COMMERCIAL SPACE 

TRANSPORTATION

Industry Trends, 

Government Challenges, 

and International 

Competitiveness Issues 

Statement of Gerald L. Dillingham, Ph.D., Director 

Physical Infrastructure Issues

Testimony 

Before the Subcommittee on Science and 

Space, Committee on Commerce, Science, 

and Transportation, U.S. Senate

For Release on Delivery 

Expected at 10:00 a.m. EDT

Wednesday, June 20, 2012

GAO-12-836T

United States Government Accountability Office

GAO
 United States Government Accountability Office 

Highlights of GAO-12-836T, a testimony 

before the Subcommittee on Science and 

Space, Committee on Commerce, Science, 

and Transportation, U.S. Senate 

June 20, 2012 

COMMERCIAL SPACE TRANSPORTATION

Industry Trends, Government Challenges, and 

International Competitiveness Issues 

Why GAO Did This Study 

The commercial space launch industry 

is changing as NASA plans to begin 

procuring commercial cargo 

transportation services to the 

International Space Station later this 

year and companies are developing 

vehicles that could carry passengers 

for space tourism flights. FAA is 

responsible for overseeing the safety 

of commercial space launches and 

promoting the industry. A catastrophic 

commercial space launch accident 

could result in injuries or property 

damage to the public, or “third parties.” 

In anticipation of such an event, launch 

companies are required to purchase 

launch insurance, per calculations 

done by FAA and, under the 

Commercial Space Launch Act, the 

federal government is potentially liable 

for claims above that amount of 

purchased insurance. Unless 

reauthorized, the indemnification 

provision expires this year. 

This testimony addresses (1) trends 

and forecasts in the commercial space 

launch industry and challenges FAA 

faces in overseeing and promoting the 

industry, (2) preliminary information on 

issues concerning federal 

indemnification for third party losses, 

and (3) challenges to global 

competitiveness for the U.S. 

commercial space launch industry. 

This statement is based on a past 

GAO report and testimonies on 

commercial space launches, updated 

with information GAO gathered from 

FAA and NASA on industry trends and 

recent FAA and NASA actions, and ongoing work on federal indemnification. 

GAO is making no recommendations in 

this statement. 

What GAO Found

Since a peak of 22 U.S. commercial space launches in fiscal year 1998, the 

annual number of launches generally ranged from 4 to 9 launches. The number 

of commercial space launches is expected to increase in the next 8 years as the 

National Aeronautics and Space Administration (NASA) plans to procure 51 

launches from commercial cargo companies to resupply the International Space 

Station. FAA also expects space tourism to begin in the next several years, 

although no companies have applied for a FAA launch license and companies 

developing these services have experienced delays in the past. FAA faces 

several challenges overseeing the commercial space launch industry. For 

example, FAA expects its licensing and oversight responsibilities to expand in 

anticipation of an increased private sector role, suggesting that FAA and 

Congress must remain vigilant so that potential conflicts in FAA’s safety oversight 

and industry promotion roles do not occur. Also, as the commercial space launch 

industry grows and FAA continues to implement NextGen—FAA’s effort to 

develop a more automated, aircraft-centered, satellite-based air traffic 

management system—the agency will have to manage a mix of earth-based 

aircraft and space vehicles. FAA has begun to consider integrating spaceflight 

operations into NextGen. In past work, GAO recommended that FAA take 

several actions to improve its oversight of commercial space launches, including 

monitoring indicators of space tourism safety. FAA has taken some steps to 

address the recommendations. 

Several factors have implications for federal indemnification policy. For example, 

under the current policy, the potential increase in the number of commercial 

space launches increases the probability of a catastrophic accident and the 

possibility of a cost to the federal government. Also, GAO’s preliminary work has 

raised questions about the soundness of the method currently used by FAA to 

calculate the amount of insurance that launch companies must purchase: FAA 

has not updated crucial components, such as the cost of a casualty, and its 

method is outdated, according to insurance industry officials and risk modeling 

experts. If the current indemnification policy is eliminated, the actual effects on 

the global competitiveness of the U.S. commercial space launch industry are 

unknown, in part, because it is not known whether launch customers might 

choose foreign launch companies over U.S. companies. However, launch 

companies said that the lack of government indemnification would decrease their 

global competitiveness by increasing launch costs. 

The competitiveness of U.S. commercial space launch companies is affected by 

higher launch prices than those charged by companies in other countries and 

U.S. export controls, which affect U.S. companies’ ability to sell services abroad. 

The U.S. government has responded to foreign competition by providing the U.S. 

launch industry research and development funds, use of federal launch facilities, 

and indemnification for a portion of third-party claims. 

View GAO-12-836T. For more information, 

contact Gerald L. Dillingham at (202) 512-

2834 or dillinghamg@gao.gov. 
 

Page 1 GAO-12-836T 

Chairman Nelson, Ranking Member Boozman, and Members of the 

Subcommittee:

Thank you for the opportunity to testify today on the commercial space 

industry. Historically, commercial space launches took place primarily at 

federal launch sites and carried payloads (generally satellites) into orbit 

using unmanned vehicles that were only used once. The Federal Aviation 

Administration (FAA) is responsible for overseeing the safety of these 

launches and promoting the industry. Over the last several years the 

industry has begun to change. For instance, several companies are in the 

process of developing and testing manned, reusable launch vehicles for 

commercial space tourism. In addition, since the Space Shuttle fleet was 

retired in 2011, the National Aeronautics and Space Administration 

(NASA) plans to begin procuring commercial cargo transportation 

services to the International Space Station (ISS) later in 2012. With the 

successful mission of SpaceX’s Dragon last month, the capability to do so 

has been demonstrated. NASA also intends to procure commercial 

manned launches to carry its astronauts to the ISS beginning in 2017.1

Private companies and states are developing commercial spaceports—

sites used for commercial (nongovernment) spacecraft launches to 

support the expected growth in commercial space launches. To foster a 

competitive environment for the U.S. space launch industry, the federal 

government provides, under the Commercial Space Launch Act 

Amendments of 1988 (CSLAA),2

 

