Testimony of Courtney Stadd given at a field hearing on “President’s New Space Vision” Senate Committee on Commerce, Science & Transportation

Given at a Science, Technology, and Space Field Hearing – President’s New Space Vision Wednesday, February 18 2004 – 9:30 AM –

The Testimony of Mr. Courtney Stadd President, Capitol Solutions

Mr. Chairman, and members of the Committee, I greatly appreciate the opportunity to participate in this hearing regarding the President’s newly announced space policy and especially to discuss the prospects for private sector interest in space-related activities, including launch vehicle development and the International Space Station.

I would like to begin my statement with an excerpt from an essay drafted by one of my space clients, Robert Bigelow, about whom I have more to say later in my testimony. If you go to his company’s web site at www.bigelowaerospace.com and click on “space commerce” you can access the full text. I think its sentiments are highly relevant to today’s hearing.

“Two hundred years after the Lewis and Clark expedition America continues to explore new frontiers. The manned space program of the late twentieth century has opened the door to almost limitless possibilities. Yet, despite the brave efforts and sacrifice of astronauts, both American and Russian, the U.S. and other nations have failed to capitalize on the hard earned achievements of the national space programs. As was the case 200 years ago, exploring the frontier was relatively simple when compared with the difficulties of surviving and profiting in a new and hostile environment.

Unlike past space endeavors, settling and developing space cannot be accomplished by government programs and personnel. The U.S. Government could fund and order Lewis and Clark to explore the West, but it could not pay or force pioneers to settle the region. Governments do have an important role to play in creating an environment conducive to space development, but it is the pioneering entrepreneurs, not the soldiers or bureaucrats, who can take and colonize a new frontier.”

A little over a year ago, we mourned the tragic loss of the Space Shuttle Columbia and its heroic crew. The investigation that followed blamed not only technical and communication problems within NASA, but called out the absence of a compelling strategic vision for our nation’s civil space program. January 14th marked a major milestone in the nation’s civil space adventure when the President committed the nation to a new bearing point and a renewed strategic direction in space. His vision now takes humankind beyond the confines of the low earth orbit we have occupied for decades, and draws our attention out into the distant universe, and the next logical destinations for humanity, including the Moon, Mars and beyond.

The President’s new space policy is a tribute to both the Columbia astronauts and future generations of American pioneers. I am the father of two teenagers and I can tell you that they and their friends’ imaginations were really fired up by the combination of the President’s speech and the extraordinary technical achievements of the Mars rovers – Spirit and Opportunity. The prospect that members of their generation might one day actually walk on another planetary surface even managed to cause some of them, however briefly, to think outside themselves and focus on a higher calling. No small miracle in itself!

The President’s plan responds to what many in the space community have been calling for in recent years: A bold new vision for NASA that lays out measured, pragmatic, evolutionary steps as the path for achievement of the goals he broadly outlined. Achievement of those goals will require a number of ambitious capabilities to be developed and demonstrated. We in private industry are greatly encouraged by NASA’s recognition that it will be looking to the commercial sector for critical products and services in pursuing this exciting new road map. And make no mistake: there is ample room for significant contributions by entrepreneurs, private sector investors and commercial companies who see the benefits of supplying products, services and technology for space-related markets.

Change, of course, often serves as a catalyst for innovation and new out-of-the-box ideas in the way we do things. By their very nature, entrepreneurs view “change” as a chance to translate challenge into profitable opportunities. This is why, frankly, so many American space entrepreneurs are embracing the period of potential change set in motion by the President’s policy announcement.

I have spent nearly thirty years of active involvement in the U.S. civil and commercial space communities – working in both the public and private sectors. With that said, I have also learned that it is nearly impossible to craft a national policy that satisfies all the various and sundry stakeholders. There will always be “rice bowls” who resist change when new priorities are set, such as those who may have a vested interest in preserving certain NASA programs that will be terminated or redirected as a result of the new vision. There will also be those that are frustrated by what they may view as an overly deliberate, evolutionary approach to realizing the President’s goals. From this particular stakeholder’s vantage point, however, I think the President and NASA have offered a compelling and exciting vision that is both pragmatic and executable, costing less than one percent of the annual federal budget. At the same time, it offers a range of exciting opportunities for private industry whose resources can help leverage and expand the investment of taxpayer dollars in the space program.

Before proceeding to discuss specific potential private sector interest in supporting the civil space program in areas such as launch vehicle development and the Space Station, allow me to underscore that the interdisciplinary nature of the new space exploration vision will require innovative technologies and breakthroughs in areas with huge potential impact on our economic competitiveness. These include major industrial sectors such as communications, robotics, materials, computing and automation, biotechnology and life sciences, power and propulsion, and networking.

