U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

74–724PDF 2012

AN EXAMINATION OF FUTURE COMMERCIAL 

LAUNCH MARKETS AND FAA’S 

LAUNCH INDEMNIFICATION PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SPACE AND AERONAUTICS 

COMMITTEE ON SCIENCE, SPACE, AND 

TECHNOLOGY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

WEDNESDAY, JUNE 6, 2012 

Serial No. 112–87 

Printed for the use of the Committee on Science, Space, and Technology 

( 

Available via the World Wide Web: http://science.house.gov 
(II) 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

HON. RALPH M. HALL, Texas, Chair 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

DANA ROHRABACHER, California 

ROSCOE G. BARTLETT, Maryland 

FRANK D. LUCAS, Oklahoma 

JUDY BIGGERT, Illinois 

W. TODD AKIN, Missouri 

RANDY NEUGEBAUER, Texas 

MICHAEL T. MCCAUL, Texas 

PAUL C. BROUN, Georgia 

SANDY ADAMS, Florida 

BENJAMIN QUAYLE, Arizona 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

E. SCOTT RIGELL, Virginia 

STEVEN M. PALAZZO, Mississippi 

MO BROOKS, Alabama 

ANDY HARRIS, Maryland 

RANDY HULTGREN, Illinois 

CHIP CRAVAACK, Minnesota 

LARRY BUCSHON, Indiana 

DAN BENISHEK, Michigan 

VACANCY 

EDDIE BERNICE JOHNSON, Texas 

JERRY F. COSTELLO, Illinois 

LYNN C. WOOLSEY, California 

ZOE LOFGREN, California 

BRAD MILLER, North Carolina 

DANIEL LIPINSKI, Illinois 

DONNA F. EDWARDS, Maryland 

BEN R. LUJA ́ N, New Mexico 

PAUL D. TONKO, New York 

JERRY MCNERNEY, California 

TERRI A. SEWELL, Alabama 

FREDERICA S. WILSON, Florida 

HANSEN CLARKE, Michigan 

SUZANNE BONAMICI, Oregon 

VACANCY 

VACANCY 

VACANCY 

SUBCOMMITTEE ON SPACE AND AERONAUTICS

HON. STEVEN M. PALAZZO, Mississippi, Chair 

F. JAMES SENSENBRENNER JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

DANA ROHRABACHER, California 

FRANK D. LUCAS, Oklahoma 

W. TODD AKIN, Missouri 

MICHAEL T. MCCAUL, Texas 

SANDY ADAMS, Florida 

E. SCOTT RIGELL, Virginia 

MO BROOKS, Alabama 

RALPH M. HALL, Texas 

JERRY F. COSTELLO, Illinois 

TERRI A. SEWELL, Alabama 

DONNA F. EDWARDS, Maryland 

FREDERICA S. WILSON, Florida 

HANSEN CLARKE, Michigan 

VACANCY 

VACANCY 

EDDIE BERNICE JOHNSON, Texas 
(III) 

C O N T E N T S 

Wednesday, June 6, 2012 

Page 

Witness List ............................................................................................................. 2 

Hearing Charter ...................................................................................................... 3 

Opening Statements 

Statement by Representative Steven M. Palazzo, Chair, Subcommittee on 

Space and Aeronautics, Committee on Science, Space, and Technology, U.S. 

House of Representatives .................................................................................... 10 

Written Statement ............................................................................................ 11 

Statement by Representative Jerry F. Costello, Ranking Minority Member, 

Subcommittee on Space and Aeronautics, Committee on Science, Space, 

and Technology, U.S. House of Representatives ............................................... 12 

Written Statement ............................................................................................ 13 

Witnesses: 

Dr. George Nield, Associate Administrator for the Office of Commercial Space 

Transportation, FAA 

Oral Statement ................................................................................................. 14 

Written Statement ............................................................................................ 16 

Ms. Alicia Cackley, Director of Financial Markets and Community Investment 

Team, Government Accountability Office 

Oral Statement ................................................................................................. 22 

Written Statement ............................................................................................ 24 

Mr. Frank Slazer, Vice President, Space Systems, Aerospace Industries Association 

Oral Statement ................................................................................................. 57 

Written Statement ............................................................................................ 60 

Ms. Alison Alfers, Vice President, Defense and Intellignece, DigitalGlobe Inc. 

Oral Statement ................................................................................................. 69 

Written Statement ............................................................................................ 71 

Discussion 74 

Appendix 1: Answers to Post-Hearing Questions 

Dr. George Nield, Associate Administrator for the Office of Commercial Space 

Transportation, FAA ............................................................................................ 90 

Ms. Alicia Cackley, Director of Financial Markets and Community Investment 

Team, Government Accountability Office .......................................................... 99 

Mr. Frank Slazer, Vice President, Space Systems, Aerospace Industries Association .................................................................................................................... 104

Ms. Alison Alfers, Vice President, Defense and Intellignece, DigitalGlobe Inc. . 107 

(1) 

AN EXAMINATION OF FUTURE COMMERCIAL 

LAUNCH MARKETS AND FAA’S 

LAUNCH INDEMNIFICATION PROGRAM 

WEDNESDAY, JUNE 6, 2012 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON SPACE AND AERONAUTICS, COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:04 a.m., in Room 

2318 of the Rayburn House Office Building, Hon. Steven Palazzo 

[Chairman of the Subcommittee] presiding. 
2 

RALPH M, HALL, TEXAS 

CHAIRMAN 

U,S, HOUSE OF REPRESENTATIVES 

EDDIE BERNICE JOHNSON, TEXAS 

RANKING MEMBER 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

2321 RAYBURN HOUSE OFFICE BUILDING 

WASHINGTON, DC 20515-6301 

(202) 225-6371 

www.science.house.gov 

An Examination of Future Commercial Launch Markets & FAA's Launch 

Indemnification Program 

Wednesday, June 6, 2012 

10:00 a.m. to 12:00 p.m. 

2318 Raybum House Office Building 

Witnesses 

• Dr. George Nield, Associate Administrator for the Office of Commercial Space 

Transportation, FAA; 

• • Ms. Alicia Cackley, Director of Financial Markets and Community Investment Team, 

Government Accountability Office; 

• • Mr. Frank Slazer, Vice President, Space Systems, Aerospace Industries Association; 

• • Ms. Alison Alfers, Vice President, Defense and Intelligence, DigitalGlobe Inc. 
3 

SUBCOMMITTEE ON SPACE AND AERONAUTICS 

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY 

U.S. HOUSE OF REPRESENTATIVES 

An Examination of Future Commercial Launch Markets & FAA's Launch 

Indemnification Program 

Wednesday, June 6, 2012 

10:00 a.m. - 12:00 p.m. 

2318 Rayburn House Office Building 

The FAA's Office of Commercial Space Transportation (AST) manages a federally-sponsored 

liability risk-sharing regime (commonly referred to as "indemnification") for third party loss 

(injury or property damage to the uninvolved public) during launch and reentry of a licensed 

commercial launch system. The current authorization for indemnification expires December 31, 

2012. The hearing will review FAA's management of the program and discuss future 

commercial launch markets. 

Witnesses 

• Dr. George Nield, Associate Administrator for the Office of Commercial Space 

Transportation, FAA; 

• Ms. Alicia Cackley, Director of Financial Markets and Community Investment Team, 

Government Accountability Office; 

• Mr. Frank Slazer, Vice President, Space Systems, Aerospace Industries Association; 

• Ms. Alison Alfers, Vice President, Defense and Intelligence, DigitalGiobe Inc. 

Commercial Space Launch and Reentry "Indemnification" Summary 

• All commercial launches licensed by the FAA are required to purchase third party liability 

insurance up to a Maximum Probable Loss (MPL) value calculated by the FAA. 

• U.S. government indemnification only covers a portion of third party liability claims in the 

event of a catastrophic loss during launch or reentry activity. 

• No federal payments, which are subject to Congressional appropriations, have ever been 

required. 

• Indemnification does not cover spaceflight participants, crew or payloads. 

• Similar to the launch indemnification regimes of other space-faring nations. 
4 

Background 

On May 22, Space Exploration Technology Inc. (SpaceX) launched the first commercial space 

mission to the International Space Station (ISS). While the mission is notable for the destination, 

the first commercial space launch took place in 1989 when Space Services Inc. launched the 

CONSORT-I satellite from the White Sands Missile Range in New Mexico on a Starfire 

suborbital rocket. Later that year, the McDonnell Douglas Space Systems Company conducted 

the tirst commercial orbital mission when it launched a Delta II rocket from the Cape Canaveral 

Air Force Base carrying the British Satellite Broadcasting-R1 (BSB-RI), a British television 

direct broadcasting satellite known as Marcopolo I. 

The commercialization of space transportation began in the 1980s. At that time, President 

Ronald Reagan designated the Department of Transportation (DOT) as the lead agency to 

regulate the emerging commercial space transportation sector. President Reagan highlighted the 

commercialization of space transportation in the 1984 State of the Union address; 

The Department o[Transportation will help an expendable launch services industry to 

get of/the ground. We'll soon implement a number o[executive initiatives, develop 

proposals to ease regulatory constraints, and, with NASA's help, promote private sector 

investment in space. / 

Later that year, Congress passed the Commercial Space Launch Act (P.L. 98-575) which 

directed the DOT to establish the insurance requirements that a commercial entity would need to 

protect against risk to the public (uninvolved third parties) and U.S. government property. With 

passage of the law, the DOT began working on the appropriate structure for a liability insurance 

regime for this new industry. 

During this time space launch was principally a government-sponsored activity. For instance, 

NASA would usc indemnification authorities pertaining to national defense missions under 

Public Law 85-804 for the Space Shuttle program. However, prior to the Space Shuttle 

Challenger accident in 1986, the Space Shuttle was used on occasion to place commercial 

satellites into orbit (after the loss of the Challenger, U.S. policy directed NASA to transport 

almost exclusively government payloads on the Space Shuttle). This commercial arrangement 

also incorporated a risk-sharing scheme described below. 

NASA required shuttle payload customers to obtain the maximum liability insurance 

available at a reasonable premium, and NASA provided indemnification/or any amount 

in excess a/that coverage. Typically, $500 million was reqUired/or a single payload. and 

1 President Ronald Reagan. State of the Union Address, January 25, 1984 
5 

mulliple payload customers could combine their contributions to reach $750 million in 

coverage2 

Launch providers and the government had established liability policies during the era of serving 

principally government customers and a similar arrangement was needed to manage catastrophic 

risk with the introduction of commercial launch services. In the 1980s, the regulation of the 

commercial space launch industry was beginning to take shape and both industry and 

government officials proposed more definitive risk-sharing regimes. 

Third-Party Liability Risk-Sharing Regime 

In 1988, Congress passed the Commercial Space Launch Act Amendments (P.L. 100-657) which 

established the current insurance requirements and tiered liability risk-sharing regime for FAAlicensed commercial space launches. The liability and insurance regime was originally modeled 

on the Price-Anderson Act that governs liability risk-sharing under the nuclear power industry. 

The indemnification regime is comprised of a three tiered risk-sharing arrangement wherein both 

the U.S. government and the private sector would cover third party claims. However, the FAA 

calculates that the chance ofloss exceeding the required insurance and thus resulting in potential 

United States government liability is lower than 1 in 10 million.3 

Tier 1: Maximum Probable Loss (MPL)-Based Insurance 

The commercial space launch provider is responsible for purchasing third party liability 

insurance based on a Maximum Probable Loss (MPL) value calculated by the FAA. 

The insurance covers third parties, including government personnel, for injury, loss, or 

damage, up 10 a statutory ceiling of $500 million or the maximum available on the world 

market al reasonable cost. Insurance against damage to us. government property is 

also required, with a statutory limit of$JOO million or the maximum available on Ihe 

world markel at reasonable cost. 4 

Tier 2: Payments in excess of the MPL 

In what is commonly refelTed to as "indemnification," should any successful third-party claim be 

in excess of the MPL-based insurance requirement, then the U.S. government is authorized to 

pay up to an additional $1.5 billion (adjusted for post-1988 int1ation - approximately $2.7 billion 

today). The payment is not automatic and subject to Congressional appropriations. 

2 Study of the Liability Risk¥Sharing Regime in the United States for Commercial Space Transportation, August 2006 

3 F AAI AST bricling to staff. May 14. 2012 

4 Study of the Liability Risk~Sharing Regime in the United States for Commercial Space Transportation, August 2006 
6 

Such claims must be presented to the Congress by the President, upon the 

recommendation of the Secretary of Transportation, and the Congress must appropriate 

funds to pay the claim. For damage to government property, the US. government waives 

claims for property damage above the required insurance. 5 

Tier 3: Payments above MPL-Based Insurance and Indemnification 

The commercial space launch provider (or legally liable party) is responsible for any claims in 

excess of the first two tiers of the regime. 

Rationale 

The rationale for the original establishment of this regime was partly due to the immature 

insurance market for the nascent commercial launch industry. As a result, the provision was set 

to expire after five years in what is commonly called a "sunset provision." Congress and the 

administration were to reevaluate the need for this shared-risk approach once the launch industry 

and insurance markets had time to develop and mature. 

However, U.S. industry views the regime as a key element for U.S. commercial competitiveness 

against foreign launch providers. According to the Aerospace Industry Association (AlA) issue 

paper titled, Renew Us. Commercial Space Launch Competitiveness, U.S. launch providers must 

compete with international providers that all benefit from some form of government 

indemnification. The AlA paper states, "in a competitive market with narrow returns, the loss of 

the risk management regime [indemnification.l·would cause Us. companies to reconsider the 

risks and benefits of staying in the commercial launch business, suspend activity, and even exit 

the market. " 

The Commercial Space Launch Amendments Act of 2004 (P.L. 108-492) directed the FAA to 

conduct a study of the U.S. government's risk sharing of third-party liability for commercial 

space launch providers. The study was completed in 2006 and concluded that the availability of 

liability insurance on the global market to cover Tier 1 requirements could disappear in the event 

of single catastrophic loss anywhere in the world. The 2006 study states: 

In slich a circumstance, Tier II [indemnificationl would become an essential backup 10 

keep the U.S. launch industry alive until the insurance market recovers or other means 

arefi!Und to address liability risk-sharing. 

Since passage in 1988, the provision for the liability risk-sharing regime6 has been extended by 

Congress in 1999,2000,2004 and 2009. The extensions were contained in the 1999 Department 

5 Study of the Liability RiskwSharing Regime in the United States for Commercia! Space Transportation. August 2006 

6 51 USC Sec. 50915 Paying claims exceeding liability insurance and financial responsibility requirements 
7 

of Veterans Affairs and Housing and Urban Development and Independent Agencies 

Appropriations Act, the 2000 Commercial Space Transportation Competitiveness Act, the 2004 

Commercial Space Launch Amendments Act and the 2009 Commercial Space Transportation 

Liability Regime Act. 

Third-Party Liability and U.S. Treaty Obligations 

While the third-party liability risk-sharing regime in the United States provides a level playing 

field for U.S. companies to compete in the international market it does not limit the U.S. 

government's international liability responsibilities that are prescribed in the Outer Space Treaty 

of 19677 and the Liability Convention of 19748 The Outer Space Treaty states that each country 

conducting launches is internationally liable for damages within another country should there be 

an accident. The Liability Convention also assigns liability responsibility and payment of any 

compensation for losses to the "launching State." Should a commercial space launch from the 

United States result in damages within another country that exceeds the MPL-based insurance 

requirements, the U.S. government would be required to settle the claim whether indemnification 

were in place or not. 

Commercial Space Launch Markets 

The 2012 FAA forecast for commercial space launches in the U.S. shows a considerable increase 

in the amount of activity in the near future. As noted earlier, SpaceX has already conducted a 

successful commercial FAA-licensed launch and reentry mission to the ISS. Additionally, the 

Orbital Sciences Corporation is preparing its Antares rocket for two commercial launches this 

year, first a test flight and then a demonstration t1ight to the ISS. Under NASA's Commercial 

Resupply Services (CRS) contract, the two companies are currently scheduled to conduct twenty 

cargo launch missions to the ISS through 2016. As the ISS is to continue operations until at least 

2020, NASA's CRS contract may be extended or re-competed before the current contract expires 

in2016. It is anticipated that the cargo transportation demands for ISS could reach as many as 

twenty additional commercial launches between 2017 and 2020. 

NASA's Commercial Crew Program is pursuing the development of commercial launch systems 

with the goal of establishing one or more companies to provide transportation services to and 

from the ISS for NASA astronauts. NASA anticipates purchasing crew transportation services as 

early as 2017. Commercial crew services could add as many as two additional commercial 

launches to the ISS per year in addition to the cargo missions. According to an FAA forecast, 

the combined commercial cargo and crew missions to the ISS could number up to fifty-six 

launches between 2012 and 2020. 

7 Treaty on Principles Governing the Activities of States in the Exploration and US\! of Outer Space, including the Moon and 

other Celestial Bodies (Outer Space Treaty, 1967) 

1\ Convention on International Liability for Damages Caused by Space Objects in Outer Space (Liability Convention. 1974) 
8 

figure 20:, forecast of COTS, CR.S, and mmmemJ.! crew miHions 

From 2012 to 2021, the FAA's forecast predicts nearly 291 commercially procured launches in 

the global market in support of telecommunications, satellite imagery (remote sensing), cargo 

and crew transportation missions to the ISS, and science payloads. U.S. launch providers will 

need to remain competitive to win a significant portion of the future launch contracts over 

foreign competitors. 

An emerging market for suborbital launch providers (space vehicles that launch into space but do 

not orbit the Earth) is also predicted to rapidly increase the number of commercial launches over 

the next decade. In the past, suborbital launches have primarily been in support of missile testing 

or scientific research conducted by the U.S. government using sounding rockets. The recent 

development of new commercial suborbital reusable launch vehicles (RL V s) may lead to a 

significant increase in commercially licensed launches. According to the FAA, suborbital RL V 

companies are anticipating launch demand for such areas as basic and applied research; 

aerospace technology test and demonstration; remote sensing; education; media and public 

relations; commercial human spaceflight; and point-to-point transportation. II 

9 FAA Commercial Space Transportation Forecasts, May 2012 

10 r AA Commercial Space Transportation Forecasts. May 2012 

11 The Reusable Suborbital lndustry: A Renaissance in the Making, October 2011 
9 

Overarching Ouestions 

• What benefit does the government reap from taking on a portion of launch risks through 

the current indemnification regime, and does the benefit outweigh the risks? 

• Should the indemnification program be continued, and if so, what commercial markets 

should it serve? In addition to indemnifying traditional communications launches, how 

well suited is the risk-sharing regime to serve commercial cargo launches to ISS, 

commercial crew launches carrying astronauts to ISS, and space tourists on either orbital 

or sub-orbital launches? 

• Under the current risk-sharing regime, is the government's risk exposure properly 

calculated, and is it appropriately weighted relative to insurance purchased from private 

markets? 
10 

Chairman PALAZZO. The Subcommittee on Space and Aeronautics 

will come to order. Good morning, and welcome to today’s hearing 

entitled, ‘‘An Examination of Future Commercial Launch Markets 

and FAA’s Launch Indemnification Program.’’ In front of you are 

packets containing the written testimony, biographies, and truth in 

testimony disclosures for today’s witness panel. 

I recognize myself for five minutes for an opening statement. 

I would like to begin by thanking our witnesses for taking time 

from their busy schedules to appear before us this morning and 

share their wisdom about the role of the Federal Aviation Administration’s Launch Indemnification Program. I realize you and your 

staff devoted considerable time and effort preparing for this hearing, and I want you to know that your expertise will help inform 

this Committee and Congress during the coming months and years 

on this issue. 

The Federal Aviation Administration’s Launch Indemnification 

Program was created in the 1980s to provide a structured, risksharing regime to address third-party liability to protect the uninvolved public and property. As part of its commercial licensing 

process, FAA requires launch companies to purchase third-party liability coverage from the insurance market at a level calculated by 

the agency to be the maximum probable loss. 

As a consequence of these calculations, FAA’s decision sets the 

threshold at which federal coverage begins, up to a maximum limit 

of $2.7 billion. Since the program’s inception, over 200 commercial 

license launches have been flown without one federal dollar being 

paid out in damages. 

Today’s hearing will examine whether federal launch indemnification is still required and if so, if the program is properly 

structured to serve existing and future markets. FAA’s launch indemnification authority expires at the end of this calendar year, 

compelling Congress to consider the program’s merits and the role 

it plays in the international launch marketplace and the necessity 

to pass legislation extending the program’s authorization for future 

years. 

Notwithstanding the high reliability of today’s generation of 

launch vehicles, many industry experts advocate extending the Indemnification Program in part because of the inherent riskiness of 

launching payloads to orbit. Catastrophic launch failures are 

deemed to be a low probability event but understandably one that 

could result in extremely high damages. They also urge competitive, asserting that were the program to lapse, launch customers 

would shift their business to other space-faring nations offering 

some form of government-backed indemnification coverage. 

Over the last 10 to 12 years the number of commercial launches 

in the United States has significantly declined to the point that 

last year there was not one licensed commercial launch, primarily 

as a result of pricing competition. 

However, with the advent of NASA’s Commercial Cargo Program, commercial launches from U.S. spaceports are expected to 

dramatically rise. Through 2016, FAA estimates that SpaceX and 

Orbital will launch 20 cargo resupply missions to the International 

Space Station, with an equal or greater number of cargo flights to 

be completed between 2016, and 2020. 
11 

Commercial crew flights to ISS are also a distinct possibility 

later this decade, adding two additional flights per year once service is established. The same forecast predicts around 230 additional 

commercially procured launches in the global marketplace by 2020, 

in support of telecommunications, satellite imagery, and science 

payloads. Domestic launch service providers will need to remain 

competitive to win a portion of this market. 

It also bears mentioning that reentry events are also covered 

under indemnification, and while they have not been a regular feature of commercial launches to date, SpaceX’s Dragon capsule is 

changing the equation, having flown two successful reentries with 

at least a dozen expected through 2016, and perhaps many more 

in the years beyond. 

Commercial crew launches late this decade will also be a new 

form of commercial service, and while I anticipate those vehicles 

will have a very high reliability record, it bears asking the question, if launch vehicles carrying capsules with abort capabilities 

and associated failure detection systems changes the probability of 

launch aborts and whether this, in turn, will alter FAA’s maximum 

probable loss calculation in any appreciable way. 

Before closing, I want to digress for one minute to respond to an 

assertion made last week about SpaceX’s commercial orbital transportation services demonstration flight to the International Space 

Station. Speaking before an audience in New York, John Holdren, 

Director of the White House Office of Science and Technology Policy, said about the SpaceX flight: ‘‘This represents an entirely new 

model for the American space program, one initiated by this Administration and one that despite the handwringing of naysayers 

who said it would never work, now promises to change forever the 

nature of U.S. space exploration and human spaceflight.’’ 

Mr. Holdren’s statement is, at best, misleading. The Commercial 

Orbital Transportation Services Program was proposed by the Bush 

Administration in 2005, and authorized by Congress. The COTS 

contract that funded SpaceX mission was awarded in 2006. The 

Commercial Resupply Services contract won by SpaceX and Orbital 

was announced at the end of 2008. Let the record be clear. 

I look forward to today’s discussion, and I wish to, again, thank 

our witnesses for their presence. 

[The prepared statement of Mr. Palazzo follows:] 

PREPARED STATEMENT OF SUBCOMMITTEE CHAIRMAN STEVEN PALAZZO

I would like to begin by thanking our witnesses for taking time from their busy 

schedules to appear before us this morning and sharing their wisdom about the role 

of the Federal Aviation Administration’s launch imdemnification program. I realize 

you and your staff devoted considerable time and effort preparing for this hearing, 

and I want you to know that your expertise will help inform this Committee and 

Congress during the coming months and years on this issue. 

The Federal Aviation Administration’s launch imdemnification program was created in the 1980s to provide a structured risk-sharing regime to address third-party 

liability to protect the uninvolved public and property. As part of its commercial licensing process, FAA requires launch companies to purchase third-party liability 

coverage from the insurance market at a level calculated by the agency to be the 

maximum probable loss. As a consequence of these calculations, FAA’s decision sets 

the threshold at which federal coverage begins, up to a maximum limit of $2.7 billion. Since the program’s inception, over 200 commercial licensed launches have 

been flown without one federal dollar being paid out in damages. 
12 

Today’s hearing will examine whether federal launch indemnification is still required, and if so, if the program is properly structured to serve existing and future 

markets. FAA’s launch indemnification authority expires at the end of this calendar 

year, compelling Congress to consider the program’s merits and the role it plays in 

the international launch marketplace, and the necessity to pass legislation extending the program’s authorization for future years. 

Notwithstanding the high reliability of today’s generation of launch vehicles, 

many industry experts advocate extending the indemnification program, in part because of the inherent riskiness of launching payloads to orbit. Catastrophic launch 

failures are deemed to be a low-probability event, but understandably one that could 

result in extremely high damages. They also argue competitiveness, asserting that 

were the program to lapse, launch customers would shift their business to other 

space-faring nations offering some form of government-backed indemnification coverage. 

