[Federal Register Volume 65, Number 182 (Tuesday, September 19, 2000)]
[Rules and Regulations]
[Pages 56670-56705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22565]



[[Page 56669]]

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Part III





Department of Transportation





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Federal Aviation Administration



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14 CFR Part 450



Financial Responsibility Requirements for Licensed Reentry Activities; 
Final Rule

  Federal Register / Vol. 65, No. 182 / Tuesday, September 19, 2000 / 
Rules and Regulations  

[[Page 56670]]


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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 450

[Docket No. FAA 1999-6265; Amendment No. 450-1]
RIN 2120-AG76


Financial Responsibility Requirements for Licensed Reentry 
Activities

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final Rule.

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SUMMARY: Under its licensing authority, the Associate Administrator for 
Commercial Space Transportation of the Federal Aviation Administration 
(FAA) determines financial responsibility requirements for licensees 
authorized to launch and reenter a reusable launch vehicle or to 
reenter a reentry vehicle. The FAA will determine, on an individual 
basis, the amount of required insurance or other form of financial 
responsibility after examining the risks associated with a particular 
reentry vehicle, its operational capabilities and designated reentry 
site. In this rulemaking, the FAA provides procedures for demonstrating 
compliance with requirements for reentry financial responsibility and 
for implementing risk allocation provisions of 49 U.S.C. Subtitle IX, 
chapter 701.

DATES: Effective November 20, 2000.

FOR FURTHER INFORMATION CONTACT: Ms. Esta M. Rosenberg, Attorney-
Advisor, Regulations Division, Office of the Chief Counsel, Federal 
Aviation Administration, U.S. Department of Transportation (202) 366-
9320.

SUPPLEMENTARY INFORMATION:

Availability of Final Rules

    You can get an electronic copy using the Internet by taking the 
following steps:
    (1) Go to the search function of the Department of Transportation's 
electronic Docket Management System (DMS) Web page (http://dms.dot.gov/search).
    (2) On the search page type in the last four digits of the Docket 
number shown at the beginning of this notice. Click on ``search.''
    (3) On the next page, which contains the Docket summary information 
for the Docket you selected, click on the final rule.
    You can also get an electronic copy using the Internet through 
FAA's web page at http://www.faa.gov/avr/arm/nprm/nprm.htm. or the 
Federal Register web page at http://www.access.gpo.gov/su_docs/aces/aces140.html.
    You can also get a copy by submitting a request to the Federal 
Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence 
Avenue SW., Washington, DC 20591, or by calling (202) 267-9680. Make 
sure to identify the amendment number or docket number of this final 
rule.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 
1996 requires FAA to comply with small entity requests for information 
or advice about compliance with statutes and regulations within its 
jurisdiction. Therefore, any small entity that has a question regarding 
this document may contact their local FAA official, or the person 
listed under FOR FURTHER INFORMATION CONTACT. You can find out more 
about SBRFA on the Internet at our site, http://www.gov/avr/arm/sbrefa.htm. For more information on SBREFA, e-mail us [email protected].

Background

    The Commercial Space Act of 1998 (CSA), Public Law 105-303, extends 
to the Secretary of Transportation licensing authority over reentry 
operations and the operation of reentry sites, within the United States 
or when conducted by U.S. citizens abroad. The Secretary is authorized 
to license reentry activities consistent with public health and safety 
and the safety of property, as well as U.S. national security and 
foreign policy interests. Prior to enactment of the CSA, the 
Secretary's licensing authority under 49 U.S.C. Subtitle IX, chapter 
701, popularly known as the Commercial Space Launch Act or CSLA, was 
limited to the launch of a launch vehicle and non-federal operation of 
a launch site. By delegation of authority, the Secretary's statutory 
responsibility for regulation and oversight of commercial space 
transportation is assigned to the Administrator of the Federal Aviation 
Administration (FAA), who in turn has delegated those functions to the 
Associate Administrator for Commercial Space Transportation (AST).
    The additional grant of authority over reentry operations enables 
the FAA to fashion and implement a licensing and safety regulatory 
program for emerging reusable launch vehicle (RLV) technologies, 
facilitating their further development. Because the absence of an 
established licensing program could impede prospective RLV operation, 
the FAA has worked closely with industry and the interested public in 
crafting regulations that form the foundation of the safety program 
applicable to RLVs. The FAA's regulatory program is designed to be 
stable, but not static, in order to respond to advancements in 
technology and vehicle performance capabilities.
    The authority granted by the CSA over reentry and reentry site 
licensing generally operates in a manner parallel to that granted to 
the agency over launch and launch site operations. Accordingly, it is 
necessary to establish, in regulations, a financial responsibility and 
risk allocation program applicable to licensed reentry activities, as 
was done in 1998 for licensed launch activities. (See 14 CFR part 440, 
referred to in this final rule as part 440). Although no formal request 
has been made for an RLV mission or reentry license, prospective 
operators and their customers and contractors will benefit from 
understanding, in advance of operation, how certain risks will be 
allocated by regulation and covered by insurance or otherwise addressed 
through statutorily-directed financial responsibility.
    This final rule implements a financial responsibility program 
applicable to reentry operations of an RLV or other reentry vehicle, 
similar in nature to that contained in part 440. A companion 
rulemaking, referred to in this rule as the Final RLV and Reentry 
Licensing Regulations, covers licensing requirements for RLV missions 
and other reentries within the FAA's regulatory authority. Taken 
together, issuance by the agency of the comprehensive safety and risk 
management regulations just described removes potential regulatory 
barriers and impediments to RLV technology development and operation.
    Enactment of the CSA in 1998 extends to a licensed reentry, 
including reentry of an RLV, the financial responsibility and risk 
allocation scheme that has proven critical to the success of the U.S. 
commercial space industry. Most significantly, it affirms the 
government's commitment to share with industry in the potentially 
catastrophic risks associated with launch and reentry of an RLV, 
thereby enabling liability risk of all participants to be maintained at 
a manageable level. Absent further amendment of the CSLA, however, that 
commitment may be short-lived. A critical component of the statutory 
risk sharing scheme, known as ``indemnification,'' will sunset at the 
end of the year 2000 for both launch and reentry.\1\ Unless extended, 
catastrophic

[[Page 56671]]

risk protection will only be available to those launch and reentry 
vehicle operators that have submitted a substantially complete 
application for a license by December 31, 2000.
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    \1\ A one year extension of the sunset provision from December 
31, 1999 to December 31, 2000, was enacted by Section 433 of H.R. 
2684, the Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act, 2000.
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    The indemnification provisions of the CSLA are one facet of a 
comprehensive financial responsibility and risk allocation program 
added to the CSLA in 1988 in response to, among other things, industry 
concern over potentially unlimited liability that may result from 
launch vehicle failure. As expressed in testimony delivered at a 
hearing before the House Subcommittee on Space and Aeronautics on April 
21, 1999, the commercial space industry continues to require relief 
from open-ended liability, particularly in light of government-backed 
support afforded to international competitors of U.S. entities. 
Hearings Before the Subcommittee on Space and Aeronautics of the 
Committee on Science, 106th Cong., 1st Sess., Serial No. 106-13. RLV 
operators share similar concerns over the prospect of potentially 
unlimited liability that may result from a catastrophic event 
associated with reentry and are expected to benefit from the statutory 
program in a manner comparable to that realized by the commercial 
launch industry in launching expendable launch vehicles (ELVs).

CSLA Financial Responsibility and Risk Allocation

    Financial responsibility and risk allocation for launch and reentry 
under the CSLA consists of several components, including a three-tiered 
approach to addressing claims for damage or loss suffered by third 
parties as a result of licensed activity, requirements for financial 
coverage for damage or loss to government property involved in the 
licensed activity, and contractual assumption among participants in the 
activity of certain risks that result from their participation.
    Under the CSLA, a launch or reentry licensee is required to obtain 
two forms of insurance, in amounts determined by the FAA using a risk-
based methodology known as maximum probable loss (MPL), up to 
statutorily specified ceilings. Insurance coverage (or other 
demonstration of financial responsibility) provided by the licensee 
would cover the first tier of liability risk, that is, the maximum 
probable loss due to third-party claims that result from licensed 
activity. Insurance obtained by the licensee in accordance with CSLA 
requirements must cover third-party claims against participants in that 
activity, thereby relieving each of them of the cost of separately 
insuring their liability risk. In addition to the licensee (vehicle 
operator), participants in a licensed launch or reentry that benefit 
from required insurance include the licensee's customer(s), and the 
contractors and subcontractors of the licensee and customer, as defined 
by the FAA in financial responsibility regulations, as well as the U.S. 
Government, its agencies and its contractors and subcontractors 
involved in the licensed activity. By statute, the FAA may not require 
more than $500 million of liability insurance for a licensed launch or 
reentry.
    Insurance is also required in the event of damage or loss to U.S. 
Government range assets at a launch or reentry site as well as property 
belonging to government contractors supporting the licensed activity. 
Government property insurance requirements may not exceed $100 million 
for a licensed launch or reentry.
    The CSLA provides a procedure whereby the U.S. Government agrees to 
be responsible for the payment of successful third-party claims against 
a participant in a licensed launch or reentry in the event liability 
exceeds risk-based insurance requirements set by the FAA. The payment 
of excess claims procedure, commonly referred to as indemnification, 
addresses the second tier of liability risk and is subject to 
congressional appropriation of funds. The government's responsibility 
for payment of claims under this procedure is limited to an additional 
$1.5 billion, as adjusted for post-January 1, 1989 inflation, above the 
required amount of insurance. Although it has never been invoked, the 
statutory indemnification procedure has been a crucial factor in 
enhancing the international competitiveness of the U.S. space industry 
and represents the government's agreement, albeit conditioned upon 
congressional action, to share in the risks that are associated with 
commercial launch and reentry operations. The third tier of risk, that 
is, liability for third-party claims in excess of required insurance 
plus the appropriated $1.5 billion, as adjusted for inflation, is the 
responsibility of the legally liable party. Consistent with part 440 
and as explained in the notice of proposed rulemaking for licensed 
reentry activities (64 FR 54448-54472, October 6, 1999) (referred to in 
this final rule as the NPRM), the FAA, by this final rule, assigns 
financial responsibility for the third tier of risk to the licensee 
unless it has no liability whatsoever for the claims.
    Both the commercial space industry and the U.S. Government benefit 
from the statutory risk sharing arrangement. Under the quid pro quo 
arrangement described above, the aerospace industry is relieved, in 
part, of the consequences of catastrophic liability which would be 
financially burdensome, if not impossible, to cover through private 
insurance. And, the government benefits by having its liability risk 
covered at no cost to the government, thereby insulating it 
financially, up to the prescribed amount. The government's liability 
exposure arises by virtue of its involvement in licensed activities 
through use of its property, personnel, facilities, equipment and 
services to support operations, and as a result of treaty obligations 
under which the government accepts absolute liability for damage on the 
ground or to aircraft in flight, outside of the United States, when the 
United States is deemed a launching State under the terms of the Outer 
Space Treaties, specifically the Convention on International Liability 
Caused by Space Objects (Liability Convention, entered into force 
September 1972). Liability for damage caused elsewhere, such as on 
orbit damage, is also accepted by the government as a launching State 
under the Liability Convention but only if the damage is the fault of 
persons for whom the launching State is responsible. Under Article VI 
of the Treaty on Principles Governing the Activities of States in the 
Exploration and Use of Outer Space, including the Moon and Other 
Celestial Bodies (Outer Space Treaty, entered into force October 1967), 
the United States bears international responsibility for national 
activities in outer space, including those carried on by non-
governmental entities.
    Under the Liability Convention, the definition of a launching State 
includes a State from whose territory or facility a space object is 
launched. Liability Convention, Article I(c)(ii). A ``space object'' 
includes component parts of a space object as well as its launch 
vehicle and parts thereof. Liability Convention, Article I(d). The 
latter definition appears sufficiently broad as to encompass within its 
terms a reusable launch vehicle or one of its stages. With the 
introduction of commercial reentry technology and capability, the 
prospect of government liability arising out of the errant performance 
of an RLV makes the benefits of statutory financial responsibility and 
allocation of risk all the more significant and valuable for the 
government.

[[Page 56672]]

    Risk allocation under the CSLA includes means, in addition to 
insurance and the statutory indemnification procedure described above, 
of assigning and covering certain risks to launch and reentry 
participants and the government.
    Under the CSLA, reciprocal waivers of claims are required among 
launch participants and reentry participants, respectively, in order to 
relieve each of them of the threat and cost of inter-party litigation, 
and the associated need to obtain liability insurance covering their 
potential liability to other participants in a launch or reentry, for 
property damage or loss for which each might otherwise be legally 
responsible. As in a licensed launch, the CSLA directs a reentry 
licensee, its customer and the contractors and subcontractors of each, 
involved in the licensed activity, to enter into reciprocal agreements 
whereby each participant waives certain claims it may have for damage 
or loss against each of the other participants and accepts financial 
responsibility for losses suffered by its personnel. (Consistent with 
the FAA's approach in establishing final rules under part 440 for 
launch financial responsibility, these entities are referred to in this 
rulemaking as private party reentry participants, or PPRPs. Entities 
involved in licensed launch activities other than the government and 
its contractors and subcontractors are referred to in this 
supplementary information as private party launch participants, or 
PPLPs.) As explained in the supplementary information accompanying 
issuance of part 440, an entity's agreement to be responsible for 
losses suffered by its employees may be termed a legislatively-mandated 
contractual indemnification obligation under which each party agrees to 
hold harmless and indemnify other participants in the licensed activity 
against whom one's employee has made a claim. Under FAA financial 
responsibility regulations, potential claims of employees of PPLPs and 
PPRPs are not intended to be addressed by, or considered by the FAA in 
determining the required amount of, liability insurance that a licensee 
must obtain to satisfy the CLSA. The principles explained in the part 
440 rulemaking regarding the reciprocal waiver of claims agreement 
required for a licensed launch apply, in equivalent fashion, to 
licensed reentry. (See 63 FR 45592, August 26, 1998).
    The CSLA further directs the government to waive claims for itself 
and for its contractors and subcontractors involved in a licensed 
launch or reentry and assume certain financial responsibility. However, 
the government's waiver of claims for property damage is limited to 
claims in excess of insurance required to cover government property and 
property belonging to government contractors and subcontractors 
involved in supporting the licensed activity, at a Federal range. (The 
government and its contractors and subcontractors involved in licensed 
activity are referred to in this document as government launch or 
reentry participants, GLPs or GRPs, as the case may be.) As explained 
in supplementary information accompanying issuance of part 440 final 
rules at 63 FR 45601-06, because of limitations on the government's 
ability to assume an unfunded contingent liability, the government does 
not accept financial responsibility for covering losses sustained by 
employees of the government or its contractors and subcontractors, 
referred to in the final rule as ``Government personnel,'' except to 
the extent claims for Government personnel losses exceed required 
insurance. Rather, claims of Government personnel are intended to be 
covered under the licensee's liability insurance policy as third party 
claims and are considered by the FAA in establishing liability 
insurance requirements for the licensed activity.
    A more detailed explanation of risk allocation principles and how 
they are implemented through FAA regulations appears in the 
supplementary information accompanying issuance of part 440, a copy of 
which may be accessed from the AST web site at
http://ast.faa.gov.
    This final rule focuses on those aspects of financial 
responsibility and allocation of risk that are unique to reentry 
activities authorized by the FAA. Reentry vehicles requiring a license 
to return to Earth include, but are not limited, to RLVs. Without 
exception, however, each of the reentry concepts described to the FAA 
in pre-application consultation involves wholly or partially reusable 
launch vehicles. For most of these vehicle concepts, authorized flight 
would consist of launch and reentry of an RLV. Part 440 requirements 
apply to licensed launch of an RLV; however, because reentry licensing 
authority did not reside within the FAA at the time part 440 was 
issued, risk management issues unique to an RLV mission, as opposed to 
an ELV launch, were not specifically addressed in the part 440 
rulemaking. Accordingly, also highlighted in the discussion below is 
the FAA's approach to financial responsibility and allocation of risk 
for authorized flight of an RLV.
    Between launch and reentry of an RLV, activities may be conducted 
on orbit that do not require FAA licensing and would not be subject to 
the CSLA financial responsibility and risk allocation regime. In this 
rulemaking, the FAA clarifies the scope of authorized RLV launch 
activities subject to part 440 requirements and authorized RLV reentry 
activities subject to this final rule. Doing so will enable licensees 
and participants in RLV missions to make informed business decisions 
governing risk and liability for unlicensed activity that is not 
intended to be covered by the CSLA financial responsibility and risk 
allocation regime.
    In issuing this final rule, the FAA intends to ensure that the 
universe of participants in licensed RLV activity and reentry activity 
generally are identified, and that claims against them from all 
potential sources are addressed by FAA rules governing financial 
responsibility for licensed vehicle flight.
    Claims for injury, damage or loss may come from entities and 
individuals involved in licensed activity and from those that are not 
involved in licensed activity. Financial responsibility for claims of 
participants involved in licensed RLV flight and their employees would 
be addressed through the comprehensive reciprocal waiver of claims 
agreement presented in Appendix B of this final rule. For an RLV 
mission that is suborbital in nature in that the vehicle does not enter 
a closed orbital path but rather returns to Earth through ballistic 
flight or other physical forces, the same entities would necessarily be 
involved in all licensed flight. However, reentry of an RLV from Earth 
orbit may involve participants that are different, in part, from those 
involved in its launch. Even so, entities and their employees involved 
in either flight phase are deemed by the FAA to be sufficiently 
involved in a licensed RLV mission as to warrant their participation in 
and the protections afforded by a reciprocal waiver of claims agreement 
covering all licensed mission flight of an RLV. Participants in a 
licensed reentry may suffer property damage or loss and their employees 
may suffer losses through their involvement in the licensed launch 
required to place the vehicle or payload in Earth orbit. Including all 
participants in licensed flight is therefore necessary to accomplish 
the intended objective of the reciprocal waiver scheme of limiting the 
risk of inter-party litigation. Accordingly, although this rulemaking 
is directed at reentry financial responsibility, the NPRM (64 FR 54448, 
Oct. 6, 1999) proposed, and this final rule codifies, a comprehensive 
from of reciprocal waiver of claims agreement

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that would include all participants, government and private, involved 
in licensed RLV flight, including launch and reentry of an RLV, in 
order to address the vast proportion of proposed reentries for the 
foreseeable future. The FAA will address on an individual basis those 
circumstances in which licensed reentry occurs sufficiently independent 
of the launch that placed the reentry vehicle in space making it 
practical and reasonable to separate launch participants from reentry 
participants for purposes of implementing the reciprocal waiver 
agreement.
    Claims resulting from licensed activity of entities and individuals 
who are not Government personnel under FAA financial responsibility 
regulations and that are not involved in licensed RLV activity would be 
addressed through liability insurance obtained by the license to 
respond to covered claims by a third party, as defined in part 440 and 
this final rule, against any participant, public or private, involved 
in licensed activity. Because a participant in either flight phase is 
sufficiently involved in vehicle operations such that it may be a 
potential defendant in litigation arising out of loss or damage to 
third parties, liability insurance required as a condition of a reentry 
license (and an RLV mission license authorizing launch and reentry of 
an RLV) must cover participants involved in associated launch 
activities. Simarily, launch liability insurance under part 440 would 
cover entities involved in associated reentry activities, either as a 
customer or contractor or subcontractor of the licensee. Claims arising 
out of launch or reentry of an RLV, or flight of a suborbital RLV, in 
excess of the required amount of liability insurance become the 
responsibility of the government, subject to appropriation of funds, up 
to $1.5 billion (as adjusted for inflation occurring after January 1, 
1989) above the amount of insurance that the agency requires. Addressed 
as part of this supplementary information is the FAA's approach to 
establishing liability and property insurance requirements for licensed 
reentry, as distinct from licensed launch, of an RLV that does not 
operate as a kind of suborbital rocket, and eligibility for 
indemnification as a result of catastrophic claims arising out of RLV 
launch and reentry.

Notice of Proposed Rulemaking

    Proposed rules governing reentry financial responsibility and risk 
allocation appear in a notice of proposed rulemaking or NPRM, published 
in the Federal Register on October 6, 1999. See 64 FR 54448-54472. The 
60-day comment period initially provided was reopened for an additional 
30 days at the request of several launch providers.
    The NPRM was intended as a companion document to another notice of 
proposed rulemaking, referred to in this supplementary information as 
Proposed RLV and Reentry Licensing Regulations, issued April 21, 1999, 
describing the FAA's technical approach to licensing an RLV mission and 
other reentries. 64 FR 19626-19666. The Proposed RLV and Reentry 
Licensing Regulations describe the scope of activities comprehended by 
FAA launch and reentry licensing authority, respectively, in order to 
ensure those operations do not jeopardize public health and safety or 
the safety of property. However, more detailed discussion and 
consideration of the appropriate commencement and termination point for 
RLV launch and reentry authorizations, particularly from a risk 
management perspective, was deferred to the October 6, 1999 NPRM (64 FR 
54448 ).
    The reentry financial responsibility regulations proposed in the 
NPRM resemble closely those applicable to licensed launch activities 
under part 440 and would effect risk allocation among participants in a 
licensed reentry in a manner comparable to that currently utilized for 
commercial launches. Instead of reciting the FAA's approach to 
implementing the various principles underlying CSLA-based requirements 
for financial responsibility and risk allocation, the NPRM referred the 
interested public to the part 440 rulemaking, and stated that the 
principles governing relationships among launch participants and 
coverage for third party claims for damage or loss under part 440 would 
apply to reentry as they currently do for launch.\2\ Documents 
associated with the part 440 rulemaking can be accessed from the AST 
web site at http://ast.faa.gov.
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    \2\ For a more detailed explanation and analysis of the FAA's 
approach to implementing financial responsibility and risk 
allocation requirements of the CSLA, the interested public is 
referred to part 440 and the accompanying supplementary information 
found at 63 FR 45592-45625. It identifies the universe of third 
parties whose claims are intended to be addressed or covered through 
statutorily required insurance or other form of financial 
responsibility. The notice of proposed rulemaking associated with 
the part 440 rulemaking, issued July 25, 1996, describes the FAA's 
methodology for setting insurance requirements on the basis of its 
determination of the maximum probable loss from covered third party 
claims and for government property damage resulting from licensed 
activity. (See 61 FR 39004-39007.)
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    Except for a request for clarification of the relationship between 
a licensed launch site, commonly known as a spaceport, and its customer 
when its customer is a licensed launch or reentry vehicle operator, the 
FAA received no comments on financial responsibility and risk 
allocation principles established through the part 440 rulemaking and 
incorporated in this rulemaking. The majority of comments focused on 
the scope of licensed activity comprehended by FAA launch and reentry 
licensing authority when the launch vehicle is reusable. The FAA 
responds to comments regarding the scope of its licensing authority in 
this final rule; however, regulatory definitions of the terms 
``launch'' and ``reentry,'' as applied to an RLV, appear in the Final 
RLV and Reentry Licensing Regulations.

Scope of RLV Launch and Reentry Licensing Authority and Associated 
Financial Responsibility

Proposed Definitions of ``Launch'' and ``Reentry'' of an RLV

    By law, the transportation events of launch of an RLV and its 
reentry require licensing by the FAA; however, the two authorizations 
may be combined in a single license document consistent with the FAA's 
longstanding practice of authorizing multiple flights or launch 
missions in a single license.
    In the Final RLV and Reentry Licensing Regulations, the FAA 
establishes a mission approach to RLV licensing through use of a single 
collective risk criterion that may not be exceeded for proposed RLV 
flight, comprised of launch and reentry flight, to be authorized by an 
FAA license. The risk criterion selected is consistent with that 
applied to ELV launches at Air Force ranges. The agency's objective in 
utilizing a single collective risk threshold against which to measure 
public risk is to ensure that round-trip flight for the purpose of 
achieving Earth orbit or outer space and returning a vehicle to Earth 
does not pose greater jeopardy to public health and safety than would 
launch of an ELV, the more conventional means of accessing space.
    Notwithstanding use of a mission-based approach to assessing public 
safety risk, the FAA concludes that its licensing authority over RLV 
flight does not encompass on orbit operation of an RLV that is 
unrelated to its launch or reentry.
    Although the FAA does not license on orbit operation of an RLV, the 
authority granted to an RLV operator to reenter its vehicle may be 
conditioned upon satisfaction of certain criteria before a reentry may 
be commenced under an FAA license. In this manner, FAA

[[Page 56674]]

licensing authority may affect or limit on orbit operations, without 
subjecting them to licensing requirements of the FAA. For example, a 
reentry license or authorization may be conditioned upon verification 
of a vehicle operating limits while on orbit, assuming those limits 
were identified in an application and determined by the FAA as adequate 
to preserve intact, or at least not degrade, the integrity of vehicle 
safety systems necessary for safe reentry. If vehicle operations while 
on orbit exceed those limits there may be no assurance, absent 
additional data from the operator, that vehicle reentry can be 
accomplished in a manner consistent with the application and supporting 
analyses. Hence, reentry authorization may be withdrawn or contingency 
plans invoked to address the non-conforming vehicle. To this extent, 
FAA licensing procedures and approvals may influence planned on orbit 
operations involved in an RLV mission, including those that do not 
require FAA licensing because they are neither launch nor reentry.
    Liability risk that may be associated with activities not subject 
to FAA licensing must be addressed through private insurance and 
relationships among participants in the activity are not directed by 
CSLA risk allocation requires, such as reciprocal waivers of claims. 
Hence, from a financial responsibility and risk management perspective, 
absence of FAA licensing authority over on orbit operations unrelated 
to RLV launch or reentry may influence business decisions and mission 
design.
    The FAA understands the importance to launch and reentry vehicle 
operators of ensuring comprehensive coverage of liability risk for all 
vehicle operations and the need for certainty and predictability in 
understanding when the CSLA applies and when it does not. For this 
reason, the NPRM presented detailed analysis and rationale concerning 
the scope of licensed launch and reentry activities associated with an 
RLV mission to which CSLA-based financial responsibility and risk 
allocation requirements would apply in a certain and predictable 
fashion. Financial responsibility requirements imposed by the FAA are 
co-extensive with activities authorized by a license. Certain 
consequences of licensed activity are also addressed through CSLA-based 
allocation of risk, particularly government indemnification. However, a 
sufficient causal relationship must be demonstrated between licensed 
activity and third party claims in order for such claims to be 
considered as ``resulting from'' licensed activity and to be eligible 
for consideration under the indemnification provisions of the CSLA. 49 
U.S.C. 70113(a). Not every event following a launch bears a sufficient 
causal nexus to that launch to qualify for indemnification. Nor would 
every event causing damage to third parties on orbit or on the ground 
bear a sufficient nexus to a licensed reentry as to be deemed to result 
from licensed activity. Based upon guidance issued by the House 
Committee on Science and discussed further in the section-by-section 
analysis of the final rule, the FAA cannot agree with those commenters 
that suggested that anything that happens once a reusable launch 
vehicle has been launched necessarily and sufficiently results from the 
licensed activity of ``launch'' and would therefore be eligible for 
indemnification. Absent a sufficient relationship to licensed activity, 
launch and reentry vehicle operators must be prepared to address third 
party liability entirely through private insurance or other form of 
financial responsibility. Consistent with the part 440 rulemaking, the 
FAA considers that determining eligibility for payment of excess third 
party claims is a fact-based inquiry that depends upon unique 
circumstances giving rise to a claim. Accordingly, the FAA declines to 
issue rules of general applicability to determine eligibility 
requirements.
    The NPRM explained that financial responsibility requirements 
applicable to licensed launch of an RLV are provided under part 440 and 
that losses resulting from performance of the launch vehicle during its 
ascent are intended to be addressed through risk-based insurance and 
eligible for government indemnification under the CSLA. Unlike an ELV, 
however, the end of RLV launch authorization ought not be defined by 
the last action of control over the launch vehicle exercised by the 
licensee after payload separation, according to the NPRM, because an 
operator could retain control over the vehicle throughout its orbital 
life in order to accomplish a reentry. If a control test were applied, 
all events, including on-orbit operations and reentry, would be 
comprehended by the term ``launch,'' and this is an illogical result in 
the FAA's view.
    The FAA proposed in the NPRM to define the end of an RLV launch for 
purposes of its licensing authority by using an event test dictated by 
the purpose of the mission. The supplementary information accompanying 
the NPRM indicated that accomplishment of the launch phase of the 
mission would provide an appropriate point of demarcation between the 
end of licensed launch activities and non-launch-related events, when 
the launch vehicle is an RLV. At the time the NPRM was issued, market 
analysis indicated launch and replenishment of low Earth orbit (LEO) 
satellite constellations would be a primary factor behind RLV 
development and launch demand, leading the FAA to identify payload 
deployment or attempted deployment, as a typical RLV mission endpoint 
for purposes of licensing an RLV launch. For pre-flight operations, the 
FAA identified no basis, from a public safety perspective, for defining 
the commencement of licensed ``launch'' of an RLV differently from that 
of an ELV launch. FAA licensing authority over pre-flight operations at 
a launch site in the United States is directed by the CSLA and, under 
14 CFR 401.5, begins upon arrival of the launch vehicle (or its major 
components) at a U.S. launch site for purposes of fulfilling the FAA's 
safety mandate.
    Public safety considerations underlie the FAA's proposal to license 
reentry of a reentry vehicle commencing upon initiation of reentry 
readiness procedures, as reflected in the Proposal RLV and Reentry 
Licensing Regulations. (See 64 FR 19626-19666, issued April 21, 1999.) 
Under that proposal, ``reentry'' would include ``activities conducted 
in Earth orbit or outer space to determine reentry readiness and [that] 
are therefore unique to reentry and critical to ensuring public health 
and safety and the safety of property during reentry.'' (64 FR at 
19656). For most RLVs under consideration, that is, those that will 
deploy a payload as their mission objective, the FAA considered that 
operators would endeavor to spend minimal time on orbit in order to 
minimize cost and risk to their vehicle. Accordingly, for those 
operators, the FAA suggested that reentry readiness activities would 
begin immediately following payload deployment. Hence, there would be 
no (or extremely minimal) activity between launch and reentry that 
would not be covered by an FAA license for an RLV whose mission purpose 
is dedicated to payload deployment and prompt return to Earth. The FAA 
reiterates that at the time the Proposed RLV and Reentry Licensing 
Regulations and the NPRM were issued, satellite constellation 
deployment and servicing were identified as the primary forces driving 
demand for RLV launch services.
    Under the NPRM, reentry readiness activities performed on orbit 
would be those requiring regulatory oversight in order to accomplish 
the agency's public