As the Congressionally-charted “Commission on the Future of the U.S. Aerospace Industry” (November 2002) made clear, our domestic aerospace infrastructure is severely undermined by a shortage of engineers and scientists, as well as foreign subsidized competition. The Commission’s Executive Summary lays it out in stark terms: “The industry is confronted with a graying workforce in science, engineering and manufacturing New entrants to the industry have dropped precipitously to historical lows as the number of layoffs in the industry mount We note with interest how other countries that aspire for a great global role are directing intense attention and resources to foster an indigenous aerospace industry. This is in contrast to the attitude present here in the United States. We stand dangerously close to squandering the advantage bequeathed to us by prior generations of aerospace leaders. We must reverse this trend and march steadily towards rebuilding the industry.” Scientists and engineers initially attracted to work on space exploration programs will likely also go on to build the next generation Global Positioning System (GPS) satellites, missile defense systems, and laser communications satellites.

I would respectfully suggest, Mr. Chairman, that your colleagues in Congress, should debate the merits of this new exploration vision in the broader context of providing this nation a much overdue opportunity to revitalize our aerospace sector and return the U.S. to a leadership position in an area that has such important national economic and security implications.

With the primary focus of the Space Shuttle on completing the assembly of the Space Station, the commercial sector is eager to provide innovative solutions for Space Station transportation, logistics and research support. There are several start-up companies, such as Constellation Services, Inc., and Kistler Aerospace that are offering to provide such services. This category of company includes those who are using private sector capital in seeking NASA as an “anchor tenant” in pursuit of both government and commercial market business opportunities. Accordingly, I am very pleased to see that NASA has included $140 million for a new project, ISS Crew and Cargo Services, to purchase Space Station transportation services. Although I understand that foreign suppliers may provide some of these services, NASA should be supported in its efforts to direct the bulk of these funds to U.S. commercial suppliers to develop services to meet Space Station cargo transport needs.

It is important for NASA to ensure that it offers truly competitive opportunities for industry, including start-up ventures; rather than utilizing the procurement process to prejudge the outcome for preferred suppliers of products and services. It is equally important for this Committee and its counterparts in the House to give NASA the resources and even moral support it will need to sometimes take the risk on new entrants and engage alternative commercial suppliers of space goods and services. In that regard, American entrepreneurial firms are eager to respond to the $10 million Small Payload Demonstration Program that is intended to use emerging launch suppliers to fly unflown NASA instruments or other small payloads; while also assisting these new firms to establish their credibility as providers of new commercial vehicles to meet future NASA needs. The alternative to commercial competition is that NASA and its International Space Station partners will continue to devote critical attention to providing unmanned logistics support that could be done by the private sector. That would be a loss for everyone.

From a commercial standpoint, Mr. Chairman, an exciting new initiative in the NASA budget is the Centennial Challenges Program. This initiative was partly inspired by the success of the X-Prize Foundation, which is offering $10 million for the first team that launches a vehicle capable of carrying three people (or one person and ballast weight for two others) on a suborbital trajectory to 100-kilometers or 62-miles and repeats the flight within two weeks. I understand that approximately 27 entrants representing seven countries are competing for the prize. It is fair to say that a $10 million prize has caused tens of millions of dollars to be invested by the private sector in pursuit of a wide variety of innovative launch vehicle concepts. For me, this is a dramatic illustration of how much dynamic energy and creativity is available in the commercial space sector.

The Centennial Challenges Program invests $20 million in a series of annual prizes for revolutionary, breakthrough accomplishments from innovators not usually affiliated with the space program. It is my understanding that in order for the Centennial Challenge program to “take off” it will require that this Committee authorize NASA to have similar prize-making authority that the Defense Advanced Research Projects Agency (DARPA) currently enjoys. Examples of potential candidate programs include nano-materials, very low cost robotic space missions and spacecraft power systems. It is well known that during the Apollo program breakthrough innovations often came from unexpected sources; therefore we need to create “on ramps” for creative individuals and small entrepreneurial teams. The key to this program’s success, however, is to ensure minimal bureaucratic intrusion and efforts by “rice bowls” to vector the resources into programs that perpetuate the status quo versus truly advancing unorthodox inventions and ideas. Accordingly, I would urge this Committee to pay special attention to how the Agency executes this potentially exciting program. Done right it could represent no less than a paradigm shift in how the Agency works with the private sector.

Over the past three decades, I have personally witnessed several cycles in which private capital -either in the form of institutional or high net worth individuals – have tried to develop various space launch and payload concepts for commercial and/or government markets. Every cycle has been characterized by its share of firms poorly managed (in that sense, the commercial space business is no different than other business sectors) or those who fall into the trap of mistaking technical possibility for market opportunity, or those who are essentially using taxpayer money to sell to the government under the guise of “commercialization”. It is my purely non-scientific observation that the current cycle, although very much in the start-up stage, is being driven by more sophisticated players and capital who have learned from the trials and tribulations of their predecessors. There are multiple signs that capital formation is interested in space activities and even defense and space services, and that capital markets are becoming healthy again.

