials, combustion, other areas 
that will have the same promise, and our intent is to try to 
expose commercial industry to these properties, let them 
understand for their individual industries what the benefits of 
space-based research are. Then this essentially creates 
potentially a new economy based on space-based research which 
could have dramatic impacts. And that is the ultimate goal of 
what we are trying to do at station over these next several 
years.
    Senator Nelson. And I bring that attention to that subject 
because many people have missed that very good piece of news of 
what is happening on board the Space Station where six humans 
are right now. And it is timely that you spoke of that, Mr. 
Gerstenmaier, because when we adjourn this hearing to go vote 
at 11:30, this very same topic is the topic of discussion with 
two astronauts that have been on the Space Station and this 
will occur in the Rayburn foyer at 11:30 this morning.
    Senator Hutchison, I want to turn to you.

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Thank you very much, Mr. Chairman. I 
certainly appreciate your continued interest.
    Senator Boozman, I have to say you have stepped up to the 
plate and done your homework, and I appreciate so much the good 
job you are doing as ranking member.
    Senator Nelson. And I just want to say so that everybody 
understands how much we are going to miss Senator Hutchison. 
She is the reason that there is a designated national 
laboratory on the Space Station, and she has been consistently 
the promoter of the International Space Station, and the next 
hearing that we have in this subcommittee will be on that 
subject. Thank you.
    Senator Hutchison. Well, thank you.
    Let me say that I was very excited, as I know everyone was, 
with the SpaceX, the Dragon success. That just is a wonderful 
milestone. To get equipment and payload to the Space Station 
and dock is wonderful.
    And what I would have said in my opening statement, which I 
will put in the record--but we are paying a heavy price for the 
Russian Soyuz spacecraft. And the reason that we are paying 
hundreds of millions of dollars--and it will be in the billions 
before we are finished--is because we were not able to fund 
adequately to close the gap for a commercial crew vehicle 
following on to the shuttle retirement. We knew it was coming. 
Senator Nelson and I worked in every way possible. We have 
worked with three administrations, and we have never had the 
adequate support to plan ahead and not have the gap that is 
here.
    I do not want that to happen again as we are looking 
forward, which NASA, as our space exploration agency, should be 
doing. We know what the next mission is going to be. We do not 
know what we are going to be finding, just like we did not know 
when we went to the Moon what we would find exactly and what we 
would gain from it. And the gains have been enormous, which we 
know.
    But now we know that we have got to utilize the Space 
Station. We believe that commercial is the way to do it in an 
efficient way to put people there to do the experiments, and 
the Space Station will be our major focus until at least the 
year 2020.
    But we know that after that, the next horizon is beyond 
low-Earth orbit. And what Senator Nelson and I have tried to 
do--and Senator Boozman has been so helpful--is to assure that 
we are not shortchanging the future by only focusing on the 
present and having the same thing happen where kids start 
saying, well, gosh, why are we giving up space exploration in 
2020 because everything is shut down because we did not look to 
the future?
    So here is my question, Mr. Gerstenmaier. You are the one 
that, I think, does have a vision for what we can and must do 
for the future beyond low-Earth orbit. Can we be assured going 
forward that the allocations for NASA will adequately fund the 
crew vehicles to use the Space Station and hopefully--I cannot 
wait to find out what the alphamagnetic spectrometer might 
bring us, having seen the hits myself at Johnson Space Center. 
Can we, though, be assured that NASA will fully fund the 
commercial crew vehicle and the commercial efforts up to that 
time and also continue the progress so that in 2020--well, 
before 2020, but in 2020 when the Space Station will possibly 
go away that we will have a fully ready-to-go, heavy launch 
vehicle with a capsule on it for astronauts, that we will have 
a mission ready so that we are not going to see what happened 
frankly this year, when they took the exact amount out of heavy 
launch and put it into commercial.
    Now, we rebalanced that. We are going to fully fund 
commercial, and with the down select to two, we will do that. 
And I know Congress, with the leadership of Senator Boozman and 
Senator Nelson going forward and the other people who are going 
to be coming into Congress, are going to want to do the same 
thing. Will NASA do that kind of balanced budgeting going 
forward rather than this constant pull as if there is a 
competition between the present and the future? Mr. 
Gerstenmaier?
    Mr. Gerstenmaier. I am responsible for human spaceflight, 
and what I mean by human spaceflight is it is both. It is the 
commercial aspect and it is also the vehicles that go beyond 
low-Earth orbit, the Orion and the heavy lift launch vehicle. 
And within the tight budget constraints, it is my job to 
balance those, that we deliver programs in a timely manner that 
best serve what we need as a Nation. And we are working really 
hard to go do that.
    As Senator Nelson talked about earlier, the final weld is 
occurring today on the Orion test capsule that will be used in 
2014 to go be the first vehicle to return at 80 percent of the 
lunar velocity into the atmosphere to make sure that works. 
That is going to get delivered to Florida on July 2, as he 
talked about. That final weld is actually occurring in New 
Orleans today and the teams are being careful with that weld, 
and if they need to take a little extra time, they may. And we 
may have to do something with July 2, but we will do the right 
thing overall. But the teams are really focused and moving 
forward.
    We just completed a systems design review for the heavy 
lift launch vehicle. We are starting to lay out the plans to 
get that work done. We are going to test that vehicle down at 
Stennis in December 2016 in support of its first flight in 
2017. We now, for the first time, have detailed schedules laid 
out. We know when the first drawings for that heavy lift launch 
vehicle need to be delivered, and those drawings start being 
released in August of this year.
    So we have real concrete plans to keep moving the Orion 
forward, move the SLS forward, and with your help for funding, 
we will keep all these programs moving forward as well as 
commercial crew.
    And it is not about one or the other, as you very 
accurately described. Human spaceflight is about all of these, 
and we need to work as a team to pull this off to make this 
happen so we can continue to be a leader in space and continue 
to be where we are. So we treat it just as you describe. This 
is a package. There is a role for commercial spaceflight in 
low-Earth orbit. There is a role for us beyond low-Earth orbit. 
We need to find that balance to move those forward to keep 
human spaceflight in this Nation strong.
    Senator Hutchison. Well, thank you. That is a wonderful 
answer. And I just hope that there will no longer be budget 
proposals from the President, whoever that will be next year, 
that will appear to cut back on the future and fund the present 
because we have an authorization bill that assures both. We 
support both. I am going to see the SpaceX operation in Texas 
in July. I am very excited about it. I do not want to see next 
year another instance of what we saw this year, Mr. 
Gerstenmaier, and I just hope that we can see that commitment 
on the part of NASA and the President's OMB. And believe me, I 
did not like what OMB did in the last administration or the one 
before that either. So I am balanced in my disappointment in 
this commitment, but since you are here now, I do hope that you 
will assure that the budget that comes from the President's 
office will reflect what you and I have both said is our goal. 
And I know that the two Senators here agree.
    Thank you very much.
    Senator Nelson. Well, thanks to you and Senator Mikulski 
and Congressman Wolf and Congressman Fatah, you all have 
basically kept NASA's appropriations level while every other 
agency is feeling the effects of the increased austerity that 
we have been facing as a result of the budgetary problems. So 
again, we thank you, Senator Hutchison.
    Senator Boozman.