[[Page 56675]]

safety objectives. Safety-related procedures intended to prepare the 
vehicle for its reentry would consist of, among other things, those 
operations necessary to assure proper attitude and orientation of the 
vehicle and operability of safety-related systems (both software and 
hardware). Reentry readiness procedures and check-outs may begin days, 
perhaps weeks in some unique instances, in advance of the vehicle's 
actual descent to Earth. As part of its license application, a 
prospective licensee would identify those reentry readiness procedures 
and operations it intended to rely upon for safe reentry and that would 
become part of the licensing record. Under this approach, the FAA would 
apply reentry readiness and public safety criteria to make an 
individualized determination, on the basis of a particular reentry 
proposal, as to commencement of licensed reentry. The license would 
identify clearly the point at which a licensed reentry commences.
    In support of its proposal to license public safety-related reentry 
readiness procedures and preparatory activities, but to exclude from 
license coverage events in space wholly unrelated to launch or reentry, 
such as maneuvers between orbits, the FAA cited report language issued 
by the House Committee on Science (the Committee) accompanying H.R. 
1702, the bill ultimately enacted as the CSA. H. Rep. 105-347, 105th 
Cong., 1st Sess. (Committee Report). Specifically, the Committee 
indicated that ``reentry'' is ``intended to cover a wide range of 
activities, including the act of returning a reusable launch vehicle to 
Earth. In establishing the legal framework for reentry, the Committee's 
approach is to treat reentry of a reentry vehicle the same as launch of 
a launch vehicle.'' H. Rep. 105-347, 105th Cong., 1st Sess., at 21. The 
FAA finds in this non-binding guidance Committee intent that the FAA 
address public safety considerations surrounding reentry activities in 
a manner comparable to that utilized for launch regulation. Therefore, 
despite the Committee's suggestion that it would expect reentry to 
begin, typically, when vehicle attitude is oriented for propulsion 
firing to place the vehicle on its reentry trajectory, the FAA 
concludes that its public safety mandate compels application of a 
regulatory program sufficient to address public safety considerations 
that arise as a result of planned reentry of a reentry vehicle, 
including an RLV. As in launch licensing, certain pre-flight events, 
that is, those preceding descent of a reentry vehicle, may be regarded 
as so hazardous to public safety or property, or to have such direct 
impacts on reentry risk and public safety, as to warrant regulatory 
oversight through FAA licensing, as explained in the NPRM. (See 64 FR 
at 54453.)
    Under the FAA's safety mandate, a vehicle operating on orbit in a 
steady state condition such that there is no change in its condition or 
position ought not require regulatory oversight by the FAA. Risks to 
public safety change upon initiation of reentry readiness procedures or 
operations that, by virtue of their performance, may affect the 
condition or stability of the vehicle making reentry unsafe. Exercise 
of reentry licensing authority so as to cover such procedures or 
operations should facilitate accomplishment of the agency's public 
safety objectives by ensuring that the risk of a non-nominal reentry 
resulting from the conduct of those activities is addressed as part of 
FAA licensing to ensure such risks are sufficiently mitigated. 
Similarly, the FAA ensures that CSLA-directed financial responsibility 
and risk allocation covers such risks. The FAA would consider non-
nominal reentry scenarios as part of its reentry licensing and 
regulatory program and may rely upon contingency planning by a 
licensee, such as plans for reentry to an alternative or contingency 
abort location, before issuing a license. Reasonably foreseeable risks 
of non-nominal operation would likewise be addressed by the FAA as part 
of its risk-based approach to determining insurance requirements.
    Whether an RLV mission involves seamless licensing, as in the case 
of an RLV launch for purposes of payload deployment and immediate 
return to Earth, or licensed launch and reentry with intervening 
unlicensed activity, both authorizations (launch and reentry) may be 
combined in a single license document. As reflected in the NPRM, the 
FAA proposed that all licensed vehicle flight must be covered by a 
licensee's demonstration of financial responsibility and subject to 
risk allocation under the CSLA. Because flight risks are different for 
launch and reentry, and either or both events may pose potentially 
catastrophic risk, financial responsibility up to required amounts must 
be available throughout licensed flight. In the NPRM, the FAA proposed 
to reserve discretion, depending upon the results of its risk analysis, 
to require either a consistent measure of financial responsibility 
applicable to all licensed flight, or different amounts covering launch 
and reentry consequences. In either case, financial responsibility 
would be required to respond to claims arising during either or both 
licensed flight phases. Except for certain suborbitally operated RLVs, 
imposition by the FAA of a uniform or single insurance requirement 
throughout licensed flight would not relieve the licensee of financial 
responsibility for third-party claims up to the established ceiling 
during each licensed flight phase. For a suborbital RLV that enters 
outer space, the FAA suggested that it could apply separate financial 
responsibility requirements for launch and reentry, but would reserve 
discretion to impose a uniform requirement throughout licensed flight. 
The NPRM solicited public comment on the proposed distinction between 
suborbital RLVs that technically satisfy the definition of a reentry 
vehicle and those that do not and must necessarily be licensed under 
the agency's statutory authority for launch of a suborbital rocket.

Overview of Comments on Proposed Scope of RLV Mission Licensing

    The agency received comments from ten entities representing a 
cross-section of the affected industry. Among the commenters were seven 
developers of reusable launch vehicle technology and one prospective 
launch site, or spaceport, targeting the RLV market. Three of those 
entities, The Boeing Company, Lockheed Martin Corporation, and Orbital 
Sciences Corporation, are currently licensed to launch ELVs and as a 
condition of their licenses must comply with part 440 requirements. In 
addition, comments were submitted by a U.S. insurance broker, Marsh 
Inc. (Marsh), and on behalf of the International Underwriting 
Association of London. Nearly all of the comments addressed the issue 
of FAA licensing authority over on orbit operation of an RLV but 
expressed divergent views. For example, Vela Technology Development, 
Inc. (Vela) and Space Access urged seamless regulation of all RLV 
flight while others, including Kistler Aerospace Corporation (Kistler), 
supported a narrow view of FAA licensing authority and regulatory 
oversight. The Boeing Company (Boeing), Lockheed Martin Corporation 
(Lockheed Martin) and Marsh noted with interest the gap in FAA 
licensing authority over RLV operations, as identified in the NPRM. 
Lockheed Martin observed that it is premature to judge whether the 
FAA's current licensing authority is adequate from a risk management 
and business perspective while Boeing objected to issuance of final 
regulations that would leave a gap in licensing coverage and associated 
indemnification benefits for

[[Page 56676]]

on orbit activities of RLVs, notwithstanding limitations on FAA 
authority under the CSLA.
    A number of comments stressed that regulations affecting RLV 
operations should enhance, not inhibit, the international 
competitiveness of the U.S. space industry. However, some commenters 
believe competitiveness is aided by licensing of, and application of 
CSLA financial responsibility and risk allocation to, all RLV 
activities including those on orbit not specifically related to ascent 
or descent flight of a vehicle. Others urged less regulation through 
narrow application of FAA licensing authority over launch and reentry 
to aid competitiveness. Kistler, in particular, stressed that if made 
final, the regulations as proposed would make the United States the 
only nation to regulate activities in space and to require insurance of 
launch operators for on orbit activities. Doing so would be contrary to 
promoting the competitiveness of the U.S. launch industry, according to 
Kistler. The FAA notes that Kistler is not entirely correct in its 
broad statement inasmuch as the United Kingdom may require insurance of 
satellite owners and operators who are British nationals under its 
Outer Space Act 1986. Also, to some extent, commercial launch operators 
currently licensed to launch ELVs are required to maintain insurance 
for vehicle operations on orbit where they are part of a licensed 
launch, for example, maneuvers and operations necessary for payload 
delivery or to render an orbital stage inert.
    To further enhance competitiveness of the emerging RLV industry, 
some comments endorsed treating RLVs in a manner, comparable to ELVs. 
By way of contrast, Vela was critical of the FAA for applying an ELV-
based regulatory philosophy to RLV flight instead of applying a new 
paradigm to RLV missions.

Summary of Comments on Proposed Scope of RLV Mission Licensing

    The NPRM solicited public comment on the FAA's proposed approach to 
licensing RLV flight to and from orbit from the perspective of ensuring 
meaningful application of the statutory financial responsibility and 
allocation of risk regime. Most of the comments addressed the relative 
merits of licensing all aspects of RLV operation, that is, to, from and 
on orbit, and implications for insurance and risk coverage. A number of 
comments focused upon and took issue with proposed definitions of 
``launch'' or ascent flight of an RLV and ``reentry'' or descent flight 
of an RLV, as defined by the FAA in proposed regulations, and suggested 
alternative views regarding the appropriate breadth of launch and 
reentry activities that would require authorization by an FAA license 
and are therefore subject to CSLA financial responsibility 
requirements.
    The following summary of the comments addressing the FAA's 
authority for launch and reentry licensing authority express divergent 
views with respect to on orbit operations in terms of whether they are 
licensable as part of launch or reentry as those terms are defined by 
the CSLA and implemented by the FAA in regulations governing RLV 
operations. For the most part, comments on the NPRM expressed 
sensitivity to the limits of FAA licensing authority under existing 
law, whether or not the commenter found the regulatory result 
sufficient or satisfactory from a business and operational perspective. 
Responses to the comments follow under the heading, ``Response to 
comments on proposed scope of RLV mission licensing.''
    Space Access, Boeing and Vela urged that all vehicle operations 
involving an RLV should be subject to a seamless regulatory program and 
associated financial responsibility and risk allocation regime. In 
support of its position, Space Access suggested that all on orbit 
operation of a vehicle that ultimately is intended to reenter to Earth 
may affect reentry safety and reliability and therefore should be 
subject to FAA oversight and licensing. According to Space Access, 
planned reentry provides the following litmus test of what should and 
should not be subject to FAA regulation: If a vehicle is intended to be 
recovered for reuse its operations should be covered by an FAA license. 
If it is not so intended then it would not be subject to FAA regulatory 
oversight. Hence, the only on orbit operations that would not be 
subject to FAA authority would be those involving vehicles never 
intended for recovery and reuse, according to Space Access. Space 
Access recommended use of a control test in defining the breadth of 
licensed activities such that all vehicle operations, wherever 
conducted, would be licensed through the point (after payload 
separation if that is the mission) when the last action occurs over 
which a licensee has direct or indirect control over the launch 
vehicle. Space Access's proposed definition of launch would include 
reentry of an RLV, at least through landing at a reentry site. 
Consistent with seamless licensing, Space Access endorses a seamless 
approach to financial responsibility covering all aspects of RLV 
operation. A single, seamless financial responsibility requirement 
covering the entire RLV mission, including on orbit operations, would 
have the added benefit of reducing compliance burdens for licensees and 
minimizing possible overlaps between launch and reentry insurance 
coverage.
    Boeing also endorsed application of a control test in defining the 
scope of RLV activities requiring FAA licensing and compliance with 
statutory financial responsibility and risk allocation requirements. 
While understanding legislative limits on FAA regulatory authority, 
Boeing nevertheless questioned, if not objected to, a licensing regime 
which fails to address the full mission range of RLVs, does not account 
for causal connections between on orbit activities and non-nominal 
reentry, and overlooks the ``relevance and applicability of FAA 
commercial aircraft `flightworthienss' standards to RLV's.'' Boeing 
proposed an alternative definition of the term ``payload,'' as 
explained in clarifying remarks, as a means of suggesting that a launch 
is not concluded as far as the payload is concerned where the payload 
is not simply deposited in Earth orbit or outer space but performs on 
orbit operations so that vehicle operations would be subject to 
continued licensing and regulatory oversight by the FAA. Boeing also 
pointed to a perceived regulatory shortfall in terms of fulfilling 
international obligations of the United States under the terms of the 
Outer Space Treaties to supervise activities of non-governmental 
entities in outer space. Due to the ``critically low predictability'' 
of RLV risks and the inability to spread risk among a large fleet of 
vehicles, among other things, Boeing believes that licensing and 
indemnification coverage throughout an RLV mission, including on orbit 
operations, is critical for the RLV industry, particularly in the 
absence of specific flightworthiness standards similar in nature to 
airworthiness certification requirements for aircraft. From the 
perspective of financial responsibility, Boeing expressed concern that 
the FAA's proposed licensing approach and having separate insurance 
requirements fore each flight phase, would create the potential for 
uncertainty and inconsistency in claims adjudication as well as an 
unpredictable indemnification gap, or gray zone, for unlicensed on 
orbit activities. This is undesirable from Boeing's perspective as well 
as ``conceptually artificial in the context of RLV technology,'' 
despite potential eligibility for indemnification during each licensed 
flight phase.

[[Page 56677]]

Absent comprehensive licensing and seamless financial responsibility 
requirements for all aspects of an RLV mission, Boeing predicts the RLV 
industry will face increased insurance costs, litigation and customer 
anxiety. Boeing argued that these issues would be resolved under a 
control test that would subject all on orbit activity of an RLV and FAA 
licensing.
    Vela plans a passenger-bearing RLV in furtherance of space tourism. 
Vela criticized the FAA's proposed approach to separating flight phases 
for licensing and financial responsibility and risk allocation purposes 
and attributes it to a failure to realize that RLVs are not ELVs that 
plan to reenter. According to Vela, RLVs are more like aircraft that 
take-off and land, whether planned or unplanned, because what goes up 
will come down and also in terms of their instantaneous impact point 
\3\ (IIP) over populated areas. Vela urged the FAA to apply its 
authority in a manner that covers an RLV mission in its entirety 
because the risks intended to be addressed by FAA licensing regulations 
are those to people and property on the ground regardless of when 
landing or impact occurs, that is, regardless of whether landing occurs 
nominally as planned or non-nominally before initiation of intentional 
reentry. Vela argued that the need to find a causal nexus between 
incensed activity and damage that results on the ground is misleading 
inasmuch as a vehicle should be responsible for the consequences of its 
flight regardless of when something goes awry and ``the U.S. Government 
should indemnify the launch industry (RLVs included) against 
catastrophic loss liability on the ground; period.'' According to Vela, 
if the FAA authorizes the launch of a vehicle and something happens on 
orbit that causes a liability on the ground, it results from the 
authorized launch. Therefore, definitions of launch and reentry and the 
need to allocate risk between the two events are not meaningful to RLV 
operations, in Vela's opinion, just as the FAA does not distinguish 
between the scope of take-off and landing of aircraft. According to 
Vela, because resulting liability stems from the fact that an RLV 
launch was authorized, indemnification must be available as a safeguard 
against catastrophic liability for damage or casualties on the ground 
any time it results from RLV operation.
---------------------------------------------------------------------------

    \3\ The IIP of a vehicle reflects a projected impact point on 
the surface of the Earth where the vehicle or vehicle debris in the 
event of failure and break-up would land. A vehicle on orbit does 
not possess an IIP.
---------------------------------------------------------------------------

    By way of contrast, comments submitted by Kistler and Lockheed 
Martin acknowledge that the FAA was not granted authority under the CSA 
to license on orbit operation of RLVs.
    Kistler objected to the FAA's proposed definition of ``reentry'' as 
exceeding the scope of FAA legal authority and creating ambiguity. 
Kistler suggested that the proposed definition will result in 
inappropriate regulation of on orbit activity and, to the extent the 
FAA proposes to do so in order to extend indemnification benefits to 
RLV operators, it is not necessary because of the law risk of 
survivability and damage from a non-nominal or otherwise unplanned 
reentry. Moreover, Kistler does not believe that the CSLA directs 
indemnification for an inadvertent reentry.
    Lockheed Martin's comments were submitted with its stated 
understanding that ``[n]either the CSA nor the CSLA extends the 
Office's licensing authority to on-orbit activities (i.e., those 
activities that fall within neither the definition of ``launch'' nor 
the definition of ``reentry'').'' Therefore, according to Lockheed 
Martin, the questions that will require time and experience to answer 
are whether liability insurance will be available to cover unlicensed 
activities on orbit (i.e., whether the risks are considered by the 
underwriting community as insurable or uninsurable) and, if not 
available, whether U.S. companies can operate without that protection 
of government indemnification. The answer to both questions may depend 
upon the level of risk associated with those activities, a matter than 
remains to be seen. Absent insurance and indemnification, Lockheed 
Martin suggested that it would be appropriate for industry and the 
government to address the matter of claims compensation for innocent 
third parties in the event industry concludes it can operate in that 
environment. However, if industry finds it cannot so operate then, in 
Lockheed Martin's opinion, it may be appropriate to consider further 
statutory amendment to allow the FAA to ensure provision of seamless 
financial responsibility by RLV licensees.
    Lockheed Martin further noted that the absence of seamless FAA 
licensing authority over an RLV mission involving on orbit activities 
along with the ability to establish seamless financial responsibility 
requirements could make claims processing arising from a single RLV 
mission a difficult, time consuming and contentious matter. That is 
because arguments may arise as to when the occurrence giving rise to a 
claim took place, that is, whether a claim arises out of licensed or 
unlicensed activity and, if licensed, whether it arises out of launch 
or reentry where the FAA requires different amounts of insurance for 
the two flight phases that comprise a licensed RLV mission. Absent 
greater understanding of the nature of on orbit activities that would 
be unlicensed under the FAA's current authority, and their attendant 
risks, Lockheed Martin believes that it is premature to conclude that a 
legislative solution to extend CSLA licensing and risk allocation 
provisions to those activities is necessary.
    Comments submitted by Marsh, a liability and space insurance 
broker, also expressed concern over the potential for dispute between 
insurer and insured as to when a loss occurs and applicable liability 
limits when gaps exist between indemnified and non-indemnified 
activities. Marsh further observed that absence of seamless CSLA 
financial responsibility and risk allocation coverage will drive 
industry to insure against maximum possible, rather than probable, loss 
when it is yet unknown whether and the extent to which the insurance 
market will be willing and able to respond to non-indemnified risk. 
Moreover, the benefits currently derived under the CSLA of a single 
liability policy covering all participants and of minimizing costs and 
risk of inter-participation litigation would not extend to unlicensed 
activities on orbit. As a consequence, RLV participants would face 
increased insurance costs inasmuch as each would need to cover its 
resultant liability to third parties and to each other that arise out 
of on orbit operations. Marsh noted that its purpose in registering 
concern is to alert the launch industry to risk management issues in 
analyzing risk during on orbit activities; however, Marsh takes no 
position on the FAA's proposed approach to addressing reentry and RLV 
financial responsibility. The FAA acknowledges and appreciates the 
insights and observations contributed to this rulemaking by Marsh in 
its role as professional risk and insurance consultant to the aerospace 
industry.
    The FAA's careful consideration of comments to the reentry 
financial responsibility NPRM regarding appropriate definitions of 
``launch'' and ``reentry'' and on the appropriate scope of RLV mission 
licenses for purposes of implementing statutory financial 
responsibility and risk management tools is reflected below.

Response to Comments on Proposed Scope of RLV Mission Licensing

    The FAA concludes that this final rule as well as the Final RLV 
Licensing

[[Page 56678]]

and Reentry Regulations reflect the limits of FAA authority over RLV 
mission launch and reentry licensing granted to the FAA. The FAA 
remains mindful of the charter granted to it for RLV and reentry 
operations under the recent amendment of the CSLA and is wary of 
exceeding it at the risk of providing to licensees a false sense that 
all activities in space involving an RLV or other reentry vehicle, in 
essence, indemnified by the U.S. Government. FAA statutory licensing 
authority is limited to those transportation events having Earth orbit 
or outer space, and purposeful return to the surface of the Earth, as 
their intended destinations, as well as a suborbital rocket launch. The 
nature and extent of on orbit activity, including appropriate risk 
management for that activity, remains a business and operational 
decision of the vehicle operator, alone or in combination with its 
customers and insurers, and not a matter subject to FAA regulatory 
oversight. Stated another way, the conduct of commercial business in 
space, other than transportation to and from space, remains outside the 
sphere of FAA regulatory control.
    An argument along the lines suggested by Boeing could be 
constructed that by defining launch to include ``to place or try to 
place a launch vehicle or reentry vehicle and any payload'' otherwise 
in outer space, Congress intended to grant to the agency continuing 
licensing jurisdiction over vehicle and payload operations; however, 
the FAA believes that such a broad reading of the statute would ignore 
the plain meaning and use of the term ``place'' in the definition and 
require substituting it with the term ``operate.'' Boeing's view is 
therefore not supported by a plain reading of the statute and is not 
adopted by the FAA. 49 U.S.C. 70102(3).
    The control test over RLV operations suggested by Space Access and 
Boeing in order to assure licensing and indemnification coverage 
throughout an RLV mission, as well as the aircraft analogy reflected in 
comments submitted by Boeing and Vela, are also interesting but 
overlook statutory limits on FAA authority. As previously mentioned, 
reentry licensing restrictions will, to some extent, affect on orbit 
operation of RLVs and other reentry vehicles but a comparison of the 
Federal Aviation Act and CSLA reveals fundamental differences. For one 
thing, the FAA issues airworthiness and operating certificates as a 
requirement for operating aircraft whereas the CSLA specifically limits 
FAA licensing authority to the events of launch and reentry, to and 
from space, and operation of launch and reentry sites. It does not 
authorize the FAA to license all vehicle operations, wherever 
conducted.
    Accordingly, the Final RLV and Reentry Licensing Regulations and 
associated financial responsibility requirements established in the 
final rule reflect the limits of FAA ``launch'' and ``reentry'' 
licensing authority. The two companion rules are intended to provide 
some level of predictability and certainty to prospective RLV and other 
reentry vehicle operators so that they may make appropriate business 
and risk management decisions as their business plans and technology 
develop. In some instances, the FAA will need to address the unique 
circumstances presented by a vehicle proposed for launch or reentry on 
an individual basis, sometimes referred to as a case-by-case 
determination, and will provide mission-specific precision through 
license terms and conditions; however, the two companion rules 
establish the principles upon which such determinations will be based.
    Definitions of ``launch'' and ``reentry,'' when applied to an RLV, 
and the scope of FAA licenses for both launch and reentry activities 
are presented as part of the Final RLV and Reentry Licensing 
Regulations. In that companion rulemaking, the FAA resolves that 
licensed launch of an RLV begins with arrival of the launch vehicle or 
its major components at a U.S. launch site, consistent with the FAA's 
public safety mandate, and concludes upon completion of the launch 
phase of the mission. Where payload deployment is a purpose of the 
mission, that event marks the end of licensed launch of an RLV. For 
other orbital RLV missions, that is, where payload deployment is not a 
mission objective, as discussed in greater detail below, the FAA 
defines the end of an authorized RLV launch as occurring at the 
completion of the first sustained or steady-state orbit of the vehicle 
in its intended orbit, consistent with the FAA's safety mandate over 
launch operations. The Final RLV and Reentry Licensing Regulations also 
define ``reentry'' to include the conduct of activities directed at 
determining reentry readiness and that are therefore critical to 
ensuring public health and safety and the safety of property during 
reentry.
    The FAA reaches its conclusions in the face of concern expressed by 
Boeing that the United States retains certain obligations arising out 
the Outer Space Treaties that will not be fully addressed or discharged 
through RLV mission licensing regulations, such as responsibility for 
continuing supervision of activities of non-governmental entities in 
outer space. (Outer Space Treaty, Article VI). Limits on FAA licensing 
authority originate in the CSLA and are observed in this rulemaking and 
the companion Final RLV and Reentry Licensing Regulations. While on 
orbit, RLVs and other reentry vehicles are not unlike other satellites 
that are operated and maneuvered and, in so doing, may interfere with 
or cause damage to the other assets in space. This is no different than 
the situation that exists today regarding many satellites, generally 
without problem or objection. In any event, the FAA does not have the 
power to change that result through rulemaking or an inappropriate 
assumption of authority over payloads or vehicle operations on orbit 
that are not properly deemed part of a launch or reentry, as Boeing 
suggested.
    Cost and availability of insurance for unlicensed activities on 
orbit remains to be seen and the FAA will look to industry to advise 
the agency when, and if, unavailability of insurance for such 
activities creates an impediment to RLV technology development. As a 
practical matter, cost and availability of third party liability 
insurance for an RLV that remains on orbit for an extended time after 
launch and before initiating reentry should be comparable to that 
obtained under current business practices for other satellites on 
orbit. To the extent commenters are concerned about damage caused by an 
RLV to another vehicle or object on orbit with which it is intended to 
dock or otherwise make contact, the FAA believes that such concerns are 
best addressed contractually between the owners and operators of those 
vehicles or objects such as through voluntary reciprocal waivers of 
claims agreements or insurance, and that it is not a matter implicating 
third party liability insurance under the CSLA. For other on orbit 
operations, the FAA believes that it is premature to assess the risk of 
such activities and determine whether they are insurable or not.
    Specific comments to the NPRM on the proposed scope of RLV mission 
licensing from the perspective of financial responsibility and risk 
management are addressed below.
1. Definition of ``Launch'' of an RLV
    Notwithstanding the jurisdictional issue concerning RLV on orbit 
operations, many comments suggested alternative commencement and 
endpoints of an RLV launch to that presented in the Proposed RLV and 
Reentry Licensing Regulations for purposes of defining the activities 
authorized by an RLV mission license