Over the last 10 to 12 years, the number of commercial launches in the United 

States has significantly declined to the point that last year there was not one licensed commercial launch, primarily as a result of pricing competition. However, 

with the advent of NASA’s commercial cargo program, commercial launches from 

U.S. spaceports are expected to dramatically rise. Through 2016, FAA estimates 

that SpaceX and Orbital will launch 20 cargo flights to be completed between 2016 

and 2020. Commercial crew flights to ISS are also a distinct possibility later this 

decade, adding two additional flights per year once service is established. The same 

forecast predicts around 230 additional commercially procured launches in the global marketplace by 2020 in support of telecommunications, satellite imagery, and 

science payloads. Domestic launch services providers will need to remain competitive to win a portion of this market. 

It also bears mentioning that reentry events are also covered under indemnification, and while they have not been a regular feature of commercial launches to date, 

SpaceX’s Dragon capsule is changing the equation, having flown two successful reentries, with at least a dozen expected through 2016, and perhaps many more in 

the years beyond. 

Commercial crew launches late this decade will also be a new form of commercial 

serivce, and while I anticipate those vehicles will have a very high reliability record, 

it bears asking the question if launch vehicles carrying capsules with abort capabilities and associated failure detection systems changes the probability of launch 

aborts, and whether this in turn will alter FAA’s maximum probable loss calculation 

in any appreciable way. 

I look forward to today’s discussion, and wish to again thank our witnesses for 

their presence. 

Chairman PALAZZO. I now recognize Mr. Costello for an opening 

statement. 

Mr. COSTELLO. Mr. Chairman, thank you, and Mr. Chairman, I 

thank you for calling this hearing today. In March we had a similar hearing to examine the FAA’s Office of Commercial Space 

Transportation Fiscal Year 2013 budget request. Also the Aviation 

Subcommittee of Transportation and Infrastructure, we have held 

a number of hearings concerning the future of NASA’s human 

spaceflight programs, which I have chaired and Mr. Petri has 

chaired as well. I agree that it is important to continue to continue 

to focus on this issue in our Subcommittee, given the fact that the 

public needs a clear understanding of the risk involved with commercial space transportation, and it will need to be convinced that 

those risks are being effectively managed. 

Mr. Chairman, I have additional comments, and I will place my 

statement in the record so that we can go forward and hear from 

the witnesses, so I look forward to hearing their testimony. 

I thank you. 

[The prepared statement of Mr. Costello follows:] 
13 

PREPARED STATEMENT OF RANKING MEMBER JERRY F. COSTELLO

Good morning and thank you, Mr. Chairman, for calling this important hearing 

on the FAA’s commercial space launch indemnification program. 

In March, we had a similiar hearing to examine the FAA’s Office of Commercial 

Space Transportation Fiscal Year 2013 budget request. Also, in 2011, I chaired a 

hearing in the Aviation Subcommittee of the House Transportation and Infrastructure Committee which discussed the future of NASA’s human spaceflight programs. 

I agree it is important to continue to focus on this issue in our Subcommittee, given 

the fact that the public needs a clear understanding of the risks involved with commercial space transportation, and it will need to be convinced those risks are being 

effectively managed. 

Therefore, I want to thank the Chairman for his leadership on this issue and I 

also want to welcome our witnesses. I look forward to your testimony. 

In 1988, Congress amended the Commercial Space Launch Act to establish a riskbased regime to address third-party losses associated with potential U.S. commercial space launch or reentry failures. 

Since then, the U.S. commerical space launch industry has grown and changed. 

Just last week, a private U.S. company, Space Exploration Technologies— 

SpaceX—successfully demonstrated the potential for commercial cargo resupply of 

the International Space Station. 

Another company, Orbital Sciences, plans to demonstrate the same transportation 

capability later this year. And in the coming years, suborbital spacecraft are anticipated to begin launching space tourists, followed potentially by commercial human 

space flights to low-Earth orbit. 

Given that the sunset provision is set to expire at the end of the calendar year, 

Congress must decide whether or not to extend the current regime and, if so, whether changes are needed to it. 

The provisions we are examining today were put into place more than two decades ago, and I think it is appropriate for us to review the impacts. 

To that end, I hope to hear from the witnesses whether the intended effects of 

the provisions are being realized; if the existing indemnificaiton regime is still appropriate given the maturity of the existing industry; the extent to which government indemnifications are needed to achieve optimal transparency and safety while 

not increasing taxpayer exposure to unnecessary risk. 

Chairman PALAZZO. Thank you, Mr. Costello, and if there are 

Members who wish to submit additional opening statements, your 

statements will be added to the record at this point. 

At this time I would like to introduce our panel of witnesses and 

then we will proceed to hear from each of them in order. Our first 

witness is Dr. George Nield, Associate Administrator for Commercial Space Transportation at the Federal Aviation Administration. 

He has over 30 years of aerospace experience with the Air Force, 

NASA, and in private industry. Dr. Nield came to FAA from the 

Orbital Sciences Corporation, where he served as senior scientist 

for the Advanced Programs Group. 

Our second witness is Ms. Alicia Cackley, Director of Financial 

Markets and Community Investment Team with the Government 

Accountability Office. Ms. Cackley has been with GAO since 1990, 

and is a member of their Senior Executive Service responsible for 

directing program evaluations and policy analysis studies related to 

consumer protection, insurance, housing, and finance issues. 

Our third witness is Mr. Frank Slazer, Vice President of Space 

Systems at the Aerospace Industries Association. Prior to taking 

his current position, Mr. Slazer worked in the aerospace industry 

for over 30 years with leading launch providers, including McDonnell Douglas, Boeing, United Launch Alliance, and Northrop Grumman. 

And our final witness is Ms. Alison Alfers, Vice President of Defense and Intelligence, DigitalGlobe. Ms. Alfers previously served 

for five years as a General Counsel, and prior to joint DigitalGlobe 
14 

she served in executive positions with other private-sector firms, 

including as Vice President and General Counsel for Space Imaging 

Incorporated. 

Welcome to you. As our witnesses should know, spoken testimony 

is limited to five minutes each. After all witnesses have spoken, 

Members of the Committee will have five minutes each to ask 

questions. 

I now recognize our first witness, Dr. George Nield, to present 

his testimony. 

STATEMENT OF DR. GEORGE NIELD, 

ASSOCIATE ADMINISTRATOR FOR THE OFFICE 

OF COMMERCIAL SPACE TRANSPORTATION, FAA 

Mr. NIELD. Chairman Palazzo, Ranking Member Costello, and 

distinguished Members of the Subcommittee, good morning, and 

thank you for inviting me to speak with you today. 

I would like to begin by offering the Administration’s continued 

support for extending the Commercial Space Launch Act indemnification provision for commercial launch and reentry operators 

for five years beyond its current statutory expiration date of December 31, 2012. This support is in line with the Commercial Space 

Transportation Advisory Committee finding that extension of indemnification past December of this year is critical to the viability 

of the commercial launch industry in the U.S. 

The Federal Aviation Administration’s Office of Commercial 

Space Transportation licenses and permits commercial launches 

and reentries. As part of its licensing and permitting mission, the 

FAA administers financial responsibility and risk-sharing requirements for commercial launch and reentry operators. 

Congress established the current system in 1988. It has maintained the regime’s functionality and effectiveness over the past 24 

years by enacting five extensions of the provision providing for conditional payment of excess claims subject to Congressional appropriation. 

The success of the existing regime is demonstrated by the fact 

that during this period there have been 207 licensed launches, all 

completed without any fatalities, serious injuries, or significant 

property damage to the general public and without the need for 

any liability payments by the government or the taxpayer. 

The current liability and risk-sharing regime consists of three 

tiers. Tier one includes the most probable risks which are taken on 

by the operator. The size of the first tier of risk is calculated by 

the FAA as the maximum probable loss, or MPL, that a launch or 

reentry could cause. The FAA’s regulations define MPL to mean 

the greatest dollar amount of loss for bodily injury or property 

damage that is reasonably expected to result from a licensed or a 

permitted activity. 

Under the Commercial Space Launch Act and FAA regulations, 

a launch operator must obtain insurance or otherwise demonstrate 

financial responsibility to cover the MPL. An operator’s responsibility for the risk of maximum probable loss is limited by statute 

to no more than $500 million for a potential third-party liability. 
15 

The second tier of risk consists of liability for losses exceeding 

the amount of insurance procured. The statute provides that Congress may appropriate up to $1.5 billion adjusted for inflation to 

cover successful third-party claims against participants in a launch 

or reentry. The statute specifically states that claims against space 

flight participants are excluded from this authority. 

The third and final tier of financial risk consists of liabilities for 

third-party claims above the $1.5 billion. These risks are the least 

likely and, again, are assumed by the launch or reentry operator. 

I believe that the current liability and risk-sharing regime is well 

suited to cover emerging activities such as commercial cargo and 

commercial crew, and both orbital and suborbital flights of reusable 

launch vehicles. Although the MPL methodology was specifically 

developed to accommodate unmanned, expendable launch vehicles, 

the methodology is still appropriate for suborbital or orbital flights 

involving human crew or space flight participants because the MPL 

is not an estimate of risk to crew or space flight participants, but 

rather to third parties, including members of the public and nonflying United States Government employees. Space flight participants and crew are not third parties. 

The benefits of indemnification are many, both to industry and 

the United States government. As Congress itself recognized by 

statute, the development of the commercial space transportation industry enables the United States to retain its competitive position 

internationally, contributing to the national interest and economic 

well-being of the United States. 

Extension of the indemnification provision would continue to enable industry to attract and maintain a customer base in the face 

of international competitors who offer more certain indemnification. 

With the help and leadership of Congress, commercial space 

transportation will continue without the risk of significant financial 

setback, and the private space industry in the United States will 

continue to grow with new jobs, new technologies, and new innovations. 

Again, I am grateful for this opportunity to speak before you 

today, and I am happy to answer any questions you may have. 

[The prepared statement of Mr. Nield follows:] 
16 

STATEMENT OF DR. GEORGE C. NIELD, ASSOCIATE ADMINISTRATOR FOR 

COMMERCIAL SPACE TRANSPORTATION OF THE FEDERAL AVIATION 

ADMINISTRATION, BEFORE THE HOUSE COMMITTEE ON SCIENCE, 

SUBCOMMITTEE ON SPACE AND AERONAUTICS, ON FINANCIAL RESPONSIBILITY 

AND RISK-SHARING FOR COMMERCIAL SPACE TRANSPORTATION, 

JUNE 6, 2012. 

Chairman Palazzo, Ranking Member Costello, and Distinguished Members of the 

Subcommittee: 

Good morning. Thank you for inviting me to speak with you today. 

I would like to begin by offering the Administration's support for extending the Commercial 

Space Launch Act, as amended, (CLSA) "indemnification" provision, 51 U.S.c. § 50915, for 

commercial launch and reentry operators for five years beyond its current statutory expiration 

date of December 31,2012. This support is in line with the Commercial Space Transportation 

Advisory Committee (COMSTAC) finding that extension of indemnification past December of 

this year is "critical to the viability of the commercial launch industry in the US." COMSTAC 

issued a recommendation just four weeks ago reiterating its support. 

The Federal Aviation Administration 's (FAA) Office of Commercial Space Transportation 

licenses and permits commercial launches and reentries. As part of its licensing and permitting 

mission, the FAA administers financial responsibility and risk-sharing requirements for 

commercial launch and reentry operators. In doing so, the FAA calculates the required amount 

of financial responsibility to be satisfied by a licensee based on the maximum probable loss of 

the license applicant's proposed launch or reentry. 

The financial responsibility and risk-sharing regime for launch activities became law in 1988 as 

part of the CSLA. The regime is a testament to continuous bipartisan efforts recognizing the 

need for developing a strong commercial launch industry to serve the United States Government 

and commercial interests. In 1998, Congress extended the regime to apply to reentry. Congress 

has maintained the regime's functionality and effectiveness over the past twenty-four years by 

enacting five extensions of the provision providing for the conditional payment of excess claims, 

subject to Congressional appropriation. 

The Importance of Extending Indemnification 

Should the indemnification provision expire, all other portions of the financial responsibility and 

risk-sharing framework would remain in force. Accordingly, the FAA would continue to be 

charged with licensing launches and reentries subject to minimum financial requirements. I urge 

the Committee members to assess the impacts on what would remain of the financial 

responsibility regime were this key element to be allowed to expire. The remaining statutory 

requirements would only provide license applicants with an amount of financial responsibility 

that represents the maximum probable loss without regard to maximum possible loss. 
17 

Demand for insurance to address maximum possible loss would lead to higher insurance costs. 

Insurance demand decreases capacity and raises premiums. Companies with fewer resources 

would struggle to manage risk, and investors would be discouraged from providing capital to 

companies with catastrophic risk exposure, further restricting access to capital and suppressing 

growth. A stable regulatory environment, including predictable, risk-based financial 

responsibility requirements and certainty in allocating risk, is critical to securing investor 

confidence and willingness to place capital at risk. Investors in new technology must regularly 

face asset-based risk, namely, the risk that a vehicle may be destroyed during launch because of 

mission failure or the requirements of public safety. In such an environment, investment capital 

is better directed to technology development than to managing risk arising out of liability 

exposure. Although the risk of facing catastrophic liability is strikingly low, it nonetheless 

exists. This is a regime which has never required any federal expenditure to cover losses. Under 

the FAA's calculations, the likelihood of any expenditures being required remains extremely 

low. Unless indemnification continues, the commercial industry must be prepared to absorb the 

financial risk of a catastrophic event, whether or not adequate insurance is available at affordable 

rates. 

The current financial responsibility and risk-sharing framework was created with Congress 

recognizing the emergence of foreign launch services made competitive through government 

subsidies and preferential foreign national laws. Foreign launch service providers continue today 

to receive preferential treatment including government indemnification. The continuously 

emerging United States commercial launch industry requires a stable risk-sharing program with 

government indemnification in order to plan future operations and encourage investment. This 

will provide an environment favorable to industry growth amidst highly competitive foreign 

launch service providers, including those with access to indemnification. 

Indemnification not only impacts the launch service provider, but also the customer that otten 

makes decisions regarding launches several years out. Should uncertainty exist as to a 

customers' potential exposure to all possible risk as a participant in the launch, there is extra 

benefit for a customer to rely on a foreign provider that assures protection. A five year extension 

would contribute to a stable and predictable domestic market environment. 

Fostering growth will produce public benefit in the form of national security, technological 

capacity, and national pride by enabling domestic access to space for government and 

commercial users and contributing to United States aerospace preeminence. These concepts 

were recognized by Congress when it enacted the current regime. More specifically, the 

continuation of indemnification benefits the public at large with protections against the most 

probable risk of liability. 

Risk Management for FAA Authorized Launch and Reentry Under Current Law 

In a nutshell, the utility of the regime arises out of its comprehensive inter-locking design that 

effectively assigns and balances the management of financial risk. This risk arises, in part, out of 

the Federal Government's potential liability for damages under international treaty. 

Additionally, potential catastrophic risk to the domestic commercial launch industry includes 

liability for third party loss exceeding that for which the industry can reasonably obtain 

2 
18 

insurance. The regime is also effective in managing sources of tangential risk, including the risk 

of foreign competition to the private domestic industry and the financial risk of third parties. 

By design, the financial responsibility and risk-sharing regime consists of three inter-locking risk 

apportionment mechanisms. In the first, the FAA requires an operator of a launch or reentry 

vehicle to purchase insurance or otherwise demonstrate financial responsibility covering the 

maximum probable losses that could be incurred by third parties or the United States 

Government (for property loss) as a result of its launch or reentry. The second consists of two 

parts: the Government's agreement not to hold launch participants liable for damages to its 

property in an amount exceeding the maximum probable loss based insurance requirement, and, 

more importantly for purposes of this discussion, the statutory process for the payment of excess 

claims, subject to Congressional appropriation. This is popularly referred to as 

"indemnification." The third is the requirement that all launch and reentry participants agree not 

to hold each other and the United States Government responsible for damage, with some 

exceptions, each may experience arising out of launch or reentry activities. The second 

mechanism's response to third party losses, indemnification, is at issue now. 

When these three mechanisms are carried out together, as required by the CSLA before the FAA 

issues a license, the remaining risk of liability for damage is distributed into three tiers. Tier one 

includes the most probable risk, which is taken on by the operator. Tiers two and three include 

more remote risk. 

Calculating and Distributing Financial Risk for Damage to Third Parties 

Under the CSLA and FAA regulations I, a launch operator must obtain insurance or otherwise 

demonstrate financial responsibility to cover the maximum probable loss a launch or reentry 

could cause. The operator is responsible for damage to I) third parties-- which Congress has 

defined as persons not involved in the launch or reentry--and 2) damage to United States 

Government property. Operators must maintain minimum levels of financial responsibility by 

insurance or otherwise in an amount that would cover the maximum probable loss calculatcd by 

the FAA. This risk may be covered by private insurance and it is how almost all licensees and 

permittees have historically managed risk for the MPL. An operator's responsibility for the risk 

of maximum probable loss is limited to no more than $500 million for potential third party 

liability and no more than $100 million for damage to government property. The insurance an 

operator obtains must name all launch participants as additional insureds, including the 

Government and its contractors and subcontractors, further ensuring that the Government does 

not have liability exposure to the risk associated with maximum probable loss. 

The first tier of risk is calculated by the FAA as the maximum probable loss (MPL). The FAA's 

regulations define MPL to mean the greatest dollar amount of loss for bodily injury or property 

damage that is reasonably expected to result from a licensed or permitted activity. For United 

States Government property losses, the FAA has set a threshold of losses with a probability of 

occurrence of no less than one in one hundred thousand. For third party loss, the FAA has set a 

threshold of losses with a probability of occurrence of no less than one in ten million. This 

means that on average, there would be a chance that the Government might need to participate in 

1 See Financial Responsibility for Licensed and Permitted Activities, 14 C.P.R. pt. 440 (2012). 

3 
19 

assuming loss for one in every hundred thousand or one in every ten million launches. On the 

other hand, the operator would be responsible for covering the most likely risk of loss up to the 

maximum probable loss (i.e., that with a probability of occurrence up to the threshold) with 

insurance. 

In the early days of its program, when first employing its methodology, the FAA found that 

calculating the MPL using a threshold inclusive of risk with a higher probability of occurrence 

(e.g., a threshold of a one in one million chance as opposed to a one in ten million chance) 

resulted in determinations that insurance would not be necessary. Accordingly, the FAA relies 

on a threshold chance of occurrence of one in ten million for third party loss in order to prevent 

the United States Government from being exposed to the most likely risk, which includes 

potential liability for the first dollars of loss. 

The methodology for calculating MPL, whether for United States Government property damage 

or third party loss, is similar: the FAA assesses the debris field resulting from a series of assumed 

failures along a launch or reentry trajectory, models the probability of failure of the activity, and 

ascertains the presence of property or potential casualties. MPL is expressed in dollar terms and 

is determined on a case-by-case basis after analysis of information provided by the license 

applicant. MPL calculations rely on historical data, including that of prior experiences with 

uncrewed expendable launch vehicles. 

Calculating third party MPL requires the FAA to assess harm to persons and property not 

involved in the launch or reentry. The FAA accounts for the loss of property and life at the 

launch site as well as losses that could occur uprange and downrange due to debris. To calculate 

the MPL, the FAA uses a debris overlay method that estimates the inert debris field that would 

result in the event of breakup. The population density of areas exposed to launch or reentry 

hazards is factored into the calculation to produce a number of probable casualties due to debris 

impact. From the casualty amount, the FAA also calculates additional casualties from secondary 

effects including fires and collapsed buildings. The total direct and secondary casualties are then 

given a value of $3 million each. The total cost of casualty is then increased by fifty percent to 

account for third party property damage from debris. 

The second tier of risk consists of liability for losses exceeding the licensee's required financial 

responsibility for which it obtains insurance to cover maximum probable losses. For United 

States Government property, the Government waives claims for damages in excess of the 

insurance required to account for maximum probable loss under the reciprocal waivers of claims 

described below. Although liabilities have never exceeded financial responsibility, the statute 

provides that Congress may appropriate up to $1.5 billion (adjusted for inflation after January 1, 

1989) in excess of coverage assigned under MPL calculation to cover successful third party 

claims against participants in a launch or reentry. After inflation, the second tier is now capped 

at $2.7 billion. The statute specifically states that claims against space flight participants are 

excluded from this authority. Were there to be an accident where damages exceeded the 

maximum probable loss coverage required by the FAA, the FAA could seek an appropriation 

from Congress. 

4 
20 

The third and final tier of financial risk consists of liabilities for third party claims above the 

insured amount and $1.5 billion (as adjusted for inflation, now $2.7 billion). This risk is least 

likely to occur and is again assumed by the launch or reentry operator or other launch 

participants held liable. 

Reciprocal Waivers of Claims 

Finally, under the CSLA's risk-sharing requirements, launch and reentry participants, including a 

licensee or permittee, any customer, contractors and subcontractors are required to waive claims 

among themselves. Therefore, each party involved in a launch agrees not to bring claims against 

the other parties and is financially responsible for property damage or loss it sustains, or for 

death or injury to its own employees resulting from activities carried out under a license or 

permit. This eliminates the need for launch participants to obtain insurance covering these 

claims and, as a result, saves money and contributes to increased insurance capacity. Similarly, 

launch participants and the United States Government must waive claims against each other, 

their contractors and subcontractors. The Government only waives claims for damage to its 

property in excess of required insurance. Federal employees are not included in these waivers; 

the FAA considers them third parties, and losses to them are covered under third party financial 

responsibility. 

The Suitability ofthe Financial Responsibility and Risk-sharing Regime 

I believe that the current financial responsibility and risk-sharing regime is well suited to cover 

emerging activities such as commercial cargo and commercial crew, and orbital and sub-orbital 

flights. As mentioned previously, the MPL methodology is based on experience with unmanned 

expendable launch vehicles that included cargo, or what we call "payloads." When sub-orbital 

or orbital flight involves human crew or space flight participants, the methodology is not 

affected, because the MPL is not an estimate of risk to crew or space flight participants, but 

rather, to third parties, including members of the public and non-flying United States 

Government employees. Space flight participants and crew are not third parties. 

Whether a launch is manned or unmanned should not affect the MPL methodology, but rather the 

result ofMPL calculations. For example, if a vehicle were designed with higher reliability 

systems in order to protect persons on board, that superiority of design might also reduce the risk 

of mishaps that would affect third parties. 

In Conclusion 

The benefits of indemnification are many, both to industry and the United States Government. 

As Congress itself recognized by statute, the development of the commercial space 

transportation industry enables the United States to retain its competitive position internationally, 

contributing to the national interest and economic well-being of the United States. Extension of 

the indemnification provision would continue to enable industry to attract and maintain a 

customer base in the face of international competitors who offer more certain indemnification. 

5 
21 

The US commercial space industry continues to achieve new milestones. Recently, SpaceX 

became the first private company to berth with the International Space Station and safely return 

cargo back to Earth. Soon, SpaceX and Boeing may both be transporting participants to Bigelow 

Aerospace's first private space station. These unprecedented acts come with equally 

unprecedented risk and financial investment for a private company. In a situation where nothing 

is certain, and because everything is new, continuing to address manageable risk through the 

conditional payment of excess claims is wise public policy for this country. 

With the help and leadership of Congress, commercial space transportation will continue without 

untenable financial setback, and the private space industry in the United States will continue to 

grow with new jobs, new technologies, and new innovations. Again, I am grateful for this 

opportunity to speak before you today, and I am happy to answer any questions you may have. 

6 
22 

Chairman PALAZZO. I now recognize Ms. Alicia Cackley for five 

minutes to present her testimony. 

STATEMENT OF MS. ALICIA CACKLEY, 

DIRECTOR OF FINANCIAL MARKETS AND 

COMMUNITY INVESTMENT TEAM, 

GOVERNMENT ACCOUNTABILITY OFFICE 

Ms. CACKLEY. Chairman Palazzo, Ranking Member Costello, and 

Members of the Subcommittee, I am pleased to be here today to 

talk about the Federal Aviation Administration’s Launch Indemnification Program. 

As you are aware, a catastrophic commercial launch accident 

could have a significant impact on the uninvolved public or third 

parties in the form of personal injuries or property damage. In anticipation of such an event, a launch company must purchase a 

fixed amount of insurance for each launch per calculation by the 

FAA. According to the Commercial Space Launch Act amendments 

of 1988, or CSLA, the Federal Government is then potentially liable for claims above that amount, up to an additional $2.7 billion 

as adjusted for inflation and subject to Congressional appropriations. 

In my statement today, I will discuss first, the comparison of the 

United States Government’s indemnification policy to policies of 

other countries; second, the Federal Government’s potential costs 

for indemnification; third, the ability and willingness of the insurance market to provide additional coverage; and finally, the effects 

of ending indemnification on the competitiveness of U.S. launch 

companies. 