1

Since NASA retired its Space Shuttle program in July 2011, it lacks a domestic capability 

to send crew and cargo to the ISS. To maintain the ISS through 2020, as required by the 

NASA Authorization Act of 2010, NASA is relying on international partners and 

commercial vehicles to transport cargo. Pub. L. No. 111-267, §501 All commercial cargo 

missions for NASA thus far have been demonstration missions conducted under Space 

Act agreements, which involve NASA providing significant funds to private industry 

partners to stimulate the development of large-scale commercial space transportation 

capabilities. Pub. L. 85-568, 72 Stat. In order to transport crew, NASA is currently 

purchasing seats on the Russian Soyuz vehicle. However, NASA has awarded a number 

of Space Act agreements to domestic private sector companies to stimulate development 

and demonstration of commercial human spaceflight capability, with an eventual goal of 

procuring crew transportation services in 2017. For more information on utilizing the ISS, 

see GAO, NASA: Significant Challenges Remain for Access, Use, and Sustainment of the 

International Space Station, 

among other things, potential 

GAO-12-587T (Washington, D.C.: Mar. 28, 2012). For more 

information on Space Act agreements, see GAO, Key Controls NASA Employs to Guide 

Use and Management of Funded Space Act Agreements Are Generally Sufficient, but 

Some Could Be Strengthened and Clarified, GAO-12-230R (Washington, D.C.: Nov. 17, 

2011). 

2

Pub. L. No. 100-657, 102 Stat. 3903 (1988).

 
 

Page 2 GAO-12-836T 

indemnification for a portion of third party liability claims that could arise 

from a catastrophic launch-related incident that results in injury or 

damage to uninvolved people or property.3,4

My testimony today focuses on (1) trends and forecasts in the U.S. 

commercial space launch industry, (2) challenges FAA faces in 

overseeing and promoting the industry, (3) preliminary information on 

factors for Congress to consider as it determines the future of commercial 

space launch indemnification, and (4) challenges to U.S. global 

competitiveness as the commercial space industry grows and matures. 

This statement is based on our prior testimonies and report on 

commercial space issues and has been updated with information we 

gathered from FAA and NASA on industry trends and recent FAA and 

NASA activities.

This legislation expires at the 

end of 2012, and Congress will need to determine whether to end, reform, 

or continue current commercial space launch indemnification.

5

 

3

51 USC § 50915.

 It is also based on on-going work we are conducting for 

this committee and the U.S. House of Representatives’ Committee on 

Science and Technology. Additional information on our scope and 

methodology is provided in each issued product. We conducted the work 

on which this is based in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives.

4

The federal government, subject to appropriations, provides indemnification for losses 

that exceed the maximum probable loss up to a limit of $1.5 billion adjusted for post-1988 

inflation; in 2012, this amount was approximately $2.7 billion. For each launch, FAA 

determines the maximum probable loss, which is the amount of third party losses against 

which a launch company must protect by buying third party liability insurance. 

5

See GAO, Commercial Space Launch Act: Preliminary Information on Issues to Consider 

for Reauthorization, GAO-12-767T (Washington, D.C.: June 6, 2012); Commercial Space

Transportation: Industry Trends and Key Issues Affecting Federal Oversight and 

International Competitiveness, GAO-11-629T (Washington, D.C.: May 5, 2011); 

Commercial Space Transportation: Development of the Commercial Space Launch 

Industry Presents Safety Oversight Challenges for FAA and Raises Issues Affecting 

Federal Roles, GAO-10-286T (Washington, D.C.: Dec. 2, 2009); and Commercial Space 

Launches: FAA Needs Continued Planning and Monitoring to Oversee the Safety of the 

Emerging Space Tourism Industry, GAO-07-16 (Washington, D.C.: Oct. 20, 2006).
 

Page 3 GAO-12-836T 

In 1984, the Commercial Space Launch Act required the Secretary of 

Transportation to “encourage, facilitate, and promote commercial space 

launches by the private sector.”6 Under the Act, FAA was charged with 

regulating the U.S. commercial space launch industry, which it does 

through licensing, compliance monitoring, and safety inspection activities. 

FAA licenses all commercial launches and reentries that take place in the 

United States and overseas by U.S. citizens or companies to ensure the 

safety of the public and property, to ensure compliance with international 

obligations of the United States, and to protect the national security and 

foreign policy interests of the United States.7 FAA is also responsible for 

licensing the operation of all U.S. spaceports from which commercial 

launches may occur. In addition to its safety oversight and regulatory 

responsibilities, FAA is tasked with facilitating the strengthening and 

expansion of the U.S. space launch infrastructure. In 2004, the 

Commercial Space Launch Amendments Act of 20048

Other federal agencies also support the commercial space launch 

industry. NASA supports the industry by providing infrastructure and 

operations support and encouraging private sector investment in its 

launches and other activities. The Department of Defense (DOD), through 

the Air Force, provides infrastructure, operations support, guidance, and 

safety oversight for government and commercial launches at its launch 

sites. The Department of Commerce (Commerce) is also responsible for 

promoting the commercial space industry.

gave FAA the 

specific responsibility of overseeing the safety of space tourism. However, 

FAA is prohibited from regulating crew and passenger safety before 

October 2015, except in response to high risk incidents, serious injuries 

or fatalities, or an event that poses a high risk of causing a serious or fatal 

injury.

In addition, similar to other countries such as China, France, and Russia, 

the U.S. government provides indemnification for a portion of claims by 

 

6

51 U.S.C. 50903.

7

FAA issues four types of licenses: a launch license (for expendable launch vehicles), a 

reusable launch vehicle mission license, a reentry license, and a launch or reentry site 

operator license. The first three types of licenses are issued to the operator of a launch 

vehicle, and the fourth is issued to the operator of a spaceport. FAA also issues 

experimental permits for test flights of reusable launch vehicles.

