Surplus Missile Motors: Sale Price Drives Potential Effects on DOD and Commercial Launch Providers
Published: 2017-08-16T00:00:00

Fast Facts:
Using surplus motors from intercontinental ballistic missiles to launch commercial spacecraft is against U.S. law, in part because it could discourage innovation in the U.S. space launch industry.
We examined potential DOD pricing of these motors and what the effects would be of changing the law to allow use on commercial launches.
Potential benefits include
Increasing the global competitiveness of U.S. launch services
Giving customers more options and flexibility
Potential challenges include
Negatively affecting investment and competition in the space launch industry
An increased workload for the Air Force office that manages the motors

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. government spends over a billion dollars each year on launch activities as it strives to help develop a competitive market for space launches and assure its access to space. Among others, one launch option is to use vehicles derived from surplus ICBM motors such as those used on the Peacekeeper and Minuteman missiles. The Commercial Space Act of 1998 prohibits the use of these motors for commercial launches and limits their use in government launches in part to encourage the development of the commercial space launch industry in the United States. Legislative and policy changes would be needed to allow DOD to sell these motors for use on commercial launches.
The National Defense Authorization Act for Fiscal Year 2017 contains a provision for GAO to analyze the potential effects of allowing the use of surplus ICBM motors for commercial space launch. This report addresses (1) the options for pricing surplus ICBM motors; and (2) the potential benefits and challenges of allowing surplus ICBM motors to be used for commercial space launch.
GAO used Office of Management and Budget criteria to develop a range of breakeven prices, collected detailed motor storage and disposal costs from the Air Force, reviewed industry stakeholder responses to an Air Force request for information about other pricing methods, and interviewed DOD and industry officials.
section_title: What GAO Found
paragraphs: The Department of Defense (DOD) could use several methods to set the sale prices of surplus intercontinental ballistic missile (ICBM) motors that could be converted and used in vehicles for commercial launch if current rules prohibiting such sales were changed. One method would be to determine a breakeven price. Below this price, DOD would not recuperate its costs, and, above this price, DOD would potentially save. GAO estimated that DOD could sell three Peacekeeper motors—the number required for one launch, or, a “motor set”—at a breakeven price of about $8.36 million and two Minuteman II motors for about $3.96 million, as shown below. Other methods for determining motor prices, such as fair market value as described in the Federal Accounting Standards Advisory Board Handbook, resulted in stakeholder estimates ranging from $1.3 million per motor set to $11.2 million for a first stage Peacekeeper motor.
The prices at which surplus ICBM motors are sold is an important factor for determining the extent of potential benefits and challenges of allowing the motors to be used for commercial launch. Potential benefits include
increasing the global competitiveness of U.S. launch services, and
Potential challenges include
affecting private investment negatively, hindering innovation, and disrupting competition among emerging commercial space launch companies; and
expanding the workload of the Air Force program office responsible for maintaining and refurbishing the motors.
Further, uncertainties in underlying assumptions and cost estimates—such as Peacekeeper motor storage and disposal costs—could hinder effective decision making. DOD is also conducting a study on the potential effects of allowing surplus ICBM motors to be used for commercial launch. Because DOD's study is not completed, it is not clear the extent to which its study addresses such uncertainties.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations in this report.

section_title: Letter
paragraphs: The U.S. government spends over a billion dollars each year on launch  activities as it strives to help develop a competitive, commercial space  launch industry from which it can assure its access to space and lower its  launch costs. The Department of Defense (DOD) and the National  Aeronautics and Space Administration (NASA) acquire launch services  for a range of satellites and other payloads that vary by weight. Many of  these launches use large launch vehicles capable of lofting heavier  satellites weighing thousands of pounds. However, for low- and low to  medium-weight satellites, these agencies pursue various launch  strategies, including launching with other payloads, known as ride  sharing, and launching on small and medium class commercial launch  vehicles. Additionally, these agencies have the option to use launch  vehicles derived from surplus intercontinental ballistic missile (ICBM)  motors—that is, rocket motors that are no longer needed to support the  active nuclear arsenal if they meet one of the exceptions contained in the  Commercial Space Act of 1998. Currently, the Air Force stores,  maintains, and tests these motors to provide responsive space launch for  the federal government. The Air Force spends approximately $17 million  each year on its stockpile of about 720 surplus ICBM motors to store the  motors in bunkers, maintain facilities and equipment, conduct research to  ensure the motors are aging safely, and, as the budget allows, dispose of  motors that have become unusable.