My statement is based on ongoing work that we are conducting 

at the request of this committee and the Senate Committee on 

Commerce, Science, and Transportation. We expect to issue a final 

report at a later date with recommendations as appropriate. 

Turning to the comparison of the U.S. government’s indemnification policy with those of other countries, our work to date indicates 

that the United States provides less indemnification for third-party 

losses than key competitors such as China, France, and Russia because those countries put no upper limit on the amount of their 

coverage, while in the U.S., coverage stops at about $2.7 billion per 

launch. 

In all these countries, however, including the U.S., these commitments to pay have never been tested because there has never been 

a third-party claim that exceeded the launch company’s insurance 

and thus reach the level of government indemnification. 

Looking at the potential cost to the Federal Government of indemnification for third-party losses it is currently unclear. Estimating probable losses from a rare catastrophic event is difficult, 

and insurance industry officials and risk modeling experts told us 

that FAA’s method of calculating maximum probable loss is outdated, has not been reviewed by outside experts, and may not be 

sound. An inaccurate calculation that understates the amount of 

insurance a launch provider must obtain would increase the likelihood of cost to the Federal Government, whereas a calculation that 
23 

overstates the amount of insurance would decrease the likelihood 

of federal costs. 

In addition, the planned growth in commercial launches, including manned launches, could increase the number of launches eligible for CSLA coverage and thus, potential costs for the Federal 

Government. 

FAA officials said that their method for calculating maximum 

probable loss was reasonable and conservative, but they agreed 

that a review could be beneficial and that involvement of outside 

experts might be helpful for improving their methodology. 

Overall, they said use of more sophisticated methodologies would 

have to be balanced with the additional cost to both FAA and the 

launch companies that would result from requiring and analyzing 

additional data. 

With respect to the ability and willingness of the insurance market to provide additional third-party liability coverage, industry 

representatives we contacted told us the market is generally willing and able to provide up to $500 million of coverage per launch. 

Because the amount of insurance FAA requires launch providers to 

obtain averages about $99 million per launch and coverage available through CSLA is about $2.7 billion above a launch’s maximum 

probable loss, insurers could provide some of the coverage currently 

available through CSLA, mainly the difference between the maximum probable loss and the $500 million the industry indicated 

was the most they might provide. 

However, industry representatives cautioned that the amount 

and price of insurance that they might provide could change quickly if a large loss were to occur. 

Finally, ending indemnification could potentially decrease U.S. 

competitiveness. This depends on many factors, so the actual effects are currently unknown. Launch companies and customers 

GAO contacted believed that ending federal indemnification could 

lead to higher costs for U.S. launch companies. If those costs are 

passed onto customers, U.S. launch companies could be even more 

expensive, and therefore, less competitive than their foreign counterparts. 

However, it is unclear exactly how much the cost of third-party 

liability insurance coverage might increase in the absence of federal coverage, and while launch customers said that price and vehicle reliability were key factors in their choice of a launch company, 

it is also not clear whether the increase in insurance costs alone 

would be sufficient reason for a launch customer to choose a foreign 

launch company over a U.S. company. 

Mr. Chairman, this concludes my prepared statement. I would be 

happy to respond to any questions you or Members of the Subcommittee may have. 

[The prepared statement of Ms. Cackley follows:] 
24 

GAO 

For Release on Delivery 

Expected at 10:00 a.In. EDT Wednesday, June 6, 2012 

GAO-12-767T 

United States Government Accountability Office 

Testimony 

Before the Subcommittee on Space, and 

Aeronautics, Committee on Science, 

Space, and Technology, House of 

Representatives 

COMMERCIAL SPACE 

LAUNCH ACT 

Preliminary Information on 

Issues to Consider for 

Reauthorization 

Statement of Alicia Puente Cackley, Director 

Financial Markets and Community Investment 

Gerald L. Dillingham, Ph.D., Director 

Physical Infrastructure 

GAO 

Accountability * Integrity * Reliability 
25 

GAO 

For Release on Delivery 

Expected at 10:00 a.In. EDT Wednesday, June 6, 2012 

GAO-12-767T 

United States Government Accountability Office 

Testimony 

Before the Subcommittee on Space, and 

Aeronautics, Committee on Science, 

Space, and Technology, House of 

Representatives 

COMMERCIAL SPACE 

LAUNCH ACT 

Preliminary Information on 

Issues to Consider for 

Reauthorization 

Statement of Alicia Puente Cackley, Director 

Financial Markets and Community Investment 

Gerald L. Dillingham, Ph.D., Director 

Physical Infrastructure 

GAO 

Accountability * Integrity * Reliability 
26 

! GAO §AccountitbUItY"lnlegrlty*Renablllty 

Highlights 

Highlights ofGAO-12~767T, a testimony 

before the Subcommittee on Space and 

Aeronautics, Committee on Science, Space 

and Technology, House of Representatives 

Why GAO Did This Study 

A catastrophic commercia! launch 

accident could result in injuries or 

property damage to the uninvolved 

public, or "third parties." In anticipation 

of such an event, a launch company 

must purchase a fixed amount of 

insurance for each launch, per 

calculation by FAA; the federal 

government is potentially liable for 

claims above that amount up to an 

additional $1.5 billion, adjusted for 

inflation, subject to congressional 

appropriations. As of 2012. the 

inflation-adjusted amount is about 

$2.7 billion. CSLA provides for this 

payment, called indemnification, The 

indemnification provision, unless 

reauthorized, expires this year. 

This testimony provides preliminary 

information on, among other things, 

(1) a comparison of the U.S. 

government's indemnification policy to 

policies of other countries, (2) the 

federal government's potential costs 

for indemnification, (3) the ability and 

willingness of the insurance market to 

provide additional coverage, and 

(4) the effects of ending 

indemnification on the competitiveness 

of U.S. launch companies. This 

testimony is based on ongoing work 

that includes a review of FAA data and 

documents and relevant literature and 

interviews with officials from FAA, 

National Aeronautics and Space 

Administration, insurers, brokers, 

launch companies, launch customers, 

risk modelers, and experts. 

What GAO Recommends 

GAO is making no recommendations in 

this statement but antiCipates doing so 

in its final report. 

View GAO·12~767T. For more infonnation, 

contact Alida Puente Cackley at (202) 512~ 

8678 or cack!eya@gao.golJorDr. Gerald L 

Di!!ingha,m at (202) 512·2834 or 

dillinghamg@gao.gov. 

pmjt.I·Nf 

COMMERCIAL SPACE LAUNCH ACT 

preliminary Information on Issues to Consider for 

Reauthorization 

What GAO Found 

GAO's work to date work indicates the United States provides less 

indemnification for third party losses than China, France, and Russia, according 

to studies. These countries put no limit on the amount of government 

indemnification coverage currently available through the Commercial Space 

Launch Act Amendments of 1988 (CSLA) which is about $2.7 billion per launch. 

These commitments to pay have never been tested because there has never 

been a third party claim that exceeded the launch company's insurance and thus 

reached the level of government indemnification. 

The potential cost to the federal government of indemnification for third party 

losses is currently unclear. This is because it depends in part on the method 

used by the Federal Aviation Administration (FAA) to calculate the amount of 

insurance that launch companies must purchase, which may not be sound. FAA 

has used the same method since 1988 and has not updated crucial components, 

such as the cost of a casualty. Estimating probable losses from a rare 

catastrophic event is difficult, and insurance industry officials and risk modeling 

experts said that FAA's method is outdated. FAA, however, has not had outside 

experts or risk modelers review its appropriateness. An inaccurate calculation 

that understates the amount of insurance a launch provider must obtain would 

increase the likelihood of costs to the federal government, whereas a calculation 

that overstates the amount of insurance would decrease the likelihood of federal 

costs. FAA officials said that their method was reasonable and conservative, but 

they agreed that a review could be beneficial and that involvement of outside 

experts might be helpful for improving their methodology. Overall, they said use 

of more sophisticated methodologies would have to be balanced with the 

additional costs to both FAA and the launch companies that would result from 

requiring and analyzing additional data. 

The insurance market is generally willing and able to provide up to $500 million 

per launch as coverage for third party liability, according to industry 

representatives GAO contacted. Because the amount of insurance FAA requires 

launch providers to obtain averages about $99 million per launch, and coverage 

available through CSLA is about $2.7 billion above that, insurers could provide 

some of the coverage currently available through CSLA. However, the amount 

and price of insurance that could be provided could change quickly if a large loss 

were to occur, according to insurance industry representatives. 

The actual effects on competition of eliminating CSLA indemnification are 

currently unknown. However, launch companies and customers GAO contacted 

believe that ending federal indemnification could lead to higher launch prices for 

U.S. launch companies, making them less competitive than foreign launch 

companies. Although the cost of third party liability insurance coverage for launch 

companies has been about 1 percent the dollar amount of coverage they 

purchased, how much this cost might increase in the absence of federal 

coverage is not clear. Launch customers said that price and vehicle reliability 

were key factors in their choice of a launch company. Launch companies 

reported that additional costs would be passed along to customers, but whether 

this increase alone would be sufficient reason for a launch customer to choose a 

foreign launch company over a U.S. company is also not clear. 

_____________ United States Government Accountability Office 
27 

Chairman Palazzo, Ranking Member Costello, and Members of the 

Subcommittee: 

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

indemnification as you consider the upcoming reauthorization of the 

federal coverage provided through the Commercial Space Launch Act 

Amendments of 1988 (CSLA),1 This legislation made the federal 

government responsible, subject to an appropriation provided by 

Congress, for a portion of third party liability claims that arise from a 

catastrophic launch-related incident that results in injury or damage to 

uninvolved people or property,2 The goal was to provide a competitive 

environment for the U,S, commercial space launch industry by providing, 

among other things, government indemnity while still minimizing the cost 

to taxpayers, As figure 1 shows, the number of U,S, commercial 

launches, which are licensed by the Federal Aviation Administration 

(FAA), has generally declined since its peak of 17 in 1998, 

1 Pub. L. No. 100-657. 

251 USC 50915. 

Page 1 GAO-12-767T 
28 

Figure 1: Annual Number of Commercial U.S. Space Launches, 1997 ~2011 

Number of commercIa! launches 

18 

14 

12 

10 

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

Year 

Source: GAO analysIS of FAA data, 

Although the number of U.S. commercial space launches has fallen in 

recent years, it is reasonable to expect an increase in the years ahead. 

The National Aeronautics and Space Administration (NASA) plans to 

begin procuring commercial cargo transportation services to the 

International Space Station (ISS) in 2012 and intends to procure 

commercial manned launches to carry its astronauts to the ISS beginning 

in 2017. 3 A number of companies are developing new launch vehicles 

that could provide these orbital services. Other companies are developing 

suborbital vehicles that could carry passengers for space tourism ftights. 

3AII commercial 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. NASA has procured 

transportation services to the ISS to begin later in 2012 through traditional 

contractual arrangements. For more information on Space Act agreements, 

please 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). 

Page 2 
29 

Background 

U.S. Indemnification 

Policy 

As you consider reauthorizing CSLA, our testimony today provides 

preliminary information on the following issues: (1) how the current U.S. 

commercial space launch indemnification policy compares to policies in 

other countries; (2) the federal government's potential costs under CSLA; 

(3) the extent to which the insurance market is able and willing to provide 

third party liability insurance at levels currently provided by CSLA; (4) the 

implications of commercial manned launches for the current federal 

indemnification policy, including the gaps, if any, that exist in that policy 

and the potential financial risks those gaps pose; and (5) what is known 

about the direct and indirect effects that ending indemnification would 

have on the competitiveness of U.S. commercial launch companies. 

This statement is based on ongoing work we are conducting at the 

request of this committee and the Senate Committee on Commerce, 

Science, and Transportation; we expect to issue a final report later this 

year with recommendations, as appropriate. We reviewed launch data 

from FAA and performed a literature search. We also reviewed 

documents from and conducted interviews with insurance brokers and 

underwriters who provide commercial launch companies with coverage 

for third party liability, experts in commercial space launch liability issues 

and risk management, representatives from launch companies and 

customers, and officials from FAA and NASA. Additional information on 

our methodology is provided in appendix I. 

We conducted this performance audit from November 2011 to June 2012 

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. 

The 1988 amendments to CSLA established the current U.S. policy to 

provide federal payment, subject to appropriation-known as 

indemnification-for a portion of claims by third parties for injury, damage, 

Page 3 
30 

or loss that result from a commercial launch-related incident. 4 All F AAlicensed commercial launches and landings by U.S. companies, whether 

unmanned or manned and from the United States or overseas, are 

covered by federal indemnification for third party damages that result from 

the launch or landing. 5 Parties involved in launches-for example, 

passengers and crew-are not eligible for indemnification coverage. 6 

U.S. indemnification policy has a three-tier approach for sharing liability 

between the government and the private sector to cover third party 

claims: 

The first tier of coverage is the responsibility of the launch company 

and is handled under an insurance policy purchased by the launch 

company. As part of FAA's process for issuing a license for a 

commercial launch or landing, the agency determines the amount of 

third party liability insurance a launch company is required to 

purchase so the launch company can compensate third parties for 

any claims for damages that occur as a result of activities carried out 

under the license. 7 FAA calculates the insurance amount to reflect the 

maximum probable loss that is likely to occur because of an accident 

that results in third party damages, including deaths and injuries on 

the ground and damage to property from spacecraft debris.8 9 FAA 

uses a statistical approach to estimate expected losses based on 

estimated probabilities that a catastrophic incident could occur and 

the estimated costs of a catastrophic incident given the details of the 

4 Pub. L. No. 100..657. 

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

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

reentry, or other operation relating to the vehicle that carries human beings. 51 USC 

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

crew, carried aboard a launch vehicle or reentry vehicle. 51 USC 50902(17}. 

751 USC 50914. 

851 USC 50914(c). 

9FM makes this determination for each space launch by reviewing the specific 

circumstances of the launch, including the planned launch vehicle, launch site, payload, 

flight path, and the potentia! casualties and fatalities that could result from varying types of 

launch fai!ures at different points along that path. FAA estimates the total cost of 

estimated casualties from a launch failure and uses this information as the basis for 

detennining property damage. 

Page 4 
31 

specific launch. This first tier of required insurance coverage is 

capped at a maximum of $500 million for third party damages. 10 

The second tier of coverage is provided by the U.S. government, and 

it covers any third party claims in excess of the specific first tier 

amount up to a limit of $1.5 billion adjusted for post-1988 inflation; in 

2012, the inflation-adjusted amount was approximately $2.7 billion. 11 

For the federal government to be liable for these claims, Congress 

would need to appropriate funds. This second tier of coverage will 

expire in December 2012 unless Congress reauthorizes it. 12 (The 

other two tiers have no expiration date.) 

The third tier of coverage is for third party claims in excess of the 

second tier-that is, the federal coverage of $1.5 billion above the first 

tier, adjusted for inflation. Like the first tier, this third tier is the 

responsibility of the launch company, which may seek insurance 

above the required first tier amount for this coverage. Unlike the first 

tier, no insurance is required under federal law. 

Another component of U.S. indemnification policy for commercial space 

launches is cross waivers. They provide that each party involved in a 

launch (such as the launch company, the spacecraft manufacturer, and 

the customer) agrees not to bring claims against the other parties and 

assumes financial responsibility for damage to its own property or loss or 

injury sustained by its own employees.13 Cross waivers also do not have 

an expiration date. 

According to FAA, no FAA-licensed commercial space launch since 1989 

has resulted in casualties or substantial property damage to third parties. 

In the event of a third party claim that exceeded the launch provider's 

first-tier coverage, FAA would be involved in any negotiations, according 

to FAA officials, and the Secretary of Transportation must approve any 

settlement. 14 

10 51 usc 50914(a)(3)(A)(i). 

11 51 usc 50915(a)(1). 

12 51 usc 50915(D. 

13 51 usc 50914(a)(4). 

14 51 usc 50915(b)(3). 

PageS 
32 

Global Commercial Space 

Launch Industry 

From 2002 through 2011, U.S. companies conducted approximately 17 

percent of commercial space launches worldwide, while Russia 

conducted 43 percent and France's launch company conducted 24 

percent. Figure 2 shows the trend in number of commercial space 

launches over the last 10 years. 

Figure 2: Number of Commercial Space Launches Worldwide, 2002·2011 

Over the past several years Russian and French launches have 

generated the most revenues, followed by U.S. launches. In 8 of the last 

10 years, U.S. commercial launch companies generated less revenue 

than launches in either Russia or France. U,S. companies generated no 

commercial launch revenue in 2011 because they conducted no 

launches. (See fig. 3.) 

Page 6 GAO·12-767T 
33 

Figure 3: Commercial Space Launch Revenues Worldwide, 2002~2011 

Commercia! revenue (in millions of dollars) 

2,500 

2,000 

1,500 

1,000 

500 

2002 2003 

Year 

La China 

La RUSSi8 

_MUltinational 

_France 

.Ul1IledStates 

SOil/fee: GAO analyslS of FAA data-, 

2004 2005 2006 2007 2008 

Note: India is not included in this figure due to its small amount of revenues. 

Page 1 

2009 2010 2011 

GAO-12-7S7T 
34 

The United States 

Provides Less 

Liability Coverage 

Than Foreign 

Competitors Due to a 

Cap on Government 

Indemnification 

Our work to date indicates that the United States provides less total third 

party liability coverage than China, France, or Russia-the primary 

countries that have. conducted commercial space launches in the last 5 

years-according to published reports. 15 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 has a two-tiered system with no limit on the amount of 

government indemnification. By comparison, the United States caps 

government indemnification at $1.5 billion adjusted for inflation beyond 

the first-tier insurance amount. 16 However, U.S. government coverage, in 

some cases, begins at a lower level than that of the other countries 

because U.S. coverage begins above the maximum probable loss, which 

averaged about $99 million for active FAA launch and reentry licenses as 

of January 2012 and ranged from about $23 rnillion to $267 million. The 

level at which government coverage begins for the other four countries 

ranged from $79 million to $300 million. 

China, France, and Russia have a first tier of insurance coverage that a 

commercial launch company must obtain, similar to the United States. 

The second tier of government indemnification varies for these countries: 

The Chinese government provides indemnification for third party 

claims over $100 million. 

The French government provides indemnification for third party claims 

over 60 million euros (about $75 million as of May 2012). 

The Russian government provides indemnification for third party 

claims over $80 million for the smaller Start launch vehicles and $300 

million for the larger Soyuz and Proton vehicles. 17 

For all these countries, their commitments to pay have never been tested. 

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

commercial space launch failure that reached second-tier coverage. 

151n addition, India conducted one commercial space launch during this period, but we 

found conflicting information on the Indian government's indemnification coverage, and 

therefore we are not including it in this discussion. 

16 51 USC 50915(a)(1 )(8). 

17The source for all the government amounts is Aerospace Corporation, Study of the 

Uabifity Risk-Sharing Regime in the United States for Commercial Space Transportation 

(EI Segundo, Calif.: August 2006), or FAA, Uability RiSk-Sharing Regime for US 

Commercial Space Transporlation: Study and Analysis (Washlngton, D.C.: April 2002). 

Page 8 GAO~12"767T 
35 

Potential Cost of 

Indemnification by 

the Federal 

Government Depends 

on a Variety of 

Factors 

Catastrophic Events and 

Congressional 

Appropriations 

The federal government's potential costs under CSLA depend on (1) the 

occurrence of a catastrophic launch failure with third party claims that 

exceed the first tier of coverage and (2) Congress appropriating funds to 

cover the government's liability under the second tier of coverage. FAA 

officials stated that no FAA-licensed commercial space launches have 

resulted in casualties or substantial property damage to third parties. As a 

result, FAA believes that it is highly unlikely that there will be any costs to 

the federal government under CSLA. In the event that a catastrophic 

failure did occur, FAA's maximum probable loss calculation is intended to 

estimate the maximum losses likely to occur from a commercial space 

launch and determine the amount of third party losses against which 

launch companies must protect. In calculating maximum probable loss, 

FAA aims to include estimates of losses from events having greater than 

a 1 in 10 million chance of occurring, meaning that losses are very 

unlikely to exceed launch companies' private insurance and become 

potential costs for the government under CSLA. 

Under CSLA, if a rare catastrophic event were to occur whose losses 

exceeded private insurance coverage, the government would be 

responsible for paying claims that exceeded FAA's maximum probable 

loss only if Congress provided appropriations for this purpose. Under 

CSLA, the federal government does not incur a legal liability unless an 

appropriation is made for this purpose." Accordingly, an obligation would 

not be recorded in the federal budget unless and until such an 

appropriation is made. While an obligation is not incurred or recorded for 

18CSlA requires the Secretary of Transportation to provide for the payment of specific 

types of successful third party claims to the extent provided in advance in an appropriation 

law or to the extent additional legislative authority is enacted providing for paying for 

claims in a compensation plan submitted to Congress by the President 51 U.S.C. § 50915 

(a)(l). 

Page 9 
36 

Maximum Probable Loss 

Soundness 

potential CSLA losses until an appropriation is provided, some insurance 

companies told us that they expect the government to pay losses that 

become eligible for coverage under CSLA. 

While it is very difficult to assess catastrophic failures that have low 

probabilities but potentially high losses, FAA's use of an appropriate 

process for determining the maximum probable loss is important because 

the maximum probable loss sets the point at which losses become 

potential costs to the government under CSLA. 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 companies that 

specialize in estimating damages from catastrophic events (modeling 

companies), 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 current cost of injury or death 

caused by commercial space launch failures. Having a reasonable 

casualty estimate can affect FAA's maximum probable loss 

calculation and could affect the potential cost to the government from 

third party claims. 

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. For example, if 

a property loss scenario involves the collapse of a building, that 

scenario would have a different casualty expectation than a scenario 

that did not involve such a collapse. 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 

Page 10 GAO~12·767T 
37 

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. '9 

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. 20 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 10ss.21 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, industry 

experts told us that a significant cost factor in catastrophe modeling is 

creating and maintaining a detailed database of exposed properties. One 

expert told us that in order for FAA to do such modeling, it would need to 

purchase a property exposure database, which could cost hundreds of 

thousands of dollars. Experts also disagreed on how feasible it would be 

to mathematically model the potential damages associated with space 

launches. One expert thought such modeling would not be credible 

because the necessary knowledge of the factors that can influence a 

space launch is not at the same level as the more developed research for 

modeling hurricanes, for example. Another expert thought that it would be 

19For more information on FAA's methodology, see J.D. Collins, C.P. Brinkman, and C.L. 

Carbon, ACTA !nc., and FAA, Determination of Maximum Probable Loss (20D7). 

20Reinsurance is essentially insurance for insurers-that is, companies buy coverage for 

all or a part of a policy's liablHty from other insurers in order to offset exposure. 

21The probability distribution of losses is typically presented in what is known as an 

exceedance probability curve, which shows the probabitity of losses exceeding various 

leve!s. 

Page 11 
38 

possible to develop credible space launch simulation models. Another 

expert stated that such models have not been developed to date because 

of the government-provided indemnity coverage; this expert believed that 

if such coverage were the responsibility of the private sector, the 

necessary models might be developed. 

FAA officials also said that they believe the maximum probable loss 

methodology is reasonable and produces conservative results for several 

reasons. First, FAA officials described a 2002 study on aviation casualty 

costs to support its use of a $3 million casualty figure for its calculation. 

Use of a casualty estimate that is based on 2002 data, however, still 

raises questions about whether this figure is outdated, which could result 

in underestimating the cost of casualties. Second, to support basing the 

potential cost of property damage on the potential cost of casualties, FAA 

officials said that they have conducted internal analyses using alternative 

methodologies-including some that assessed property values in the 

vicinity of launches-and compared them to their current methodology. In 

each case, officials said that the current rnethodology produced higher, or 

more conservative, maximum probable losses. We were unable to review 

or verify these analyses, however, because FAA officials said that these 

analyses were done informally and were not documented. 

FAA officials acknowledged that updating the $3 million casualty figure 

and conducting analyses of potential property damage (rather than using 

a casualty cost adjustment factor of 50 percent) might produce more 

precise estimates of maximum probable losses. However, they said that 

because the probabilities assigned to such losses are still rough 

estimates, whether taking these actions would increase the accuracy of 

their maximum probable loss calculations is uncertain. Overall, they said, 

use of more sophisticated methodologies would have to be balanced with 

the additional costs to both FAA and the launch companies that would 

result from requiring and analyzing additional data. For example, a new 

methodology might require either FAA or the launch company to gather 

current property information, and might necessitate that FAA construct a 

statistical model for analyzing potential losses. 