Although I do not profess to be an expert on the capital markets, the nation’s pension funds, banks, and insurance companies appear to have re-energized their private equity and debt investments into venture and other forms of capital management in the past two years. Venture firms are showing signs of stability as well as a penchant for many of the nano-technology, life sciences, power sources, power technologies and other fundamental technical areas required for support of new space exploration missions.

Last quarter, the venture capital industry invested $4.9 billion into new ventures, a level of investment activity that is the highest in the past eighteen months. This level of investing is expected to continue based on the increase in the availability of capital and deal flow for the foreseeable future, approximately $20 billion a year. Even more significant is the steady amounts of capital being raised by venture capital firms and other private sector institutions for investments into new high tech opportunities.

In terms of high net worth individuals who are investing their personal wealth into commercial space-related projects, I am associated with Robert Bigelow, President and founder, Bigelow Aerospace, a five-year-old Nevada-based space company that is developing expandable space module technology based on the Transhab project which was managed down the street at the Johnson Space Center until it was terminated for budget reasons a few years ago. Mr. Bigelow has never taken one dollar of government contract money. He brings to his space venture over three decades of true competitive commercial business experience in the construction, engineering and contracting fields.

Since early 1999, Mr. Bigelow has been aggressively investing his own resources in building his company’s expertise, capabilities, key partnerships and hardware. Bigelow Aerospace has been developing its capabilities within a Space Act Agreement with NASA that allows for a sharing of knowledge and expertise between the two parties involving no exchange of funds. When I informed Mr. Bigelow that I would be making a statement to this Committee, he requested that I underscore his praise for the Johnson Space Center Director, Jefferson Howell, under whose leadership Bigelow Aerospace has benefited greatly from the cooperation it has received from JSC. Such cooperation also appears to reflect the overall policy support for commercial space initiatives, such as Bigelow Aerospace, that is coming from NASA Headquarters.

BA is pursuing its expandable space module technology based on the belief that such modules might drastically reduce the costs of living and working in the low earth orbit (LEO) environment. Potential uses include biotechnology research, earth observation, space tourism and other applications that we are pursuing on a proprietary basis. Such modules could, of course, eventually be utilized as habitats on other planetary surfaces. In pursuing this capability in low earth orbit, it is imperative that the U.S. develop space vehicles capable of bringing people and cargo to and from LEO. The current grounding of the Space Shuttle fleet has revealed the unfortunate reliance of the U.S. on the only alternate human carrier, the Russian Soyuz spacecraft, which makes it a single point of failure. Further, it is a fundamental rule of business to avoid negotiating in a situation where the other party has the upper hand in terms of being the sole supplier of a critical service. In this instance, the Russians hold some key “Aces”. It is therefore in the self-interest of the U.S. to encourage private sector cargo and human rated launch initiatives. As noted earlier, NASA plays a critical role in encouraging the emergence of private sector alternatives.

Elon Musk, who is familiar to this Committee, is another example of an entrepreneur who comes from a non-space industry sector (in his case, the Internet) who has founded SpaceX to develop a new family of low cost Falcon launch vehicles that are currently priced to cost less than half the price of similar launch vehicles due to competitive pricing and through the use of reusable first stage rocket engines. It is to the credit of the Department of Defense that it has placed a payload on board the company’s first launch – currently scheduled for late spring of this year. SpaceX’s Falcon rockets are precisely the type of vehicles that NASA should consider for some of its own experimental payloads. Based on my own informal discussions with Mr. Musk, he is similar to Mr. Bigelow in that they both have immersed themselves in the arcane science and engineering associated with their respective space businesses, are aggressively recruiting the best and brightest technical minds and are investing their own significant wealth in bringing to the aerospace marketplace business strategies that have served them well in their previous commercial businesses. These two space entrepreneurs are but two examples of the small but growing community of individuals and companies that are pursuing space-related opportunities.

I am also excited by the potential of companies, such as Zero-G Corporation and Space Adventures, that are seeking to expose the marketplace to the experience of weightlessness. (As someone who has experienced zero-g on NASA’s KC-135 I can testify that the experience is sufficiently exhilarating that I would relish the chance to experience it on a sustained basis in space.) The successful growth of space tourism while clearly not a part of NASA’s new mission, would be of enormous benefit to NASA in strengthening and diversifying the aerospace industrial base while bringing the excitement of space travel to the wider public. I would like to commend to the Committee that it review H.R. 3752, introduced by Congressman Dana Rohrabacher, and recently passed by the House Science Committee, that calls for a balanced regulatory framework for space tourism. These entrepreneurs are demonstrating that the private sector can potentially augment the government’s efforts to open the space frontier for the full expression of the human enterprise.