[[Page 56679]]

and the risks intended to be addressed through FAA licensing and CSLA 
financial responsibility and risk allocation.
    a. Commencement of RLV ``launch.'' The Proposed RLV and Reentry 
Licensing Regulations defined the commencement of an RLV launch in a 
manner consistent with that appearing in 14 CFR 401.5, and currently 
applicable to ELV launches. Launch would therefore include pre-flight 
ground operations commencing upon arrival of a launch vehicle (or its 
major components) or payload at a U.S. launch site.\4\
---------------------------------------------------------------------------

    \4\ Reference to payload arrival in 14 CFR 401.5 in the 
definition of ``launch'' was included on the presumption that a 
payload would arrive at about the same time, or after, arrival of a 
launch vehicle and was not intended to suggest that payload 
processing activities require FAA licensing. Activities involving a 
payload for which an FAA license is required would be those 
associated with the launch vehicle, such as integration of a payload 
with the vehicle.
---------------------------------------------------------------------------

    Kistler, Vela and the New Mexico Office of Space Commercialization 
(New Mexico) which plans to operate an inland launch and reentry site 
for RLVs objected to including pre-flight operations as part of launch. 
Kistler and New Mexico protested that in the absence of valuable U.S. 
Government range facilities, there is no need for CSLA-driven insurance 
and indemnification for pre-flight activities at a commercial launch 
complex. In fact, they argued that the lack of any need for government 
indemnification at such sites provides them a competitive advantage 
over more crowded, Federal launch ranges. New Mexico further believes 
that licensing pre-flight activities and thereby subjecting them to 
CSLA-based financial responsibility requirements limits flexibility in 
commercial arrangements between a launch site operator and its customer 
(the launch operator). Accordingly, launch should begin at engine 
ignition, according to New Mexico. Kistler acknowledged recent 
amendment of the CLSA to include preparatory activities within the 
statutory definition of ``launch,'' but suggested that it is sufficient 
to limit licensing and associated financial responsibility requirements 
to steps that are critical to initiating flight, unique to space launch 
and so hazardous as to warrant regulatory oversight by the FAA.
    The FAA retains arrival of the launch vehicle at a U.S. launch site 
as the point at which launch begins and licensing is required for an 
RLV in the Final RLV and Reentry Licensing Regulations, and therefore 
licenses certain preflight activities. The FAA bases its determination 
on the statutory definition of ``launch,'' and on risks to third 
parties posed by vehicle-related operations at a U.S. launch site upon 
arrival of the vehicle. (See Final Rule, Commercial Space 
Transportation Licensing Regulations, 64 FR at 19591-93, issued April 
21, 1999.) The FAA believes that a consistent definition of the 
commencement of launch is appropriate and necessary for both ELVs and 
RLVs because of the nature of hazardous pre-flight operations that are 
undertaken upon vehicle arrival at a U.S. launch site. Risks to third 
parties and third-party property as a result of pre-flight processing 
hazards appear comparable, based upon the FAA's current understanding 
of proposed vehicle operations, regardless of the reusability of the 
launch vehicle. Moreover, the statutory definition of launch does not 
differentiate on the basis of type of launch vehicle. From a financial 
responsibility and risk management perspective, the FAA does not agree 
with comments that suggest imposition of such requirements is driven by 
the need for indemnification, or that it will hinder the 
competitiveness of non-federal launch sites. If, as some comments 
suggested, there is little risk to third parties and third-party 
property at non-federal sites, reduced risk will be reflected in lower 
MPL determinations and associated insurance requirements that are lower 
than those currently imposed for pre-flight ELV operations at Federal 
launch ranges.
    The FAA notes that some commenters confuse the U.S. Government's 
statutorily-directed contractual waiver of property damage claims in 
excess of required insurance with the catastrophic third-party claims 
protection afforded participants in licensed launch activity, known as 
indemnification. The interested public is referred to the Final Rule; 
Financial Responsibility Requirements for Licensed Launch Activities 
(63 FR 45592-45626, issued August 26, 1998), for a comprehensive 
discussion of risk allocation principles under the CSLA when launches 
take place at a Federal range facility and expose valuable national 
range assets to risk of damage or loss.
    Kistler's comments pointed out that an RLV also arrives at a launch 
site at the end of flight when it reenters from Earth orbit and 
therefore must be covered immediately by a launch license for the next 
flight of that vehicle, and that this is an illogical result of 
applying the definition of an ELV launch to an RLV. Similarly, Space 
Access stated that under the proposed definitions of launch and 
reentry, it is unclear when one mission ends and another begins for an 
RLV that will land, or arrive, at the launch site. Vela pointed out 
that RLVs will be substantially intact, with major components present 
at the launch site, once their initial construction is completed, 
unlike ELVs. As a result, an idle RLV awaiting its next mission would 
be subject to launch licensing, and that this, too, is an illogical 
result of the definition in Vela's opinion.
    The FAA makes no change to the commencement point of ``launch'' in 
the Final RLV and Reentry Licensing Regulations on the basis of the 
comments. FAA licensing is necessary when presence of a launch vehicle 
in anticipation of a launch presents risks to public safety at a launch 
site in the United States. The detailed analysis presented in the 
supplementary information accompanying the Commercial Space 
Transportation Licensing Regulations, issued April 21, 1999 (64 FR 
19586), explains at great length that arrival of a launch vehicle at a 
U.S. launch site occurs when it passes the gate, or entry point, to the 
site. Although reentry includes return flight of a reentry vehicle from 
Earth orbit or from outer space to (and including) Earth, landing at a 
reentry site ought not be confused with the vehicle's initial arrival 
at the entrance to a launch site. As explained in the Final RLV and 
Reentry Licensing Regulations, the FAA understands that a vehicle will, 
in all likelihood, undergo operations following its reentry to secure 
the vehicle and mitigate the risks associated with any remaining on-
board hazardous materials. These events are part of the reentry, as 
opposed to subsequent launch, of the vehicle and associated risks and 
third party loss or damage, if any, would be assessed in determining 
MPL for that reentry. A vehicle that is inert, passive and presents no 
risk to third parties, such as an RLV that is effectively in storage, 
may not require a license to remain at the launch site; however, a 
fueled and armed vehicle at the facility that is idle because it is 
awaiting a payload must be covered by FAA licensing and would remain 
subject to FAA regulatory oversight, including financial responsibility 
requirements under 14 CFR part 440.
    Maintenance and refurbishment activities will also be required to 
prepare a vehicle for its next mission and these events may impact 
public safety and risk to third parties, much like pre-flight 
preparatory processing of any launch vehicle. The FAA reserves to 
future rulemaking the matter of regulations governing maintenance and 
refurbishment of a vehicle between RLV missions; however, the FAA 
anticipates

[[Page 56680]]

that when such activity poses risk to uninvolved persons and property 
it may require regulatory oversight, possibly under an FAA license, and 
insurance (or other form of financial responsibility) in the event of 
damage or loss to third parties. Given that such activities are 
preparatory and necessary to ensure safe vehicle flight from Earth, in 
addition to being hazardous, the FAA may determine that such activities 
are properly regulated under the FAA's authority over launch of a 
launch vehicle and subject to financial responsibility requirements in 
accordance with 14 CFR part 440.
    b. End of RLV Launch. The Proposed RLV and Reentry Licensing 
Regulations erroneously failed to specify in the regulatory text that 
launch of an RLV would end upon accomplishment of the launch phase of 
the mission, specifically, payload deployment for those orbital RLVs 
having that as their mission objective. A more elaborate discussion of 
the scope and endpoint of RLV launch authorization appears in the NPRM 
at 64 FR 54452, in order to identify that phase of RLV launch 
operations covered by CSLA-based financial responsibility and risk 
allocation and differentiate them from on-orbit operations not intended 
to be covered by the CSLA risk management regime. The FAA proposed 
payload deployment in order to provide a bright line demarcation 
between authorized launch and other RLV-related operations.
    Eight of the ten comments submitted to the docket addressed the 
appropriate endpoint of RLV launch authorization. Once again, putting 
aside the issue of on orbit jurisdiction over RLV operations, the 
comments did not disagree with the FAA that the event of payload 
deployment proves an appropriate point at which to deem launch 
activities concluded for those RLVs whose mission and design is 
directed at deployment of a payload. However, the comments pointed out 
that many RLVs will have other mission objectives, such as servicing 
the International Space Station or space tourism, and the proposed 
definition is therefore insufficient for those RLVs. Lockheed Martin's 
comments noted that because launch and reentry, but not on orbit 
operations, are events requiring a license and therefore subject to 
CSLA requirements including financial responsibility and allocation of 
risk, it is critical that definitions of launch and reentry be tailored 
to the needs to RLVs and other reentry vehicles.
    In the NPRM, the FAA explained the scope of activities that would 
be comprehended by a launch and reentry license for an RLV mission for 
precisely the reasons indicated by Lockheed Martin. At the time the 
NPRM was issued, the FAA understood that the RLV market would be 
comprised mostly of payload deployment missions conducted to loft and 
replenish low Earth orbit satellite constellations. Accordingly, the 
FAA attempted to define the end of launch for the majority of RLV 
missions forecast in the near term. In light of recent changes in 
market projections and the surge in other aspects of space 
commercialization, it is appropriate to define the endpoint of RLV 
launches that do not involve deployment of a payload. The FAA does so 
in the Final RLV and Reentry Licensing Regulations based upon the FAA's 
public safety concerns and concludes that launch ends upon 
accomplishment of the launch phase of the mission, as discussed in the 
NPRM, 64 FR at 54452. In an effort to provide clarity, the Final RLV 
and Reentry Licensing Regulations provide that the launch phase of the 
mission is accomplished upon payload deployment for those RLVs having 
payload deployment as a mission objective. For other orbital RLV 
missions, the launch phase is accomplished upon completion of the first 
sustained orbit of an RLV in a steady state condition at its intended 
orbit. In the Final RLV and Reentry Licensing Regulations, the FAA 
explains that once an orbit in such condition has been completed, the 
risk of an unplanned event, such as unintentional reentry or collision, 
is sufficiently small that FAA regulatory oversight is no longer 
required to fulfill its public safety mandate.
    The FAA's definition of the appropriate endpoint of an RLV launch 
in which no payload is intended to be deployed is similar in nature to 
suggested alternative endpoints offered in a number of comments. For 
example, Kistler proposed that launch would end for any RLV whether or 
not its mission is payload deployment at the first full cessation of 
thrust after the extinction of the instantaneous impact point (IIP) of 
the vehicle but in no event later than payload deployment. By 
suggesting extinction of the IIP as the appropriate launch endpoint, 
Kistler takes into account risk to the public and property on the 
ground, that is, the point at which vehicle debris would not impact the 
surface of the Earth, should break-up occur. Kistler's suggestions 
avoids a launch scenario in which RLV reentry occurs before payload 
deployment is concluded where the RLV uses an expendable upper stage to 
deploy its payload. The FAA declines to adopt Kistler's proposal 
because it does not address on orbit collision risks that may also be a 
direct result of an RLV launch and therefore does not adequately 
fulfill the FAA's safety mandate.
    Space Access took issue with defining the end of the RLV launch 
differently from the end of an RLV launch and proposed instead that 
launch continues ``through the point after payload separation when the 
last action occurs over which a licensee has direct or indirect control 
over the launch vehicle.'' The FAA does not agree that a control test, 
or an event test that signals the last act of control, is appropriate 
for RLVs given the FAA's understanding that most operators plan to 
retain some form of control over their vehicle while on orbit until it 
reenters. Defining an RLV launch in such a manner would lead to the 
result that launch is not concluded until the mission, inclusive of 
reentry to Earth, has been completed. Under that interpretation, the 
only reentry requiring FAA licensing would be that of a reentry vehicle 
launched initially as a payload that subsequently reenters, as in the 
COMET or METOR situation described in the NPRM or other vehicle meeting 
the definition of rentry vehicle that was not launched as an RLV. The 
FAA concludes that the result of this interpretation runs contrary to 
the statutory definition of reentry inasmuch as a reentry requiring FAA 
licensing under the CLSA specifically includes reentry of an RLV.
    Other suggested endpoints of an RLV launch include the following 
comments.
     The Experimental Rocket Propulsion Society (ERPS), a 
developer of rocket engine technology for use by commercial entities, 
suggested a 3-phase approach to RLV regulations as follows: launch, on 
orbit and reentry. In order to accommodate a broader range of RLV 
missions, ERPS proposes that the launch phase would end when an RLVs 
main engine stops and the desired trajectory or orbit is achieved. 
Doing so is necessary, according to ERPS, to avoid the ``regulatory 
surrealism'' of perpetual launch that would otherwise result for those 
RLVs that will not deploy a payload. ERPS noted that its proposed 
definition of launch could be interpreted to include a circularizing 
burn as part of launch, even though it occurs after main engine cut-
off, because the vehicle is not yet in attainment of its intended 
orbit.
     Orbital Sciences Corporation (Orbital Sciences) suggested 
an expanded definition of launch to mean activities through ``payload 
deployment, insertion into a stable orbit, or

[[Page 56681]]

preparation for reentry, whichever comes first.''
     Boeing recommended a broad definition of RLV launch to 
include accomplishment of the launch phase of any RLV mission. The FAA 
used those words in the supplementary information accompanying the NPRM 
in defining the end of the launch phase as the point of payload 
deployment for RLVs having that as their mission. The FAA agrees with 
Boeing to the extent that the launch phase of the mission is construed 
to mean achieving and securing the intended orbital destination of an 
RLV before other operations are performed. The FAA would not agree with 
Boeing if, by accomplishment of the launch phase of the mission, Boeing 
means to include the conduct of operations on orbit uniquely associated 
with a particular mission, such as International Space Station and 
satellite servicing or on orbit research, as Boeing's comment 
suggested.
     Vela, consistent with its mission approach to RLV flight, 
dismissed the need to define and distinguish among launch and reentry 
for risk allocation purposes as the result of a lack of understanding 
of RLVs in general. In Vela's view, launch will end, even if it is with 
a shower of debris, and must be covered by CSLA financial 
responsibility and allocation of risk.
    The FAA remains mindful of the limits of the statutory grant of 
licensing authority recently extended to it, that is, licensing the 
launch of a launch vehicle and the reentry of a reentry vehicle, and 
restrictions on FAA authority over on orbit operations envisioned by 
the Committee. In the revised definition of launch that appears in the 
Final RLV and Reentry Licensing Regulations, as applied to an RLV, the 
FAA establishes the endpoint of an RLV launch in terms of accomplishing 
the launch phase of a mission and provides bright line clarity in the 
following manner. RLV launch ends upon payload deployment for orbital 
RLVs having that event as a mission objective. For those RLVs, 
deployment of the payload properly identifies the end of the 
transportation service offered by a launch vehicle and for which FAA 
regulatory safety oversight is necessary. Mitigation of collision 
risks, and the associated potential for debris generation, that attend 
payload deployment would also be subject to FAA regulatory controls. 
For those orbitals RLVs that do not have payload deployment as a 
mission objective, launch ends upon completion of the first sustained, 
steady-state orbit of an RLV at its intended destination. This 
definition offers the benefit of avoiding the need for individual 
determinations of the end of an RLV launch on a case-by-case basis 
using other, more particularized mission objectives as the measuring 
yardstick. The FAA includes attainment of the intended orbital 
destination of the vehicle as part of the definition because an RLV may 
fail to reach the orbit for which it was intended. Where that occurs, 
and assuming the vehicle remains in the licensee's control, a licensee 
would typically employ risk mitigation measures and perform maneuvers 
necessary to accomplish an orbital correction rather than risk its 
vehicle and success of the mission. The FAA would view corrective 
maneuvering as part of the launch. The FAA's rationale including such 
corrections as part of the launch is that the intended orbit was 
approved as part of the FAA's launch safety approval and assessment 
process, and anything short of that creates uncertainty and risk from a 
public safety perspective. The FAA would have reviewed hazard analyses 
and risk mitigation measures, such as maneuvering for orbital 
correction, as part of the licensee's application. Thus, it is 
necessary from a regulatory perspective that licensed launch activities 
include adjustments and corrections necessary (and planned and 
evaluated as part of a license application) to achieve vehicle 
stability in the intended orbit. Whereas corrections and adjustments 
performed to achieve the first intended orbital destination are part of 
the launch, the same is not true for on orbit maneuvers performed after 
launch, as defined by the FAA, in the conduct of further RLV business 
in space, such as satellite servicing or docking.
2. Definition of ``Reentry'' of an RLV
    a. Commencement of ``reentry.'' Under the CSLA, as recently 
amended, ``reenter'' and ``reentry'' are defined to mean ``to return or 
attempt to return, purposefully, a reentry vehicle and its payload, if 
any, from Earth orbit or from outer space to Earth.'' 49 U.S.C. 
70102(10). A ``reentry vehicle'' includes an RLV under the CSLA. 49 
U.S.C. 70102(13). The Proposed RLV and Reentry Licensing Regulations 
define ``reentry'' to include ``activities conducted in Earth orbit or 
outer space to determine reentry readiness and that are therefore 
unique to reentry and critical to ensuring public health and safety and 
the safety of property during reentry. 64 FR at 19656.
    In an effort to add clarity and precision to the FAA's 
implementation of reentry licensing authority, the NPRM elaborated upon 
the regulatory definition of ``reentry'' included as part of the 
Proposed RLV Licensing and Reentry Regulations, and amplified upon the 
underlying justification for the agency's proposed approach.
    The NPRM explained, in detail, the FAA's rationale for licensing 
the conduct of reentry readiness activities. Just as risks to public 
safety and to property resulting from launch activities become 
sufficiently heightened to warrant FAA safety regulation upon arrival 
of a launch vehicle at a U.S. launch site, risks to public safety and 
property change upon commencement of certain activities conducted in 
anticipation of reentry flight and likewise rise to a level at which 
safety oversight and approval by the FAA is appropriate. A vehicle must 
be properly positioned and oriented to achieve its intended reentry 
trajectory. Safety systems, hardware, software, and structures must be 
verified to be in reentry-ready condition and configuration to assure 
public safety is not jeopardized as a result of a reentry attempt. 
Except where reentry will occur as a result of ballistic forces, 
adjustments in safety systems and vehicle positioning may be required 
for a licensee to conduct planned reentry as contemplated by its 
license application and in compliance with authority granted by the 
license. Where reentry readiness cannot be verified or achieved, a 
license may be required to employ contingency plans, such as abort to 
orbit or reentry to an alternative, approved location.
    Including those preparatory activities conducted to determine 
reentry readiness as part of licensed reentry does not contravene 
guidance offered by the House Committee on Science (the Committee) in a 
report accompanying passage of H.R. 1702, the predecessor to the CSA, 
on the scope of FAA reentry licensing authority. H. Rep. 105-347, 105th 
Cong., 1st Sess. (Committee Report). Although the Committee Report is 
not binding as law, it provides instructive guidance to the FAA in 
delimiting regulated reentry activity. In it, the Committee 
specifically notes that the legal framework applicable to launch 
applies to reentry. In amending 49 U.S.C. Subtitle IX, chapter 701, the 
CSA grants to the Secretary of Transportation ``the same authority and 
responsibility with respect to the licensing and regulation of the 
reentry of reentry vehicles as existing law provides to the Secretary 
with respect to the launch of vehicles.'' Id. at 21. Under longstanding 
authority, FAA launch licenses authorize preparatory activities 
involving a launch vehicle at a launch site in order to fulfill the 
FAA's safety

[[Page 56682]]

mandate. Licensing is necessary because such activities expose third 
parties to safety risk and therefore require FAA regulatory 
oversight.\5\ Final licensing regulations issued by the FAA on April 
21, 1999, clarify that licensed activity is deemed to begin upon 
arrival of a launch vehicle at a U.S. launch site. The amended CSLA 
imposes on the agency safety responsibility over reentry comparable to 
that applicable to a launch. Because the conduct of reentry readiness 
activities directly affects risk to public safety and to property, 
fulfillment of the agency's safety mandate would best be achieved by 
assuring that such activities are conducted under FAA approval, 
oversight and authority. Accordingly, the Proposed RLV and Reentry 
Licensing Regulations included such activities within the scope of a 
reentry license.
---------------------------------------------------------------------------

    \5\ Recent amendment by the CSA of the statutory definition of 
the term ``launch'' is intended to make clear that preparatory 
activities requiring licensing are those conducted at a launch site 
in the United States. The amendment resulted from concern that 
increasingly mobile launch systems utilizing multiple launch sites 
in preparation for a single mission were not adequately covered by 
FAA licenses.
---------------------------------------------------------------------------

    The Committee Report contemplates flight phases, consistent with 
the FAA's approach to RLV licensing. It provides that ``[t]he Committee 
intends that for purposes of the license requirement, reentry begins 
when the vehicle is prepared specifically for reentry. By way of 
definition, the Committee intends the term to apply to that phase of 
the overall space mission during which the reentry is intentionally 
initiated.'' Id. Additional guidance reflects the Committee's general 
sense that reentry begins when the vehicle's attitude is oriented for 
propulsion firing to place the vehicle on its reentry trajectory, but 
acknowledges that the reentry phase will vary based upon the 
particulars of different vehicle systems.
    In proposing to include preparatory activities as part of the FAA's 
reentry licensing authority, the FAA remained mindful of Committee 
Report language noting that procedures and activities preceding 
initiation of reentry are not intended to be encompassed within the 
agency's licensing authority. Id. at 22. At the same, the Committee 
acknowledged the FAA's need to assure itself of a licensee's capability 
to carry out safe reentry without jeopardizing critical national 
interests.
    Reentry licensing authority, as proposed by the FAA in Proposed RLV 
and Reentry Licensing Regulations, would also be consistent with this 
aspect of the Committee Report guidance. Reentry licensing would be 
confined to those activities that would have direct impacts upon public 
safety and the safety of property if not performed in accordance with 
FAA approvals. The conduct of such activities may trigger or 
proximately result in occurrence of an anomalous event causing damage 
or loss to persons or property not involved in the reentry. Moreover, 
the FAA's safety review and approval is premised upon the adequacy from 
a public safety perspective of the conduct of such activities which, if 
not done properly, could invalidate the basis upon which the FAA 
determined that reentry could be performed safely. Hence, only those 
activities that are unique to reentry and critical to carrying out safe 
reentry, as opposed to those that are merely indicative of an 
operator's capabilities, would require an FAA license.
    Consequences of a non-nominal reentry would therefore be addressed 
through CSLA risk allocation measures if reentry occurs in the course 
of licensed activity or is determined to result from activity carried 
out under the license, that is, if a fact-based inquiry indicates a 
sufficient casual nexus exists between the claim and licensed activity. 
Non-nominal reentry resulting from unlicensed activity, on orbit, after 
a nominal launch would not qualify for indemnification, nor would 
claims resulting from collision with another orbiting space object 
during unlicensed on orbit activity.
    The NPRM further pointed out the benefits of licensing reentry 
readiness activities under the FAA's reentry authority. By including 
within the regulatory definition of ``reentry'' those activities 
conducted to determine reentry readiness, such as verification of 
safety systems and performance of reentry system status checks, the 
Proposed RLV and Reentry Licensing Regulations would include certain 
preparatory activities within the scope of a reentry license. The 
proposed definition would implement effectively the FAA's safety 
responsibilities and, from a financial responsibility perspective, 
enable and enhance meaningful risk allocation under the CSLA. Thus, 
operators would be relieved of the need to privately manage the risks 
that would otherwise attend such activities. Because risk to public 
safety and the safety of property change upon commencement of reentry 
readiness activities, and because such activities are directly related 
to protecting public safety and the safety of property, including 
preparatory activities as part of licensed activity ensures meaningful 
risk management and allocation for reentry operations in accordance 
with CSLA objectives. In determining insurance requirements for a 
licensed reentry, the FAA would identify sufficiently probable risks 
and outcomes that would result from reentry readiness activities under 
a license and set financial responsibility requirements accordingly.
    Where vehicle operations are not licensed, the FAA noted in the 
NPRM that reentry vehicle operators must manage resultant risks as a 
private business decision. As stated in the NPRM, the United States 
accepts fault-based liability as a launching State under the Liability 
Convention, Article III, for damage to another launching State's on 
orbit space object if damage is the fault of the government or persons 
for whom the United States is responsible. Absent a clear casual nexus 
to a licensed launch or reentry, risk allocation under the CSLA does 
not apply and indemnification would not be available to cover liability 
of launch or reentry participants to third parties for on orbit damage. 
Where the statute does not apply, the government may fulfill its treaty 
obligations and seek contribution or compensation from entities at 
fault for the damage.
    At the time the NPRM was issued the FAA understood that most of the 
RLVs under contemplation and development were intended to spend minimal 
time on orbit in order to reduce costs and risks to the vehicle. 
Additional time spent on orbit would entail additional cost and expose 
the vehicle to risk from other orbiting objects. Once returned to 
Earth, an RLV could be secured intact and refurbished for its next 
mission. It therefore seemed likely that most EPA operators would seek 
swift return of their valuable asset and would not leave a vehicle 
exposed to the risks of the space environment except as necessary to 
engage in activities and check outs designed to ensure the vehicle 
could return safely and intact, in accordance with the approval for 
reentry granted by an FAA license. Accordingly, the FAA forecast that 
payload deployment would be followed immediately by preparation for 
reentry and therefore seamless financial responsibility coverage under 
the CSLA would result. For those RLVs, a non-nominal reentry would 
generally occur as a result of licensed reentry and would be covered by 
CSLA-directed financial responsibility. In this context, the FAA 
requested comment on the scope of proposed reentry licensing authority 
from a financial responsibility and risk management perspective. The 
FAA also sought comments from a financial responsibility and risk 
management perspective on the