Since the enactment of the Commercial Space Act of 1998, federal law  has prohibited the use of surplus ICBM motors for commercial launches  and limited their use for government launches, in part to encourage the  development of the commercial space launch industry in the United  States. However, Congress has raised questions about whether law and  policy should be changed to allow U.S. launch providers to purchase  surplus ICBM motors from the Air Force and use them for launching  commercial payloads, such as telecommunications or earth observation  satellites.
There are widely varying views across the government and commercial  industry on the potential economic and security effects of allowing the  commercial use of surplus ICBM motors. The National Defense  Authorization Act (NDAA) for Fiscal Year 2017 contains a provision for us  to analyze such potential effects, including an evaluation of the effects, if  any, on DOD, the commercial space launch industry, the solid rocket  motor industrial base, national security, and any other areas the  Comptroller General deems appropriate. Because the prices at which  DOD might sell its surplus ICBM motors for commercial launch are a key  factor in assessing potential effects, this report addresses (1) the options  for determining the selling prices for these motors; and (2) the potential  benefits and challenges, including costs and savings, of allowing surplus  ICBM motors to be used for commercial space launch.
To determine the options for pricing surplus ICBM motors, we reviewed  the Federal Accounting Standards Advisory Board (FASAB) Handbook.  We chose to analyze one of the options in-depth—the breakeven price,  which falls under the fulfillment cost valuation method because it  represented a reasonable method for developing a potential motor price  to inform our analysis. Additionally, we selected this option because the  data were available with which to do the analysis. We used generally  accepted economic principles for benefit-cost analysis, including Office of  Management and Budget Circulars A-4 and A-94 to develop breakeven  prices for which DOD could offer the motors. These breakeven prices,  reflecting our calculations of the net present value of motor storage and  disposal costs, are those at which DOD must sell the motors to cover the  costs of transferring them to commercial launch providers. We did not  include sunk cost—that is, the costs previously incurred to develop,  produce, and sustain the ICBM motors—but rather, we calculated  potential prices based on fulfillment cost, which includes all costs that an  entity will incur in fulfilling the promises that constitute a liability. These  costs are the value to the entity of the resources that will be used in  liquidating the entity’s assumed liability. Because some costs vary  depending on the number of projected launches of ICBM-based launch  vehicles, we calculated a range of potential breakeven prices based on,  among other things, low, medium, and high launch rates.
We collected from the Air Force detailed cost information associated with  storing, testing, refurbishing, and disposing of surplus ICBM motors, and  discussed with Air Force officials their future launch and motor disposal  plans. We also obtained and evaluated motor transfer costs from two  recent Air Force launch missions because they represent the most  current cost data on transferring surplus ICBM motors for launch—that is,  moving motors out of storage and preparing them to be integrated into a  launch vehicle at the launch site. To assess the reliability of the motor  storage and disposal cost data, we analyzed Air Force headquarters and  Rocket Systems Launch Program (RSLP) office data, interviewed DOD  officials, and reviewed detailed cost and launch schedule documentation.  We corroborated the data, when possible, across at multiple Air Force  and RSLP sources and conducted additional follow up interviews to gain  additional insight. We determined that the data were sufficiently reliable  for presenting the information contained in this report. Additionally, we  reviewed FASAB criteria to understand other methods for determining the  value and price of surplus ICBM motors. We reviewed all 16 industry  stakeholder responses to an August 4, 2016, Air Force request for  information to understand other perspectives on motor pricing  methodology. Finally, we interviewed Rocket Systems Launch Program  managers and contractor officials about processes and associated costs  of processing the motors.
To determine the potential benefits and challenges of allowing surplus  ICBM motors to be used for commercial launches, we interviewed a  broad range of industry stakeholders including satellite manufacturers,  launch providers, investors, and experts. To obtain a range of  perspectives on the effects of changes to law and policy covering the  transfer of surplus ICBM motors, we identified industry stakeholders  based on our past and ongoing work, including U.S. government launch  providers and emerging providers identified by the Federal Aviation  Administration (FAA), NASA, and recommendations from experts. The  industry stakeholders we interviewed represented the following categories  (1) launch vehicle providers, (2) spaceports, (3) venture capitalists, (4)  industry groups, (5) solid rocket motor industrial base, and (6) payload  satellite companies. Their views are not generalizable. We also met with  officials from NASA and the Departments of Commerce, State, and  Transportation as well as officials from the Under Secretary for Defense  for Acquisition, Technology, and Logistics; the Principal DOD Space  Advisor; the Assistant Secretary of the Air Force for Space Acquisition;  Missile Defense Agency; and the Air Force Space and Missile System  Center’s Rocket Systems Launch Program Office.
