Important note: as in previous episodes, EPISODE 14 comes in two parts.
By: Lawrence Kuznetz
Tags: Coronavirus, NASA, Quarantine, Risk Taking, Business Strategy

Important note: as in previous episodes, EPISODE 14 comes in two parts. The first relates personal experiences at NASA to the Coronavirus pandemic, while the second is a distinctly separate analysis of the current pandemic situation relevant to each reader. If you have no interest in space, you can skip right to part two. Keep in mind however that despite the title Save the Shuttle, the non-fiction book from which these episodes are excerpted, part one is not just about the space shuttle but the future of the space program including the adventures of Elon musk, Jeff Bezos and other movers and shakers in the industry. Enjoy!

EPISODE 14. THE PLAN

It’s a rite of passage: do it or you won’t get to first base. Are there experts out there who know how to write the perfect business plan? Yes, and and I was hoping Colin Bache, our CEO was one of them.

Despite all the fancy words, graphics and bravado or “fluff” as we called it that would be in the business plan, success or failure would hinge on a single page: an Excel Spreadsheet of income versus expenses. Otherwise known as the Show Me The Money page, thatʼs where the banks, fundraisers and venture capitalists would look first. And the more money needed, the closer theyʼd look.

In short, it would all boil down to answering 3 questions:

1: Whatʼs it going to cost to re-fly Shuttle?

2: How can it make money?

3: How much?

The answer to Question 1 would be a guess because the real cost of the Shuttle program had been controversial for decades. Building a shuttle was the easy part. That tipped the scales at roughly $2 billion according to NASA — 1.7 for the orbiter, and another 300 million for the ET (external tank) and SRBs (solid rocket boosters). We wouldnʼt have to build a new orbiter but we would need ETs, SRBs and other parts. Weʼd also have restart costs. Endeavour, Discovery and Atlantis were sitting in the OPF waiting to be dismembered for shipment to museums and weʼd have to undo all of that. The factories that made key parts had been closed, people had been laid off and engines had been designated for other uses (repurposed in NASA speak). The restart cost alone could be staggering and would take 2 years.

If and when we restarted, the cost of launching could be just as staggering. The Shuttles had been flying for 30 years powered by a roughly $5B/year NASA budget since 1981 for a grand total of $150 billion. During that time 135 missions had flown so dividing A by B yielded a whopping 1.1 billion per launch. That was an upper limit we figured.

On the other hand, a good chunk of that was to pay the salaries of people whose jobs had nothing to do with actual flight operations. They got paid 40 hours a week 52 weeks a year whether a shuttle flew or not. Could a private entity do it better than Uncle Sam, and if so, how much better? Internal NASA studies quoted $450 million per launch. Was that the lower limit?

To get an answer to these questions, USA (United Space Alliance) gave us unfettered access to their books and we poured over them until better numbers started emerging: Weʼd need half a billion dollars to get the restart effort going in year 1 and a billion and a half more in year 2 to sustain it. Had we entered the fray only 12 months earlier when the shuttles were still flying we couldʼve avoided that penalty, but spilt milk crying was pointless so we had our first number — $2 billion USD to restart the program (most of it for new external tanks, solid rocket boosters, engine refurbishment, spare parts, thermal protection system tiles and the factories and people to make them).

As for the launch and operational or recurring costs, was it really the 1.1 billion per shot bandied about above, or the lowball $450 million NASAʼs own studies quoted, less than half that? To build confidence in our business model and be conservative, we decided to split the difference and use $725 million per launch. But that would only be during the first year of operations when we would limit ourselves to a single demonstration launch. We would seek an additional $275 million for contingencies that year with the expectation of driving down the cost dramatically.

We now had the answer to Question 1: $3B for the first 3 years.

Next came Question 2: Can the Shuttle make money?

Wise men say it doesn’t matter what a program costs as long as it can pay for itself. Translation: if you’re looking at nearly $3 billion in costs you better show $3 billion or more in income. The first run at it came from our Powerpoint Pitch, and why not? If it impressed USA it was a good place to start. Traditional income streams would come from resupplying the International Space Station; launching commercial satellites; launching military payloads and charging fees to bring astronauts, American or otherwise to and from ISS.