[[Page 56683]]

appropriate commencement of reentry licensing authority for other RLV 
missions, such as those with delayed reentry or that are intended to 
perform on orbit activities not deemed ``launch'' or ``reentry.''
    Boeing expressed dissatisfaction with the proposed definition of 
reentry because of the potential for interpretive conflicts over 
qualifying activities. For consistency, Boeing suggested that reentry 
begins, for regulatory purposes, with planning activities, followed by 
ignition of RLV retrograde propulsion systems and subsequent first 
movement toward the atmospheric entry interface (EI). The FAA does not 
agree that Boeing's suggestion adds clarity to the proposed definition. 
Although reference to ignition and subsequent events is clear, the FAA 
does not believe that reference to ``planning activities avoids the 
potential for debate Boeing believes will result from the FAA's 
proposed definition and, as discussed in the companion Final RLV and 
Reentry Licensing Regulations does not make any change to the 
definition on the basis of Boeing's comment.
    Kistler also regarded as imprecise the FAA's proposed definition of 
reentry inasmuch as it may be impossible to attribute an on orbit 
activity exclusively to reentry or in furtherance of reentry readiness. 
More importantly, Kistler suggested that in applying this definition, 
the FAA has attempted to regulate on orbit operations that Congress did 
not intend the FAA to license. According to Kistler, to the extent the 
FAA has done so in an effort to extend to an anomalous reentry the 
benefits of the CSLA financial responsibility and risk allocation 
regime, specifically indemnification, Kistler does not believe such 
regulatory oversight is necessary or within the agency's authority. In 
support of its position, Kistler noted that the NASA Space Shuttle, the 
only operational RLV, has never experienced an unplanned reentry. 
Moreover, should a vehicle experience a non-nominal reentry, it would 
in all likelihood break up and/or burn up upon entry into Earth 
atmosphere and there would be no need for indemnification, according to 
Kistler. The FAA acknowledges that although this statement may be 
correct for certain vehicles, the Final RLV and Reentry Licensing 
Regulations address the agency's regulatory approach to evaluating the 
hazards that attend random reentry.
    Kistler further noted that a non-nominal reentry that is 
accidental, inadvertent, unplanned, unintentional or unexpected would 
not satisfy the statutory definition of a reentry inasmuch as it cannot 
be termed ``purposeful.'' Kistler cited congressional report language 
stating the ``[b]y way of definition, the Committee intends the term to 
apply to that phase of the overall space mission during which reentry 
is intentionally initiated.'' (Emphasis supplied.) Therefore, reentry 
readiness activities conducted on orbit are outside the scope of FAA 
licensing jurisdiction, according to Kistler, and indemnification to 
cover inadvertent reentries is not required by the CSLA.
    In place of the FAA's definition, Kistler suggested that, for 
purposes of FAA licensing, reentry should not be deemed to begin before 
an IIP is created and in no event should it exceed the expectation 
reflected in the Committee Report that reentry begins when the 
vehicle's attitude is oriented for propulsion firing to place the 
vehicle on its reentry trajectory. Kistler argued that by limiting 
reentry to vehicle orientation for propulsion firing, the Committee 
intended to extend indemnification to ``what it perceived as an 
operation (reentry) that posed a threat to people and assets on the 
ground.'' According to Kistler, a misplaced desire to extend to an 
unplanned reentry the benefits of indemnification by licensing on orbit 
activities would burden industry by requiring additional analyses and 
insurance without any needed benefit.
    ERPS similarly suggested that the FAA proposed to define reentry 
too broadly by including on orbit operations commencing immediately 
upon payload deployment in an effort to extend to a non-nominal reentry 
the benefits of statutory indemnification. ERPS agreed with including 
within the scope of a reentry license activities conducted on orbit in 
preparation for reentry, as defined by the FAA, but disagreed that such 
activities would necessarily commence immediately upon deployment of a 
payload. According to ERPS, a non-nominal reentry is a purposeful 
intentional event subject to FAA reentry licensing; however, a 
premature reentry would be an unintentional event. Nevertheless, ERPS 
suggested that having obtained an FAA license and having the intent to 
reenter, together, would be sufficient to satisfy the CSLA and extend 
statutory indemnification to the consequences of a non-nominal reentry 
event, whenever it occurs. In ERPS's opinion, this interpretation of 
the CSLA is preferable to regulation of an orbit activities following 
payload deployment in order to conclude that indemnification would be 
available in the event of a premature, errant or otherwise non-nominal 
reentry. ERPS expressed its views in the face of extensive discussion 
in the NPRM of non-nominal reentry from a financial responsibility and 
risk allocation perspective. (See NPRM, 64 FR at 54453-54455).
    The FAA has not suggested that the term ``purposefully'' that 
appears in the statutory definition of ``reenter'' and ``reentry'' is 
intended to necessarily exclude premature or other non-nominal 
reentries from the risks intended to be addressed through CSLA-directed 
financial responsibility and risk allocation. Rather, it was included, 
the FAA believes, to distinguish planned intentional reentry of a 
reentry vehicle from entry into Earth atmosphere of debris and other 
objects that are not reentry vehicles, that is, that are not designed 
to reenter substantially intact, and that deorbit naturally as a result 
of the space environment and orbital mechanics, such as orbital decay. 
The FAA considers unplanned events that occur during licensed activity, 
such as premature or non-nominal reentry, to result from licensed 
activity and would require financial responsibility to cover the 
consequences of such events. Similarly, an unplanned or premature 
launch of an ELV has occurred. For example, ELV launches have occurred 
at a Federal range facility as a result of electrical charges supplied 
through static electricity. Had such an event occurred during a 
licensed launch, CSLA financial responsibility and risk allocation 
would address the consequences.
    The basis for including reentry readiness activities as part of FAA 
licensing authority over reentry is not to maximize indemnification 
benefits for RLV and reentry vehicle operators. Rather, licensing is 
appropriate because of the safety risks presented by such activities 
and the need for FAA regulatory oversight in fulfilling the agency's 
statutory safety mandate. Covering activities that present public 
safety risks through the CSLA financial responsibility and allocation 
or risk regime assures that risks that have the greatest likelihood of 
occurrence and for which insurance is warranted are, in fact, covered 
up to the agency's determination of maximum probable loss and makes 
risk management under the CSLA a meaningful program.
    ERPS agreed with the FAA's proposed definition of reentry to 
include reentry readiness activities that are unique to reentry and 
critical to ensuring safety, but finds no rationale in congressional 
report language or the NPRM to conclude that reentry would therefore 
begin immediately following payload deployment. ERPS suggested that

[[Page 56684]]

reentry begins at preparation for retrofire for orbital vehicles, and 
for suborbital vehicles at preparation for atmospheric interface. 
ERPS's concerns reflect its tentative conclusion that the FAA 
essentially requires reentry to begin immediately following payload 
deployment, thereby forbidding on orbit operations. ERPS is incorrect 
in its reading of the NPRM. The FAA would neither require immediate 
reentry, nor forbid on orbit operations. In using payload deployment as 
the point of demarcation between the end of an RLV launch followed 
promptly by reentry, the FAA was attempting to address the majority of 
missions envisioned for RLVs at the time the NPRM was issued. Under the 
Final RLV and Reentry Licensing Regulations, commencement of licensed 
reentry would be defined under the terms of an RLV mission license 
based upon application of the principles established in that companion 
rulemaking.
    Lockheed Martin noted in its comments that definitions of launch 
and reentry must be tailored to the needs of RLVs and other rentry 
vehicles and that identifying a uniform point at which reentry begins 
for all RLVs may not be appropriate.
    The FAA appreciates the concern expressed by Lockheed Martin but 
believes it vital for RLV operators to understand early in RLV and 
mission design and planning the point at which an RLV would covered by 
a license and the CSLA financial responsibility and risk allocation 
regime. Doing so is necessary to enable RLV developers and operators to 
make informed business and risk management, as well as mission design, 
decisions regarding unlicensed operations. Accordingly, in the Final 
RLV and Reentry Licensing Regulations, the FAA defines the commencement 
of reentry as occurring upon the conduct of reentry readiness 
activities that are critical to ensuring public health and safety and 
the safety of property during reentry. Reentry readiness activities 
include those necessary to accomplish and verify proper vehicle 
orientation, as well as other safety-critical checks that may be 
identified or defined in a license term addressing the unique 
capabilities of a particular vehicle. Activities would not need to be 
unique to reentry for FAA licensing authority to apply, as discussed in 
the companion Final RLV and Reentry Licensing Regulations. The point at 
which licensed activity is deemed to commence for a specific RLV 
mission would depend upon the unique characteristics and systems of an 
RLV proposed for flight and would be identified in the license. 
Concerns of Lockheed Martin should be alleviated, as differences in 
vehicle systems are addressed through the licensing process.
    b. End of Reentry. Licensed reentry includes landing or other 
impact on Earth, as indicated in the Proposed RLV and Reentry Licensing 
Regulations, and financial responsibility would be required to cover 
injury, damage or loss to third parties and U.S. Government property 
resulting from reentry. For ground operations at a reentry site, the 
NPRM proposed that financial responsibility for reentry remain in 
effect until completion of licensed reentry activities at the site. The 
term ``licensed reentry activities'' would be defined in licensing 
regulations or by a license. To address other liability considerations 
that attend licensed reentry, including an attempted reentry, the NPRM 
proposed that financial responsibility remain in place thirty days from 
initiation of reentry flight, unless a reentry were aborted on orbit. 
Under those circumstances, the FAA would determine in advance of rentry 
and based upon its hazard analysis and risk assessment, when risk to 
third parties and government property resulting from a licensed reentry 
\6\ were sufficiently small as to eliminate the need for insurance 
provided by the licensee.
---------------------------------------------------------------------------

    \6\ Reentry includes attempted reentry by stature; hence, an 
abort while in orbit would be covered by a reentry license and 
considered in determining MPL for a mission.
---------------------------------------------------------------------------

    As previously indicated, in pointing out deficiencies in the 
proposed definition of ``launch'' as it applies to an RLV, a number of 
comments equated reentry on Earth with arrival of a launch vehicle at a 
launch site. ERPS observed that definitions of launch and reentry for 
an RLV should be tied to ground operations, rather than specific marker 
events such as arrival of a lunch vehicle at a U.S. launch site, to 
avoid illogical results such as launch beginning upon reentry impact at 
a reentry site (assuming the reentry site is also a U.S. launch site). 
ERPS suggested that the reentry phase of RLV operations ends when 
vehicle engines stop and upon completion of post-flight ground 
operations that hazardous and unique to space transportation. 
Similarly, Space Access suggested, as the reentry endpoint, the last 
action performed after landing to safe the RLV for ground servicing in 
order to separate reentry activities from subsequent launch activities.
    For ground operations, which seemed to generate the most concern 
among commenters, the end of reentry is defined in the Final RLV and 
Reentry Licensing Regulations to include post-flight ground operations 
conducted to ensure a reentry vehicle does not pose a threat to public 
health and safety or the safety of property. Doing so ensures that 
hazardous ground operations are covered by an FAA license, consistent 
with ERP's comment.
    The FAA agrees with an observation offered by ERPS that where an 
RLV uses a single site as it launch and reentry site, a revised 
definition of the commencement of licensed launch activities would be 
appropriate for a follow-on RLV mission from the same site because the 
vehicle does not arrive at the gate. The FAA understands that 
additional regulations addressing maintenance and refurbishment 
operations between RLV missions may be appropriate and has a research 
program under way for purposes of identifying operations and 
maintenance procedures that will be associated with RLV operations. The 
FAA has presented its research plan to the RLV Working Group of the 
Commercial Space Transportation Advisory Committee (COMSTAC) in an 
effort to gain understanding of the kinds of operations and maintenance 
issues that may require a regulatory solution. As a result of its 
research, the FAA hopes to benefit from enhanced understanding of when 
such activities may be deemed to commence when a launch site is also 
the reentry site for that vehicle.

Comments on Financial Responsibility Aspects of RLV Mission Licensing

    Launch and reentry authorizations may be combined in a single 
license for administrative convenience to the FAA and its regulated 
entities. However, combining the authorizations to launch and reenter 
an RLV does not remove or relieve a licensee's responsibility for 
complying with financial responsibility requirements for both flight 
phases. Under the CSLA, as amended, insurance requirements attach to a 
launch license and a reentry license and, for each phase, statutory 
ceilings on such requirements would apply separately. That is, up to 
$500 million of liability insurance based upon maximum probable loss 
from third-party claims may be required for launch, and up to $500 
million of liability insurance may also be required for reentry. Unlike 
an ELV launch for which a catastrophic event generally signals the end 
of vehicle flight, it is possible to suffer a catastrophic event during 
either, or both, flight phases of launch and reentry, particularly 
where the launch vehicle is a multi-stage RLV, and financial 
responsibility must be available to respond to claims arising

[[Page 56685]]

out of either flight phase. By corollary, in the remarkable event that 
catastrophic claims result from both flight phases, indemnification up 
to the statutory ceiling would be available to respond to excess claims 
arising out of both licensed launch and licensed reentry.
    The FAA proposed to reserve authority to establish differentiated 
insurance requirements as opposed to a uniform amount that must be 
satisfied for both flight phases. Risk-based methodology, known as 
maximum probable loss or MPL, would be applied to RLV mission proposals 
to assess launch and reentry risks associated with the mission and 
establish insurance requirements for launch and reentry flight. Where 
the monetary value attributed to such risk are comparable for launch 
and reentry, a uniform level of insurance would be appropriate and the 
FAA would impose parallel requirements for launch and reentry. However, 
where the value, in terms of a dollar amount, of launch risk is 
measurably different from reentry risk, the FAA would consider it 
appropriate to differentiate requirements for RLV launch and reentry. 
For example, an RLV may possess greater blast capability and explosive 
potential during launch when it is fully fueled than during reentry 
when it would have exhausted or expelled all or most of its hazardous 
propellants, justifying a higher amount of financial responsibility for 
launch than would be necessary for reentry. Under another example, a 
fully fueled launch vehicle lifting off from an inland launch site may 
pose greater risk to third parties in terms of the FAA's maximum 
probable loss analysis than would reentry to a coastal reentry site of 
a vehicle whose fuel supply has been depleted and that contains no 
hazardous materials.
    Where risks are comparable in magnitude such that uniform 
requirements are established for both licensed flight phases of the 
mission, it is still the case that financial responsibility must be 
available to respond to claims arising during either or both flight 
phases. Imposition by the FAA of uniform requirements for launch and 
reentry flight phases of an RLV mission does not relieve or limit the 
responsibility of a licensee to cover the liability that may result 
from an RLV mission. In the NPRM, the FAA stressed that financial 
responsibility requirements would apply to both the launch of an RLV 
and its entry, up to statutory ceilings. Events resulting in third 
party liability could occur during either or both flight phases (launch 
and reentry) of an RLV, and financial responsibility must be available 
to respond to claims arising out of either flight phase. A licensee 
would not be relieved of financial responsibility for reentry in the 
event that its RLV launch results in claims up to or exceeding the 
launch liability policy limits established by the FAA.
    Whether or not uniform requirements would be imposed on all 
segments of licensed RLV flight, as opposed to differentiated 
requirements covering launch risk as distinct from reentry risk, the 
licensee would be responsible for covering the liability that results 
from licensed activity up to prescribed ceilings. The FAA proposed to 
reserve authority to make its determination on a case-by-case basis, 
based upon the results of its risk-based maximumprobable loss analysis. 
Given that the FAA proposes to authorize RLV missions using a single 
license to cover launch and reentry flight, the FAA sought public 
comment on the practicalities of differentiating launch or ascent risk 
from reentry or descent risk from a risk management and insurance 
perspective.
    A number of comments expressed reservations about the practical 
effects of distinguishing launch from reentry financial responsibility 
for an RLV mission.
    Lockheed Martin, in consultation with its insurance providers, 
indicated that claims processing for a single mission could be 
hampered, particularly where disputes could arise as to whether a claim 
arose out of licensed or unlicensed (e.g., on orbit) activity. Seamless 
financial responsibility requirements avoid such difficulties; however, 
Lockheed Martin acknowledges that the FAA would have to have the 
statutory authority currently lacking to license on orbit activities, 
thereby extending financial responsibility burdens and benefits to the 
conduct of such activities. Nevertheless, Lockheed Martin did not 
advocate extending CSLA financial responsibility and risk allocation 
measures to on orbit operation of RLVs. Rather, Lockhead Martin noted 
that it is premature to conclude that it would be necessary or 
desirable to do so in light of the early stage of RLV development and 
lack of appreciation as yet for the scope of on orbit activities to be 
performed by RLVs and their attendant risks.
    Marsh observed that seams in financial responsibility, both in 
terms of licensed as opposed to unlicensed activity, and in terms of 
differentiated requirements for launch as opposed to entry, may lead to 
disputes cover (e.g., whether a claim results from a covered 
occurrence) and limits (e.g., the occurrence is a covered event but up 
to what limit of insurance).
    Orbital Sciences noted that differentiating launch from reentry 
insurance requirements could be done at the election of the licensee, 
where for example, there may be cost benefits for the licensee.
    The FAA appreciates these observations and considered, as an 
alternative, whether certain disputes may best be avoided by requiring 
a for uniform demonstration of insurance all licensed flight in the 
higher amount where MPL analysis for launch and reentry yields 
measurably different results. This alternative has the benefit of 
removing disputes as to whether an occurrence arose during launch or 
reentry because the available limits of coverage would be constant 
regardless of when the event occurred, or if both launch reentry events 
contributed to the damage, as long as the damage is not claimed to 
occur during, or result from unlicensed activity. Even so, certain 
underwriters might be willing to accept launch-related risks, but not 
those having to do with reentry, or vice versa. However, 
notwithstanding the benefits of uniform and consistent insurance 
requirements for all licensed flight, the FAA concludes that it is 
bound to abide by the plain direction of the statute to set insurance 
requirements based upon risk, and not for administrative convenience. 
Absent practical experience in administering combinations of launch and 
reentry MPL-based requirements in an RLV mission license, the FAA 
believes it is premature to change its longstanding approach to setting 
risk-based insurance requirements based upon actual assessment of risk. 
Accordingly, the FAA reserves discretion to issue differentiated 
insurance requirements for the conduct of an RLV mission to cover 
launch and reentry risks. The FAA also understands that variations in 
liability policies regarding coverage for an occurrence, as the term is 
defined in the policy, may also result in disputes between insurer and 
insured and licensees are reminded that, by statute, insurance coverage 
must be available to respond to claims that result from an activity 
carried out under the license.
    Space Access urged a single, seamless financial responsibility 
requirement for all RLVs, from a technical and practical perspective. 
As a technical matter, Space Access believes that all RLV activity will 
affect long-term safety of launch and reentry and should be subject to 
CSLA requirements throughout an RLV mission. From the practical 
perspective of paperwork

[[Page 56686]]

burdens on the licensee, it expressed concern that differentiated 
requirements for launch and reentry will complicate the paperwork 
necessary to demonstrate compliance with financial responsibility 
requirements.
    The FAA does not agree that differentiating the amount of financial 
responsibility required for launch as distinct from reentry adds 
measurably to a licensee's compliance burden. Compliance may be 
demonstrated through a single policy evidencing coverage for all 
licensed activity. Similarly, a single opinion letter from the 
insurance broker issuing the certificate of insurance and corporate 
certification of compliance may suffice if the documents address all 
licensed activity. No change is made in the FAA's approach to requiring 
insurance for launch and reentry on the basis of the Space Access 
comment.
    Vela found no more basis for differentiating launch from reentry in 
terms of setting financial responsibility requirements than it did for 
licensing launch separately from reentry.\7\ According to Vela, it may 
be appropriate to differentiate requirements when the vehicle's payload 
will return separately from the RLV, as would be the case for a COMET/
METEOR type of reentry vehicle. The FAA agrees that financial 
responsibility requirements apply to reentry of a payload that is 
itself a reentry vehicle. An operator of such a reentry vehicle is 
required to satisfy part 450.
---------------------------------------------------------------------------

    \7\ Vela pointed out that an aborted RLV launch will land fully 
fueled. However, that contingency would be evaluated as part of the 
safety review for the mission and the associated risk, measured in 
terms of the probable value of loss to third parties and Government 
property, associated with an aborted launch would be assessed in 
establishing launch MPL.
---------------------------------------------------------------------------

Comments on Financial Responsibility for Suborbital RLV Missions

    An RLV that operates as a suborbital rocket inasmuch as it does not 
enter Earth orbit may be licensed under the FAA's longstanding launch 
licensing authority over suborbital rockets and subject to a single 
insurance requirement, issued under part 440, for all flight. However, 
the Proposed RLV and Reentry Licensing Regulations pointed out that the 
return to Earth of certain suborbital RLVs may also be licensable as a 
reentry. As the Proposed RLV and Reentry Licensing Regulations also 
noted, until passage of the CSA it was not clear whether Congress 
intended to extend to intact landing of such vehicles on Earth the 
financial responsibility and risk allocation requirements and benefits 
of the CSLA, and particularly indemnification, because of the unique 
risks posed by intact landing. In that proposal, the FAA suggested that 
the better approach to licensing suborbital RLV missions would be to 
regard them as launch and reentry, rather than a suborbital launch of a 
launch vehicle to ensure consistency in the measure of risk to which 
the public would be exposed from RLV operations. Accordingly, the FAA 
would apply to RLVs the same mission risk criteria calculated in terms 
of expected casualties, or Ec, whether an RLV reenters from 
Earth orbit or returns as part of a suborbital mission. From a safety 
and risk standpoint, no distinction is made in the Final RLV and 
Reentry Licensing Regulations between launch and reentry of an orbital 
RLV and a suborbital RLV. Any RLV mission would be licensed using the 
safety requirements set forth in that final rule. However, where the 
return to Earth of a suborbital RLV qualifies as a reentry, the FAA 
sought public comment on whether to impose financial responsibility 
requirements upon its launch as distinct from its reentry.
    The FAA's request for comments on the proposed distinction between 
suborbital RLVs that are also reentry vehicles and those that are not, 
yielded several requests for a definition of where outer space begins. 
Under its mission approach to licensing suborbitally operated RLVs, 
there is no need to delimit outer space for purposes of assuring 
financial responsibility for the mission, as all RLV flight would be 
covered by FAA requirements.
    Vela misconstrued the request for comments from a financial 
responsibility standpoint on distinctions between a suborbitally 
operated RLV and those that are not in arguing that the entire flight 
is subject to licensing, whether or not it reaches a certain altitude. 
There is no issues as to licensing. The issue posed by the FAA was 
whether certain RLVs should be subject to a single insurance 
requirement for the life of the mission or subject to differentiated 
requirements because they launch and reenter without entering Earth 
orbit. Comments submitted by Space Access advocated a single, seamless 
determination of financial responsibility for all RLVs, whether or not 
they satisfy the definition of a reentry vehicle.
    The FAA clarifies its intent with regard to suborbitally operated 
RLVs in this final rule. The FAA has determined that, consistent with 
launch and reentry licensing and associated risk management 
requirements under the CSLA, separate MPL determinations and insurance 
requirements are appropriate for those RLVs that enter Earth orbit. The 
requirement for human intervention before commencing reentry, including 
positive enabling of reentry under the Final RLV and Reentry Licensing 
Regulations, along with the potential conduct of other intervening 
activity between launch and reentry, warrant separate MPL analyses and 
financial responsibility requirements to address the risks that attend 
launch and reentry of RLVs that enter Earth orbit. However, for those 
RLVs that operate in a suborbital manner, that is, vehicles that do not 
enter a closed path and for which return to Earth is a matter of 
physics rather than human intervention, a single determination of 
financial responsibility covering all flight risk is deemed 
appropriate. For such vehicles, satisfaction of part 440 insurance 
requirements would be necessary to address the risks that attend 
operation of a suborbital RLV. Use of the reciprocal wavier of claims 
agreement contained in part 440, Appendix B, would be sufficient to 
encompass all participants in the mission; however, the FAA would not 
object to use of the form of agreement that appears in Appendix B of 
this final rule.

Financial Responsibility for Reentry of a Reentry Vehicle Other 
Than an RLV

    The NPRM focuses upon risk management issues that attend RLV 
operation but queried when licensed activities should be deemed to 
commence for other licensed reentries in order to ensure meaningful 
implementation of statutory financial responsibility and risk 
allocation requirements.
    The Final RLV and Reentry Licensing Regulations apply consistent 
criteria in defining reentry of an RLV and a reentry vehicle. The same 
public safety considerations that support FAA licensing authority over 
reentry activities conducted to determine reentry readiness are also 
presented by reentry of reentry vehicles that are not RLVs.
    Few comments were directed specifically at reentry of a reentry 
vehicle other than an RLV; however, as previously noted, Vela commented 
that for such reentries it may be appropriate to differentiate reentry 
from launch financial responsibility requirements, and the FAA agrees.
    Requirements contained in this final rule also to reentry of a 
reentry vehicle other than an RLV. Prospective operators of such 
vehicles will not have the benefit of seamless financial responsibility 
that RLV operators may enjoy in certain circumstances and must

[[Page 56687]]

manage liability risk associated with vehicle operations on orbit 
before commencing reentry entirely through private insurance. In 
managing those risks, reentry licensees, their customers and 
contractors and subcontractors must bear in mind that absent a clear 
causal nexus to a licensed launch or reentry, statutory risk allocation 
provisions, including indemnification, would not apply to cover their 
liability to third parties, including liability for damage to other 
space objects on orbit. Where the statute does not apply and the U.S. 
Government bears fault-based liability as a launching State under the 
Liability Convention because of on orbit damage caused by persons for 
whom the United States is responsible, the government may fulfill its 
treaty obligations and seek contribution or compensation from entities 
at fault for the damage.