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. FAA's 2007 review of potential alternatives identified a 

number of criteria for a sound maximum probable loss methodology that 

Page 12 
39 

Cun"ent Private 

Market Capacity for 

Coverage Is Generally 

$500 Million per 

Launch, but a Large 

Loss Could Decrease 

Capacity 

Private Capacity 

could be useful in such a review. These included, among other things, 

that the process use a valid risk analysis, be logical and lead to a rational 

conclusion, and avoid being overly conservative or under conservative. A 

sound maximum probable loss calculation can be beneficial to both the 

government and launch companies because it can help ensure that the 

government is not exposed to greater costs than intended (such as might 

occur through an understated maximum probable loss) and help ensure 

that launch companies are not required to purchase more insurance 

coverage than necessary (such as might occur through an overstated 

maximum probable loss). 

Our preliminary work found that some insurers and brokers suggested 

that the maximum amount of private sector third party liability coverage 

the industry is currently willing to provide is generally around $500 million 

per launch. This amount, or capacity, is determined by the amount of their 

own capital that individual insurers are willing to risk by selling this type of 

coverage. According to some insurers and brokers with whom we spoke, 

commercial space launch third party liability coverage is a specialized 

market involving a relatively small number of insurers that each assume a 

portion of the risk for each launch. One broker said that no launch 

company thus far has pursued private sector insurance protection above 

$500 million. Two insurers said that there might be slightly more coverage 

available beyond $500 million, and one said that up to $1 billion per 

launch in liability coverage might be possible in the private insurance 

market. 

The cost to launch companies for purchasing third party liability 

insurance, according to some brokers and one insurer, is approximately 1 

percent or less of the total coverage amount. According to FAA data on 

commercial launches, the average maximum probable loss is about $99 

Page 13 GAO~12·767T 
40 

Changes to Market 

Capacity 

million. As a result, in the absence of CSLA indemnification, insurers 

could still provide some of the coverage currently available through the 

government under CSLA. For example, if the maximum probable loss for 

a launch is $100 million and the insurance industry is willing to offer up to 

$500 million in coverage, the private market could potentially provide 

$400 million in additional coverage. 

According to some insurers, brokers, and insurance experts with whom 

we spoke, there are a number of reasons why private sector insurers are 

generally unwilling to offer more third party liability coverage than $500 

million per launch. 

First, these brokers and insurers said that worldwide capacity for third 

party liability coverage is generally lirnited to $500 million per launch, 

which some considered a significant amount of coverage and a 

challenging amount to put together-particularly given that the 

number of insurers in the space launch market is relatively small. 

Second, according to these same officials, insurers are unwilling to 

expose their capital above certain arnounts for coverage that at least 

currently brings in small amounts of premium relative to the potential 

payouts for losses. For example, they said that losses from a 

catastrophic launch accident could exceed rnany years of third party 

liability policy premiums and jeopardize insurers' solvency. 

Third, according to some insurers and brokers with whom we'spoke, 

to have sufficient capital to pay for losses above $500 million per 

launch would require insurers to charge policy premiums that would 

likely be unaffordable for space launch companies. 

Our preliminary work also indicates that the current amount of private 

market capacity could change due to loss events and changing market 

conditions, according to some insurance industry participants. Some 

insurers and brokers said that a launch failure could affect the level and 

cost of coverage offered, and that a launch failure with significant losses 

could quickly raise insurance prices and reduce capacity, potentially 

below levels required by FAA's maximum probable loss calculation. 

However, one risk expert suggested that a space launch failure would 

likely cause liability insurance rates to rise and that this might encourage 

insurers and capital to enter the space launch market and cause liability 

insurance capacity to increase. According to FAA, insurers have paid no 

claims for U.S. commercial launches to date, but they have paid some 

relatively small third party claims for U.S. military and NASA launch 

failures. For example, according to an insurance broker, a U.S. Air Force 

launch failure in 2006 resulted in property damage of approximately $30 

Page 14 GAO-12-7S7T 
41 

Alternatives for 

Addressing Space Launch 

Risk 

million. According to NASA, the Space Shuttle Columbia accident in 2003 

resulted in property damage of approximately $12 million. Two brokers 

said that given the low number of launches and low probability of 

catastrophic events, total worldwide premiums for space liability coverage 

are approximately $25 million annually, amounts insurers believe are 

adequate to cover expected losses. However, if a large loss occurs, 

according to two insurers, they would likely increase their estimates of the 

potential losses associated with all launches. 

Under CSLA, launch companies must purchase coverage to meet FAA's 

maximum probable loss amount or purchase the maximum amount of 

coverage available in the world market at reasonable cost, as determined 

by FAA. 22 The potential cost to the government could increase if losses 

caused insurance prices to rise and insurance amounts available at 

reasonable cost to decrease. Some insurers and brokers also said that 

the amount of insurance the private market is willing to sell for third party 

liability coverage for space launches can also be affected by changes in 

other insurance markets. For example, large losses in aviation insurance 

or in reinsurance markets could decrease the amount of capital insurers 

would be willing to commit to launch events because losses in the other 

markets would decrease the total pools of capital available. 

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 

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

indemnification and we have examined different methods for addressing 

the risk of catastrophic losses associated with natural disasters and acts 

of terrorism. 23 These events, like space launch failures, have a low 

22 51 USC 50914(a)(3). 

23See FAA, Liability and Risk-Sharing Regime for US. Commercial Space Transporlation: 

Study and Analysis, and Aerospace Corporation, Study of the Liablfity 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, 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 GAO, Natural Disasters; Public Policy Options for Changing the Federal Role 

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

Page 15 GAO~12"767T 
42 

probability of occurrence but potentially high losses. Some methods 

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 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 Df Efforts to Securitize Natural 

Catastrophe and Terrorism Risk, GAO-03-1033 (Washington, D.C .. Sept. 24, 2003). Selfinsurance occurs when an entity assumes the fisk 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-08-105T (Washington, D.C .. Sept. 15,2008). 

Page 16 
43 

Forecasted Increase 

in Manned Launches 

and Landings Could 

Increase the Potential 

Costs for the Federal 

Government, and 

Current Coverage Has 

a Gap 

Issues and Implications 

Relating to Commercial 

Manned Launches 

Our preliminary work indicates the planned increase in manned 

commercial launches raises a number of issues that have implications for 

the federal government's indemnification policy for third party liability, 

according to insurance officials and experts with whom we spoke. NASA 

expects to begin procuring manned commercial launches to transport 

astronauts to the ISS in 2017. In addition, private companies are also 

developing space launch vehicles that could carry passengers for space 

tourism flights. 

First, the number of launches and landings covered by federal 

indemnification will increase with NASA's planned manned launches if 

they are determined to be FAA-licensed commercial launches. NASA 

expects to procure from private launch companies 2 manned launches 

per year to the ISS from 2017 to 2020. NASA and FAA have not yet 

determined if those launches will be covered under NASA's procurement 

policy or FAA's licensing regulations. 26 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 

<"NAS,\-cclntract"d launches for NASA's science missions are not currently covered by 

CSLA; requires its launch contractors to obtain insurance coverage for third 

party losses. amount of the insurance required by NASA is the maximum amount 

available in the commercial marketplace at reasonable cost, but does not exceed $500 

miUion for each 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 Commercia! Resupp!y Services to the ISS will be 

licensed by the FAA under CSLA, and wi!! be covered by CSLA indemnification. NASA 

has not yet determined jf its commercially procured manned launches to the ISS wI!! be 

FAA licensed. If they become FAA licensed, then third party claims for those launches 

would be covered by the CSLA indemnification policy. 

Page 17 GAO~12·767T 
44 

launches and landings is uncertain. Among the potential space tourism 

companies, Virgin Galactic is the closest to conducting suborbital, 

manned launches, according to FAA Virgin Galactic forecasts launches 

starting in 2014 and, according to the company, 500 individuals have 

made deposits for the $200,000 fare. 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 

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.27 By increasing the volume of launches, the probability 

of a catastrophe occurring is also increased and any accident that occurs 

could also increase future insurance costs, according to insurance 

company officials with whom we spoke. A catastrophic accident could 

also result in third party losses over the maximum probable loss, which 

would invoke federal indemnification. 

Second, because newly developed manned launch vehicles have less 

launch history they are viewed by the insurance industry as more risky 

than "legacy" launch vehicles. Insurance company officials told us that 

launch vehicles 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. As of May 2012, Atlas V has had over 

two dozen launches with a 100 percent launch success rate; Falcon 9 has 

had 3 successful launches. According to insurance company officials with 

whom we spoke, they expect to charge higher 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 the launch's trajectoryover water or land-in determining risk and the price and amount of third 

party liability coverage. 

providers obtain insurance in addition to that for third party liabiHty, including 

coverage of assets, such as the launch vehicle. 

Page 18 
45 

Third, having any 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. CSLA 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-which means 

that the party agrees not to seek claims against the federal government if 

an accident occurs.28 CSLA also requires cross waivers among all 

involved parties in a launch.29 Two key issues dealing with cross waivers 

include the estates of spaceflight passengers and crew and limits on 

liability for involved parties. 

The estates of spaceflight passengers and crew, which are 

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

consent and cross waiver of claims, according to two insurance 

companies and one legal expert. Although an insurance company 

said that it would be difficult for estates to seek damages in case of an 

accident, the legal expert said that the informed consent requirement 

does not address future litigation issues. Officials from two Insurance 

companies and one expert told us that they expect spaceflight 

passengers to be high-income individuals, which could result in large 

insurance claims by estates of the passengers, as determination of 

the amount of claims is based on an individual's expected earning 

capacity over his or her lifetime. 

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. An 

insurance company and a legal expert stated that, without a limitation 

on liability, insurance premiums for third party and other launch 

insurance coverage could increase as the same small number of 

insurance companies insures passengers, crew, launch vehicles, as 

well as third parties to a launch. According to FAA, putting a limitation 

on spaceflight passenger liability could foster the development of the 

commercial space launch industry through lower costs for insurance 

and liability exposure. Liability exposure and the related litigation 

28 51 usc 50905(b)(5). 

29 51 usc 50914(b)(1). 

Page 19 
46 

Gap in Federal 

Indemnification 

impose costs on industries and the limitation on liability shifts the risk 

to spaceflight passengers, who have been informed of the launch 

risks, If limitations on liability were set by federal legislation, it could 

conflict with state law because at least five states currently have their 

own space liability and indemnity laws limiting liability,30 Launch and 

insurance companies believe that a limit or cap on passenger liability 

could decrease uncertainty and consequently decrease the price of 

insurance, according to a FAA task force report 31 

As previously discussed, the potential cost to the government depends on 

the accuracy of the maximum probable loss calculation, which assesses a 

launch's risk, If the calculation is understated, then the government's 

exposure to liability is higher. Thus, whether the launch vehicle is newly 

developed or manned, the effect on the government's potential cost for 

third party claims is still based on how accurately the maximum probable 

loss calculation assesses launch risks, FAA officials told us that they 

intend to use the same maximum probable loss assessment method for 

manned launches as they currently do with unmanned launches, 

Officials from the insurance industry and space launch companies and an 

expert told us that a gap in federal indemnification is the lack of coverage 

of on-orbit activities-that is, activities not related to launch or reentry, 

such as docking with the ISS and relocating a satellite from one orbit to 

another orbit-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, NASA's commercial manned launches to the ISS will involve 

on-orbit activities, including docking with the ISS, will be subject to the 

cross waivers of liability required by agreements with participating 

countries, This cross waiver is not applicable when CSLA is applicable, 

such as during a licensed launch or reentry, and it does not address 

liability for damage to non-ISS parties such as other orbiting spacecraft, 

Claims between NASA and the launch company are not affected by the 

ISS cross waiver and are historically addressed as a contractual 

agreement In addition, Virgin Galactic operations will only have 

suborbital launches and reentries and no on-orbit activities that require 

are Colorado, Florida, New Mexico, Texas, and Virginia, 

31 FAA, FAA's Response to NASA on the Insurance Task for Commercial Crew 

(Washington, D,C,: Apr. 30, 2012), 

Page 20 
47 

Ending 

Indemnification Could 

Potentially Decrease 

U.S. Competitiveness 

regulation. Therefore, according to officials from two launch companies, 

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

that federal indemnification coverage should be provided. However, one 

insurer noted that other proposed manned launches-such as Bigelow's 

planned on-orbit "hotel"-will not be NASA related and therefore will not 

covered by any regulatory regime. An expert noted that such a proposal 

for an on-orbit hotel remains an open question regarding regulation and 

liability exposure. In addition, the 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. 

FAA may seek statutory authority over on-orbit activities, according to 

senior agency officials. They further explained that they are not seeking 

on-orbit authority 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. 

However, having FAA license on-orbit activities would increase the 

potential costs to the federal government for third party claims. If FAA 

obtains authority to license on-orbit activities then the potential costs to 

the government may increase as its exposure to risk increases. 

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

eliminating CSLA indemnification are unknown, several launch 

companies and customers with whom we spoke said that in the absence 

of CSLA indemnification, increased risk and higher costs would directly 

affect launch companies and indirectly affect their customers and 

suppliers. The sarne 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 launch company, about $80 million to $100 million 

with a French launch company, and approximately $120 million with a 

U.S. launch company. However, another U.S. launch company told us 

that it is developing a vehicle for a similar launch for which it intends to 

Page 21 GAO~12·767T 
48 

charge about $50 million, 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, 

Launch company officials said that the lack of government indemnification 

would decrease their global competitiveness by increasing launch costs, 

Launch company officials said their costs would increase as a result of 

their likely purchase of greater levels of insurance to protect against the 

increased potential for 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 As previously 

discussed, whether the private insurance market has the capacity to 

provide coverage at levels currently provided by the government, or at 

what price they might sell such coverage, is uncertain, Some launch 

company officials said that their costs may also increase if their suppliers 

decided to charge more for their products or services as a result being at 

greater risk from a lack of CSLA indemnification, That is, to compensate 

for their greater exposure to potential third party claims, some suppliers 

might determine that they need to charge more for their products to cover 

the increased risks they are now assuming, 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, Several also told us 

that they might increase the amount of their own third party liability 

insurance, another cost they might pass on to their customers, Two said 

they might be more likely to choose a foreign provider if the price of U,S, 

launches rose, 

According to launch companies and customers we spoke with, ending 

CSLA 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, officials 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, Launch customers are currently 

protected from such claims through the CSLA indemnification program, 

Several launch customers with whom we spoke said that without CSLA 

Page 22 GAO-12-767T 
49 

Concluding 

Observation 

indemnification they might be more likely to use a launch company in a 

country where the government provides third party indemnification. 

According to launch companies with whom we spoke, ending CSLA 

indemnification could also have other negative effects. For example, 

some said that the increased potential for significant financial loss for third 

party claims could cause launch companies, customers, or suppliers to 

reassess whether the benefits of staying in the launch business outweigh 

the risks. If some companies decided it was no longer worthwhile to be 

involved in the launch business, it could result 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. 

The actual effects of eliminating CSLA indemnification are unknown. For 

example, we do not know how insurance premiums or other costs might 

change as well as the availability of coverage. 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. 

Although the number of commercial launches by U.S. companies has 

generally decreased over the past few years, commercial space is a 

dynamic industry with newly developing space vehicles and missions. 

With the termination of the shuttle program, NASA plans to procure cargo 

delivery to the ISS from private launch companies later in 2012 and 

intends to use private companies to carry astronauts to the ISS starting in 

2017. In addition, private launch companies have been developing launch 

vehicles that will eventually carry passengers as part of an emerging 

space tourism industry. Our work to date suggests that both of these 

developments may increase the number and type of flights eligible for 

third party liability indemnification under CSLA. As the industry changes 

Page 23 
50 

Agency Comments 

GAO Contacts and 

Staff 

Acknowledgments 

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, we will more fully address 

any additional federal actions needed in response to these developments. 

We provided a draft of this statement to FAA and NASA. FAA provided no 

comments and NASA provided technical comments which we 

incorporated as appropriate. 

Chairman Palazzo, Ranking Member Costello, and Members of the 

Subcommittee, this concludes our prepared statement. We would be 

pleased to respond to any questions that you may have at this time. 

If you or your staff have any questions about this testimony, please 

contact Alicia Puente Cackley at (202) 512-8678 or cackleya@gao.gov or 

Dr. Gerald l. Dillingham at (202) 512-2834 or dillinghamg@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this statement. GAO staff who 

made key contributions to this testimony are listed in appendix II. 

Page 24 GAO·12·767T 
51 

Appendix I: Scope and Methodology 

To determine how the current U.S. commercial space launch 

indemnification policy compares to policies in other countries we 

conducted a literature review and selected four countries for 

comparison-China, France, India, and Russia-because they are the 

only countries other than the United States that have conducted 

commercial space launches in the last 5 years. Our source for the 

amounts of government indemnification provided by these countries is a 

2006 Aerospace Corporation report and a 2002 Federal Aviation 

Administration (FAA) report.' To the extent possible, we verified 

information from the literature review through discussions with officials 

from FAA, insurance companies, launch companies, and experts. We did 

not find sufficiently reliable information about India to report on its 

government indemnification. 

To determine the federal government's potential costs under the 

Commercial Space Launch Act Amendments of 1988 (CSLA), we 

reviewed CSLA, our past work on the budget treatment of insurance 

programs, and FAA's maximum probable loss calculation. We also 

interviewed FAA officials and experts in risk modeling. To determine the 

extent to which the insurance market is able and willing to provide third 

party liability insurance at levels currently provided by CSLA, we reviewed 

CSLA to determine the amount of coverage the act provides commercial 

launch companies; reviewed relevant industry reports; and interviewed 

officials from FAA, insurance companies, and brokerage companies. We 

also interviewed launch company officials to determine the additional 

coverage they might seek absent CSLA indemnification. To determine a 

range of paid claims, we reviewed data from the National Aeronautics and 

Space Administration (NASA) on third party claims that have been paid 

as the result of the Space Shuttle Columbia accident and from an 

insurance official on third party claims paid as a result of a U.S. Air Force 

launch accident. We found the data sufficiently reliable for our purposes. 

To determine issues and implications of commercial manned launches for 

the current federal indemnification policy, including the gaps, if any, that 

exist in that policy and the potential financial risks those gaps pose, we 

interviewed officials from FAA, NASA, insurance companies, brokerage 

1The Aerospace Corporation, Study of the Uability Risk-Sharing Regime in. the United 

States for Commercial Space Transportation (E! Segundo, Calif.: August 2006), and FAA, 

Liability Risk-Sharing Regime for U.S. Commercial Space Transportation: Study and 

Analysis (Washington, D.C.: April 2002). 

Page 25 
52 

Appendix I: Scope and Methodology 

companies, and launch companies, and experts. To determine what is 

known about the effects of ending indemnification on the competitiveness 

of U.S. commercial launch companies, we obtained information from FAA 

on launches, payloads, and revenues from 1997 through 2011. As the 

information was used for background, we did not assess the reliability of 

the data. We also conducted interviews with officials from launch 

companies, launch customers, and industry aSSOCiations, and experts. 

We selected launch companies, insurance companies, brokerage 

companies, and launch customers for interviews that had conducted or 

participated in commercial launches in the past 5 years. In addition, we 

selected launch companies that are competing to conduct commercial 

launches as part of NASA's Commercial Crew Development program or 

plan to conduct launches for space tourism. We also selected launch 

customers to include U.S. companies and foreign companies and those 

that had used both U.S. and foreign launch companies. We selected 

experts to interview to provide a variety of expertise, including space 

liability, risk modeling, and space law issues. Table 1 lists the 

organizations and agencies whose officials we interviewed as well as the 

experts we interviewed. 

Table 1: Organizations and Agencies Interviewed 

Category 

Brokerage company 

Launch company 

Page 26 

Organization or agency 

AON 

Marsh USA 

G!obal Aerospace 

Starr Aviation 

XL Insurance 

The Boeing Company 

Orbital Sciences Corporation 

Sierra Nevada Corporation Space Systems 

Space Exploration Technologies Corp (SpaceX) 

Aerospace Industries Associationb 

Satellite Industry Association 

GAO·12·767T 
53 

Appendix I: Scope and Methodology 

agency 

Expert 

NASA 

Henry R. Hertzfeld, Research Professor, EIHott 

Schoo! of International Affairs, Space Policy 

Institute and Adjunct Professor of Law, The 

George Washington University 

Howard Kunreuther, James G. Dinan Professor of 

Decision Sciences & Public Policy, Co-Director 

Risk Management and Decision Processes 

Center, Wharton School, University of 

Pennsylvania 

Rosanna Sattler, Partner, Posternak, Blankstein, 

and Lund LLP 

"An additional insurance company and launch customer were interviewed but did not wish 10 be 

identified. 

~he Aerospace Industries Association convened a pane! that included the launch companies 

Lockheed Martin and Virgin Galactic and the launch supplier ATK. 

We conducted this performance audit from November 2011 to June 2012 

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. 

Page 27 
54 

Appendix II: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Staff 

Acknowledgments 

(540235) 

Alicia Puente Cackley, (202) 512-8678 or cackleya@gao.gov 

Dr. Gerald l. Dillingham, (202) 512-2834 or dillinghamg@gao.gov 

In addition to the contacts named above, individuals making key 

contributions to this testimony include Teresa Spisak and Patrick Ward 

(Assistant Directors), Maureen Luna-Long, James Geibel, Carol Henn, 

David Hooper, Shelby Oakley, Susan Offutt, Amy Rosewarne, Steve 

Ruszczyk, Melvin Thomas, and Frank Todisco. 

Page 28 
55 

This is a work of the U,S. government and IS not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further pennlssion from GAO, However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this materia! separately. 
56 

GAO.s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Connect with GAO 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and 

policies; and provides analyses, recommendations, and other assistance 

to help Congress make informed oversight, policy, and funding decisions. 

GAO's commitment to good governrnent is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no 

cost is through GAO's website (www.gao.gov). Each weekday afternoon, 

GAO posts on its website newly released reports, testimony, and 

correspondence. To have GAO e-mail you a list of newly posted products, 

go to www.gao.gov and select .. E-mail Updates." 

The price of each GAO publication reflects GAO's actual cost of 

production and distribution and depends on the number of pages in the 

publication and whether the publication is printed in color or black and 

white. Pricing and ordering information is posted on GAO's website, 

http://www.gao.gov/ordering.htm. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 

TOO (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 

MasterCard, Visa, check, or money order. Call for additional information. 

Connect with GAO on Facebook, Flickr, Twitter, and YouTube. 

Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts. 

Visit GAO on the web at www.gao.gov. 

Contact: 

Website: www.gao.gov/fraudnetlfraudnet.htm 

E-mail: fraudnet@gao.gov 

Automated answering system: (800) 424-5454 or (202) 512-7470 

Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-

4400, U.S. Government Accountability Office, 441 G Street NW, Room 

7125, Washington, DC 20548 

Chuck Young, Managing Director, youngcl@gao.gov, (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, DC 20548 

I.) Please Print on Recycled Paper. 
57 

Chairman PALAZZO. I now recognize Mr. Frank Slazer for five 

minutes to present his testimony. 

STATEMENT OF MR. FRANK SLAZER, 

VICE PRESIDENT, SPACE SYSTEMS, 

AEROSPACE INDUSTRIES ASSOCIATION 

Mr. SLAZER. Thank you, Mr. Chairman. I am here on behalf of 

the Aerospace Industries Association, an organization of approximately 350 companies. The 350 companies represent about 90 percent of the U.S. aerospace business in this country, creating about 

3.5 million jobs nationwide. I appreciate this opportunity to testify 

in support of the FAA’s Launch Indemnification Program. 

AIA wishes to stress to the Committee the importance of reauthorizing the Commercial Space Launch Act first mitigation provisions, substantially extending or eliminating the Sunset Provisions 

of the act, and removing the upper indemnification cap for space 

launch activities. 

U.S. space launch capabilities are essential to our Nation’s security and its ability to lead in space exploration. To sustain this capability a healthy launch industrial base is needed and to mitigate 

cyclical impacts. This would ideally include military, civil, government, as well as commercial businesses as customers. 

As Chart A shows, the U.S. once had a very robust commercial 

launch industry position. This is a chart that shows the GEO-synchronous launches that were previously made by the United States 

from 1990, to 2001. That bluish part of the bar towards the bottom 

represents the number of U.S. launches. There were comparable 

numbers of non-GEO-stationary launches for systems such as Iridium and Globalstar at that time. 

Unfortunately, as shown in Chart B, our launch industrial base 

has lost commercial market share and is struggling to adapt to declining demand by government, especially since the end of the 

Space Shuttle Program. International launch services providers 

have been aggressively winning commercial opportunities, often 

with the help of their governments and through financial assistance or low-cost financing. 

The sad reality is that U.S. launch services now have a negligible 

share of the world commercial market, and as you noted, Mr. 

Chairman, in 2011, there were no commercial orbital launches 

from a U.S. spaceport. 

Despite the dismal record trend for American launchers, new investments by U.S. industry, including several AIA member companies, are enabling the emergence of new domestic space launch systems. The willingness of our private sector to commit resources to 

develop new U.S. launch capabilities is a uniquely American development that should be supported. No other nation in the world has 

a similar effort underway. These new systems have the potential 

to increase the U.S. share of the commercial launch market, open 

up new markets, and create jobs. 