To evaluate the potential costs and savings of allowing surplus ICBM  motors to be used for commercial space launch, we conducted a cost  benefit analysis using Office of Management and Budget guidance and  general economic principles. We estimated potential launch prices for a  launch vehicle using surplus ICBM motors at our calculated breakeven  motor prices and compared these prices to publicly available prices of  current and emerging commercial launch vehicles. We also reviewed the  industry responses to the Air Force request for information to ascertain  industry views on the implications of allowing the commercial use of  surplus ICBM motors. Further details on our scope and methodology can  be found in appendix I.
We conducted this performance audit from June 2016 to August 2017 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.
subsections: section_title: Background
subsections: section_title: Encouraging Competition and Launch Vehicle Development to Assure Access to Space
paragraphs: The U.S. government has sought to help develop a competitive launch  industry from which it can acquire launch services in order to lower the  price of space launch and assure its access to space. The Air Force’s  Evolved Expendable Launch Vehicle (EELV) program is responsible for  acquiring intermediate to heavy U.S. national security space launches for  DOD and the intelligence community and has recently implemented a  competitive strategy for acquiring launch services by allowing certified  commercial providers to compete for certain national security launch  opportunities. DOD has historically relied on the EELV program’s  intermediate and heavy launch vehicles to place its national security  satellites into desired orbits. These launch missions have typically taken  2-3 years from initial order to launch date. Additionally, DOD has been  striving for over 10 years to develop launch systems that can deliver  smaller payloads into orbit more quickly. For example, as we reported in  2015, the Air Force’s Operationally Responsive Space office is one of  several efforts underway to develop or demonstrate low-cost responsive  launch capabilities for small to medium satellites. The Operationally  Responsive Space office uses ICBM motor-based launch vehicles,  among others, to deliver quick-response space-based capabilities with  small satellites.
NASA has also sought to acquire launch services from multiple providers  to reduce launch costs and meet the needs of a diverse set of civil  objectives. For example, in 2006, NASA started the Commercial Orbital  Transportation Services program and provided several commercial  companies funding under Space Act agreements to help develop and  demonstrate cargo transport capabilities using commercial space  transportation systems. NASA now uses commercial resupply services  contracts to deliver cargo to the International Space Station.  Additionally, in an effort to facilitate private investment into small launch  vehicles, in 2015, NASA awarded multiple Venture Class Launch Service  contracts to provide access to low-Earth orbit for small satellites. This  effort is to demonstrate dedicated launch capabilities for small payloads  that NASA anticipates it will require on a regular basis for future missions.
The U.S. government has also strived to encourage the growth of the  commercial space launch industry by limiting government activities that  might interfere with market forces. The 1994 National Space  Transportation Policy and Fact Sheet stated that U.S. government  agencies shall purchase commercially available U.S. space transportation  products and services to the fullest extent feasible and generally  prohibited the use of surplus ICBM motors for launch unless certain  conditions were met. According to Department of Commerce officials, this policy continued the generally agreed upon practice that has been in  place since the early 1990s to prohibit the use of surplus ICBM motors for  private purposes. The Commercial Space Act of 1998 prohibited the  commercial use of surplus ICBM motors and directed government  agencies to purchase and use commercial services with only limited  exceptions. Further, the 2010 National Space Policy directs the  government to develop government launch systems only when doing so  is necessary to assure and sustain reliable and efficient access to space  and there is no U.S. commercial system available. The 2010 policy also  instructs agencies to refrain from conducting U.S. government space  activities that preclude, discourage, or compete with U.S. commercial  space activities, unless required by national security or public safety.  The 2013 National Space Transportation Policy directs agencies to foster  and cultivate innovation and entrepreneurship in the U.S. commercial  space transportation sector. Members of the Federal Aviation  Administration Commercial Space Transportation Advisory Committee  and other industry stakeholders have said that eliminating the prohibition  on the commercial use of surplus ICBM motors may harm the commercial  launch industry. Department of Transportation officials said that using  surplus ICBM motors is not innovative and that these motors are old  technology. In response to a House Armed Services Committee report to  a bill for the NDAA for Fiscal Year 2017 and an associated House  member request for detailed information on the costs and benefits, the Air  Force is also studying the potential effects of changing law and policy to  allow surplus ICBM motors to be used on commercial launches and  expects to complete its study later this year. According to Air Force and  DOD officials, if law and policy are changed to allow surplus ICBM motors  to be used for commercial space launches, DOD plans to use the results  of the Air Force study to make a recommendation as to how sales to  commercial providers should be implemented.