Other General Comments

    A number of comments to the docket remarked generally and favorably 
upon various aspects of the rulemaking. Kistler, in a particular, noted 
the positive benefits of rulemaking in eliminating regulatory 
uncertainty. A number of entities submitting comments to the docket 
have years of practical experience in demonstrating compliance with 
financial responsibility requirements for licensed launches. Others 
have no comparable experience because they have never been licensed by 
the FAA to operate a launch vehicle. However, none of the entities 
submitting comments has experience with regulatory requirements for 
reentry financial responsibility because commercial, or non-federal, 
reentry capability has yet to be presented to the FAA for formal 
licensing.
    Accordingly, comments submitted included the following general 
observations for agency consideration and requests for guidance and 
clarification from the FAA.
    Space Access requested clarification as to whether FAA licensing 
and insurance requirements, along with indemnification benefits of the 
CSLA, would apply to a developmental flight test short of an orbital or 
suborbital profile. Space Access noted the importance of understanding 
the regulatory and financial responsibility framework applicable to 
flight test activity because it is more hazards than launch and reentry 
of a proven vehicle.
    For purposes of implementing its licensing authority under the 
CSLA, the FAA does not distinguish between a flight test for technology 
development purposes and commercial use of a proven, operational 
vehicle as long as the activity qualifies as launch of a launch vehicle 
or reentry of a reentry vehicle subject to licensing under the CSLA. 
However, operational restrictions would vary depending upon whether a 
vehicle is deemed proven or unproven. Experimental activities may be 
performed that would not qualify as launch or reentry of a launch or 
reentry vehicle, respectively, under the statute and FAA implementing 
regulations, and persons interested in performing such activities 
should consult the FAA to determine whether they must obtain a license. 
Financial responsibility requirements and allocation of risk under the 
CSLA would attach to any licensed launch or reentry, whether it is a 
flight test or operation of a proven vehicle, but would not apply to 
unlicensed vehicle operations.
    ERPS asked whether the FAA plans to specify the conditions under 
which a licensee would be forced to accept a random reentry, such as 
that resulting from an abort while on orbit followed by natural 
reentry, and how the presence of crew or passengers would affect the 
determination. As a general matter, the FAA does not necessarily 
require random reentry in the event nominal reentry criteria cannot be 
accomplished or verified by the licensee. The FAA envisions that a non-
nominal reentry may, depending upon the circumstances, pose less 
jeopardy to public safety than would a random reentry. For example, an 
applicant may demonstrate as part of its hazard identification and risk 
assessment that a non-nominal reentry would have a 500-mile footprint 
but that the footprint can accurately be targeted within the Pacific 
Ocean, thereby avoiding population. These variables would be evaluated 
and assessed as part of the licensing process in advance of an RLV 
mission or launch involving a reentry vehicle. Whether or not an 
aborted reentry that leaves an RLV in orbit or an otherwise random 
reentry would be required would depend upon the safety demonstration 
and risk mitigation measures developed by a licensee as part of its 
application. The FAA envisions that a designer or operator of a manned 
vehicle would provide procedures for safe return of crew and passengers 
under non-nominal conditions as part of its application, and 
demonstrate the adequacy of such procedures from a public safety and 
risk perspective, thereby eliminating random reentry as an option.
    New Mexico requested that final rules governing reentry financial 
responsibility differentiate between ballistic reentry vehicles and 
RLVs. New Mexico pointed out that RLVs would be aerodynamically 
controllable and are therefore inherently more reliable and pose less 
risk of liability than would a ballistic type of reentry vehicle, such 
as COMET.
    The NPRM relies upon the statutory definition of a reentry vehicle 
which includes certain RLVs, although the NPRM solicited comments on 
the appropriate commencement point of licensed activity for those 
reentry vehicles that are not RLVs. Vehicle reliability does not alter 
rules governing implementation of the CSLA financial responsibility and 
allocation of risk regime. It is a factor that would enter into the 
FAA's risk-based determination of the value of the maximum probable 
loss that may result to third parties and government property from 
licensed activities.
    New Mexico further pointed out that the MPL methodology deemed by 
the FAA appropriate and adequate for a ballistic reentry vehicle, such 
as COMET, is outmoded and inadequate for controllable RLVs that can 
target a landing footprint comparable to a runway.
    The FAA is charged by law with establishing liability and 
government property insurance requirements based upon an assessment of 
the probability of loss. The FAA intends to continue use of existing 
MPL methodology in order to address the risks posed by the full range 
of RLVs and other reentry vehicles that may be under development, as it 
currently does for innovative space launch concepts, such as airborne 
and platform-based launch systems. Ability of an operator to control an 
RLV during reentry is an additional factor that could affect an MPL 
determination.
    Additional information on risk-based methodology for establishing 
insurance requirements is found in the supplementary information 
accompanying proposed rules governing financial responsibility for 
licensed launch activities, issued July 25, 1996 (61 FR 38992-39021), 
and issurance of final part 440 rules, issued August 26, 1998 (63 FR 
45592-45625). Both documents are available from the FAA web site at 
http://ast.faa.gov.
    Boeing requested that the FAA reconcile how it would implement 
financial responsibility requirements for reentry into a foreign 
jurisdiction with requirements imposed by that jurisdiction, and what 
rights and obligations the licensee may have in the process, if any.
    Under the CSLA, a license is required for a U.S. citizen to launch 
a launch vehicle or reenter a reentry vehicle

[[Page 56688]]

outside the United States.\8\ It directs the Department of 
Transportation (and by delegation the FAA) to establish financial 
responsibility requirements for each launch and reentry license issued 
by the agency. The CSLA addresses circumstances under which a U.S. 
entity seeks authorization to conduct its space transportation activity 
at a location that is outside U.S. territory, as Orbital Sciences did 
when it conducted its successful launch of the Pegasus XL vehicle 
system from Spain. Although a license issued by the FAA is required for 
a U.S. entity to conduct such activities abroad, a license does not 
convey the right to that entity to enter another sovereignty and 
conduct operations. For this reason, the FAA does not license, nor does 
the CSLA define ``launch'' to include, preparatory activities conducted 
at a launch site outside of the United States. The laws of a foreign 
sovereignty would apply to activities conducted within that territory. 
It is possible that overlapping or duplicative requirements would 
result where the United States and the foreign government providing a 
launch or reentry site share concurrent jurisdiction, as may be the 
case where a foreign government also requires insurance for space 
activities conducted from or directed at its territory, and the 
licensee would need to satisfy both governments' requirements. Where 
the requirement in question is to obtain liability insurance, 
satisfaction of differing requirements may best be accomplished by 
insuring to the highest required limit and naming both governments as 
additional insureds under the policy. More problematic would be the 
circumstance where technical safety requirements are inconsistent as a 
result of concurrent jurisdiction. Under those circumstances, liability 
of the two governments to reconcile requirements may impede a favorable 
licensing determination and foreclose the ability of the U.S. entity to 
use the foreign site. The FAA has not yet encountered this situation.
---------------------------------------------------------------------------

    \8\ A U.S. citizen-controlled foreign entity requires a license 
under particular circumstances. See Final RLV and Reentry Licensing 
Regulations, 14 CFR 413.3(c).
---------------------------------------------------------------------------

    Boeing asked how the Outer Space Treaties enter the regulatory 
process for licensing and requiring financial responsibility for 
reentry. Though its licensing and regulatory program, the FAA 
implements national law, specifically the CSLA, which in turn was 
enacted with congressional recognition of certain treaty 
responsibilities undertaken by the United States. The regulatory 
process for implementing financial responsibility and risk allocation 
under the CSLA exists independently of the Outer Space Treaties, 
however.
    In enacting the CSLA in 1984, Congress found that the United States 
should encourage private sector launches and associated services and, 
only to the extent necessary, ``regulate such launches and services in 
order to ensure compliance with international obligations of the United 
States and to protect the public health and safety, safety of property 
and national security interests and foreign policy interests of the 
United States.'' Pub. L. 98-575, 49 U.S.C. App. 2601. The accompanying 
Report of the Senate Committee on Commerce, Science, and Transportation 
(Report) reveals that Congress was aware of responsibilities accepted 
by the United States as a State Party to the Outer Space Treaty and, in 
particular, the Liability Convention and intended to fulfill certain of 
those responsibilities through domestic law. The Report explains that 
``licensing requirements, as prescribed in section 6(a) [of Pub. L. No. 
98-575] with respect to any activities outside the United States, 
provide, to the greatest extent possible, licensing coverage that is 
consistent with international law and the international convention on 
liability. In establishing these requirements, the Committee gave 
serious consideration to the extent of U.S. jurisdiction and the extent 
of U.S. liability for launch-related activities pursuant to 
international law and international obligations. Section 6(a), 
therefore, is intended to ensure comprehensive coverage of the 
licensing regime to the fullest extent permitted.'' S. Rep. No. 98-656, 
9th Cong., 2d Sess. 9. Report language accompanying the 1988 amendments 
to the CSLA, which added the comprehensive financial responsibility 
risk allocation regime implemented under part 440 rules, further 
evidences commitments undertaken by the United States under the Outer 
Space Treaty and when the United States is a ``launching State'' under 
the terms of the Liability Convention. Report of the Committee on 
Science, Space, and Technology, H. Rep. No. 100-639, 100th Cong., 2d 
Sess. 12. Most recently, the 1998 amendments to the CSLA enacted by the 
Commercial Space Act of 1998, added reentry licensing authority to the 
CSLA along with associated financial responsibility and allocation of 
risk requirements. Although it does not refer specifically to U.S. 
obligations under the Outer Space Treaties, the associated Committee 
Report notes that amendments to chapter 701 of 49 U.S.C. Subtitle IX 
grants to the Secretary ``the authority and responsibility with respect 
to the licensing and regulation of the reentry of reentry vehicles as 
existing law provides to the Secretary with respect to the launch of 
vehicles.'' Committee Report at 21.
    Boeing stated that the NPRM raises issues with respect to U.S. 
international commitments regarding on orbit activity. Boeing suggested 
that the definitions of ``launch,'' ``reentry'' and ``non-nominal 
reentry'' need to be expanded to include on orbit operations so that 
they are fully consistent with the liability provisions of the Outer 
Space Treaties. As previously mentioned, Boeing asked for clarification 
as to how the proposed reentry licensing regime, which excludes on 
orbit activities, fully satisfies international obligations of the 
United States under the Outer Space Treaties which, according to 
Boeing, ``appear to require supervision by the launching state of all 
activities conducted by non-governmental entities in outer space.''
    The United States implements its treaty obligations through 
national law, including the CSLA. However, the FAA was not directed by 
Congress to license and regulate all on orbit activities of spacecraft. 
Rather, the CSLA, as recently amended, directs the Secretary to issue 
regulations carrying out the agency's licensing and safety mandate 
under the statute and to include licensing procedures for the conduct 
of a reentry. The FAA cannot, and does not, presume authority beyond 
that granted by Congress on the basis of treaty obligations. 
Accordingly, the Final RLV and reentry Licensing Regulations implement 
the agency's mandate under the CSLA to license and regulate launches of 
RLVs and reentry activities consistent with public health and safety 
and safety of property, as well as U.S. national security and foreign 
policy interests. The FAA further notes tht Boeing erroneously merges 
State Party responsibility under the Outer Space Treaty (Outer Space 
Treaty, Article VI) with liability assumed by a launching State under 
the Liability Convention.
    Under the CSLA and FAA financial responsibility requirements, 
claims resulting from unlicensed activity on orbit remain the 
responsibility of the operator and participants in those activities. 
RLV operators, as well as other spacecraft owners and operators need to 
be aware of their responsibility and make informed business decisions 
regarding risk management. As noted in the NPRM and already stated in 
this supplementary information, the United States accepts fault-based 
liability as a launching State under the terms of the

[[Page 56689]]

Liability Convention for damage to another launching State's on orbit 
space object if the damage is due to the fault of the United States or 
the fault of persons for whom the United States is responsible. 
Liability Convention, Article III. However, where on orbit damage does 
not result from a licensed launch or reentry rendering the CSLA risk 
allocation regime inapplicable to cover third-party damage claims, the 
government may fulfill its treaty obligations and is not foreclosed 
from seeking compensation from those entities at fault for the damage.
    The advent of RLVs means shared airspace between launch vehicles 
and aircraft and under the terms of the Liability Convention the United 
States also accepts absolute liability as a launching State for damage 
caused by its space object to aircraft in flight. Liability Convention, 
Article II. Accordingly, Boeing suggested that the FAA consider the 
potential impacts of its Concept of Operations in the National Airspace 
System in Year 2005 (CONOPS) on RLV financial responsibility and 
address collision avoidance in the final rule. Boeing identifies 
traffic, workload, environment, vehicle and mission profile, and 
airspace requirements as specific areas in the CONOPS affecting the 
NPRM.
    The FAA is developing an integrated air and space traffic 
management concept designed to accommodate projected RLV, as well as 
ELV, traffic and safe use of shared airspace. For safety purposes, RLV 
mission and reentry licenses would require issuance of notices to 
airmen prior to initiating launch and reentry flight. The Final RLV and 
Reentry Licensing Regulations provide additonal detail concerning air 
and ocean traffic management requirements. From a risk management 
perspective, the probability of collison between a launch or reentry 
vehicle with aircraft would be extremely remote due to required notices 
to airmen and air traffic coordination. In all likelihood, the 
consequences of such a remote event would not affect directly the value 
of the FAA's MPL determination; however, if such events are found to be 
sufficiently probable as to warrant financial responsibility coverage 
they would be considered and assess under the methodology employed by 
the FAA.
    Boeing also requested comment from the FAA as to how this 
rulemaking is intended to address financial responsibility for future 
space activities, such as commercial docking with the International 
Space Station, satellite refueling and servicing, and space tourism and 
debris management. Activities in space that are part of a licensed 
launch or reentry would be covered by FAA financial responsbility 
regulations. Financial responsbility and allocation of risk for 
activities that are not licensed by the FAA would be addressed by 
participants in those activities. The FAA acknowledges Boeing's forward 
thinking concerns and vision regarding an expanded commercial role in 
space transportation and utilization, and the important role risk 
management will play in fostering the viability of commercial on orbit 
services. For smiliar reasons, the FAA sought public comment on 
passenger liability and related matters.

Passenger Liability and Risk Management Considerations

    Although risk management for space tourism is beyond the scope of 
this rulemaking the FAA has identified the need for passenger safety 
and liability regulations as part of a comprehensive regulatory program 
for RLVs. To assist FAA in thinking about and developing an appropriate 
regulatory framework for passenger-bearing space vehicles, the FAA 
solicited public comment on the following questions: Should passengers 
be regarded as any other customers who are expected to waive claims 
against other participants for injury, damage or loss as a result of 
launch or reentry? Should the government play a role in establishing 
limits on liability for injury to space vehicle passengers? Should 
indemnification be extended to cover risks of liability to passengers?
    Thoughful comments were submitted to the docket by three entities. 
Space Access's concern over safety of the traveling public is reflected 
in its observation that passengers should be afforded the same 
protection in space flight that the public has come to expect from air 
travel and other forms of transportation. Consistent with its 
philosophy that airworthiness standards of the FAA may be appropriately 
and benefically applied to space vehicles, Space Accesss recommended 
using airworthiness standards for commercial transport category 
aircraft as the safety regulatory starting point for space flight 
involving carriage of passengers for hire. Space Access opposed 
treating passengers in a manner comparable to that of a satellite 
customer that can independently assess vehicle safety and reliability. 
Unlike a satellite customer, the traveling public relies upon 
government standards and regulation in selecting their preferred mode 
of transport.
    In is response, Vela suggested using the adventure tour industry 
and air carrier liability as models, noting that passengers contract 
for travel services and therefore liability for their losses should not 
be regarded as a third party liability matter. Vela's observations are 
interesting but suggest an internally inconsistent approach inasmuch as 
certain air carriers are required by Department regulations to have a 
certain amount of insurance covering liability to passengers.
    ERPS observed that its initial reaction was to treat passenger 
liability in space travel the same as air travel by relying upon such 
means as the Warsaw Convention, FAA regulations and other applicable 
laws and regulation. However, upon further reflection and consideration 
of the FAA's questions, ERPS recommended treating space vehicle 
passengers like other customers of launch and reentry vehicles by 
requiring that passengers carry their own insurance to cover their 
personal injuries, damage or loss. According to ERPS, applying 
principles of risk allocation whereby passengers travel essentially at 
their own risk, much like hold harmless arrangements subscribed to by 
participants in adventure tourism, reduces the threat of litigation and 
is more appropriate to an emerging, or ``embryonic'' industry. ERPS 
also suggested that unlike satellite customers of launch or reentry 
vehicles, passengers on a space vehicle should be required to purchase 
a minimum amount of personal insurance so that they are assured some 
amount of financial recovery in the event of a mishap. ERPS recommends 
using the cost of a human life utilized by the FAA in its MPL analysis, 
that is, $3 million. The cost of insurance would reflect the 
reliability of a space vehicle and therefore should be reduced with 
increased flight rates and experience. It would therefore appear from 
ERPS's comments that claims of passengers should not be covered by 
government indemnification.
    The FAA will utilize this input and engage in further consideration 
of passenger safety and liability issues before proposing a regulatory 
program applicable to passenger travel, for hire, in space.

Section-by-Section Analysis and Discussion of Comments

    Summarized below are specific comments addressing particular 
provisions of the proposed rule and the agency's response to comments. 
Changes to the regulatory text, other than those that may be considered 
nonsubstantive, are identified as well.

Section 450.1--Scope of part; Basis

    Section 450.1 provides that the financial responsibility and 
allocation of

[[Page 56690]]

risk requirements of this rulemaking apply to licensed reentry 
activities. Licensees authorized to conduct orbital RLV missions must 
comply with part 440 requirements applicable to licensed launch 
activities and also part 450 requirements for licensed reentry. Because 
reentry activities described to the FAA in pre-application consultation 
involve vehicles still in conceptual stages or under development, the 
FAA considers it preferable to add reentry financial responsibility 
requirements in a new part 450, rather than combine them with existing 
requirements of part 440 and possibly complicate matters for other 
launch licenses. By limiting the scope of part 440 to licensed launch 
activities and adding a new part 450 covering reentry financial 
responsibility, the FAA intends to avoid potential confusion that may 
result from combined launch and reentry financial responsibility 
requirements. That said, the final rule codifies the proposed form of 
reciprocal waiver of claims agreement proposed in the NPRM for RLV 
missions, rather than a reentry vehicle, such as COMET or METEOR, 
launched as a payload and subsequently reentered, because it appears 
that reentry activities for the near term will involve RLVs. Also, in 
part 450, participants in a licensed launch associated with a 
particular reentry are identified and included in reentry financial 
responsibility requirements, where appropriate, to ensure that their 
interests in appropriate risk management are adequately covered.

Section 450.3--Definitions

    Definitions of a number of terms appearing in Sec. 440.3 also 
appear in Sec. 450.3 without change. Although doing so may be 
duplicative, the FAA considers it desirable and more ``reader 
friendly'' to group in one part those terms requiring definition for 
reentry financial responsibility regulatory purposes, rather than 
cross-referencing another part. Where appropriate, the final rule 
incorporates conforming changes to definitions, as proposed in the 
NPRM, to cover reentry activities instead of launch activities. 
Comments on proposed definitions are summarized below.
    Consistent with Sec. 440.3, the term ``contractors and 
subcontractors'' is defined in terms of the nature of involvement of an 
entity in licensed activity, rather than by a description or other 
classification of the entity. New Mexico recommended specifically 
adding ``reentry site operator'' to the definition of ``contractors and 
subcontractors'' to ensure it receives the same treatment as would a 
Federal launch range. The FAA does not adopt New Mexico's 
recommendation in the final rule out of concern that listing covered 
entities in the definition may suggest that any entity not included is 
therefore excluded. Based on more than ten years of experience in 
implementing comparable requirements for launch financial 
responsibility, the FAA considers it preferable to provide a definition 
that is sufficiently broad as to encompass those entities entitled to 
coverage under required insurance and that are expected to accede to 
and reap the benefits of the reciprocal waiver of claims agreements 
required by the CSLA than to list classes of covered entities.
    Vela commented that the definition of ``hazardous operations'' 
proposed in Sec. 450.3 is overly broad in that anything can potentially 
cause injury or damage. The term ``hazardous operations'' appears in 
Appendix A to the final rule and in Appendix A to part 440, both of 
which list information requirements for obtaining an MPL determination. 
In using the term, the FAA intends to gain information regarding 
hazards and risk to third parties, their property and to Government 
personnel and property in order to make an MPL determination. When read 
in context, the term ``hazardous operations'' appropriately identifies 
activities that may cause injury or damage to persons or property and 
the FAA would then classify persons and property exposed to risk as 
first party, third party or government. Doing so is necessary element 
in rendering an MPL determination. Accordingly, the definition of 
``hazardous operations'' remains unchanged in the final rule.
    New Mexico recommended adding definitions of the terms ``licensed 
launch activity'' and ``persons.'' The term ``licensed launch 
activities'' is defined in part 440 and, because it appears in part 
450, that definition is added to Sec. 450.3. The definition is the same 
as that appearing in Sec. 440.3(a)(10), as follows: ``licensed launch 
activities means the launch of a launch vehicle as defined in a 
regulation or license issued by the Office and carried out pursuant to 
a launch license.'' The term ``persons'' need not be separately defined 
in part 450 because it is defined in Sec. 401.5 of the Commercial Space 
Transportation Licensing Regulations. Section 450.3 provides that, 
unless otherwise stated, there is no change to the definitions of terms 
appearing in part 450 from those appearing in the statute or Sec. 401.5 
of the Commercial Space Transportation Licensing Regulations.
    Boeing recommended a revised definition of ``payload,'' a term 
defined in Sec. 401.5 of the Commercial Space Transportation Licensing 
Regulations, as a means of extending FAA licensing authority to on 
orbit operation of certain RLVs. The FAA does not accept Boeing's 
recommendation, as previously explained.
    Definitions of other terms appearing in Sec. 450.3 remain unchanged 
in the final rule.

Section 450.5--General

    Section 450.5(a) of the final rule establishes that compliance with 
part 450 requirements is a prerequisite to the conduct of a licensed 
reentry. Because compliance with part 450 must be demonstrated to the 
FAA's satisfaction in advance of a licensed launch involving a reentry 
under the terms of Sec. 450.15(a)(2)--``Demonstration of compliance,'' 
Sec. 450.5(a) effectively precludes commencement of licensed launch 
activities involving a reentry license until compliance with part 440, 
where applicable, has also been demonstrated.
    Under Sec. 450.5(b), the FAA retains its current practice of 
prescribing required amounts of insurance or other form of financial 
responsibility in a license order. Required amounts of insurance may be 
modified by order of the FAA. Where a multi-year operator license has 
been issued, the agency requires flexibility to modify requirements 
when it learns of changes in property (amount and value) and numbers of 
third parties exposed to risk whose claims are intended to be covered 
by required insurance, or where a license is amended by authorizing new 
mission profiles. The FAA reaffirms that, as a general matter, changes 
in requirements would be issued before licensed activity begins. The 
FAA does not envision changes in reentry insurance requirements after a 
reentry vehicle has been launched but before it reenters. The agency 
understands that obtaining additional coverage at that point may be 
difficult or extremely costly to obtain where, for example, a non-
nominal situation occurs. The methodology used by the FAA in 
determining MPL in advance of licensed activities is intended to 
evaluate reasonably foreseeable and sufficiently probable non-nominal 
events and assess their consequences.\9\ Therefore, it is highly 
unlikely that insurance requirements would be changed by the FAA in the 
midst of an RLV mission to address

[[Page 56691]]

anomalous circumstances. It is conceivable, however, that requirements 
would change where a licensee proposes to alter the mission profile 
authorized by the license after the mission has begun.
---------------------------------------------------------------------------

    \9\ As reflected in Sec. 450.11 of the final rule, the risk 
analysis used to determine MPL will also dictate the required 
duration of insurance coverage where reentry is aborted and the 
reentry vehicle will remain on orbit until its natural entry into 
Earth atmosphere.
---------------------------------------------------------------------------

    Section 450.5(c) establishes the fundamental principle that a 
reentry licensee remains responsible for liability, loss or damage 
sustained by the United States resulting from licensed reentry 
activities except where: (1) Liability, loss or damage sustained by the 
United States results from willful misconduct by the United States or 
its agents; (2) covered third-party claims exceed the amount of 
required insurance and do not exceed $1.5 billion (as adjusted for 
post-January 1, 1989 inflation) above that amount and are payable under 
49 U.S.C. 70113 and part 450; (3) loss or damage to government property 
covered by insurance under Sec. 450.9(e) exceeds the required amount of 
coverage and does not result from willful misconduct of the licensee; 
and (4) in the event the licensee has no legal liability for claims 
that exceed required insurance under Sec. 450.9(c) plus $1.5 billion 
(as adjusted for post-January 1, 1989 inflation).
    The FAA may suspend or revoke a license, and impose civil 
penalties, where a licensee fails to comply with part 450 requirements, 
as reflected in Sec. 450.5(d) of the final rule.

Section 450.7--Determination of Maximum Probable Loss

    The regulatory approach to establishing required amounts of reentry 
financial responsibility includes the FAA's risk assessment 
methodology, known as maximum probable loss or MPL. MPL is a risk-based 
analysis that yields the greatest potential losses, measured in 
dollars, for bodily injury and property damage that can reasonably be 
expected to occur as a result of licensed launch or reentry activities. 
MPL measures probabilities, not possibilities, against a specified 
yardstick or threshold point, to identify events that are sufficiently 
probable as to warrant financial responsibility to cover their 
consequences. Insurance requirements are established at a level that 
provides financial protection against the consequences of events that 
are deemed sufficiently probable under the regulations. (See 14 CFR 
450.3--``maximum probable loss'' for the regulatory definition of MPL 
and associated threshold probabilities of occurrence.) Under the final 
rule, the FAA uses the same threshold probabilities of occurrence in 
establishing reentry financial responsibility as it currently does for 
launch financial responsibility. With a limited exception for claims of 
Government personnel, for required liability insurance, there is about 
a one in ten million chance that third party claims will exceed the 
amount of insurance mandated by the FAA. For government property loss 
or damage, there is about a one in one hundred thousand chance that 
damage to covered government property will exceed required insurance. 
The notice of proposed rulemaking associated with part 440 contains a 
detailed discussion of MPL methodology as applied to third party 
liability and government property insurance requirements for licensed 
launch activities and the NPRM referred the interested public to that 
discussion. (See 61 FR 38992, at 39004-39007, issued July 25, 1996.) 
Generally, the same principles would apply in assessing reentry risk 
and establishing MPL values for the conduct of licensed reentry 
activities. Section 450.7(a) of the final rule provides that MPL values 
form the basis for insurance requirements (up to statutory ceilings on 
those requirements) issued by the FAA in a license order.
    Section 450.7(b) reflects the statutory 90-day requirement for 
issuance of an MPL but makes provision for possible delay due to 
required interagency coordination. The FAA will keep the licensee 
informed of delays in issuing an MPL determination. The 90-day period 
is measured from the point at which all information required of the 
licensee to make a determination has been submitted. Space Access 
commented that 90 days is too long a time to wait for an MPL 
determination for a quick turnaround mission using a previously flown 
vehicle and payload. The concerns registered by Space Access resemble 
those of Kistler in response to a comparable 90-day requirement in part 
440. As in the part 440 rulemaking, the FAA reiterates that it will 
retain its longstanding practice of applying an established MPL value 
to missions falling within specified parameters, rather than performing 
a new MPL determination for each flight. This practice would 
accommodate quick turnaround missions performed on short notice as long 
as mission parameters were previously considered under the FAA's MPL 
methodology. A change in mission profile, such as use of a reentry 
site, hazardous material, changed trajectory and payload, if any, to 
one not assessed as part of the MPL determination process may affect 
required amounts of financial responsibility. Under those 
circumstances, a reentry licensee should allow time for reconsideration 
of the MPL value in scheduling a mission.
    Section 450.7(c) provides that information required for obtaining 
an MPL determination for licensed reentry activities are located in 
Appendix A to part 450. Information previously submitted to the FAA in 
support of a prior MPL determination may be identified and certified by 
a licensee as accurate and applicable to its current MPL request.
    Space Access requested additional guidance in understanding certain 
information requirements, such as identification of the impact 
dispersion area, and methodology for measuring debris casualty areas. 
In the Final RLV and Reentry Licensing Regulations, the FAA provides 
greater clarity regarding the three-sigma landing or impact dispersion 
area that must be identified by a reentry license applicant. The FAA 
continues to develop additional guidance materials regarding MPL 
methodology, and will make them available to the public upon their 
completion.
    Section 450.7(d) reflects the discretion, reserved by the FAA, to 
amend an MPL determination before licensed reentry activities have been 
completed. As noted above, the FAA requires discretion to revise 
insurance requirements under appropriate circumstances, such as when 
changes in property and persons exposed to risk warrant a change. The 
FAA would not alter requirements mid-flight but might do so at some 
point during the term of an operator license or before all missions 
authorized by a license have been accomplished. Changed financial 
responsibility requirements due to a revised MPL determination are 
issued in a license order further amending a license.
    Consistent with current practice for launch MPL, anyone may request 
an advisory reentry MPL determination and the FAA will endeavor to 
accommodate such requests. However, where a requested MPL determination 
is not associated with a particular license or license application and 
is therefore advisory in nature, the FAA is not limited to the 90-day 
timeframe dictated by the CSLA and reflected in Sec. 450.7(b). Section 
450.7(e) of this final rule addresses the timing of advisory MPL 
determinations.