Chart number C shows a conservative estimate, again, by the 

FAA, through their Commercial Space Transportation Advisory 

Committee, of the potential future market, and this is not blue sky, 

wild-eyed opportunities. These are fairly baseline capabilities al-
58 

ready in place, not really even counting the potential new markets 

enabled by these new systems. 

Companies, our companies are making their investment decisions 

within the current launch policy business framework, and, again, 

strong international competition. Mr. Chairman, the U.S. space 

launch industry is not seeking subsidies, but it does require a stable and predictable business environment, one that will be enabled 

by maintaining the existing launch risk mitigation framework. It 

is worth noting that foreign launch competitors already benefit 

from more general indemnification rules and other advantages. 

FAA’s Launch Indemnification Program has been in place for 

over 20 years, providing critical risk management and supporting 

the emergence of this new domestic commercial launch market, 

benefiting our broader space industry, technology leadership, and 

ultimately our Nation’s security without costing U.S. taxpayers a 

dime. 

Our industry needs the more level playing field provided by the 

FAA’s program. For the U.S. to take a purely laissez-faire approach 

to commercial launch business when competing against Russian, 

European, and other nations, who operate under more favorable 

risk-management frameworks, would amount to unilateral disarmament, and we are already at a pricing disadvantage. Even if 

U.S. firms could insure for the initial risk commercially, it would 

add costs that their competitors do not have to bear, making U.S. 

commercial launch sales even more difficult. Given that our current 

risk approach has been in place for so long, it is not clear if sufficient additional underwriting capability is available in the space 

insurance market. 

In the end, adding new uncertainty will harm U.S. industry 

without saving the government any money. In fact, the CBO has 

previously estimated the FAA’s indemnification authority has had 

no budgetary impact on the government. A rationale for continued 

indemnification support is not narrowly focused on its benefits just 

for industry. 

It also provides benefits for the Federal Government and America. In recent years the U.S. government launch costs have increased substantially, partly due to the shift of commercial satellite 

launches to foreign systems, adversely impacting domestic space industrial base. The success of new-launch ventures will help the 

Federal Government since they have the potential to reverse this 

trend. Without a renewal of the regime, our Nation’s space industrial base may forego business that could help spread the fixed cost 

of space launch capabilities between government and commercial 

customers. Again, savings that could be passed onto taxpayers. 

CSLA enables U.S. launch providers like their foreign competitors to operate without betting the company with every single 

launch. This launch indemnification backstop has been renewed 

four times since 1988, creating a reasonable expectation it will be 

renewed again in the future, without entirely eliminating the business uncertainty. Given the long lead times for space launch, the 

development and the need for stable policies to promote investment 

and maximize our industry’s competitiveness, Congress should 

eliminate the Sunset Provisions of the act or at least extend them 

for a much longer time than prior renewals. 
59 

To be consistent with our international competitors, AIA recommends Congress remove the indemnification caps beyond tier 

one for space launch activities. 

In conclusion, AIA sees continuing FAA’s Launch Indemnification 

as a very low-risk way to support our Nation’s vital space launch 

industrial base with substantial upside potential to enable new 

markets, create jobs, and ensure U.S. space leadership. American 

industry is investing capital and innovative ideas to create this 

new future. It would be a shame if these efforts were to flounder 

due to a lack of even a partially leveled playing field with foreign 

competitors. 

Thank you, and I look forward to your questions. 

[The prepared statement of Mr. Slazer follows:] 
60 

.IEf<()SP,ICE lSDFS'Tl?IFS 

A ,\11 ()(. LI 11 U JV 

Ensuring American Space Launch Competitiveness 

Mr. Frank Slazer 

Vice President, Space Systems Division 

Aerospace Industries Association 

Subcommittee on Space and Aeronautics 

House Committee on Science, Space and Technology 

June 6, 2012 

Aerospace Industries Association 

1000 Wilson Boulevard, Suite 1700 

Arlington, VA 22209 

(703) 358-1000 
61 

Ensuring American Space Launch Competitiveness 

Chairman Palazzo, Ranking Member Costello and distinguished members of the 

subcommittee, my name is Frank Slazer and I am the Vice President for Space Systems at 

the Aerospace Industries Association. I appreciate the opportunity to testify before the 

subcommittee on the Federal Aviation Administration's (FAA) Launch Indemnification 

Program. 

AlA wishes to address this Committee to stress the importance to renew the Commercial 

Space Launch Act risk management provision, to eliminate the sunset provision of the Act, 

and remove its indemnification cap for space launch activities 

The Aerospace Industries Association (AlA) represents over 350 aerospace manufacturing 

companies and their highly-skilled employees. These companies make the spacecraft, 

launch vehicles, sensors, and ground support systems employed by NASA, NOAA, the 

Department of Defense, the National Reconnaissance Office (NRO), other civil, military and 

intelligence space organizations throughout the globe, and many of the commercial 

communication satellites. This industry sustains nearly 3.5 million jobs, including much of 

the high-technology work that keeps this nation on the cutting edge of science and 

innovation. The US aerospace manufacturing industry remains the single largest 

contributor to the nation's balance of trade, exporting $89.6 billion and importing $47.5 

billion in relevant products, for a net surplus of $42.1 billion. 

US space launch capabilities are essential to our nation's security and its ability to lead in 

space exploration. To sustain this capability, a healthy US space launch industrial base is 

needed; as with aviation, to mitigate cyclical impacts, this industrial base would ideally 

serve military, civil government and commercial customers. Unfortunately, in recent years, 

our nation's space launch industrial base has been struggling to adapt to reduced demand 

by government especially due to the end of the Space Shuttle program - and downward 

pressures on DOD, NASA and NOAA budgets that threaten to exacerbate the risk to the 

industrial base. Furthermore, international launch providers have been aggressively 

bidding and winning commercial opportunities, often with the help of their governments in 

the form of either financial assistance or low cost financing. The sad reality is that the US 

launch services industry has had a minimal share of the commercial worldwide market for 

launches; indeed, in 2011, there were NO commercial orbital launches from a US space 

port. 

Nonetheless, recent private sector investments by US industry - including AlA member 

companies ATK, Aerojet, Boeing, Lockheed Martin, Northrop Grumman, Sierra Nevada, 

Space X and Virgin Galactic as well as others - and supportive policies by government 

agencies are enabling the emergence of new domestic space launch capabilities. These new 

systems have the potential to increase the US share of the commercial launch market while 

also opening up exciting new markets. These companies have made their investments 

2 
62 

within the existing domestic launch business climate and domestic policy framework, but 

they face a challenging international competitive environment. 

Many foreign launch providers competing against US companies already benefit from 

generous indemnification rules. For example, the European company Arianespace is 

required to purchase insurance up to just 60 million Euros (roughly $75 million). Any 

damages above this cap are the guaranteed responsibility of the French government.l 

Mr. Chairman, the US space launch industry is not seeking any subsidy. Instead, the US 

commercial space launch industry requires a stable and predictable business environment 

enabled by maintaining the existing launch risk mitigation framework for the foreseeable 

future. FM's launch indemnification program has been in place for over twenty years -

providing critical risk management enabling the emergence of a US commercial launch 

market, benefiting the broader US space industry, US technological leadership, and 

ultimately, the US consumer through the launch of US communications satellites - without 

ever costing US taxpayers a dime. 

Under the existing program, the risk exposure of the federal government is managed; F M 

controls the level of company insurance required by establishing the Maximum Probable 

Loss coverage required for each license and Congress ultimately controls the government's 

assessment of loss legitimacy since a specific Appropriation is required to pay any claims. 

Moreover, given that the current US risk approach has been in place for so long, it is not 

clear how much additional underwriting capability is available in the space insurance 

market; adding new uncertainty will harm US industry. 

For the United States to adopt a purely laissez-faire approach to the US commercial launch 

business, which competes in an international launch market where its Chinese, Japanese, 

European, and Indian competitors all operate under comparable risk management 

frameworks would amount to unilateral disarmament: Even if commercial companies 

could insure for the additional risk exposure commercially, it would add costs their 

competitors do not include, thus making commercial US launch sales more difficult. 

But our rationale for continuing indemnification support is not narrowly focused on its 

benefits for industry - it also provides benefits for the US Government. When US launch 

rates were relatively high, the costs for all users - including the US government - were 

more affordable as the fixed costs of launch infrastructure and investments were spread 

out over a wider base of customers. 

To better understand the importance of providing space launch risk mitigation legislation, 

understanding the history of US commercial space launch is essential. Two decades ago, 

American space launch capabilities were a major player in the market - with a high 

percentage of worldwide commercial launches leaving from our spaceports. 

1 Study of the Liability Risk-Sharing Regime in the United States for Commercial Space Transportation by). A. 

VEDDA, Center for Space PolicY and Strategy, National Space Systems Engineering, The Aerospace 

Corporation. 1 August 2006, Page 58. 

3 
63 

Figure 1 shows how large the US share of commercial space launch was from 1990 - to 

2001. The benefits to the US economy were also significant; in 1999, according to a study 

by the FAA's Office of Commercial Space Transportation, commercial space transportation 

and enabling industries were responsible for $3.SB in economic activity and over 28,000 

jobs - by 2009, those numbers had shrunk to $827M and just under 4,000 jobs. 

Commercial GEO Launches 

30 

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 

III USA III Multinational .\ China I!I Russia Europe 

--- .. - --- ----_ .. _... ."-.-. --.---

FIGURE 1 - Commercial GEO Payloads Launched by Country from 1990- 2001. 

Source of data: FAA Office of Commercial Space Transportation. 

The US launch market share began a precipitous decline (see FIGURE 2) as a result of the 

collapse of the Soviet Union - which brought large numbers of Soviet developed Russian 

and Ukrainian launch capabilities into the market with a cost structure far below US prices. 

Additionally, in this same timeframe, there was the advent of the more capable Ariane 5 

launch vehicle, developed by the European Space Agency. 

4 
64 

'0 

OJ 

35 

'8 30 

= j 

~ 25 

'" I 0 

>. 

I 

~ 20 

I 

~ e 15 

8 

o 

:: 10 o 

I j 5 

l_" 

Commercial GEO Launches 

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

III USA III Multinational ,C' China III Russia Europe 

FIGURE 2 - Commercial GEO Payloads Launched by Country from 2001- 2011. 

Source of data: FAA Office of Commercial Space Transportation. 

In subsequent years, US government launch costs have risen substantially - partially due to 

the shift of commercial satellite launches to much lower cost foreign systems. This has also 

adversely impacted the space industrial base - an industry base significantly impacted 

already by the wind down of the Space Shuttle program. The success of the new launch 

ventures is also important to the federal government since they offer the real potential to 

reverse this trend. 

Recent Space Launch Developments 

Fortunately, American industry has been making investments to capture new space launch 

business opportunities utilizing innovative new systems - from launching commercial 

communications satellites more cheaply to supporting the International Space Station and 

creating new opportunities for private citizens to experience space flight. These 

investments - and the willingness of the private sector to commit their own resources to 

create new US launch capabilities is a uniquely American development; no other nation in 

the world has a significant private sector effort underway - yet, in the US, a number of new 

systems, with a mix of private and government contract funding are in operation or under 

development. With good insight from the FAA's Office of Commercial Space Transportation 

and the workforce and design expertise developed by over fifty years of space launch 

5 
65 

investments by NASA and DOD, these new systems should soon enable our nation to regain 

its space launch leadership while creating new markets and thousands of new US jobs. 

Figure 3 shows the projections by the FAA COMSTAC (Commercial Space Transportation 

Advisory Committee) of the potential for 300 commercial space payloads that will require 

128 commercial launches through 2021. It should be stressed that this market forecast is a 

conservative estimate based only on existing markets; future markets for suborbital or 

orbital launch systems are not included but could potentially greatly increase the number 

of missions. These space launch investments have also been made in a business 

environment where, for over two decades, the US government has understood the need for 

a statutory risk management framework, enabling industry to pro-actively manage the 

potential liability in the event of a catastrophic accident. This space launch indemnification 

program is modeled after similar liability provisions for other industries that the 

government has sought to nurture, including nuclear power (e.g. the Price-Anderson Act) 

and homeland security related safety technology. 

18 " 

16 

l' 

12 

.." 

~ 10 

<.l 

c: 

:::l 

~ 

& • 

..J 

0" 

2 

0 

.. 

I 

t<'>" 

.. I 2012 2013 2014 

I 

III 

I 

,"i;\' 

Ii" 20lS 

!iii Commerdal Telecomlllun;Gltioo; 

!iii Comm<f(;a1 Rtmore ,eming 

!iii SdtnH ;md Engineering 

o (olllJllfrciai Carg~ and erew 

T ranlpolultion Serrim 

• Otb!f PaylDadl launched 

(omlllm;al~ 

2020 2021 

FIGURE 3 - Commercial Space Launch Market Forecast 2012-202.1 

Source of graph: 2012 Commercial Space Transportation Forecasts. FAA Commercial Space 

Transportation and the Commercial Space Transportation Advisory Committee 

6 
66 

Mitigating Space Launch Risks 

The current FAA approach to risk management has three tiers with substantial industry 

responsibility: 

Tier 1: 

Tier 2: 

Tier 3: 

The FAA calculates the maximum probable loss (MPL) that could result from 

the licensed launch - that is the damage that could result to uninvolved third 

parties from the most likely worst case scenario. The launch provider, as the 

licensee, is required to purchase private insurance for the MPL covering all 

parties involved with the launch, including the US government. The MPL is 

capped at $500 million, though rarely is that full amount required by the FAA's 

calculations. 

Subject to Congressional appropriations following a Presidential request, the US 

government is authorized to pay up to a $2.7 billion cap for third-party claims 

that exceed the insurance coverage and therefore the FAA calculated maximum 

probable loss. It should be noted that payments of claims are not automatic and 

no funds are committed to this regime. Congress can approve such payment 

and appropriate funding to implement it only if and when a claim is made. To 

date, no loss has ever occurred that would have triggered this regime, and 

Congress has never been asked to appropriate funding for the CSLA. 

Any third-party claims above the Tier 2 cap are the responsibility of the licensee 

or the liable party. 

The CSLA's risk management regime assures adequate liability coverage in case of 

catastrophic launch-related events, minimizes government risk exposure, avoids any need 

for annual outlays while also supporting the US space and national security industrial base. 

It also strengthens US international competitiveness in a global space launch market 

characterized by foreign providers offering government indemnification as a standard and 

discriminating feature of their services. 

By maintaining continuity in the business environment, CSLA supports existing launch 

service providers and encourages new US entrants into the launch business, ultimately 

enabling the development of new commercial innovative space markets - both for 

suborbital and orbital vehicles. In the end then, CSLA helps to keep vital space launch jobs 

in the United States. 

Based on the 2004 Congressionally-mandated FAA Study of the Liability Risk-Sharing 

Regime in the United States for Commercial Space Transportation conducted by The 

Aerospace Corporation, the FAA Commercial Space Transportation Advisory Committee 

(better known as COMSTAC) has strongly endorsed and recommended to the Secretary of 

Transportation continuation of the commercial space launch risk management regime in 

the CSLA. The Congressional Budget Office (CBO) has also previously estimated that 

extending the agency's indemnification authority would have no significant budgetary 

7 
67 

effect for 5 years following its proposed extension in 1999. The current risk management 

regime is exactly the same regime assessed by the CBO in 1999.2 

Risks of Non-Renewal 

The CSLA regime enables US launch providers, like their foreign competitors, to operate 

without "betting the company" with every single launch. In a competitive market with 

narrow returns, the loss of the risk management regime would cause US companies to 

reconsider the risks and benefits of staying in the commercial launch business, suspend 

activity, and even exit the market. 

Failure to renew CSLA would unnecessarily hamstring US companies' ability to compete in 

the international launch services market. Without the risk management regime, US launch 

providers appear riskier and more costly to prospective launch customers in a market with 

numerous foreign launch providers whose governments indemnify launches. As if harming 

US commercial market competitiveness would not be bad enough, the US civil and national 

security space communities could also experience increased launch costs for essential 

government payloads for communications, weather observation, remote sensing, GPS, and 

other satellite systems that are an integral part of our nation's infrastructure and economy. 

Without a renewal of the regime, our nation's space industrial base could be foregoing 

business that would share the fixed cost of space launch from government programs with 

the commercial market - savings that could be passed on to the taxpayer. 

Non-renewal of the risk management regime could also mean an outright exit from the 

commercial launch market by US providers, making it much harder to sustain high 

technology space launch jobs in the United States. We cannot afford to drive away highly 

skilled technical jobs to foreign countries, where the regulatory frameworks prOVide better 

critical risk management tools. Lastly, a non-renewal could impede new US entrants to the 

commercial launch market, discourage future space launch innovation and entrepreneurial 

investment. Without a level playing field for competition, new US entrants could find it 

highly undesirable to begin their business ventures in the United States, reversing recent 

trends. 

Updating Space Launch Risk Management for the 21st Century 

FAA's space launch indemnification approach began in 1988 when the Congress enacted 

amendments to the Commercial Space Launch Act (CSLA) of 1984, establishing a regulatory 

regime for FAA-licensed commercial space launches that included a risk management 

regime for third-party losses reSUlting from launch-related activities. Today, this risk 

management regime factors into all US commercial space launch business decisions and 

2 The CBO's assessment ofH.R. 2607, The Commercial Space Transportation Competitiveness Act of1999 stated that 

"Based on information from DOT, we estimate that extending the agency's indemnification authority would have no 

Significant budgetary effect over the next five years. DOT has never had to pay claims to third parties for incidents 

involving commercial space vehicles or services. Thus far, the costs associated with incidents have been small and have 

been covered by private insurance." H.R. 2607 became Public Law No: 106-405 in 2000, extending the risk management 

regime to 2004, which was extended again in 2009. 

8 
68 

provides a more level playing field for US competitors. The FAA's launch risk 

indemnification backstop has been renewed 5 times since 1988 - creating the reasonable 

expectation that it will be renewed in the future without completely eliminating the 

business uncertainty. But developing space launch systems is a long term effort - not 

uncommonly five years or more - and launch contracts are typically signed at least two 

years prior to launch. AlA believes the sunset provision of this law should be eliminated 

thereby increasing business confidence and promoting additional new investment. 

FAA's three tier approach has never been utilized; losses to date have been relatively minor 

and have never exceeded the commercially-insured Maximum Probable Loss threshold let 

alone the cap on the federal tier 2 limit. Given that any Tier 2 payout would require a 

specific Appropriation anyway, AlA recommends that the Tier 2 cap should be dropped and 

that Tier 3 should be eliminated entirely. 

In conclusion, the Aerospace Industries Association sees the continuation of US space 

launch indemnification as an exceedingly low risk means to support to our nation's vital 

space launch industrial base that provides substantial upside potential to enable new 

markets, create new jobs, and assure US space technology leadership for the 21st century. 

US industry is investing capital and innovative ideas to support this new future and US 

government agencies and the Congress have also taken important steps that have helped 

foster these new initiatives. It would be a shame if these nascent capabilities were to be 

limited in its potential or even founder due to the lack of a level playing field with foreign 

competitors. 

In order to allow US companies to compete on a more level playing field for hundreds of 

new payload opportunities and creating thousands of new jobs: 

• AlA recommends the Congress renew the Commercial Space Launch Act risk 

management provision (Section 70113(1) of title 49 of Public Law 111-125) Vl(ell in 

advance of its expiration on December 31, 2012. 

• Given the long lead times for space launch development and operations, the need for 

stable policies to promote investment and to maximize our industry's ability to be 

competitive, Congress should eliminate the sunset provision of the Act or at least 

extend them for a much longer time than in the prior renewals. 

• To be consistent with our international competitors, AlA recommends the Congress 

remove the indemnification caps beyond tier 1 for space launch activities. 

I thank you for this opportunity to testify on behalf of the US space industry and I welcome 

the opportunity to answer any questions that you may have. 

9 
69 

Chairman PALAZZO. I now recognize our final witness, Ms. Alison 

Alfers, for five minutes to present her testimony. 

STATEMENT OF MS. ALISON ALFERS, 

VICE PRESIDENT, DEFENSE AND INTELLIGENCE, 

DIGITALGLOBE INC. 

Ms. ALFERS. Thank you, Chairman. Chairman Palazzo and 

Ranking Member Costello and Members of the Subcommittee, 

thank you for this opportunity to testify before the Committee on 

the issue of extension of the Federal Aviation Administration’s 

Launch Indemnification Program. As noted in the introductory remarks, I currently serve as Vice President of the Defense and Intelligence Business Unit for DigitalGlobe Inc. 

DigitalGlobe is a leading global provider of high-resolution satellite imagery and related products and services. We operate a constellation of high-resolution, electro-optical imaging satellites, and 

our business is highly dependent on the availability of reliable and 

cost-effective launch services. Our detailed written statement is on 

file with the Committee, and so I would like to use the time provided here to highlight certain points that as a consumer of launch 

services we view as significant. 

First, the reduced demand for launch services by the U.S. government and the corresponding increase in launch prices and reduction in launch vehicle options has, in our view, resulted in the 

U.S. launch services industry losing the global leadership position 

it once had. We see this as detrimental to U.S. national security 

interests and as certainly detrimental to the health of the broader 

U.S. industrial base. 

With regard to our specific business, the increase in launch costs 

has necessarily required us to seriously consider foreign launch 

providers. For our WorldView-3 launch scheduled for launch in 

mid-2014, we went so far as to get necessary export approvals in 

place to allow us to select the foreign provider that bid for the 

launch. The single driving factor for considering a foreign launch 

at all was cost. In our experience, foreign launches are now on average 40 percent less than the current prices for U.S. launches. 

We ultimately selected a U.S. provider for WorldView-3 because 

we did not feel that foreign provider’s success record was wellenough developed, but this is rapidly changing with each successful 

launch by a foreign provider. 

With regard to the specific issue before the Committee, the extension of the Launch Indemnification Program, as a consumer of 

commercial launch services, we believe extension of the program is 

critical to encourage U.S. providers, current providers to stay in the 

market and to incentivize new providers to enter the market. In 

our view, the Indemnification Program provides a degree of certainty around risk management for launch providers. That is essential if U.S. launch capabilities are to remain or some may say 

return to a position of global leadership. 

Without the indemnification program launch, providers are operating in an environment of totally uncapped risk, which we believe 

will absolutely be reflected in prices that are passed onto launch 

consumers like DigitalGlobe. The U.S. launch services industry is 
70 

already, in our view, not competitive with foreign providers on 

price, and it is rapidly losing its edge on technological superiority. 

As noted in our written statement, we believe we are at a tipping 

point, in that any changes in the Indemnification Program that 

may lead to higher launch prices will result in foreign providers 

being the first choice for consumers for DigitalGlobe because the 

cost differential would be so significant and the technological differences will be so minimal. We see this as a very negative development, both from a national security standpoint and from our position as a U.S. company that consumes commercial launch services. 

We would much prefer to use a U.S. provider, but it is rapidly becoming an impractical option due to price and related considerations. 

That said, we are very encouraged by increasing private sector 

investments in U.S. launch capabilities. We believe that the private 

investment has potential to reverse the current downward trend 

and to once again return the U.S. to unquestioned superiority in 

launch capabilities. 

To succeed, however, will require that these companies have the 

ability to manage risks with some degree of certainty, and that is 

the very important role that is played by the Indemnification Program. It provides a vital degree of certainty that allows providers 

to manage risks, and that is reflected in prices. 

In the time remaining, I would like to also encourage the Subcommittee and Congress to consider elimination of the current 

three-year Sunset Provision or, at a minimum, to consider significant extension. We typically contract for launches three to four 

years ahead of the scheduled launch, and we believe that continued 

uncertainty around the status of the Indemnification Program will 

eventually translate into higher costs as providers hedge against 

potential shifts in the Indemnification Program. 

So, in summary, as a consumer of commercial launch services, 

we encourage Congress to, at a minimum, extend the current program to continue to incentivize investment, private investment in 

launch services industry and to consider significant extension or, 

ideally, elimination of the current Sunset Provision. 

Thank you, and I would be glad to answer any questions. 

[The prepared statement of Ms. Alfers follows:] 
71 

SIGNIFICANCE OF STRONG U.S LAUNCH INDUSTRY TO COMPETITIVENESS OF 

U.S SPACE BASED INDUSTRIES 

MS. J. ALISON ALFERS 

VICE PRESIDENT, DEFENSE AND INTELLIGENCE 

DIGITALGLOBE, INC 

SUBCOMMITTEE ON SPACE AND AERONAUTICS 

HOUSE COMMITTEE ON SCIENCE, SPACE AND TECHNOLOGY 

JUNE 6, 2012 

DigitalGlobe. Inc. 

