On National Security | Lessons from SpaceX about the power of incentives

Whether it’s space or defense technology, successful innovation doesn’t come easy, even for SpaceX. CEO Elon Musk revealed that the company almost terminated the Falcon Heavy program three times after it started in 2011.
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            “On National Security” appears in every issue of SpaceNews magazine. This column ran in the Feb. 12, 2018 issue.
In the afterglow of the stunning first flight of the Falcon Heavy rocket, it’s tempting to draw contrasts between the nimble, entrepreneurial culture of SpaceX and the plodding government procurement bureaucracy that can’t seem to move past Cold War-era technology.
Whether it’s space or defense technology, successful innovation doesn’t come easy, even for SpaceX. CEO Elon Musk revealed that the company almost terminated the Falcon Heavy program three times after it started in 2011. “It was a lot harder than we thought. Way harder,” Musk said. Major components including the center booster didn’t work so they had to be redesigned at huge expense. Musk estimated the company invested half a billion dollars or more in the rocket. He said it was more money than he cared to admit.
This recognition should not come as a shock. SpaceX had to make tough business decisions and things could have gone badly.
“I’m not surprised they tried to cancel it three times,” said Charles Miller, an industry consultant and president of NexGen Space. The Falcon Heavy originally was developed to fly large satellites that the Falcon 9 couldn’t handle. But SpaceX did such a great job upgrading the Falcon 9 that it took some of the Heavy business away, Miller noted. “It was a rational thing to consider canceling Falcon Heavy.”
The satellite launch business can be fickle and obviously SpaceX evaluated the situation and decided to keep the Falcon Heavy going. The gamble paid off.
“What they did is inspiring and it should be aspirational about how to innovate in rocketry,” Miller said.
But the lesson for the government and for the industry at large is that incentives are hugely important. Why didn’t anyone think of reusing first-stage boosters before SpaceX? Evidently nobody was incentivized enough to lower the cost of launch and compete aggressively.
“Elon was very incentivized,” said Miller. The reuse of first-stage boosters could have been done many years ago, but launch providers were content with the status quo and created the conditions for a disruptor to seize the opportunity and shake up the industry.
One of the reasons SpaceX can afford to offer the Falcon Heavy at a cutthroat price of $90 million is that all the elements are being used in other launch vehicles, shared across a family, Miller noted. Building its own engines in-house also saves the company from having to pay costly overhead for an engine subcontractor. “It’s all about incentives,” said Miller. “You need to start by deciding what you need to do to be competitive.” SpaceX didn’t want to be weighed down processes and red tape, and decided that that government would be just another customer.
The reusing of rocket boosters only goes so far. “It gets some cost reduction,” Miller said. “But you need to also reinvent how you do everything when you transition from expendable to reusable launch.” The key is to avoid having a huge staffs of people “sitting around watching a reusable launch vehicle.” That doesn’t save much money.
The SpaceX model is to treat rockets somewhat like airplanes. “You trust the design. And you don’t have a standing army of people managing the operation of turning the airplane around, he said. “You know how many flights an airplane can do between inspections and overhaul. That’s where most of the savings are: Getting the flight rate up and eliminating the standing army.”
The launch of the Falcon Heavy marks another battle in the war that has been going on for years between the new and old methods of doing business in space. The “old space” holds much power and sway within the Pentagon and NASA but eventually will have to reckon with reality. SpaceX and other private-sector innovators are the future, and Uncle Sam is going broke.
“What we saw in the Falcon Heavy launch was a demonstration of the power of leveraging the innovation of American entrepreneurs,” Miller said. “It’s a stark choice: We either go back to the Moon by leveraging commercial launch vehicles or we’re not going back to the Moon.”

 
Sandra Erwin covers military space for SpaceNews. She is a veteran national security journalist and former editor of National Defense magazine.
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