Section 450.9--Insurance Requirements for Licensed Reentry Activities

    Section 450.9 of the final rule identifies the two types of 
insurance a reentry licensee may be required to obtain as a condition 
of a reentry license. They are liability insurance for

[[Page 56692]]

covered loss or damage claims of third parties and property insurance 
in the event Federal range property or assets are exposed to risk as a 
result of an authorized reentry.\10\ A licensee that does not obtain 
insurance must otherwise demonstrate financial responsibility.
---------------------------------------------------------------------------

    \10\ An RLV mission licensee would also be required to comply 
with part 440 and must obtain liability and government property 
insurance for licensed launch activities as well as licensed reentry 
activities.
---------------------------------------------------------------------------

    Section 450.9(b) identifies those entities and persons that must be 
protected by required liability insurance as additional insureds. The 
CSLA financial responsibility regime is intended, in part, to relieve 
all of the various participants in a licensed launch or reentry from 
the burden and expense of obtaining separate liability insurance and 
the drain on insurance capacity that would result if each such entity 
had to provide for its own coverage. The FAA envisions that a reentry 
accident resulting in third party liability could involve participants 
in the launch preceding reentry activity and that they, too, require 
protection from third party liability associated with licensed reentry 
activities. Accordingly, to ensure comprehensive coverage as intended 
by statutory requirements, Sec. 450.9(b) also identifies the various 
entities, and the employees of each, involved in licensed launch 
activities associated with a particular reentry as persons who must be 
additional insureds under the liability policy.
    Section 450.9(c) provides that the FAA prescribes the amount of 
liability insurance a reentry licensee must obtain to respond to 
covered third-party claims. Covered third-party claims include claims 
for damage or loss to property belonging to the United States, its 
agencies and its contractors and subcontractors that is not covered by 
required government property insurance. This requirement clarifies that 
government assets, as well as government contractor assets, located off 
a Federal launch range are treated the same as other third party 
property for insurance and liability purposes and the government does 
not waive claims for damage or loss to such property. Covered third-
party claims include claims of Government personnel, a defined term 
under Sec. 450.3 that means employees of the United States, its 
agencies, and its contractors and subcontractors involved in reentry 
services for licensed reentry activities or launch services for 
licensed launch activities associated with a particular reentry.
    As dictated by the CSLA, the amount of liability insurance that may 
be required of a licensee is capped at $500 million or the maximum 
available on the world market at a reasonable cost. Space Access asked 
whether the ``reasonable cost'' standard would be applied to all 
applicants on a uniform basis, an approach favored by Space Access, or 
on a case-by-case basis. The FAA reserves discretion to assess the 
latter ceiling on insurance. Case-by-case consideration could, 
theoretically, include such factors as prevailing market conditions or 
vehicle reliability (to the extent it may affect insurance premiums). 
The FAA has yet to address, in a formal way, a circumstance under which 
a licensee is unable to obtain the required amount of liability 
insurance because its cost was prohibitively high. However, a person 
who cannot afford insurance probably cannot afford to cover his or her 
resultant liability. As a general matter, the FAA believes that use of 
risk mitigation measures provides an appropriate means of limiting 
insurance cost to an applicant or licensee, rather than a complete 
shifting of liability risk to the government. Unusually high MPL values 
and associated insurance costs may signal that a reentry proposal poses 
unusually great risk to public safety such that it ought not be 
authorized by an FAA license absent additional risk mitigation 
measures.
    Although license requirements may be waived on occasion, the 
legislative history accompanying the 1988 Amendments to the CSLA notes 
that the Department of Transportation should ``exercise caution'' in 
granting licenses where MPL will not be fully compensated by insurance 
or other financial protections obtained by the licensee. S. Rep. No. 
100-593, 100th Cong., 2d Sess. 11 (1988). At a time when insurance 
capacity was insufficient to satisfy demand, the Committee Report 
accompanying passage of the 1988 Amendments acknowledged circumstances 
under which inadequate demonstration of financial responsibility may be 
tolerated by the Department. Those circumstances were based upon Air 
Force control over launch operations, including control over flight 
termination decisions, as well as the absence of third party damage 
claims from launch operations in the United States. Thus, risk to third 
parties was managed and controlled by use of proven safety procedures 
and experienced personnel. It further noted that a license should only 
be granted in the absence of adequate insurance where all available 
insurance sources have been exhausted, including a reasonable amount of 
self-insurance. Id. at 10-11.
    The FAA reiterates that MPL, and possibly premium cost, may be 
reduced through operating plans that limit risk to third parties. For 
example, use of an inland launch and reentry site for an RLV may expose 
third party persons and property to risk, whereas launch and reentry at 
a coastal site may significantly reduce such risks. The FAA understands 
that cost is relative and that premiums affordable for a large 
corporation may be daunting to a small, entrepreneurial entity. That 
said, statutory risk allocation provisions are premised upon the notion 
of shared risk, such that a person who exposes third parties to injury, 
damage or loss as a result of launch or reentry activities that by 
their nature are inherently hazardous is expected to cover resultant 
liability up to a specified level before the government may be called 
upon to assume responsibility.
    Section 450.9(d) provides that the FAA prescribes the amount of 
insurance required of a reentry licensee to cover damage or loss to 
government property as a condition of a reentry license. Property 
covered by required insurance is that belonging to the government and 
its agencies, and also property of government contractors and 
subcontractors that support licensed reentry activities when that 
property is located on a Federal range facility. Unrelated property of 
a government contractor that is located off the Federal range would be 
regarded for insurance purposes the same as third party property 
because its risk exposure is no different than that of any other third 
party property and the government assumes no greater risk of its damage 
or loss than that afforded to other such property.
    Comments submitted on behalf of New Mexico expressed general 
support for risk allocation provisions under the CSLA and proposed in 
the NPRM but noted that certain provisions of the rule would apply only 
to Federal government ranges and not to commercial sites that are not 
located on Federal government reservations. New Mexico requested that 
the FAA revise the rules to exclude non-federal launch sites from 
requirements when those requirements would be inapplicable. The FAA 
agrees that certain requirements contained in part 450 are specific to 
use of Federal property and involvement of Government personnel in the 
conduct of licensed reentry activities but does not agree that it is 
necessary to exclude non-federal sites from particular sections of the 
rule.

[[Page 56693]]

Section 450.9(d) provides a useful example of a requirement specific to 
involvement of Federal range facilities and assets in the conduct of 
licensed reentry activities. Consistent with current practice for 
licensed launches, the FAA would not impose requirements under 
Sec. 450.9(d) where no such property is utilized. The FAA does not find 
it necessary to revise the final rule text to exclude non-federal sites 
from inapplicable requirements.
    Section 450.9(e) reflects the statutory limit on government 
property insurance requirements. As for licensed launches, insurance is 
capped at $100 million and the government waives claims for damage or 
loss to Federal launch range property to the extent damage or loss 
exceeds required insurance. Property belonging to government 
contractors and subcontractors involved in licensed reentry activities 
is also covered by government property insurance and the government 
waives excess claims for such property as well. An elaborate discussion 
of risk allocation affecting government contractors and subcontractors 
appears in the supplementary information accompanying issuance of part 
440. (See 63 FR 45592-45626, August 26, 1998.) The discussion is not 
repeated in this rulemaking because the same principles apply. The 
document may be accessed from the following web site: http://
http://ast.faa.gov">ast.faa.gov.
    Financial responsibility is generally demonstrated through 
insurance policies obtained by a licensee. Other forms of financial 
responsibility may be utilized by a licensee, as reflected in 
Sec. 450.9(f), as long as they satisfy the terms and conditions of 
coverage required under part 450.

Section 450.11--Duration of Coverage; Modifications

    As in licensed launch activities, a different term of required 
insurance coverage is specified for ground operations than for flight. 
Under Sec. 450.11(a), insurance coverage attaches upon commencement of 
licensed reentry activities and for ground operations remains in effect 
through completion of licensed activities at the reentry site.
    Reentry flight insurance must address anomalous situations that 
result from planned reentries. Anomalous situations may arise during 
licensed activities that precede descent flight, such as premature 
reentry flight commencing during the conduct of licensed, or covered, 
reentry readiness operations. They may also arise after descent flight 
has been initiated and, depending upon the vehicle, the extent of 
operator control and vehicle maneuverability, may or may not be 
addressed through contingency plans and procedures of the licensee, 
such as reentry to a contingency abort location. They may also result 
in aborted descent flight of the vehicle, where abort on orbit is 
indicated. Anomalous reentry scenarios that are reasonably foreseeable 
are considered by the FAA under its MPL assessment methodology. Where 
reentry or descent flight is initiated, the FAA has determined that it 
is appropriate to require insurance to cover claims for a period of 30 
days following the reentry attempt. Thirty days was proposed because, 
as for launch, the FAA believes 30 days provides an appropriate length 
of time to require coverage for the consequences of a reentry attempt. 
However, unlike launch, a reentry abort situation could result in 
leaving a vehicle on orbit with the understanding that it would 
eventually reenter through natural forces and possibly cause damage on 
the surface of the Earth. Where that situation occurs, the FAA 
proposed, and now makes final, application of an event test under which 
the FAA would examine the consequences of random reentry due to an 
abort on orbit and require insurance until such time, determined 
through MPL analysis, that risk to third parties and Government 
property as a result of essentially random or natural reentry due to 
orbital mechanics and drag forces is sufficiently small that financial 
responsibility for its consequences is no longer necessary. The 
required duration of insurance, should abort on orbit be necessary 
under the terms of the license or at the licensee's election, would be 
established as a license condition issued in advance of the launch of 
the reentry vehicle. The FAA does not intend to impose indefinite 
insurance requirements on a licensee after a vehicle has been launched 
and it is subsequently discovered that a reentry vehicle cannot be 
reentered to Earth as intended. As explained in the NPRM, the FAA's 
risk-based approach to insurance duration for licensed reentry is 
appropriate in light of the liability accepted by the United States for 
damage on the ground or to aircraft in flight when it is a launching 
State under the terms of the Liability Convention.
    Space Access observed that insurance requirements imposed upon 
reentry or descent flight may overlap with subsequent launch and 
reentry financial responsibility where a single vehicle will perform a 
licensed reentry and is intended to be launched again within 30 days of 
initiation of reentry flight. Under such circumstances, there should be 
no difficulty in determining where claims result from the subsequent 
licensed launch or the prior licensed reentry. Moreover, launch and 
reentry insurance requirements for ground operations involving a launch 
vehicle will be distinct and the FAA does not envision either 
compliance difficulties or conflicts as a result of requirements to 
maintain insurance in accordance with timeframes proposed in the NPRM.
    Section 450.11(b) echoes the restriction on changes to insurance 
coverage and expiration currently imposed on launch licensees.

Section 450.13--Standard Conditions of Insurance Coverage

    Conditions of insurance coverage for licensed reentry activities 
are the same as those for licensed launch activities; however, the 
prospect of multiple occurrences and occurrences during launch as well 
as reentry, particularly where an RLV is involved, raises unique issues 
for ensuring adequate coverage is maintained by a licensee.
    Limits of insurance apply separately to launch and reentry of an 
RLV. Although limits imposed by the FAA may appear uniform for launch 
and reentry, policy limits must be available to cover occurrences 
during both flight phases. The fact that two authorizations or 
licenses, for launch and reentry, are combined in a single document 
does not mean that all licensed activities are subject to a single 
limit of liability coverage. Rather, insurance must be available up to 
prescribed amounts for launch of a launch vehicle and available up to 
prescribed amounts for reentry of a reentry vehicle, even where the 
same vehicle is employed for both launch and reentry. Likewise, an 
operator of such a vehicle would be eligible for indemnification where 
claims exceeding required amounts of liability insurance result from 
launch and then again from reentry of the vehicle. For some multi-stage 
vehicles, it is foreseeable that a catastrophic failure or accident 
involving one stage of the vehicle would not preclude its subsequent 
reentry. The operation of the vehicle could therefore be eligible for 
government risk-sharing under the CSLA, including indemnification, 
twice in one mission. Section 450.13(a)(2) states that policy limits 
must apply separately to each occurrence and, for each occurrence to 
the total of claims arising out of licensed reentry activities for a 
particular reentry. The requirement is stated in this fashion because a 
license may authorize multiple missions, each of which must be insured 
up to the required amount.
    Section 450.13(a)(8), as proposed, would require that policies of 
insurance

[[Page 56694]]

be placed with insurers licensed to do business in any State, territory 
or possession of the United States or the District of Columbia. As 
indicated in an FAA Advisory Circular relating to a similar requirement 
in 14 CFR 440.13(a)(8), compliance is demonstrated if policies of 
insurance contain a service of suit clause in which the insurer agrees 
to submit to the jurisdiction of a court of competent jurisdiction 
within the United States and designates an authorized agent in the 
United States for service of legal process on the insurer. Paragraph 
(a)(8) of Sec. 450.13 reflects that compliance with the licensing 
requirement is similarly demonstrated through a service of suit clause. 
The International Underwriting Association of London (IUA) suggested 
that paragraph (a)(8) be phrased in the alternative to make it clear 
that either state licensure or a service of suit clause satisfies the 
regulatory requirement. The FAA does not object to rephrasing the 
requirement in the alternative but does not agree that it is necessary 
given the plain meaning of the section. Nevertheless, the FAA makes the 
requested change to the regulatory text and may make a comparable 
change to 14 CFR 440.13(a)(8) to avoid any confusion that different 
standards of compliance apply.

Section 450.15--Demonstration of Compliance

    Under Sec. 450.15, a reentry licensee must demonstrate compliance 
with part 450 requirements in a manner comparable to that required of 
licensees under part 440. Licensees need not be concerned with 
duplicative paperwork burdens by virtue of having to supply and 
demonstrate launch and reentry financial responsibility for an RLV 
mission. A single, comprehensive demonstration of compliance with part 
440 and 450 will satisfy requirements of both parts. Demonstration of 
compliance must be completed in advance of the licensed launch 
involving the reentry vehicle.
    In similar fashion to demonstrating launch financial 
responsibility, a reentry licensee must supply the following to the FAA 
within the timeframes specified in the rule: the reciprocal waiver of 
claims agreement(s) required under Sec. 450.17, certificates of 
insurance of evidence of another form of financial responsibility and 
renewals of coverage as appropriate, certification by the licensee of 
compliance, a listing of exclusions from insurance coverage and a 
certification that the exclusions may be deemed usual in the event the 
licensee will seek coverage by the government of the excluded risks, 
and an opinion of the licensee's insurance broker that the insurance 
coverage provided complies with FAA requirements. A licensee must make 
policies of insurance and related documents required under this part 
available for FAA inspection, as provided in Sec. 450.15(f).

Section 450.17--Reciprocal Waiver of Claims Requirements

    Reciprocal waivers of claims are essential to the CSLA risk 
allocation regime. Participants in licensed reentry activities are 
required to enter into reciprocal waiver agreements comparable to those 
used for licensed launch activities. Under the agreement, participants 
waive claims for damage or loss to their property that result from 
licensed activity and further agree to be responsible for damage or 
loss to their property sustained as a result of the activity. Each 
participant is thereby foreclosed, or estopped, from asserting claims 
against the other participants and each is relieved of the threat and 
cost of inter-party litigation. The reciprocal waiver scheme therefore 
reduces the cost and need for liability insurance to cover certain 
claims among the participants. The government's property damage waiver 
is limited by statute to damage or loss in excess of required 
government property insurance and also covers property damage or loss 
sustained by government contractors and subcontractors involved in 
licensed reentry activities at a Federal range facility that is the 
reentry site.
    Except for the U.S. Government, as explained below, each 
participant in licensed reentry activities also agrees to be 
responsible for personal injury, property damage or loss suffered by 
its own employees as a result of licensed reentry activities. Although 
employees of participants in reentry activities are third parties 
within the statutory and regulatory definitions of the term, their 
claims are not intended to be covered by required liability insurance 
and MPL determinations do not assess risk to those employees. Claims of 
employees, other than Government personnel, are the responsibility of 
their employer under the reciprocal agreements required by Sec. 450.17 
of the final rule. In essence, the obligation of each participant under 
the reciprocal waiver of claims agreement to be responsible for its 
employees losses amounts to a contractual obligation to indemnify and 
hold harmless the other participants in the event one's employee 
suffers losses and seeks recovery or damage from another participant. 
The FAA has made this contractual indemnification and hold harmless 
undertaking explicit in part 440 with respect to licensed launch 
activities and now does so for reentry in this final rule.
    The U.S. government accepts different responsibilities under the 
reciprocal waiver of claims agreement from that accepted by PPLPs and 
PPRPs because of limitations arising out of appropriations laws on its 
ability to accept an unfunded contingent liability. Claims of 
Government personnel, defined as employees of the government and of its 
contractors and subcontractors involved in the licensed reentry 
activities (or licensed launch activities associated with a particular 
reentry) would be covered by the licensee's liability policy as third-
party claims and become the responsibility of the government to the 
extent third-party claims exceed required insurance. A detailed 
discussion of the rights and responsibilities of the various 
signatories to a reciprocal waiver of claims agreement under the CSLA 
appears in the supplementary information accompanying issuance of part 
440 (see 63 FR 45592-45626, August 26, 1998), and may be accessed from 
the following web site: http//ast.faa.gov.
    The form of reciprocal waiver of claims agreement codified in this 
final rule covers claims regardless of fault but does not replace 
contractual rights and remedies negotiated by the parties in good faith 
and for consideration, such as re-flight guarantees or replacement 
missions. Fault-based claims, including gross negligence, are waived 
under the terms of the agreement. The only exception is a claim for 
willful misconduct by a participant.
    The FAA proposed and now codifies in Appendix B to part 450 a 
comprehensive reciprocal waiver of claims agreement designed to 
accommodate reentry activities for the foreseeable future. Based upon 
industry proposals described to the FAA informally or in pre-
application consultation, it appears that all reentry activity 
currently under design involves an RLV. Accordingly, the FAA developed 
the form of agreement required by Sec. 450.17(c), and that appears at 
Appendix B, to address RLV missions involving the U.S. Government, its 
agencies or personnel.\11\ The agreement refers to claims resulting 
from unspecified ``Licensed Activities,'' rather than licensed launch 
or reentry activities. In this manner, participants in either phase of 
licensed activity for

[[Page 56695]]

an RLV are included within the scope of a single, comprehensive 
agreement. The FAA believes it desirable to include participants at 
either end of a mission as signatories to the agreement because any of 
them may confront claims from other participants that result from 
activities conducted at the other end of licensed RLV activity. For 
example, participants in a licensed reentry may suffer damage or loss 
to their property, and their employees may suffer injury, damage or 
loss, through involvement in the licensed launch campaign preceding 
placement of the vehicle and its payload, if any, in Earth orbit or 
outer space. To achieve the intended result of limiting inter-party 
litigation, it is desirable to include all such participants in a 
single agreement. There may be instances under which a licensed reentry 
occurs sufficiently independent of the launch that placed the reentry 
vehicle in orbit as to warrant a separate reciprocal waiver of claims 
agreement among launch participants and another one among reentry 
participants. The FAA will address those circumstances on an individual 
basis.
---------------------------------------------------------------------------

    \11\ Where the U.S. Government, its agencies or personnel are 
not involved, Sec. 450.17(b) directs participants in a licensed 
reentry to execute reciprocal waivers of claims.
---------------------------------------------------------------------------

    As under part 440, the form of reciprocal waiver of claims 
agreement required under part 450, Sec. 450.17(d), identifies as 
signatories to the agreement the licensee, its customer and the FAA on 
behalf of the U.S. Government. Where multiple customers are involved in 
licensed activities, each would be required to execute the agreement 
and to waive claims as between themselves. Under the agreement, each 
party agrees to flow down, or pass on, to its contractors and 
subcontractors the obligations each undertakes to waive claims and 
assume responsibility for employee losses. In this manner, the FAA 
intends to ease paperwork burdens and simplify implementation of the 
waiver requirement. Section 450.17(d) of the final rule provides relief 
to parties that suffer claims by another party's contractors or 
subcontractors due to failure by that party to implement properly the 
flow down obligation. The participants in licensed activities that are 
required to accede to the reciprocal waiver of claims scheme are those 
that have their personnel or property at risk in the conduct of 
licensed activities and those who may make claims against other 
participants for loss or damage sustained by personnel or to property 
as a result of licensed activities. Failure to comply may subject a 
participant in licensed launch or reentry activities to enforcement 
proceedings by the FAA under the CSLA.
    New Mexico, a prospective launch and reentry site operator, 
submitted comments regarding risk allocation between a site operator 
and its customers. Under parts 440 and 450, ``customers'' of a site 
operator would include launch and reentry licensees, such as RLV 
operators. Customers of a site operator may also be entities providing 
launch and reentry services to other entities at the site and that 
utilize facilities offered by the site operator. New Mexico commented 
that commercial site operators should be treated the same as government 
(Federal) site operators for purposes of the reciprocal waiver of 
claims agreement. To assure comparable treatment is afforded to 
commercial site operators, New Mexico suggested that the term 
``contractors and subcontractors'' be defined to specifically include a 
reentry site operator, as discussed above under the discussion of 
Sec. 450.3, and that the reciprocal waiver of claims agreement be 
modified to specifically state that the Licensee waives and releases 
claims it may have against its Contractors, as well as its Customers 
and the United States. Although the CSLA directs that parties enter 
into waiver of claims agreements with their contractors and 
subcontractors, agency practice has been to allow those entities to 
carry out the CSLA requirement as a contractual, rather than 
regulatory, matter. As a regulatory matter, the FAA focuses on entities 
that are not otherwise in contractual privity with a licensee or 
customer to ensure they obtain the benefits of the waiver of claims 
arrangement. Accordingly, the form of agreement currently in use under 
part 440, Appendix B, does not specifically address a waiver between a 
licensee and its contractors, or a customer and its contractors, and 
similarly, the proposed form of agreement in the NPRM did not do so.
    It appears from New Mexico's comments that it wishes to be 
protected by insurance or other means of financial responsibility 
required of the launch or reentry licensee in the event of third-party 
claims against the site operator arising out of the licensed launch or 
reentry. A licensed site operator obtains the benefits of coverage 
provided by the launch or reentry licensee because it is a contractor 
to that licensee. However, as a contractor to the launch or reentry 
licensee, the site operator is also expected to accede to the 
reciprocal waiver of claims agreement.
    New Mexico desires treatment of commercial site operators that is 
comparable to that afforded the U.S. Government as Federal launch range 
provider; however, the U.S. Government's waiver of claims is limited to 
claims that are in excess of required government property insurance. In 
other words, the government's waiver is more limited than that of 
private party launch or reentry participants (PPLPs or PPRPs). Whereas 
the government obtains the benefits of required insurance up to the 
statutory ceiling of $100 million, as determined through MPL analysis, 
PPLPs and PPRPs are expected to waive claims from the first dollar of 
loss. While New Mexico asserts that it wishes to ensure its 
participation in the waiver scheme, it further comments that when 
launch takes place at a commercial, rather than Federal government-
owned site, licensed launch activities should commence upon launch 
vehicle ignition in order to limit CSLA financial responsibility 
reqirements to vehicle flight. New Mexico understands that commercial 
ELV operators desire coverage for pre-flight hazardous operations under 
the CSLA financial responsibility and allocation of risk regime because 
high value government range assets are at risk and ELV operators have 
felt the need to share in the risk to such property. However, at a 
commercial site, the notion of including pre-flight operations within 
the reach of the CSLA insurance and reciprocal waiver scheme limits 
flexibility in commercial arrangements between the site operator and 
the vehicle operator and is not necessary, according to New Mexico. New 
Mexico offered that flight is the one portion of operations for which 
CSLA financial responsibility is necessary for all operators. Taken 
together, it would appear that New Mexico advocates participation by 
commercial site operators in the insurance and reciprocal waiver of 
claims requirements of the CSLA during vehicle flight only but would 
otherwise prefer private insurance and risk arrangements between the 
site operator and vehicle operator.
    Hazards to third parties and risks posed by launch activities, 
including pre-flight operations, may exist whether launch occurs at a 
Federal launch site or a commercial site. The FAA has defined launch to 
include pre-flight operations because of their hazardous nature and not 
merely because Federal range assets are exposed to risk. For regulatory 
purposes, the FAA does not utilize a different definition of ``launch'' 
depending upon whether the launch site is commercially or Federally 
operated. As long as the launch site is located in the United States, a 
consistent definition of launch applies. Launches outside of the United 
States are regulated commencing upon ignition in

[[Page 56696]]

deference to the local sovereignty. Thus, a licensed launch or reentry 
site operator would be deemed a contractor to the licensee for all 
financial responsibility and risk allocation purposes and is expected 
to waive claims for damage or loss it suffers as a result of licensed 
launch and reentry activities at its site. That said, the FAA does not 
interfere with the conditions of use imposed by a licensed site 
operator on its customers through private contractual arrangements.
    Boeing raises concerns stemming from uncertainties it perceives in 
identifying when licensed reentry activities begin and statutory 
reciprocal waivers of claims apply. Uncertainty would be resolved upon 
issuance of this final rule and in license orders addressing specific 
reentry proposals. Boeing believes that on orbit activities of an RLV 
require licensing and application of the CSLA financial responsibility 
and risk allocation regime. On orbit operation of RLVs will be 
inherently hazardous, according to Boeing, and therefore it is 
commercially desirable, if not critical, that participants in on orbit 
activities waive claims for damage or loss against other participants. 
Absent a legal requirement to do so, Boeing believes it will be 
difficult at best to convince customers and other participants to enter 
into a reciprocal waiver scheme and questions whether independent 
agreements covering unlicensed activities provide an adequate 
contractual, legal and insurance scheme for participants.
    The FAA lacks authority to require insurance and reciprocal waivers 
of claims for unlicensed activities. This situation exists currently 
for activities involving expendable launch vehicles and payloads when 
those activities are not covered by an FAA license. Participants in 
licensed launches may address unlicensed activities and their attendant 
risks through private contractual arrangements. The FAA understands 
that the void, or gap, in licensing coverage must be addressed 
privately through commercial arrangements and that it may affect the 
ability of vehicle operators to attract customers and participants in 
the performance of risky business on orbit. However, the FAA is unable 
to fill the resultant void or gap absent statutory authority to do so. 
That said, participants in licensed launch and reentry activities 
should bear in mind that certain claims that result from licensed 
activity are intended to be covered by statutory requirements for risk 
allocation, as discussed earlier in this supplementary information

Section 450.19--United States Payment of Excess Third Party Liability 
Claims

    Section 450.19 reflects the commitment of the U.S. Government to 
accept responsibility for satisfying successful third party claims 
against reentry and associated launch participants (PPRPs and PPLPs) to 
the extent covered claims arising out of a reentry exceed required 
insurance, up to a statutory ceiling of $1.5 billion (as adjusted for 
post-January 1, 1989 inflation) above insurance, absent willful 
misconduct by the entity on whose behalf payment of such claims is 
sought. It also contains procedures applicable to payment of excess 
claims. This risk-sharing feature of the CSLA is subject to a statutory 
sunset provision. Unless further extended, it would be available only 
for licensed activities conducted under a license for which a 
substantially complete application was submitted on or before December 
31, 2000.
    In the NPRM, the FAA further explained how the extent of licensing 
coverage described in the Proposed RLV and Reentry Licensing 
Regulations would affect launch and reentry risk management, 
particularly in light of the relationship that must exist between 
licensed activity and its consequences for purposes of indemnification 
eligibility.
    CSLA financial responsibility and risk allocation requirements are 
co-extensive with licensed activity and also address the direct 
results, or consequences, of licensed activity. Under the CSLA, 
financial responsibility must compensate the maximum probable loss from 
claims by a third party and the U.S. Government of injury, damage or 
loss ``resulting from an activity carried out under the license;* * *'' 
49 U.S.C. 70112(a)(1)(A) and (B). Similarly, reciprocal waivers of 
claims mandated by the CSLA require each party to the waiver to be 
responsible for damage or loss it sustains and injury, damage or loss 
sustained by one's employees, resulting from an activity carried out 
under the applicable license.'' 49 U.S.C. 70112(b)(1). Likewise, the 
government payment of excess claims provisions, known as 
indemnification, apply to successful claims of a third party against a 
launch participant ``resulting from an activity carried out under the 
license* * * for death, bodily injury, or property damage or loss 
resulting from an activity carried out under the license.'' 49 U.S.C. 
70113(a)(1). Applying plain language principles of statutory 
construction, the phrase ``as a result of '' can be read to mean 
``caused by.'' See, e.g., Black Hills Aviation, Inc. v. United States, 
34 F.3d968(10th Cir. 1994).
    In issuing part 440 final rules governing financial responsibility 
for licensed launch activities, the FAA stated that determining 
eligibility for payment of excess claims is necessarily a fact-based 
inquiry and would depend on the particular circumstances giving rise to 
the claim. 63 FR at 45612. The same is also true for reentry 
indemnification, particularly in light of Committee Report language 
stating that the provisions set forth in 49 U.S.C. sections 70112 and 
70113 ``apply to losses sustained as a result of licensed activities, 
(i.e., launches and reentries) not events or activities between launch 
and reentry; after reentry; or uncovered before launch. Once a launch 
or a reentry is completed no protection against third party liability 
is intended to be provided under Chapter 701 (of 49 USC Subtitle IX) 
unless there is a clear causal nexus between the loss and he behavior 
of the launch or reentry vehicle.'' (Emphasis added.) Committee Report, 
at 23. But, does reference in the Committee Report to ``clear causal 
nexus'' mean something more than that which is reasonably foreseeable? 
And how would intervening events affect eligibility for 
indemnification?
    Guidance is offered in the Committee Report to illustrate the 
direct relationship between licensed activity and third party losses 
envisioned by the Committee in using the phrase ``clear causal nexus'' 
to describe events occurring after licensed activity s concluded but 
that could be eligible for indemnification. As an example, the 
Committee Report states that ``if, subsequent to a launch vehicle's 
successful deployment of a payload that is not a reentry vehicle, the 
payload returns to Earth and causes third party loss, the loss is not 
intended to be covered by (49 U.S.C.) sections 70112 and 70113.'' Id. 
Another example involves an airborne launch where an aircraft accident 
occurs after release of a launch vehicle. According tot he Committee 
Report, the accident is not intended to be covered by CSLA financial 
responsibility and indemnification provisions if the accident is not 
attributable to the launch vehicle. Id.
    In light of cautionary, albeit non-binding, guidance offered in the 
Committee Report, the FAA has stressed in this rulemaking that 
licensees ought not assume that anything that happens as a result of 
RLV operation after it has been launched, including unlicensed 
operation on orbit, as qualifying for indemnification.