1601 Dry Creek Drive, Suite 260 

Longmont, Colorado 80503 
72 

Chairman Palazzo, Ranking Member Costello and distinguished members of the subcommittee, my name is 

Alison Alfers and I am the Vice President, Defense and Intelligence for DigitalGlobe, Inc, I also previously 

served for five years as the company's General Counsel. On behalf of DigitalGlobe, I would like to thank you 

for the opportunity to testify before the subcommittee On the issue of extension of the Federal Aviation 

Administration's (FAA) Launch Indemnification Program, 

About DigitalGlobe 

DigitalGlobe is a leading commercial provider of high resolution satellitc imagery and related products and 

services. We are a publicly traded U.S. company, incorporated in Delaware and headquartered in Longmont, 

Colorado, with offices in Washington, D.C., London and Singapore. We employ over 700 people and in 20 II 

our total revenue was approximately $340 million. 

We own and operate the largest constellation of commercial high resolution satellites, with three satellites 

(QuickBird, WorldView-1 and WorldView-2) on orbit and our fourth satellite, WorldView-3, scheduled for 

launch in mid-2014. Our largest customer is the U.S. Government and specifically the National GeospatialIntelligence Agency (NGA). Our customers also include numerous foreign government entities as well as 

commercial companies such as Google, Microsoft and Nokia. 

Our business depends on our ability to cost effectively build, launch and operate our constellation of high 

resolution imaging satellites. 

Developments in Launch Services Industry and Implications/or :'pllce Based Businesses 

The clear trend over the last several years has been a continuing reduction in demand for launch services by the 

US Government. This reduced demand for launch services has resulted in significant increases in launch costs 

as the US launch providers have been forced to spread the high fixed costs associated with launch services 

across fewer consumers, and available launch vehicle options (e.g. Delta 11) have been reduced. 

As a commercial consumer of launch services it is our view that US providers are not competitive on price and 

that their long held advantage over foreign providers with regard to payload safety and delivery (e.g. number of 

successful on-time launches) is fading rapidly. We concur with the sentiment expressed in the written statement 

submitted by the members oCthe Aerospace Industries Association that this loss of global leadership in the 

launch services market is detrimental US national sccurity interests and the US companies that form the 

aerospacc industrial base. 

As a US company whose largest customer is the US Government, our overwhelming preference is to launch 

with US providers. Foreign launches, especially for our type of payload, come with significant complexities 

including export control requirements, payload transport, and uncertain insurance costs. That said, as a 

commercial company we have an obligation to our shareholders to maximize the return we generate from the 

investments we make. Procuring launch services is an investment we make and the costs we incur must either 

be flowed down to our customers through our price structure or absorbed by us through reduced margin. To 

the extent we are forced to raise OUf prices in the market or take margins down to unprofitable levels, we lose 

our ability to compete in the global market. We note that our business, like the launch services business, is 
73 

fadng significantly increased foreign competition from largely government subsidized entities (e.g. the recently 

launched Pleiades satellite). 

Unfortunately, the current status of reduced competitiveness of the US launch providers combined with the 

increased availability and reliability of foreign providers mandates that in the best interest of our business and 

our shareholders we seriously consider foreign providers for future launch requirements. As a point of example, 

while we ultimately elected to contract with a US provider for an Atlas-5 launch for WorldView-3, the cost is 

more than twice what we paid for the launch of World View-l (2007) and WorldVicw-2 (2009) and borders on 

being prohibitive. The cost to launch WorldView-3 is also approximately 35-40% more than the bid we 

received from a comparable foreign provider. For WorldView-3 we ultimately selected Atlas-5 due to its' 

stellar performance record and the still developing performance record ofthe foreign provider, but we expect 

that if the performance records of the foreign providers are well established over the next couple of years that 

cost considerations will necessarily become the primary factor in future selections. 

As a commercial company, we are encouraged by recent private sector investments in domestic launch 

capabilities, including the entry of Space-X into the market. Through private investment, we believe that the 

US space launch industry has the potential to reverse the current downward trend and to reestablish it global 

leadership in launch services, but this cannot be achieved without support from the US Government in the form 

of the risk mitigation backstop that comes from the FAA Launch Indemnification Program. Specifically, the 

risk of third party claims from damage associated with space launch activities is a risk that we, as a consumer of 

launch services, would require the launch provider to protect us against. Ifthe indemnification program did 

not exist. the launch provider would be in a position of having to insure the additional risk, either through third 

party insurance or self insure. We expect the costs would be significant, especially for new companies trying 

to compete in the lallnch services market but who do not yet have the established track record or balance sheet 

of the larger companies. These increased costs would either need to be passed on to liS, the consumer, or 

absorbed by the provider. If passed on to liS, we expect the total launch cost would be so prohibitively high 

that we would be forced to lise a foreign provider absent problematic safety records or related considerations. 

If absorbed by the provider, we believe the effect on margin would likely impair profitability of the provider to 

the point where existing providers would be incented to exit the market and potential new providers would be 

deterred trom entry. The end result of both scenarios is a vanishing US launch services industry which, as 

noted above, we view as very detrimental to US national security interests and the broader US industrial base. 

Subcommittee Questiofls 

As part of our written statement, we were also asked to address four specific questions. Our responses are set 

forth below. 

1. Do you consider a government-sponsored launch indemnification program as essential to maintaining 

a domestic commerciallauneh capability, and if so, why? 

Y cs. As a consumer of commercial launch services, we believe the government sponsored launch 

indemnification program is essential to maintaining a domestic launch capability. In our view, the risk 

mitigation benefit provided by the program allows the launch providers to at least partially fix their exposure for 

damages associated with providing launch services and this translates directly into price competitiveness as well 

as the overall cost-benetit assessment that all providers do when deciding whether to enter or stay in the market. 
74 

Chairman PALAZZO. I thank the panel for their testimony. Reminding Members that Committee rules limit questioning to five 

minutes. 

The Chair will at this point open the round of questions. The 

Chair recognizes himself for five minutes. 

Dr. Nield, in your written testimony, you state that foreign 

launch providers are made competitive through government subsidies and preferential foreign national laws. How will extending 

the U.S. liability risk-sharing regime make domestic launch providers more competitive or level the playing field in the face of 

overt foreign subsidies to their launch providers? 

Mr. NIELD. Mr. Chairman, as was mentioned by several of the 

other witnesses, there are a number of factors that go into the selection of a launch provider for a particular mission. One important 

factor is cost. The indemnification regime provides a piece of the 

cost because the provider must purchase insurance or otherwise 

look at the risks that it is facing financially in terms of its investments and its willingness to be in the market. 

We believe that the indemnification regime at least levels the 

playing field with foreign providers. As the GAO has mentioned, in 

general, the foreign providers have more favorable indemnification 

systems under most circumstances. 

Chairman PALAZZO. You recommended a five-year extension of 

the U.S. liability risk-sharing regime. How did you calculate that 

timeline and, for example, do you think the U.S. launch industry 

will sufficiently mature in five years to eliminate or phase out the 

regime, and is there a rationale for extending it indefinitely? 

Mr. NIELD. That is an excellent question. I think there are two 

factors in play here. One perspective that we have heard is industry very much likes certainty in terms of its planning for investment, future operations, and hiring. So, from the industry’s perspective, it would be ideal to know in advance what the indemnification regime is. This seems to support an argument for making 

the regime permanent. 

On the other hand, we certainly understand Congress’s interest 

and desire to be able to periodically examine the program and see 

what works and whether any particular changes are necessary. As 

we mentioned, Congress has approved an extension for just a few 

years at a time a number of times in the past. 

As a result, the Administration believes that extending indemnification for five years would be a reasonable compromise. This 

would allow at least some near-term certainty for industry in terms 

of its planning and allow Congress to take another look when 

things have matured. After five years, we should see a lot more activity in terms of the sub-orbital market that is starting to develop. 

That may offer the Congress an opportunity to see if any additional 

changes are required. 

Chairman PALAZZO. Ms. Cackley, under the current risk-sharing 

regime, FAA sets a maximum probable loss value which also serves 

as a threshold for the second tier, which is the liability assumed 

by the Federal Government. The first tier of coverage is capped and 

fixed at $500 million, but the second tier the government’s assumed 

risk is adjusted for inflation, which began at $1.5 billion in 1989, 

and today is almost double that number. 
75 

Is it prudent that the government should continue to assume 

greater and greater exposure under this shared-risk regime while 

the first tier private insurance remains fixed, and shouldn’t the 

first tier cap be adjusted for inflation as well? 

Ms. CACKLEY. We looked at what industry could provide in terms 

of first-tier coverage and what we have been told through talking 

to insurance brokers and insurance providers is that that first, 

where the first tier cap is right now is the maximum of what industry is capable of providing, is willing to provide. So using an inflation adjustment would take the first-tier cap beyond what we have 

been told industry is willing to go. Now, that is where things stand 

right now. The question is in the future, how quickly industry’s capacity might increase enough to allow that to increase as well. We 

didn’t look at that directly, and so I don’t have an estimate of how 

soon that cap would be able to be increased. 

Chairman PALAZZO. Thank you. I now recognize Mr. Costello. 

Mr. COSTELLO. Thank you, Mr. Chairman. 

Dr. Nield and the other witnesses, I suspect I know the answer 

to this question, but I want to get it on the record. Given that there 

are other high-risk, hazardous industries such as the nuclear 

power industry, that do not have similar shared risks, why is it 

necessary for for the Federal Government to continue this structure 

for the commercial space launch industry? 

Dr. NIELD. As you know, Congress originally structured this system based upon the nuclear power system. 

Mr. COSTELLO. Right. 

Dr. NIELD. There were a number of examples that could be 

drawn on to form this system. It appears that the current system 

represents a reasonable sharing of risks between all key stakeholders with the important point being that the most probable 

losses are covered by the operators themselves, and the less probable ones could potentially be covered by Congressional appropriation. It seems to be a reasonable approach. 

Even though there have been space launches for 50 years, the industry itself, of course, is relatively new. The commercial sector is 

really only now starting to come into its own in terms of its future 

potential. As we look at the insurance capacity that is available 

and the risks of potential catastrophic accidents going forward, we 

would like to see the industry grow and insurance capacity increase 

and the vehicles continue to be made increasingly safe. But right 

now, we think this is a reasonable approach to sharing risk. 

Mr. COSTELLO. Ms. Cackley, would you or other witnesses, would 

you like to comment? 

Ms. CACKLEY. I think I agree with the statement of Mr. Nield 

that at this point in time the industry is not at a place where they 

are capable of taking on what is a small probability but a very 

high-value possibility and which could basically wipe out a company or even several companies if more than one company is insuring a given launch where a catastrophic accident were to happen. 

Mr. SLAZER. I guess I would like to point out two differences in 

this industry. First is that it is something the United States needs 

for national security. Our military is completely dependent upon 

space capabilities to do the superb job they do of operating in mod-
76 

ern combat, and we cannot allow that capability to be dependent 

on foreign suppliers. 

So as long as we are going to need a launch business, how can 

we spread some of that cost out, and then how big is the base we 

can spread that cost out amongst? In the nuclear power industry, 

nuclear power provides about one-fifth of American generating capability. That is about 60 million customers can help share the cost 

of insuring those plants. In this case you are talking, even in the 

wildest hope of U.S. recapturing market share the next five or 

seven years, maybe 40 launches a year, 50 launches a year. Tremendously increased from our seven or eight now, but nothing near 

to the point where each launch could only take a very small part 

of the risk if you were to eliminate the risk mitigation capability 

that is there right now. 

Mr. COSTELLO. Thank you. 

Ms. ALFERS. We would echo that. I would describe the launch industry from the standpoint of a consumer as reemerging. It has 

been on years of decline, and it is now trying to recover, and the 

success, the factor that will determine whether or not it does succeed in recovering will be companies like SpaceX and smaller companies that are willing to invest in this industry. 

I don’t think some of the smaller companies right now are prepared even just on the strength of balance sheet basis to self-insure, to take on these risks right now to self-insure, and any incremental costs for even the larger providers I can tell you as a consumer will drive us, not out of desire but out of necessity, to foreign 

providers because when we are forced in a position to pay, you 

know, 40 percent premium or more on launches, we either have to 

reflect that in our pricing to our customers, and our largest customer is the U.S. government, or we have to absorb that and take 

it out of our margins. And at some point that just has such a negative effect on our bottom line that we have no choice but to go to 

foreign providers. 

So the Indemnification Program I really see as a backstop that 

will help turn this industry around and return it to a thriving industry, we hope, because we would very much prefer to be launching on U.S. providers. 

Mr. COSTELLO. Thank you. Dr. Nield, under the existing regime, 

would the FAA calculate the risk of potential third-party losses for 

unmanned versus manned or orbital versus suborbital flights differently? And if not, should they? 

Dr. NIELD. We would use the same methodology. We think it is 

appropriate because, again, the purpose of the indemnification regime is to provide for the payments of third-party claims. Indemnification does not apply to either the flight crew or the spaceflight 

participants. What is on the rocket basically does not matter. What 

matters is the potential damage is done to the members of the public or to property on the ground. 

Theoretically, the numbers could come out differently, depending 

on how reliable the system is, where the launch takes place, and 

so forth. The general methodology, however, would be the same. 

Mr. COSTELLO. Ms. Cackley, did the GAO look at how the FAA 

approached calculating the MPL as compared to other methods of 

assessing risk, and if so, what did you find? 
77 

Ms. CACKLEY. We did look at the maximum probable loss calculation that FAA does, and we found that it is quite different from the 

way the industry in general does that calculation. In some instances it is almost in a reverse order where FAA starts with calculating the loss of casualties and then calculates property damages 

as just 50 percent of what the total casualty loss is. 

The industry, on the other hand, told us that they start from 

doing a much more sophisticated model-based simulation of property damage and then do their calculation of casualties based on 

the area that their estimates calculate would be covered by such 

an accident. 

Mr. COSTELLO. And you have recommended that the FAA change 

their methodology? 

Ms. CACKLEY. We are definitely looking at the methodology and 

have some questions and suggestions for them about ways to improve it. 

Mr. COSTELLO. Very good. Thank you, Mr. Chairman. 

Chairman PALAZZO. I now recognize the gentleman from California, Mr. Rohrabacher. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman. I remember when we were trying to get this through the very first 

time, and it was, it almost did not pass, and if, in fact, I was told 

to pull the bill right before it went for a vote because we didn’t 

have the votes. And let me just note it was a bipartisan effort that 

saved it, and I remember quite well the Democrats who came over 

and helped us on this very much. 

What if this wouldn’t have passed? Would there be a SpaceX and 

Orbital and some of these private companies today? What if we 

would not have passed the Commercial Space Act of 2004? 

Mr. SLAZER. It is difficult to say. I think part of the answer 

would be there would still be a market out there. There would still 

be a market for the U.S. government. In my experience and, as you 

are aware, because of the experience with Huntington Beach with 

the Delta Launch Vehicle, there was a government customer out 

there, which ULA still supports. There are occasional commercial 

launches which they still support, but they could be so much hurt 

by that. The commercial launches could go away, and then the government would be left with picking up the full cost of these launch 

providers. At the end of the day you still need GPS, you still need 

Milsatcom or AEHF and similar systems, and so that is really the 

risk out there. Launch services can be provided. The question is 

how can we make that grow, how can we broaden this space economy and make that bigger. 

Mr. ROHRABACHER. Well, that was the big question. We either 

had to go this route that we are talking about, or there was another route that was lawyers in space, the Lawyers in Space Program, where we would shoot them into space, and that might take 

care of the problem. But, of course, we chose the more focused approach and went with indemnification. Today we are talking about a company having basically $2.7 billion worth of protection. Is that it? 

Dr. NIELD. Again, the amount of insurance that the company 

must procure is based on the maximum probable loss up to a level 

of $500 million or the amount of insurance available at reasonable 
78 

market prices. Above that, then Congress would have the opportunity to appropriate up to $1.5 billion, adjusted for inflation, 

which is $2.7 billion. 

If the claims exceed even that total, then the responsibility, 

again, reverts to the launch operator. 

Mr. ROHRABACHER. But up until $500 million the company would 

have to pay itself, so the company is not off the hook. We are actually not taking responsibility off their shoulders. We are just sort 

of making sure that it is not such a great treat that nobody wants 

to participate. 

Dr. NIELD. That is correct. 

Mr. ROHRABACHER. And we have competition with Russia and 

France and China. Now, of course, we know people who stick their 

head up and sue people, but at least in Russia and China, that 

doesn’t happen unless the government really wants them to. What 

about in France, and what about our European competition? Do 

they have this indemnification, and what does that look like? 

Dr. NIELD. Based on the studies that have been previously done, 

all of the other space faring states, such as the ones that you have 

mentioned, have similar indemnification regimes. Although, in general, these regimes are more favorable because instead of a threetiered system, they only have two tiers, where, again, the company 

would typically purchase insurance up to some amount, but then 

the government would step in, without limit, to pick up any claims 

above that level. 

Mr. ROHRABACHER. Okay. Well, do you believe is it—I will go 

down the line. Do you want this? Should we just take the provision 

out in terms of having to revote on this every, is it four years or 

five years. How many years do we have before we have to do it 

again? 

Ms. CACKLEY. Three. 

Mr. ROHRABACHER. What is the Sunset Provision on this? 

Mr. SLAZER. It ends this year, and it has varied over the last four 

years, last four times it has been reauthorized. I would just note 

that if you look at the development time, five years for a launch 

vehicle, launch system is not an uncharacteristic time from the 

time you first get the idea and you want to build a product to the 

time you actually do your first launch. 

Mr. ROHRABACHER. So if we keep the Sunset Provisions, we 

should not have to do it for another five years? 

Mr. SLAZER. Well, I would hope at a minimum, but I would also 

point out that launch contracts typically happen two or more years 

in advance, and so if you really want to look at the cycle time of 

the industry, it is more, it is longer than three to five years from 

the time you first start thinking you are going to do something 

until you start providing regular services to customers. And the 

closer we can get to that cycle time in the industry, the better it 

will be for investment decisions and the more likely we are to attract capital to develop new capabilities. 

Mr. ROHRABACHER. Okay. Thank you very much. 

Chairman PALAZZO. I now recognize the gentlelady from Maryland, Ms. Edwards. 

Ms. EDWARDS. Thank you, Mr. Chairman, and for Mr. Rohrabacher, just for the record, I am a lawyer, and I actually do want 
79 

to go to space, and I want to make sure there is an appropriate 

MPL calculation for that trip. 

Mr. ROHRABACHER. But our program didn’t have any provisions 

for the lawyers coming back down. 

Ms. EDWARDS. Right. I do want to come back. So thank you. I 

have been looking at this question for indemnification, and really 

my concern has been if there is some predictability in terms of 

what the obligation of the taxpayer would be and how we can establish more predictability with a model that has some way to 

more reasonably calculate what that liability would be. 

And so I wonder, Dr. Nield, I want to talk to you about the modeling that is used for airline carriers and other examples and perhaps we can get a comment also from GAO about this, that would 

give us a little bit more predictability in terms of taxpayer obligation beyond the cap. 

Dr. NIELD. We are eager to look at all kinds of improvements on 

how we do what we do, and we would solicit recommendations from 

GAO, from Congress, and from industry experts about the best way 

to do that. 

In fact, we have already begun an internal effort to look at alternate methodologies. We discussed some of these with the GAO as 

they prepared their report and we shared some of our thoughts on 

that. We certainly benefited from that discussion, and we think it 

would be an excellent idea to review the methodologies that could 

be used. 

I would point out that the GAO had noted that in its discussions 

it found that sometimes a sophisticated model could require, for example, the purchase of a database costing many hundreds of thousands of dollars and experts in order to operate it. So, we need to 

make sure that we balance the costs and the benefits and ask: does 

it really change the MPL? Then we can decide whether that would 

be an appropriate change to make. 

Ms. EDWARDS. Ms. Cackley, before you comment, I wonder if you 

could give us some idea. I am trying to figure out how it is that 

we recognize that the industry, the commercial industry is not mature yet. That is understandable, and I guess that that is some justification for some amount of indemnification. 

And so my question, though, goes to how we can move the industry along so that it becomes mature enough to indemnify itself 

rather than to have over a course of time taxpayers foot that. And 

do you have some ideas of that? If we were, for example, to extend 

for a temporary period, is there some way in which we can, markers that we can identify that could move the industry along to getting some more predictability for a better model so that there is 

some rationale to why we would have a cap or why we would eliminate a cap. What are the things that we could ask for in an interim 

period that could help move the industry along so that indemnification catches up with maturity? 

Ms. CACKLEY. I think one of the key things that has to happen 

is just enough launches have to take place so that industry has a 

better track record for different vehicles, for different companies so 

that risk assessments can be done that take advantage of more sophisticated methodologies, that take advantage of things like simulation, modeling, and that allow for better understanding of prob-
80 

abilities, a richer set of probabilities that can be modeled using 

computer-based technology. 

And that will require certainly data, it requires some expenditure of funds for the modeling, but it also requires time for enough 

launches to happen that you have a better understanding of what 

the risks are based on a track record. 

Ms. EDWARDS. So rather than a five-year extension, for example, 

we could so something shorter and then use this time to begin deliberately gathering the kind of data that we need. Right? 

Ms. CACKLEY. It is definitely important to be gathering the data. 

I don’t have a specific time period that I think is the ideal time period, but certainly we don’t think that it would be a good idea to 

continue with the calculations that we are using and continue that 

indefinitely. 

Ms. EDWARDS. Thank you. Thank you, Mr. Chairman. 

Chairman PALAZZO. I now recognize the gentlelady, Mrs. Adams, 

from Florida. 

Mrs. ADAMS. Thank you, Mr. Chairman. 

Ms. Cackley, I have been listening, and I have listened to your 

discussion about the lack of data, you are going to need more data, 

and I want to kind of start off where my colleague over there left 

off. 

She was asking and you said, well, we need time for enough 

launches to take place with the different vehicles and the different 

categories, and then you need to use the technology from computerizing to do some kind of simulation. 

The question I have is aren’t these vehicles changing rapidly as 

we are moving forward? Or are they staying the same? 

Ms. CACKLEY. Different vehicles are definitely being developed so 

that it depends which vehicle, you use different vehicles for different purposes. 

Mrs. ADAMS. Correct. 

Ms. CACKLEY. Some will have better track records than others, 

and you are right. That is definitely something that will always be 

true that—— 

Mrs. ADAMS. Technology keeps—— 

Ms. CACKLEY [continuing]. Technology will change, and so that 

is another reason why insurance is provided. 

Mrs. ADAMS. Well, then my question is how long do you need 

with these different vehicles to have the capability of determining 

the time enough to make that determination, I guess is the best 

way to ask that. 

Ms. CACKLEY. And I don’t have an answer specifically, but I 

think what we would suggest is that there are risk-assessment experts who could tell you and who should be consulted and be part 

of the discussion. 

Mrs. ADAMS. Right and I know, Dr. Nield, we have talked a lot 

about the modeling for the calculating the maximum probable loss, 

and we all understand the model hasn’t been updated since ’88, 

and GAO has some concerns of that, and we have heard a lot about 

that today. Do you believe that you will be trying to do some kind 

of update to it? 

Dr. NIELD. Yes, definitely. We benefited from our discussion with 

the GAO, and we would welcome additional ideas. 
81 

Mrs. ADAMS. Ms. Cackley, in the absence of a current indemnification system in the United States, would it be possible for the 

Commercial Launch System industry to survive? 

Ms. CACKLEY. In the absence of indemnification completely, I 

think that it is not that the market would go away, but there 

would be probably a large contraction of capacity of insurance, and 

there would be a great increase in cost potentially at some point. 

I think other witnesses have talked about whether that is sustainable in the long term, but we didn’t really look at what that length 

of time might be. 

Mrs. ADAMS. Has there ever been an estimate of the increase in 

the insurance cost if the launch indemnification were to lapse? 

Ms. CACKLEY. No, we have not done that estimate. 

Mrs. ADAMS. Mr. Slazer, if launch indemnification was allowed 

to sunset, is it your opinion that the launch industrial base would 

begin to deteriorate rapidly? 

Mr. SLAZER. Given our low number of launches historically the 

last several years, I don’t know if it would deteriorate much more, 

but it certainly wouldn’t improve. It is more the upside that we are 

risking. 

And I just want to take one quick second to point out a distinction here. Launch vehicles have launched for many years, and some 

of them haven’t changed very much. Delta II has been pretty much 

the same since about 1997, 1998. Soyuz has been around since 

about the 1960s. Those launch vehicles, the maturity helps refine 

your understanding of the probability of loss and the potential consequences of the loss. 

At the same time, two vehicles that are both mature, if one provider has a subsidized indemnification capability as with Soyuz 

and the other as with Delta II does not, you may wind up having 

the U.S. provider being at a competitive disadvantage and going 

out of business anyway, even if they are equal and mature. 

So maturity has to be looked at. It is not going to be the answer 

to this. It just helps you make a better determination of the risk. 

It is not going to solve the issue. 

Mrs. ADAMS. So, again, I will go back to Ms. Cackley then. With 

what Mr. Slazer has just said, we do have enough launches under 

our belts on some of these, and so we could be using that to identify possibly. Is that not correct? 

