Status Report

Testimony of Gary Hudson: The Commercial Space Act of 2003 (part 2)

By SpaceRef Editor
November 5, 2003
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Part 1|2



Gary C Hudson
October 28, 2003

For the purposes of this white paper, I will generally assume that the current space flight promotional and regulatory structures of the United States Government (USG) do not exist. While naïve, a thought experiment that allows for the possibility of a “do-over” positively serves to focus our attention on first principles rather than waste time and effort parsing existing rules and regulations.

I make one initial assumption: that it is in the interest of the Congress and the American people to foster a healthy, growing space flight industry. Like the history of its predecessor, the air travel industry, the benefits seem obvious: the more frequently we fly and the more varieties of machines we fly, the lower the cost per flight. This is the way we will learn about making space flight safe and reliable and the result will be increased economic potential for the Nation. When we fly both frequently and safely, we begin to implement the dreams of a true commercial space frontier that generates wealth and helps provide for our future prosperity and security.

However, the desire to fulfill international treaty obligations and to protect public safety has led us to a cul-de-sac in the road to a hopeful future. We have stumbled in our ability to promote the space flight industry, imposing an unclear, overly bureaucratic regulatory environment that is stiffing innovation, progress and commerce. We need to rethink our approach from first principles; that is the purpose of this white paper.

The key question is how do we get from our present condition (no routine, affordable space flight) to a robust, innovative industry that creates new technologies and new commercial opportunities for our citizens? I believe the answer is to emulate the model that has given the United States – and with it the World – safe and cheap air travel. The process that has been used for the past one hundred years to bring us to the era of modern air travel can be profitably analyzed and adapted to provide the same boon for commercial space flight.

First I will discuss promotion of the industry, since the matter can be dealt with fairly expeditiously and because there is little debate about the desirability of some degree of industry promotion.

Industry Promotion. If we ask the “first principles” question, “why should the USG promote commercial space flight?” the simplest answer is to help US companies employ, grow and generate revenue. If we assume that no entity currently exists to promote commercial space flight, how would the nascent commercial space flight industry best be served? Responsibility for promotion of commercial activities resides principally within the USG Department of Commerce. Such promotion is helpful only to the extent that it produces substantive results assisting US companies in identifying opportunities and penetrating new markets. While there is tremendous potential to promote the growth of commercial space markets, including space tourism, the bulk of the current market for space launch services is in sales to the USG. The establishment of a DOC Office of Commercial Space (OCS) chartered to assist commercial space enterprises in doing business with other elements of the USG would provide the first step. We could consider this a “one-stop-shop” to assist companies in identifying USG business opportunities such as bidding on launches or spacecraft that serve USG needs.

To be clear, I am thinking of this office as an advocate for the companies rather than as a contracting office. For example, NASA is obligated by statute to purchase commercial space transportation services if offered by private entities rather than to develop its own systems. In the absence promotion and awareness, NASA routinely flouts this law. A Commerce Department Office of Commercial Space should be tasked by the Congress to insure that NASA and other USG agencies meet their statutory obligations. This will open opportunities for existing and emerging companies to provide commercial space transportation services as the Congress envisioned. Since emerging space flight companies do not have the resources to challenge taxpayer-financed legal departments at organizations such as NASA, the only fair way to exert real leverage on behalf of the emerging industry is to use government lawyers to deal with government lawyers. Hopefully just the threat of such a challenge would be enough to ensure it never reach the stage of legal action, and most matters would be addressed at the level of interagency policy board interactions.

DOC OCS would also administer any incentive programs that the Congress might establish in the future. For example, loan guarantees and insurance indemnifications have been proposed or passed previously. Without addressing the merits of either, I would assign the DOC OCS the responsibility for administering such programs. Likewise, should the Congress ever decide to establish prizes or other incentive programs of any kind, DOC OCS would be the point of interface and administration.

Industry Regulation. If we then approach the question of regulation from first principles we have to ask the question: “why regulate?” After all, Jefferson was famous for teaching “that government which is best, governs least.” The air travel industry experienced it’s “barn storming” era and operated for over 20 years before the creation of the Civil Aeronautics Administration in 1926.