8 Pub. L. No 108-492.

Background
 

Page 4 GAO-12-836T 

third parties for injury, damage, or loss that result from FAA-licensed 

commercial launch-related incidents, provided Congress appropriates 

funds for this purpose.9,10 Prior to issuing a launch or reentry license, FAA 

determines the amount of third party losses against which a launch 

company must protect by buying third party liability insurance. FAA 

determines this by calculating the maximum probable loss, which is an 

estimate of the maximum third party losses likely to occur from a 

commercial space launch.11 The federal government, subject to 

appropriations, provides indemnification for losses that exceed the 

maximum probable loss up to a limit of about $2.7 billion.12 Parties 

involved in launches—for example, passengers and crew—are not 

considered third parties, and thus damages to them would not be covered 

under the indemnification program.13 The commitments of the United 

States or other countries to pay third party claims have never been 

tested. Globally, there has never been a third party claim for damages 

from a commercial space launch failure that reached the level of 

government indemnification.

 

9

51 USC 50914(a)(1)(A).

10China, France, and Russia provide more indemnification coverage than the United 

States. These countries each have an indemnification regime in which the government 

states that it will assume a greater share of the risk compared to that of the United States 

because each country places no limit on the amount of government indemnification.

11More specifically, the maximum probable loss is based on estimates of losses from 

events having greater than a 1 in 10 million chance of occurring.

12The $2.7 billion limit on the federal government’s liability is for 2012; this amount is 

adjusted for inflation each year.

13A crew includes any employee who performs activities directly relating to the launch, 

reentry, or other operation relating to the vehicle that carriers human beings. 51 U.S.C § 

50902(2). A passenger—also called a spaceflight participant—is an individual who is not 

crew, carried aboard a launch vehicle or reentry vehicle. 51 U.S.C § 50902(17).
 

Page 5 GAO-12-836T 

Since 1989, FAA has licensed 207 commercial space launches. Since a 

peak of 22 launches in fiscal year 1998, the annual number of launches 

generally ranged from 4 to 8 launches. (See fig. 1.) Space launches by 

private sector companies were relatively high in the late-1990s as U.S. 

commercial launch companies responded to the increase in global 

demand for commercial satellite launch services. Since then, the demand 

for commercial launches has generally declined, except for slight 

increases in fiscal years 2004 and 2008. The increase in fiscal year 2004 

was due in part to the inclusion of 4 demonstration flights by 

SpaceShipOne and the increase in fiscal year 2008 was due, in part, to 

the return to service of one of the most common launch vehicles following 

a failure in the previous year.14

 

14SpaceShipOne, which resembles an airplane, was launched from an airplane into 

space, where it traveled nearly 70 miles above the earth, and returned to the original 

launch site. 

Since fiscal year 2009, FAA has licensed 

13 commercial space launches, including the launch of the Falcon 9 

rocket that carried the Dragon capsule that docked with the International 

Space Station last month.

The Number of FAALicensed Space 

Launches Peaked in 

1998, but an Increase 

Is Anticipated

Launch Trends
 

Page 6 GAO-12-836T 

Figure 1: FAA-Licensed Launches, Fiscal Year 1997 Through June 1, 2012

Note: These numbers include launches by Sea Launch—a multinational consortium that is licensed 

by FAA because one of its principals is a U.S. company. The numbers also include 5 launches by 

SpaceShipOne—4 in fiscal year 2004 and 1 in fiscal year 2005—which were not FAA-licensed as 

they were demonstration flights. All launches were orbital, except those of SpaceShipOne, which 

were suborbital. 

Despite the low number of licensed launches in recent years, according to 

FAA, research and development activity in commercial spaceflight 

continues and the tests associated with this activity are not captured in 

launch numbers. According to industry experts that we spoke with, since 

2006 the commercial space launch industry has experienced a steady 

buildup of research and development efforts, including ground tests and 

low-altitude flight tests of reusable rocket-powered vehicles that are 

capable of numerous takeoffs and landings. (See fig. 2 for examples of 

commercial spacecraft being developed.) These activities do not require 

licensing. In 2006, FAA began issuing experimental permits to companies 

seeking to conduct test launches of reusable space launch vehicles that 

could be used for manned commercial flights.
 

Page 7 GAO-12-836T 

Figure 2: Examples of Commercial Spacecraft under Development

The number of commercial space launches is anticipated to increase in 

the years ahead as NASA begins procuring commercial cargo 

transportation services to the ISS and private industry continues 

developing vehicles for space tourism flights. As previously noted, 

SpaceX recently completed the first commercial mission to deliver cargo 

to the ISS and bring back scientific samples and other supplies. (See fig. 

3.) As a result of this success, SpaceX will begin to fly its 12 missions 

under NASA’s Commercial Resupply Services contract for delivery of 

cargo to the ISS. Orbital Sciences Corporation has also been awarded a 

contract for cargo resupply missions to the ISS through 2016, but has yet 

to conduct any demonstration missions. Together, the companies are 

scheduled to complete about 39 percent of NASA’s planned launches to 

the ISS through 2020. (See table 1.)
 

Page 8 GAO-12-836T 

Figure 3: SpaceX Dragon Docked with the ISS, May 2012

Table 1: NASA’s Planned Launches to Resupply the ISS from 2012 to 2020 (as of March 2012)

Vehicle 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total

European Automated Transfer Vehicle (ATV)a 1 1 1 0 0 0 0 0 0 3 

Japanese H-II Transfer Vehicle (HTV)a 1 1 1 1 1 1 1 1 1 9 

SpaceX 2 2 2 3 3 0 0 0 0 12

Orbital 1 2 1 2 2 0 0 0 0 8 

Follow-on commercial resupplyb 0 0 0 0 0 5 5 5 4 19

Total 5 6 5 6 6 6 6 6 5 51

Source: GAO analysis of NASA data.

a

The ATV and HTV are unmanned vehicles that have flown to the ISS. 

b

NASA does not have contracts with commercial providers or negotiated agreements with 

international partners for flights from 2017 through 2020. 

FAA expects space tourism activity to begin in the coming years and, 

while companies are developing vehicles to provide space tourism 

services, the industry has experienced delays in its development in the 

past. The prospect for commercial space tourism materialized in 2004 
 

Page 9 GAO-12-836T 

with the successful flights of SpaceShipOne, which have been the only 

manned commercial flights to date. Virgin Galactic, which formed a joint 

venture with Scaled Composites to develop SpaceShipTwo, is the 

farthest along among the space tourism companies and has taken 

deposits from more than 500 customers to reserve a place on a future 

flight. However, Virgin Galactic has not yet applied to FAA for a launch 

license and its planned schedule for flights has experienced delays in the 

past. The planned and anticipated increase in launches, from NASA and 

potentially from space tourism, has implications for FAA’s oversight 

responsibilities and the federal government’s potential liability in providing 

third party indemnification, as we discuss later in this statement.

