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FOCUS: The Big Picture. REALLY BIG.
by John Stone, Partner, Near Earth LLC

Something important happened quite recently! The price of reaching the final frontier went down by ~75 percent. If it appears as though I’m being obscure with that statement, it’s because I’m talking about a comparatively remote effect rather than its much more heralded proximate cause: The successful flight of Space Exploration Technologies (SpaceX) Falcon 1 launch vehicle.

Following three successive attempts that came heart-wrenchingly close to success, on September 28th, SpaceX’s Falcon 1 achieved orbit and met all technical objectives for the mission. Rocket science is hard stuff, as the bodies of American Rocket, Rotary Rocket, Kistler, Beal Aerospace, Pioneer Rocketplane and others prove. (Granted, in different hands, the technology from one of these companies may yet put a satellite in orbit…)

In the process, this launch demonstrated a privately funded company based more closely on the culture of a Silicon Valley startup than an aerospace contractor can deliver payloads to space — and that it can do so all the while manufacturing in America (more specifically, in California, which is not noted for its business friendly climate).

To achieve this success, SpaceX had to develop new components that were not just technically effective (as demonstrated by fact of the flight), but that were cost effective, as demonstrated by their rate card for missions (we also note that SpaceX is the only launch vendor that publicly lists their prices on their web site!). This greatly increased the technical challenge of their task — in contrast, most new satellites and launchers draw as much as possible from previously flight proven designs to minimize risk. While it did impose greater technical risk, it gave SpaceX the ability to control their fabrication costs throughout the production chain.

When this strategy is combined with a corporate culture that insists “we’re going to change the economics of space, and we’re going to make ourselves rich doing it,” the result is fanatical attention to costs on the part of every employee. In turn, SpaceX’s customers enjoy pricing that is a quarter of competing American-built rockets, and far below world market levels. While SpaceX doesn’t release its financials, its ability to recently attract outside investment capital in the midst of trying economic times indicates that they aren’t doing this just for fun — low pricing clearly leaves room for profit.

While the Falcon 1 rocket has modest capabilities for placing small payloads into orbit, most of the technology employed by SpaceX’s much larger Falcon 9 vehicle is drawn from its smaller stable mate. Thus, going forward, SpaceX is going to enjoy the same technology heritage advantages it lacked when developing Falcon 1. In other words, and at the risk of minimizing the still considerable work left to do, a lot of the heavy lifting is already done (sorry folks, I couldn’t resist that one).

While I don’t mean to minimize the technical accomplishment of reaching orbit (and all the smaller developments along the way), changing the economics of space is the real achievement from last month’s launch. With less expensive access to space, new business plans unable to close last month now manage to do so. With less expensive launch access and ever increasing satellite capabilities, new plans that have yet to be conceived are now possible. As a consequence, I suspect there was almost as much cheering from SpaceX’s customers (they have 10 additional launches already sold) and prospective customers as from its own team.

Last month, thanks to the SpaceX team, the universe just got a little smaller. … changing the economics of space is the real achievement surrounding last month’s launch…

About the author
Mr. Stone is a partner with Near Earth LLC. He brings a wealth of finance and industry experience to the with a background in corporate finance and as a senior research analyst for equity and debt securities. He also has an extensive background in science and engineering. Previously, Mr. Stone worked in the corporate finance unit of National Securities where he was involved in sourcing, banking, and distribution of private placements for early stage technology companies. From 2000 to 2002, he worked as a senior equity and debt analyst at Ladenburg Thalmann and Company where he covered satellite and cable broadcasting equities as well as satellite/launch vehicle manufacturer and the debt of a networking company. While primarily dedicated to research during his tenure at Ladenburg, Mr. Stone also worked in a support role for the company’s corporate finance activities. He has also worked as a senior project engineer with Boeing, Hughes Electronics, General Dynamics and Computer Sciences Corporation. John holds an MBA from UCLA’s Anderson Graduate School of Management, a Master’s of Science in Astronomy from the University of Maryland, and a Bachelors of Science in Physics from the University of Rochester.

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Falcon photos courtesy of SpaceX - photos above on left, Falcon 1 + 1e, and above on right, Falcon 9