It is believed by some that “licensing” by the USG of private actions in space (including space flight) is required to meet our obligations under the Outer Space Treaty. From first principles, one might question the desirability of continuing to adhere to an archaic and restrictive international agreement promulgated principally by diplomats of the former Soviet Union at the height of the Cold War. Their goal was to limit the ability of Western countries with free societies from maximally exploiting the benefits of private space flight. Asking for repeal of the Outer Space Treaty seems beyond the charter of this white paper, but we can fulfill the letter of the Treaty through a very mild regulatory regime. So, in the final analysis, the Outer Space Treaty alone is no bar to a sensible and adequate regulatory environment. I argue that a generic “approval” process, which does not rise to the level of a major or significant Federal action, can provide the international fig leaf necessary for treaty compliance. Addition of an insurance requirement with the USG as a “named insured” can solve the liability issue created by the Treaty.

Past USG legislation refers to three specific elements that warrant establishment of regulatory oversight of space flight operators. First, and most obvious to virtually all observers is public safety. In addition, “national security” and “foreign policy interests” are also called out as justification. I will deal with public safety momentarily, but first it is helpful to address the other two issues, since they can be linked.

Much bad law is promulgated in the name of “national security.” The best national security comes from a technologically vibrant and healthy growing economy. We can best defend ourselves when we are both rich enough to pay for the best defense, and when we can employ the most capable technology in our defense. Often time we damage our security and our international competitiveness in the name of “national security” and “foreign policy interests”. The matter of export controls comes to mind. While this is not the forum for that particular debate, it needs to be recalled that the European Ariane program exists almost exclusively because, for “national security and foreign policy” reasons thirty years ago we elected to reject a French application to launch a Symphonie dual use communication satellite on an American booster. This decision led directly to the creation of the Ariane and its capture of half of the world launch market for two decades. Rejection did not make us any more secure than we would have been had we made a decision that would have prevented a united Europe from funding a highly competitive and subsidized commercial launcher. And it hurt us badly from a commercial launch business viewpoint.

The need to act with regard to rockets and public safety is a far less controversial issue. One hundred years of air travel has resulted in a busy, crowded airspace that requires coordinated efforts to maintain safety. Few would argue that some form of regulatory oversight is reasonable. At the same time, few voices currently call for any but third-party protection. (First parties are the vehicle operators. Second parties are passengers or “spaceflight participants.” Third parties are people with no relationship to the activity. Once the industry is mature, some degree of protection for second parties comparable to that in operation for civilian transport aircraft will be appropriate, but that time is decades in the future.)

Thinking from “first principles,” let us bound the public safety problem by asking the question “why do we need the USG to regulate third party protection for space flights?” What is the risk to the public if all forms space flight were completely unregulated by the USG? We face many of our current problems because of our inability to understand risk, and our perception is that it is high. Lack of a technical understanding of how space vehicles operate and how much damage they can cause seems at the root of this problem. The problem is further exacerbated by the way we visualize failure. Specifically, if one sees the explosion of a launcher, that explosion fills the screen of our television, simply because the cameraman is doing his job. This drama hides the truth. Insurance statistics, as evidenced by market rates of third party liability insurance, tell the real truth. No third party is injured in these failures! No third party was injured by the breakup of the Columbia, even though 200,000 pounds of debris fell over several states. So low was the risk that humans would be harmed, that only about 40% of the orbiter was even recovered; 60% burned up or fell and will never be found. And this is not merely the luck of the draw. Analysis of the impact to human life if the breakup had occurred one orbit later, placing it above Dallas-Fort Worth, has shown essentially identical results.

A number of constraints are present already on any space flight. For the vast majority of suborbital or orbital flights, space flight is an expensive proposition. The cheapest space flights are ones that do not go to orbit. In this case, a few efforts are currently underway to build small X-prize-class suborbital launchers. Yet the cheapest of these cost a few million to a few tens of millions of dollars, not a sum to be spent by irresponsible individuals or organizations. There are airspace restrictions imposed by the FARs. One can’t simply build a rocket in the suburbs and launch from one’s driveway. Another constraint is insurance. Suppliers often choose not sell propellant, avionics and other materials to builders who appear to lack commonsense or minimal third party liability insurance. Even today, some X-prize contenders can’t purchase the propellants they require because the manufacturers are afraid of liability, not from third parties, but from the flight crew or operator’s employees who might sue if injured in ground or flight test. These and similar constraints on wild or irresponsible behavior are acting totally in the absence of any burdensome USG regulation.