In the United States, private companies and state governments have 

been developing additional spaceports to accommodate the anticipated 

space tourism flights and expand the nation’s launch capacity. There are 

currently eight nonfederal FAA-licensed spaceports as well as two private 

facilities each with one resident launch provider—Blue Origin and Sea 

Launch—which are termed sole-site operators. (See fig. 4.) In addition, 

state governments and local communities have proposed establishing 

commercial spaceports in six additional locations.

Commercial Spaceports
 

Page 10 GAO-12-836T 

Figure 4: Licensed Spaceports as of February 2012

a

Private facility with a sole site operator. 

Both states and FAA have provided support for the development of 

commercial spaceports. States have provided economic incentives to 

developers to build spaceports to attract space tourism that could in turn 

provide economic benefits to localities. For example, New Mexico 

provided approximately $209 million to construct Spaceport America15

 

15Approximately $133 million came from state appropriations. The remainder came from 

tax bonds collected from Dona Ana and Sierra counties in New Mexico.

and the Florida Space Authority, a state agency, invested over $500 

million in new space industry infrastructure development at Cecil Field 

Spaceport, including upgrades to the launch pad, a new space operations 
 

Page 11 GAO-12-836T 

support complex, and a reusable launch vehicle support complex. In 

addition, Virginia recently enacted legislation to provide $9.5 million 

annually to support the capital needs, maintenance, and operating costs 

of facilities owned and operated by the Virginia Commercial Space Flight 

Authority—including the Mid-Atlantic Regional Spaceport—and has 

provided state tax exemptions for companies launching payloads from the 

spaceport or doing space-related business activities in Virginia. However, 

according to a senior FAA official, continued state support for spaceports 

in the current fiscal environment has been mixed. The official added that 

although there are eight licensed spaceports, there has not been launch 

activity at all of them. Until there is a launch provider that begins 

operations and brings revenue to a spaceport, support is difficult to justify. 

In addition, federal support for spaceports has been affected by the fiscal 

environment. In 2010, FAA distributed a total of $500,000 in appropriated 

funds to four spaceports in the first Commercial Space Transportation 

Grants. Since then it has drawn from its operations budget to sustain the 

program.

As it oversees a changing commercial space launch industry, FAA faces 

various challenges. These include addressing a potential growth in its 

licensing and oversight workload, ensuring that its safety regulations are 

equally suitable for commercial spaceports and federal launch sites, 

avoiding potential conflicts between its dual roles of safety oversight and 

industry promotion, and adequately accommodating space flight in its air 

traffic management system. 

FAA expects its licensing and oversight responsibilities of commercial 

space launches to expand in the next few years with the licensing of 

NASA-contracted launches as NASA begins this year to use new 

commercially-developed and operated vehicles to deliver cargo and later 

crew to the ISS. NASA plans to contract with commercial launch 

companies for these services. FAA and NASA announced on June 18, 

2012, that FAA will license NASA-contracted vehicles and services. FAA 

expects the number of commercial launches to increase as private 

companies work toward providing flight services to paying 

passengers. FAA requires either a launch and a reentry license or a 

permit. As mentioned earlier in this statement, manned commercial 

launches have not occurred since 2004, and Virgin Galactic is the 

company closest to developing a vehicle for space tourism, but it has not 

FAA Faces Several 

Significant Challenges 

as It Oversees a 

Changing Commercial 

Space Launch 

Industry

Potential Industry Growth 

and FAA’s Workload
 

Page 12 GAO-12-836T 

filed for FAA licenses. Therefore, it is not clear when FAA’s workload 

would be affected by space tourism.

As of November 2011, FAA’s workload included 15 active launch 

licenses, 8 active launch site operator licenses, and 2 active experimental 

permits. FAA evaluates applications for launch licenses by reviewing the 

safety, environmental, payload, and policy implications of a launch and 

determining the launch company’s insurance liability or financial 

responsibility. FAA’s licensing process is described in fig. 4.

Figure 4: FAA’s Launch Licensing Process

According to FAA officials, FAA’s Office of Commercial Space 

Transportation has 72 full-time staff, as of June 2012, to oversee

commercial space launches. FAA’s fiscal year 2013 budget request 

includes resources to hire an additional 10 safety experts to evaluate 

license applications, conduct safety inspections, and provide oversight in 

its field offices.

FAA expects its workload to increase over the next several years as it 

begins to develop safety regulations for commercial human spaceflight.

Although a moratorium on FAA regulations for passenger safety has been 

extended to October 2015, we have previously recommended that FAA 
 

Page 13 GAO-12-836T 

identify and continually monitor indicators of space tourism industry 

safety.16 Although FAA was not able to address our recommendation 

directly because there have been no launches with passengers, it is 

taking other steps—e.g., reviewing NASA’s certification of space launch 

vehicles as worthy of transporting humans (i.e., human rating) and its own 

aircraft certification processes—that will help FAA be prepared to regulate 

passenger safety. We believe that these are reasonable preliminary steps 

to regulate crew and passenger safety.

As noted earlier, spaceports are being developed to accommodate 

anticipated commercial space tourism flights. However, FAA faces 

challenges related to regulating commercial spaceports. Specifically, FAA 

must ensure that its regulations on licensing and safety requirements for 

launches and launch sites, which are based on safety requirements for 

expendable launch vehicles (i.e., vehicles that are only used once and do 

not return to Earth) at federal launch sites, will also be suitable for 

operations at commercial spaceports. We have reported that the safety 

regulations for expendable launch vehicles may not be suitable for space 

tourism flights because of differences in vehicle types and launch 

operations, according to experts we spoke with.17

 

16GAO-07-16.