Ms. CACKLEY. Identify? 

Mrs. ADAMS. We are talking about how do we decide how to indemnify. Earlier when I said something about they are changing, 

and they are changing, but we do have, as Mr. Slazer just said, we 

have vehicles that have been operating, although they have 

changed slightly throughout the years, they are mature enough. 

Ms. CACKLEY. Absolutely, and there is a market of space insurance providers who told us that they would be willing to indemnify 

at a higher level than the current maximum probable loss of the 

average current maximum probable loss of flight launches now. 

Part of what we discovered was that there is a difference between 

what the insurance companies provide now and what they said 

that they would be willing to provide in the future that is currently 

covered by government indemnification. That is not to say that 
82 

there is no need for any government indemnification, but it might 

be able to start at a higher level than it currently does. 

Mrs. ADAMS. Okay. Earlier, because I am getting confused, and 

I just want to make sure. Earlier you said they are not capable or 

willing to provide, and now you are saying that there have been 

some that have said they could. 

Ms. CACKLEY. They are not willing to provide beyond $500 million, but right now they are not asked to provide beyond the maximum probable loss, which is much lower. Ninety-nine million dollars is the average. So what we are suggesting is that there is some 

room for the market to provide some indemnification at a higher 

level than they currently do, but it is still not completely indemnified up to whatever maximum there is. 

Chairman PALAZZO. I want to welcome Chairman Hall to our 

hearing and recognize him for five minutes. 

Mr. HALL. Mr. Chairman, thank you, and I am hesitant to ask 

anything because of not being here, don’t know what questions 

they have been asked, but I listened to the gentleman from California and his debate with Ms. Edwards. I can’t figure out who won 

that, but I am always on her side, usually. 

And the gentleman from California mentioned France. That 

doesn’t do anything to me. There is not a nation in the world they 

won’t surrender to. They will fight to the last American the way 

they have been. So I wouldn’t even consider them, but I do consider 

this. 

Some might be tempted to argue that such a small share of no 

practical consequence. I don’t agree with that. I think, I am convinced without it what small share we now have would all but disappear if we don’t take some action, and I think we are going to, 

and FAA’s Launch Indemnification Program is critical to the 

launch industry and its aspirations to compete for future business. 

I actually look forward to working with you, Mr. Chairman, on 

moving the extension through the House this year. It can be done. 

It probably ought to be done, and I yield back my time, and I thank 

you, Mr. Chairman, for the good work you are doing. 

Chairman PALAZZO. Thank you, Mr. Chairman. 

I now recognize the gentleman from Alabama, Mr. Brooks. 

Mr. BROOKS. Thank you, Mr. Chairman. 

I am a stronger believer in the free enterprise system which typically means less government, not more government intervention in 

the marketplace. Typically government intervention results in distortions in the marketplace, less efficiency, and more cost to taxpayers. 

At the same time, as you are very well familiar, America faces 

probably its greatest financial challenge since the War of 1812, 

when we last went into bankruptcy, not long after that war. We 

have got deficits probably going to be our fourth trillion dollar deficit in a row. We have got a debt where we blew through $15 trillion last year. We are going to blow through $16 trillion just this 

year. Just the increase in one year from fiscal year 2010, to fiscal 

year 2011, and the cost of servicing that debt is larger than the 

cost, this is one-year increase now, is larger than the entire cost 

of the NASA Program, all of our space activities. 
83 

So with that as a backdrop, I want you all to help me out as best 

you can. Taxpayers are being asked to be on the potential hook for 

roughly $2.7 billion should we have a private sector space catastrophe of some kind, and I understand your argument about competition and how this help is needed with respect to that foreign 

competition, but we have got other industries in America who also 

would love to have their insurance costs subsidized by the Federal 

Government and America’s taxpayers. You can talk about steel 

manufacturing, ship construction, bridge construction for our highways, auto industry, just every industry would love to have the 

similar kind of subsidy of its operational costs that the commercial 

space is asking of this United States Congress. 

And so what I would like for you to help me with is why should 

commercial space receive insurance subsidies but not these other 

industries that are also facing stiff foreign competition that threatens to put them out of business, and how do you distinguish commercial space from these other American industries that are similarly facing stiff foreign competition such that you all should receive an insurance subsidy but they should not. 

And I would ask for each of you to respond. 

Dr. NIELD. I will start by reminding you that there actually has 

been no costs to the Treasury or to the general public in the 24 

years that this system has been in place. Should there be a low 

probability, but high-cost, catastrophe at some point in the future, 

Congress would have the ability to make a decision whether or not 

to appropriate the funds above the cost of the insurance. 

The other key point is to recognize that although we are continuing to look at alternate methodologies and the best way to calculate things, we are very confident at the FAA that we have a 

conservative calculation system today. The probability that the 

losses would exceed the maximum probable loss value that would 

be covered by insurance is very, very small, on the order of one in 

10 million. So, there would need to be 10 million launches before 

one would expect to see the indemnification kick in. 

Mr. BROOKS. All right. Thank you, and I am looking at my Committee notes that are similar to what you just said, and I will read 

it into the record. ‘‘In what is commonly referred to as indemnification, should any successful third-party claim be in excess of the 

MPL-based insurance requirement, then the U.S. government is 

authorized to pay up to an additional $1.5 billion, adjusted for post1988, inflation, approximately $2.7 billion today. The payment is 

not automatic and subject to Congressional appropriations.’’ 

But I am hearing you here today because you are expecting the 

Congress will, in fact, provide that indemnification should we have 

some catastrophic accident. 

And so, Ms. Cackley, what do you suggest, or what are your 

thoughts on this? How do we distinguish? 

Ms. CACKLEY. I think that it is true that the industry does expect 

that Congress will appropriate the funds if there were, if indemnification came into play, even though it is subject to appropriation. It is part of what the industry told us is what makes them 

willing to invest and be part of the market is that they believe that 

there is that backstop. 
84 

To your further question about why this industry and not others, 

that is not something that GAO is taking a position on. We learn 

as much as we could about how the program works, but we are 

not—we don’t have a position on why space and not any other particular market. 

Mr. BROOKS. Mr. Slazer. 

Mr. SLAZER. Yeah. I think the answer is that you are going to 

need this whether or not there is a commercial market or not. 

Other industries aren’t in that same position. We can import those 

products, we can do without them we can make other substitutions, 

but we need to have a space launch capability for our national security. 

As a result, we can choose to spread those fixed costs of development and operations over a broader base by bringing in commercial 

businesses and potentially expand that base to the point where it 

actually becomes a job and revenue generator kicking back into the 

Treasury, or we can go down to a minimalistic set of launches and 

have very high costs. 

I would contend that is kind of the inflection point we have been 

at these last couple of years. And that is why we have seen costs 

for DOD launches, costs for NASA launches, NASA has been having a great deal of difficulty getting their science program launched 

because costs have risen so much. We have got the prospect in the 

near future as new companies come online, as new capabilities by 

existing companies are expanded, start bringing those costs down 

and spreading that fixed cost out, but we have to keep this regime 

in place to make that business case work. 

Mr. BROOKS. Mr. Chairman, my time has expired, but is there 

any chance you would allow sufficient time for Ms. Alfers to also 

respond? 

Chairman PALAZZO. Yes. 

Ms. ALFERS. Okay. Thank you. We would echo the national security concern. The U.S. Government needs to have domestic launch 

capabilities available, and in addition to spreading the fixed costs, 

there is also an issue of maintaining the skill set. The launch business is a highly technical business. I mean, it is very complicated, 

and there are a handful of people that do this and do this well, and 

when you take a factory and you shut it down to the point where 

you are running one car off about every four years, you lose that 

skill set. That is a very high-risk situation for the U.S. government 

for when they need to call on those resources. 

Right now the payloads that we launch are heavily relied upon 

by the U.S. government. Our largest customer is NGA, the National Geospatial-Intelligence Agency, and I will tell you that the 

U.S. launch market right now is not appealing to launch on, and 

we are looking at foreign launches for our Next Generation satellite, and unless there are new vehicles that come into the market. 

And I want to make this point. There was discussion about the 

Delta II. One of the things that has happened as a result of the 

reduction in demand is that some of the launch vehicles that have 

been highly reliable and are more appropriately sized for commercial payloads are not available. We are being forced to launch on 

an Atlas V. I shouldn’t say forced, but we are launching on an 

Atlas V, which is a much more expensive and much larger vehicle 
85 

than we would prefer to launch on, and that is simply a product 

of, or byproduct of, the declining U.S. launch industry. 

So, in the interest of national security, we think it is very important that the U.S. industry fosters innovation, and we see the Indemnification Program supporting that because it does fix risks to 

some degree for the launch providers, and without that to answer 

an earlier question, I actually do think the U.S. launch industry 

will gradually fade away to a point that will be very detrimental 

to national security. 

Mr. BROOKS. Thank you for your insight, and Mr. Chairman, 

thank you for the additional time. 

Chairman PALAZZO. At this time, we are going to enter into a 

second round of questions where each Member will be allowed the 

opportunity to ask one question, and we will begin with the 

gentlelady from Maryland, Ms. Edwards. 

Ms. EDWARDS. Thank you, Mr. Chairman. I just have a couple of 

questions here. 

Ms. Cackley, there has been a lot of discussion about the impact 

on international competitiveness. Did GAO find any documented 

evidence regarding the impact of shared risk, third-party liability 

on international competitiveness or analysis that if we didn’t have 

that protection, it would result in the loss of business to foreign 

launch providers? 

Ms. CACKLEY. We did not find documented evidence. We certainly talked to launch customers who told us that because their 

two main factors that they look at are price and reliability and the 

indemnification has an impact on price, you can make the connection that it has some impact, but we could not quantify that. 

Ms. EDWARDS. Are there other factors that impact competitiveness of the domestic launch provider? 

Ms. CACKLEY. Besides—— 

Ms. EDWARDS. Besides the shared-risk regime? 

Ms. CACKLEY. No. There are certainly many factors that affect 

competitiveness besides this regime. 

Ms. EDWARDS. And even though we have had the shared risk, we 

have still lost market share. Right? 

Ms. CACKLEY. That is right. 

Ms. EDWARDS. And then I just have a question regarding the 

analysis about behavior. Has GAO made any determination or Dr. 

Nield, perhaps you could answer this, as to whether risk management practices among the providers, among the companies would 

be affected by eliminating the cap? 

Dr. NIELD. In our discussions, it certainly has been made very 

clear that industry considers the current indemnification regime to 

be vital. The big concern I would have is that in the worst case, 

a straightforward business decision would be made that says, we 

can’t afford to bet the company, and so we are just going to withdraw from the industry. It is hard to predict the likelihood of that, 

but that is certainly a very real possibility. 

Ms. EDWARDS. Well, I am wondering, Mr. Slazer, if you could 

comment because my question is whether—what the risk management practices of a company would be if they knew that they 

wouldn’t be on the hook for anything? Because I would think that 
86 

that would actually result in a greater probability of liability for 

taxpayers. 

Mr. SLAZER. Yeah. I guess it is important to remember we are 

talking here about third-party indemnification, and so any of these 

companies that are getting into this business are putting hundreds, 

more likely billions of dollars of their own shareholders’ capital at 

stake in developing these systems, and it is not in their interest to 

do something that is not going to work well. They are going to do 

everything they can to succeed in that business, and with so many 

providers in the very competitive international market with very 

good reliability rates, if you show any indication that you aren’t 

able to deliver reliably, whether or not you have third-party liability issues or not, you are going to lose business. 

And so it is the company’s own self-motivation to make their 

businesses succeed are going to make them highly motivated to 

succeed. Regardless if they are completely indemnified for thirdparty issues, which they are not in the current regime. 

Ms. EDWARDS. Well, so then that would also be an argument for 

keeping the cap, too. Right? The cap, too. Right? Why not? 

Mr. SLAZER. The only reason there would be the competitive relative impact on pricing. So the number I—— 

Ms. EDWARDS. And so what is the documented evidence that you 

have that there would be an impact on competitiveness? 

Mr. SLAZER. The one number I have seen out there, which goes— 

that I recall, that goes back to an aerospace corporation study in 

about 2006, that I believe is still accurate, is that European 

launcher Ariane has a requirement for indemnification insurance 

for maximum probable loss of about $75 million by our $500 million. 

Ms. EDWARDS. I have a note from that same Aerospace Corporation study in 2006, that says, ‘‘Measuring the contribution of indemnification itself, which is critical to considering amendments to 

eliminate it or at the other extreme altering it to reallocate more 

risk to the government, is impossible.’’ Do you agree with that? 

Mr. SLAZER. It is extremely difficult, and I would throw in another factor that is extremely difficult is where companies are operating. If you are operating on the plains of Kazakhstan where no 

one is in the range of possibly being hit by any debris, I suspect 

your indemnification costs are going to have another natural advantage of being lower, but it is very difficult to make that determination. 

Mr. EDWARDS. And just lastly, Mr. Slazer, to what extent do commercial launcher providers purchase third-party liability insurance 

above the level required by the MPL before you would reach the 

cap? 

Mr. SLAZER. I am afraid I am not able to answer that question. 

Ms. EDWARDS. It would be helpful for the industry to be able to 

answer the question as to how much they, I mean, because otherwise in-between $99, whatever it is, $99 million and $500 million. 

That is a really big number. Who is on the hook for that? 

Mr. SLAZER. I will take the action to try to get you some answers. 

Ms. EDWARDS. Thank you. Thank you, Mr. Chairman. 

Chairman PALAZZO. The gentlelady’s time has expired. 

I will ask my one question but of two people. 
87 

Would the FAA need additional, this is for Dr. Nield, will the 

FAA need additional regulatory authorities to extend the liability 

risk-sharing regime to on-orbit activity? 

Dr. NIELD. Yes, we would. As you know, we currently have regulatory authority only over launch and reentry. As the GAO reported, at this point, there is a gap in terms of indemnification and 

in terms of regulatory authority. We have been in discussion with 

some other government agencies about the potential benefits of 

FAA asking for on-orbit authority, and that certainly is an item for 

further discussion. 

Chairman PALAZZO. Ms. Cackley, would you like to add to that? 

Ms. CACKLEY. We certainly recognize that if the FAA is regulating on-orbit activities and licensing for on-orbit activities, it is 

going to increase the number of possible activities that could be eligible for coverage under CSLA, and to the extent that there are 

more of these activities, there will be increased risk to the government in the case of an accident of this type. 

Chairman PALAZZO. I want to thank the witnesses for their valuable testimony and the Members for their questions. The Members 

of the Subcommittee may have additional questions for the witnesses, and we will ask you to respond to those in writing. The 

record will remain open for two weeks for additional comments and 

statements from Members. The witnesses are excused, and this 

hearing is adjourned. 

[Whereupon, at 11:22 a.m., the Subcommittee was adjourned.] 
88 

ANSWERS TO POST-HEARING QUESTIONS
89 

ANSWERS TO POST-HEARING QUESTIONS
90 

Responses of Dr. George C. Nield, Associate Administrator for Commercial Space 

Transportation of the Federal Aviation Administration, to 

Questions for the Record 

Subcommittee Chairman Steven Palazzo 

An Examination of FAA's Launch Indemnification Program 

Space and Aeronautics Subcommittee Hearing 

June 6, 2012 

1. How will commercial manned missions that include launch abort systems, and a crew 

member who may intercede during a potential emergency, impact the methodology for 

calculating the Maximum Probable Loss value? 

Response: We do not foresee much of an impact on the methodology. The FAA is 

confident it can protect public safety while at the same time allow crew to take abort 

actions. Manned missions should not introduce scenarios that would change our 

approach to MPL or increase the MPL value. 

2. How much of a factor does the heritage of a launch vehicle - the number of successful 

launches influence the calculation of the maximum probable loss? All things being 

equal, are new launch systems assumed to be a higher risk than heritage systems, and 

does this in tum generate a different MPL? 

Response: Although new launch systems are assumed to have a higher probability of 

failure than launch systems that have a proven record of reliability, this fact does not 

significantly influence MPL at current launch vehicle reliability levels. That is because 

MPL is not a measure of risk per se; it is a dollar estimate of an extreme event. 

3. If a U.S. sub-orbital launch services company were to establish operations at foreignbased spaceports, what effect, if any, would this have on calculating a maximum probable 

loss for operations at foreign sites? 

Response: The only difference is that the FAA would not establish financial 

responsibility requirements covering pre-flight activities. Pre-flight activities are only 

covered under a license for activities that occur on a U.S. launch site. The flight MPL 

calculation would not differ. 

4. FAA has indicated a desire to seek on-orbit authority. What activities would FAA seek 

to regulate, and by introducing on-orbit activities as a part of the licensing regime, would 

the maximum probable loss calculation be expected to increase as a result of expanding 

coverage to include on-orbit activities'? 

Response: As the industry evolves, and the government's reliance on commercial 

vehicles changes, it may be necessary to revisit some of the statutes and regulations that 
91 

govern commercial space transportation. Specifically, the FAA's statutory authority may 

require expansion and adjustments to definitions to ensure public safety. For example, 

there may be a need for greater regulatory authority in the areas of transportation on orbit 

as well as launch and reentry. Earlier this year, prior to the FAA reauthorization, the 

Administration endorsed the concept of giving the FAA safety oversight of commercial 

on-orbit transportation. We look forward to working with the interagency community 

and Congress as the industry matures and evolves. 

Overseeing the operation in orbit of transport spacecraft could help minimize orbital 

debris generation and on-orbit collisions. In the future, it would also allow for the 

regulation of the safety of people on board spacecraft while in space. 

If Congress chooses to apply a similar shared-risk liability regime to the operation of 

transport spacecraft, and the FAA had the authority to license on-orbit activities, then a 

calculation by the FAA ofMPL values could, in theory, be affected. Note, however, that 

third party damage on-orbit is addressed differently under international law than thirdparty damage on the ground. Liability for damages to space objects on-orbit is faultbased as opposed to absolute liability that attaches to certain third-party damages on the 

ground. It is unclear at this time whether, at the one in ten million threshold applied to 

calculate MPL, the potential for a negligent action by an operator on-orbit causing third 

party damage would have any impact on the MPL calculation. 

5. You stated that FAA estimated the probability of a third party loss exceeding MPL value 

as no less than one in ten million. How did FAA reach this calculation? 

Response: Our goal in setting an MPL value is to choose a value such that there is only a 

one in 10 million (10-7

) chance that the third party claims arising out of a particular 

launch would exceed the insured amount. The scenarios used in the current methodology 

are extremely unlikely using current estimates of launch vehicle failure modes, and the 

probability of a flight safety system failure. That said, quantifying the chance of a rare 

event is difficult with any certainty. 

In the early days of its program, when first employing its methodology, the FAA found 

that calculating the MPL using a threshold inclusive of risk with a higher probability of 

occurrence (e.g., a threshold ofa one in one million chance as opposed to a one in ten 

million chance) resulted in determinations that insurance would not be necessary. 

Accordingly, the FAA relies on a threshold chance of occurrence of one in ten million for 

third party loss in order to prevent the U.S. Government from being exposed to the most 

likely risk, which includes potential liability for the first dollars of loss. The FAA 

believes that this threshold value appropriately balances the industry's need for 

reasonable insurance requirements with the government's need to minimize its liability 

exposure. 
92 

Responses of Dr. George C. Nield, Associate Administrator for Commercial Space 

Transportation of the Federal Aviation Administration, to 

Questions for the Record 

Ranking Member Jerry Costello 

An Examination of FAA's Launch Indemnification Program 

Space and Aeronautics Subcommittee Hearing 

June 6, 2012 

1. Please outline the key reasons for establishing the shared-risk liability regime first passed 

in 1988. What were the goals this regime was expected to achieve and have they been 

met? 

Response: The legislative history of the Commercial Space Launch Act Amendment of 

1988 indicates that Congress established the shared-risk liability regime to address issues 

of insurance industry capacity and the availability of insurance at reasonable rates. 

Congress also became aware of increasingly competitive foreign launch providers 

receiving preferential treatment by foreign governments that included the assumption of 

risk that could otherwise be commercially insured. 

Members of Congress recognized that the federal government must become a reliable 

partner with industry until insurance capacity could accommodate increased insurance 

requirements at reasonable rates. House of Representatives Report No. 100-693 (1988) 

from the Committee on Science, Space, and Technology stated "[t]he Committee views 

this risk burden [the lack of certainty that significant amounts of insurance could be 

obtained] on the emerging commercial launch industry as an intolerable risk that poses a 

major threat to the emergence of an internationally competitive launch industry. The 

absence of any government role in sharing this risk is also inconsistent with recent 

government policies to foster the U.S. industry, which includes plans to utilize 

commercial launch services to meet government requirements, U.S. government 

requirements and international treaty obligations which confer on the U.S. absolute 

liability for activities conducted by its citizens in space." 

Were there currently no shared-risk liability regime, the issues that burdened the industry 

in 1988 would likely reemerge today. The legislative history ofthe 1988 act indicates 

that Congress set the initial $500 million limit on the amount of insurance that could be 

required of a licensee because at the time that amount represented the upper limits of 

insurance capacity available given a practical assessment of the world market. Congress 

was also concerned with recent launch failures affecting the pool of available insurance. 

Similar conditions continue in effect today. 

A recent assessment by the FAA determined that the market capacity for aerospace 

liability is $1 billion. However, capacity may not always mean availability. A GAO 

report released July 30, 2012 addressing, among other things, the current willingness and 
93 

capability of the insurance market stated "[t]wo insurers said that there might be slightly 

more coverage available beyond $500 million, and one said that up to $1 billion per 

launch in liability coverage might be possible in the private insurance market." The 

GAO report also stated insurance industry representatives believed that "[t]he insurance 

market is generally willing and able to provide up to $500 million per launch coverage 

for third party liability ... " Both the FAA and the GAO have found that the industry's 

willingness to provide insurance was susceptible to change due to future market 

conditions or should a large loss occur. Furthermore, the GAO report explained that 

some insurers did not want to offer policies above $500 million because a payout could 

exceed several years of small premiums in comparison to the potential liability, and they 

would risk insolvency. Also, some insurers, brokers, and insurance experts also told the 

GAO that in order to offer policies of above $500 million they might have to charge 

premiums that would likely be unaffordable. 

With regard to foreign launch providers, the GAO also stated that "the United States 

provides less commercial space launch indemnification for third party losses than China, 

France, and Russia. These countries put no limit on the amount of govemment 

indemnification coverage, which in the United States is limited by the Commercial Space 

Launch Act Amendments of 1988." The absence of U.S. Govemment indemnification 

would disadvantage the domestic industry in competing with foreign providers. 

Given the complexity of making predictions, the actual impact on the competitiveness of 

the industry will likely not be fully understood unless indemnification expires, something 

the Administration does not support. As the GAO report noted, "launch companies and 

customers GAO contacted believe that ending federal indemnification could lead to 

higher launch prices for U.S.-based launch companies, making them less competitive 

than foreign launch companies." Relative to insurance premiums, the GAO report stated 

"[a]lthough the cost of third party liability insurance for launch companies has been about 

1 percent of the dollar amount of coverage they purchased, how much this cost might 

increase in the absence of federal coverage is not clear. Launch customers said that the 

price and vehicle reliability were key factors in their choice of a launch company. 

Launch companies reported that additional costs would be passed along to customers, but 

whether this increase alone would be sufficient reason for a launch customer to choose a 

foreign company over a U.S. company is unclear." The Report did mention that some 

customers stated that "they might be more likely to choose a foreign provider if the price 

of U.S. launches rose." 

2. The current cap on third party losses to govemment facilities, such as launch pads, is set 

in legislation at $100 million. Have FAA Maximum Probable Loss (MPL) estimates ever 

exceeded the $100 million cap, and if so, how many have exceeded the cap and by how 

much? With the value of government facilities having increased since the cap was set 

and the significant cost impacts from delays to other missions using the same launch pad 

and government facilities, if they are damaged, is it time to revisit that $100 million cap? 

What would an assessment of the value of relevant government facilities entail? 

Response: Yes, FAA MPL estimates for government property exceed the $100 million 

cap for two launch vehicles from Cape Canaveral Air Force Station the Atlas V and the 
94 

Falcon 9. These determinations were based on possible damage to Launch Complex 39A 

or B. Both launch complexes have current replacement values of approximately $300 

million so it is possible to exceed $100 million of damage to U.S. Government property. 

It may be time to consider revisiting the maximum amount of financial coverage for U.S. 

Government property, although the FAA has not conducted a comprehensive assessment 

of relevant government facilities. We do not at this time have an estimate of what an 

assessment would entail. 

3. Flight termination systems are critical to protecting individuals surrounding the launch 

site. Areas overflown are at risk from debris caused by an induced launch termination. 

a. How is debris propagation affected by the type of flight termination system used 

by a launch vehicle? 