                STATEMENT OF HON. JOHN BOOZMAN, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Boozman. Thank you. And again, I just want to echo 
that is such good advice--and it is just difficult in these 
tough fiscal times--of the statement about do not shortchange 
the future, you know, as you focus on the present. And again, 
you two have worked so hard to make sure in this particular 
case that that is not being done. And that has been a real 
challenge.
    Let me ask something that I would like to get your all's 
opinion on real quick, and I think this is important. While the 
U.S. cooperative programs with Russia were expanding in the 
1900s, including Russia joining the Space Station International 
Partnership in 1993, it also became clear that Russia was a 
source of sensitive technology to Iran. The Iran 
Nonproliferation Act of 2000 was enacted to help stop foreign 
transfers to Iran of weapons of mass destruction, missile 
technology, and advanced conventional weapons technology 
particularly from Russia.
    One of the things that that Act did was to ban payments by 
any agency of the U.S. Government to Russian Government 
agencies for work on the International Space Station. This 
provision has raised difficulties regarding U.S. access to the 
Space Station. In 2005, Congress amended the act to exempt 
Soyuz flights to the Space Station from the ban through 2011, 
and in 2008 the exception was further extended through June 
2016.
    It has been said that without further extension of this 
exception the current restrictions will severely limit the U.S. 
from sustaining and fully utilizing the Space Station. The 
United States would have no means of transporting our 
astronauts to and from the Space Station, and equally 
important, relief is needed to clearly enable NASA partnerships 
with some U.S. commercial partners for Space Station crew and 
cargo services that utilize Russian space technologies.
    So with the planned extension of the Space Station 
operations to at least 2020, it seems that an extension beyond 
2016 is needed.
    So can you comment on that and just kind of clarify your 
thoughts and where you think we need to go in that regard? I 
will start with you, Mr. Gerstenmaier.
    Mr. Gerstenmaier. As I have previously testified here, I 
think we will likely require some exceptions to the Iran, North 
Korea, Syria Nonproliferation Act as you described. We need 
that for a variety of activities. We do basic engineering with 
the Space Station and other activities of which we have to pay 
for or we even barter for services, and we will likely need 
some relief for that restriction that sits in front of us.
    Senator Boozman. And what would be the consequence if we 
did not get the relief?
    Mr. Gerstenmaier. We would still have to work with our 
partners. The way we understand the restriction is it also does 
not allow us to barter. I think it says for goods as well as 
funding. So we barter for a lot of engineering analysis and 
other things. We would not be able to have the support that we 
need to operate the Space Station without some relief to that 
Act. And we will still continue to work with our Russian 
partners. Maybe they would donate that engineering service and 
that research service without bartering for it. I do not know 
if that is the case or not.
    It goes back to, I think, some earlier testimony that was 
given down here. The commercial folks really need some 
certainty of where they are going and to be forward, and to sit 
there with this uncertain thing going forward I think 
potentially impacts the ability for use ISS in the most 
effective manner.
    Senator Boozman. So the uncertainty is as much a problem as 
anything.
    Mr. Gerstenmaier. Yes, because I think we could debate 
whether we could work around this in some way. There may be a 
way legally to get through it. It will take us a significant 
amount of time to do that, and while we are going through that 
period, there is a fair amount of uncertainty with that. But 
they might be better able to address it from their perspective.
    Senator Boozman. Ms. Melroy?
    Col. Melroy. Thank you, Senator. We have been informed of 
the same things that Mr. Gerstenmaier has said. Industry has 
also told us the same things, and we support our NASA 
colleagues in this.
    Senator Boozman. Dr. Dillingham?
    Dr. Dillingham. That issue is something that we have not 
looked at at this point in time.
    Senator Boozman. Mr. Gold?
    Mr. Gold. Our company has, of course, conducted extensive 
operations in Russia, and if I could just add some fuel to the 
fire of your concerns, I think we also have a broken export 
control regime. Mr. Gerstenmaier correctly points out 
uncertainties. We never knew what to expect relative to 
technology that we could share or could not share. Our export 
control system is obsolete and counterproductive. Second only 
to gravity, the ITAR had the greatest potential to keep us from 
launching, and we need to get reform language into the National 
Defense Authorization Act to take care of this issue so we can 
protect our technology in a better fashion.
    Senator Boozman. Yes, sir?
    Mr. Lopez-Alegria. Senator, it is clear that we are quite 
interested in providing Commercial Crew services to the ISS 
and, therefore, we sort of need the ISS to be there for us. So 
it appears that the current legal thinking is that some relief 
will be required for NASA to be able to pursue that. Excluding 
perhaps the Russian Soyuz, or even not thinking about the Soyuz 
situation, there are some other things that are important for 
the survival of the ISS. So even leaving that part out of the 
equation, we support whatever is necessary to ensure future use 
of the Space Station.
    Senator Boozman. Very good.
    Dr. Dillingham, I think Mr. Gold referred to you as kind of 
the final authority on some of these things. Tell us about--can 
you update us on the status? You know, we have been talking 
about indemnification. I think everybody on the panel has 
mentioned that. You have had some recommendations to the FAA 
regarding the process. Can you give me a further update on what 
is happening with your recommendations?
    Dr. Dillingham. Yes, Senator. We looked at the insurance 
regime, and as we talked to many people in the industry--the 
launchers, the launch providers, and FAA, and it was clear that 
third-party indemnification is very important for the industry 
to mature and move on in that area.
    One of the things that we had discussions with FAA about 
was the maximum probable loss calculations and the way that is 
currently done by FAA because it has an effect on the potential 
liability for the Federal Government. If it is done one way, 
there could be more liability for the Federal Government. If it 
is done another way or done incorrectly, in any case, it could 
cost more for launch companies.
    And FAA agrees that their maximum probable loss calculation 
is rather dated, and they also agree that it is something that 
they would like to update to more modern techniques so that 
they could be more definitive in the insurance and the risks 
that the Government would be exposed to. And they also, of 
course, indicate that it is not going to be free to do that. So 
the indemnification regime is important. However, that part of 
it, we think, is something that needs to be relooked at after 
all of these years.
    Senator Boozman. Should we extend it before your 
recommendations are put into effect?
    Dr. Dillingham. I think so. You know, we did not talk to 
anyone in the industry who said that this is something that 
should not be extended. Indemnification is present in all of 
our competitors around the world. You have heard the captain 
say this morning--and we heard it several times in our work--
that in terms of competition, without that, it could have a 
potentially negative impact on our ability in a competitive 
way, raise the cost of launches, send business across the 
water, and impact our national defense as well and our 
industrial base. So, yes, it is very important. We did not get 
any strong sense that it should not be extended.
    Senator Boozman. So we should extend, but this would be a 
good time to clean it up a little bit.
    Dr. Dillingham. Exactly, sir.
    Senator Boozman. Thank you, Mr. Chairman.
    Senator Nelson. Thank you, Senator.
    Just a passing comment on that indemnification. For the 
commercial companies--and this started way back in the 1980s 
when we were first trying to get some commercial activity--
companies have to know what they can buy insurance for. And if 
they know that, given the fact that there is always a 
possibility, albeit remote, that you could have a catastrophic 
event on an urban population, extremely remote with all the 
safety that is put into the launching, but if they know that 
they have to buy insurance to protect them for catastrophic 
insurance up to a billion and a half and that the Government is 
going to indemnify them on any catastrophic thing above a 
billion and a half, then that is a cost of doing business that 
commercial companies can figure into their overall cost. And 
that is why we have simply got to continue this.
    I want to get back to you, Mr. Gerstenmaier. NASA did a 
contract for cargo resupply way back in 2008, long before 
anyone had demonstrated the capability. This is in a previous 
administration. So it has nothing to do with the orientation of 
any particular administration. And now, having spent $800 
million in the demonstration flights for cargo, NASA has paid 
almost $1 billion under the ISS cargo resupply contract even 
though we have not actually had the official start of the 
contract. And that would come later, presumably this year, with 
another SpaceX launch successfully delivering cargo. And 
Orbital Sciences does not even yet have a working launch pad. 
So why is the Government making these payments and what is the 
services that NASA has received?
    Mr. Gerstenmaier. This is pretty typical of most of our 
launch contracts, even for our expendable launch vehicles. If 
you look at the payment schedule, after we give authority to 
proceed to a contractor, generally the payments occur with 
certain milestones, for example, when hardware is ready at some 
state to move forward, et cetera. So our commercial resupply 
services contracts are the same way. There are certain 
milestones, certain design reviews, certain activities that 
occur for preparation of which they are paid. And it turns out 
the majority of the funding is actually paid before the actual 
launch occurs. And then when the launch occurs, the final 
payment typically occurs. That is typical throughout our 
industry, and that is the way we have done things. That is the 
way the CRS contracts are started and the way they are 
structured.
    So we have gotten positive work on these. If you go look at 
Orbital, for example, you can see what work is actually down 
there. They have several launch vehicles ready. They have a 
fleet of engines ready to go supply and support. They have 
their Cygnus capsule on board or down in Wallops ready to get 
launched. It has been through thermal vacuum testing. They have 
done a significant amount of work building a control center in 
Reston to monitor that activity. So they have spent those funds 
and are essentially preparing for this activity to deliver 
cargo.
    The unfortunate thing in our business is it takes a long 
time for us to get ready. So we really have to start with these 
kind of lead times, typically 3 to 4 years, to do earnest work 
before we are ready to actually go deliver the activity or the 
service we want out the other side.
    We started the CRS contracts when we did because we knew 
the shuttle was going to retire in the 2010 timeframe at that 
point. And if we were going to be able to keep Space Station 
resupplied and realize the vision of Space Station of doing 
this research, we had to get moving. Even though it was an 
uncertain environment, we had to take some risk and move 
forward with these providers and lay out a reasonable plan to 
go forward. And that is what we did in 2008.
    And I think if you look at their state of readiness, it is 
a little bit later than we had anticipated, but they have 
delivered the hardware. They have delivered the services. They 
are poised to deliver the cargo just like we had anticipated 
when we issued those contracts back in 2008.
    Senator Nelson. That is a very complete answer. And 
congratulations on your progress to this point.
    Mr. Gold, I wanted to ask you about your business plan. Do 
you have a business plan going forward that the launch services 
are going to be what the Russians have charged you on the basis 
of what you already have in orbit? And of course, what we have 
seen is the delivery of different crew going up. We have seen 
it from $20 million per passenger several years ago to over $60 
million per passenger now. So what is your business plan to put 
crew on your larger vehicle of getting them up there?
    Mr. Gold. Senator, just like NASA, we are extraordinarily 
dependent on the success of the commercial crew program. It is 
why we are here today. It is why we care about commercial crew.
    I can assure you that if we are forced to abide by the 
pricing that currently exists for Soyuz, our business plan and 
frankly any business plan would be unsustainable. Those prices 
must come down from the $60 million-plus range. They must come 
down dramatically for there to be a business case from the 
private sector.
    However, if you do not mind, Senator, I would also like to 
mention that the Committee should not limit its view to pricing 
alone. Per my opening testimony, there are substantial 
regulatory issues that are as important as pricing. As Ranking 
Member Boozman pointed out, we are facing serious export 
control issues, and if I may, I would like to share a quick 
anecdote with you on that front.
    When I first traveled to Moscow, it was myself and a 
handful of our engineers. Across the aisle from us were a dozen 
former card carrying members of the Communist Party. Yet, it 
was not them but me as an American citizen who traveled with 
not one but two Government monitors breathing down my neck, 
listening intently and prepared to tell me what I could or 
could not say. Worse yet, I was paying for this monitoring to 
the tune of roughly $140 per hour per monitor plus room and 
board and all of their travel expenses. We paid around $300,000 
to $400,000 in direct costs to the Government for monitoring 
and probably about $1 million in ITAR compliance overall. I 
would joke with the Russians that the KGB may have spied on 
them back in the day, but at least they had the good courtesy 
to do it for free.
    [Laughter.]
    Mr. Gold. And I would not be so upset if we were actually 
contributing to national security. Per, again, Ranking Member 
Boozman's comments, there are definitely some technologies that 
we have to be very careful with. But again, to give you an 
example, we had a stand, and the purpose of the stand was to 
keep our spacecraft off of the ground. It was round and had 
four legs coming out. If you put some silverware on top of it, 
maybe a nice tablecloth, the stand would be indistinguishable 
from a metal coffee table. Despite its benign nature, we had to 
have two security guards watching that coffee table full-time 
plus we had to pay two Government monitors to watch our guards 
watching the coffee table. Now, I can only imagine the national 
security implications of this table technology leaking out to 
the Russians, which they could then share with the Iranians or 
the Chinese, who could subsequently serve coffee or even tea on 
it. Therefore, beyond pricing, there are some significant 
regulatory issues that have to be dealt with in order for a 
true commercial business case to come to fruition.
    Senator Nelson. Of course, but I can tell you that because 
we were not minding the store back in the 1980s and we started 
allowing American satellites to be launched on the Chinese 
launch vehicle, the Long March, significant American technology 
was transferred, and it was not supposed to be. And so clearly, 
when you come to the national security interests, you do have 
interests and you got to pay attention to them. And the Chinese 
are successful today in part because they got a lot of our 
technology that was supposed to be kept from them, even though 
a number of those aerospace companies insisted that they be 
able to sell their very sophisticated satellites for a Chinese 
launch vehicle. So there is a balance that you have to achieve 
here.
    Well, if you get yourself around the regulatory--and by the 
way, this INKSNA--we do not have any choice. We have to pass 
that because we simply cannot let that get in the way of us 
moving ahead with the space program.
    Not counting NASA, how many people in the private sector 
are willing to pay how much to fly up to your vehicle?
    Mr. Gold. Well, let me first say when it comes to people--
and if I could dispose of some misperceptions relative to 
Bigelow Aerospace. I have been told that we are building a 
space hotel. I have even been told that we are building a space 
casino. I can assure you that neither is the case. This is what 
happens when you come from Las Vegas.
    Our business case is based upon a model that is not overly 
different than the ISS where you will have countries on one end 
of the spectrum--take Japan, for example, that has a robust 
human spaceflight program but with all of the budget problems 
they are facing would like to get more astronaut seats and more 
capability for less money. Then on the other hand, take a 
country like Singapore, which has never had a human spaceflight 
program before and would like to do so for the first time, 
particularly if they could get through it without breaking the 
bank.
    That is really where we are going, plus the excellent point 
that you raised previously relative to microgravity research 
and development. I really believe we are grossly 
underestimating the impact of that on our overall economy and 
particularly on the pharma and biotech sectors. You mentioned 
some of the good vaccine research that is going on. That is 
just scratching the surface. We have had conversations with 
Johns Hopkins about cancer research that could eventually have 
dramatic results. But we have to develop regular, robust, and 
reliable access to space to bring that to fruition. The 
microgravity revolution will happen in pharma and in other 
sectors. The question is will it happen in America or will it 
happen in China.
    Senator Nelson. Would you give the Committee just a glimpse 
of some of that additional microgravity research that you think 
is very promising?
    Mr. Gold. Certainly, sir. I am a lawyer not a biologist, so 
please forgive any inaccuracies.
    For example--and this is the conversation we were recently 
having with Johns Hopkins, when you are developing a cancer 
drug in a 2-D terrestrial environment, you can spends hundreds 
of millions of dollars and years on a therapeutic only to find 
out that the drug does not work. It makes your hair fall out. 
You grow a third arm. It's bad. There will also be drugs that 
could have created significant benefits to human health and in 
terms of the economy that were dropped because of false 
negatives.
    When you get into the microgravity environment, it 
basically simulates the human body, which is a 3-D, suspended 
set of matrices, in a fashion that cannot be done 
terrestrially. By properly simulating the human body in 
microgravity you can get real results in terms of what drugs 
will work and what drugs will not work. This capability could 
save pharmaceutical companies hundreds of millions of dollars, 
if not billions, just by giving the industry data as to what 
drug to bet on moving forward.
    I think we have already seen some examples of this on the 
ISS with Amgen that did studies relative to osteoporosis. They 
were able to determine what the right drug was to invest their 
money in. You know, forget Las Vegas, pharmaceuticals are a big 
gamble, and if you can provide that extra information, that is 
something that every pharmaceutical company is going to need.
    Senator Nelson. I think the American people are suddenly 
going to fixate on that once we see come out of the FDA trials 
the first major vaccine that is going to have a profound effect 
here on Earth as a result of the research that occurred in the 
properties of near 0 G on the station.
    Anybody else want to comment on any of this?
    [No response.]
    Senator Nelson. OK. Then let me ask. Colonel, how does 
the--let us pick up on this regulatory thing. And the FAA is 
going to be involved in that. How does the prohibition on 
regulation hamper your ability to discuss, plan, and propose 
future safety regulations for spaceflight passengers and crew?
    Col. Melroy. Well, Senator, protection of humans in space, 
especially when you are not specifically looking at a single 
mission, but are instead covering a broad array of vehicle 
types and uses, will be a major undertaking. Therefore, we 
would like to have an extended discussion that is very specific 
with industry about making sure that we are not stifling 
innovation, and, at the same time, we are trying to avoid risks 
that we know about.
    Under the Administrative Procedure Act, we have some 
restrictions on the way that we can discuss potential 
regulations until we are in a rulemaking, and at this time, we 
cannot propose regulations. Therefore, we have to keep our 
conversation very general and on overarching topics. But, we 
will work with that. We are working with our industry advisory 
group, COMSTAC, and plan to work within the constraints of the 
law.
    Senator Nelson. Do you want to pick up on regulations?
    Senator Boozman. Yes, sir, just for a second. Thank you, 
Mr. Chairman.
    Let me ask you, Mr. Gerstenmaier. Under the new agreement 
for a limited number of commercial partners under the Space Act 
Agreements, how will NASA ensure that its safety standards and 
human readiness requirements will be met by the vehicles being 
developed?
    Mr. Gerstenmaier. We have approached that several ways. We 
have published all our safety requirements now, which are 
available to industry to take a look at. They are in a series 
of documents that sit out there. So this is different than we 
have done before. We have actually got all those requirements 
out there so industry can see those and can start implementing 
and designing to those requirements.
    We are starting to think about now what our right strategy 
is, how we move forward. We are going to do Space Act for this 
next phase, and then we want to go into a commercial contract, 
a FAR-based contract activity, for the actual certification and 
demonstration phase. We are in the process now of discussing 
internal to the agency exactly how we do that flow and how we 
do that movement into that larger certification contract. In 
there, there will be some phase-in period or some kind of 
phase-in contract where we will be able to actually work and 
ensure that we have the right insight and the right oversight 
to work directly for these unique safety requirements. But we 
are going to again try to limit our interface and interaction 
to really just the safety requirements, the things that we 
determined throughout the years are really critical to 
protecting crew safety.
    So we are still in the process of that, and in the next 
several weeks or so, we will be able to discuss with you in 
more detail exactly some more specifics of how that strategy 
lays out. But we definitely are thinking about that, but the 
big advantage now is the contractors can see our requirements. 
They know exactly what we expect from a human safety 
standpoint, and that is a big plus for them as they move 
forward.
    Senator Boozman. That really does seem to be a key in the 
sense that it has got to be done right. I mean, there are no 
ifs, ands, or buts. And yet, hopefully we can figure out a way 
to ensure safety and do it where it is as cost efficient as 
possible because that is going to be a real key to whether or 
not it is viable going forward.
    I do want to congratulate SpaceX for their very successful 
mission.
    And with that, Mr. Chairman, I yield back.
    Senator Nelson. And Mr. Gold and Captain Lopez, having some 
assurance of the safety by NASA with their regulations I assume 
is going to be extremely important to you for your customers. 
Do you want to make a comment?
    Mr. Gold. It is extremely important. Again, we need the 
commercial crew program to go well and produce an affordable, 
safe product. Frankly, we shared many of the concerns of 
Congressman Wolf in regard to ensuring that we have a FAR-based 
procurement that is being developed in parallel to the SAA-
driven activity so that when that SAA activity finishes, there 
can be a clean handoff from the SAA development to the 
procurement phase, just like we have done with COTS and CRS.
    Additionally, per my opening testimony, we believe that Mr. 
Gerstenmaier's hands should be untied relative to providing 
mandatory safety requirements even under the context of a Space 
Act Agreement, particularly if the future crewed options are to 
be triggered under the current CCiCap regime. We disagree with 
NASA legal's assessment that this cannot be done. Again, I 
would urge the Committee to go to the GAO for additional 
insight into this issue.
    Senator Nelson. Captain?
    Mr. Lopez-Alegria. Senator, I would say that I think the 
approach that Mr. Gerstenmaier outlined is an appropriate one 
in that NASA is hands off during the design and development of 
tests of these vehicles to assure the most rapid decisionmaking 
and basically get to a critical design stage as soon as 
possible, but that they should have oversight when it comes to 
safety.
    Now, which form that oversight takes place, if it has to be 
a FAR-type contract or if it can be a Space Act Agreement, that 
is sort of beyond my purview as I am not an attorney like Mr. 
Gold. But I think the principle that NASA has the final say-so 
on safety is key.
    Senator Nelson. The final question. Mr. Gerstenmaier, since 
NASA science launches are not licensed by the FAA, does that 
mean there is no Government indemnification for these launches?
    Mr. Gerstenmaier. Well, I will have to take that for the 
record and go look at that. I believe that under our NLS 
contract, those are FAA-licensed. Pam, can you help me?
    Col. Melroy. I believe there is one that has been licensed 
and falls under the CSLA indemnification regime. I am not an 
expert, but I do understand that there is a separate 
indemnification process for missions that are executed by and 
for NASA.
    Senator Nelson. OK. If you all will check that and let us 
know.
    [The information requested follows:]

    NASA-contracted launches for NASA's science missions are not 
generically covered by an indemnification authority. For these 
missions, liability coverage for third-party claims is formed in three-
tiers: (1) NASA contractually requires its launch providers to obtain 
insurance coverage for third party losses. The amount of the insurance 
required by NASA is the maximum amount available in the commercial 
marketplace at reasonable cost, but does not exceed $500 million for 
each launch. (2) To the extent claims are not fully compensated by the 
liability insurance, the NASA administrator has the ability to consider 
third party claims under the meritorious claims authority, Statute 51 
USC 20113(m)(1) l, up to $25,000. (3) To the extent 
meritorious claims exceed the first two tiers of coverage, the facts 
and circumstances for such claims would be forwarded by NASA under 
Statute 51 U.S.C. Sec. 20113 (m)(2) l to the Congress for 
its consideration.
---------------------------------------------------------------------------
    \l\ 51 USC 20113

    (m) Claims Against the United States.--In the performance of its 
functions, the Administration is authorized--

    (1) to consider, ascertain, adjust, determine, settle, and pay, on 
behalf of the United States, in full satisfaction thereof, any claim 
for $25,000 or less against the United States for bodily injury, death, 
or damage to or loss of real or personal property resulting from the 
conduct of the Administration's functions as specified in section 
20112(a) of this title, where such claim is presented to the 
Administration in writing within 2 years after the accident or incident 
out of which the claim arises; and

    (2) if the Administration considers that a claim in excess of 
$25,000 is meritorious and would otherwise be covered by this 
subsection, to report the facts and circumstances to Congress for its 
consideration.
---------------------------------------------------------------------------
    In order for an agency to indemnify a contractor under the broad 
coverage of Public Law 85-804, the contractor must provide evidence and 
the agency must make case-by-case determinations that the contract 
activity will require the contractor to undertake ``unusually hazardous 
or nuclear risks'' and will ``facilitate the national defense.'' If a 
science payload includes a nuclear power source, a different 
indemnification mechanism could apply for liability resulting from the 
contract work involving that nuclear power source. Indemnification 
provided under the Price Anderson Amendments Act (PAAA) is only 
relevant to NASA launches that carry a nuclear power source provided by 
the Department of Energy (DOE) as only DOE has authority to provide 
PAAA coverage to its contractors and subcontractors. Such 
indemnification covers a contractor's ``public liability,'' meaning 
legal liability arising out of a nuclear incident or precautionary 
evacuation involving injury or damage to persons or property related to 
a radioactive release, up to $12 billion in the case of nuclear 
incidents occurring within the United States and up to $500 million for 
incidents occurring outside the United States.
    For SLS/MPCV, it may be possible to indemnify under Public Law 85-
804 as we did with Shuttle, but the specific circumstances of the 
activity, the risk, and the available commercial insurance would need 
to be evaluated at the time a contractor requested such relief.

    Senator Nelson. And then are we to assume that there is the 
normal indemnification when you all get into the big rocket, 
the SLS and Orion?
    Mr. Gerstenmaier. Yes. That will be the standard thing we 
have done in the past for the shuttle program, et cetera. We 
will work out the details associated with that, but it will be 
similar to what we have done with previous manned programs like 
the shuttle and other aspects.
    Senator Nelson. I want to thank the witnesses for being 
especially very much to the point and mindful of the time. And 
we have even made it to the finish line with 10 minutes to 
spare when the votes are being called. Thank you all. Have a 
good day.
    The meeting is adjourned.
    [Whereupon, at 11:20 a.m., the hearing was adjourned.]
                            A P P E N D I X

          Prepared Statement of Hon. John D. Rockefeller IV, 
                    U.S. Senator from West Virginia
    Washington, D.C.--The United States has long been a world leader in 
using space for societal and commercial benefits. Satellites, for 
example, provide us with instant communication, the indispensable 
Global Positioning System--or GPS--for navigation, and weather data to 
inform forecasts that prevent loss of life and property. While the 
original investment for each of these examples came from the Federal 
Government, the commercial sector went on to make them profitable 
industries.
    The commercial sector is now looking at space transportation and 
the market that may emerge as the next big business opportunity, and 
that's what this hearing will consider here today. NASA's purpose in 
the development of domestic commercial space flight capabilities is to 
lower the cost of getting crew and cargo back and forth to the 
International Space Station.
    Lowering the cost of access to space is not just important to NASA, 
but to the defense and intelligence communities, as well as satellite 
broadcasting and communications providers, just to name a few. But if 
NASA's investment is to pay off in seeding this ``commercial'' 
industry, there are tough questions that need to be asked regarding the 
taxpayers' investment. What have these programs cost NASA so far; how 
are the funded companies performing; and, above all, how cost effective 
will these service providers be once NASA has invested in their 
development?
    It is important to remember that as soon as there is a domestic 
capability, NASA is required by law to stop purchasing Russian Soyuz 
seats to get to the International Space Station. What is to stop a 
company from turning around and charging the Government a fortune to 
access our space station? Much has been said about not wanting the 
government to pick winners and losers, which is why we should not lock 
in a dominant player at this stage of the game. Key to the premise of 
competition, however, is whether or not a viable market for commercial 
space emerges beyond the Federal Government.
    As these companies work to attract private investment, we hear 
repeatedly that they need certainty and stability both for investors 
and the emerging market; however, ``certainty'' and ``stability'' only 
seem to apply in certain situations. Many companies have advocated that 
extending the government's indemnification of third party liability 
adds certainty and stability; however, some of these same companies 
argue that FAA regulation at this time does not. Many advocated and 
were successful in obtaining a continued moratorium on FAA's regulation 
of crew and passenger safety until October 2015 in the FAA 
Reauthorization. I didn't like this provision then, and I don't like 
this provision now, as it increases the chances that regulation will be 
decided in reaction to an accident. Space flight is inherently risky 
and we know accidents happen.
    With these questions in mind, I welcome our witnesses here today to 
help the Committee with its policy deliberations and oversight 
responsibilities in this area.
                                 ______
                                 