section_title: Surplus Intercontinental Ballistic Missile Motors
paragraphs: According to the Air Force, it spends, on average, approximately $17  million each year on its stockpile of about 720 surplus ICBM motors. This  amount includes the cost of storing the motors in bunkers, maintaining  facilities and equipment, ensuring the motors are aging and being stored  safely, and, as the budget allows, destroying and disposing of motors that  can no longer be safely used. The majority of the stockpile is made up of  surplus Peacekeeper and Minuteman II motors. According to the Air  Force, these motors were designed to be used for active ICBM missiles  but were placed into storage starting in the mid-1990s to early 2000s  when they were no longer needed for nuclear deterrence. Newer systems  came online and treaties—such as the Strategic Arms Reduction Treaty  of 1991 and the New START of 2010—resulted in Arms control  agreements with Russia (formerly the Soviet Union) that initiated the  reduction of strategic force assets, including ICBMs, according to  Department of State officials.
The Air Force’s Rocket Systems Launch Program (RSLP) oversees— at  Camp Navajo, Arizona and Hill Air Force Base in Utah— storing,  maintaining, testing, and preparing motors to support government  launches. The program office is to conduct these activities in accordance  with existing nuclear non-proliferation rules, including a requirement to  maintain control over the motors at all times. Figure 1 is a notional  depiction of the process to transfer a set of motors from a storage bunker  to the launch site.
A set of Peacekeeper or Minuteman II motors provides lower stage  propulsion for ICBM motor-based launch vehicles. Peacekeeper motors  typically are grouped in sets of three while Minuteman II motors are  grouped in sets of two. To prepare motors for launch, the RSLP office first  selects a suitable set of motors based on the type of launch vehicle and  the payload capability needs of missions. Officials then use specialized  equipment and facilities at Hill Air Force Base to refurbish the motors for  flight before transporting them to the launch site. The launch service  provider then integrates the higher stages, control section, fairing, and  payload onto the motor stack.
According to RSLP officials, they also monitor the stockpile of motors for  those that can no longer be used for launch because of cracks in the  propellant, discoloration and smell, or other issues related to age and  condition. The RSLP office destroys non-operational motors, as its budget  allows after it has funded all other motor-related activities, either through  static fire, by exploding the motors, or by contracting to have the  propellant—ammonium perchlorate—removed and the motor casings  buried or cut up and sold for scrap. Since 2011, the RSLP office has  destroyed 369 Minuteman II motors, but it has not yet destroyed any  Peacekeeper motors because they are relatively new motors and have  not yet displayed signs of aging.
section_title: Current ICBM Motor- based Launch Vehicles
paragraphs: The main government customers of ICBM motor-based launch vehicles  are within DOD—including the Air Force, Defense Advanced Research  Projects Agency, Missile Defense Agency, and National Reconnaissance  Office. Currently, Orbital ATK is the sole U.S. provider of ICBM motor- based space launch vehicles, of which there are two basic configurations:
The Minotaur I, first launched in 2000, uses two surplus Minuteman II  motors for its first and second propulsion stages and uses two or  three new solid rocket motors for higher-stage propulsion. This vehicle  is capable of launching small payloads, such as cube satellites and  other technology development efforts that weigh up to about 500  kilograms (kg). Since 2000, there have been 11 space launches using  this vehicle.
The Minotaur IV, first launched in 2010, uses three Peacekeeper  motors for first, second, and third stage propulsion and one to two  new solid rocket motors for higher-stage propulsion. This vehicle is  capable of launching medium payloads, such as space surveillance  and other earth observation satellites that range from about 500kg to  2000kg. Since 2010, there have been 3 space launches using this  vehicle.
Figure 2 shows the maximum payload weight capabilities and launch  costs for these two launch vehicles.
section_title: Global Launch Vehicles, Commercial Demand, and Launch Prices
paragraphs: Well-established and new, start-up satellite companies are expected to  drive demand for launch in the low- and medium-weight payload classes  over the next 10-15 years, according to the FAA. For example, according  to the FAA’s 2017 Annual Compendium on Commercial Space  Transportation, the average number of international commercial launches  going to non-geosynchronous orbits, including the subset of low Earth  orbits expected to be served by new commercial small launch vehicles,  will grow from 7 launches per year over the last 10 years to 21 launches  per year for the next 10 years. While about 70 percent of those  launches will launch on medium to heavy capability launch vehicles,  according to the FAA, companies launching new Earth observation  constellations plan to use commercial small launch vehicles currently in  development to launch about 30 percent of forecasted launches. In  2016 there were 85 global satellite launches, 21 of which were  considered commercial and, of these commercial launches, U.S.  providers performed 11. Currently, there is only one U.S.-based  commercial launch vehicle—Orbital ATK’s Pegasus XL—that can provide  dedicated launch for small satellites. Other options for access to space  for small payloads include launching as a secondary payload on a larger  launch vehicle, aggregating them with other small payloads on a larger  launch vehicle, or launching aboard foreign launch vehicles. Existing  global launch vehicles and prices are presented in appendix II.
