Why Elon Musk Is Suing the U.S. Air Force

SpaceX is suing its would-be biggest customer for the right to compete for more Pentagon launches.

A SpaceX rocket blasts off on a NASA mission in 2012.
National Journal
Alex Brown
June 5, 2014, 1 a.m.

Elon Musk says he can save Amer­ic­an tax­pay­ers bil­lions of dol­lars, but he’ll have to win a law­suit against the U.S. Air Force to do it.

The tech bil­lion­aire-turned-rock­et en­tre­pren­eur is su­ing the Air Force over the way it awards private con­tracts to launch the Pentagon’s satel­lites. There’s big money at stake — the con­tract for a single launch can fetch hun­dreds of mil­lions of dol­lars — but Musk says the mil­it­ary’s un­fair bid­ding pro­cess has cre­ated a de facto mono­poly for a rival con­tract­or, United Launch Al­li­ance.

Musk wants to shake that up. His law­suit in the Fed­er­al Court of Claims aims to re­open all fu­ture launches to com­pet­i­tion, strip­ping ULA of bil­lions in guar­an­teed money and al­low­ing com­pan­ies like SpaceX to make their pitch for more-cost-ef­fect­ive rock­ets.

For a firm to sue the same en­tity that it is try­ing to sell its products rep­res­ents a huge gamble, but Musk is run­ning out of time and op­tions.

In 2012, the Air Force awar­ded 36 launches over five years to ULA, a com­bined ven­ture of Boe­ing and Lock­heed Mar­tin.

For ULA’s com­pet­it­ors, though, there was a sil­ver lin­ing: An­oth­er 14 launches hap­pen­ing from 2015 to 2017 were set aside for com­pet­it­ive bid­ding. SpaceX says it will meet the Air Force’s cer­ti­fic­a­tion stand­ards to com­pete for flights be­fore 2014 is out, and so would have been eli­gible to com­pete for those launches.

But in early 2014, days be­fore SpaceX’s fi­nal re­quired test flight, the Air Force an­nounced it was cut­ting the com­pet­it­ive launches to sev­en. SpaceX be­lieves that to mean a max­im­um of sev­en, with the pos­sib­il­ity that num­ber could dwindle to as few as one. And even the “com­pet­it­ive” bids, ac­cord­ing to some with­in SpaceX, could be tilted in ULA’s fa­vor.

The Air Force’s cur­rent plan, should it go through un­altered, will put satel­lite launch con­tracts out of reach for SpaceX for a half dec­ade.

For Musk, who has spent years try­ing to try­ing to break in­to the Air Force’s buy­ing pro­cess — and whose com­pany has spent years try­ing to meet the Air Force’s launch stand­ards — that’s a res­ult too pain­ful to ac­cept.

And so while the leg­al ac­tion is a gamble, Musk says it’s sue or ad­mit de­feat. “We’re es­sen­tially left with the only op­tion, which is to file a protest.”

A Battle for Bil­lions

The Air Force con­tracts up for grabs in the court battle are not in­sig­ni­fic­ant. The pro­gram, known as the Evolved Ex­pend­able Launch Vehicle, will launch around 50 mil­it­ary satel­lites over the next five years, many of them GPS satel­lites. At a total cost of $1.5 bil­lion, the launches are the fourth largest line item in the 2014 de­fense budget.

Musk wants in on the ac­tion and stands to profit hugely from it. SpaceX Pres­id­ent Gwynne Shot­well called na­tion­al se­cur­ity launches “by far the largest single mar­ket” the com­pany wants to com­pete for, peg­ging po­ten­tial sales at $3 bil­lion a year.

If the suit is suc­cess­ful and ULA’s con­tracts for 36 launches are thrown in­to ques­tion, SpaceX says it has the rock­ets to com­pete for about 60 per­cent of them.

Even if it doesn’t win the suit out­right, SpaceX has said it’s open to an out-of-court set­tle­ment. It has de­clined to spec­u­late on what that might look like or wheth­er it’s likely.

With any sort of ex­pan­ded launch ac­cess, the com­pany says its rock­ets could quickly bring about bil­lions in sav­ings for tax­pay­ers — but only if it’s giv­en the chance.

Ac­cord­ing to SpaceX, ULA has re­peatedly over­run its costs — as much as 75 per­cent over budget. ULA pegs its cost per launch at just more than $200 mil­lion. SpaceX says it’s closer to $500 mil­lion.

Re­gard­less, Shot­well claims SpaceX can put the Pentagon’s satel­lites in or­bit for closer to $100 mil­lion. When asked why her com­pany’s rock­ets are so cheap, Shot­well says, she coun­ters by ask­ing why every­one else’s are so ex­pens­ive.

Crit­ics say it’s easy for SpaceX to make those claims when it hasn’t had to de­liv­er on them yet. But the com­pany points to its track re­cord with NASA, for whom it’s slated to launch 12 mis­sions at about $133 mil­lion apiece. If the coun­try’s pree­m­in­ent space agency can trust SpaceX with its pay­loads — and save money in the pro­cess — then what’s keep­ing the Air Force from do­ing the same?

ULA says it’s not as simple as Musk’s arith­met­ic would have tax­pay­ers — and the court — be­lieve. To them, SpaceX is an un­proven com­pet­it­or mak­ing over­stated claims that don’t ac­count for the nu­ances of the situ­ation.

The com­pany likes to use the term “as­sured space ac­cess” to both high­light its track re­cord and ar­gue that the cost-per-launch ar­gu­ment is over­sim­pli­fied. ULA provides two rock­et sys­tems, the Delta and At­las rock­ets, as a failsafe in case one runs in­to prob­lems. To meet the gov­ern­ment’s de­mands of con­tin­ued launch read­i­ness, ULA lacks the flex­ib­il­ity of a com­pany com­pet­ing for in­di­vidu­al launches.