Then there were the things the Shuttles could do that no other craft flying or on the drawing board could — repairing or returning disabled or malfunctioning satellites (the Hubble Space Telescope, for example); flying experiments from NASA, universities or corporations that had to tended by humans and diverting space junk that might threaten a city, or other emergencies.

While these income streams were clear and well defined, they were limited. They were the purview of the staid quasi-government aerospace crowd hence the term traditional. Non-traditional streams, on the other hand were the opposite, placing a premium on brainstorming and creativity. Our team elaborated and expanded on the ideas in the USA PP pitch to yield: income from advertising and sponsorship rights (eg, the Olympics); licensing and merchandising; cable and satellite TV programming and naming rights (if MetLife paid millions to plaster their logo across the Meadowlands sports complex, wouldnʼt they pay us more to do it on the Shuttleʼs ET?). Space tourism came next. Seven billionaires had already coughed up an average of $30 million each for a cramped ride on the Russian Soyuz. Three rides alone on the 7 seat Space Shuttle would pump $100 million in income into our plan and there were thousands of billionaires out there, many interested in space And weʼd be taking them to ISS for a weeklong visit so they might even pay more.

STS-136, our namesake and the first privatized Space Shuttle mission would occur in year 3, the only launch that year. It would demonstrate our technical prowess, financial viability and commitment. Next came games and models and clothing and drinking mugs and space shuttle simulator rides on the six degrees of freedom motion-based shuttle simulator (that could be bought for a song with the shuttles retired). Then there was a lottery. While you might not pay a buck for a lottery ticket that could win you a dream flight aboard the Shuttle and a weeklong space holiday on ISS, if only .01% (thatʼs a hundredth of one percent) of the worldsʼ population were so inclined, $10 million more would be added to our coffers.

With these streams on the table, weʼd answered Question 2, the how part, and it was time for the game breaker, Question 3: How Much? Weʼd have to stack income against cost to answer it, and see where it took us, to profit or loss. We already knew cost ($3B over 3 years), now weʼd have to put numbers next to each stream to get income. Itʼs a bit of a black art, like using the comps in the MLS listings for the bid on your dream house. On the other hand, business plans routinely engage in such art so perfectionʼs not expected.

Our numbers started with $500 million — the predicted income target from launching commercial payloads. The biggest slice of it would come from the communication satellite business and weʼd have to capture only a small chunk to get it. ʻPiece of cakeʼ we figured. Our logic went like this: If you were AT&T, Verizon, Comcast or DirectTV, with tens of millions invested in your latest Comsat, wouldnʼt you rather launch it on a human-rated Space Shuttle than on an unmanned European Ariane or Russian Proton rocket that couldnʼt bring it back if it failed? Not only is the Shuttle more reliable (because itʼs human rated), but its astronaut crew can fix or return your satellite if it doesnʼt check out, thereby saving you the satellite and the whopping charge our competitors would nail you with to insure it as well. Some 240 such satellites had been launched in the 3-year period between 2008–2011 and if we captured just 5% of that market by charging competitive rates, weʼd net $300 M. On top of that the payload expert weʼd recently added to our team figured we could load the empty spaces around each satellite with experiments and knickknacks while limiting the Shuttleʼs payload bay to a conservative 45% of capacity. At the going rate per kilogram, that would bring another $185 million into the fold, bumping the commercial payload income to the $500 M mark. Weʼd still need another $225 M to break even with the 3rd year cost but weʼd only just started. Passenger income alone might do it.

Weʼd bring two types of passengers: astronauts and tourists.

Since the Shuttles had stopped flying in August 2011, only the Russians could carry an American astronaut to space. They now had a monopoly and good capitalists that they were, theyʼd hiked their rate to $50M each. Weʼd have a better deal for NASA. Weʼd fly their astronauts for free in exchange for use of their launch facilities at the Cape. It was a no-brainer. NASA would far rather send them on the Shuttle.

As for tourists or paying passengers, there were 7 seats on the Shuttle and NASAʼs astronauts would fill only 3 of them. At a discounted rate of $35M per seat, undercutting the Russians by $15M, weʼd earn $140 M by filling the other 4 seats with scientists, mission specialists, tourists and yes, even Russian cosmonauts coming home from ISS, all paying passengers!