In recent years, a number of companies have begun to develop small  launch vehicles to support what they expect to be an increase in demand  for small, dedicated commercial payload launches. According to  Department of Commerce officials, the emergence of new small launch  vehicles is mainly the result of investment and technology development in  the United States. Entrepreneurs have announced plans to launch multi- satellite broadband constellations to provide Internet access in remote  regions of the Earth. These constellations consist of hundreds to  thousands of satellites, in some cases weighing between 100 to 200  kilograms each. Although the FAA expects nearly 1,500 commercial  remote sensing satellites to drive launch demand through 2026, in most  cases they will be launched as secondary payloads. According to the FAA  however, this may change as new small launch vehicles become  available over the next few years. Several emerging providers began  conducting test flights in 2017 and some plan to begin carrying  commercial payloads in 2018. These providers plan to launch individual  small satellites at a high rate in order to keep prices low. However,  launch demand is historically difficult to predict in the non- geosynchronous orbit market, as many of the companies driving this  forecasted demand are new and their business plans have yet to be  proven.
section_title: Options for Determining the Selling Prices for Surplus ICBM Motors
paragraphs: Several methodologies could be used to determine the sales prices of  surplus ICBM motors. The price at which surplus ICBM motors are sold is  an important factor for determining the extent of potential benefits and  challenges of allowing the motors to be used for commercial launch. The  pricing methodology that we used in our analysis was to determine  breakeven prices—that is, prices at which DOD could sell the motors and  “breakeven” with, or recuperate, the costs it incurs to transfer them, while  discounting from that price any potential savings DOD could achieve by  avoiding future storage and disposal costs. However, the breakeven price  is just one of several methods that DOD could use to set the sales prices  of surplus ICBM motors. For example, industry stakeholders, in response  to the Air Force’s request for information, provided written input to the Air  Force stating that the sales prices should be based on methods for  determining the value of an asset in the FASAB Handbook, such as the  fair market values or prices of comparable new commercially available  motors.
subsections: section_title: Breakeven Price Analysis
paragraphs: The breakeven price is the price at which DOD could sell surplus ICBM  motors, recuperate the costs to transfer the motors for launch, and  account for savings from avoiding storage and disposal costs had the  motors not been used for space launch. Below this price, DOD would not  recuperate its costs, and, above this price, DOD would potentially achieve  savings. We estimated that DOD could sell three Peacekeeper motors or  two Minuteman II motors—the numbers required for one launch—at a  breakeven price of about $8.36 million or $3.96 million, respectively.  Figure 3 shows the estimated price points per motor set at which DOD  could lose money, breakeven with its motor transfer costs, or achieve  savings; based on our launch demand, storage cost, and disposal plan  assumptions.
Table 1 provides a more detailed breakdown of how we calculated the  breakeven prices.
The RSLP office incurs costs each year to store, dispose of, and transfer  motors for launch, which it could recuperate if it sold motors at a  breakeven price:
Motor Transfer: We found that the cost of transferring motors  (transfer costs) ranges from approximately $4.1 million to $8.5 million,  depending on the motors used and other mission details.  According  to the RSLP office, transfer costs vary from mission to mission  depending on the number and type of motors required, the location of  the launch site, and other factors. Transfer costs include ensuring that  the motors will be reliable for launch, refurbishment to ensure  flightworthiness, transportation between the motor storage facility and  the launch site, and other mission costs. According to DOD, it spends  approximately $4.5 million per Peacekeeper motor set and $1.7  million per Minuteman II motor set to ensure that the motors will be  reliable during flight—referred to as Reliability of Flight. This involves  static fire testing to assess how well the motors are aging.
Additionally, DOD is responsible for restoring motors to flightworthy  status (known as “refurbishment”) and this must be completed on the  motors before they are transferred to the launch site. Refurbishment  costs per launch are roughly $840,000 for a set of 3 Peacekeeper  motors to $460,000 for a set of 2 Minuteman II motors. Transportation  costs are approximately $1.3 million per Peacekeeper motor set and  approximately $130,000 per Minuteman II motor set. Other mission  specific costs that are included in the cost to transfer the motors  include those for activities such as mission assurance, program  management, and facilities and civilian salaries at Hill Air Force Base.