Under FAR 101, provision existed for unmanned rocket flight approval by local FAA offices with only a fraction of current AST oversight requirements. In fact, we know this approach works, since many quite large amateur rockets, not to mention the US’s first commercial rocket in 1981 and another in 1982, operated in a regulatory environment of exactly this nature. No injuries to any third parties resulted from this lightly regulated activity prior to the creation of Office of Commercial Space Transportation in 1984.

However, assuming that meeting our obligations under the Outer Space Treaty demands some further USG oversight, an option might be for the USG to establish minimum third party insurance requirements in order to obtain “approval” to operate space vehicles. Establishing this standard is straightforward – such calculation is a minor part of current licensing. The amounts set for “maximum probable loss” have so far been eminently reasonable, usually well below $100 million. This amount is readily available on the world market. I myself bought a comparable amount of third party liability insurance for less than $100,000 in 1981. I bought this insurance, not because of a USG mandate, but rather because our customer asked us to do so. (Note that I am not talking about “launch insurance” or that type of insurance that protects a spacecraft owner from launch failure and pays a claim if the launch vehicle fails to deliver the spacecraft to the desired orbit. There is a limited pool for such insurance, and premiums are very much higher than for third party liability insurance.) These premiums reflect the market knowledge that there has never been a third party claim of any magnitude in the history of Western space launch programs.

Once a maximum probable loss calculation was performed by the designated regulatory entity, I would recommend that it be reviewed and approved or at least concurred with by the aforementioned DOC OCS. This safeguard would prevent unreasonable regulators from subverting the process. I would also recommend that the entity setting the insurance standard be required to make the determination in writing within 30 days of a request for a determination, that the term of the determination be for a period of at least five years with a review at the one year mark to allow for the lowering of the requirement if the record of the vehicle or system so warrants, and that a appeals process including the DOC OCS be included in the law. Finally, a Congressionally set upper bound on the determination is needed, perhaps to be set at $500 million. However, no taxpayer-funded indemnity should be provided for amounts that exceed the Congressional upper limit. To do otherwise simply removes the incentives of third party plaintiff to settle any claims for reasonable amounts.

It is tempting to stop here and not explore more involved regulatory oversight of the type we currently see. But if we desire more oversight, at a minimum the scope and force of the regulation should be limited in keeping with the real, and not the imagined risk, posed by commercial space vehicles. It should be comparable to regulations imposed on equivalent vehicles in a similar industry.

Every year, thousands of new experimental aircraft are licensed by the FAA via a one-page “experimental” type certification application, in addition to a one-hour or shorter inspection often times conducted by an FAA Designated Airworthiness Examiner who might not even by a government employee. Many of these aircraft crash each year. Usually pilots and passengers are killed and occasionally third parties as well. Experimental type certification applies equally to small home-builts, converted war-birds as big as a B-17, exotic aircraft built for research purposes and even jumbo jets prior to completing “standard” type certification that allow them to be sold and operated in passenger revenue service.

It is easy to show that the economic promise of the commercial space industry exceeds that of amateur built aircraft whose owners currently use the experimental type certification process. (I am not denigrating the social or economic value of these thousands of amateur-built aircraft, but simply making the point that the total dollars currently generated by commercial space launch already exceeds the market size of the home-builts by a substantial fraction. Once a growing space flight industry expands, that disparity will become even more obvious.) Since a third party casualty or fatality is just as hurt or dead if injured or killed by a Lancair-IV crash as they would be if they were the victim of an out of control SpaceShipOne, there is a gross disparity in the law if we treat space flight vehicles differently from experimental aircraft. Our failure is in our perception of an accident event, not in the results.