Similarly, spaceport 

operators and experts we spoke with raised concerns about the suitability 

of FAA safety regulations for commercial spaceports. Experts told us that 

safety regulations should be customized for each spaceport to address 

the different safety issues raised by various types of operations, such as 

different orbital trajectories and differences in the way that vehicles 

launch and return to earth, whether vertically or horizontally. To address 

these concerns, we reported that it will be important to measure and track 

safety information and use it to determine if the regulations should be 

revised. We did not make recommendations to FAA concerning these 

issues because the Commercial Space Launch Amendments Act of 2004 

required the Department of Transportation (DOT) to commission an 

independent report to analyze, among other things, whether expendable 

and reusable vehicles should be regulated differently from each other, 

17We recommended that FAA develop a formal process for consultations between its 

Office of Commercial Space Transportation and Office of Aviation Safety about licensing 

reusable launch vehicles. In response, the two offices developed an agreement defining 

their roles and responsibilities regarding the review of hybrid aircraft/launch vehicles. See 

GAO-07-16.

Suitability of Safety 

Regulations for Spaceports
 

Page 14 GAO-12-836T 

and whether either of the vehicles should be regulated differently if 

carrying passengers. The report, issued in November 2008, concluded 

that the launch of expendable vehicles, when used to lift reusable rockets 

carrying crew and passengers, as well as launch and reentry of reusable 

launch vehicles with crew and passengers should be regulated differently 

from the launch of expendable vehicles without humans aboard. The 

report also noted that the development of a data system to monitor the 

development and actual performance of commercial launch systems and 

to better identify different launch risk factors and criteria would greatly 

assist the regulatory process.18

In 2006, we reported that FAA faced the potential challenge of overseeing 

the safety of commercial space launches while promoting the industry.19

 

18The Aerospace Corporation, et al., Analysis of Human Space Flight Safety, Report to 

Congress (El Segundo, CA: Nov. 11, 2008).

While we found no evidence that FAA’s promotional activities—such as 

sponsoring an annual industry conference and publishing studies of 

industry trends—conflicted with its safety regulatory role, we noted that 

potential conflicts may arise as the space tourism sector develops. We 

reported that as the commercial space launch industry evolves, it may be 

necessary to separate FAA’s regulatory and promotional activities. 

Recognizing the potential conflict, Congress required the 2008 DOTcommissioned report to discuss whether the federal government should 

separate the promotion of commercial human spaceflight from the 

regulation of such activity. The 2008 commissioned report concluded 

there was no compelling reason to remove promotional responsibilities 

from FAA in the near term (through 2012) noting that FAA allocated 

approximately 16 percent of the commercial space budget in fiscal year 

2008, which was significantly less than what was allocated for activities 

directly related to safety. FAA’s requested allocation for promotional 

activities is 12 percent of the commercial space budget request for fiscal 

year 2013, according to an FAA official. The report further stated that 

periodic review of the issue was warranted as the commercial space 

launch industry changed. We continue to concur with the commissioned 

report’s assessment and see no need for Congress to step in at this time 

to require a separation of regulatory and promotional activities since 

resource allocations for promotion remains at a relatively low level, and 

19GAO-07-16. 

Dual Oversight and 

Promotion Roles
 

Page 15 GAO-12-836T 

few commercial space launches are occurring. However, FAA and 

Congress must continue to remain vigilant that a situation in which FAA 

jeopardizes the public interest by subordinating it to that of the 

commercial space launch industry does not occur.

NextGen—FAA’s efforts to transform the current radar-based air traffic 

management system into a more automated, aircraft-centered, satellitebased system—will need to accommodate spacecraft that are 

transitioning to and from space through the national airspace system. As 

the commercial space launch industry grows and spaceflight technology 

advances, FAA expects that the agency will need tools to manage a mix 

of diverse aircraft and space vehicles in the national airspace system. In 

addition, the agency will need to develop new policies, procedures, and 

standards for integrating spaceflight operations into NextGen. For 

example, FAA will have to define new upper limits to the national airspace

system20 to include corridors for flights transitioning to space; establish 

new air traffic procedures for flights of various types of space vehicles, 

such as aircraft-ferried spacecraft and gliders; develop air traffic 

standards for separating aircraft and spacecraft in shared airspace; and 

determine controller workload and crew rest requirements for space 

operations. FAA has begun to consider such issues and generally 

includes them in its concept of operations for NextGen.

Several factors have implications for federal indemnification policy. 

These include the potential for manned launches, the soundness of FAA’s 

calculation of maximum probable loss, a gap in the indemnification policy, 

and the potential effects that ending federal indemnification could have on 

the global competitiveness of the U.S. commercial space launch industry.

 

20The national airspace system currently extends to 60,000 feet above mean sea level.

Spaceflight and NextGen

Factors Congress 

Should Weigh 

Concerning 

Commercial Space 

Launch 

Indemnification
 

Page 16 GAO-12-836T 

Our ongoing work indicates that the expected increase in manned

commercial launches raises a number of issues that have implications for 

the federal government’s indemnification policy for third party liability. 

First, the number of launches and landings covered by federal 

indemnification could increase with NASA’s planned manned launches, 

which will be FAA licensed. NASA expects to procure from private launch 

companies two manned launches per year to the ISS from 2017 to 

2020.

21

According to insurance company officials with whom we spoke, the 

potential volume of manned launches for NASA and for space tourism 

could increase the overall amount of insurance coverage needed by 

launch companies, which could raise insurance costs, including those for 

third party liability.

In addition, the development of a space tourism industry may also 

increase the number of launches and landings covered by federal 

indemnification, but the timing of tourism launches and landings is 

uncertain.

22

Second, because newly developed manned launch vehicles have a 

limited launch history, they are viewed by the insurance industry as more 

risky than “legacy” launch vehicles. Insurance company officials told us 

that a launch vehicle such as United Launch Alliance’s Atlas V, which 

launches satellites and may be used for future manned missions, is seen 

as less risky than new launch vehicles, such as SpaceX’s Falcon 9, which 

could also be used for manned missions. According to insurance 

company officials with whom we spoke, they expect to charge higher 

By increasing the number of launches, the probability 

of a catastrophic event is also increased, and any accident that occurs 

could also increase future insurance costs, according to insurance 

company officials. A catastrophic accident could also result in third party 

losses over the maximum probable loss, which would invoke federal 

indemnification, provided Congress appropriates funds for this purpose.