We were now up to $640 million from our first two income streams alone and hadnʼt yet tapped the others. They would bring in at least $75 M more, we calculated, for a total of $715 M earned in year 3 and that was being conservative.

With that, weʼd answered Question number 3, the How Much question.

Answer: $725 M costs vs. $715 earned = a very respectable $10 million loss in year 3. On the one hand, weʼd have to jam up to 4 satellites into the payload bay on our one launch that year and surround them to the hilt with goodies which might not be feasible. On the other, weʼd been so ultra conservative in our numbers, we might just as easily turn a $10 million profit. But that was just for year 3 when weʼd only have a single launch, our demonstration launch. Launching two flights the following year projected an operating profit of $47.8 M and a $60 M profit the next. By 2022, with 4 flights/year using 2 new Space Shuttles built from scratch to accommodate increasing business, weʼd be off to the races with nearly a billion in profits…at least on paper (the hard numbers are in the Appendix). But there’s more to a business plan then hard numbers and ours was no exception. First up is the Executive Summary and ours started with the following:

“Our venture has a single objective — to reinstate the SPACE SHUTTLE as America’s people and payload space delivery vehicle of choice.”

Next came a section on the market and its potential; another on the pain and the problem; another on barriers to entry and how we would forge them; another on competitors and their profiles, key personnel and so on. There was also a section on Phase 1, 2 and 3 strategies, political issues and human issues. The latter was particularly important since the Shuttlesʼ retirement had caused the loss of 16,000 jobs resulting in an exodus of highly skilled, highly educated workers who might never return to the space program again. STS-136 could mitigate that loss.

We decided to underscore the obvious: It was September 2011, prior to an election year and priceless assets from the most admired program in the federal government were being dismembered and relegated to a garage sale while tens of thousands of its skilled workforce were being let go. Re-flying Shuttle as a slimmed down private venture could reverse that and more. At least 9000 of the 16,000 jobs lost would be restored with an additional 20,000 domino-effect jobs added to the books to serve the commercial needs of towns and cities associated with our venture (restaurants, housing, transport, etc.) We even identified the states that would garner the most jobs and the number of jobs those states would gather (a political incentive in the upcoming presidential election).

Finally, every good business plan must have a Disclaimer; the statement that says past history is no guarantee of future performance. Being no exception, ours stated:

We are fully aware of the magnitude of this objective and the scale of the task at hand. Congress has made a decision — the space shuttle has flown its last flight. Large numbers of key people have already left and infrastructure is being disassembled. However in the short time since this decision was made circumstances have changed dramatically. If ever there was a perfect time to present the concept of a commercial space shuttle it is now. The STS 136 project will be a joint venture with United Space Alliance to fly the Space Shuttles privately and for-profit. This will permit NASA to have a way to fly people and supplies into space at lower-cost or at no cost via a Contra agreement for services and without the burdens of continuing to manage the shuttle fleet in the way it had done previously. Additionally, our venture will maintain the Space Shuttle in American hands, assuring the public and its leaders in Congress and the White House that its investment will continue to reap benefits to the economy for years to come.

There was cause for celebration when we finished:

Questions 1, 2 and 3 had been answered optimistically. And pouring through USAʼs books in greater detail indicated the actual cost per shuttle flight would be closer to $350 million than the $725M weʼd assumed. In one fell swoop weʼd lopped off $150 million. Two things struck us then: As an exploration agency, not an airline operator, NASAʼs custodianship of the Space Shuttle Program had been incredibly inefficient. And second, as a private entity unleashed from the constraints placed upon it by the Reagan and subsequent administrations, STS-136 might not only break even….it could make one hell of a profit.

There was a caveat. The best plan in the world would go nowhere unless shown to the right person and weʼd shown it to no one! And who was the person or entity weʼd show it to? Venture capitalists, NASA, members of Congress, the President of the United States? And who were we to be showing it to them? Other than Randy Stone and MLD, we were a scriptwriter, a philosophy professor, an Englishman and me! Not exactly a whoʼs who of the space world.