Dragon space

For a long time, the Silicon Valley revolution was an exciting but somewhat limited affair; a digital rather than physical upheaval. Young, innovative tech companies turned our experience with software and the internet on its head, changing the world in the process, but they essentially created their own market to rule, leaving the established players in other industries unthreatened.

All that is beginning to change, however. With growing confidence and perhaps convinced of the benefits of diversification after the dot-com bubble burst in the early 2000s, many of California’s tech innovators, some of which now rank among the largest companies in the world, are widening their gaze in search of new markets to disrupt.

Google‘s brainstorming facility Google X is branching out into self-driving cars and renewable energy, while Apple kickstarts the smart television market with Apple TV, Uber brings app technology to taxi transport and Palantir Technologies continues to buck tradition by winning US Government contracts for its security intelligence software.

Elon Musk and SpaceX

South Africa-born Canadian-American inventor and investor Elon Musk is at the very centre of this Silicon Valley expansion. After making his name with online payment brand PayPal, Musk went on to invest in and develop a bewildering range of technologies that go far beyond the digital space, including electric cars with Tesla Motors, solar energy with SolarCity and even a next-generation high-speed train design with his Hyperloop concept.

But perhaps Musk’s most ambitious venture, and certainly the one making the biggest impact in 2014, is Space Exploration Technologies Corporation – SpaceX for short. Musk founded the private space transport company in 2002 with the aim of offering a cheaper commercial alternative for ferrying satellites and other cargo into space, along with other long-term objectives of varying scope, from reusable rocket assets and commercial manned spacecraft with the new Dragon v2, all the way up to the lofty goal of colonising Mars.

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The US military is addressing this growing concern with a new generation of spy satellites to be launched later this year.


SpaceX has gone some way towards liberalising the space launch market from a national endeavour supported by massive defence contractors to a more open space with room for younger innovators. Key to this effort has been securing credibility for its rockets, Falcon 9 and Falcon Heavy, as well as its free-flying spacecraft, Dragon.

In 2008, SpaceX, along with Virginia-based Orbital Sciences Corporation, won a Commercial Resupply Services contract from NASA to ferry cargo to the International Space Station (ISS). The contract, which requires SpaceX to provide 12 resupply flights to the ISS by the end of 2016, represented the perfect chance for the company to demonstrate the reliability of its systems.

"NASA’s been fantastic to work with and really has helped us a lot," Musk acknowledged during a talk at the US Export-Import Bank’s annual conference in April 2014. "In fact, I’m not sure we’d even be where we are today without the help of NASA. We’re very grateful."

The Dragon spacecraft, launched into orbit by the Falcon 9 rocket, has since completed three official supply missions to the ISS and during a demonstration flight in May 2012 the Dragon capsule became the first privately built spacecraft to successfully berth with the space station. Milestones such as this, along with other impressive technical achievements, have proven the viability of a wider and more competitive domestic market for spaceflight in the US.

America’s military launch monopoly

While competition is well underway for NASA missions, the market for national security launches – a market SpaceX wants to crack – is another matter entirely.

"If we compete and lose, that is fine. But why would they not even compete it?"

Certainly competition is the stated aim, even for defence contracts like the launch of military satellites. In November 2012, US Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall instructed the US Air Force, which is responsible for awarding military launch contracts, to "aggressively" pursue competition in the ongoing Evolved Expendable Launch Vehicle (EELV) programme, which was initiated in the 1990s to guarantee access to space for the US Government and Department of Defense.

However, the US military launch market remains dominated by United Launch Alliance (ULA), a joint venture between Boeing and Lockheed Martin, which until forming their partnership in 2006 were bitterly contesting the same military contracts. ULA continues to hold a monopoly in the market and the air force awarded a five-year, $11bn EELV block-buy contract to the joint venture in 2013 on a sole-source basis, agreeing the provision of 36 rocket cores for 28 launches with no competing bidders.

SpaceX, which legally challenged the formation of ULA in the first place in 2005, wasn’t going to take this monopoly bulk purchase lying down. Back in 2005 SpaceX had less leverage due to the lack of development of its own tech, but in 2014 the company is in a very different position, having recently completed the third and final certification flight necessary to start bidding with its Falcon 9 rocket. And as Kendall said in January 2013: "The Department [of Defense] will allow new entrants to compete for launch contract awards as soon as the new entrant delivers the data from their final certification launch."

