Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

1 U.S. Department of Transportation

FEDERAL AVIATION ADMINISTRATION
Voluntary L icensing of Amateur Rocket Operations Technical Paper (14 CFR Part 400)

OFFI CE OF AVIATION POLICY AND PLANS ECONOMI C ANALYSIS DIVI SI ON

APO
- 300Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

2 

### Table of Contents LIST OF ABBREVIATIONS
................................ ................................ ................................ ......... 3 Executive Summary
................................ ................................ ................................ ........................ 4 I. Background
................................ ................................ ................................ ................................ .. 4 1. Problem the Rule is Trying to Solve
................................ ................................ ....................... 4 2. Amateur Rockets
................................ ................................ ................................ ..................... 5 3. Summary

of the Rule
................................ ................................ ................................ ............... 5 4. Requirements of Operating under chapter III
................................ ................................ ......... 6 4.1 L aunch Licenses and Permits
................................ ................................ ............................ 6 4.2 Financial Responsibility
................................ ................................ ................................ .... 6 II. Costs
................................ ................................ ................................ ................................ ........... 7 1. Overview
................................ ................................ ................................ .............................. 7 2. Assumptions
................................ ................................ ................................ ......................... 8 3. Operator Costs
................................ ................................ ................................ ..................... 9 3.1 L icensing Costs
................................ ................................ ................................ .................. 9 3.2 Financial Responsibility Costs
................................ ................................ ........................ 10 3.3 Operator Costs
................................ ................................ ................................ ................. 10 4. Government Costs
................................ ................................ ................................ .............. 11 4.1 Cost for F AA to Review and Process a License
................................ ......................... 11 4.2 Financial Responsibility
................................ ................................ ............................. 12 III. Benefits
................................ ................................ ................................ ................................ ... 13 IV . Summary

of Costs and Benefits
................................ ................................ ............................. 14Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

3 LIST OF ABBREVIATIONS

ELV Expendable Launch Vehicle FAA U. S. Federal Aviation Administration MPL Maximum Probable L oss RLV Reusable Launch Vehicle CFR Code of Federal RegulationsVoluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

4 Executive Summary The FAA does not require licensing of amateur rocket operators, who may continue to operate as before without incurring the cost of obtaining a license. The FAA notes that customers, in cluding other agencies such as NASA, may require a license for an amateur rocket operator who wishes to provide launch services or participate in programs such as NASA’s Flight Opportunities Program. NASA has selected seven companies for its Flight Opportunities Program. Some of these companies may launch amateur rockets under the program. NASA is requiring these operators to conduct their launches under a launch license. Therefore, the FAA is amending its rules to now allow amateur rocket operators to v oluntaril y obtain a launch license or permit to launch Class 3 amateur rockets. Operators of Class 3 amateur rockets that choose to obtain a launch license or permit will incur costs when appl yi ng for and renewing a license or permit, and will incur insur ance costs. The FAA will incur costs to process and review the applications. Whenever a license or permit is issued the FAA will incur a cost to produce the authorization. The FAA costs will be $1.8 million, or in present value $1.5 million at a 7% dis count rate and $1.7 million at a 3% discount rate. The FAA’s costs are a cost of the rule and have been attributed to the rule in the preamble to that document. Operators who choose to obtain a license under this rule will also incur costs . However, beca use a license is not an FAA requirement, the FAA attributes the costs of operator compliance to the customer, not to this rule. Operators will incur costs of $ 2.0 million ($1. 7 million present value using a 7% discount rate and $1. 9 million present value using a 3% discount rate). Because this rule will allow amateur rocket operators to voluntarily obtain a license or permit for these launches, operators who choose to launch amateur rockets under a license or permit will do so only if they expect that the benefits will exceed the costs. Operator benefits are expected to equal or exceed their costs. For ease of reading, the FAA assumes all operators further discussed in this document are operators who have made the business decision to apply for and obtai n a license or permit, even though not required to do so by the FAA. I. Background 1. Problem the Rule is Trying to Solve On May 26, 2011, NASA issued Release 1 11
- 170 seeking proposals for services from commercial suborbital flight providers and others in support of its Flight Opportunities Program.