It is no challenge to say that space flight vehicles fail more often. Perhaps that is true; the casualty numbers suggest it is also irrelevant. Injured is injured, dead is dead. One might contend that space launch vehicles make bigger smoking holes in the ground, and thus have a higher potentiality for damage than a home-built. But this is also misleading. It is true that most (but by no means all) space flight vehicles carry flammable fuel (usually the same as commercial jets use) and oxidizers (such as the liquid oxygen that is stored in large tanks outside of every hospital in this country) and the unplanned mixing and combustion (or rarely detonation) of these propellants can be spectacular. Yet it should be remembered that most explosions of space flight systems are planned; they are the result of the system working, and the termination of flight in this manner prevents unmanned rockets from going where they are not wanted. It is quite rare that a rocket blows up on its own due to a systems failure; even so it is not unusual for such a problem to occur even with certificated passenger airliners, i.e., TWA 800 that suffered a fuel tank explosion, or several other similar accidents. The mere fact that rockets can produce larger explosions than some experimental aircraft does not change the fact that at any conceivable launch rate over the next few decades, with any imaginable failure rate, they can never exceed the currently acceptable casualty losses of the existing experimental aviation community.

The space launch industry labors under another burden not faced by experimental aircraft operators. When a developer wishes to design and build a new aircraft, no mater how big, fast or dangerous it may be, there is no requirement for any involvement of the National Environmental Protection Act. By creating a licensing regime specific to launch vehicles (as distinct from the approval process for aerospace vehicles controlled under the FARs), the USG has introduced the wild card of “Major Federal Action” now interpreted as requiring an environmental review, assessment or impact statement for each launch license. For the few dozen licenses issued to date, the results of these reviews have always been “FONSI” or Finding of No Significant Impact. The Congress can mandate that enough is enough and that no further review will be required for each license, or they can dispense with licensing altogether and simply designate launch systems as aerospace vehicles already exempt from NEPA under the FARs, not requiring such review. Millions of dollars continue to be wasted conducting these time-consuming reviews that have no measurable benefits. (The FAR already cover launch systems of all types, by definitions long-standing. An aircraft, according to the FAR, is a device that flies through the air under power. Powerplant is irrelevant. Finally, the FARs also define what a rocket is. These definitions date from 1963.) So where do we go from here?

The establishment of OCST was promoted on the grounds that it would streamline a chaotic approval process. At the time, some alleged that as many as nineteen Federal agencies had regulatory authority over launchers. While that number never proved to be anything but a sound bite, and flying in the face of approvals that had been granted to previous large commercial rockets a few years earlier, it is true that some USG entities did propose rather tortured interpretations of their regulatory authority. The most notorious was the Department of State, which proposed to regulate launches under the export control provisions of ITAR. It is necessary to make certain that these spurious claims do not resurface, and it may be that legislation will be needed to further clarify the situation. The details are beyond my scope for the moment, but will deserve near-term attention when and if any of the ideas in this memo are implemented.

My recommendation is to disestablish FAA/AST and to let the FAA local FSDOs once again control unmanned rocket flight under FAR 101 as was done prior to the creation of OCST in 1984. Insertion of a maximum probable loss calculation and third party insurance requirement into FAR 101 would be trivial. There would be no measurable impact on the safety of the public, but we would save $11 million per year now spent on AST or more than $100 million in the next decade alone.

But, what about piloted reusable space vehicles that carry passengers? They can also be handled quite simply. The chief objection that many have had to disestablishing FAA/AST and giving all its functions to FAA/AVR is that experimental aircraft cannot be operated for hire and that full standard type certification is too expensive for new operators. Given that the Congress can direct the FAA to change any provision of the FARs, a simple solution would be to provide permission for any experimental aircraft to be operated for hire, provided the passenger is fully informed of the risks, the aircraft is not operated as a scheduled transportation service under part 121 of the FARs and the maximum probable loss calculation for third partly liability insurance is applied. This approach eliminates the claim that under AVR new operators would not be able to achieve the early revenues needed to attract investors and fund vehicle improvements. The industry can be allowed to operate this way for some designated number of years – the barnstormers era – and then evolve an appropriate regulatory environment as experience is gained and the industry matures. Based on our experience with the development of the air travel industry, I suggest a period of twenty years until this provision sunsets.