Motor Storage and Disposal: We found DOD spends about $5.8  million to store Minuteman II motors and $2 million to store  Peacekeeper motors each year. Motors are stored under  environmentally controlled conditions at Hill Air Force Base in Utah  and Camp Navajo in Arizona until required for use. It costs DOD  approximately $317,000 to dispose of a set of Peacekeeper motors  and approximately $105,000 to dispose of a set of Minuteman II  motors. The Air Force avoids annual storage and disposal costs over  time as the motor stockpile is depleted at about $183,000 per  Peacekeeper motor set and about $116,000 per Minuteman II motor  set, which is reflected in the breakeven price as savings. The number  of expected future launches affects potential storage and disposal  cost savings to DOD because if more motors are used—either  through launch or disposal, the bunkers in which the motors are  stored are emptied more quickly. We estimated that under the current  government only scenario, the stockpile of Peacekeeper motors would  be depleted in 13-22 years and the Minuteman II motors in 9-10  years. Under a scenario in which motors are also used for commercial  launches, Peacekeeper motors may be depleted more quickly—in 11- 13 years. The stockpile of Minuteman II motors is depleted in 9 years  under a commercial scenario as well because the number of motors  that are disposed of each year is relatively high compared to the  number of motors that could be used for government and commercial  launches.
Our breakeven price calculations rely on assumptions and estimates— based on information we received from the RSLP office—for factors such  as future launch demand, transfer costs, disposal costs and schedules,  and the specific transfer activities for which the Air Force would be  responsible. Differing assumptions would likely cause the breakeven  prices to change. For example, if launch demand is much lower or higher  than current assumptions, consequent changes to storage and disposal  costs would affect savings estimates. Additionally, if some motor transfer  activities the Air Force currently conducts, such as transporting the  motors to the launch site, are instead performed by the companies that  purchase the motors, breakeven prices could decrease. As the Air Force  seeks to complete its study and determine a price at which it could sell  surplus ICBM motors, the assumptions it makes about costs and future  launch demand could significantly change the price points of the motors.
section_title: Options for Pricing Surplus ICBM Motors Varied across Industry Stakeholders
paragraphs: In addition to breakeven pricing methodology, there are additional options  available for determining sales prices for surplus ICBM motors. In  response to the Air Force’s August 2016 request for information, industry  stakeholders proposed that the Air Force use various options for valuing  the motors, which resulted in prices ranging from $1.3 million for a set of  Peacekeeper motors to $11.2 million for a Peacekeeper first stage  motor. These options included basing the price on the comparable  selling price of existing equivalent motors and using the price at which  current buyers are willing to purchase the motors. Five respondents out of  16 proposed prices for Peacekeeper motors. For example, one  respondent suggested $11.2 million for a first stage Peacekeeper motor,  stating that Peacekeeper motors should be based on the comparable  selling price of existing and comparable new solid rocket motors. This  respondent pointed to a provision in the FASAB guidance that states that  the fair value of an asset or liability may be measured at the market value  in established markets, such as for those of certain investments or debt  securities, or it may be estimated when there is no active market. As  such, this respondent stated in both its response and during an interview  with us that there is an active market for the Castor 120 motor—the  commercial equivalent of the Peacekeeper ICBM motor—that can be  used to value the Peacekeeper motor. This respondent estimated the  current fair market value for a Castor 120 motors at about $11.2 million as  of August 2016. One respondent said that the selling price of the motors  should reflect some or all of the historical storage and disposal costs  incurred from the time the motors were determined to no longer be  needed for active nuclear deterrence until present day.
One respondent suggested that DOD should sell a set of three  Peacekeeper motors for about $1.3 million. According to this respondent,  the motors are not an asset that should be sold at a high price, but rather  a liability that requires funds to support storage, security, safe handling,  and ultimately require an expensive disposal process. This respondent  stated that fair value of the motors is the price at which current buyers are  willing to purchase the motors. However, officials at the Department of  Commerce with expertise on international trade and the commercial  space launch industry stated that selling a motor to a purchaser for less  than a price that covers the motor’s costs and expenses could result in a  subsidy to the purchaser, which may violate U.S. international trade  obligations.