       Prepared Statement of the Aerospace Industries Association
    Chairman Rockefeller, Ranking Member Hutchison, Subcommittee 
Chairman Nelson and Ranking Member Boozman and distinguished members of 
the Subcommittee, I appreciate the opportunity to submit testimony to 
the Committee regarding the commercial space industry and its role in 
the Nation's space program. On behalf the Aerospace Industries 
Association, I would like to emphasize the importance of renewing the 
Commercial Space Launch Act risk management provision, eliminating the 
sunset provision of the Act, and removing the indemnification cap for 
space launch activities. In addition, another important concern is the 
expansion of the excess intercontinental ballistic missile (ICBM) 
assets and the effect on the U.S. industrial base.
    The Aerospace Industries Association (AIA) represents over 350 
aerospace manufacturing companies and their highly-skilled employees. 
These companies make the spacecraft, launch vehicles, sensors, and 
ground support systems employed by NASA, NOAA, the Department of 
Defense, the National Reconnaissance Office (NRO), other civil, 
military and intelligence space organizations throughout the globe, and 
many of the commercial communication satellites. This industry sustains 
nearly 3.5 million jobs, including much of the high-technology work 
that keeps this Nation on the cutting edge of science and innovation. 
The U.S. aerospace manufacturing industry remains the single largest 
contributor to the Nation's balance of trade, exporting $89.6 billion 
and importing $47.5 billion in relevant products, for a net surplus of 
$42.1 billion.
    U.S. space launch capabilities are essential to our Nation's 
security and its ability to lead in space exploration. To sustain this 
capability, a healthy U.S. space launch industrial base is needed; as 
with aviation, to mitigate cyclical impacts, this industrial base would 
ideally serve military, civil government and commercial customers. 
Unfortunately, in recent years, our Nation's space launch industrial 
base has been struggling to adapt to reduced demand by government--
especially due to the end of the Space Shuttle program--and downward 
pressures on DOD, NASA and NOAA budgets that threaten to exacerbate the 
risk to the industrial base. Furthermore, international launch 
providers have been aggressively bidding and winning commercial 
opportunities, often with the help of their governments in the form of 
either financial assistance or low cost financing. The sad reality is 
that the U.S. launch services industry has had a minimal share of the 
commercial worldwide market for launches; indeed, in 2011, there were 
NO commercial orbital launches from a U.S. space port.
    Nonetheless, recent private sector investments by U.S. industry--
including AIA member companies ATK, Aerojet, Boeing, Lockheed Martin, 
Northrop Grumman, Sierra Nevada, SpaceX and Virgin Galactic as well as 
others--and supportive policies by government agencies are enabling the 
emergence of new domestic space launch capabilities. These new systems 
have the potential to increase the U.S. share of the commercial launch 
market while also opening up exciting new markets. These companies have 
made their investments within the existing domestic launch business 
climate and domestic policy framework, but they face a challenging 
international competitive environment.
    Many foreign launch providers competing against U.S. companies 
already benefit from generous indemnification rules. For example, the 
European company Arianespace is required to purchase insurance up to 
just 60 million Euros (roughly $75 million). Any damages above this cap 
are the guaranteed responsibility of the French government.\1\
---------------------------------------------------------------------------
    \1\  Study of the Liability Risk-Sharing Regime in the United 
States for Commercial Space Transportation by J. A. VEDDA, Center for 
Space Policy and Strategy, National Space Systems Engineering, The 
Aerospace Corporation. 1 August 2006, Page 58.
---------------------------------------------------------------------------
    Mr. Chairman, the U.S. space launch industry is not seeking any 
subsidy. Instead, the U.S. commercial space launch industry requires a 
stable and predictable business environment enabled by maintaining the 
existing launch risk mitigation framework for the foreseeable future. 
FAA's launch indemnification program has been in place for over twenty 
years--providing critical risk management enabling the emergence of a 
U.S. commercial launch market, benefiting the broader U.S. space 
industry, U.S. technological leadership, and ultimately, the U.S. 
consumer through the launch of U.S. communications satellites--without 
ever costing U.S. taxpayers a dime.
    Under the existing program, the risk exposure of the Federal 
Government is managed; FAA controls the level of company insurance 
required by establishing the Maximum Probable Loss coverage required 
for each license and Congress ultimately controls the government's 
assessment of loss legitimacy since a specific Appropriation is 
required to pay any claims. Moreover, given that the current U.S. risk 
approach has been in place for so long, it is not clear how much 
additional underwriting capability is available in the space insurance 
market; adding new uncertainty will harm U.S. industry.
    For the United States to adopt a purely laissez-faire approach to 
the U.S. commercial launch business, which competes in an international 
launch market where its Chinese, Japanese, European, and Indian 
competitors all operate under comparable risk management frameworks 
would amount to unilateral disarmament: Even if commercial companies 
could insure for the additional risk exposure commercially, it would 
add costs their competitors do not include, thus making commercial U.S. 
launch sales more difficult.
    But our rationale for continuing indemnification support is not 
narrowly focused on its benefits for industry--it also provides 
benefits for the U.S. Government. When U.S. launch rates were 
relatively high, the costs for all users--including the U.S. 
Government--were more affordable as the fixed costs of launch 
infrastructure and investments were spread out over a wider base of 
customers.
    To better understand the importance of providing space launch risk 
mitigation legislation, understanding the history of U.S. commercial 
space launch is essential. Two decades ago, American space launch 
capabilities were a major player in the market--with a high percentage 
of worldwide commercial launches leaving from our spaceports.
    Figure 1 shows how large the U.S. share of commercial space launch 
was from 1990--to 2001. The benefits to the U.S. economy were also 
significant; in 1999, according to a study by the FAA's Office of 
Commercial Space Transportation, commercial space transportation and 
enabling industries were responsible for $3.5B in economic activity and 
over 28,000 jobs--by 2009, those numbers had shrunk to $827M and just 
under 4,000 jobs.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    FIGURE 1--Commercial GEO Payloads Launched by Country from 1990-
2001.
    Source of data: FAA Office of Commercial Space Transportation.

    The U.S. launch market share began a precipitous decline (see 
FIGURE 2) as a result of the collapse of the Soviet Union--which 
brought large numbers of Soviet developed Russian and Ukrainian launch 
capabilities into the market with a cost structure far below U.S. 
prices. Additionally, in this same timeframe, there was the advent of 
the more capable Ariane 5 launch vehicle, developed by the European 
Space Agency.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    FIGURE 2--Commercial GEO Payloads Launched by Country from 2001-
2011.
    Source of data: FAA Office of Commercial Space Transportation.

    In subsequent years, U.S. Government launch costs have risen 
substantially--partially due to the shift of commercial satellite 
launches to much lower cost foreign systems. This has also adversely 
impacted the space industrial base--an industry base significantly 
impacted already by the wind down of the Space Shuttle program. The 
success of the new launch ventures is also important to the Federal 
Government since they offer the real potential to reverse this trend.
Recent Space Launch Developments
    Fortunately, American industry has been making investments to 
capture new space launch business opportunities utilizing innovative 
new systems--from launching commercial communications satellites more 
cheaply to supporting the International Space Station and creating new 
opportunities for private citizens to experience space flight. These 
investments--and the willingness of the private sector to commit their 
own resources to create new U.S. launch capabilities is a uniquely 
American development; no other nation in the world has a significant 
private sector effort underway--yet, in the U.S., a number of new 
systems, with a mix of private and government contract funding are in 
operation or under development. With good insight from the FAA's Office 
of Commercial Space Transportation and the workforce and design 
expertise developed by over fifty years of space launch investments by 
NASA and DOD, these new systems should soon enable our Nation to regain 
its space launch leadership while creating new markets and thousands of 
new U.S. jobs.
    Figure 3 shows the projections by the FAA COMSTAC (Commercial Space 
Transportation Advisory Committee) of the potential for 300 commercial 
space payloads that will require 128 commercial launches through 2021. 
It should be stressed that this market forecast is a conservative 
estimate based only on existing markets; future markets for suborbital 
or orbital launch systems are not included but could potentially 
greatly increase the number of missions. These space launch investments 
have also been made in a business environment where, for over two 
decades, the U.S. Government has understood the need for a statutory 
risk management framework, enabling industry to pro-actively manage the 
potential liability in the event of a catastrophic accident. This space 
launch indemnification program is modeled after similar liability 
provisions for other industries that the government has sought to 
nurture, including nuclear power (e.g., the Price-Anderson Act) and 
homeland security related safety technology.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    FIGURE 3--Commercial Space Launch Market Forecast 2012-2021.
    Source of graph: 2012 Commercial Space Transportation Forecasts, 
FAA Commercial Space Transportation and the Commercial Space 
Transportation Advisory Committee
Mitigating Space Launch Risks
    The current FAA approach to risk management has three tiers with 
substantial industry responsibility:

        Tier 1: The FAA calculates the maximum probable loss (MPL) that 
        could result from the licensed launch--that is the damage that 
        could result to uninvolved third parties from the most likely 
        worst case scenario. The launch provider, as the licensee, is 
        required to purchase private insurance for the MPL covering all 
        parties involved with the launch, including the U.S. 
        Government. The MPL is capped at $500 million, though rarely is 
        that full amount required by the FAA's calculations.

        Tier 2: Subject to Congressional appropriations following a 
        Presidential request, the U.S. Government is authorized to pay 
        up to a $2.7 billion cap for third-party claims that exceed the 
        insurance coverage and therefore the FAA calculated maximum 
        probable loss. It should be noted that payments of claims are 
        not automatic and no funds are committed to this regime. 
        Congress can approve such payment and appropriate funding to 
        implement it only if and when a claim is made. To date, no loss 
        has ever occurred that would have triggered this regime, and 
        Congress has never been asked to appropriate funding for the 
        CSLA.

        Tier 3: Any third-party claims above the Tier 2 cap are the 
        responsibility of the licensee or the liable party.

    The CSLA's risk management regime assures adequate liability 
coverage in case of catastrophic launch-related events, minimizes 
government risk exposure, avoids any need for annual outlays while also 
supporting the U.S. space and national security industrial base. It 
also strengthens U.S. international competitiveness in a global space 
launch market characterized by foreign providers offering government 
indemnification as a standard and discriminating feature of their 
services.
    By maintaining continuity in the business environment, CSLA 
supports existing launch service providers and encourages new U.S. 
entrants into the launch business, ultimately enabling the development 
of new commercial innovative space markets--both for suborbital and 
orbital vehicles. In the end then, CSLA helps to keep vital space 
launch jobs in the United States.
    Based on the 2004 Congressionally-mandated FAA Study of the 
Liability Risk-Sharing Regime in the United States for Commercial Space 
Transportation conducted by The Aerospace Corporation, the FAA 
Commercial Space Transportation Advisory Committee (better known as 
COMSTAC) has strongly endorsed and recommended to the Secretary of 
Transportation continuation of the commercial space launch risk 
management regime in the CSLA. The Congressional Budget Office (CBO) 
has also previously estimated that extending the agency's 
indemnification authority would have no significant budgetary effect 
for 5 years following its proposed extension in 1999. The current risk 
management regime is exactly the same regime assessed by the CBO in 
1999.\2\
---------------------------------------------------------------------------
    \2\ The CBO's assessment of H.R. 2607, The Commercial Space 
Transportation Competitiveness Act of 1999 stated that ``Based on 
information from DOT, we estimate that extending the agency's 
indemnification authority would have no significant budgetary effect 
over the next five years. DOT has never had to pay claims to third 
parties for incidents involving commercial space vehicles or services. 
Thus far, the costs associated with incidents have been small and have 
been covered by private insurance.'' H.R. 2607 became Public Law No: 
106-405 in 2000, extending the risk management regime to 2004, which 
was extended again in 2009.
---------------------------------------------------------------------------
Risks of Non-Renewal
    The CSLA regime enables U.S. launch providers, like their foreign 
competitors, to operate without ``betting the company'' with every 
single launch. In a competitive market with narrow returns, the loss of 
the risk management regime would cause U.S. companies to reconsider the 
risks and benefits of staying in the commercial launch business, 
suspend activity, and even exit the market.
    Failure to renew CSLA would unnecessarily hamstring U.S. companies' 
ability to compete in the international launch services market. Without 
the risk management regime, U.S. launch providers appear riskier and 
more costly to prospective launch customers in a market with numerous 
foreign launch providers whose governments indemnify launches. As if 
harming U.S. commercial market competitiveness would not be bad enough, 
the U.S. civil and national security space communities could also 
experience increased launch costs for essential government payloads for 
communications, weather observation, remote sensing, GPS, and other 
satellite systems that are an integral part of our Nation's 
infrastructure and economy. Without a renewal of the regime, our 
Nation's space industrial base could be foregoing business that would 
share the fixed cost of space launch from government programs with the 
commercial market--savings that could be passed on to the taxpayer.
    Non-renewal of the risk management regime could also mean an 
outright exit from the commercial launch market by U.S. providers, 
making it much harder to sustain high technology space launch jobs in 
the United States. We cannot afford to drive away highly skilled 
technical jobs to foreign countries, where the regulatory frameworks 
provide better critical risk management tools. Lastly, a non-renewal 
could impede new U.S. entrants to the commercial launch market, 
discourage future space launch innovation and entrepreneurial 
investment. Without a level playing field for competition, new U.S. 
entrants could find it highly undesirable to begin their business 
ventures in the United States, reversing recent trends.
Updating Space Launch Risk Management for the 21st Century
    FAA's space launch indemnification approach began in 1988 when the 
Congress enacted amendments to the Commercial Space Launch Act (CSLA) 
of 1984, establishing a regulatory regime for FAA-licensed commercial 
space launches that included a risk management regime for third-party 
losses resulting from launch-related activities. Today, this risk 
management regime factors into all U.S. commercial space launch 
business decisions and provides a more level playing field for U.S. 
competitors. The FAA's launch risk indemnification backstop has been 
renewed 5 times since 1988--creating the reasonable expectation that it 
will be renewed in the future without completely eliminating the 
business uncertainty. But developing space launch systems is a long 
term effort--not uncommonly five years or more--and launch contracts 
are typically signed at least two years prior to launch. AIA believes 
the sunset provision of this law should be eliminated thereby 
increasing business confidence and promoting additional new investment.
    FAA's three tier approach has never been utilized; losses to date 
have been relatively minor and have never exceeded the commercially-
insured Maximum Probable Loss threshold let alone the cap on the 
Federal Tier 2 limit. Given that any Tier 2 payout would require a 
specific Appropriation anyway, AIA recommends that the Tier 2 cap 
should be dropped and that Tier 3 should be eliminated entirely.
    In conclusion, the Aerospace Industries Association sees the 
continuation of U.S. space launch indemnification as an exceedingly low 
risk means to support to our Nation's vital space launch industrial 
base that provides substantial upside potential to enable new markets, 
create new jobs, and assure U.S. space technology leadership for the 
21st century. U.S. industry is investing capital and innovative ideas 
to support this new future and U.S. Government agencies and the 
Congress have also taken important steps that have helped foster these 
new initiatives. It would be a shame if these nascent capabilities were 
to be limited in its potential or even founder due to the lack of a 
level playing field with foreign competitors.
    In order to allow U.S. companies to compete on a more level playing 
field for hundreds of new payload opportunities and creating thousands 
of new jobs:

   AIA recommends the Congress renew the Commercial Space 
        Launch Act risk management provision (Section 70113(f) of title 
        49 of Public Law 111-125) well in advance of its expiration on 
        December 31, 2012.

   Given the long lead times for space launch development and 
        operations, the need for stable policies to promote investment 
        and to maximize our industry's ability to be competitive, 
        Congress should eliminate the sunset provision of the Act or at 
        least extend them for a much longer time than in the prior 
        renewals.