1 http://www.nasa.gov/home/hqnews/2011/may/HQ_11
- 170_Commercial_SRLV_RFP.htmlVoluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

5 On August 9, 2011, NASA issued Release 2 11
- 258 in which it selected seven companies to support this program thro ugh launches to near space. NASA has required these operators be licensed b y the FAA for the financial responsibility requirements of the Commercial Space Launch Act (CSLA) to apply . However, c hapter III does not appl y to amateur rockets , 3 as stated in § 400.2 “ The regulations in this chapter do not apply to amateur rockets activities, as defined in 14 CFR 1.1”. In order to support NASA’s program, the FAA is amending its regulations to allow non
- U.S. government operators of Class 3 advanced high
- power rockets to submit an application for a license or experimental permit under chapter III **.** The NASA program requires operators to have licenses (and does not allow permits), but the FAA is amending its rules to also include permits to enable operators who are not part of NASA’s program to obtain permits for Class 3 amateur rocket launches. Experimental p ermits are issued for reusable suborbital rockets flown for: research and development; showing compliance with requirements for a license or crew training p rior to obtaining a license. Compensation or hire is not allowed under a permit. This rule is enabling b y allowing but not requiring, amateur rocket launches to be conducted under a license or permit. Amateur rocket operators who do not wish to operate under chapter III will not be required to apply for a license or permit, but they will not be able to participate in NASA’s Flight Opportunities Program or other programs that may require a launch license or permit
. 2. Amateur Rockets Amateur rocket means an unmanned rocket that:(1) Is propelled by a motor or motors having a combined total impulse of 889,600 Newton
- seconds (200,000 pound
- seconds) or less; and (2) Cannot reach an altitude greater than 150 kilometers (93.2 statute miles) above the earth's surface. 4 Chapter III, which regulates commercial space transportation of title 14 of the Code of Federal Regulations currentl y does not apply to amateur rocket operations. Although amateur rocket operators currentl y do not operate under an FAA license or a permit , operators generally file for a certificate of waiver or authorization under 14 CFR part 101 to conduct operations of Class 3 5 6 7 amateur rockets. 3. Summary

of the Rule

2 http://www.nasa.gov/centers/dryden/news/NewsReleases/2011/11
- 258.html . The seven companies ar e: Armadillo Aerospace, Near Space Corp., Masten Space Systems, Up Aerospace, Inc., Virgin Galactic, Whittinghill Aerospace LLC, XCOR. 3 Amateur rockets are regulated under Subpart C of Part 101 of the Code of Federal Regulations 4 Title 14 Aeronautics and Space Part 1 Definitions and Abbreviations § 1.1 General definitions. 5 § 101.22 Definitions 6 The information required under a w aiver or authorization are found in Title 14, § 101.29 Information requirements. 7 Requirements for Amateur Rocket Activities, 73 Fed. Reg. pg.73768, Dec. 4, 2008.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

6 The rule will allow launch operators conducting certain amateur ro cket launches to voluntarily apply for a commercial space transportation license or permit under 14 CFR chapter III. The rocket must be a Class 3 8 advanced high
- power rocket as defined in § 101.22 of this title in order for the operator to be allowed to voluntarily submit an application for a launch license. To be clear, the rule will not require these amateur rocket launches to operate under a license or permit, but will allow operators to voluntarily elect to operate under a launch license or permit. 4. Requirements of Operating under chapter III The regulations 9 of Title 14 Code of Federal Regulations (14 CFR) chapter III govern commercial space transportation activities conducted in the United States or by U.S. citizen s . Those operators who are subject to chapter III must apply for a license or experimental permit for their launch operations, which includes submitting data for a safety and an environmental review, 10 and demonstrating financial responsibility
. **4.1 Launch Licenses**  **and Permits** The FAA expects that the majority of licenses that will be obtained for amateur rocket launches will be for reusable launch vehicles although the rule will also apply to expendable launch vehicles. Parts 415 and 417 apply to expendable launch vehicles. Part 4 31 applies to the launch and reentry

