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Volume 3, No. 5                May 20, 1999
Senate Subcommittee on Science, Technology and Space hearing
on the Commercial Space Launch Industry

The Senate Subcommittee on Science, Technology and Space today (5/20/99) gathered testimony from government and industry leaders on America's commercial space launch industry in regard to two pending bills: 1) legislation to extend liability indemnification for ten years and; 2) legislation to create a loan guarantee program for the commercial launch industry.

Of overriding concern to Senator Bill Frist (R-TN), Chairman of the Subcommittee, is that the government not simply benefit one segment of the industry while causing unintended and harmful efforts on other segments.

Senator John Breaux (D-LA), sponsor of the loan guarantee bill, said his legislation was both strongly endorsed and opposed by members of the space community. He encouraged industry to work together on a plan that can be supported by everyone. If industry infighting continues, he announced he would not push his bill.

Following are selected highlights from the witnesses' testimony:

Major General Robert Hinson, U.S. Space Command

"Recent increases in commercial operations combined with the aging infrastructure are severely stressing" the Air Force Command's two major ranges, Hinson said. To operate the Cape Canaveral and Vandenberg ranges costs $400 million annually. Much of the hardware is obsolete and requires engineers to custom manufacture replacement parts. The Air Force plans to invest $1.2 billion through 2006 to upgrade the facilities and make them "state of the art."
Keith Calhoun-Senghor, Director, Commerce Office of Space Commercialization
To enhance our nation's launch industry, Calhoun-Senghor said "we must continue to make significant investments in research and development to reduce the technical risk of new space transportation technologies." He said his office is exploring "innovative new ways to develop a business climate that encourages private sector investment in new space transportation Systems," including tax incentives, advance purchase agreements, and cooperative R&D.
Lori Garver, NASA Associate Administrator for Policy and Plans
NASA wants to "make technology investments to leverage commercial launch capabilities that transition [the agency] away from owning and operating space transportation systems and toward private sector competition for NASA's launch requirements," Garver said. The agency has set aside $1.2 billion in the out years to "provide resources for technology and vehicle investments to reduce [its] launch costs."

Garver said NASA is working with industry to develop "an investment strategy for reducing the cost of access to space by using commercial capabilities." NASA sponsored studies, she stated, "support government incentives as a means of reducing the business risks to industry of developing new commercial launch vehicles." Also essential, she added, may be other government incentives "such as development cost sharing, advance purchase agreements, and loan guarantees."

Patricia Grace Smith, FAA Associate Administrator for Commercial Space Transportation
The Federal Aviation Administration "is seeking a minimum six year extension of the current payment of excess claims authority, known as indemnification' for commercial space launches," Smith said.
Andrew Beal, President and CEO of Beal Aerospace Technologies
"Our greatest risk," Beal said, "comes from the competitive marketplace, but from government intervention." He said he is worried that "well-intentioned government actions might improperly tilt the playing field by rewarding or penalizing various competitors, essentially predetermining the winners and losers."

If the government wants to assist the space transportation business, he pleaded, "Please, please, please structure whatever you do so that only success is rewarded so that anyone that achieves that success is equally rewarded. The government should not reward fancy ideas, glossy brochures and unsuccessful effort as it has in past aerospace programs."

Hoyt Davidson, Managing Director of Space Finance Group, Donaldson, Lufkin & Jenrette Securities Corporation
"Capital raised from the traditional capital markets [for launch service companies], meaning primarily institutional investors, has been negligible compared to the capital required for the tasks in hand," Davidson said. The "long technology development times, greater technology development risks and enormous investment amounts are just too staggering for industry to absorb alone," he said.

"Loan guarantees are an effective tool in leveraging the amount of capital available to early stage projects," Davidson explained. "The loan guarantees also have the effect of reducing the project's overall cost of capital.

John Douglas, President, Aerospace Industries Association
"The members of the AIA are not ... in agreement on the loan guarantees outlined in Senator Breaux's bill," Douglas confessed. "Some in industry are highly in favor of loan guarantees. Others feel tax credits are a more equitable form of government support. All, however, support government funding of basic research."
Gale Schluter, Vice President for Expendable Launch Vehicles, the Boeing Company
The Air Force schedule to modernize its ranges "should be accelerated to complete by at least 2003," instead of 2006 as now contemplated, Schluter said. He also urged committee members to update the Commercial Space Launch Act. "It is inadequate in scope and implementing language to effectively promote the U.S. commercial space launch industry," he said.

The Boeing Company does not support Senator Breaux's loan guarantee program. "We at Boeing," he explained, "see reusable launch vehicles as the long-term solution to space access and the true means to realize the potential of space-enabled telecommunication solutions."

Peter Teets, President and CEO of Lockheed Martin Corporation
"Wall Street will finance space systems built with existing technology," Teets said, "but Wall Street will not finance systems built with promising revolutionary technologies -- not at any price." Teets said "Lockheed Martin continues to support [Breaux's legislation] enthusiastically.

"Loan guarantees have a proven track record of improving American competitiveness in the aerospace industry," he said. Additionally, "unlike loans or subsidies, loan guarantees permit relatively small amounts of money to be leveraged significantly." He said "tax incentives, increasing R&D tax credits, pass-through of tax credits to passive investors, all are positive efforts that benefit these new systems, but do not provide the up-front "stand-alone" capital that is so difficult to obtain in the early years of financing.

Stephen Wurst, President of Space Access
With propulsion technology developed by Space Access, Wurst said its launch system will be "capable of dependably and inexpensively deploying a complete spectrum of payloads, including even the recovery of International Space Station modules, cargo and crew." Wurst said his company's "development accomplishments to data have been financed exclusively by private investment. Our transition to the next stage of our development plan is dependent upon our ability to raise a sizable increment of additional capital."

"I feel confident in stating," he said, "that my company, backed by its strategic partners and commercial investors and with the assistance of the loan guarantees provisions as proscribed in [Breaux's bill] would, within five years, bring to market a launch system that would revolutionize the world's access to space, resulting in a dramatic increase in the development and introduction of new space-related products and services for the benefit of the United States."



About the NSS Capital Capsule
The Capsule is a timely report of highlights from Capitol Hill hearings and other events involving space issues. Prepared by NSS staff or volunteers who attend in person, the Capsule provides NSS members and activists an "insider's" look into the thoughts of our national elected officials on space issues.

The National Space Society is an independent, nonprofit space advocacy group with headquarters in Washington, DC. Its 23,000 members and 75 chapters actively promote the creation of a spacefaring civilization.


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