   To be consistent with our international competitors, AIA 
        recommends the Congress remove the indemnification caps beyond 
        Tier 1 for space launch activities.
Excess Intercontinental Ballistic Missile (ICBM) assets
    The U.S. Government makes use of excess Minuteman and Peacekeeper 
ICBM assets for orbital launches of small satellites and suborbital 
launches of missile defense targets. According to section six of the 
2005 U.S. Space Transportation Policy, excess U.S. ICBM assets shall be 
retained for government use only under certain conditions, including 
certification that their use has very limited impact on the U.S. space 
transportation industry. Unfortunately, limited use of these excess 
assets has not been the case and will pose increasing risks to future 
investment in civil, commercial, and military small space 
transportation options.
    From 2000 through 2011, twenty three excess ICBM asset missions 
were conducted. This number is equal to the 23 combined launches of 
Pegasus, Taurus, Falcon 1, and Athena over the same timeframe. In AIA's 
view, using excess assets at a level equal to industry's sales 
adversely impacts the space transportation industrial base. Indeed, for 
smaller payloads, excess ICBM assets are nearing monopoly status. In 
2010-2011 eight of nine small launches were excess ICBMs.
    Increased reliance on excess missile assets converted to space 
transportation uses may seem convenient and cost-effective in the short 
term. Over the longer term, this short-sighted practice could 
negatively impact broader industry investment in small launch 
capabilities. AIA believes that these excess assets are jeopardizing 
industry's ability to support future mission requirements and may 
necessitate significant future investment to re-establish U.S. 
production capabilities.
    AIA recommends that current law (the Commercial Space Act of 1998, 
P.L. 105-303) that allows for the conversion of ballistic missiles into 
space transportation vehicles be amended. In order to provide access to 
space for small-and medium-class government payloads, while sustaining 
and promoting growth in the U.S. space launch services industry, the 
use of excess ballistic missile assets as launch vehicles should be 
limited to only the launch of Federal Government technology 
demonstration satellites. In addition, improving the method of 
calculating the true cost of excess ICBM storage, transport, and 
conversion to a space launch vehicle should be addressed in the updated 
policy.
    Thank you for the opportunity to submit testimony on behalf of the 
U.S. space industry.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                        William H. Gerstenmaier
Commercial Orbital Transportation System--COTS
    Question 1. Please provide details of the steps required to 
transition SpaceX to performance under its Commercial Resupply Services 
contract. Please include information regarding the review and analysis 
of data from what appears to have been a very successful COTS 2+3 
combined demonstration flight.
    Answer. It is important to note that Commercial Orbital 
Transportation Services (COTS) and Commercial Resupply Services (CRS) 
are separate activities; the work under CRS is not a transition from 
COTS. SpaceX has been working under contract to NASA to provide cargo 
delivery services since SpaceX was awarded a CRS contract in December 
2008. SpaceX delivered cargo under CRS during its COTS demonstration 
and has already completed milestones under the CRS contract for the 
five missions currently in process. This work has been focused in three 
main areas--(a) cargo processing, (b) mission planning and overall 
vehicle performance, and (c) completion of the visiting vehicle safety 
requirements. All three of these key areas were demonstrated during the 
COTS demonstration mission.
    SpaceX and NASA have completed several post flight reviews and 
lessons learned sessions reviewing the COTS demonstration mission and 
improvements in each of the key areas have been identified. Examples of 
the improvements include an updated process for review and testing of 
software upgrades, updates to cargo packing both on the ground and on 
orbit, changes in how quickly flight data will be accessible after the 
spacecraft has returned, and updates in telemetry and tracking. These 
improvements have been included into the standard verification work and 
mission planning that supported the first CRS mission in October 2012 
and will continue to be performed prior to every CRS mission.
    With the successful completion of the COTS C2+ flight, SpaceX has 
accomplished all objectives necessary to demonstrate they can transport 
cargo to the ISS and return cargo to Earth. NASA is currently reviewing 
post flight data with SpaceX, as has been the standard practice with 
all demonstration flights. Two formal reviews have taken place to date. 
The final review was held in August 2012 and coincided with the 
transmittal of the mission final report to NASA. The next flight flown 
in October 2012 was the first operational mission under the CRS 
contract.
    Additionally the ISS technical and safety integration teams have 
been working with SpaceX since August 2006 when the COTS Space Act 
Agreements (SAA) began. The interactions and the information and 
products provided by SpaceX have been of high quality and have enabled 
the ISS program to safely integrate SpaceX capabilities and operations 
into the program.

    Question 2. What is your confidence level regarding that the 
ability of the Orbital Sciences Corporation to launch its demonstration 
mission this year? Are there any technical concerns with the launch 
vehicle and/or the Cygnus system?
    Answer. Orbital Sciences continues to make progress in preparing 
their ground and flight systems for their upcoming test and 
demonstration flights. Critical vehicle testing on the pad is required 
prior to the test mission. Orbital is planning to complete the wet 
dress rehearsal and hot fire pad tests by the end of January. The 
launch of the Antares test flight will occur soon after the tests are 
complete. Orbital's demonstration mission to the ISS could be flown 
approximately 2-3 months after the Antares test flight, pending nominal 
pad refurbishment activities. Currently, Orbital Sciences is processing 
the test and demonstration flight launch vehicles and spacecraft with 
no major anomalies being identified. Orbital is conducting Joint 
Integrated simulations with the ISS program in preparation for the COTS 
demonstration flight as well as progressing through the ISS visiting 
vehicle verification process. As with the development of all complex 
space systems, there is always a chance of uncovering technical issues 
during this period but NASA and its partners will work to mitigate any 
issues that may arise.

    Question 3. Can you summarize, to the extent possible, the 
technical issues that have impeded the launch pad development at the 
Wallops Island launch complex?
    Answer. The state of Virginia's Mid-Atlantic Regional Spaceport 
(MARS) is responsible for construction and operation of the launch pad 
that Orbital Sciences will use for their COTS demonstration as well as 
ISS operational flights. Pad construction has been a clean sheet effort 
versus refurbishing an existing facility. As pad construction 
progressed, technical issues arose that are not atypical with 
construction of extremely complex infrastructure intended to distribute 
fuel and super-cold oxidizer at the precise flow rates and pressures 
needed to support launch vehicle loading and launch. Technical 
challenges were discovered when these super-cold fluids were introduced 
into transport lines for the first time. Additionally, as pad systems 
were activated, problems arose that required rework and increased the 
time-frame needed to complete the pad. Pad turnover has now been 
completed.

    Question 4. While there have been slips to Commercial Cargo 
demonstration flights, what is the production status for the hardware 
needed for follow-on cargo resupply flights, which are needed to supply 
ISS. Are they slipping as well or are these contractors ready to fly, 
once they have demonstrated their capabilities in the upcoming 
demonstration flights?
    Answer. The current ISS Flight Program includes three SpaceX and 
two Orbital CRS missions to ISS by the end of calendar year 2013. 
Production status is as follows.

   SpX-1: The Dragon launched atop a SpaceX Falcon 9 rocket 
        from Cape Canaveral Air Force Station in Florida, on October 7, 
        2012. It carried 882 pounds of cargo to the complex, including 
        260 pounds of crew supplies, 390 pounds of scientific research, 
        225 pounds of hardware and several pounds of other supplies. 
        This included critical materials to support 166 scientific 
        investigations, of which 63 were new. Returning with the Dragon 
        capsule was 1,673 pounds of cargo, including 163 pounds of crew 
        supplies, 866 pounds of scientific research, and 518 pounds of 
        hardware. Dragon splashed down in the Pacific Ocean October 28, 
        2012. The splashdown successfully ended the first contracted 
        cargo delivery flight contracted by NASA to resupply the 
        International Space Station.

   SpX-2 (FY13 Q2): The interstage, the first stage and second 
        stage have been shipped to the Cape. The Dragon capsule and 
        trunk are in final assembly and are planned to shipped to the 
        Cape in December.

   SpaceX-3: This is the first CRS mission with upgraded Falcon 
        Version 1.1. Production schedule for the new launch vehicles 
        are being developed. The thrusters are scheduled to be complete 
        in February 2013. The service section is planned to be mated in 
        January with final closeout scheduled in April 2013. The dragon 
        module has a planned completion date of May 2013. The current 
        schedule has the Dragon capsule and trunk ready to ship to the 
        Cape in June 2013.

   Orb-1: The first stage core of the Antares launch vehicle 
        has been delivered to the Wallops Flight Facility (WFF). The 
        first stage engines are scheduled for shipment to Stennis Space 
        Center (SSC) for testing and shipment back to WFF in January 
        2013. The upper stack avionics cylinder is in system testing 
        through March 2013. The Castor 30B (upper stack engine) final 
        assembly is complete and stored awaiting a shipment due to WFF. 
        The pressurized cargo module of Cygnus is also complete with 
        planned delivery to WFF in April. The service module is 
        currently undergoing Final Integrated Systems Test with 
        shipment to WFF planned for March 2013.

   Orb-2: The current plan for the Orb-2 launch vehicle is to 
        use the refurbished core from the 7K-test article. One first 
        stage engine is integrated into the test article and will be 
        refurbished and used for Orb-2 after the hot fire test. The 
        second first stage engine is scheduled for delivery to WFF in 
        February 2013. The upper stack avionics cylinder and payload 
        cone are complete. The avionics system is being assembled and 
        testing will occur from November through January 2013. The 
        Castor 30B is in production and will ship to WFF in April. The 
        pressurized cargo module of Cygnus is complete and integration 
        testing is in progress. The planned delivery date to WFF is 
        June 2013. The service module is undergoing spacecraft 
        assembly, with the Initial Integrated System Test completed. 
        Component testing is underway with Final Integrated System Test 
        planned for completion in March 2013.

    Question 5. How much cargo was transported to ISS and back to Earth 
during the SpaceX demonstration flight? How does that payload 
capability compare with the payload transport requirements for the 
full-up operational SpaceX system? What additional effort, NASA 
support, and resulting government funding is required to meet the 
payload requirements under the SpaceX Cargo Resupply Services contract?
    Answer. During the May SpaceX COTS demonstration mission, the 
Dragon capsule delivered about 525 kilograms to the ISS as upmass under 
the CRS contract. On the return trip, Dragon carried science 
experiments to be returned to researchers. Including the experiments, 
Dragon returned a total of about 665 kilograms of hardware and cargo no 
longer needed aboard the Station as downmass under the CRS contract. 
The Dragon has the capacity to carry 3,200 kg of upmass internally or 
externally. As a practical matter, the internal carrying capacity will 
likely be limited by the volume available and will be about 1,600 kg. 
The capsule can return approximately 1,400 kg of downmass, which, at 
the projected 3 flights per year, should be sufficient to meet all ISS 
projected return requirements.
    In terms of NASA support to SpaceX under the CRS contract, on 
December 23, 2008, the Agency ordered 12 CRS flights valued at $1.6B 
from SpaceX. These funds are paid to SpaceX under a milestone structure 
based on progress for each flight.

    Question 6. Now that SpaceX has completed their cargo demonstration 
flights, can you tell us how much government funding, including the 
cost for the use of government facilities and NASA personnel expertise, 
was required to complete the SpaceX cargo vehicle development effort?
    Answer. Commercial Orbital Transportation Services (COTS) is the 
only NASA effort that directly funds the cargo vehicle development 
effort and NASA has provided $396M to SpaceX under the COTS Space Act 
Agreement. NASA also budgeted and spent approximately $40.1M through 
October 31, 2012, for NASA's efforts to manage and support the 
commercial cargo development effort. This includes the cost of 
government facilities and NASA personnel expertise provided through the 
program office. However, the NASA does not track the cost to support 
the individual providers, SpaceX and Orbital. Also, NASA does not track 
additional, indirect support provided for the cargo development effort 
by other Programs such as ISS.

    Question 7. I understand that there were a large number of issues 
to resolve prior to this last flight by the SpaceX team. How was NASA 
involved in the resolution of those issues, and what level of NASA 
resources were required to resolve those issues? Please include figures 
regarding the civil servant time applied to support commercial 
activities?
    Answer. NASA's primary role is to monitor the progress of its 
commercial partners through an assessment of the milestones and to make 
payment for successfully completed milestones. NASA provides expert 
technical assistance; as requested or where considered necessary, via 
the NASA COTS Advisory Team (CAT) discipline experts drawn from across 
the Agency. CATs selectively support commercial partner reviews and 
consult on technical issues as requested. More extensive NASA support 
requires reimbursement for services or facility use via Reimbursable 
Space Act Agreements. Commercial Partners also receive ISS integration 
and certification support for their visiting vehicles. NASA has spent 
$40.1M of the funds appropriated for the COTS program since 2006 
managing and supporting the COTS effort of both commercial partners, 
and approximately $16.8M of that cost (through October 31, 2012) is 
NASA civil servant labor. See Answer to question 6 for more details.

    Question 8. According to the schedule associated with the CCDev 
Space Act Agreement between NASA and SpaceX, the recent SpaceX flight 
was almost 2\1/2\ years late. Now that the demonstration phase is 
complete, along with government funding that went with it, will NASA 
hold SpaceX to its contractually mandated delivery schedules and other 
terms under the CRS firm fixed price contract they have signed?
    Answer. It is important to note that the Commercial Orbital 
Transportation Services (COTS) Space Act Agreement (SAA) with SpaceX is 
distinct from both the Commercial Crew Development (CCDev) SAA and the 
Commercial Resupply Services (CRS) cargo contract. In the case of the 
latter, the contract calls for the delivery of a minimum of 20 metric 
tons of cargo to the ISS, as well as the return or disposal of 3 metric 
tons of cargo from the orbiting complex. The contract is a firm-fixed 
price, Indefinite Delivery Indefinite Quantity procurement with a 
period of performance from January 1, 2009, through December 30, 2015, 
and NASA pays SpaceX for only those milestones that are successfully 
met.
    When awarding the CRS contracts, NASA understood that the 
management of these contracts would be challenging for both NASA and 
the contractors. The contractors have the difficult job of producing 
the launch and cargo vehicles. NASA has the difficult job of 
orchestrating multiple missions to the ISS along with managing all of 
the on orbit activities. Under these conditions it is expected that 
schedules will be changed and both NASA and the CRS contractors have 
requested changes in the mission dates and consideration for the 
mission moves have been negotiated.
    Launch windows for CRS flights to the ISS are baselined at the 
Vehicle Baseline Review (VBR) as provided for by the CRS contract. If 
SpaceX is not able to meet the contractual launch window, NASA 
negotiates with SpaceX an equitable adjustment to the value of the 
contract depending on the length and nature of the delay.

    Question 9. NASA has committed to transitioning to firm fixed price 
contracts for the purchase of ISS resupply services. Fixed price 
contracts allocate risk of delay to the contractor, so any schedule 
delay should result in consideration paid to NASA. Will this in fact be 
the case as NASA and the ISS service providers transition to firm fixed 
price contracts?
    Answer. Please see the response to question #8, above. NASA will 
only pay its CRS contractors when they meet milestones. At the Vehicle 
Baseline Review (VBR), NASA and the contractor jointly reach agreement 
on a 90 day launch window. After VBR, either NASA or the contractor can 
request a launch delay of up to 30 days without penalty. Any delays 
beyond 30 days need to be negotiated and could result in an equitable 
adjustment, change in delivery schedule or change in the period of 
performance.

    Question 10. Administrator Bolden has stated that the procurement 
of actual ISS cargo services will be conducted under FAR-based fixed 
price contracts. Can you provide assurance that any future competition 
for either crew or cargo servicing will be under FAR-based contracts 
open to all bidders?
    Answer. The procurement of actual ISS cargo services for the direct 
benefit of NASA were awarded as FAR-based fixed price contracts. Future 
competitions for both crew and cargo servicing will be awarded using 
competitive FAR-based contracts.

    Question 11. NASA officials and the Director of OSTP continue to 
state that the use of commercial services for crew and cargo transport 
to low Earth orbit will free up more resources for exploration beyond 
LEO. However, NASA continues to press for additional funding for 
commercial crew development, while reducing funding for SLS and Orion. 
Can you explain this contradiction between NASA officials' public 
statements and their funding requests?
    Answer. NASA is committed to operating and utilizing the 
International Space Station (ISS) and preparing for the next crewed 
missions of exploration beyond low Earth orbit (LEO). Now that the 
Space Shuttle has been retired, it is important to provide funding for 
the development of commercial crew systems that will enable the U.S. to 
resume flying its astronauts to the ISS on American-made vehicles as 
soon as possible. Once developed, these vehicles will allow NASA to 
spend less on LEO crew transportation through the purchase of domestic 
services than would be the case if the Agency had to build, operate, 
and maintain its own spacecraft for this purpose. This in turn enables 
NASA to focus more of its resources on the development and operation of 
launch vehicles and spacecraft for beyond LEO missions. If commercial 
crew or cargo were acquired in a typical cost-plus procurement manner, 
the cost would likely be higher than the current program. This new 
approach is providing cost avoidance.
Commercial Crew Development Program
    Question 12. Under the new agreement for a limited number of 
commercial partners under Space Act Agreements, how will NASA ensure 
that its safety standards and human rating requirements will be met by 
the vehicles being developed?
    Answer. NASA cannot impose requirements or standards on commercial 
companies via Space Act Agreements. However, NASA can terminate a Space 
Act Agreement if it determines that a commercial company's planned 
performance of an activity under that Agreement presents an 
unacceptable risk to human life. A clause to this effect is included in 
the CCiCap Space Act Agreements (SAAs).
    In the case of the future Commercial Crew contracts for missions to 
the ISS, separate from the CCiCap activities, crew safety standards and 
human rating requirements will be applied and verified via FAR-based 
certification contracts. Thus, providers who wish to provide ISS crew 
transportation services in the future are incentivized to take NASA's 
human rating standards into account as they develop their vehicles.

    Question 13. What is NASA's authority to oversee crew safety under 
NASA's use of Space Act Agreements (SAAs)?
    Answer. Please see response to question 12, above.

    Question 14. Please explain how NASA can ensure crew safety without 
contractual requirements.
    Answer. Please see the response to 12. Furthermore, NASA intends to 
use FAR-based contracts for system certification and for flights 
involving NASA crew, so NASA's requirements and standards will be 
imposed.