Different provisions for piloted and unpiloted vehicles should be handled in the same way that FAA currently handles UAVs and piloted aircraft. Once deemed operational, vehicles will be flown – not on individual “launch licenses” – but instead after the filing of a flight plan in the same way an aircraft operator files for IFR operation. This is also how the FAA intends for UAVs to be integrated into the National Airspace System.

In this way the barnstorming phase of the commercial space industry can be nurtured, with demonstrably no new risk to the public, while providing an easy transition from experimental operations to early revenue service for “informed consent spaceflight participants.” Ultimately the industry would be fully integrated into the successful air transport enterprise that has provided the benefits of air travel to all Americans.

In the next few decades we would be able to amend that phrase to “the benefits of air and space travel.”


Specific steps that should be taken to implement the philosophy espoused by this memo are:

1) Disestablish the current AST organization. End the practice of launch licensing.

2) Confirm that unmanned rockets fall under the purview of the FAR 101 and that piloted rockets of all types fall under the FARs for experimental certification.

3) Confirm that to operate any unmanned rocket or piloted rocket, an operator need only obtain permission from the FAA per either FAR 101 for unmanned systems or applicable FARs for piloted vehicles.

4) Establish that experimental aerospace vehicles can be operated for hire with limitations to focus this provision on human spaceflight if deemed necessary.

5) Confirm that launch, spaceflight, operation to or on other celestial bodies and reentry are not exports for the purposes of export control regulations. Further confirm that no other permits, licenses or approvals are required from the Federal government to operate aerospace vehicles.

6) Establish an advocacy office with DOC to promote and represent the industry especially within the Federal government.

Biography of Gary C Hudson

Mr. Hudson, 53, was a founder and Chairman of the Board of Directors of Rotary Rocket Company, and is a founding principal of HMX, Inc, an aerospace consulting and engineering firm. He is also founder and Operating Manager of AirLaunch LLC, a startup currently working on a military launch system for the Defense Applications Research Agency (DARPA).

Mr. Hudson has worked in the field of commercial space for over 34 years with an emphasis on development of innovative low-cost systems. In 1981, he built the first large private launch vehicle developed in the U.S. He is also the designer of the Phoenix VTOL/SSTO family of launch vehicles which led to the DC-X Delta Clipper project. He has participated in many launch vehicle projects including support for both General Dynamics and Boeing Aerospace Corporation during the SDIO program. He has published many papers on space vehicles and systems and has authored several studies on low cost propulsion systems. At Rotary he managed the successful Roton ATV program, the only piloted reusable launch vehicle demonstrator to have flown since the Space Shuttle Enterprise.

In 1994 he co-founded HMX, which designs and develops innovative aerospace propulsion systems. In 1995 HMX developed a rocket engine propulsion system for Kistler Aerospace Corporation. HMX also provided early propulsion support to Scaled Composites for the SpaceShipOne project, participated in the NASA Alternate Access to Space concept study contract in 2000, and participated in the Phase I Concept definition for the DARPA RASCAL project. HMX also developed the DARPA MIPCC Test Bed, a sophisticated test facility located at Mojave, CA used to qualify the Mach 4 jet engines used in the RASCAL first stage.

In 1982 he co-founded Pacific American Launch Systems, Inc. where he was directly responsible the design and development of the Liberty, a small expendable launch vehicle using an innovative pintle rocket engine, which underwent prototype engine testing for the US Army Strategic Defense Command on behalf of SDIO at Edwards Air Force Base, California. During this period he also served as a consultant to the United States Air Force’s “Project Forecast II.” He is a former Board Member of the Space Transportation Association, a founder of the STA Space Tourism Division, a member of the Board of Advisors of the Space Frontier Foundation and has presented testimony before the U.S. Congress on several occasions.

Mr. Hudson has conducted seminars for the US Naval Postgraduate School, and the Institute for Space and Astronautical Sciences of Tokyo University and taught graduate-level launch vehicle design at Stanford University. He is a Fellow of the British Interplanetary Society and a Senior Member of the American Institute of Astronautics and Aeronautics. In January 1994 he received the “Laurel” award from Aviation Week & Space Technology “for the vision, drive and competence that have pushed [reusable launch vehicles] to the front of the U.S. launcher agenda.”

SpaceRef staff editor.