ECONOMIC CONSIDERATIONS FOR A REUSABLE LAUNCH VEHICLE

1. ECONOMIC CONSIDERATIONS FOR A REUSABLE LAUNCH VEHICLE National Conference & Educational Workshop June 11-14, 2002 Phoenix, Arizona Presented by: Wayne A. Johnson Science Applications International Corporation Huntsville, Alabama wayne.a.johnson@saic.com

2. Background • NASA Space Launch Initiative (SLI) • Managed by NASA Marshall Space Flight Center • $4.85B FY02-FY06 • Reusable Vehicle Concepts • Lower Technical/Business Risks • Increase Safety/Reliability • Technology Development • 22 Contracts Let Spring 2001 SLI overview animation

3. FY06 FY99 FY00 FY01 FY02 FY03 FY04 FY05 Phase 2 Concept Development / Risk Reduction / Advanced Development Phase 1 Concept Definition and Risk Reduction STAS Program Milestones Focused Architecture Selections Program ATP IAR SRR FSD Requirements Definition and Tool Development NRA Cycle II Procurement (NRA8-30 and In-House) 8-27 NRA 8-30 Award for TA1 NRA8-30 Release Base Award Option 1 NRA 8-30 Awards TA2-9 Base Award Option 1 Option 2 (TA 2-9 as appropriate) NRA 8-30 Awards for TA-10 Flight Demonstrations Base Award Option 1 Option 2 RFP Release ATP RFP Development Preliminary Design and Advanced Development SLI Schedule Courtesy: NASA

4. Stakeholder Perspectives StakeholderIssues • Industry • - Launch Providers • - Payload Manufacturers • Government • ISS Support • Crew Rotation • Logistics • Asset Deployment/Recovery • Reconnaissance • Financiers/Backers • Bankers • Brokers • - Insurers Architecture Size Market Demand Launch Price Safety/Reliability Replacement $ < Shuttle $ Launch Price Safety/Reliability Return on Investment Risk

5. Acquisition Phase • DDT&E Costs • Mission Requirements • Trade Analyses • Prototypes/Test Units • Production Costs • Lean Manufacturing • Quantities/Element • Facilities (New/Refurbish) • Booster/Orbiter/CTV Processing • Mission Operations • Runway • Location(s) • Temporal (Time Phasing) • Debt Instruments • Private/Public Debt • Internal • Government Loans/Guarantees • Interest Rate Time

6. Operations Phase • Recurring • - Flight Operations • Propellants • Labor • Insurance • Non-Recurring Costs • - Ground Support Equipment • - Facilities Upgrades • Flight Rates • Quantities • Turn-Around Time • Operating Revenues • - Price/Flight • Facilities • - Mission Operations ?

7. Advertising Recreation ISS Missions Health & Medicine Satellite Servicing Parcel Deliveries Defense Transportation/ Tourism Non- Terrestrial Mining Communications Media (TV, Movies) Applied Sciences Space Agriculture Space Business Parks Energy Earth Observation Space Based Utilities Logistics Support Data Networks On-Orbit Construction Traditional Emerging Market Considerations

8. Market Considerations (Cont’d) • RLV Faces Competition From Expendable Launch Market • Highly Reliable Launchers • More Launch Site Choices • Worldwide Competition • Government Subsidies • TumultuousCommercial Satellite Industry • - Mergers & Acquisitions • - Regulatory Policies in Emerging Markets • Uncertainty in Broadband Market • Excess Transponder Capacity • Terrestrial Competition • Negligible RLV Market for Small and Heavy Payloads • - Micro/Small Class (< 5K Lbs.) Best Launched with Expendables • - Heavy Payloads (>25K Lbs.) Are Few; Primarily DoD • Projections for Intermediate to Large Markets Are Flat • Long Range Forecasts are Difficult • Projections Needed to 2030 Time Frame for Most Business Cases • Technology and External Influences Can Cause Wild Swings

9. Satellite Mass Growth Trend Predicted satellite mass no greater than 20K lbs by 2020 Source: Futron, Inc.

10. Financial Metrics • Cash Flow • The difference between incoming revenue and outgoing costs over a finite time period. • This is a good metric for insight into the amount of inflows/outflows, their rates • of increase/decrease, and provides temporal insights such as investment • recovery (break-even) time. • Discounted Cash Flow • A cash flow summary that has been adjusted to reflect the time value of money. • This concept takes into account the Present Value (PV) and Future Value (FV) • notions of financial analysis. The PV is what future money is worth in today’s terms. • Internal Rate of Return • - The the discount rate for which total present value of future cash flows equals the • cost of the investment. The IRR is a specific calculated interest rate that will • produce a Net Present Value (NPV) of zero.This is an excellent metric to use when • there is a large initial cash outlay. • Payback Period • The length of time required to recover the cost of an investment, usually measured in years. • Other things being equal, the investment with a shorter the payback time is better and are • generally considered less risky.

11. Break-Even Point + Cash Flows 0 Acquisition Phase Operations Phase - Time Cumulative Cash Flow Profile Revenues Exceed Costs Max. Loss Exposure • Government can wait longer to recoup investments; industry has shorter time impositions • Before/After Tax profiles can differ significantly

12. Building a Shuttle Replacement Case No Shuttle Replacement Shuttle Yearly Operations Cost RLV IOC Time • A replacement RLV system must prove to be less expensive • to operate (in the long term) than continuing Shuttle operations • Ongoing shuttle operations require safety and performance upgrades • RLV must be more reliable and safer then Shuttle

13. A Modeling Approach Sample Data Only

14. Sensitivity Analysis • FSD Decision in 2006; constant fleet size • Production, Facilities, Operations costs, Launch Prices held constant • Steady State Operations 5 yrs Post IOC All other factors equal, financial metrics are sensitive to acquisition costs

15. Sensitivity Analysis • Acquisition and operations costs held constant • Constant market prices • 20 years of operation post IOC • Adequate Facility Capacity to Accommodate Higher Flight Rates As flight rate is doubled, IRR improves to a maximum of 13% over the baseline

16. Summary • Costs • - Acquisition • - Operations • - Phasing • Revenues • - Prices • Flight Rates • - Mission Types • - Processing Times • Markets • Elasticity • Emerging • Financial Metrics • - NPV • IRR • Payback Period