    Question 15. Who within NASA will certify that the commercial crew 
launches are ``go for launch''?
    Answer. For commercial crew launches, the commercial company, in 
coordination with the FAA, will be responsible for determining that 
they are ``go for launch.'' NASA will not be certifying such flights 
for launch. NASA crew flights will only be performed under contracts, 
not Space Act agreements. The contracts will include terms to ensure 
crew safety. NASA intends that the FAA will license those flights for 
public safety.
    NASA has not yet determined the details of how the flight readiness 
and mission management processes will be performed. At a minimum, NASA 
will have responsibility to certify that the NASA crew members are ``go 
for flight.'' Furthermore, NASA will be responsible for verifying that 
a commercial company's transportation system fully meets NASA's human 
rating requirements prior to any launch involving NASA crew.

    Question 16. Are you considering the use of additional activities 
to ensure these vehicles can be certified for operational use, and to 
avoid the possibility of additional time and money being needed to 
bring them into compliance after this current development phase is 
finished?
    Answer. Yes, NASA is developing a comprehensive strategy for 
certifying commercial crew transportation systems to NASA requirements, 
which will include methods of mitigating the risks that companies' 
designs will require costly modifications down the road to receive 
operational certification. NASA communicated this strategy to Congress 
before the CCiCap agreements were awarded.

    Question 17. The track record for Commercial Cargo development is 
poor regarding proposed vs. actual schedules. For example, SpaceX's 
original Demo 1 flight date was in September, 2008, but the actual 
flight was in December 2010; SpaceX's original Demo 2 flight date was 
June 2009, and as we all know now they flew just last month; and 
finally Orbital's original Demo 1 flight date was in December 2010, but 
the Current Plan is later this year. And Commercial Cargo is much 
simpler than Commercial Crew. What is your level of confidence in the 
Commercial Crew offerors making the promised readiness dates?
    Answer. NASA is confident that if Congress funds the program to the 
level requested in the FY 2013 President's Budget that commercial crew 
transportation will be available by the end of calendar year 2017. The 
commercial participants have stated that they could make services 
available before 2017.

    Question 18. NASA has said that both commercial crew and 
exploration launches will use the same safety and human rating 
requirements, in particular ``emergency egress'' among those that will 
drive significant costs. Were these particular (and overall) 
requirements used and accounted for in all cost analyses to date?
    Answer. Yes, NASA's cost estimates incorporate certification costs 
associated with meeting NASA's crew transportation certification 
requirements. NASA's understanding of these costs continues to mature 
as better data becomes available.

    Question 19. Is it true that the requirements for emergency crew 
return would preclude any vehicle from delivering crew members to the 
space station and then departing for a secondary destination?
    Answer. NASA's requirements for ISS Crew transportation services, 
which are reference for CCiCap and will be mandated on future 
commercial crew contracts, include a capability for the CTS to remain 
docked to the ISS for up to 210 days to provide assured crew return for 
four NASA crew members. The ISS requires continuous presence of crew 
return spacecraft. However, these requirements do not preclude a 
vehicle from delivering crew members to the ISS and then departing, as 
long as there were sufficient crew return spacecraft at the ISS to 
enable full crew return.
INKSNA -Iran, North Korea and Syria Non-proliferation Act
    Question 20. Can you tell us the key reasons why the exception in 
the Iran, North Korea, Syria Non-Proliferation Act should be extended 
to enable us to purchase Russian goods and services for spaceflight?
    Answer. Without further modification, INKSNA would have severely 
limited the U.S. from sustaining and fully utilizing the ISS and from 
pursuing a robust human exploration strategy that includes Russian 
capabilities. The Congress provided NASA with relief from INKSNA in the 
recently passed Space Exploration Sustainability Act.

    Question 21. What are the risks to the International Space Station 
if the ISS INKSNA exception is not extended?
    Answer. See answer to question 20 above.

    Question 22. NASA has testified that INKSNA waiver language is 
needed whether we continue to buy Soyuz seats or not. Do you know what 
the current plan and status is for bringing proposed INKSNA language to 
the Congress from the Administration?
    Answer. NASA is very grateful that Congress has passed H.R. 6586, 
the Space Exploration Sustainability Act, which extends the INKSNA 
exemption by 4 years and removes restrictions on non-ISS, human space 
flight-related activities. The relief provided in this legislation 
meets the Agency's need, and was the product of very hard work in both 
the House and the Senate, for which NASA is profoundly thankful.
ITAR Reform
    Question 23. There appears to be some movement recently in 
discussions regarding the ITAR reform process. Do you know if there is 
a plan for bringing a package of reforms to the Congress that would 
allow our aerospace industry to be truly competitive in the world 
market?
    Answer. NASA has been supporting the Administration's efforts to 
reform the U.S. export control program and to revise the export control 
lists. Thus far, the Departments of State and Commerce have published 
proposed rules for nine of 19 categories of the United States Munitions 
List (USML) administered by the State Department. The State Department-
proposed rules set forth what would remain in a given USML category, 
while the companion Commerce Department-proposed rules map out what 
would be moved from the USML. The Departments of Commerce, Defense, and 
State can provide more information on this effort.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John Boozman to 
                        William H. Gerstenmaier
    Question 1. NASA's budget documents indicate that in the transition 
from the Space Act Agreement phase to a certification phase, NASA will 
have to ``accommodate redesign as necessary to ensure compliance with 
agency requirements.'' What is NASA doing to minimize the need to 
significantly redesign commercial partners' crew systems to ensure they 
meet agency requirements?
    Answer. NASA baselined and released the future certification 
requirements for industry to begin using as reference to mature their 
designs. All partners have access to the requirements and standards 
NASA will use for the future contracts for ISS.
    For commercial crew services, crew safety standards and human 
rating requirements will be applied and verified via FAR-based 
certification contracts. Thus, providers who wish to provide ISS crew 
transportation services in the future are incentivized to take NASA's 
requirements into account as they develop their vehicles reducing the 
likelihood of significant redesign.

    Question 2. Does NASA have an estimate as to how much it might cost 
to ensure compliance?
    Answer. Please see response to #1, above. Costs associated with 
redesign due to non-compliance will be partner-specific and NASA's 
understanding of these costs continues to mature as better data becomes 
available.

    Question 3. Do the savings presented by using a Space Act Agreement 
outweigh the lack of insight and oversight provided by a Space Act 
Agreement?
    Answer. Collaboration with industry in the early stages via Space 
Act Agreements allowed the Government and industry to mutually leverage 
each others' investments. As the program moves further into the 
development phase, NASA plans to use a Federal Acquisition Regulation 
(FAR)-based contract for certification of commercial systems prior to 
flying crew on these systems. The Agency intends to structure the 
certification effort to permit the Agency to fully evaluate the 
proposed systems and accommodate any necessary redesign to ensure 
compliance with NASA safety, performance, and mission success 
requirements. The provider(s) awarded a certification contract will not 
only be required to meet the NASA requirements in order to fly NASA 
personnel, but they will also have to show verified compliance of how 
the design and hardware will meet these requirements. The use of Space 
Act Agreements to support commercial development does not change the 
need to fully review and certify any system selected to transport NASA 
crew. NASA believes the combination of both FAR-based contracts and 
SAAs throughout various elements of the programs strikes an appropriate 
balance of cost effectiveness and insight and oversight.

    Question 4. Is NASA comfortable that the level of insight and 
oversight during this critical phase of development is sufficient to 
provide the government with sufficient information to eventually 
certify a vehicle and ensure obtaining the best price possible when 
buying commercial crew services?
    Answer. Please see response to #1, above, regarding vehicle 
certification. NASA has made awards to three companies in the latest 
phase of SAAs (CCiCap). The Agency believes the competitive environment 
provides strong incentive for the companies to align with NASA's 
certification requirements in order to remain competitive in the future 
certification and services phases. Having multiple companies competing 
against each other will help ensure the best price possible for the 
Government and will help enable voluntary adherence to safety 
requirements.

    Question 5. Recently, the FAA and NASA signed an agreement to 
coordinate standards for commercial space travel of government and non-
government astronauts to and from low-Earth orbit and the ISS. Can you 
please describe this agreement and responsibilities from the NASA point 
of view? Can you assure me that NASA will retain the ability to ensure 
that commercial crew carriers meet the same safety requirements that 
our other human spacecraft meet?
    Answer. The nature of the Federal Aviation Administration's (FAA) 
involvement in NASA's commercial crew activities will vary through the 
development and operation of each potential flight system. NASA will 
establish initial certification and operations requirements for the 
services it wishes to acquire from commercial providers and impose its 
requirements by contract. NASA will partner with the FAA to advance 
both public safety and protection of crews and spaceflight participants 
for the NASA-sponsored missions. NASA and the FAA will work towards 
minimizing the duplication of requirements and developing a streamlined 
process.
    This will be accomplished by clearly defining roles and 
responsibilities of each Agency, sharing relevant data, and jointly 
performing assessments to enable the commercial partner to be 
successful in support of NASA-sponsored missions and non-NASA 
commercial human spaceflight missions. In support of this, NASA and the 
FAA recently signed a Memorandum of Understanding (MOU) to support the 
transition to commercial transport of government and non-government 
persons to LEO in a manner that avoids conflicting requirements and 
multiple sets of standards. In developing these standards, the parties 
will exchange knowledge and best practices in the various disciplines 
of space flight, including safety.

    Question 6. As you know, the long term goal of U.S. human space 
flight and exploration efforts is to expand permanent human presence 
beyond low-Earth orbit. But in order to do so, the United States must 
have assured access to the ISS for our astronauts and must design and 
build the new rockets to take us beyond low-Earth orbit: the Space 
Launch System and Orion crew capsule. The government must work in 
cooperation with the U.S. commercial sector in order to accomplish 
these objectives. Space, however, is an unforgiving environment, 
resulting in unusually hazardous risks, which can be a deterrent to 
commercial sector participation. It has been the U.S. policy since at 
least 1958 to provide its private sector contractors some assurance 
that engaging with the government in such unusually hazardous 
activities will not put their business at total risk should there be a 
catastrophic failure resulting in damages to third parties through use 
of an indemnification regime.
    The Commercial Space Launch Act authorizes the FAA to license 
launch and reentry activities other than those activities the 
Government carries out for the Government. Who has the responsibility 
to determine when activities under NASA contracts are Government 
activities carried out for the Government?
    Answer. NASA has the responsibility to determine when activities 
under NASA contracts are Government activities carried out for the 
Government. NASA decides whether any particular launch is a government 
launch (where it substantially directs or controls the launch) or a 
commercial launch depending on the needs of the program. As part of the 
program formulation and acquisition processes, the roles for NASA and 
the contractor, including the roles related to the conduct of launch 
are established based on the best interests of the Government and the 
public, consistent with law and policy. As an example of this 
decisionmaking process, NASA recently determined that all launches 
supporting ISS crew transportation services will be commercial, thus 
licensed by the FAA. NASA and FAA entered into an MOU for Achievement 
of Mutual Goals in Human Space Transportation on June 4, 2012, to among 
other things, work together to reach a common understanding and 
approach for meeting that objective.
    As noted, the Commercial Space Launch Act, provides the Secretary 
of Transportation (acting by delegation through the FAA Office of 
Commercial Space Transportation) authority to license and permit 
commercial launches and reentries. The Secretary's authority does not 
apply to ``(1) a launch, reentry, operation of a launch vehicle or 
reentry vehicle, operation of a launch site or reentry site, or other 
space activity the Government carries out for the Government . . .'' 51 
U.S.C. 50919(g). Therefore, launch and reentry activities that are not 
commercial (carried out by NASA for the Government) are not licensed by 
the FAA.
    NASA has the responsibility as part of its program formulation and 
acquisition processes to determine whether activities under NASA 
contracts retain for the Government NASA direction and control, and are 
thus Government activities carried out for the Government or are 
commercial launches.

    Question 7. NASA had used authority under Public Law 85-804 to 
provide third-party indemnification assurances for Shuttle launches. 
What authority does NASA intend to use for SLS and Orion launches? Or 
for future science payload launches under the Launch Services Program, 
for example?
    Answer. NASA was able to provide indemnification to its Shuttle 
contractors under P.L. 85-804 (50 U.S.C. Sec. Sec. 1431-1435) for 
claims for unusually hazardous risks because NASA was able to make the 
determination that doing so facilitated the national defense. Recall 
that the DoD was a user of the Shuttle.
    Similarly, in order for NASA to be able to utilize the authority of 
P.L 85-804 for other launch programs such as NASA Launch Services 
(NLS), Space Launch System (SLS), and the Multipurpose Crew Vehicle, 
(MPCV or Orion), the Agency would have to demonstrate a nexus between 
the commercial contract requirements and facilitating the national 
defense. Otherwise, NASA has no authority to provide P.L. 85-804 
indemnification to its contractors even for activities that are 
unusually hazardous.
    Under the NLS contract, NASA utilizes its meritorious tort claim 
authority (51 U.S.C. Sec. 20113(m)). It is not an indemnification 
authority. It covers third-party claims against the contractor arising 
from performance of the contract, but NASA may only pay claims up to 
$25,000 (above any claims covered by insurance). Claims in excess of 
$25,000 would be forwarded by NASA to the Treasury for consideration of 
payment from the judgment fund under 31 U.S.C. Sec. 1304. NASA may 
certify such claims to facilitate payment from the judgment fund.
    At this time, NASA has not determined whether any indemnification 
protection would be available to the SLS and Orion contractors. 
However, the Agency's meritorious tort claim authority may be provided 
to them. Likewise, future science payloads under the NLS contact may be 
protected through the Agency's meritorious tort claim authority, as is 
currently available under NASA's NLS contract with its launch service 
providers.

    Question 8. In the past, budget estimates were requested for the 
life cycle costs to develop the commercial crew vehicle. Can you share 
this information now, based on the risk/cost/safety trades NASA is 
currently making? What are the key risks for the safety of commercial 
crew?
    Answer. NASA has recently collected detailed technical information 
from our CCiCAP partners for projected cost/schedule requirement to 
complete development and achieve a crewed flight demonstration. NASA 
will use this information as input to cost and schedule models to 
support an independent cost assessment, develop a more rigorous project 
plan, and inform updates of NASA's budget estimates for the 
certification phase 2 as part of the FY 2014 budget request. Each 
partner concept has its own unique risks and they are tracked by the 
companies, with NASA insight.

    Question 9. While U.S. cooperative programs with Russia were 
expanding in the 1990s, including Russia joining the space station 
international partnership in 1993, it also became clear that Russia was 
a source of sensitive technology to Iran. The Iran Nonproliferation Act 
of 2000 was enacted to help stop foreign transfers to Iran of weapons 
of mass destruction, missile technology, and advanced conventional 
weapons technology, particularly from Russia.
    Among other things, that Act banned cash or ``in kind'' payments by 
any agency of the U.S. Government to Russian Government agencies or to 
any entity under their jurisdiction or control for work on the 
International Space Station or for obtaining goods and services 
relating to human spaceflight. This provision has raised difficulties 
regarding U.S. access to the International Space Station. When the 
President in 2004 announced that the Space Shuttle would be retired in 
2010, the Russian Soyuz became the only vehicle available after that 
date to transport astronauts to and from the ISS. In 2005 Congress 
amended INA to exempt Soyuz flights to the ISS from the ban through 
2011 and in 2008 the exception was further extended through June 30, 
2016. Is a further extension necessary? If so, why?
    Answer. Without further modification, INKSNA would have severely 
limited the U.S. from sustaining and fully utilizing the ISS and from 
pursuing a robust human exploration strategy that includes Russian 
capabilities. The Congress provided NASA with relief from INKSNA in the 
recently passed Space Exploration Sustainability Act.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Bill Nelson to 
                         Colonel Pamela Melroy
FAA Regulatory Authority
    Question 1. If the moratorium on regulation expired today--what 
would be the FAA's process and time-frame for developing and 
implementing regulations? Do you see benefits in starting this process 
as soon as possible?
    Answer. Rulemakings on complex technical subjects often involve 
substantial preparation that includes studying an issue and consulting 
with stakeholders before proposed regulations can be drafted. The FAA 
is currently in this period. The impact of the moratorium on this phase 
is that draft regulations may not be issued for public review and 
discussion, only general issues. The benefit of starting the rulemaking 
process as soon as possible would be that more substantive discussions 
could be made in the near term. This would provide stakeholders the 
opportunity to comment and provide feedback on the most relevant issues 
that require the FAA's fullest consideration up until the appropriate 
time to issue regulations arrives. If the moratorium expired today, our 
``best case'' estimate is that a final rule could be issued in mid-
2016. This would include submitting the project to the FAA Office of 
Rulemaking for review at the end of 2012, following the standard 
process timeline, and publishing proposed rules for comment in late 
summer 2014. This is the normal timeline; complex rules generally take 
more time, and the FAA believes that 4 to 5 years is more realistic.
    Under current law, with the moratorium set to expire on October 1, 
2015, we estimate that following the standard rulemaking process, a 
final rule could potentially be in place March 2019. Realistically, we 
expect that it is most likely the final rule would be published in 
2020.

    Question 2. Would you agree that regulations necessarily inhibit 
innovation, or could they provide a more certain environment in which 
commercial companies can innovate?
    Answer. I disagree that regulations always inhibit innovation. When 
the appropriate time comes to regulate, I believe well-written, 
performance-based regulations would provide a valuable ``checklist'' to 
industry regarding what safety precautions to consider, assure 
investors and insurers that safety is being addressed, and allow great 
flexibility in technology solutions. Thoughtful, quality regulations 
can elevate the safety of an industry while still allowing innovation.

