Space Transportation at the Crossroads

Dear Friends:

We have entered a critical time for the future of space transportation.
Decisions that will be made over the next year will decide whether that
future is based on a one-size-fits all government designed launch system
or a variety of commercially designed and developed vehicles that will
open low earth orbit to new business opportunities.

Several weeks ago that choice was brought home by the decision of Beal
Aerospace to abandon its project to build a new expendable vehicle. In
his announcement of the decision, chairman and founder Andrew Beal stated
that “several uncertainties remain that are totally beyond our control and
put our entire business at risk.” He went on to observe that, “the most
insurmountable risk is the desire of the U.S. government and NASA to
subsidize competing launch systems While we believed we could compete
successfully against the government subsidized EELV launch vehicles, the
characteristics and depth of subsidy for NASA’s new initiative as well as
its ultimate performance are impossible to determine or evaluate.”

The “new initiative” Mr. Beal refers to is the Space Launch Initiative, a
five year, $4.5 billion program that NASA, in its Program Description
document, claims is designed to “enable full-scale development of a 2nd
generation (Reusable Launch Vehicle) architecture that would meet NASA’s
human and robotic space flight needs and commercial interests.”

Since the announcement of the Space Launch Initiative, ProSpace has taken
a “wait and see” attitude, preferring to give NASA time to reveal the
direction of this new program. But we have waited and seen enough. Now
we believe it is time to explore alternatives.

Because Mr. Beal is right. He will be the first to tell you that his
program had encountered significant hurdles, technological and otherwise.
But there is little doubt that he had sufficient resources in terms of
money and expertise to overcome those hurdles in time. What he could not
overcome was a market where the largest customer is more interested in
dedicating all of its business to a captive launch system. Without the
ability to compete fairly and honestly for that segment, his business plan
no longer made sense.

And it has become increasingly apparent that competition may not be the
basis for the Space Launch Initiative and that in fact NASA might be
embarking on a plan to build a captive launch system. This was confirmed
in large part when one senior NASA official observed recently that the
$4.5 billion will not be enough and that the agency might require as much
as $10 billion to $20 billion more once the five year program is
completed.

NASA still contends that any new vehicle or vehicles created under SLI
will be wholly owned and operated by the private sector. But given the
amount of government investment, some NASA officials privately acknowledge
that the agency would have to guarantee all of its business over a
substantial period of years to the new system. It is likely that any
system developed under such circumstances would not significantly reduce
the cost of space transportation. In fact the opposite might be true,
given the cost estimates we now hear.

THERE IS A BETTER WAY

ProSpace is now developing an alternative program, one that would use $4.5
billion over five years to enhance competition in the space transportation
industry, to bring new systems to market and to create new jobs and new
tax revenues.

In other words, our program calls for INVESTING the $4.5 billion in new
space transportation that is truly commercial, instead of just spending it
on another government launch system that is not commercially viable.

We call our program the Future of American Space Transportation, or FAST.
We have divided FAST into four parts:

1) Passage of the Space Transportation Investment Act of 2000 (H.R.
4676) to provide tax credits that pass through to investors in new space
transportation systems.

2) Creation of a new Federal Payload program, that will provide a
certain market over a fixed period of time so that new launch systems will
have a market to service. These payloads would come not just from NASA but
from any and all government agencies that utilize space-based assets.

3) Continued work by NASA on propulsion systems, materials research
and other ground-based demonstrations.

4) A new concentration on true X-vehicles that would be limited to a
maximum of $100 million and 36 months per vehicle program . These funds
would be split between NASA and the Defense Advanced Research Projects
Agency (DARPA), which would run separate programs.

Over the next few months, ProSpace will be sending you more specific
information on the FAST program. In the meantime we invite you to visit
our website at www.prospace.org to read four documents. The first is a
speech given at the Space Frontier conference last week in Los Angeles.
In it you’ll find some additional detail about FAST.

The second is the release by Beal Aerospace announcing the closure of the
company.

The third is the Space Launch Initiative Program Description, in which
NASA lays out its original plan for spending the new funds. We’d like you
to compare that document to the last of the four, a statement made on
January 5, 1972 by Richard Nixon announcing the Space Shuttle.

We believe you’ll find that comparison illuminating.

Until next time,

Marc Schlather

President

ProSpace America, Inc.