of a reusable launch vehicle. Part 435 applies to the reentry of a non
- reusable launch vehicle
. Part 437 applies to experimental permits. Part 440 establishes financial responsibility and allocation of risk requirement s for launches and reentries authorized by a license or a permit. **4.2 Financial Responsibility**  Amateur rocket operators who launch under a launch license or permit have to demonstrate financial responsibility

under part 440. To comply , the licensee can demonstrate the required amount of financial responsibility by obtaining and maintaining insurance in the amount determined b y the FAA or by otherwise demonstrating the required amount of financial responsibility
. A licensee or permittee must obtain and maintain insurance to protect against claims by a third party for bodil y injury

or propert y damage resulting from a licensed or permitted activity as prescribed in § 440.9 (or otherwise demonstrate financial respons ibility). The amount of insurance required is based upon the FAA’ s determination of maximum probable loss (MPL ) 11 ; however, it will not exceed the lesser of:

8 Class 3

—

Advanced High

-Power Rocket me ans an amateur rocket other than a model rocket or high
- power rocket. 9 They currently do not apply to amateur rocket activities. 10 Otherwise known as the National Environmental Policy Act Revie w. 11 The applicant must submit information to the FAA so that the FAA can make the determination of maximum probable loss.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

7 (1) $500 million; or (2) The maximum liability insurance available on the world market at a reasonable cost, as determined b y the FAA. Further, if damages occur above the amount of insurance required under § 440.9, the U.S. government has agreed to pay third part y claims in excess of the amount of liability insurance held by the licensee but not more than $1,500,000,000 12 above that amount. Specific details are found in § 440.19
. In addition to protection against claims by third parties, those operating under a license or permit must also obtain and maintain insurance that covers claims by the U.S. and other parties 13 for propert y damage or loss from the activity
. Specific details are found in § 440.9
. The amount of insurance is based upon a determination of maximum probable loss; however, it will not exceed the lesser of: ( 1) $100 million; or (2) The maximum available on the world market at a reasonable cost, as determined b y the FAA. Amateur rocket operators who choose to obtain a license will be subject to these financial responsibility

requirements. The required level of insurance is d etermined by the FAA on a case - by
- case basis. The FAA will prescribe these amounts for each license, and requires information and data from the applicant for use in its MPLcalculations. The amount of third party liabilit y insurance that the FAA will pre scribe will likely fall within the range of $1 million to $6 million dollars based on the ty pe of amateur rocket vehicles that are currentl y available. Today many amateur rocket launches carry insurance. We assume that on average the FAA will require $3 million of third party liabilit y insurance and that amateur rocket operators will be operating on non
- federal launch sites so the FAA will not require U.S. government property insurance. **II. Costs**  **1. Overview**  The FAA does not require licensing of amateur rocket operators, who may continue to operate as before without incurring the cost of obtaining a license. The FAA notes that other agencies such as NASA may

require a license for an amateur rocket operator who wishes to provide launch services or partici pate in programs such as NASA’s Flight Opportunities Program. Under NASA’s Flight Opportunity Program all launches including amateur rocket launches will have to be licensed. Because a license is not an FAA requirement, the FAA attributes the costs of
12 “As adjusted for inflation occurring after January 1, 1989,” Title 1 4 Aeronautics and Space, Part 440, § 440.19. 13 Including its agencies, and its contractors and subcontractors involved in a licensed or permitted activity.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

8 ope rator compliance to the customer, not to this rule. However, to be transparent, we estimate operator costs of obtaining a license, in the accompanying technical paper. The U.S. government will incur costs in reviewing the additional license applications , ensuring financial responsibility

requirements are met and reviewing the additional environmental anal ys es. The U.S. government will also assume the risk of liability coverage between the maximum probable loss up to an amount not mo re than $1,500,000,00 0 (as adjusted for inflation occurring after January

1, 1989) above the MPL. 14 

### 2. **Assumptions** Assumptions, Estimates and Ground Rules Used in Analy sis :

 All monetary

values are expressed in 2011 dollars.  The time horizon for the anal ys is is 5 y ears because this time period captures all of the relevant costs.  Present value costs are estimated at 7% and 3% discount rates.  Hourly

burdened government rate is $51.72.  Ten operator licenses for launches of reusable amateur rocket vehicles would be issued over the f irst 5 y ears. 15
 Operator licenses for reusable launch vehicles are valid for 2 years.  Operators will begin license renewal process for each license the second ye ar of the license.