    Question 3. The FAA has no authority to regulate on-orbit 
activities, including commercial satellites, and in the future, crewed 
spacecraft. In fact, the FCC has more authority to regulate on-orbit 
activities than the FAA.
    Ms. Melroy, what are some of the risks and consequences of not 
having any regulations, besides those of the FCC, for on-orbit 
activities of commercial spacecraft?
    Answer. As the industry evolves, and the government's reliance on 
commercial vehicles changes, private U.S. operators of transport 
spacecraft could operate outside international orbital debris 
mitigation norms, and thereby unnecessarily threaten the long term 
sustainability of space. The orbital debris environment continues to 
worsen and there is much international activity directed at ensuring 
the long term sustainability of space. It is essential that all 
government and private operators of spacecraft follow common sense 
debris mitigation measures. The government only oversees a portion of 
private spacecraft operators with regard to collision avoidance and 
orbital debris mitigation--the FCC and NOAA regulate communications and 
remote sensing spacecraft, respectively. The operation in orbit of 
transport spacecraft is not regulated.
    For manned vehicles, many hazards exist for occupants of spacecraft 
on-orbit. Having no regulatory authority over the on-orbit phase of 
flight could increase the risk of those occupants for a significant 
portion of the mission.

    Question 3a. Are there some clear areas--perhaps orbital debris 
mitigation--where an appropriate level of regulation could be helpful 
to your industry?
    Answer. Yes. Some members of industry and the insurance community 
have told us that single, clear regulatory oversight of collision 
avoidance, orbital debris mitigation, and the protection of humans on 
board spacecraft are areas where balanced, well-crafted regulations and 
safety oversight could provide business certainty and reassure 
investors and insurers who do not have expertise in the area of space 
transportation that adequate safety oversight exists.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                         Colonel Pamela Melroy
Regulation of Commercial Spaceflight
    Question 1. As you indicate in your statement, an important part of 
your and the FAA's responsibility is observing and accumulating data on 
the various vehicle development and testing activities. What is FAA 
able to do to prepare for eventual regulation of on-orbit activities 
during the ``moratorium'' ending in 2015?
    Answer. The FAA is making good progress in preparing for the 
challenge of regulating occupant safety of commercial human space 
transportation after the moratorium ends in 2015. We have assembled a 
team to define the approach and do the groundwork for this regulatory 
framework. The team's activities include:

   Studying other human safety requirements such as the NASA 
        Commercial Crew Program requirements, aviation safety 
        regulations, and various human rating studies.

   Identifying and documenting ground rules and assumptions to 
        ensure we are focusing on known, reasonably avoidable risks and 
        realistic operations in the near term.

   Soliciting industry input on a variety of technical topics 
        through our Commercial Space Transportation Advisory Committee, 
        COMSTAC.

   Studying the current industry designs of human spacecraft to 
        understand the different ways current commercial providers are 
        thinking about addressing occupant safety.

   Identifying best practices and lessons learned for the use 
        of standards and guidance documents from other regulatory 
        organizations and NASA.

    With regards to any eventual private commercial human space 
transportation that would occur in Earth's orbit, neither the FAA, nor 
any other Federal agency, has the authority to issue regulations that I 
believe may eventually be necessary to fully protect these occupants 
against known hazards. We are, and will continue to be focused on 
understanding orbital transportation safety issues and other issues 
such as orbital debris caused by launch and reentry. We will also 
collaborate with our colleagues at NASA, NOAA, the Department of 
Defense, and other agencies as appropriate.

    Question 2. Can you suggest any needed legislative language to 
enable your ability to carry out those activities in anticipation of 
your eventual authority to develop a regulatory regime for commercial 
spaceflight?
    Answer. The FAA will continue to work within its regulatory 
authority in anticipation of a regulatory regime for commercial 
spaceflight. At this time, we are engaging in general conversations 
with stakeholders. However, absent certain circumstances, the FAA may 
not issue draft regulations for public review and discussion before 
October 1, 2015. Our ability to propose rules will impact stakeholders' 
ability to provide comment and input for the consideration of the FAA 
on issues more relevant to what might exist down the road as 
regulations.
    With regard to orbital activities, as the industry evolves, and the 
government's reliance on commercial vehicles changes, it may be 
necessary to revisit some of the statutes and regulations that govern 
commercial space transportation. Specifically, the FAA's statutory 
authority may require expansion and adjustments to definitions to 
ensure public safety. For example, there may be a need for greater 
regulatory authority in the areas of transportation on orbit as well as 
launch and reentry.

    Question 3. Currently there is no regulatory authority for the on-
orbit activities of commercial space vehicles. What are your views as 
to when the appropriate time would be to consider legislation that 
would enable that kind of authority? Do you have an opinion as to who 
should or shouldn't regulate this regime?
    Answer. In 1984, Executive Order 12465 designated the Department of 
Transportation as the lead Federal agency for encouraging and 
facilitating the commercial space transportation activities occurring 
at that time. Since then, the Department's role has been supported by 
Congressional action with Congress giving the Secretary of 
Transportation, acting by and through the FAA Office of Commercial 
Space Transportation, authority over launch and reentry. The regulation 
of launch and reentry includes transportation issues that may occur in 
Earth's orbit at the end of launch and at the beginning of reentry. At 
this time, the operation in orbit of commercial transport spacecraft is 
not regulated.
    Earlier this year, prior to the FAA reauthorization, the 
Administration endorsed the concept of giving the FAA safety oversight 
of commercial on-orbit transportation. As mentioned in my previous 
response, as the industry evolves, and the government's reliance on 
commercial vehicles changes, it may be necessary to revisit some of the 
statutes and regulations that govern commercial space transportation. I 
believe the U.S. commercial space industry will continue to achieve new 
milestones. In addition to the SpaceX's Dragon servicing of the ISS 
last June, companies may soon be transporting participants to 
commercial orbital facilities like those being developed by Bigelow 
Aerospace. On behalf of the FAA Office of Commercial Space 
Transportation, we look forward to working with the interagency 
community and Congress as the industry matures and evolves.

    Question 4. As a former shuttle commander--and the second woman to 
command a space shuttle--what can you share from your personal vantage 
point about the current commercial crew development efforts? Do you 
have a sense they are being undertaken in a way that will ensure the 
maximum safety and efficiency of operations?
    Answer. Personally, I am pleased to see many of my colleagues who 
have joined the commercial providers to advise them regarding safety 
requirements and I believe they are keeping the lessons learned from 
human space flight firmly in mind. I believe that the commercial 
providers are attempting to find the best balance between mission 
capability, cost-efficiency, and safety. The FAA and NASA have been 
working for the past several years in a partnership arrangement toward 
ensuring commercially-developed human-rated systems for low-Earth orbit 
are safe and effective. Leveraging the previous launch and mission 
experience from these two agencies ensures the maximum safety and 
efficiency of operations for these commercial human space flight 
missions.

    Question 5. Does FAA have the resources and tools it needs to 
regulate and license commercial space launches and re-entries? On orbit 
activities?
    Answer. The FY 2013 President's Budget Request represents the best 
prioritization and allocation of U.S. Government resources, given the 
challenges and opportunities facing our Nation. The FAA team is working 
with intensity and efficiency to manage a growing level of activity, 
much of which is expected to result in a significant increase in the 
number of commercial launches. FAA's dedicated professional staff must 
have the time and tools necessary to carry out vital functions. 
Particularly significant is our finding that Field Offices are critical 
both to our understanding of transportation operations and to enhancing 
our key relationships with other U.S. Government entities, such as NASA 
and the Air Force. The field is where it's happening, and the FAA must 
be there to provide operational safety oversight, speed up 
communications and efficiency, and strengthen partnerships with the 
many stakeholders in commercial space operations. To address this 
urgent need, we are moving headquarters staff to field assignments, 
recruiting new field personnel, and adding contractor support where 
appropriate to maximize efficiency.
    While the FAA has authority over launch and reentry, the FAA does 
not have authority to regulate the operation in orbit of commercial 
transport spacecraft. As mentioned previously, as the industry evolves, 
there may be a need to consider expanding or modifying the FAA's 
statutory authority to ensure safety in the areas of transportation on-
orbit as well as launch and reentry.
    We look to the continued support of the public and of Congress as 
we move forward in carrying out our mission to encourage, facilitate, 
and promote commercial space launches by the private sector while 
protecting the public safety, national security, and foreign policy 
interests of the United States.

    Question 6. Are you concerned about conflict of interest at FAA 
between safety and promotion and if so what should be done about it?
    Answer. We respect the wisdom of Congress in directing the 
Secretary of Transportation, and through subsequent delegation, the FAA 
Office of Commercial Space Transportation (AST), to have regulatory 
oversight of the public safety for commercial launch and reentry and to 
``encourage, facilitate, and promote'' the commercial space 
transportation industry. To simplify, we will refer to these latter 
roles as ``promotion.'' The safety and promotional roles of the FAA are 
essential, and reinforce each other. One of the most important means of 
promoting the growth of any industry is to provide assurance of safety, 
at levels appropriate for that particular industry's phase of 
development. Furthermore, the FAA's promotional role is needed to 
encourage economic growth in an industry sector facing unique 
technical, policy, and economic challenges. As Congress has recognized, 
promoting the U.S. commercial space launch industry contributes to U.S. 
aerospace preeminence. Further, a U.S. commercial space launch industry 
is essential to assure access to space for Government and commercial 
users.
    At this time, access to and activity in the space environment are 
physically difficult, and opportunities involving space are still not 
well understood in the business community. Promotional activities 
include education, technical research, market studies, facilitation of 
industry dialogue, and outreach to enhance public awareness. The FAA 
Center of Excellence for Commercial Space Transportation (COE-CST) is 
an excellent example of the FAA's vital promotional role. The COE-CST 
represents an expansion of a highly successful FAA network of COEs in 
non-space fields, focused on key aviation technology and safety issues. 
Each COE involves a partnership between the FAA and major universities 
to carry on research vital to improvement and growth of transportation 
services. There is a one-to-one match of Federal and university-team 
resources to fund the COEs. University-led teams arrange the 
participation of industry as well as non-Federal Government entities. 
Both financial and in-kind contributions help university teams satisfy 
their requirement for matching funds. For the COE-CST specifically, 
research initiatives are divided into four categories: (1) space 
traffic management and operations, (2) space transportation operations, 
technologies, and payloads, (3) human spaceflight, and (4) space 
transportation industry viability.
    The investment community, insurance firms, legal establishment--and 
most of all, potential customers--are reassured when Government 
provides promotional initiatives to highlight unfamiliar opportunities, 
coupled with appropriate safety regulations to reduce risk. When the 
United States desperately needs new job creation, we should not deprive 
the marketplace of vital promotional and regulatory support.
    Although the FAA's promotional and regulatory roles are mutually 
supportive, we do recognize the need for these functions to be kept 
independent of specific promotional activities. Accordingly, AST's 
licensing and inspection teams operate separately from the other units 
of AST. By maintaining a sound safety decisionmaking process, embracing 
a strong safety culture, and remaining vigilant to potential safety 
concerns, the FAA effectively satisfies both the public's need for 
safety and our Nation's need for a growing commercial space 
transportation industry.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John Boozman to 
                         Colonel Pamela Melroy
Federal Aviation Administration
    Question 1. By law, the FAA may not propose regulations for 
occupant safety until October 2015. In your testimony you state that 
you anticipate that occupant safety regulations will be a major 
undertaking, and will require a comprehensive regulatory framework to 
eventually be proposed through a suite of rulemaking activities. Can 
you describe your efforts in this regard? And how you see the roles of 
FAA and NASA regarding public safety and mission assurance?
    Answer. The FAA is making good progress in preparing ourselves for 
the challenge of regulating occupant safety of commercial human space 
transportation after the moratorium ends in 2015. We have assembled a 
team to define the approach and do the groundwork for this regulatory 
framework. The team's activities include:

   Studying other human safety requirements such as the NASA 
        Commercial Crew Program requirements, aviation safety 
        regulations, and various human rating studies.

   Identifying and documenting ground rules and assumptions to 
        ensure we are focusing on known, reasonably avoidable risks and 
        realistic operations in the near term.

   Soliciting industry input on a variety of technical topics 
        through our Commercial Space Transportation Advisory Committee, 
        COMSTAC.

   Studying the current industry designs of human spacecraft to 
        understand the different ways current commercial providers are 
        thinking about addressing occupant safety.

   Identifying best practices and lessons learned for the use 
        of standards and guidance documents from other regulatory 
        organizations and NASA.

    Regarding our roles, the FAA is currently responsible for public 
safety for commercial launches and reentries. NASA is responsible for 
all aspects of safety--public and crew--and mission assurance for its 
government-owned and operated space vehicles such as the International 
Space Station (ISS) and Orion Multi-Purpose Crew Vehicle. For 
commercial crew services to and from the ISS, NASA and the FAA have 
agreed that the FAA will oversee public safety through its regulations 
and NASA will oversee mission assurance and crew safety through its 
contracts.

    Question 2. You also state that the FAA is funding a study, to be 
released this summer, to evaluate the potential growth in commercial 
suborbital activity. What prompted this study?
    Answer. The commercial suborbital reusable vehicle (SRV) industry 
represents an important new economic sector in its own right, as well 
as a potential source of near-term revenue helping developers pursue 
longer-term orbital system design. Given the relative novelty of 
commercial SRVs, and the widespread uncertainty regarding potential 
customer demand for such services, the FAA Office of Commercial Space 
Transportation (AST) commissioned a market demand study to be carried 
out by a highly respected market research firm, The Tauri Group. AST 
collaborated with Space Florida to fund this effort and the study was 
released on July 31, 2012.
    One of the hallmarks of this market research initiative was open 
and continuing communication with stakeholder groups, both within and 
outside the suborbital vehicle development community. Extensive contact 
with potential customer groups yielded valuable information concerning 
the course that market expansion might take. And, although human 
spaceflight services were considered a very important source of market 
demand, it was important to have the study address several other market 
areas as well (e.g., test/demonstration, scientific research). By 
appropriately characterizing market scope, as well as intensively 
interacting with both prospective providers and potential customers, 
the study promises to make a significant contribution to better 
understanding space-related business opportunities.

    Question 3. Recently, the FAA and NASA signed an agreement to 
coordinate standards for commercial space travel of government and non-
government astronauts to and from low-Earth orbit and the ISS. Can you 
please describe this agreement and responsibilities from the FAA point 
of view? Can you assure me that FAA will insist that commercial crew 
carriers meet the same safety requirements that our other human 
spacecraft meet?
    Answer. The FAA and NASA have complementary and interdependent 
interests in ensuring commercially-developed human-rated systems for 
low-Earth orbit are safe and effective. Our agencies have been working 
in a partnership arrangement in achieving our common interests for the 
past several years and recently signed a Memorandum of Understanding 
for the Achievement of Mutual Goals in Human Space Transportation. 
Through this agreement our agencies commit to support the transition to 
commercial transport of Government and non-Government participants to 
low-Earth orbit in a manner that precludes conflicting requirements and 
multiple sets of standards. This agreement further states NASA intends 
that all launches supporting ISS crew transportation services will be 
licensed by the FAA for public safety. More specifically, the FAA will 
license for public safety on launch and reentry consistent with our 
authority, and crew safety and mission assurance will remain the 
responsibility of NASA for all phases of flight (launch, on-orbit, and 
reentry).
    The FAA will ensure the commercial crew carriers meet the same 
launch and reentry public safety requirements that other orbital 
missions have previously as the licensing process, applicable 
regulations, and application reviews and assessments are the same. 
Given the moratorium on regulating occupant safety, the FAA may not 
exercise its authority to ensure commercial crew missions meet the same 
occupant safety requirements of other past human space flight missions 
absent certain circumstances including a death, serious injury, or an 
unplanned event that posed a high risk of death or serious injury. To 
date the only U.S. orbital human space flight missions have been 
carried out by NASA. We are, and will continue to be focused, and will 
collaborate with NASA, on understanding orbital transportation safety 
issues. When the time comes to regulate occupant safety, the FAA will 
do so ever mindful of what we have learned from NASA's experience and 
will also draw from our own expertise to best ensure that commercial 
human space flight is safe for occupants and the public alike.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Bill Nelson to 
                      Gerald L. Dillingham, Ph.D.
Indemnification
    Question 1. Dr. Dillingham, would you please compare the impact of 
allowing the current indemnification policy to expire against the risk 
to the government of extending the policy?
    Answer. If the current indemnification policy is extended, the 
Federal Government risks having to pay third-party claims in the event 
of an accident; if the policy is ended, the risk becomes potentially 
damaging the competitiveness of the U.S. commercial space launch 
industry. However, comparing the impact of allowing the current 
indemnification policy to expire against the risk to the government of 
extending the policy is difficult as there are many unknowns regarding 
the actual effects of ending indemnification. Specifically, we do not 
know how ending indemnification would affect commercial space launch 
companies. For example, launch companies' insurance premiums or other 
costs and the availability of coverage might change. In addition, we do 
not know whether or to what extent launch customers might choose 
foreign launch companies over U.S. companies. Furthermore, it is 
difficult to separate out the effects of withdrawing indemnification on 
the overall price competitiveness of the U.S. commercial space launch 
industry as the cost of third party liability insurance for launch 
companies is small--about 1 percent of the dollar amount of coverage 
they purchase. In addition, launch companies with whom we spoke said 
that ending indemnification would increase their potential for 
significant financial losses for third party claims, which could cause 
them to reassess whether the benefits of staying in the launch business 
outweigh the risks.
    Our work also identified other ways of managing catastrophic risk 
in lieu of extending or eliminating indemnification. Although we did 
not conduct specific work to analyze the feasibility of alternative 
approaches for providing coverage currently available through 
indemnification, some of these approaches have been used in areas that 
can result in catastrophic losses such as natural disasters. Some of 
these methods involve the private sector, including going beyond the 
traditional insurance industry, in providing coverage, and include the 
use of catastrophe bonds or tax incentives to insurers to develop 
catastrophe surplus funds. Other methods aid those at risk in setting 
aside funds to cover their own and possibly others' losses, such as 
through self-insurance or risk pools. Still other methods, such as 
those used for flood and terrorism insurance, involve the government in 
either providing subsidized coverage or acting as a backstop to private 
insurers.