section_title: Potential Benefits and Challenges of Selling Surplus ICBM Motors for Commercial Launch
paragraphs: Based on our analysis of the potential effects of selling surplus ICBM  motors to launch providers for commercial launches, there are both  benefits and challenges. Allowing U.S. companies to use surplus ICBM  motors for commercial space launch could benefit the U.S. commercial  launch sector by increasing the global competitiveness of U.S. launch  services, providing U.S.-based launch customers more launch options  and greater flexibility, and increasing demand for newly-manufactured  solid rocket motors. DOD may also benefit through increased  opportunities to utilize its personnel with specialized motor handling skills  and offset some of the fixed costs to maintain the safety of the motors if  commercial launches drive an overall increase in launch demand.  However, the commercial use of surplus ICBM motors could create  challenges, such as discouraging private investment and disrupting  competition among emerging commercial space launch companies.  Moreover, DOD may encounter challenges balancing an expanded  workload with its other essential missions and tasks and determining the  price of the motors. Furthermore, additional analysis is important to  address several unknowns, such as whether or not a potential  commercial provider could take control of the motors earlier on in the  process or how, if at all, the RSLP office may be affected if demand for  surplus ICBM motor-based launch vehicles is different than expected.  Because the use of surplus ICBM motors for commercial launches may  create competition for existing and emerging commercial space launch  providers, the degree to which these benefits and challenges are realized  largely depends on price at which DOD sells the motors. Specifically, the  effects are likely to be more significant if DOD sells the motors at a price  that allows one or a small number of providers to offer launch services at  prices lower than those of existing and emerging commercial launch  providers.
subsections: section_title: Commercial Use of ICBM Motors Has Several Potential Benefits
subsections: section_title: Increased Launch Capability, Competitiveness, and Flexibility
paragraphs: Allowing the use of surplus ICBM motors for commercial space launch  could increase domestic launch capability to low-Earth orbit and the  global competitiveness of U.S. launch companies. Additionally, ICBM  motor-based vehicles could provide launch customers with more options  from which to choose launch services as well as greater schedule  flexibility. Since 2014, U.S. companies have captured a greater share of  the global launch market through, in part, the introduction of new large  payload launch vehicles. Currently, however, domestic commercially  available launch vehicles in the small to medium payload launch  capability cost more per kilogram of payload than similar options from  foreign launch providers. Per kilogram launch prices, as shown in table 2,  are estimates based on publicly available information. According to  Department of Transportation officials, the price a launch customer  ultimately pays depends on a range of factors, including mission  objectives and market conditions. Launch prices may also differ between  primary and secondary payloads.
According to DOD, since fiscal year 2006, foreign launch providers have  aggregated about 100 U.S.-manufactured payloads that could have been  launched by a U.S. launch vehicle. It is not clear how many ICBM-based  commercial launches would have been needed to serve these 100  payloads, as approximately 90 percent of them were 150 kg or less and  thus were likely aggregated to varying degrees on a medium or large  launch vehicle. However, the benefit of increasing U.S. launch service  global competitiveness as a result of allowing commercial use of surplus  ICBM motors may be limited. According to the FAA, domestic launch  capability may soon become more robust and competitive because of the  emergence of new space launch providers and vehicles. Specifically,  several U.S. companies developing launch vehicles and related  technologies to provide low- and medium-weight payload launch  capabilities began conducting test flights in 2017 and some plan to begin  carrying commercial payloads as early as next year. Table 17 in appendix  II provides a list of emerging launch vehicle providers.
Allowing the use of surplus ICBM motors for commercial launches could  further benefit the commercial space sector by providing U.S.-based  launch customers more options and flexibility from which to choose  launch services. As we reported in July 2016, customers select from  available launch providers based on a number of factors, including price,  capability, and reliability of the launch vehicle. Another factor that  customers consider is the location of the launch. Some satellite  manufacturers and other potential customers of launch services we  interviewed said they prefer a domestic provider and may be willing to  pay a higher price for a domestic launch depending on factors such as  lower licensing costs and simpler, lower-cost logistics.
Increasing the domestic launch capability could also help launch  customers gain greater schedule certainty. Specifically, launch customers  may have stringent schedule requirements and must select a launch  vehicle that will deliver their payload to the desired orbit. According to  several experts we interviewed, customers with smaller payloads often  choose to launch as a secondary or aggregated payload on a larger  launch vehicle. They said that this likely reduces the customer’s costs,  since aggregated payload customers share launch costs, but it may also  create schedule uncertainty. For example, customers who choose to  aggregate their payload with others may not be able to determine the  planned launch date, which may then be delayed if one or more of the  other aggregated payloads are not ready in time. In contrast, as a sole or  primary payload, the customer typically has more control over the launch  schedule. However, there are indications that the domestic launch market  is already responding to this type of customer demand. Several emerging  space launch providers we spoke with said providing customers greater  schedule flexibility is a key component of their business strategy and an  important factor that distinguishes them from many existing launch  providers.