**Issuance of Am ateur Rocket Launch Licenses**  **O ver Time** 

 There will be on average 5 to 14 launches per ye ar per license in the first 5 years.  Operators will renew with amendments to include additional configurations.  Cost of these renewals will be 70 percent of the cost of the original license because configurations will be expanded beyond original license.  Estimated cost to operator of initial application is $65,000 and the estimated cost of renewal with additional configurations is $45,500.  Estimated cost to FAA to review and process application is $108,000 and to review and pr ocess renewal is $75,000.

14 § 440.19 United States payment of excess third
- party liability claims. 15 NASA’s flight opportunities program (FOP) has awarded contracts to seven operators
. We assume that in the first 2 years after the rule publishes, three am ateur rocket licenses will be granted. Two m ore amateur rocket operators not involved with the FOP h ave inquired into the possibility of obtaining voluntary licenses for research and development and demonstration launches. It is reasonable to estimate that the FAA could issue up to 10 amateur rocket licenses in the first five years.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

9  Maximum probable loss will be set at between $1 million and $6 million for third part y liability and $1 million and $3 million for U.S. government property

.  For this anal ys is we assume the FAA will establish an average of $3 mil lion third party liability insurance.  An average MPL of $3 million for third party liability insurance will be established, which will cost $3,000 per flight. 16
 Flights during the first 5 years will be from launch sites for which the FAA will not require g overnment property insurance.  We assume amateur rocket operators who choose to obtain a license will decide to launch from a licensed launch site which will already have a completed environmental review or which will have a government grant for preparing an environmental review. This would result in minimal costs. **3. Operator Costs**  **3.1 Licensing Costs** Although, the FAA does not attribute such costs to this rule, the FAA notes, that amateur rocket operators will incur costs to submit the data and analy ses to the FAA for a license or experimental permit and for the cost of third part y liability insurance. These costs are estimated here. The FAA has never licensed or issued a permit for an amateur rocket launch; therefore , there is no historical record for amateur rocket licensing or permitting costs. The FAA expects that the cost to obtain a license for an amateur rocket launch will be significantly less than that for a commercial license . Amateur rockets are by definition 17 suborbital and they have limited performance capabilities. The risk anal ys es for non
- amateur launches are usually more expensive than those for amateur launches. Based on work that the FAA has done with prospective applicants, the FAA estimates that an applicant for a launch license for an amateur rocket will incur costs of $65,0 00 to comply with all the requirements of appl yi ng for a license and $45,500 to comply

with the requirements for a renewal. 18 License applicants will take the following general s teps to apply for an amateur rocket license

 Pre
- application consultation  Preparation of license application  Resolution associated with the application process

16 This is a conservative estimate which assumes the policy covers only one flight. Where a policy covers multiple launches as is assumed here the premium per flight could be less. 17 Title 14 Aeronautics and Space § 1.1 General definitions. Amateur rocket means an unmanned rocket that: (1) Is propelled by a motor or motors having a combined total impulse of 889,600 Newton
- seconds (200,000 pound
seconds) or less; and (2) Cannot reach an altitude greater than 150 kilometers (93.2 statute miles) above the earth's surface. 18 The FAA includes permits as enabling. As the NASA requirement is for licenses only, we do not estimate the costs or benefits for permits.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

10 In general licensees must comply with licensing application and post licensing requirements in the following general areas to become and remain licensed.