[[Page 56697]]

    Following expiration of the policy period required under the 
regulations, or where coverage is determined by the FAA to be 
unavailable because of a ``usual'' exclusion, the government undertakes 
responsibility for payment of third party claims from the first dollar 
of loss, as long as the claim results from an activity carried out 
under a launch or reentry licenses and is otherwise eligible for 
indemnification under 49 U.S.C. 70113. The FAA retains its current 
practice with respect to ``usual'' exclusions from liability and 
property insurance coverage. For an exclusion to be deemed ``usual'' 
under Sec. 450.19(c), a licensee must certify, upon demonstrating 
compliance with financial responsibility requirements under 
Sec. 450.15(c)(1)(iii), that insurance coverage for the excluded risk 
is not commercially available at reasonable costs. Acceptance by the 
FAA of a certificate of insurance or certification by a licensee does 
not signify an agency finding that an exclusion is, in fact, ``usual.'' 
A person requesting such a finding in advance of the conduct of 
licensed activity may submit actual data, including cost and market 
data in support of its representation that insurance is not available 
at reasonable cost.

Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)), the FAA has submitted a copy of these sections to the Office 
of Management and Budget for its review. The collection of information 
was approved and assigned OMB Control Number 2120-0649. The FAA is 
establishing financial responsibility requirements to cover risks 
associated with the licensed reentry of a reentry vehicle. The FAA will 
determine, on an individual basis, the amount of required insurance or 
other form of financial responsibility after examining the risks 
associated with a particular reentry vehicle, its operational 
capabilities and designated reentry site. This final rule provides 
general rules for demonstrating compliance with insurance requirements 
and implementing statutory-based Government/industry risk sharing 
provisions in a manner comparable to that currently utilized for 
commercial launches.
    The required information will aid the FAA in establishing financial 
responsibility requirements covering risks associated with the licensed 
reentry of a reentry vehicle. The information collected helps the FAA 
determine the amount of required liability insurance for a reentry is 
similar in nature to information associated with financial 
responsibility for licensed launch activities. The frequency of 
required submissions, therefore, will depend upon the number of 
prospective reentry vehicle operators authorized to conduct licensed 
reentry operations. The agency received one comment on the reporting 
requirements associated with this rule and its has been discussed 
earlier in the preamble. The estimated number of respondents on an 
annual basis is five. The estimated average annual burden is 1566 
hours.
    An agency may not conduct or sponsor and a person is not required 
to respond to a collection of information unless it displays a 
currently valid Office of Management and Budget (OMB) control number.

Regulatory Evaluation Summary

    This final rule is not considered a significant regulatory action 
under section 3(f) of Executive Order 12866 and, therefore, is not 
subject to review by the Office of Management and Budget. This final 
rule is not considered significant under the regulatory policies and 
procedures of the Department of Transportation (44 FR 11034; February 
26, 1979).
    Proposed and final rule changes to Federal regulations must undergo 
several economic analyses. First, Executive Order 12866 directs that 
each Federal agency shall purpose or adopt a regulation only upon a 
reasoned determination that the benefits of the intended regulation 
justify its costs. Second, the Regulatory Flexibility Act of 1980, as 
amended May 1996, requires agencies to analyze the economic effect of 
regulatory changes on small entities. Third, the Office of Management 
and Budget directs agencies to assess the effect of regulatory changes 
on international trade. In conducting these analyses, the FAA has 
determined that the final rule will generate benefits that justify its 
costs and is not ``a significant regulatory action as defined in the 
Executive Order and the Department of Transportation Regulatory 
Policies and Procedures. The final rule will not have a significant 
impact on a substantial number of small entities and will not 
constitute a barrier to international trade. In addition, this final 
rule does not contain Federal intergovernmental or private sector 
mandates. Therefore, the requirements of Title II of the Unfunded 
Mandates Reform Act of 1995 do not apply. These analyses, available in 
the docket, are summarized below.

Baseline for Analysis

    For the purpose of this evaluation, the baseline is defined as 
industry practice that existed prior to the Commercial Space Act of 
October 1998 (CSA). The CSA authorizes the Secretary of the U.S. 
Department of Transportation to require reentry licenses to meet 
financial responsibility requirements; generally these requirements 
will be satisfied by acquiring liability insurance to cover those risks 
imposed by their intended reentry activities. Such requirements will be 
implemented in the form of this final rule. The baseline should 
represent routine industry practice in the absence of any final 
rulemaking requirements by FAA and prior to statutory authority 
received from Congress.

Costs

    Commercial space reentry operators are likely to also be launch 
operators, given that RLVs will, for the foreseeable future, constitute 
the bulk of reentry vehicle activity. Since reentry operators will 
repeat much of the compliance process for the final rule for launch 
financial responsibility, cost-saving knowledge will be gained that 
will be helpful in meeting similar requirements for reentry financial 
responsibility. Even though reentry activities take place at different 
times than launch activities, still the personnel involved in both 
activities are expected to have a acquired a high level of proficiency 
and cost-saving practices. The potential cost of the final reentry 
financial responsibility requirements are expected to be lower than 
they otherwise would be, as the result of knowledge gained from launch 
activities by such operators.
    The final rule should result in a stronger, more stable, commercial 
space transportation industry by implementing the statute in 
regulations. Limiting liability insurance requirements based on maximum 
probable loss (MPL) should result in greater certainty of the potential 
liability costs (and resulting lower business risk) to commercial space 
transportation firms. The Federal Aviation Administration defines MPL 
as the tool that establishes the dollar value of the maximum magnitude 
of loss associated with probable events causing casualties or property 
damage; the accidental event in question must be sufficiently probable 
to warrant financial responsibility protection.
    The final rule will potentially impose costs on U.S. commercial 
space reentry operators and the U.S. government cast he result of these 
two requirements:
     Insurance Requirements for Licensed Reentry Activities. In 
accordance with the statute, the final rule will require U.S. licensed 
reentry commercial space operators to acquire insurance to cover 
possible damage to or

[[Page 56698]]

loss of government property. The licensee will also be required to 
obtain insurance to cover potential liability to third parties that 
result from reentry activities in the event of death, injury, damage, 
or loss to such third parties (including Government personnel). Final 
requirements also specify the duration of insurance.
     Provisions Requiring Private Party Participants In 
Licensed Activities to Reciprocally Waive Claims Against One Another. 
The final rule will require that participants in reentry operations 
enter into cross-waiver agreements with each other. Specifically, the 
private parties in licensed activities sign waivers by which the 
parties agree to forfeit the right to sue each other for damages or 
injuries associated with the activities. The participants not only 
assume responsibility for their own losses, but assume responsibility 
for claims of their contractors and subcontractors against other 
private party participants in the event the cross-waiver requirement 
has not been properly applied by them to those parties.
    The requirement for 30-day duration of insurance coverage following 
a planned reentry may impose additional costs on reentry operators. 
Such costs are not expected to be significant since potential 30-day 
costs for reentry insurance will be nearly the same as en existing 
requirement for launch activity, and reentry insurance coverage falls 
within the typical period of coverage routinely used by the commercial 
space industry. The shifting of potential costs above MPL of damage and 
loss claims or of injury claims from private participants to the 
government will also aid the commercial space transportation industry,. 
The shifting of these costs onto the government will relieve the 
licensees of the need to insure for these claims and will also 
demonstrate U.S. Government support for the commercial space 
transportation industry. The cross-waiver provisions of the final rule 
should lower any costs of litigation among private party participants 
in licensed activities. The final requirement for cross-waivers limits 
the risk of liability to other participants in licensed activities and 
results in a more certain business environment (or lower business risk) 
for all involved parties.
    The FAA estimates that the final rule will result in the 
reallocation of expected liability insurance costs from licensees to 
the Federal government of about $4,200 ($3,700, discounted) over a 
five-year period. This estimate is based in part upon work by Princeton 
Synergetics Inc. (PSI), under contract with the FAA, which analyzed the 
consequence of the U.S. Government's assumption of risk exposure of up 
to $1.5 billion (as adjusted for inflation occurring after January 1, 
1989), for covered third-party claims. The additional administrative 
(or paperwork cost) to the Federal government associated with FAA's 
responsibilities under the final rule is estimated at $7,600 ($5,700, 
discounted) over five years. Thus, the total cost to the FAA will be 
about $11,800 ($4,200 + $7,600) over the next 5 years, as the result of 
the final rule. This cost estimate represents the amount that will be 
incurred by the FAA for financial responsibility aspects of the 
licensing process (which take into account those final provisions to 
protect private party participants against claims by third parties and 
provisions of cross-waivers).

Benefits

    The primary benefit of the final rule is that it will support and 
promote U.S. commercial space reentry activity within the United States 
and by U.S. firms. It is clearly in the interest of the United States 
to remain in a worldwide position of leadership in commercial space 
flight. Specifically, the final rule will ensure that U.S. reentry 
operators are not subject to a competitive trade disadvantage by their 
rivals abroad as a result of their uncertainty in acquiring adequate 
liability insurance to cover risks associated with their intended 
reentry activities.
    This final rule will also generate other potential qualitative 
benefits in two forms. First, in terms of third parties, this final 
rule will provide added assurance that damage to property or casualty 
losses (e.g., fatalities or serious injuries) resulting from reentry 
activities will be adequately covered either by commercial liability 
insurance purchased by reentry operators or by the U.S. Government. 
This potential benefit will be generated by the final requirement that 
all reentry operators have liability insurance coverage up to the MPL 
amount covering certain risks of liability resulting from reentry 
activities and statutory risk sharing provisions whereby the U.S. 
Government provides for payment of up to $1.5 billion (as adjusted for 
inflation occurring after January 1, 1989) about the required amount of 
insurance. And last, the cross-waiver requirement will also generate 
potential cost-savings by likely mitigating or eliminating litigation 
costs among reentry participants.

Final Regulatory Flexibility Determination

    The Regulatory Flexibility act of 1980 (RFA) was enacted by 
Congress to ensure that small entities (small business and small not-
for-profit government jurisdictions) are not unnecessarily and 
disproportionately burdened by Federal regulations. The RFA, which was 
amended March 1996, requires regulatory agencies to review rules to 
determine if they have ``a significant economic impact on a substantial 
number of small entities.''
    The Small business Administration has defined small business 
entities relating to space vehicles (Standard Industrial Codes 3761, 
3764, and 3769) as entities comprising fewer than 1,000 employees, the 
FAA has been unable to determine the extent to which the final rule 
will impact the five commercial space reentry entities currently 
developing reentry technology, due to the lack of information for the 
required cost of insurance, as explained previously in the cost section 
of this evaluation. The final rule could impose additional costs on 
potential small reentry operators in the form of higher insurance 
requirements that they might otherwise fulfill (which often result in 
higher premiums), as the result of the final requirement to cover MPL 
for both third party liability and Government property. On the other 
hand, the final rule requirement could be partially offset or entirely 
offset by the potential cost-savings from the federal Government's 
statutory risk sharing feature of the final rule. This feature will 
shift the cost of insurance coverage form the licensee for liability 
beyond MPL after 30 days, up to $1.5 billion (as adjusted for inflation 
occurring after January 1, 1989). This cost-savings is estimated to be 
at least $4,200 for all of the potentially affected operators over the 
5-year period (2001-2005). Still, with some degree of uncertainty, this 
information suggests that the potential cost of compliance for reentry 
small operators might not be significant.
    Despite the absence of quantitative cost information for potential 
reentry licensees and pursuant to the Regulatory Flexibility Act (5 
U.S.C. 605(b)), the FAA certifies with reasonable certainty that the 
final rule will not impose a significant economic impact on a 
substantial number of small entities. While there may be significant 
costs incurred by some operators, such costs are not expected to impact 
a substantial number of them. Since there is not cost of compliance 
information available to derive a quantitative cost estimate, there is 
still uncertainty about compliance costs. As the result of this 
uncertainty, the FAA solicited comments from industry on the final 
rule. The FAA did not receive any comments form industry addressing 
this uncertainty issue

[[Page 56699]]

pertaining to the potential cost of compliance.

International Trade Impact Assessment

    The Trade Agreement Act of 1979 prohibits Federal agencies from 
engaging in any standards or related activities that create unnecessary 
obstacles to the foreign commerce of the United States. Legitimate 
domestic objectives, such as safety, are not considered unnecessary 
obstacles. The statute also requires consideration of international 
standards and where appropriate, that they be the basis for U.S. 
standards. In addition, consistent with the Administration's belief in 
the general superiority and desirability of free trade, it is the 
policy of the Administration to remove or diminish to the extent 
feasible, barriers to international trade, including both barriers 
affecting the export of U.S. goods and services to foreign countries 
and barriers affecting the import of foreign goods and services in the 
United States.
    As noted in the benefits section of this evaluation, the final rule 
will implement statutory provisions such as measures aimed at 
strengthening the competitive position of U.S. reentry operators by 
allowing the U.S. Government to share risks of additional liability for 
reentry activity. Government-backed practices exist in other countries 
for launch operators that compete with U.S. launch operators. The final 
rule will ensure that U.S. reentry operators will remain competitive 
with their counterparts abroad. For this reason, the final rule is not 
expected to place domestic commercial space reentry operators at a 
competitive trade disadvantage with respect to foreign interests 
competing for similar business in international markets. It will also 
not hinder the ability of foreign commercial space rivals to compete in 
the United States. Therefore, the final rule is neither expected to 
affect trade opportunities of U.S. commercial space reentry operators 
doing business abroad nor will it adversely impact the trade 
opportunities of foreign firms doing business in the United States.

Unfunded Mandates Reform Act Assessment

    The Unfunded Mandates Reform Act of 1995 (the Act), enacted as Pub. 
L. 104-4 on March 22, 1995, is intended, among other things, to curb 
the practice of imposing unfunded Federal mandates on State, local, and 
tribal governments.
    Title II of the Act requires each Federal agency to prepare a 
written statement assessing the effects of any Federal mandate in a 
proposed or final agency rule that may result in a $100 million or more 
expenditure (adjusted annually for inflation) in any one year by State, 
local, and tribal governments, in the aggregate, or by the private 
sector; such a mandate is deemed to be a ``significant regulatory 
action.'' In 1999 dollars, this estimate of $100 million translates 
into $107 million using the GDP implicit price deflators for 1995 and 
1999.
    Based on the evaluation and impacts reported herein, the final rule 
is not expected to meet the $107 million per year cost threshold. 
Consequently, it will not impose a significant cost on or uniquely 
affect small governments. Therefore, the requirements of Title II of 
the Unfunded Mandates Reform Act of 1995 do not apply to the final 
regulation.

Executive Order 13132, Federalism

    The FAA has analyzed this final rule under the principles and 
criteria of Executive Order 13132, Federalism. The FAA determined that 
this action will not have a substantial direct effect on the States, or 
the relationship between the national Government and the States, or on 
the distribution of power and responsibilities among the various levels 
of government. Therefore, the FAA determined that this final rule does 
not have federalism implications.

Environmental Assessment

    FAA Order 1050.1D defines FAA actions that may be categorically 
excluded from preparation of a National Environmental Policy Act (NEPA) 
environmental assessment (EA) or environmental impact statement (EIS). 
In accordance with FAA Order 1050.1D, appendix 4, paragraph 4(i), 
regulatory documents which cover administrative or procedural 
requirements qualify for a categorical exclusion.

Energy Impact

    The energy impact of the rulemaking action has been assessed in 
accordance with the Energy Policy and Conservation Act (EPCA) and 
Public Law 94-163, as amended (42 U.S.C. 6362). It has been determined 
that it is not a major regulatory action under the provisions of the 
EPCA.

List of Subjects in 14 CFR Part 450

    Armed forces; Claims; Federal building and facilities; Government 
property; Indemnity payments; Insurance; Reporting and recordkeeping 
requirements; Rockets Space transportation and exploration.

The Amendment

    In consideration of the foregoing, the Federal Aviation 
Administration amends Chapter III of title 14 of the Code of Federal 
Regulations as follows:
    1. Subchapter C of Chapter III, Title 14, Code of Federal 
Regulations, is amended by adding a new Part 450 to read as follows:

PART 450--FINANCIAL RESPONSIBILITY

Subpart A--Financial Responsibility for Licensed Reentry Activities
Sec.
450.1   Scope of part; basis.
450.3   Definitions.
450.5   General.
450.7   Determination of maximum probable loss.
450.9   Insurance requirements for licensed reentry activities.
450.11   Duration of coverage; modifications.
450.13   Standard conditions of insurance coverage.
450.15   Demonstration of compliance.
450.17   Reciprocal waiver of claims requirements.
450.19   United States payment of excess third-party liability 
claims.
Appendix A to part 450--Information Requirements for Obtaining a 
Maximum Probable Loss Determination for Licensed Reentry Activities.
Appendix B to Part 450--Agreement for Waiver of Claims and 
Assumption of Responsibility.

    Authority: 49 U.S.C. 70101-70121; 49 CFR 1.47.

Subpart A--Financial Responsibility for Licensed Reentry Activities


Sec. 450.1  Scope of part; basis.

    This part sets forth financial responsibility and allocation of 
risk requirements applicable to commercial space reentry activities 
that are authorized to be conducted under a license issued pursuant to 
this subchapter.


Sec. 450.3  Definitions.

    (a) For purposes of this part--
    Bodily injury means physical injury, sickness, disease, disability, 
shock, mental anguish, or mental injury sustained by any person, 
including death.
    Contractors and subcontractors means those entities that are 
involved at any tier, directly or indirectly, in licensed reentry 
activities, and includes suppliers of property and services, and the 
component manufacturers of a reentry vehicle or payload. Contractors 
and subcontractors include those entities as defined in 
Sec. 440.3(a)(2) of this chapter involved in licensed launch activities 
associated with a particular reentry.

[[Page 56700]]

    Customer means
    (1) A person who procures reentry services from a licensee or 
launch services associated with a particular reentry;
    (2) Any person to whom the customer has sold, leased, assigned or 
otherwise transferred its rights in the payload (or any part thereof), 
to be reentered by the licensee, including a conditional sale, lease, 
assignment, or transfer of rights.
    (3) Any person who has placed property on board the payload for 
reentry or payload services; and
    (4) Any person to whom the customer has transferred its rights to 
reentry services.
    Federal range facility means a Government-owned installation at 
which launches or reentries take place.
    Financial responsibility means statutorily required financial 
ability to satisfy liability as required under 49 U.S.C. 70101-70121.
    Government personnel means employees of the United States, its 
agencies, and its contractors and subcontractors, involved in reentry 
services for licensed reentry activities or launch services for 
licensed launch activities associated with a particular reentry. 
Employees of the United States include members of the Armed Forces of 
the United States.
    Hazardous operations means activities, processes, and procedures 
that, because of the nature of the equipment, facilities, personnel, or 
environment involved or function being performed, may result in bodily 
injury or property damage.
    Liability means a legal obligation to pay claims for bodily injury 
or property damage resulting from licensed reentry activities.
    License means an authorization to conduct licensed reentry 
activities, issued by the Office under this subchapter.
    Licensed launch activities means the launch of a launch vehicle as 
defined in a regulation or license issued by the Office and carried out 
pursuant to a launch license.
    Licensed reentry activities means the reentry of a reentry vehicle, 
including a reusable launch vehicle (RLV), as defined in a regulation 
or license issued by the Office and carried out pursuant to a license.
    Maximum probable loss (MPL) means the greatest dollar amount of 
loss for bodily injury or property damage that is reasonably expected 
to result from licensed reentry activities;
    (1) Losses to third parties, excluding Government personnel and 
other launch or reentry participant's employees involved in licensed 
reentry activities, that are reasonably expected to result from 
licensed reentry activities are those having a probability of 
occurrence on the order of no less than one in ten million.
    (2) Losses to Government property and Government personnel, as 
defined in this section, that are reasonably expected to result from 
licensed reentry activities are those having a probability of 
occurrence on the order of no less than in one hundred thousand.
    Office means the Associate Administrator for Commercial Space 
Transportation of the Federal Aviation Administration, U.S. Department 
of Transportation.
    Property damage means partial or total destruction, impairment, or 
loss of tangible property, real or personal.
    Regulations means the Commercial Space Transportation Licensing 
Regulations, codified at 14 CFR Ch. III.
    Third party means:
    (1) Any person other than:
    (i) The United States, its agencies, and its contractors and 
subcontractors involved in reentry services for licensed reentry 
activities or launch services for licensed launch activities associated 
with a particular reentry;
    (ii) The licensee and its contractors and subcontractors involved 
in reentry services for licensed reentry activities or launch services 
for licensed launch activities associated with a particular reentry; 
and
    (iii) The customer and its contractors and subcontractors involved 
in reentry services for licensed reentry activities or launch services 
for licensed launch activities associated with a particular reentry.
    (2) Government personnel, as defined in this section, are third 
parties.
    United States means the United States Government, including its 
agencies.
    (b) Except as otherwise provided in this section, any term used in 
this part and defined in 49 U.S.C. 70101-70121 or in Sec. 401.5 of this 
chapter shall have the meaning contained therein.


Sec. 450.5  General.

    (a) No person shall commence or conduct reentry activities that 
require a license unless that person has obtained a license and fully 
demonstrated compliance with the financial responsibility and 
allocation of risk requirements set forth in this part.
    (b) The Office shall prescribe the amount of financial 
responsibility a licensee is required to obtain and any additions to or 
modifications of the amount in a license order issued concurrent with 
or subsequent to the issuance of a license.
    (c) Demonstration of financial responsibility under this part shall 
not relieve the licensee of ultimate responsibility for liability, 
loss, or damage sustained by the United States resulting from licensed 
reentry activities, except to the extent that:
    (1) Liability, loss, or damage sustained by the United States 
results from willful misconduct of the United States or its agents;
    (2) Covered claims of third parties for bodily injury or property 
damage arising out of any particular reentry exceed the amount of 
financial responsibility required under Sec. 450.9(c) of this part and 
do not exceed $1,500,000,000 (as adjusted for inflation occurring after 
January 1, 1989), above such amount, and are payable pursuant to 49 
U.S.C. 70113 and Sec. 450.19 of this part. Claims of employees of 
entities listed in paragraphs (1)(ii) and (iii) of the definition of 
``third party'' in Sec. 450.3(a) of this part for bodily injury or 
property damage are not covered claims;
    (3) Covered claims for property loss or damage exceed the amount of 
financial responsibility required under Sec. 450.9(e) of this part and 
do not result from willful misconduct of the licensee; or
    (4) The licensee has no liability for covered claims by third 
parties for bodily injury or property damage arising out of any 
particular reentry that exceed $1,500,000,000 (as adjusted for 
inflation occurring after January 1, 1989) above the amount of 
financial responsibility required under Sec. 450.9(c) of this part.
    (d) A licensee's failure to comply with the requirements in this 
part may result in suspension or revocation of a license, and subjects 
the licensee to civil penalties as provided in part 405 of this 
chapter.


Sec. 450.7  Determination of maximum probable loss.

    (a) The Office shall determine the maximum probable loss (MPL) from 
covered claims by a third party for bodily injury or property damage, 
and the United States, its agencies, and its contractors and 
subcontractors for covered property damage or loss, resulting from 
licensed reentry activities. The maximum probable loss determination 
forms the basis for financial responsibility requirements issued in a 
license order.
    (b) The Office issues its determination of maximum probable loss no 
later than ninety days after a licensee or transferee has requested a 
determination and submitted all information required by the Office to 
make the determination. The Office shall consult with Federal agencies 
that are involved in, or whose personnel or property are exposed to 
risk of damage or loss as a result of, licensed reentry activities 
before issuing

[[Page 56701]]

a license order prescribing financial responsibility requirements and 
shall notify the licensee or transferee if interagency consultation may 
delay issuance of the MPL determination.
    (c) Information requirements for obtaining a maximum probable loss 
determination are set forth in appendix A to this part. Any person 
requesting a determination of maximum probable loss must submit 
information in accordance with Appendix A requirements, unless the 
Office has waived requirements. In lieu of submitting required 
information, a person requesting a maximum probable loss determination 
may designate and certify certain information previously submitted for 
a prior determination as complete, valid, and equally applicable to its 
current request. The requester is responsible for the continuing 
accuracy and completeness of information submitted under this part and 
shall promptly report any changes in writing.
    (d) The Office shall amend a determination of maximum probable loss 
required under this section at any time prior to completion of licensed 
reentry activities as warranted by supplementary information provided 
to or obtained by the Office after the MPL determination is issued. Any 
change in financial responsibility requirements as a result of an 
amended MPL determination shall be set forth in a license order.
    (e) The Office may make a determination of maximum probable loss at 
any time other than as set forth in paragraph (b) of this section, upon 
request by any person.


Sec. 450.9  Insurance requirements for licensed reentry activities.