 

21NASA-contracted launches for its science missions are not currently covered by CSLAA; 

rather, NASA requires its launch contractors to obtain insurance coverage for third party 

losses. The amount of the insurance required by NASA is the maximum amount available 

in the commercial marketplace at reasonable cost, but not to exceed $500 million per

launch. The facts and circumstances for claims in excess of this amount would be 

forwarded by NASA to the Congress for its consideration 51 U.S.C. § 20113 (m) (2). 

NASA-contracted launches for the Commercial Resupply Services to the ISS will be 

licensed by FAA under CSLAA, and will be covered by CSLAA indemnification. 

22Launch providers obtain insurance in addition to that for third party liability, including 

coverage of assets, such as the launch vehicle. 

Potential Manned 

Launches
 

Page 17 GAO-12-836T 

insurance premiums for newly developed launch vehicles than legacy 

launch vehicles given their different risk profiles. Insurance company 

officials’ opinions varied as to when a launch vehicle is deemed reliable—

from 5 to 10 successful launches. They also told us that whether vehicles 

are manned is secondary to the launch vehicle’s history and that the 

launch’s trajectory—over water or land—is also considered in determining 

risk and, consequently, the price and amount of third party liability 

coverage.

Third, having people on board a space vehicle raises issues of informed 

consent and cross waivers, which could affect third party liability and the 

potential cost to the federal government. CSLAA requires passengers and 

crew on spaceflights to be informed by the launch company of the risks 

involved and to sign a reciprocal waiver of claims (also called a cross 

waiver) with the federal government—meaning that the party agrees not 

to seek claims against the federal government if an accident occurs. 

CSLAA also requires cross waivers among all involved parties in a 

launch. Two key issues dealing with cross waivers include the estates of 

spaceflight passengers and crew and limits on liability for involved parties. 

One issue is the estates of spaceflight passengers and crew, which are 

considered third parties to a launch, are not covered by informed consent 

and cross waiver of claims, according to two insurance companies and 

one legal expert. Another issue, according to two insurance companies 

and two legal experts, requiring cross waivers among passengers, crew, 

the launch company, and other involved parties may not minimize 

potential third party claims as they would not place limitations on liability.

The potential costs to the government under CSLAA—that is, the federal 

government’s exposure to liability—depends on FAA’s maximum 

probable loss calculation, which assesses a launch’s risk. If the 

calculation is understated, then the government’s exposure to liability is 

higher; conversely, if the calculation is overstated, then launch companies 

are required to purchase more insurance than intended. Therefore, it is 

important that FAA use an appropriate process for determining the 

maximum probable loss. Our preliminary work identified several issues 

that raise questions about the soundness of FAA’s maximum probable 

loss methodology:

• FAA uses a figure of $3 million when estimating the cost of a single 

potential casualty—that includes either injury or death—which FAA 

officials said has not been updated since they began using it in 1988. 

Two insurers, as well as representatives of two risk modeling 

Maximum Probable Loss
 

Page 18 GAO-12-836T 

companies that specialize in estimating damages from catastrophic 

events, said that this figure is likely understated. Because this number 

has not been adjusted for inflation or updated in other ways, it may 

not adequately represent the potential current cost of injury or death 

caused by commercial space launch failures.

• FAA’s methodology for determining potential property damage from a 

commercial space launch starts with the total cost of casualties and 

adds a flat 50 percent to that cost as the estimate of property damage, 

rather than specifically analyzing the number and value of properties 

that could be affected in the event of a launch failure. One insurer and 

two risk modelers said that FAA’s approach is unusual and generally 

not used to estimate potential losses from catastrophic events. For 

example, officials from both modeling companies noted that the more 

common approach is to model the property losses first and derive the 

casualty estimates from the estimated property losses. One modeler 

stated that FAA’s method might significantly understate the number of 

potential casualties, noting that an event that has a less than 1 in 10 

million chance of occurring is likely to involve significantly more 

casualties than predicted under FAA’s approach. Moreover, a 2007 

FAA review conducted with outside consultants said that this 

approach is not recommended because of observed instances where 

casualties were low yet forecasted property losses were very large.

• More broadly, FAA’s method does not incorporate what is known in 

the insurance industry as “catastrophe modeling.” One modeler told 

us that catastrophe modeling has matured over the last 25 years—as 

a result of better data, more scientific research, and advances in 

computing—and has become standard practice in the insurance and 

reinsurance industries. Catastrophe models consist of two 

components: a computer program that mathematically simulates the 

type of event being insured against and a highly detailed database of 

properties that could potentially be exposed to loss. Tens of 

thousands or more computer simulations are generated to create a 

distribution of potential losses and the simulated probability of 

different levels of loss. In contrast, FAA’s method involves estimating 

a single loss scenario. FAA officials told us that they have considered 

the possibility of using a catastrophe model. However, they expressed 

concern about whether the more sophisticated approach would be 

more accurate, given the great uncertainty about the assumptions—

such as the probability and size of potential damages—that must be 

made with any model. Also, both experts and FAA officials told us that 

developing a catastrophe modeling capability would entail significant 

costs.
 

Page 19 GAO-12-836T 

FAA officials said that they believe the maximum probable loss 

methodology is reasonable and produces conservative results. The same 

officials noted that they periodically evaluate their current maximum 

probable loss methodology, but acknowledged that they have not used 

outside experts or risk modelers for this purpose. They agreed that such a 

review could be beneficial, and that involvement of outside experts might 

be helpful for improving their maximum probable loss methodology. As 

we finalize our review of CSLAA indemnification policy, we will address 

any additional federal actions needed in response to our analysis.

Officials from the insurance industry and space launch companies, as 

well as an expert, characterized the lack of coverage of on-orbit 

activities—that is, activities not related to launch or reentry, such as 

relocating a satellite from one orbit to another orbit—as a gap in federal 

indemnification, but they did not agree on the need to close this gap. FAA 

licenses commercial launches and reentries, but does not license on-orbit 

activities. Federal indemnification only applies to FAA-licensed space 

activities. One expert noted that federal oversight of on-orbit activities 

may be needed to provide consistency and coordination among agencies 

that have on-orbit jurisdiction. He pointed out that the Federal 

Communications Commission and the National Oceanic and Atmospheric 

Administration have jurisdiction over their satellites and NASA has 

jurisdiction over the ISS. Thus, according to the expert, there should be 

one federal agency that coordinates regulatory authority over on-orbit 

activities. On the other hand, officials from two launch companies told us 

that they did not believe that on-orbit activities need to be regulated by 

FAA or that federal indemnification coverage should be provided.