“What drives our price cost is be­cause I’m fund­ing two sys­tems,” ULA CEO Mi­chael Gass said in an April in­ter­view. “The ques­tion is, will our na­tion­al se­cur­ity in­terests be served prop­erly? “¦ What we’ve provided the na­tion is be ready 24 hours a day, 7 days a week. You tell us when you want to launch.”

Es­sen­tially, ULA says its costs are dic­tated by the gov­ern­ment’s de­mands, which in­clude re­dund­ant sys­tems and on-call read­i­ness, so it’s un­fair to com­pare prices with a com­pany not held to those re­quire­ments. ULA fre­quently bills it­self “the only cer­ti­fied launch pro­vider that can sup­port the full range of na­tion­al se­cur­ity space mis­sions”

At the mo­ment, ULA says, it’s the only pro­vider that can be trus­ted to take the mil­it­ary’s satel­lites to space, cit­ing its 80-plus con­sec­ut­ive suc­cess­ful launches.

To ULA, even the Air Force’s five-year rock­et buy is a cost-sav­ing meas­ure. It claims block buys are cheap­er than per-launch pur­chas­ing, and pur­chas­ing dozens of rock­ets in ad­vance costs bil­lions of dol­lars less than buy­ing them in­di­vidu­ally — even if it does leave SpaceX out in the cold.

A Battle for Billions

The Air Force con­tracts up for grabs in the court battle are not in­sig­ni­fic­ant. The pro­gram, known as the Evolved Ex­pend­able Launch Vehicle, will launch around 50 mil­it­ary satel­lites over the next five years, many of them GPS satel­lites. At a total cost of $1.5 bil­lion, the launches are the fourth largest line item in the 2014 de­fense budget.

Musk wants in on the ac­tion and stands to profit hugely from it. SpaceX Pres­id­ent Gwynne Shot­well called na­tion­al se­cur­ity launches “by far the largest single mar­ket” the com­pany wants to com­pete for, peg­ging po­ten­tial sales at $3 bil­lion a year.

If the suit is suc­cess­ful and ULA’s con­tracts for 36 launches are thrown in­to ques­tion, SpaceX says it has the rock­ets to com­pete for about 60 per­cent of them.

Even if it doesn’t win the suit out­right, SpaceX has said it’s open to an out-of-court set­tle­ment. It has de­clined to spec­u­late on what that might look like or wheth­er it’s likely.

With any sort of ex­pan­ded launch ac­cess, the com­pany says its rock­ets could quickly bring about bil­lions in sav­ings for tax­pay­ers — but only if it’s giv­en the chance.

Ac­cord­ing to SpaceX, ULA has re­peatedly over­run its costs — as much as 75 per­cent over budget. ULA pegs its cost per launch at just more than $200 mil­lion. SpaceX says it’s closer to $500 mil­lion.

Re­gard­less, Shot­well claims SpaceX can put the Pentagon’s satel­lites in or­bit for closer to $100 mil­lion. When asked why her com­pany’s rock­ets are so cheap, Shot­well says, she coun­ters by ask­ing why every­one else’s are so ex­pens­ive.

Crit­ics say it’s easy for SpaceX to make those claims when it hasn’t had to de­liv­er on them yet. But the com­pany points to its track re­cord with NASA, for whom it’s slated to launch 12 mis­sions at about $133 mil­lion apiece. If the coun­try’s pree­m­in­ent space agency can trust SpaceX with its pay­loads — and save money in the pro­cess — then what’s keep­ing the Air Force from do­ing the same?

ULA says it’s not as simple as Musk’s arith­met­ic would have tax­pay­ers — and the court — be­lieve. To them, SpaceX is an un­proven com­pet­it­or mak­ing over­stated claims that don’t ac­count for the nu­ances of the situ­ation.

The com­pany likes to use the term “as­sured space ac­cess” to both high­light its track re­cord and ar­gue that the cost-per-launch ar­gu­ment is over­sim­pli­fied. ULA provides two rock­et sys­tems, the Delta and At­las rock­ets, as a failsafe in case one runs in­to prob­lems. To meet the gov­ern­ment’s de­mands of con­tin­ued launch read­i­ness, ULA lacks the flex­ib­il­ity of a com­pany com­pet­ing for in­di­vidu­al launches.

“What drives our price cost is be­cause I’m fund­ing two sys­tems,” ULA CEO Mi­chael Gass said in an April in­ter­view. “The ques­tion is, will our na­tion­al se­cur­ity in­terests be served prop­erly? “¦ What we’ve provided the na­tion is be ready 24 hours a day, 7 days a week. You tell us when you want to launch.”

Es­sen­tially, ULA says its costs are dic­tated by the gov­ern­ment’s de­mands, which in­clude re­dund­ant sys­tems and on-call read­i­ness, so it’s un­fair to com­pare prices with a com­pany not held to those re­quire­ments. ULA fre­quently bills it­self “the only cer­ti­fied launch pro­vider that can sup­port the full range of na­tion­al se­cur­ity space mis­sions”

At the mo­ment, ULA says, it’s the only pro­vider that can be trus­ted to take the mil­it­ary’s satel­lites to space, cit­ing its 80-plus con­sec­ut­ive suc­cess­ful launches.

To ULA, even the Air Force’s five-year rock­et buy is a cost-sav­ing meas­ure. It claims block buys are cheap­er than per-launch pur­chas­ing, and pur­chas­ing dozens of rock­ets in ad­vance costs bil­lions of dol­lars less than buy­ing them in­di­vidu­ally — even if it does leave SpaceX out in the cold.

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