 Policy Revie w and Approval  Safety Review and Approval  Payload Review and Determination
 Post
- Li censing Requirements

—Environmental Review **3.2 Financial Responsibility Costs** The amateur rocket operator who obtains a license will be required to obtain third party liability insurance and government propert y insurance (or demonstrate the financial ability to cover the financial responsibility

the FAA will require.) While the levels have not y et been determined by the FAA, we a ssume for this analy sis that the FAA will require $3 million of third part y liability insurance and that no U.S. government propert y i nsurance will be required. The estimated per launch premium for third party liabilit y insurance of $3 million is $3,000 a lthough it is likely that given multiple flights per license the actual cost will be lower. **3.3 Operator Costs** Based on the assumptions provided above, the cost to operators of appl yi ng for the initial launch license, renewing that license and the cost o f obtaining third part y liability insurance is display ed in the table below. Operators will begin the process of renewing each license in the y ear following the initial issuance of the license. We assume that operators will continue to renew their licens es over the 5 y ears. The renewals are good for 2 y ears. 19 The number of licenses is cumulative, starting with one in the first y ear, two new licenses in the second y ear, for a total of three licenses in y ear two (two new licenses and one existing license) , in y ear three there will be five licenses (two new licenses, two new renewals from the previous ye ar, and the existing renewal from ye ar one). Based upon these licenses, we estimate an average of five launches in the first y ear building up to fourteen l aunches per license b y the fifth ye ar. Estimated per launch cost for insurance is $3,000. In y ear 5 there are fourteen launches per license, and ten licenses for a total of 140 launches times $3,000 for a total insurance premium of $420,000. An estimate d three new launch licenses at an estimated cost of $65,000 per license results in $195,000 and two renewals at an estimated cost of $45,500 each results in $91,000 in y ear five. The total estimated cost to operators who obtain a voluntary license for amateur rocket launches is $2.0 million ($ 1.7 million present value using a 7% discount rate and $1. 9 million present value using a 3% discount rate)
. 19 Based on the assumption that in the first 5 years all launches will be of RLVs .Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

11 **Estimated Industry Cost of Obtaining a Voluntary Am ateur Rocket License**  

### 4. **Government Costs 4.1**  **Cost for FAA to Review and Process a License**  FAA costs associated with reviewing and processing amateur license and permit applications are a cost of the rule. This is because, without the change to the existing rule, no license applications would be reviewed, and th e FAA would not incur costs. The FAA Office of Commercial Space estimates the cost for the FAA to process a license for a Class 3 20 amateur launch rocket as follows: It will require six people working half time to process the application within 120 days . Therefore , the estimated hours are: 2,080 (hours in a ye ar) x .33 ( 120 day s processing time) x 6 (people) x .5 (half time) = 2,080 or a full work ye ar. An average salary for the six people processing the application would be $51.72 an hour. The estimated cost to review and process an amateur rocket license application is $108,000 per launch license. The FAA estimates the cost to review and process a renewal to be $75,000 per application.

20 101.22 (c) Class 3

—

Advanced High

-P ower Rocket means an amateur rocket other than a model rocket or high
pow er rocket.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

12 The total estimated cost to the FAA to process and review the applications and renewals is $1. 8 million ($ 1.5 million present value using a 7% discount rate and $1. 7 million present value using a 3% discount rate) over 5 y ears.

**FAA Cost to Com plete Review and Processing of Launch License Applications**  **and Renewals 4.2**  **Financial Responsibility** The government would also bear the costs of the continued pay ment of excess claims should damages occur that exceed the liability insurance prescribed b y the FAA, which is based on the FAA’s determination of maximum probable loss. The following paragraphs from the CFR define maximum probable loss. “Maximum probable loss (MPL) means the greatest dollar amount of loss for bodily injury o r propert y damage that is reasonabl y expected to result from a licensed or permitted activity ; (1) Losses to third parties, excluding Government personnel and other launch or reentry participants' employ ees involved in licensed or permitted activities, that are reasonabl y expected to result from a licensed or permitted activity are those that have a probability of occurrence of no less than one in ten million. (2) Losses to Government propert y and Government personnel involved in licensed or permitted activities that are reasonably e xpected to result from licensed or permitted a ctivities are those that have a probability o f occurrence of no less than one in one hundred thousand. ” 21 The threshold probabilit y represents the probability of an event resulting in losses at the greatest dollar amount that is reasonably expected to re sult from a licensed or permitted activity . The threshold probability

is a quantitative measure selected by the FAA as representing the probability

of occurrence associated with accidental events from licensed or permitted activities. The values of 10 - 7 and 10 - 5 are the thresholds used for third part y (bodil y injury) and Government