Response: The potential to have a debris impact over a populated area is not 

affected by the type of flight termination system. All flight termination systems 

must meet the same safety standards in the FAA regulations. Thrust termination 

systems are becoming popular because of their simplicity and because in some 

cases they reduce risk compared with destruct systems. 

b. How are your assumptions on the amount of wind factored into the computation 

of debris propagation? 

Response: Wind is not a factor in the current methodology. Risk analysts often 

use statistical wind data in risk calculations. However, because MPL is an 

estimate of an extreme event, the effect of wind is marginal. 

c. Would more sophisticated debris models be of value to FAA in perfonning the 

agency's analysis? If so, are they being developed and if not, why not? 

Response: Yes. Better debris models would improve the FAA's calculation of 

MPL. The FAA, Air Force, and NASA continually research methods to better 

estimate debris generation. 

4. FAA uses different methods for estimating third-party losses for the launch phase (the 

overlay method) and for a re-entry vehicle returning from space (risk profile method). 

Please describe these two methods and why the FAA applies different maximum 

probable loss approaches for launch and reentry. 

Response: In the overlay method, the FAA uses the inert debris produced by a flight 

termination system activation as an upper bound for the debris produced by an 

aerodynamic or explosive breakup. The FAA then overlays the debris over a credible 

population center to estimate casualties. The FAA then multiplies total casualties by 

$3M, which is the estimated cost of a casualty for liability purposes, and then adds 50% 

to this cost to account for property damage. 
95 

The outcome of the risk profile method is a plot that shows the probability of an accident 

causing a given number of casualties or more versus the number of casualties. A similar 

plot of property damage can be produced. These plots are computed using thousands of 

simulated accidents with a debris footprint computed for each, with resulting casualties 

and property damage. This method accounts for behaviors of a failing vehicle, 

probabilities of each scenario, a description of the debris created, numbers and locations 

of people at risk, and vulnerability models for exposed people and structures. 

The overlay method is the FAA's primary method at this time for calculating MPL. The 

FAA has just begun to license reentries. The risk profile method has been used for 

reentry because of the difficulty in determining a credible population center at risk 

without the additional rigor of the risk profile method. 

5. Prospective suborbital flights that are anticipated to carry paying passengers are planned 

to originate and land at spaceports located well within the confines of the continental U.S. 

The designs of several of the suborbital aircraft projected to be used rely on aerodynamic 

designs not unlike those found on aircraft. This would probably lengthen the t1ight time 

over populated areas. What factors will FAA consider in deriving the probability of 

launch and re-entry failure by suborbital vehicles over populated areas? 

Response: The FAA will consider the following factors in the evaluation of the 

probability of launch and re-entry failure by suborbital vehicles over populated areas: 

• The historical reliability of vehicles developed and operated under similar 

circumstances, 

• The degree of component and integrated system level testing, 

• The comparisons of test results to predictions, 

• The fidelity of the test environments, 

• The operator's level of understanding of the environments, 

• The dynamics of the environment encountered in a particular phase oft1ight, 

• The technology readiness level of subsystems, 

• The rigor in monitoring and resolution of anomaly or discrepancy reports, 

• Process control and verification, 

• Analytical rigor of safety assessments, 

• Independent safety assessments, and 

• Key design features, including, but not limited to, full envelope abort capabilities, 

integrated health management, incremental flight test, system complexity, design 

margin, and level of redundancy of safety critical systems. 
96 

Responses of Dr. George C. Nield, Associate Administrator for Commercial Space 

Transportation of the Federal Aviation Administration to 

Questions for the Record 

Congresswoman Donna Edwards 

An Examination of FAA's Launch Indemnification Program 

Space and Aeronautics Subcommittec Hearing 

June 6, 2012 

1. Has FAA recently assessed the capacity of the insurance industry to accommodate thirdparty claims? If so, what were the results of that assessment? If FAA hasn't done so yet, 

when do you plan to conduct such an assessment? If you don't plan to do so, why not? 

Response: Earlier this year, the FAA completed a commercial market assessment to 

determine the availability and affordability of commercial insurance sufficient to meet 

the needs of NASA Commercial Crew Program missions. This report addressed 

numerous insurance issues including the market capacity for first and third-party liability 

coverage. In the preparation of this report interested entities, including the FAA's 

Commercial Space Transportation Advisory Committee (COMSTAC), commercial 

launch providers, the space insurance industry (including insurance underwriters and 

brokers), and academia were consulted. This market assessment has concluded that, 

under current market conditions, and with a notional flight profile of two NASA 

Commercial Crew Program missions per year (launch and reentry), the insurance industry 

has sufficient resources to cover claims up to the maximum CSLA third-party financial 

responsibility limit. Insurance brokers informed us that the insurance market capacity for 

aerospace liability coverage is $1 billion. The only caution provided to this information 

is that to date there has never been a successful third-party liability claim resulting from 

space activities. Some insurers pointed out that the market has not been tested, and a 

large loss early in a program, before there is a chance to build up reserves, could have an 

effect on the insurance industry's willingness to commit additional capital. 

Capacity may not always mean availability. We would like to note that a GAO report 

released on July 30, 2013 stated "[t]wo insurers said that there might be slightly more 

coverage available beyond $500 million, and one said that up to $1 billion per launch in 

liability coverage might be possible in the private insurance market." However, the 

report also stated that "[t]he insurance market is generally willing and able to provide up 

to $500 million per launch coverage for third party liability ... " 

2. In your testimony, you noted that "Extension of the indemnification provision would 

continue to enable industry to attract and maintain a customer base in the face of 

international competitors who offer more certain indemnification." However, over the 

past several years, during which time this provision was in place, the U.S. share of the 

international commercial space launch market declined precipitously. Does FAA have 

any recent quantitative analysis that supports the assertion that the continuation of the 
97 

indemnification provisions for third-party liability would help "enable industry to attract 

and maintain a customer base" or that changes to the provisions would have a significant 

impact on that customer base? 

Response: The FAA does not have any quantitative analysis relevant to the assertion 

noted in this question. We also do not have quantitative analysis that changes to the 

provisions would have a significant impact on that customer base. As the GAO 

concluded in its report released on July 30, 2012, "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 ... in addition 

to third party indemnification." The GAO also concluded, "[t]he actual effects that 

eliminating CSLAA indemnification would have on the competitiveness of U.S. 

commercial launch companies are unknown." Based on the best indicators known to me, 

the U.S. industry needs indemnification to continue to compete with foreign launch 

services providers who offer even more certain indemnitication. 

Given the complexity of making predictions, the actual impact on the competitiveness of 

the industry will likely not be fully understood unless indemnification expires, something 

the Administration does not support. Industry sources have consistently indicated that 

indemnification should be extended, in part because it is important for competition in the 

international commercial launch marketplace. The GAO report noted that "launch 

companies and customers GAO contacted believe that ending federal indemnification 

could lead to higher launch prices for U.S.-based launch companies, making them less 

competitive than foreign launch companies." The report also mentioned that customers 

stated that "they might be more likely to choose a foreign provider if the price of U.S. 

launches rose." Furthermore, in his June 20 testimony before the Senate Commerce 

Committee, Subcommittee on Science and Space, Gerald L. Dillingham, Director, 

Physical Infrastructure, GAO stated "[i]ndemnification is present in all of our competitors 

around the world. You have heard the captain say this morning -- and we heard it several 

times in our work -- that in terms of competition, without that, it could have a potentially 

negative impact on our ability in a competitive way, raise the cost of launches, and send 

business across the water, also impact on our national defense as well and our industrial 

base." What is known is that foreign competitors offer indemnitication. Should 

indemnification not be extended, the industry will have one less advantage than highly 

competitive foreign providers. 

3. FAA's Center of Excellence for Commercial Space Transportation is sponsoring research 

that is trying to develop and establish quantitative safety metrics appropriate for 

commercial space transportation launch and reentry. The tool being developed could 

inform a potential alternative to the current Maximum Probable Loss (MPL) model used 

by FAA and could be applicable to the diversity of future suborbital and orbital space 

launch systems currently being developed. What does FAA plan to do with the results of 

this study, once completed? 

Response: The Center of Excellence for Commercial Space Transportation (COE CST) 

task referred to in this question is entitled "Analysis Environment for Safety Assessment 

of Launch and Re-Entry Vehicles." This tool is designed to calculate risk, not the 
98 

maximum probable loss (MPL). MPL is not a measure of risk, but an estimate of the 

dollar amount of an extreme event. The FAA plans to use the COE tool to provide 

industry an enhanced and credible public risk analysis capability to facilitate planning 

and improve transparency for licensed launches and re-entries. It is unclear at this time 

whether the tool could inform an alternative calculation methodology ofMPL. 

4. In your testimony, you noted FAA's interest in looking at improvements to the 

methodology for estimating third-party losses from commercial space launches, the 

Maximum Probable Loss. What would an independent, external review and analysis of 

the maximum probable loss methodology and an assessment of alternative methodologies 

entail? What do you estimate such a review would cost and what time period would be 

required for the review? 

Response: An independent, external review and analysis of the maximum probable loss 

methodology and an assessment of alternative methodologies would entail an assessment 

of methods to model extremely rare launch and reentry events, to estimate fatalities, 

serious injuries, and property damage from those events, and to estimate liability from 

court cases and settlements. Depending on what organization conducts the review and 

how extensive of a review it is asked to conduct, the review could cost over $500,000 and 

take about a year. 

5. What criteria does FAA use to assess the requirement for continued third-party 

indemnification as part of the shared-risk liability regime currently in place for U.S. 

commercial space launches and reentries? What indicators would signal to the FAA that 

the U.S. government's indemnification is no longer needed or no longer needed at the 

level currently being provided? 

Response: The FAA views the financial responsibility and risk-sharing regime that it 

administers as an interlocking framework of complementary parts. The reciprocal 

waivers of claims between launch participants and the financial responsibility 

requirements that the FAA imposes cover the maximum probable losses that a launch or 

reentry could cause. The conditional payment of excess claims, subject to Congressional 

appropriations, would apply to losses that have only a one in ten million or lower 

probability of occurring. Were indemnification to expire, all components of this regime 

should be assessed. 

Indicators that the FAA assesses now include foreign competition and insurance capacity. 

The current financial responsibility and risk-sharing framework was created with 

Congress recognizing the emergence of foreign launch services made competitive 

through government subsidies and preferential foreign national laws. Foreign launch 

service providers continue today to receive preferential treatment including government 

indemnification. The FAA has recently assessed that market capacity for aerospace 

liability coverage is $1 billion. While insurance industry representatives have recently 

advised GAO that under current conditions "the insurance market is generally willing and 

ablc to provide up to $500 million per launch as coverage for third party liability." Both 

of these indicators reflect a continuing need for indemnification. 
99 

Questions for the Record for Alicia Puente Cackley, GAO, from 

"An Examination of Future Commercial Launch Markets and FAA's Launch 

Indemnification Program" 

House Committee on Science, Space, and Technology 

Hearing on June 6, 2012 

Questions from Chairman Steven Palazzo 

1. In GAO's estimation, should commercial manned missions that include launch 

abort systems and a crew member who may intercede during a potential emergency 

impact the methodology for calculating the Maximum Probable Loss methodology? 

GAO Response: The extent to which the introduction of a pilot should affect the 

Maximum Probable Loss (MPL) methodology would depend on an assessment whether 

the introduction of a pilot provides redundancy for safety controls as opposed to 

introducing potential for pilot error. This is an analysis that FAA would need to 

incorporate into its MPL methodology. 

2. Can GAO provide an estimate of the number of companies worldwide that 

provide third party insurance coverage for commercial launches that originate in 

the U.S. and overseas? 

GAO Response: According to a leading international broker of commercial space launch 

insurance, 16 insurance companies worldwide provide third party insurance coverage for 

commercial space launches that originate in the U.S. and overseas. They are: Chartis, 

Allianz, Amlin, Antares, GAUM, Generali, Hannover, Hiscox, Starr, Kiln, LRA, Tokio 

Marine, XL Insurance, Torus, Global Aerospace, and Argo. 

Questions from Ranking Member Jerry Costello 

1. Is the same shared-risk liability and indemnification regime appropriate for both 

unmanned and crewed launches and also for orbital and suborbital commercial 

space launches or should Congress consider different risk sharing regimes? What 

factors should Congress consider in making that decision? 

GAO Response: Our work did not address whether the same shared-risk liability and 

indemnification regime is appropriate for manned and urunanned launches or whether the 

regime should be different for orbital or suborbital commercial launches. Such issues 

could be addressed in an independent detailed analysis. 

a. Did GAO's work identify issues or findings on whether or not the 

introduction of suborbital and orbital commercial human space launch 

services increases the risk exposure of the U.S. government for potential 

third-party damages? If so, please describe those issues or findings. 
100 

GAO Response: Yes, we identified 3 issues regarding the U.S. government's potential 

risk exposure with commercial human space launches. First, the number of launches and 

landings covered by federal indemnification will increase as NASA procures manned 

launches and space tourism companies begin flights. Second, newly developed launch 

vehicles for commercial manned launches have less launch history and are thus viewed 

by the insurance industry as more risky than "legacy" launch vehicles, which increases 

the government's risk exposure and potential for indemnification payments. Third, 

having people onboard a spacecraft raises the issues of informed consent and cross 

waivers, which could affect third party liability and the potential cost to the federal 

government. The Commercial Space Launch Act requires that passengers and crew on 

launches be informed by the launch company of the risks involved and to sign a cross 

waiver with the government agreeing not to seek claims against the government if an 

accident occurs. 

2. In discussions with insurance representatives, did GAO find any consensus on 

whether inclusion of humans in suborbital and orbital flights would lead to higher 

or lower risks with regards to third party claims? If not, what is the reason for the 

lack of consensus? 

GAO Response: Yes, our work found consensus among insurance representatives that 

the primary determinants of risk in a launch are the reliability of the launch vehicle and 

the flight's trajectory, not whether humans are onboard. 

3. Did GAO examine how the demand for other types of space insurance, such as for 

spaceflight participants, payloads, and launch vehicles, affects the overall insurance 

pool for third-party liability claims? What did GAO find? 

GAO Response: No, we did not examine how the demand for other types of space 

insurance affects the overall insurance pool for third-party liability claims. However, 

insurance companies told us that generally the same pool of insurers provide coverage for 

third-party damages as well as coverage related to payloads and launch vehicles. 

Questions from Representative Donna Edwards 

1. Your statement notes that FAA uses a dollar figure of $3 million for the cost of a 

single potential casualty in estimating maximum probable loss. 

a. What did GAO find as to whether or not that is a reasonable dollar 

figure? 

GAO Response: FAA has not updated this figure of$3 million since it began using it in 

1988. In addition, two insurers, as well as representatives of two companies that 

specialize in estimating damages from catastrophic events (modeling companies), said 

that this figure is likely understated. Because this amount has not been adjusted for 

inflation or updated in other ways, it may not adequately represent the current cost of 

injury or death caused by commercial space launch failures. 

2 
101 

b. Similarly, what did GAO find with respect to how FAA calculates the 

dollar figure for potential third-party property damage or losses? 

GAO Response: 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 propcrties 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. 

Specifically, if a property loss scenario involves the collapse of a building, that scenario 

would have a different casualty expectation than a scenario that did not involve such a 

collapse. 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. 

2. You indicate in your prepared statement that the insurance industry has the 

capacity of insuring third-party losses of $500 million. Since the average 

maximum probable loss determined by FAA is about $99 million, elimination of 

federal indemnification would require launch providers to make up the 

difference. What additional cost in premiums would this add? Would the 

increase in cost be linear or be higher or lower percentage-wise than the 

premium paid for third-party liability insurance at the maximum probable loss 

level? 

GAO Response: Ending federal indemnification would not require launch companies to 

purchase additional insurance coverage. As noted in our testimony, to obtain an FAA 

license, launch companies must demonstrate that they have the financial ability to pay for 

third party damages in an amount equal to the maximum probable loss as determined by 

FAA. Launch companies generally demonstrate this ability through the purchase of 

insurance coverage up to that amount. This requirement will not change if federal 

indemnification ends. That is, the $99 million figure represents the average amount of 

coverage FAA requires launch companies to purchase, which is dependent on FAA's 

licensing process and is not affected by the presence or absence of federal 

indemnification. 

Launch company officials did say, though, that if federal indemnification ended they 

would likely purchase greater levels of insurance to protect against the increased potential 

for 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. Two 

insurance brokers and one insurer told us that the cost to launch companies for 

purchasing third party liability insurance is approximately I percent or less of the total 

3 
102 

coverage amount, so any additional cost to launch companies would depend on the 

amount of coverage purchased. 

3. How does the insurance industry assess and model risk in providing insurance 

for third-party liability and how does its approach compare to FAA's? 

GAO Response: One modeler told us that catastrophe modeling 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 does not incorporate such catastrophe modeling and involves 

estimating only a single loss scenario. 

4. How would removal of the government's involvement in commercial space thirdparty liability affect the third-party liability insurance industry? 

GAO Response: Ending the government's involvement in commercial space third-party 

liability could increase sales of third-party liability insurance, depending on the amount 

of additional insurance coverage, if any, that launch providers might decide to purchase. 

As noted in the testimony, the insurance industry is currently willing to provide around 

$500 million in third-party liability coverage per launch, which is above the average 

amount of coverage currently required by FAA for a commercial launch license. Some of 

the launch companies we spoke to said that if the government's involvement in 

commercial space third-party liability ended, they might seek to purchase coverage in 

amounts above that required by FAA to replace some of the coverage currently available 

through the government. Others said that they already purchased the maximum amount 

of coverage that insurers were willing to sell. 

5. What criteria should Congress use to assess the requirement for continued thirdparty indemnification as part of the shared-risk liability regime currently in 

place for U.S. commercial space launches and reentries? What, specifically, 

would demonstrate that the U.S. government's extension of indemnification is no 

longer needed or no longer needed at the level currently being provided? 

GAO Response: Identifying specific criteria to use for assessing when government 

involvement in third-party liability coverage for commercial space launches was no 

longer needed was not something we examined. However, the amount of such coverage 

the insurance industry is willing to provide for a single launch would be a key factor 

because it would determine the extent to which the industry might be able to replace 

coverage potentially available from the federal government. While the maximum 

coverage available is currently around $500 million, which is above the average FAA 

insurance requirement of around $99 million per launch and the highest requirement for 

any individual launch (around $240 million), this might not always be the case. 

4 
103 

According to some insurers we spoke to, a space launch accident with large third-party 

losses could significantly reduce the amount of coverage insurers are willing to provide. 

Other factors that affect the amount of coverage insurers are willing to provide include 

the number of insurers in the space launch market, the size of the premiums insurers are 

able to charge compared to the size of the potential losses, and the affordability to launch 

companies of the higher premiums insurers would need to charge for higher coverage 

amounts. 

5 
104 

RESPONSES FROM MR. FRANK SLAZER

Questions for the Record 

Ranking Member Jerry Costello 

An Examination of FAA's Launch Indemnification Program 

Space. and Aeronautics Subcommittee Hearing 

June 6, 2012 

1. In your prepared statement you state that "given that the current US risk approach has 

been in place for so long, it is not clear how much additional underwriting capability is 

available in the space insurance market; adding new uncertainty will harm US industry." 

Has the commercial launch industry sought to assess how much third-party insurance 

underwriting capability is available for commercial space transportation? Ifnot, why 

not? 

2. Have any U.S. commercial space launch contracts ever been lost to foreign launch 

providers because of the customer's concern about whether the shared liability regime for 

third-party losses and the provisions for government indenmification would be 

continued? If so, please identify them. 

AlA Response: 

1. Any commercial launch licensed under the FAA Office of Commercial Space Transportation (AST) 

must obtain insurance up to the maximum probable loss as calculated by AST, or no more than 

$500 million as stated in tier one of the indemnification regime. Thus there has been at least 

enough underwriting capability to support these activities in previous years; however it is not 

clear how much additional underwriting capability is available in the launch insurance market 

above the tier one requirement. The FAA's launch risk indemnification backstop has been 

repeatedly extended by Congress, creating the reasonable expectation that it will be renewed in 

the future without completely eliminating the business uncertainty. As a result, the commercial 

industry to our knowledge has not assessed third-party insurance underwriting capability above 

the tier one cap. U.S. launch providers - whether providing commercial or government 

launches, already operate within narrow margins of return on their investments. Additionally, 

over the last 20 years, competition from foreign launch providers - all benefiting from some 

form of government indemnification and other modes of support (including Australia, Brazil, 

China, France, India, Japan, and Russia) has grown significantly. In many cases, foreign 

government indemnification for launch is already more robust than the current U.S. 
105 

indemnification regime. A non-renewal of U.S. government indemnification would absolutely 

drive U.S. launch business overseas. 

2. Although no AlA members have reported losing commercial launch contracts outright due to 

concerns about the continuation of the indemnification regime, the regime itself has been 

identified by launch customers in the past as a distinguishing condition of U.S. commercial space 

launch services. Moreover, as Digital Globe's Alison Alfers remarked during the June 6th hearing, 

her company believes "if the elimination of the launch indemnification regime resulted in any 

incremental price increase ... it would likely be the tipping point where the cost differential 

would be so significant that launch consumers would be forced to use foreign providers 

absent any significant payload safety considerations." 
106 

Questions for the Record 

Congresswoman Donna Edwards 

An Examination ofF AA's Launch Indemnification Program 

Space and Aeronautics Subcommittee Hearing 

June 6, 2012 

1. To what extent would the cost of additional third-party insurance premiums, in excess of 

the maximum probable loss level, translate into price increases for your customers, and 

what would the magnitude of that increase be percentage-\v1se? Whaiisthe basis of your 

estimates? 

AlA Response: 

1. It is difficult to say how the launch insurance market might adjust premiums in excess of the 

maximum, probable loss level, if there is no renewal of the regime. Given that the current U.S. 

risk approach has been in place for so long, it is not clear how much additional underwriting 

capability is available above the tier one regime in the space insurance market. Nevertheless, 

although it is undetermined how much underwriting capacity exists in the insurance market, AlA 

agrees with Digital Globe's June 6 hearing statement that "if the indemnification program did 

not exist, the launch provider would be in a position of having to insure the additional risk, 

either through third party insurance or self insure." This added insurance cost would 

undoubtedly be passed on to either the launch customer or be absorbed by the launch 

provider. u.s. launch providers - whether providing commercial or government launches, 

already operate within narrow margins of return on their investments. Additionally, over the 

last 20 years, competition from foreign launch providers - all benefiting from some form of 

government indemnification and other modes of support (including Australia, Brazil, China, 

France, India, Japan, and Russia) has grown significantly. In many cases, foreign government 

indemnification for launch is already more robust than the current U.S. indemnification regime. 

A non-renewal of U.S. government indemnification would absolutely drive U.S. launch business 

overseas. 
107 

July 31, 2012 

Mr. Steven M. Palazzo 

Chairman, Subcommittee on Space and Aeronautics 

Committee on Science, Space and Technology 

2321 Rayburn House Office Building 

Washington, DC 20515-6301 

RE: Question Response 

Dear Chairman Palazzo: 

Thank you again for the opportunity to testify at the June 6, 2012 hearing on the commercial launch 

indemnification program. Please find below answers to the questions provided in your correspondence 

of July 16, 2012. 

1. What priority would your company assign to the availability of government indemnification in 

selecting a launch provider? 

We believe that availability of government indemnification translates directly to the price offered by a 

launch provider. Specifically, the risk sharing that is reflected in the indemnification program allows 

providers to be more competitive on price and price is a key factor in the selection of a launch provider. 

2. What factors, if any have a higher priority in selecting a launch provider? 

The top two factors in selecting a launch provider for the type of payloads that we fly are, (i) mission 

success rate, and (Ii) price. Other factors including export control issues and administration costs are 

also relevant, but the safety of the payload and the price are the two main considerations. 

3. All else being equal, would your company pay a higher price to a provider whose government 

indemnified some portion of third party losses? 

No. From a contract standpoint we would insist that the provider insure against all risks associated 

with the launch activity. In the absence of an indemnification program, our belief is that providers 

would further raise costs as they take on more risk. In the case of US providers any increases in cost 

would make them less competitive with foreign providers. 

1601 Dry Creek Drlve 

SUite 260 

longmont, CO 80503 

Phone, 303-684-4312 

Fax: 303-684-4570 
108 

Æ 

4. Has government indemnification been a significant determinant in your company's choice of launch 

providers to date? 

To the extent the existence of the program has contributed to containing costs, yes. We do believe the 

program has helped US providers contain costs to some degree, particularly as other fixed costs 

associated with the launch business have rapidly increased and been passed on to customers like 

DigitalGlobe. Without the indemnification program we believe the cost to launch on US providers could 

become prohibitive, particularly as the mission success records of lower cost foreign providers become 

more well established. 

Should you have additional questions, please let me know. 

Sincerely, 

J. Alison Alfers 

Vice President, Defense & Intelligence 

1601 Dry Creek Drive 

Suite 260 

Longmont, CO 80503 

Phone: 303·684~4312 

Fax: 303-584-4570