    Question 2. If we decide to extend the indemnification policy, what 
future industry conditions would indicate that we can phase it out?
    Answer. The amount of third party liability coverage the insurance 
industry is willing to provide for a single launch would be a key 
factor indicating whether Federal indemnification could be phased out 
because it would determine the extent to which the industry might be 
able to potentially replace coverage available from the Federal 
Government. While the maximum coverage available is currently around 
$500 million, which is above the average FAA insurance requirement of 
around $99 million per launch and the highest requirement for any 
individual launch (around $260 million), this might not always be the 
case. According to some insurers we spoke to, a space launch accident 
with large third-party losses could significantly reduce the amount of 
coverage insurers are willing to provide. Other factors that affect the 
amount of coverage insurers are willing to provide include the number 
of insurers in the space launch market, the size of the premiums 
insurers are able to charge compared to the size of the potential 
losses, and the affordability to launch companies of the higher 
premiums insurers would need to charge for higher coverage amounts.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 
                      Gerald L. Dillingham, Ph.D.
FAA Regulatory Activity
    Question 1. In GAO's opinion, does FAA have the resources and tools 
it needs to oversee commercial space launches and reentries? Eventual 
on-orbit activity?
    Answer. Yes, we believe that FAA currently has the resources and 
tools it needs to oversee commercial space launches and reentries. In 
2006, we raised concerns that FAA's experience in human spaceflight was 
limited because its launch safety oversight had focused primarily on 
unmanned launches of satellites into orbit using expendable launch 
vehicles. Thus, we recommended that FAA assess the levels of expertise 
and resources that will be needed to oversee the safety of the space 
tourism industry and the new spaceports under various scenarios and 
timetables. In response to our recommendations, FAA's Office of 
Commercial Space Transportation hired 12 aerospace engineers. In 
addition, since our report, FAA has established field offices at 
Edwards Air Force Base and NASA's Johnson Space Center in anticipation 
of increased commercial space launches including NASA-procured launches 
to the International Space Station and space tourism flights. 
Nonetheless, it will be important that FAA continue to monitor its 
resources and tools as NASA-procured launches and space tourism flights 
begin. FAA does not have statutory authority to regulate on-orbit 
activities. Decisions the Congress makes about FAA's authority in the 
future, such as whether FAA will license on-orbit activities, could 
affect FAA's workload and need for expertise.

    Question 2. Has GAO found any inherent conflict between FAA's dual 
roles of both promoting and regulating commercial space activity? What, 
if anything, should be done to monitor and evaluate this potential 
conflict?
    Answer. Yes, an inherent conflict exists between FAA's dual roles 
to promote and regulate commercial space activity. However, we found no 
evidence that FAA's promotional activities--such as sponsoring an 
annual industry conference and publishing industry studies--have 
negatively affected its regulatory role. We continue to stand by our 
2010 assessment of the issue and see no need for Congress to step in at 
this time to require a separation of regulatory and promotional 
activities. However, FAA and Congress must remain vigilant that any 
inappropriate relationship between FAA and the industry--which is 
periodically asserted regarding FAA and the airline industry--does not 
occur with the commercial space launch industry. The situation should 
be monitored because potential conflicts may arise as the space tourism 
sector develops.
Risk Indemnification
    Question 3. How important is Federal third-party liability 
indemnification to the growth of the commercial space launch industry?
    Answer. The growth of the U.S. commercial space launch industry 
will, in great part, depend on customer demand for launches carried out 
by U.S. launch companies. Several launch company representatives and 
customers told us that two key factors--launch price and launch vehicle 
reliability--generally determine the competitiveness of launch 
companies. To the extent that potential third-party liability coverage 
provided by the Federal Government helps control or reduce the costs of 
U.S. launch companies, it will be important for the competitiveness and 
growth of the U.S. commercial space launch industry. While the actual 
effects on competition of eliminating indemnification are unknown, 
several launch company representatives said that the lack of government 
indemnification would decrease their global competitiveness by 
increasing launch costs.

    Question 4. What do you believe would be an appropriate period of 
time for an extension of FAA's indemnification authority?
    Answer. While evaluating an appropriate period for an extension of 
the U.S. indemnification program was not part of our work, Congress may 
wish to consider at least two factors in determining a period of time 
for a potential extension. First, a planned increase in the number of 
manned commercial launches--expected to begin in 2017--could have 
implications for the Federal indemnification program that are not yet 
known. Second, if the commercial launch industry found it needs to 
consider private, third-party liability insurance to replace coverage 
currently provided by the government, this change could require a 
significant amount of time to implement.

    Question 5. What did your review find with regards to the need for 
third-party insurance if on-orbit operations are regulated by FAA?
    Answer. Our study found mixed views on the need for third-party 
indemnification for on-orbit activities. FAA licenses commercial 
launches and reentries but does not license on-orbit activities. 
Federal indemnification only applies to FAA-licensed space activities. 
Two launch companies with which we spoke do not believe that FAA needs 
to regulate on-orbit activities or provide Federal indemnification as 
activities between the launch company and the International Space 
Station will be covered by NASA launch contracts. However, one 
insurance company noted that other proposed manned launches--such as an 
on-orbit ``hotel'' that is in development--will not be covered in NASA-
related contracts and will not be covered by any regulatory regime. If 
FAA is granted authority to license on-orbit activities, then Federal 
indemnification would be provided. If this were to occur, the Federal 
Government's potential costs to cover third party claims may increase 
as its exposure to risk increases.

    Question 6. The capacity of the space launch insurance industry was 
cited as a reason for the shared-risk third-party liability provisions 
enacted into law in 1988. Has the insurance industry developed that 
capacity to sustain third-party losses?
    Answer. Some insurers and brokers suggested that the maximum amount 
of private sector third party liability coverage the industry is 
currently willing to provide is generally around $500 million per 
launch. One broker said that no launch company thus far has pursued 
private sector insurance protection above $500 million. Two insurers 
said that there might be slightly more coverage available beyond $500 
million, and one said that up to $1 billion per launch in liability 
coverage might be possible in the private insurance market. According 
to FAA data on commercial launches, the average maximum probable loss 
is about $99 million. As a result, in the absence of Commercial Space 
Launch Act Amendment (CSLAA) of 1988 indemnification, insurers could 
still provide some of the coverage currently available through the 
government under CSLAA. For example, if the maximum probable loss for a 
launch is $100 million and the insurance industry is willing to offer 
up to $500 million in coverage, the private market could potentially 
provide $400 million in additional coverage.

    Question 7. How can Congress determine if the insurance industry's 
capacity for third-party liability can accommodate the anticipated 
changes in and types of commercial space launches?
    Answer. Whether the insurance industry has capacity to provide 
third party liability coverage for future commercial space launches, 
given the anticipated changes in the types of launches, would depend on 
the amount of insurance coverage FAA required for those launches. It is 
not yet clear how such changes might affect FAA's determination of the 
required insurance coverage. However, the amount of such coverage the 
insurance industry is currently willing to provide--around $500 
million--is above the average amount of insurance required by FAA for a 
launch license (around $99 million) and the highest amount currently 
required for a single launch (around $260 million). As a result, even 
if FAA were to double the highest amount of insurance required, the 
insurance industry would currently have the capacity to provide that 
coverage.
Other Questions for GAO
    Question 8. What are some of the key factors that the Congress 
should consider as it deliberates on the reauthorization of the 
Commercial Space Launch Act?
    Answer. The Federal Government's provision of third party liability 
insurance is the only element of the Commercial Space Launch Act 
Amendment (CSLAA) of 1988 indemnification policy that expires this 
year. As Congress deliberates on its reauthorization, there are two key 
factors raised by the planned increase in manned commercial launches. 
First, we have recommended that FAA update how it assesses Federal 
liability. FAA's methodology for determining the maximum probable loss 
for a commercial space launch and reentry, which determines the amount 
of insurance coverage launch companies must buy and the amount above 
which government indemnification begins, is outdated and should be 
reassessed.
    Second, having people on board a space vehicle raises issues of 
informed consent and cross waivers, which could affect third party 
liability and the potential cost to the Federal Government. The CSLAA 
requires passengers and crew on spaceflights to be informed by the 
launch company of the risks involved and to sign a reciprocal waiver of 
claims (also called a cross waiver) with the Federal Government--which 
means that if an accident occurs the party agrees not to seek claims 
against the Federal Government, which would have licensed the launch. 
The CSLAA also requires cross waivers among involved parties in a 
launch except for spaceflight passengers. However, according to 
insurance companies and legal experts that we spoke with, requiring 
cross waivers among crew, the launch company, and other involved 
parties may not minimize potential third party claims as they would not 
place limitations on liability. Without a limitation on liability, 
insurance premiums for third party and other launch insurance coverage 
could increase as the same small number of insurance companies insures 
passengers, crew, launch vehicles, and third parties to a launch. 
Launch and insurance companies believe that a limit or cap on passenger 
liability could decrease uncertainty and, consequently, decrease the 
price of insurance. As a result, according to the Federal Aviation 
Administration, putting a limitation on spaceflight passenger liability 
could foster the development of the commercial space launch industry 
through lower costs for insurance and liability exposure.

    Question 9. How does U.S. involvement in the commercial space 
launch industry differ from foreign government involvement?
    Answer. Our most recent work compared third party liability 
coverage among countries. We found that the United States provides less 
total third party liability coverage than China, France, and Russia, 
according to published reports. Like the United States, each of these 
countries requires launch companies to be responsible for third party 
claims up to a certain amount (called first tier coverage) with 
government coverage provided for claims above that amount. These 
countries each have an indemnification regime in which the government 
states that it will assume a greater share of the risk compared to that 
of the United States because each country has no limit on the amount of 
government indemnification. By comparison, the United States caps 
government indemnification at $1.5 billion, adjusted for inflation, 
beyond the first-tier insurance amount. However, U.S. Government 
coverage, in some cases, begins at a lower level than that of the other 
countries because U.S. coverage begins above the estimated maximum 
probable loss, which averaged about $99 million for active FAA launch 
and reentry licenses as of January 2012 and ranged from about $23 
million to $267 million. The level at which government coverage begins 
for the other three countries ranged from $79 million to $300 million. 
However, for all these governments, including the United States', 
commitments to pay third party claims have never been tested because 
there has not been a third party claim that exceeded a private launch 
company's insurance. In addition, like other countries, the United 
States provides other forms of support for the commercial space launch 
industry, including funds to develop launch vehicles, access to Federal 
launch sites, and launch contracts.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John Boozman to 
                      Gerald L. Dillingham, Ph.D.
    Question 1. Please provide an update on the status of your 
recommendations to the FAA regarding their indemnification processes.
    Answer. We recommended in our July 2012 report on commercial space 
launch indemnification that FAA review and periodically reassess its 
maximum probable loss methodology.\1\ DOT responded that it will 
consider our recommendation.
---------------------------------------------------------------------------
    \1\ GAO, Commercial Space Launches: FAA Should Update How It 
Assesses Federal Liability Risk (Washington, D.C.: July 30, 2012).

    Question 2. Should the Congress extend the indemnification 
authority before GAO's recommendations are implemented?
    Answer. The answer would depend on the importance Congress places 
on the accuracy of FAA's determination of the amount of third party 
liability insurance coverage that launch companies must obtain to 
receive a launch license, as compared to the potential effect of 
waiting to reauthorize the program. A more accurate determination could 
better ensure that the Federal Government's exposure from the program 
is neither overstated nor understated, but several launch companies and 
customers we spoke with said that ending Federal indemnification could 
potentially decrease the competitiveness of U.S. launch companies. 
Congress may also want to consider that it is not yet clear whether an 
improved methodology will increase or decrease FAA's estimates of the 
maximum probable losses associated with FAA licensed launches.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                            Michael N. Gold
Bigelow Inflatable Modules
    Question 1. Can you provide any detail, or at least a general 
description, of the microgravity research capabilities of your 
inflatable modules?
    Answer. As the name indicates, our BA 330 habitats will offer an 
unprecedented 330 cubic meters of internal volume per module to support 
microgravity research, development, and manufacturing. Although a 
single BA 330 can operate as an independent space station, our habitats 
allow for a modular approach, and with several habitats ganged 
together, individual modules could be entirely dedicated to micrograv 
R&D if NASA or any other client (or combination of clients) wishes to 
lease the habitats for such activities. Moreover, as opposed to the 
International Space Station (``ISS'') client astronauts aboard a 
Bigelow station will be able to dedicate all of their time to 
microgravity research and development (or whatever activity they so 
choose) without the burden of station operations and maintenance which 
will be addressed entirely by Bigelow Aerospace (``BA'') personnel. We 
believe that this ability for client astronauts to focus exclusively on 
microgravity R&D will dramatically enhance the quality and utility of 
their work and help to ensure that public and private customers receive 
substantial benefits from their orbital operations.
    In regard to hardware, the BA 330 will offer customers unparalleled 
flexibility in terms of the micrograv R&D environment. Our spacecraft 
have been designed to allow for Bigelow Aerospace to tailor the 
internal architecture to meet clients' needs in ways that might not be 
possible aboard the ISS. We believe that this inherent flexibility will 
be another contributing factor to ensure that clients receive 
substantial value from their micrograv R&D activities.

    Question 2. What are the key differences between the environment 
provided there and that provided by the International Space Station, 
from a scientific research perspective? (e.g., active rack isolation 
capability.)
    Answer. Volume is a key benefit of an expandable habitat 
architecture versus a traditional rigidized metallic structure such as 
the ISS. As mentioned above, with several BA 330s ganged together, 
entire habitats could be exclusively dedicated to microgravity R&D and/
or manufacturing. Additionally, unlike the ISS which is an inherently 
open environment, Bigelow Aerospace will provide sovereign clients with 
the ability to conduct proprietary scientific research. Particularly in 
the extremely competitive pharmaceutical and biotech world, this 
ability to conduct work in a confidential manner will be critical in 
enhancing the value of orbital activities for both countries and 
companies.
    Safety is also a vital issue both for conducting scientific 
research and for overall space station operations. Bigelow Aerospace 
expandable habitats will offer better protection than the ISS from both 
physical debris and radiation. As a matter of fact, the ability of 
expandable habitats to provide enhanced protection from radiation 
during a long duration human mission to Mars is one of the primary 
reasons that NASA initiated the `TransHab' program over 20 years ago.
    Flight frequency and repeatability are also critical needs that the 
micrograv R&D community requires. Particularly for scientific research 
in the pharma/biotech industry, researchers must have the opportunity 
to iterate experiments, just like in a terrestrial laboratory. Of 
course, a key aspect of giving scientists this capability is ensuring 
that costs are sufficiently low to allow for repeated, frequent 
flights, and this is another difference between the ISS and BA 
micrograv capabilities. Assuming safe, reliable, and affordable 
commercial crew transportation comes to fruition, BA expects to be able 
to offer its clients robust access to the microgravity environment at 
costs that are substantially lower than those of the ISS, which will in 
turn support more frequent launches and thereby dramatically improve 
the ability to rapidly iterate experiments bolstering the quality and 
utility of the microgravity R&D conducted aboard BA habitats.
    Additionally, leasing volume and flying astronauts with Bigelow 
Aerospace will be a relatively simple and straightforward process, 
allowing researchers to focus on their work instead of on coping with 
the substantial domestic and international bureaucracy that has grown 
up around the ISS. Finally, the ability to fly a country's or company's 
own personnel to conduct research rather than relying on others will be 
a fundamental difference for scientists between working with Bigelow 
Aerospace and the ISS.

    Question 3. From an orbital mechanics point of view, would it even 
be possible for a commercial crew or cargo vehicle to conduct a mission 
in which it could make two separate ``stops'' in one flight--one to the 
space station and one to a Bigelow module?
    Answer. If a Bigelow station shared a similar orbit, inclination, 
and altitude as the ISS, making separate stops at each space station 
would be theoretically possible and potentially beneficial. Per my 
prepared testimony, the key issue for this or any other crew/cargo 
delivery is cost. If a model is adopted that provides an opportunity 
along the lines of what we see happening with secondary payloads today, 
wherein the launch cost paid by the secondary payload provider is 
relatively minimal, then a spacecraft making more than one stop could 
be attractive. However, if the price paid by the equivalent of a 
secondary payload provider under this scenario becomes too high, then 
the transaction costs and other inherent difficulties of such 
operations lose their value.
Commercial Market
    Question 4. You represent one of the potential customers for 
commercial services, as well as a destination for such services. What 
are your thoughts about the potential growth of a market for these 
systems once they are operational?
    Answer. The potential for growth is limitless. Bigelow Aerospace 
envisions eventually operating not just one, but numerous stations in 
LEO to support burgeoning commercial activities. Per my previous 
testimony, we believe that there will be strong global demand for 
astronautics opportunities and that microgravity research, development, 
and manufacturing has great future potential. However, for this market 
to develop commercial crew systems must not just be operational but 
must be able to offer safe, reliable, and affordable services. If per-
seat prices remain at the current levels that NASA is paying for Soyuz 
it would be extremely difficult if not impossible to close a private 
sector driven business case.