    (a) As a condition of each reentry license, the licensee must 
comply with insurance requirements set forth in this section and in a 
license order issued by the Office, or otherwise demonstrate the 
required amount of financial responsibility.
    (b) The licensee must obtain and maintain in effect a policy or 
policies of liability insurance, in an amount determined by the Office 
under paragraph (c) of this section, that protects the following 
persons as additional insureds to the extent of their respective 
potential liabilities against covered claims by a third party for 
bodily injury or property damage resulting from licensed reentry 
activities:
    (1) The licensee, its customer, and their respective contractors 
and subcontractors, and the employees of each, involved in licensed 
reentry activities or in licensed launch activities associated with a 
particular reentry;
    (2) The United States, its agencies, and its contractors and 
subcontractors involved in licensed reentry activities or in licensed 
launch activities associated with a particular reentry; and
    (3) Government personnel.
    (c) The Office shall prescribe for each licensee the amount of 
insurance required to compensate the total of covered third-party 
claims for bodily injury or property damage resulting from licensed 
reentry activities. Covered third-party claims include claims by the 
United States, its agencies, and its contractors and subcontractors for 
damage or loss to property other than property for which insurance is 
required under paragraph (d) of this section. The amount of insurance 
required is based upon the Office's determination of maximum probable 
loss; however, it will not exceed the lesser of:
    (1) $500 million; or
    (2) The maximum liability insurance available on the world market 
at a reasonable cost, as determined by the Office.
    (d) The licensee must obtain and maintain in effect a policy or 
policies of insurance, in an amount determined by the Office under 
paragraph (e) of this section, that covers claims by the United States, 
its agencies, and its contractors and subcontractors involved in 
licensed reentry activities resulting from licensed reentry activities. 
Property covered by this insurance must include all property owned, 
leased, or occupied by, or within the care, custody, or control of, the 
United States and its agencies, and its contractors and subcontractors 
involved in licensed reentry activities, at a Federal range facility. 
Insurance must protect the United States and its agencies, and its 
contractors and subcontractors involved in licensed reentry activities.
    (e) The Office shall prescribe for each licensee the amount of 
insurance required to compensate claims for property damage under 
paragraph (d) of this section resulting from licensed reentry 
activities in connection with any particular reentry. The amount of 
insurance is based upon a determination of maximum probable loss; 
however, it will not exceed the lesser of:
    (1) $100 million; or
    (2) The maximum available on the world market at a reasonable cost, 
as determined by the Office.
    (f) In lieu of a policy of insurance, licensee may demonstrate 
financial responsibility in another manner meeting the terms and 
conditions applicable to insurance as set forth in this part. The 
licensee must describe in detail the method proposed for demonstrating 
financial responsibility and how it assures that the licensee is able 
to cover claims as required under this part.


Sec. 450.11  Duration of coverage; modifications.

    (a) Insurance coverage required under Sec. 450.9, or other form of 
financial responsibility, shall attach upon commencement of licensed 
reentry activities, and remain in full force and effect as follows:
    (1) For ground operations, until completion of licensed reentry 
activities at the reentry site; and
    (2) For other licensed reentry activities, thirty days from 
initiation of reentry flight; however, in the event of an abort that 
results in the reentry vehicle remaining on orbit, insurance shall 
remain in place until the Office's determination that risk to third 
parties and Government property as a result of licensed reentry 
activities is sufficiently small that financial responsibility is no 
longer necessary, as determined by the Office through the risk analysis 
conducted to determine MPL and specified in a license order.
    (b) Financial responsibility required under this part may not be 
replaced, canceled, changed, withdrawn, or in any way modified to 
reduce the limits of liability or the extent of coverage, nor expire by 
its own terms, prior to the time specified in a license order, unless 
the Office is notified at least 30 days in advance and expressly 
approves the modification.


Sec. 450.13  Standard conditions of insurance coverage.

    (a) Insurance obtained under Sec. 450.9 shall comply with the 
following terms and conditions of coverage:
    (1) Bankruptcy or insolvency of an insured, including any 
additional insured, shall not relieve the insurer of any of its 
obligations under any policy.
    (2) Policy limits shall apply separately to each occurrence and, 
for each occurrence to the total of claims arising out of licensed 
reentry activities in connection with any particular reentry.
    (3) Except as provided in this paragraph herein, each policy must 
pay claims from the first dollar of loss, without regard to any 
deductible, to the limits of the policy. A licensee may obtain a policy 
containing a deductible amount if the amount of the deductible is 
placed in escrow account or otherwise demonstrated to be unobligated, 
unencumbered funds, of the licensee, available to compensate claims at 
any time claims may arise.
    (4) Each policy shall not be invalidated by any action or inaction 
of

[[Page 56702]]

the licensee or any additional insured, including nonpayment by the 
licensee of the policy premium, and must insure the licensee and each 
additional insured regardless of any breach or violation of any 
warranties, declarations, or conditions contained in the policies by 
the licensee or any additional insured (other than a breach or 
violation by the licensee or an additional insured, and then only as 
against that licensee or additional insured).
    (5) Exclusions from coverage must be specified.
    (6) Insurance shall be primary without right of contribution from 
any other insurance that is carried by the licensee or any additional 
insured.
    (7) Each policy must expressly provide that all of its provisions, 
except the policy limits, operate in the same manner as if there were a 
separate policy with and covering the licensee and each additional 
insured.
    (8) Each policy must be placed with an insurer of recognized 
reputation and responsibility that either:
    (i) Is licensed to do business in any State, territory, possession 
of the United States, or the District of Columbia; or
    (ii) Includes in each of its policies of insurance obtained under 
this part a contract clause in which the insurer agrees to submit to 
the jurisdiction of a court of competent jurisdiction within the United 
States and designates an authorized agent within the United States for 
service of legal process on the insurer.
    (9) Except as to claims resulting from the willful misconduct of 
the United States or its agents, the insurer shall waive any and all 
rights of subrogation against each of the parties protected by required 
insurance.
    (b) [Reserved.]


Sec. 450.15  Demonstration of compliance.

    (a) A licensee must submit evidence of financial responsibility and 
compliance with allocation of risk requirements under this part, as 
follows, unless a license order specifies otherwise due to the 
proximity of the licensee's intended date for commencement of licensed 
activities:
    (1) The waiver of claims agreement required under Sec. 450.17(c) of 
this part must be submitted at least 30 days before commencement of 
licensed launch activities involving the reentry licensee;
    (2) Evidence of insurance must be submitted at lest 30 days before 
commencement of licensed launch activities involving the reentry 
licensee;
    (3) Evidence of financial responsibility in a form other than 
insurance, as provided under Sec. 450.9(f) of this part, must be 
submitted at least 60 days before commencement of licensed launch 
activities involving the reentry licensee; and
    (4) Evidence of renewal of insurance or other form of financial 
responsibility must be submitted at least 30 days in advance of its 
expiration date.
    (b) Upon a complete demonstration of compliance with financial 
responsibility all allocation of risk requirements under this part, the 
requirements shall preempt any provisions in agreements between the 
licensee and an agency of the United States governing access to or use 
of United States reentry property or reentry services for licensed 
reentry activities which address financial responsibility, allocation 
of risk and related matters covered by 49 U.S.C. 70112, 70113.
    (c) A licensee must demonstrate compliance as follows:
    (1) The licensee must provide proof of insurance required under 
Sec. 450.9 by:
    (i) Certifying to the Office that it has obtained insurance in 
compliance with the requirements of this part and any applicable 
license order;
    (ii) Filing with the Office one or more certificates of insurance 
evidencing insurance coverage by one or more insures under a currently 
effective and properly endorsed policy or policies of insurance, 
applicable to licensed reentry activities, on terms and conditions and 
in amounts prescribed under this part, an specifying policy exclusions;
    (iii) In the event of any policy exclusions or limitations of 
coverage that may be considered usual under Sec. 450.19(c) of this 
part, or for purposes of implementing the Government's waiver of claims 
for property damage under 49 U.S.C. 70112(b)(2), certifying that 
insurance covering the excluded risks is not commercially available at 
reasonable cost; and
    (iv) Submitting to the Office, for signature by the Department on 
behalf of the United States Government, the waiver of claims and 
assumption of responsibility agreement required by Sec. 450.17(c) of 
this part, executed by the licensee and its customer.
    (2) Certifications required under this section must be signed by a 
duly authorized officer of the licensee.
    (d) Certificate(s) of insurance required under paragraph (c)(1)(ii) 
of this section must be signed by the insurer issuing the policy and 
accompanied by an opinion of the insurance broker that the insurance 
obtained by the licensee complies with the specific requirements for 
insurance set forth in this part and any applicable license order.
    (e) The licensee must maintain, and make available for inspection 
by the Office upon request, all required policies of insurance and 
other documents necessary to demonstrate compliance with this part.
    (f) In the event the licensee demonstrates financial responsibility 
using means other than insurance, as provided under Sec. 450.9(f) of 
this part, the licensee must provide proof that it has met the 
requirements set forth in this part and in a license order issued by 
the Office.


Sec. 450.17  Reciprocal waiver of claims requirements.

    (a) As a condition of each reentry license, the licensee shall 
comply with reciprocal waiver of claims requirements as set forth in 
this section.
    (b) The licensee shall implement reciprocal waivers of claims with 
its contractors and subcontractors, its customer(s) and the customer's 
contractors and subcontractors, and the launch licensee and its 
contractors and subcontractors and customers, under which each party 
waives and releases claims against the other parties to the waivers and 
agrees to assume financial responsibility for property damage it 
sustains and for bodily injury or property damage sustained by its own 
employees, and to hold harmless and indemnify each other from bodily 
injury or property damage sustained by its employees, resulting from 
reentry activities, including licensed launch activities associated 
with a particular reentry, regardless of fault.
    (c) For each licensed reentry in which the U.S. Government, its 
agencies, or its contractors and subcontractors is involved in licensed 
reentry activities or licensed launch activities associated with a 
particular reentry, or where property insurance is required under 
Sec. 440.9(d) of this subchapter or Sec. 450.9(d), the Federal Aviation 
Administration of the Department of Transportation, the licensee, and 
its customer shall enter into a reciprocal waiver of claims agreement 
in the form set forth in appendix B to this part or the satisfies its 
requirements.
    (d) The reentry licensee and its customer, the launch licensee and 
its customer, and the Federal Aviation Administration of the Department 
of Transportation on behalf of the United States and its agencies but 
only to the extent provided in legislation, must agree in any waiver of 
claims agreement required under this part to indemnify another party to 
the agreement from claims by the indemnifying party's contractors and 
subcontractors arising out the indemnifying party's failure to 
implement properly the waiver requirement.

[[Page 56703]]

Sec. 450.19  United States payment of excess third-party liability 
claims.

    (a) The United States pays successful covered claims (including 
reasonable expenses of litigation or settlement) of a third party 
against the licensee, the customer, and the contractors and 
subcontractors of the licensee and the customer, and the employees of 
each involved in licensed reentry activities, the licensee, customer 
and the contractors and subcontractors of each involved in licensed 
launch activities associated with a particular reentry, and the 
contractors and subcontractors of the United States and its agencies, 
and their employees, involved in licensed reentry activities and 
licensed launch activities associated with a particular reentry, to the 
extent provided in an appropriation law or other legislative authority 
providing for payment of claims in accordance with 49 U.S.C. 70113, and 
to the extent the total amount of such covered claims arising out of 
any particular reentry:
    (1) Exceeds the amount of insurance required under Sec. 450.9(b); 
and
    (2) Is not more than $1,500,000,000 (as adjusted for inflation 
occurring after January 1, 1989) above that amount.
    (b) Payment by the United States under paragraph (a) of this 
section shall not be made for any part of such claims for which bodily 
injury or property damage results from willful misconduct by the party 
seeking payment.
    (c) The United States shall provide for payment of claims by third 
parties for bodily injury or property damage that are payable under 49 
U.S.C. 70113 and not covered by required insurance under Sec. 450.9(b), 
without regard to the limitation under paragraph (a)(1) of this 
section, because of an insurance policy exclusion that is usual. A 
policy exclusion is considered usual only if insurance covering the 
excluded risk is not commercially available at reasonable rates. The 
licensee must submit a certification in accordance with 
Sec. 450.15(c)(1)(iii) of this part for the United States to cover the 
claims.
    (d) Upon the expiration of the policy period prescribed in 
accordance with Sec. 450.11(a), the United States shall provide for 
payment of claims that are payable under 49 U.S.C. 70113 from the first 
dollar of loss up to $1,500,000,000 (as adjusted for inflation 
occurring after January 1, 1989).
    (e) Payment by the United States of excess third-party claims under 
49 U.S.C. 70113 shall be subject to:
    (1) Prompt notice by the licensee to the Office that the total 
amount of claims arising out of licensed reentry activities exceeds, or 
is likely to exceed, the required amount of financial responsibility. 
For each claim, the notice must specify the nature, cause, and amount 
of the claim or lawsuit associated with the claim, and the party or 
parties who may otherwise be liable for payment of the claim;
    (2) Participation or assistance in the defense of the claim or 
lawsuit by the United States, at its election;
    (3) Approval by the Office of any settlement, or part of a 
settlement, to be paid by the United States; and
    (4) Approval by Congress of a compensation plan prepared by the 
Office and submitted by the President.
    (f) The Office will:
    (1) Prepare a compensation plan outlining the total amount of 
claims and meeting the requirements set forth in 49 U.S.C. 70113;
    (2) Recommend sources of funds to pay the claims; and
    (3) Propose legislation as required to implement the plan.
    (g) The Office may withhold payment of a claim if it finds that the 
amount is unreasonable, unless it is the final order of a court that 
has jurisdiction over the matter.

Appendix A to Part 450--Information Requirements for Obtaining a 
Maximum Probable Loss Determination for Licensed Reentry Activities

    Any person requesting a maximum probable loss determination 
shall submit the following information to the Office, unless the 
Office has waived a particular information requirement under 14 CFR 
450.7(c):

I. General Information

    A. Reentry mission description.
    1. A description of mission parameters, including:
    a. Orbital inclination; and
    b. Orbit altitudes (apogee and perigee).
    c. Reentry trajectories.
    2. Reentry flight sequences.
    3. Reentry initiation events and time for each event.
    4. Nominal landing location, alternative landing sites and 
contingency abort sites.
    5. Identification of landing facilities, (planned date of 
reentry), and reentry windows.
    6. If the applicant has previously been issued a license to 
conduct reentry activities using the same reentry vehicle to the 
same reentry (site) facility, a description of any differences 
planned in the conduct of proposed activities.
    B. Reentry Vehicle Description.
    1. General description of the reentry vehicle including 
dimensions.
    2. Description of major systems, including safety systems.
    3. Description of propulsion system (reentry initiation system) 
and type of fuel used.
    4. Identification of all propellants to be used and their hazard 
classification under the Hazardous Materials Table, 49 CFR 172.101.
    5. Description of hazardous components.
    C. Payload.
    1. General description of any payload, including type (e.g., 
telecommunications, remote sensing), propellants, and hazardous 
components or materials, such as toxic or radioactive substances.
    D. Flight Termination System/Flight Safety System.
    1. Identification of any flight termination system (FTS) or 
Flight Safety System (FSS) on the reentry vehicle, including a 
description of operations and component location on the vehicle.

II. Flight Operations

    A. Identification of reentry site facilities exposed to risk 
during vehicle reentry and landing.
    B. Identification of accident failure scenarios, probability 
assessments for each, and estimation of risks to Government 
personnel, individuals not involved in licensed reentry activities, 
and Government property, due to property damage or bodily injury. 
The estimation of risks for each scenario shall take into account 
the number of such individuals at risk as a result of reentry 
(flight) and landing of a reentry vehicle (on-range, off-range, and 
down-range) and specific, unique facilities exposed to risk. 
Scenarios shall cover the range of reentry trajectories for which 
authorization is sought in the license application.
    C. On-orbit risk analysis assessing risks posed by a reentry 
vehicle to operational satellites during reentry.
    D. Reentry risk analysis assessing risks to Government personnel 
and individuals not involved in licensed reentry activities as a 
result of inadvertent or random reentry of the launch vehicle or its 
components.
    E. Nominal and 3-sigma dispersed trajectories in one-second 
intervals, from reentry initiation through landing or impact. 
(Coordinate system will be specified on a case by case basis)
    F. Three-sigma landing or impact dispersion area in downrange 
(+/-) and crossrange (+/-) measured from the nominal, and 
contingency landing or impact target. The applicant is responsible 
for including all significant landing or impact dispersion 
constituents in the computations of landing or impact dispersion 
areas. The dispersion constituents should include, but not be 
limited to: variation in orbital position and velocity at the 
reentry initiation time; variation in re-entry initiation time 
offsets, either early or late; variation in the bodies' ballistic 
coefficient; position and velocity variation due to winds; and 
variations in re-entry retro-maneuvers.
    G. Malfunction turn data (tumble, trim) for guided 
(controllable) vehicles. The malfunction turn data shall include the 
total angle turned by the velocity vector versus turn duration time 
at one second interval; the magnitude of the velocity vector versus 
turn duration time at one second intervals; and an indication on the 
data where the re-entry body will impact the earth, or breakup due 
to aerodynamic loads. A malfunction turn data set is required for 
each malfunction

[[Page 56704]]

time. Malfunction turn start times shall not exceed four-second 
intervals along the trajectory.
    H. Identification of debris casualty areas and the projected 
number and ballistic coefficient of fragments expected to result 
from each failure mode during reentry, including random reentry.

III. Post-Flight Processing Operations

    A. General description of post-flight ground operations 
including overall sequence and location of operations for removal of 
vehicle and components and processing equipment from the reentry 
site facility and for handling of hazardous materials, and 
designation of hazardous operations.
    B. Identification of all facilities used in conducting post-
flight processing operations.
    C. For each hazardous operation:
    1. Identification of location where each operation is performed, 
including each building or facility identified by name or number.
    2. Identification of facilities adjacent to location where each 
operation is performed and exposed to risk, identified by name or 
number.
    3. Maximum number of Government personnel and individuals not 
involved in license reentry activities who may be exposed to risk 
during each operation. For Government personnel, identification of 
his or her employer.
    4. Identify and provide reentry site facility policies or 
requirements applicable to the conduct of operations.

Appendix B to Part 450--Agreement for Waiver of Claims and Assumption 
of Responsibility

    This Agreement is entered into this ____ day of __________, by 
and among [Licensee] (the ``Licensee''), [Customer] (the 
``Customer''), and the Federal Aviation Administration of the 
Department of Transportation, on behalf of the United States 
Government (collectively, the ``Parties''), to implement the 
provisions of Sec. 450.17(c) of the Commercial Space Transportation 
Licensing Regulations, 14 CFR Ch. III (the ``Regulations'').
    In consideration of the mutual releases and promises contained 
herein, the Parties hereby agree as follows:

1. Definitions

    Contractors and Subcontractors means entities described in 
Sec. 450.3 of the Regulations, 14 CFR 450.3.
    Customer means the above-named Customer on behalf of the 
Customer and any person described in Sec. 450.3 of the Regulations, 
14 CFR 450.3.
    License means License No. __________ issued on __________, by 
the Associate Administrator for Commercial Space Transportation, 
Federal Aviation Administration, Department of Transportation, to 
the Licensee, including all license orders issued in connection with 
the License.
    Licensee means the Licensee and any transferee of the Licensee 
under 49 U.S.C. Subtitle IX, ch. 701.
    United States means the United States and its agencies involved 
in Licensed Activities.
    Except as otherwise defined herein, terms used in this Agreement 
and defined in 49 U.S.C. Subtitle IX, ch. 701--Commercial Space 
Launch Activities, or in the Regulations, shall have the same 
meaning as contained in 49 U.S.C. Subtitle IX, ch. 701, or the 
Regulations, respectively.

2. Waiver and Release of Claims

    (a) Licensee hereby waives and releases claims it may have 
against Customer and the United States, and against their respective 
Contractors and Subcontractors, for Property Damage it sustains and 
for Bodily Injury or Property Damage sustained by its own employees, 
resulting from Licensed Activities, regardless of fault.
    b. Customer hereby waives and releases claims it may have 
against Licensee and the United States, and against their respective 
Contractors and Subcontractors, for Property Damage it sustains and 
for Bodily Injury or Property Damage sustained by its own employees, 
resulting from Licensed Activities, regardless of fault.
    (c) The United States hereby waives and releases claims it may 
have against Licensee and Customer, and against their respective 
Contractors and Subcontractors, for Property Damage it sustains, and 
for Bodily Injury or Property Damage sustained by its own employees, 
resulting from Licensed Activities, regardless of fault, to the 
extent that claims it would otherwise have for such damage or injury 
exceed the amount of insurance or demonstration of financial 
responsibility required under sections 440.9(c) and (e) or sections 
450.9(c) and (e), respectively, of the Regulations, 14 CFR 440.9(c) 
and (e) or 14 CFR 450.9(c) and (e).

3. Assumption of Responsibility

    (a) Licensee and Customer shall each be responsible for Property 
Damage it sustains and for Bodily Injury or Property Damage 
sustained by its own employees, resulting from Licensed Activities, 
regardless of fault. Licensee and Customer shall each hold harmless 
and indemnify each other, the United States, and the Contractors and 
Subcontractors of each Party, for Bodily Injury or Property Damage 
sustained by its own employees, resulting from Licensed Activities, 
regardless of fault.
    (b) The United States shall be responsible for Property Damage 
it sustains, and for Bodily Injury or Property Damage sustained by 
its own employees, resulting from Licensed Activities, regardless of 
fault, to the extent that claims it would otherwise have for such 
damage or injury exceed the amount of insurance or demonstration of 
financial responsibility required under Secs. 440.9(c) and (e) or 
Secs. 450.9(c) and (e), respectively, of the Regulations, 14 CFR 
440.9(c) and (e) or 14 CFR 450.9(c) and (e).

4. Extension of Assumption of Responsibility and Waiver

    (a) Licensee shall extend the requirements of the waiver and 
release of claims, and the assumption of responsibility, hold 
harmless, and indemnification, as set forth in paragraphs 2(a) and 
3(a), respectively, to its Contractors and Subcontractors by 
requiring them to waive and release all claims they may have against 
Customer and the United States, and against the respective 
Contractors and Subcontractors of each, and to agree to be 
responsible, for Property Damage they sustain and to be responsible, 
hold harmless and indemnify Customer and the United States, and the 
respective Contractors and Subcontractors of each, for Bodily Injury 
or Property Damage sustained by their own employees, resulting from 
Licensed Activities, regardless of fault.
    (b) Customer shall extend the requirements of the waiver and 
release of claims, and the assumption of responsibility, hold 
harmless,and indemnification, as set forth in paragraphs 2(b) and 
3(a), respectively, to its Contractors and Subcontractors by 
requiring them to waive and release all claims they may have against 
Licensee and the United States, and against the respective 
Contractors and Subcontractors of each, and to agree to be 
responsible, for Property Damage they sustain and to be responsible, 
hold harmless and indemnify Licensee and the United States, and the 
respective Contractors and Subcontractors of each, for Bodily Injury 
or Property Damage sustained by their own employees, resulting from 
Licensed Activities, regardless of fault.
    (c) The United States shall extend the requirements of the 
waiver and release of claims, and the assumption of responsibility 
as set forth in paragraphs 2(c) and 3(b), respectively, to its 
Contractors and Subcontractors by requiring them to waive and 
release all claims they may have against Licensee and Customer, and 
against the respective Contractors and Subcontractors of each, and 
to agree to be responsible, for any Property Damage they sustain and 
for any Bodily Injury of Property Damage sustained by their own 
employees, resulting from Licensed Activities, regardless of fault, 
to the extent that claims they would otherwise have for such damage 
or injury exceed the amount of insurance or demonstration of 
financial responsibility required under Secs. 440.9(c) and (e) or 
Secs. 450.9(c) and (e), respectively, of the Regulations, 14 CFR 
440.9(c) and (e) or 14 CFR 450.9(c) and (e).

5. Indemnification

    (a) Licensee shall hold harmless and indemnify Customer and its 
directors, officers, servants, agents, subsidiaries, employees and 
assignees, or any or them, and the United States and its agencies, 
servants, agents, subsidiaries, employees and assignees, or any or 
them, from and against liability, loss or damage arising out of 
claims that Licensee's Contractors and Subcontractors may have for 
Property Damage sustained by them and for Bodily Injury or Property 
Damage sustained by their employees, resulting from Licensed 
Activities.
    (b) Customer shall hold harmless and indemnify Licensee and its 
directors, officers, servants, agents, subsidiaries, employees and 
assignees, or any of them, and the United States and its agencies, 
servants, agents, subsidiaries, employees assignees, or any of them, 
from and against liability, loss or damage arising out of claims 
that Customer's Contractors and Subcontractors, or any person on 
whose behalf Customer enters into

[[Page 56705]]

this Agreement, may have for Property Damage sustained by them and 
for Bodily Injury or Property Damage sustained by their employees, 
resulting from Licensed Activities.
    (c) To the extent provided in advance in an appropriations law 
or to the extent there is enacted additional legislative authority 
providing for the payment of claims, the United States shall hold 
harmless and indemnify Licensee and Customer and their respective 
directors, officers, servants, agents, subsidiaries, employees and 
assignees, or any of them, from and against liability, loss or 
damage arising out of claims that Contractors and Subcontractors of 
the United States may have for Property Damage sustained by them, 
and for Bodily Injury or Property Damage sustained by their 
employees, resulting from Licensed Activities, to the extent that 
claims they would otherwise have for such damage or injury exceed 
the amount of insurance or demonstration of financial responsibility 
under Sec. 440.9(c) and (e) or 450.9(c) and (e), respectively, of 
the Regulations, 14 CFR 440.9(c) and (e) or 14 CFR 450.9(c) and (e).

6. Assurances Under 49 U.S.C. 70112(e)

    Nothwithstanding any provision of this Agreement to the 
contrary, Licensee shall hold harmless and indemnify the United 
States and its agencies, servants, agents, employees and assignees, 
or any of them, from and against liability, loss or damage arising 
out of claims for Bodily Injury or Property Damage, resulting from 
Licensed Launch Activities, regardless of fault, except to the 
extent that: (i) As provided in section 7(b) of this Agreement, 
claims result form willful misconduct of the United States or its 
agents; (ii) claims for Property Damage sustained by the United 
States or its Contractors and Subcontractors exceed the amount of 
insurance or demonstration of financial responsibility required 
under Sec. 440.9(e) or Sec. 450.9(e) of the Regulations (14 CFR 
440.9(e) or 450.9(e); (iii) claims by a Third Party for Bodily 
Injury or Property Damage exceed the amount of insurance or 
demonstration of financial responsibility required under 
Sec. 440.9(c) or Sec. 450.9(c) of the Regulations (14 CFR 440.9(c) 
or 450.9(c)), and do not exceed $1,500,000,000 (as adjusted for 
inflation after January 1, 1989) above such amount, and are payable 
pursuant to the provisions of 49 U.S.C. 70113 and Sec. 440.19 or 
Sec. 450.19 of the Regulations (14 CFR 440.19 or 450.19); or (iv) 
Licensee has no liability for claims exceeding $1,500,000,000 (as 
adjusted for inflation after January 1, 1989) above the amount of 
insurance or demonstration of financial responsibility required 
under Sec. 440.9(c) or Sec. 450.9(c) of the Regulations (14 CFR 
440.9(c) or 450.9(c)).

7. Miscellaneous

    (a) Nothing contained herein shall be construed as a waiver or 
release by Licensee, Customer or the United States of any claim by 
an employee of the Licensee, Customer or the United States, 
respectively, including a member of the Armed Forces of the United 
States, for Bodily Injury or Property Damage, resulting form 
Licensed Activities.
    (b) Notwithstanding any provision of this Agreement to the 
contrary, any waiver, release, assumption of responsibility or 
agreement to hold harmless and indemnify herein shall not apply to 
claims for Bodily Injury or Property Damage resulting from willful 
misconduct of any of the Parties, the Contractors and Subcontractors 
of any of the Parties, and in the case of Licensee and Customer and 
the Contractors and Subcontractors of each of them, the directors, 
officers, agents and employees of any of the foregoing, and in the 
case of the United States, its agents.
    (c) In the event that more than one customer is involved in 
Licensed Activities, references herein to Customer shall apply to, 
and be deemed to include, each such customer severally and not 
jointly.
    (d) This Agreement shall be governed by and construed in 
accordance with United States Federal law.
    In Witness Whereof, the Parties to this Agreement have caused 
the Agreement to be duly executed by their respective duly 
authorized representatives as of the date written above.

Licensee

By: __________.
Its: __________.

Customer

By: __________.
Its: __________.

Department of Transportation

By: __________.
Its: __________.

    Issued in Washington, DC, on August 28, 2000.
Patricia G. Smith,
Associate Administrator for Commercial Space Transportation.
[FR Doc. 00-22565 Filed 9-18-00; 8:45 am]
BILLING CODE 4910-13-M