But the EELV contract was awarded to ULA a few days before SpaceX’s third qualification flight was carried out and as a result Musk and his company has announced another legal challenge, this time filing suit against the US Air Force, seeking the right to compete. "If we compete and lose, that is fine," Musk told reporters at the National Press Club in April 2014. "But why would they not even compete it?"

SpaceX vs the US Air Force

Initiating the lawsuit against the air force has put SpaceX in the unusual position of suing the organisation that is responsible for its certification and entry into the market, and which could one day become its biggest customer. This move certainly hasn’t won Musk many friends on Capitol Hill and attempting to tear down an entrenched lobbying system and bidding process with legal action might prove more damaging than it’s worth, strategically speaking.

Silicon Valley newcomers like SpaceX and Palantir, whose CEO Alex Karp has also railed against the resistance to new entrants for big government contract bids, have been frustrated by the new game and the new set of rules that comes with massive government deals. "They were very aggressive," an anonymous defence lobbyist recently told Politico. "They didn’t navigate the process correctly in the beginning and made a lot of enemies."



BAE Systems’ Taranis and the Dassault-led nEUROn—originate in Europe and have recently achieved significant project milestones.


Nevertheless, SpaceX appears to have a good case in its quest to prove that the air force jumped the gun when it handed the sole-source contract to ULA. SpaceX has long touted the cost-effectiveness of its launch technologies when compared to its competitor’s Atlas V and Delta IV rockets and the monopoly conditions have caused prices to soar.

"Vehicle costs are up from approximately $100m per vehicle to $400m per vehicle — making ULA’s launch vehicles the most expensive not just in the US, but the world," said Musk in a statement, before going on to note that SpaceX would be able to launch for around a quarter of the price that ULA is charging.

Musk has also pointed out that the Atlas family of launch vehicles – the workhorse of ULA’s EELV launches – incorporates the Russian-built RD-180 rocket engine, a vulnerability in the supply chain that could be exploited if tensions between the US and Russia heat up over the ongoing crisis in Ukraine.

"Given international events," said Musk, "this seems like the wrong time to send hundreds of millions of dollars to the Kremlin – especially considering there are domestic alternatives available and qualified to compete today that do not rely on components from countries that pose a national security risk." SpaceX, on the other hand, uses US-developed and owned technology with its Merlin engines.

Is a lawsuit the right move?

Then again, some have argued that ULA’s impeccable reliability record compares very favourably to SpaceX’s own reputation and reliability might be the only factor that matters more than cost. "[SpaceX’s] mission-success rate during eight years of launch activity is 67%, compared with 100% for United Launch Alliance during the same period," wrote Forbes correspondent Loren Thompson in June.

"Generally, the person you are going business with, you don’t sue."

Clearly it’s understandable that a relative newcomer like SpaceX wouldn’t perfect its tech without a little trial and error, but perhaps patience is a virtue when you’re trying to muscle in on an incumbent supplier with a spotless track record, especially when the air force has always had plans to make an additional 14 missions available for bidding by new entrants like SpaceX after certification. The air force has also been quick to point out that it is spending $60m and employing 100 personnel to expedite SpaceX’s certification.

But the relative merits of each company’s technology are secondary to the outcome of SpaceX’s lawsuit, which really comes down to timing. The relevant question: was the air force out of line to award the EELV contract to ULA despite SpaceX standing just days away from being able to compete for it, under the three-flight rule highlighted by Secretary Kendall?

Musk’s assertive push might have actually created a rod for his own back, especially after throwing around accusations of corruption concerning the timing of an air force official getting a lucrative job at Rocketdyne, which supplies rockets to ULA. What amounts to a serious bribery allegation ups the ante in the case significantly and may harden stances against SpaceX, the Silicon Valley intruder in Washington.

As the head of the US Air Force Space Command General William Shelton said, with no small dose of understatement, at May’s Space Symposium: "Generally, the person you are going business with, you don’t sue."

Nevertheless, SpaceX has made astonishing progress in an incredibly closed sector over the last ten years, and it wouldn’t be at all surprising to find that, in another five years’ time, SpaceX is happily ensconced in the middle of a major air force space launch contract, having moved past 2014’s controversies.

Even SpaceX’s chief antagonist General Shelton has acknowledged that with Musk, anything is possible. "I don’t doubt that guy anymore, by the way," he told students at George Washington University in January. "What he says, he’s going to do."

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