21 Title 14: Aeronautics and Space, Part 440
- Financial Responsibility § 440.3 Definitions.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

13 propert y damage, respectively, established in the definition of MPL quoted above. 22 The MPL determination for third party liabilit y damages related to an amateur rocket launch, while determined on a case b y case basis, is assumed to range from $1 million to $6 million per launch. In other words there is a 10 - 7 probability of an event r esulting in claims of $1 million to $6 million (if that is the MPL determination). The probability of an event resulting in claims of $1.5 billion 23 bey ond the MPL(which is the maximum amount the government would be expected to indemnify) would be signif icantly less. What the threshold probability is telling us is that one in 10 million launches might result in third party liabilit y damages of $1 million to $6 million (which would range from $0.10 to $0.60 per launch.) The probability of third party lia bility damages occurring at levels greater than the MPL would certainl y be no more than 10 - 7

. Therefore, the cost of government indemnification of third part y losses up to $1.5 billion beyond the MPLof $1 million

- $6 million would not exceed $150 24 per launch, and will certainly be significantl y lower than that. However, in a worst case scenario, the U.S. government could be liable for up to $1.5 billion (after being adjusted for inflation) of third party liability claims. This possibility

is extremely remote, especially in light of the fact that the maximum probable loss is expected to be no more than $6 million. III. Benefits NASA has selected seven companies to support its Flight Opportunities Program. NASA has required companies launching under the program be licensed b y the FAA. Some of these companies might launch Class 3 amateur rockets under the program. Under the current CFR amateur rocket launches may not be licensed. This rule will allow amateur rocket operators to voluntarily

obtain a li cense or permit and to operate under chapter III. The amateur rocket operator chooses whether or not to obtain a license or permit for amateur rocket launches. Therefore, an yone who chooses to obtain a license under this rule will do so because they expe ct benefits in excess of their costs. Assuming 10 licenses are issued in the first 5 y ears, operators will voluntarily

expend a total of $2 million ($1.7 million present value using a 7 percent discount rate and $1.9 million present value using a 3 percent discount rate) over 5 y ears for licenses. An y benefit to the operator associated with having a license will be realized onl y after an operator has incurred the cost of obtaining a license. This rule will result in more rocket launches which helps fulfi ll an FAA mission to encourage private sector launches. The FAA is not able to quantify

other societal benefits of issuing these licenses.

22 The greatest dollar amount of losses to third parties, excluding Government pers onnel and other launch or reentry participants’ employees involved in licensed or permitted activities that are reasonably expected to result from a licensed or permitted activity are those that have a probability of occurrence of no less than one in ten m illion or 10 - 7 . The greatest dollar amount of losses to Government property and Government personnel involved in licensed or permitted activities that are reasonably expected to result from licensed or permitted activities are those that have a probabili ty

of occurrence of no less than one in one hundred thousand. 23 As adjusted for inflation occurring after January 1, 1989. 24 Before being a djusted for inflation.Voluntary Licensing of Am ateur Rocket Operations, Technical Paper 6/21/2012

14 IV . Summary

of Costs and Benefits T he estimated cost attributed to the issuance of licenses under this rule is $ 1. 8 million ($ 1.5 million present value using a 7% discount rate and $ 1.7 million present value using a 3% discount rate) over 5 y ears for the cost to the government as indicated in the table below. As discussed above the rule does not require operators to incur costs, but to be transparent we include these $2.0 million costs to operators ($1.7 million present value present value using a 7% discount rate and $1.9 million present value using a 3% dis count rate) as presented below
. **Costs to Government** 

**Costs to Operators**

Because this rule will allow amateur rocket operators to voluntarily obtain a license or permit for these launches, operators who choose to launch amateur rockets under a license or permit will do so only if they expect that their benefits will exceed their costs. This rule will result in more rocket launches which helps fulfill an FAA mission to encourage private sector launches. The FAA is not able to quantify other soc ietal benefits of this rule. To the extent the licensing requirements provide a societal benefit, those benefits, including an y reduction in risk, may attend this rule.