According to senior agency officials, FAA may seek statutory authority 

over on-orbit activities, although not for satellite or spectrum usage. An 

insurer told us that having FAA in charge from launch to landing would 

help ensure that there were no gaps in coverage. According to this 

insurer, this would help bring stability to the insurance market in the event 

of an accident as involved parties would be clear on which party is liable 

for which activities. Congress would decide whether FAA’s on-orbit 

authority would include licensing on-orbit activities. If FAA were granted 

the authority to license on-orbit activities, this would increase the potential 

costs to the federal government for third party claims as its exposure to 

risk would increase.

Gap in Federal 

Indemnification
 

Page 20 GAO-12-836T 

Our on-going work indicates it is difficult to predict how insurance 

premiums or other costs might change as well as the availability of 

coverage if indemnification were eliminated. In addition, we do not know 

whether or to what extent launch customers might choose foreign launch 

companies over U.S. companies. Furthermore, it is difficult to separate 

out the effects of withdrawing indemnification on the overall 

competitiveness of the U.S. commercial space launch industry. Many 

factors affect the industry’s competitiveness, including other U.S. 

government support, such as research and development funds, 

government launch contracts, and use of its launch facilities, in addition to 

the third party indemnification.

Our work to date suggests that while the actual effects on competition of 

eliminating CSLAA indemnification are unknown, several launch company 

representatives and customers with whom we spoke said that in the 

absence of CSLAA indemnification, higher costs and increased risk would 

directly affect launch companies and indirectly affect their customers and 

suppliers. The same participants said that two key factors—launch price 

and launch vehicle reliability—generally determine the competitiveness of 

launch companies. According to two launch customers, launch prices for 

similar missions can vary dramatically across countries. For example, two 

customers said that a similar launch might cost about $40 million to $60 

million with a Chinese company, about $80 million to $100 million with a 

French company, and approximately $120 million with a U.S. company. 

Other considerations also would be involved in selecting a launch 

company, according to launch customers with whom we spoke. For 

example, some said that export restrictions for U.S. customers could add 

to their costs or prevent them from using certain launch companies. One 

launch customer also said that it considers the costs of transporting the 

satellite to the launch site as well as other specific aspects of a given 

launch.

U.S. launch company representatives said that the lack of government 

indemnification would decrease their global competitiveness by 

increasing launch costs. Those officials said their costs would increase as 

a result of their likely purchase of greater levels of insurance to protect 

against third party losses, as the launch companies themselves would be 

responsible for all potential third party claims, not just those up to the 

maximum probable loss amount. Some launch companies told us that 

they would likely pass additional costs on to their customers by increasing 

launch prices. Two launch customers told us that in turn, they would pass 

on additional costs to their customers.

Indemnification and U.S. 

Competitiveness
 

Page 21 GAO-12-836T 

Launch company representatives and customers said that ending CSLAA 

indemnification would also decrease the competitiveness of U.S. launch 

companies because launch customers would be exposed to more risk 

than if they used launch companies in countries with government 

indemnification. For example, representatives from several launch 

companies and customers said that if some aspect of the launch payload 

is determined to have contributed to a launch failure, they could be 

exposed to claims for damages from third parties and therefore might be 

more likely to use a launch company in a country where the government 

provides third party indemnification. Some also noted that the increased 

potential for significant financial loss for third party claims could cause 

launch companies, customers, or suppliers to decide if it was no longer 

worthwhile to be involved in the launch business, resulting in lost jobs and 

industrial capacity. Lastly, one industry participant pointed out that some 

suppliers, such as those that build propulsion systems, have to maintain 

significant amounts of manufacturing capacity whether they build one 

product or many. If there are fewer launches, the cost of maintaining that 

capacity will be spread among these fewer launches, resulting in a higher 

price for each launch. To the extent that the federal government is a 

customer that relies on private launch companies for its space launch 

needs, it too could face potentially higher launch costs.

Because launch failures and changing market conditions could change 

the amounts of coverage available in the private market, you have 

expressed interest in other possible ways of managing catastrophic risk. 

While we have not conducted specific work to analyze the feasibility of 

alternative approaches for providing coverage currently available through 

CSLAA, FAA and others have looked at possible alternatives to CSLAA 

indemnification and we have examined different methods for addressing 

the risk of catastrophic losses associated with natural disasters and acts 

of terrorism.23

 

23See FAA, Liability and Risk-Sharing Regime for U.S. Commercial Space Transportation: 

Study and Analysis and Aerospace Corporation, Study of the Liability Risk-Sharing 

Regime in the United States for Commercial Space Transportation. See also GAO, 

Catastrophe Insurance Risks: The Role of Risk-Linked Securities and Factors Affecting 

Their Use, 

These events, like space launch failures, have a low 

probability of occurrence but potentially high losses. Some methods 

GAO-02-941 (Washington, D.C.: Sept. 24, 2002); Catastrophe Insurance 

Risks: The Role of Risk-Linked Securities, GAO-03-195T (Washington, D.C.: Oct. 8, 

2002); and Natural Disasters: Public Policy Options for Changing the Federal Role in 

Natural Catastrophe Insurance, GAO-08-7 (Washington, D.C.: Nov. 26, 2007). 