I wish that I were in a position to tell the Committee specifically how they and the Agency could support and encourage the work of these entrepreneurs. The reality is that each entrepreneurial project will have its own unique needs, and therefore they must be dealt with on a case-by-case basis. For example, Bigelow Aerospace could potentially benefit from NASA launching one of its sub-scale demonstrator modules, whereas I’m sure SpaceX would jump at an opportunity to receive a contract for a NASA launch. The critical issue is that the NASA officials who are responsible for dealing with these entities must be given the freedom and support to deal with new entrepreneurial companies in a flexible and creative fashion. Moreover, this Committee too can play a critical role in providing the resources and relevant Agency oversight to ensure that NASA is fulfilling its commitment to leverage private sector opportunities to the greatest extent possible. Again, I cannot emphasize how important it is for this Committee, its Members and staff to remain engaged in this process over the long term.

Additionally, I would be remiss if I failed to mention the burden that current export control laws place on new entrepreneurs. No doubt, I could fill this hearing room with various academic studies and Commission reports that document the negative competitive effects of the current export licensing regime on the U.S. aerospace sector. The emerging space companies often depend upon the low-cost alternatives that foreign aerospace organizations can provide. One of the key recommendations from the “Commission on the Future of the U.S. Aerospace Industry” was that “U.S. export control regulations must be substantially overhauled .” I feel strongly that the time has come for this Committee and Congress to conduct a comprehensive review of our space-related export control laws in order to identify rules that have become obsolete and hurt more than they help both American security and business interests.

Mr. Chairman, I would like to raise another possible way the commercial sector might assist our government in leveraging its highly constrained resources. In the wake of the President’s announcement, I really think that there may be investors who might explore negotiating with NASA an exclusive marketing and brokering arrangement for the U.S. portion of the Space Station for a specific period of time. Again, a concept like this would be feasible only if there is genuine interest by the government in such a proposal. Such an initiative is based on the view that NASA has demonstrated engineering brilliance in construction and deployment of the Space Station. But as NASA and its prime contractor base move on to implement the exploration strategy, perhaps now is an opportune time to explore innovative ideas for how the American commercial sector might be able to utilize the Space Station capability to its fullest extent. Specifically, the potential may exist to establish a structure whereby the Agency would receive royalties based on the profits generated by a private sector ISS initiative. These royalties might well help partially reimburse the government for the tax-payer’s investment in ISS, and perhaps over the long term could fund improvements to the Station and/or be leveraged to support the President’s vision of exploration beyond LEO. Whether or not this specific initiative goes anywhere, my point is that today’s challenges can become win-win opportunities if the government is seriously open to new approaches with the private sector.

In addition to private sector sources of capital, there is an increasing interest on the part of state and local government organizations to partner with NASA to assist in financing new services. For example, several state-based commercial spaceports have used their own resources to leverage infrastructure investments for both private and public sector uses. Speaking of innovative public-private partnerships in space, it is worth noting that private investors recently financed a Norwegian satellite data center that supports and is an integral part of U.S. defense and space activities. A private placement was raised, which enabled both U.S. and Norwegian governments to access a critical service, without seeking new appropriated dollars from the Congress. Under the financing mechanism, which raised over $40 million dollars, the government is estimated to be saving up to $2.5 million per year for the first few years, and as much as $7 million for the remaining 20 years.

Such third party and state supported financings are making inroads into many sectors of government involvement, especially in defense and energy, which depend heavily on outsourced services and private financing. There is no reason why such a model could not be utilized in the space arena.

Finally, Mr. Chairman, I must admit that when I first started in the commercial space sector my colleagues and I had fervently hoped that we would be much further ahead in the development of commercial space markets than we are today. In retrospect, I believe that we neglected a fundamental rule of the marketplace: Markets usually change over extended periods of time as customers and providers become slowly educated and acclimated to the advantages of new products and services. A case-in-point was the slow evolution of the marketplace before Global Position System (GPS) applications reached “critical mass” with a global commercial customer base. A technology that began commercially as a more efficient means of conducting land surveys now brings Information Technology-based productivity to an astonishing array of global infrastructures – from telephones to trucking and aviation to power lines.

The President’s direction to NASA has opened new opportunities by which government and industry can learn from one another and thus maximize the chances that the new vision actually becomes reality while giving birth to a robust, diverse and competitive U.S. space industrial base with major benefits for our nation and the future of humanity. America’s space entrepreneurs, who reside in both small and large companies, are poised once again to bring the promise of space to fruition. Frankly, a major challenge is whether the U.S. Government will ultimately follow-through on the promise of the new policy.

Thank you again for the opportunity to be here today and I look forward to any questions you may have.