    Question 5. How important is Federal third-party liability 
indemnification to the growth of the commercial space launch industry?
    Answer. Extension of third party liability indemnification is 
absolutely critical to the growth of the commercial space launch 
industry. Without Federal third-party indemnification costs will rise 
and some companies may even drop out of the field entirely. Per 
testimony from the GAO before the House in June, the U.S. already 
provides less third-party liability indemnification coverage for 
commercial space launches than other nations such as France, Russia, 
and China. Even discussing the possibility of abandoning the U.S.'s 
already weak third-party indemnification has negative repercussions and 
allowing the current indemnification regime to expire would represent a 
substantial failure by Congress that could cripple America's commercial 
space launch industry.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John Boozman to 
                            Michael N. Gold
    Question 1. As a representative of a potential user of commercial 
launch services, what is your view of the indemnification authority 
provided to FAA by the CSLA?
    Answer. Extending third-party indemnification is critical to the 
future of the American commercial space launch industry. Per testimony 
from the GAO before the House in June, the U.S. already provides less 
third-party liability indemnification coverage for commercial space 
launches than other nations such as France, Russia, and China. Even 
discussing the possibility of abandoning the U.S.'s already weak third-
party indemnification has negative repercussions and allowing the 
current indemnification regime to expire would represent a substantial 
failure by Congress that could cripple America's commercial space 
launch industry.
    Moreover, in our view, such an extension could and should be 
combined with lifting the FAA-AST's regulatory moratorium. Per my 
testimony, the FAA-AST is the only organization with the proper staff, 
structure and experience to play this regulatory role, and ensconcing 
this authority with the FAA-AST will allow insurers, commercial crew 
providers, and NASA to eliminate potential areas of confusion, as well 
as bolstering Congress's ability to extend the third-party 
indemnification regime with a high degree of confidence.

    Question 2. Indemnification authority expires at the end of this 
year. Should Congress extend it, and if so, how long?
    Answer. Ideally, indemnification should be extended indefinitely. 
Making the indemnification permanent would send a strong message to 
companies, insurers, and global competitors that America is serious 
about regaining its position as the world's commercial space launch 
leader.

    Question 3. What would be the impact if indemnification authority 
was NOT extended?
    Answer. Failure to extend indemnification authority would 
unquestionably result in higher prices and could even force some 
companies out of the crewed commercial space launch field entirely. In 
addition to a broken export control system, failing to extend 
indemnification authority would further aggravate a domestic regulatory 
environment that provides significant advantages to America's European, 
Chinese, and Russian competitors.

    Question 4. In your prepared statement you mention that ISC 
Kosmotras, the joint Russian/Ukrainian launch provider, was able to 
offer a launch for one third the cost of U.S. domestic providers. You 
recommend that this Committee focus on price, so as to deliver at costs 
that allow for development of truly competitive services. Can you 
provide some insight on how we should do that?
    Answer. First and foremost, the Committee should request that the 
GAO confirm NASA's ability to provide mandatory safety requirements 
under a Space Act Agreement (``SAA''). Confirming that such 
requirements may be developed and implemented under the auspices of a 
SAA will help to avoid problems that could result in significant future 
programmatic cost increases. Additionally, hearings should be held on a 
regular basis with the Commercial Crew Integrated Capability 
(``CCiCap'') participants and relevant NASA officials to establish what 
the various spacecraft expenses will be. If astronaut seat costs 
remains in the range of current Soyuz pricing then the Committee should 
investigate why no progress has been made on costs and work with NASA 
and the CCiCap participants to address any issues that would prevent 
the commercial crew program from living up to its promise of providing 
safe, reliable, and affordable transportation to Low Earth Orbit 
(``LEO'').

    Question 5. NASA has expressed a strong desire to keep as many 
competitors in the process as long as possible. It is felt that this 
will continue to drive the ultimate cost down. This is somewhat true as 
long as there are multiple entities working in parallel on this 
development. But the companies have to cover their costs. They have to 
make some profit. In the end, final decisions will have to be made to 
down-select, as NASA has now agreed to do during the CCiCap phase of 
commercial crew development. Eventually, prices for crew transportation 
will depend to some degree on how many competing companies survive. 
That will depend on the market. In your view, will the market support 
more than one commercial provider of crew transportation services?
    Answer. As background, we fully support the agreement that was 
struck between Congressman Wolf and Administrator Bolden to proceed 
with no more than 2.5 CCiCap participants. While NASA may have a strong 
desire to keep as many competitors in the process as long as possible, 
this desire must be subordinated to harsh fiscal realities. In these 
austere financial times, Federal funding has been and will continue to 
be limited. Therefore, NASA must proceed cautiously and husband its 
resources as carefully as possible by only providing CCiCap funding to 
companies that have the greatest chance of successfully fielding safe, 
affordable, and reliable commercial crew transportation systems.
    Ultimately, we believe the market will support more than a single 
commercial crew provider. Our hope is that at least two companies will 
produce operational spacecraft avoiding U.S. public and private 
reliance on a single system. Monopolies result in high prices and 
little to no innovation, and with some of the recent problems 
experienced by the Soyuz, NASA has already become all too familiar with 
the financial and substantive dangers of complete dependence on a 
single spacecraft.
    Combined demand from Bigelow Aerospace and NASA will create 
sufficient demand to support two providers. Moreover, Bigelow 
Aerospace's future plans include launching multiple stations each 
serving distinct customers and orbital market segments. With a growing 
number of destinations in LEO, market opportunities for commercial crew 
systems will increase providing sufficient demand for multiple entrants 
and engendering robust and beneficial competition among such providers.

    Question 6. While U.S. cooperative programs with Russia were 
expanding in the 1990s, including Russia joining the space station 
international partnership in 1993, it also became clear that Russia was 
a source of sensitive technology to Iran. The Iran Nonproliferation Act 
of 2000 was enacted to help stop foreign transfers to Iran of weapons 
of mass destruction, missile technology, and advanced conventional 
weapons technology, particularly from Russia.
    Among other things, that Act banned cash or ``in kind'' payments by 
any agency of the U.S. Government to Russian Government agencies or to 
any entity under their jurisdiction or control for work on the 
International Space Station or for obtaining goods and services 
relating to human spaceflight. This provision has raised difficulties 
regarding U.S. access to the International Space Station. When the 
President in 2004 announced that the Space Shuttle would be retired in 
2010, the Russian Soyuz became the only vehicle available after that 
date to transport astronauts to and from the ISS. In 2005 Congress 
amended INA to exempt Soyuz flights to the ISS from the ban through 
2011 and in 2008 the exception was further extended through June 30, 
2016. In your view, is a further extension necessary?
    Answer. No, a further extension is neither necessary nor desirable. 
While international cooperation in space is commendable, foreign 
dependence is deplorable. Sending American taxpayer dollars and 
astronauts to Russia as our only means of human spaceflight is an 
embarrassment to NASA, the domestic space industry, and the Nation as a 
whole. Over the course of the past twenty years NASA, reacting to the 
leadership (or lack thereof) of past Congresses and Presidential 
Administrations has initiated and subsequently canceled the National 
Aero-Space Plane (X-30), the X-33, VentureStar, the X-34, the X-38, the 
Space Launch Initiative, the Orbital Space Plane, the Crew Exploration 
Vehicle, and the Orion (which has now been revived as the Orion Multi-
Purpose Crew Vehicle). Clearly, the traditional model that is being 
followed via these programs is not working and has resulted in American 
dependence on the Soyuz along with the loss of billions of dollars and 
decades of time. Soyuz represents a crutch that would allow this 
pernicious pattern to continue without serious repercussions. Our 
recommendation is that this crutch be removed in order for the American 
human spaceflight industry to regain the ability to stand on its own 
two feet.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

               Captain Michael Lopez-Alegria, USN (ret.)
Commercial Spaceflight Market
    Question 1. You have made a point in your statement and elsewhere 
that there does not need to be a ``choice'' between the development of 
a commercial space launch capability and the development of the heavy-
lift and Orion crew exploration capability. Can you elaborate on that 
point and about how that perspective can be more broadly shared by 
advocates of both capabilities?
    Answer. The NASA programs that utilize and support the commercial 
spaceflight industry are non-competitive partners to SLS and Orion, 
working toward a common goal of expanding the United States space 
exploration capability. The programs have two different mission 
objectives: NASA's goal when initiating the Commercial Orbital 
Transportation Services (COTS) and Commercial Crew programs was to make 
use of efficient commercial competitions for transportation to low-
Earth orbit and the International Space Station, so that NASA could 
direct its resources and expertise towards exploration beyond. The 
advancement of the commercial spaceflight industry helps reduce the 
cost of access to space, therefore freeing up funds that NASA needs for 
SLS, Orion and the rest of the deep space exploration architecture that 
will use them.

    Question 2. NASA is required by law to use commercial vehicles for 
ISS transportation needs if they are available. Thus, for ISS 
transportation, the Russian Soyuz would not represent a source of 
competition. Do you see any other way in which U.S. commercial 
transportation entities might be in competition with Soyuz? How do you 
view the potential for that kind of competition and its impact on the 
broader commercial market?
    Answer. ISS transportation is not the sole market for commercial 
launch providers. Satellites, scientific research payloads and space 
tourism are all growing markets for commercial companies and are 
markets in which the Soyuz could represent a source of competition. The 
U.S. commercial providers project significant cost savings over the 
Soyuz vehicle for crew transport to ISS, and we believe that commercial 
companies will be extremely competitive on price, quality and safety in 
several markets, with the Soyuz and other international vehicles.

    Question 3. How important is Federal third-party liability 
indemnification to the growth of the commercial space launch industry?
    Answer. The commercial space launch industry is growing quickly and 
many of the companies are still small and would have difficulty 
carrying the financial burden of insuring launches without 
indemnification. Without the third-party risk-sharing regime, these 
companies would be forced to purchase more insurance, and that expense 
would be passed on to the customer or absorbed by the company. Either 
outcome would hurt the competitiveness of the American launch 
industrial base, and discourage new companies looking to enter the 
industry. Several overseas spaceflight companies receiving unlimited 
indemnification from their governments, so it is vital for the U.S. 
commercial space launch industry to have the regime in place to stay 
competitive in the global marketplace.

    Question 4. What are the main obstacles to Space Tourism?
    Answer. The primary obstacles are availability of flights and 
destinations, followed by expense and an uncertain regulatory 
environment. Dennis Tito, the first ``space tourist,'' reportedly paid 
$20 million to Space Adventures for his flight to the International 
Space Station, and since that time seven additional flights have 
occurred. In no cases have flights come available that were not filled, 
even as the reported prices rose, suggesting that demand has 
outstripped supply. Commercial orbital suppliers have been making 
significant progress, and as those capabilities come online, supply 
will increase. As in-space habitats and other destinations are 
developed, demand will increase as well.
    Meanwhile, several companies are rapidly developing suborbital 
vehicles and accumulating flight reservations, with over 800 announced 
so far. These flights, which have been quoted at price points of 
$95,000-$200,000 per passenger, open the door to a much larger customer 
base.
    However, an unstable regulatory environment would threaten this 
emerging industry. Human spaceflight is not easy, and these companies 
are working through difficult design problems through rapid prototyping 
and testing. Early human spaceflight regulations would short-circuit 
that process and create serious problems for the industry.

    Question 5. How does U.S. involvement in the commercial space 
launch industry differ from foreign government involvement?
    Answer. NASA is the undisputed leader among space agencies in 
facilitating the development of commercial space launch, continuing 
America's long tradition of independence and free enterprise. In many 
other countries, spaceflight is solely the province of government. One 
exception is the United Kingdom, which created the UK Space Agency in 
2010 and promulgated a strategy to increase its development of 
commercial space services. At this time, there are some commercial 
space firms situated around the world, but few comparable to the 
commercial industry in America. However, the success of American 
commercial firms has begun to affect foreign space agencies that see 
competitors to their government-supported companies, which could 
trigger a broadening of the commercial space industry across the world.
    When it comes to regulation, the picture is more complicated. All 
of the largest foreign space faring nations completely indemnify 
launches of their commercial space companies, above a relatively small 
amount, for which the company generally buys insurance. This means that 
their risk-sharing regime is only two-tiered, with no limit to the 
government's indemnification. The U.S. on the other hand, has a three-
tiered system, with the government only covering up to $2.7 billion 
past the Maximum Probable Loss (MPL).
    Many other countries also feature much less restrictive export 
restrictions on space hardware. America's ITAR regime is hurting our 
space industrial base and raising prices for government purchases of 
space equipment and services. As outlined in April's 1248 Report from 
the Department of Defense, loosening some export controls would 
engender a more vibrant industry while protecting our most advanced 
technologies, and would in fact be a net benefit for national security.
    Few countries have needed to contemplate the possibility of 
commercial human spaceflight. The United Kingdom has begun to consider 
policies on commercial human spaceflight regulation, and we are 
optimistic that they will follow the licensing model that has been 
pioneered here.

    Question 6. The term ``commercial'' implies that a product or 
service provider has other customers in addition to the U.S. 
Government. Please provide any information you are able to share 
regarding what customers other than NASA have been identified by the 
commercial ISS service providers.
    Answer. The current commercial ISS service providers are SpaceX and 
Orbital, both of whom also sell their services to commercial customers. 
Both companies have launched commercial payloads and have announced 
future commercial payloads. Of the competing commercial crew companies, 
all the winners of the latest round have announced that they are 
launching on a ULA Atlas V or a SpaceX Falcon 9, vehicles with known 
commercial customers.
    But we anticipate that the prospect of human commercial 
spaceflight, the advent of smaller micro-and nano-satellites and the 
availability of regular flights will bring a broad array of new 
commercial and non-NASA government customers, including those 
interested in scientific research, earth observation, space 
experiences, product sponsorship and media tie-in, and other 
applications. As one example, only 50 of the world's 195 nations have 
sent people to space, most through cooperative agreement with the other 
governments. The advent of orbital commercial human spaceflight offers 
some of the rest of those nations that opportunity.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John Boozman to 
               Captain Michael Lopez-Alegria, USN (ret.)
    Question 1. NASA has expressed a strong desire to keep as many 
competitors in the process as long as possible. It is felt that this 
will continue to drive the ultimate cost down. This is somewhat true as 
long as there are multiple entities working in parallel on this 
development. But the companies have to cover their costs. They have to 
make some profit. In the end, final decisions will have to be made to 
down-select, as NASA has now agreed to do during the CCiCap phase of 
commercial crew development. Eventually, prices for crew transportation 
will depend to some degree on how many competing companies survive. 
That will depend on the market. In your view, will the market support 
more than one commercial provider of crew transportation services?
    Answer. The competition and assured capability that NASA gains from 
having multiple vehicles in the competition is extremely valuable. I 
believe that each of our member companies interested in competing for 
the eventual Commercial Crew services contract has performed in-depth 
proprietary research on the market for human spaceflight services. I 
have not, and that makes it difficult to answer with certainty. 
However, it is important to keep in mind that the market is dependent 
on the price, and every Commercial Crew competitor has indicated that 
they anticipate being able to offer NASA a price per seat below that of 
the Soyuz. The men and women who run these companies are highly 
successful businesspeople, and they would not be making that claim 
without a deep understanding of their own market competitiveness.

    Question 2. While U.S. cooperative programs with Russia were 
expanding in the 1990s, including Russia joining the space station 
international partnership in 1993, it also became clear that Russia was 
a source of sensitive technology to Iran. The Iran Nonproliferation Act 
of 2000 was enacted to help stop foreign transfers to Iran of weapons 
of mass destruction, missile technology, and advanced conventional 
weapons technology, particularly from Russia.
    Among other things, that Act banned cash or ``in kind'' payments by 
any agency of the U.S. Government to Russian Government agencies or to 
any entity under their jurisdiction or control for work on the 
International Space Station or for obtaining goods and services 
relating to human spaceflight. This provision has raised difficulties 
regarding U.S. access to the International Space Station. When the 
President in 2004 announced that the Space Shuttle would be retired in 
2010, the Russian Soyuz became the only vehicle available after that 
date to transport astronauts to and from the ISS. In 2005 Congress 
amended INA to exempt Soyuz flights to the ISS from the ban through 
2011 and in 2008 the exception was further extended through June 30, 
2016. Has your organization taken a position on whether or not a 
further extension is necessary?
    Answer. We support policies to ensure that the International Space 
Station is safely maintained and utilized to the fullest extent 
possible. If modifications to INKSNA are necessary to achieve that, 
than they should be supported. We also believe that promptly creating 
an American capability to supply crew to the International Space 
Station is necessary to ensure safe maintenance and full utilization.

                                  
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