Alternatives for 

Addressing Space Launch 

Risk
 

Page 22 GAO-12-836T 

involve the private sector, including going beyond the traditional 

insurance industry, in providing coverage, and include the use of 

catastrophe bonds or tax incentives to insurers to develop catastrophe 

surplus funds. Other methods aid those at risk in setting aside funds to 

cover their own and possibly others’ losses, such as through selfinsurance or risk pools.24 Still other methods, such as those used for flood 

and terrorism insurance, involve the government in either providing 

subsidized coverage or acting as a backstop to private insurers.25

Use of any such alternatives could be complex and would require a 

systematic consideration of their feasibility and appropriateness for third 

party liability insurance for commercial space launches. For example, 

according to a broker and a risk expert, a lack of loss experience 

complicates possible ways of addressing commercial space launch third 

party liability risk, and according to another risk expert, any alternative 

approaches for managing this risk would need to consider key factors, 

including the

• number of commercial space launch companies and insurers and 

annual launches among which to spread risk and other associated 

costs;

• lack of launch and loss experience and its impact on predicting and 

measuring risk, particularly for catastrophic losses; and

• potential cost to private insurers, launch companies and their 

customers, and the federal government.

As such, alternatives could potentially require a significant amount of time 

to implement.

 

24See GAO, Catastrophe Insurance Risks: Status of Efforts to Securitize Natural 

Catastrophe and Terrorism Risk, GAO-03-1033 (Washington, D.C.: Sept. 24, 2003). Selfinsurance occurs when an entity assumes the risk for its losses and can involve the 

formation of an insurance company solely for that purpose. Risk pooling occurs when two 

or more entities agree to set aside funds to help pay for the others’ losses. 

25See GAO, Flood Insurance: FEMA’s Rate-Setting Process Warrants Attention, 

GAO-09-12 (Washington, D.C.: Oct. 31, 2008) and Terrorism Insurance: Status of Efforts 

by Policyholders to Obtain Coverage, GAO-08-1057 (Washington, D.C.: Sept. 15, 2008). 
 

Page 23 GAO-12-836T 

The competitiveness of the U.S. commercial space launch industry is 

affected by high launch prices and export controls, which affect its ability 

to sell its services abroad. Based on several measures of global 

competitiveness, the U.S. commercial space launch industry has 

generally trailed Russia and France in recent years. For example, in 8 of 

the last 10 years, U.S. commercial space launch companies generated 

less revenue that either Russia or France. U.S. companies generated no 

commercial launch revenue in 2011 because they conducted no 

launches.26 (See fig. 5.)

 

26The one FAA-licensed launch that occurred in 2011 was by Sea Launch, which is a 

multinational company, not a U.S. company.

Several Factors 

Hinder the 

Competitiveness of 

the U.S. Commercial 

Space Launch 

Industry
 

Page 24 GAO-12-836T 

Figure 5: Worldwide Commercial Space Launch Revenues, 2002-2011

Note: International revenue data for 2012 is not available. 

We previously reported that as the U.S. commercial space launch 

industry expands, it will face key competitive issues, including high launch 

prices and export controls, that affect its ability to sell its services 

abroad.27

 

27

Foreign competitors have historically offered lower launch 

prices than U.S. launch providers, as mentioned previously in this 

statement. The U.S. government has responded to foreign competition by 

providing the commercial launch industry support, including research and 

development funds, government launch contracts, use of its launch 

GAO-07-16. 
 

Page 25 GAO-12-836T 

facilities, and, as already discussed, indemnification for third-party losses 

that exceed the maximum probable loss.28

Industry representatives that we interviewed told us that export licensing 

requirements affect the ability of the U.S. commercial space launch 

industry to sell launch vehicles abroad because they can deliver 

chemical, biological, and nuclear weapons. In previous work, a senior 

Commerce official told us that the U.S. commercial space launch industry 

had asked Congress to consider amending the statute that restricts space 

manufacturing items for export. A change in statute would allow for the 

Department of State (State) and DOD to review individual items for 

export, as they do for other industries.

Finally, the commercial space launch industry operates without the 

benefit of a national strategy. Numerous agencies—including FAA, 

NASA, State, and Commerce—are responsible for space activities and 

have developed their own strategies. A national space launch strategy 

could identify and fill gaps in federal policy concerning the commercial 

space launch industry, according to senior FAA and Commerce officials.

According to those officials, the need for an overall U.S. space launch 

policy, which includes commercial space launches, was being discussed 

within DOT and across other departments as part of the administration’s 

review of national space activities, but developing a national policy had 

not yet begun. Guidance on launch acquisitions will, however, be included 

in the updated National Space Transportation Policy, which is currently 

under development and a date for issuance has not been publically 

announced.

In closing, despite the decrease in FAA-licensed commercial launches 

since fiscal year 1998, commercial space launch is a dynamic industry 

with newly developing vehicles and missions. As the realization of space 

tourism nears and NASA relies more heavily on commercial providers to

deliver cargo and crew to the ISS, the number and types of flights may 

increase, which will have implications for FAA oversight and federal 

indemnification support. As we previously recommended, FAA should 

continue to take steps to gather and review launch data that will enable it 

 

28There have been no commercial space launch accidents that resulted in third-party 

losses that required government indemnification.

Concluding 

Observations
 

Page 26 GAO-12-836T 

to be prepared to regulate human spaceflight when the regulation 

moratorium expires in 2015. In addition, as the industry changes and 

grows, continually assessing federal liability indemnification policy to 

ensure that it protects both launch companies and the federal government 

will be important. As we complete our analysis of federal indemnification, 

we will more fully address any additional federal actions needed in 

response to these developments. Finally, the potential changes to the 

industry may present the conditions under which a subsequent review of 

FAA’s dual role in promoting and overseeing commercial space launch 

safety is warranted.

Chairman Nelson, Ranking Member Boozman, and Members of the 

Subcommittee, this concludes my prepared statement. I would be 

pleased to answer any questions at this time.

For further information on this testimony, please contact Gerald L. 

Dillingham, Ph.D., at (202) 512-2834 or dillinghamg@gao.gov. In 

addition, contact points for our Offices of Congressional Relations and 

Public Affairs may be found on the last page of this statement. Individuals 

making key contributions to this testimony include Alicia Puente Cackley 

(Director), Teresa Spisak and Patrick Ward (Assistant Directors), Pamela 

Vines, Jessica Wintfeld, James Geibel, David Hooper, Delwen Jones, 

Maureen Luna-Long, Shelby Oakley, Susan Offutt, Steve Ruszczyk, 

Melvin Thomas, and Frank Todisco.

GAO Contact and 

Staff 

Acknowledgments

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