section_title: Increased Demand for Newly Manufactured Solid Rocket Motors
paragraphs: The use of surplus ICBM motors for commercial space launches could  provide the U.S. solid rocket motor industrial base a limited benefit by  increasing demand for newly manufactured solid rocket motors, helping  ensure that these assets remain available to support government space  launches and other missions. As we have reported in the past,  Congress and DOD have identified the health of the solid rocket motor  industrial base as an area of concern. According to Institute for Defense  Analyses research, there were six U.S. solid rocket motor suppliers in the  mid-1990s, but these six are now consolidated into two remaining  entities—Aerojet Rocketdyne and Orbital ATK. These manufacturers  are dependent on a single U.S. company to provide the main ingredient  for the solid rocket motor propellant, ammonium perchlorate.
In recent years, demand for solid rocket motor fuel has dropped because,  among other things, NASA retired its Space Shuttle program in 2011,  which historically comprised most of the demand for solid rocket motors.  According to the Institute for Defense Analyses, the Space Shuttle  program was responsible for as much as 90 percent or more of the total  U.S. demand for large solid rocket motor propellant from 1990 to 2010.  However, the Institute reported that since the end of the Space Shuttle  program, annual demand for solid rocket motor propellant has dropped  from more than 20 million pounds to about 5 million pounds and is  expected to drop further, creating excess capacity throughout the solid  rocket motor industrial base. Since at least 2009, DOD has identified the  solid rocket motor industrial base as being particularly risky for programs  that require solid rocket motors because decreased production has made  the remaining two solid rocket motor suppliers even more vulnerable,  among other things. However, according to NASA officials, they expect  demand for solid rocket motor propellant to increase in the future as their  Space Launch System becomes operational. Each Space Launch System  launch requires two solid rocket motors that each contains approximately  one million pounds of propellant, for a total usage of two million pounds  per launch.
Increased use of surplus ICBM motors for commercial or government  launch could provide a limited benefit to the solid rocket motor industrial  base through greater use of manufacturing equipment, personnel, and  processes. Due to differences in design and payload delivery, surplus  ICBM motors cannot be used for higher stage propulsion on space launch  vehicles. As a result, the use of an ICBM motor-based launch vehicle  creates demand for one or more newly manufactured higher stage solid  rocket motors. For example, the Minotaur I and Minotaur IV launch  vehicles require one to two newly manufactured higher stage solid rocket  motors. However, the commercial use of surplus ICBM motors, in  comparison to historical demand from NASA and other government  missions, is likely to have a limited benefit on the solid rocket motor  industrial base. For example, the two higher stages of a Minotaur I or the  single higher stage of a Minotaur IV use 10,362 and 1,698 pounds of  propellant, respectively. In comparison, each of the two reusable solid  rocket motors that launched the final version of NASA’s Space Shuttle  burned about 1.1 million pounds of propellant. At most, depending on the  type of launch vehicle, the use of surplus ICBM motors for commercial  launch would create demand for two to four newly manufactured higher  stage solid rocket motors and roughly 3,400-20,700 pounds of propellant.
section_title: Increased Opportunities for DOD Personnel with Specialized Skills
paragraphs: Greater use of surplus ICBM motor-based launch vehicles could support  U.S. efforts to assure its access to space by increasing opportunities for  DOD personnel to utilize specialized skills. Air Force officials told us that  increased use of surplus ICBM motors, whether for government or  commercial launch, would provide program personnel beneficial  opportunities to exercise specialized skills, including those for handling,  transferring, and modifying surplus ICBM assets. DOD and Air Force  officials we spoke with said that a consistent launch rate is an important  factor in helping maintain these specialized skills. Since 2000, the  government has used ICBM motor-based launch vehicles 15 times in  support of a variety of space launch missions; however, the launch pace  has declined. For example, from 2000 to 2011, the Air Force launched  13 space missions using ICBM motor-based launch vehicles. From 2012  to present, the Air Force launched 2 space missions and plans to launch  1 mission each year in 2017 and 2018. One of these planned launches  includes the Operationally Responsive Space-5 mission planned for  August 2017. If government launch demand continues at a rate of one to  two launches per year or declines further, commercial launches using  surplus ICBM motors would provide additional opportunities for DOD to  employ skilled personnel. However, Air Force officials recently told us that  there are indications of additional government demand for launches using  surplus ICBM motors beginning around 2020 that could increase the  launch rate to two to three per year (an increase that would require  processing two to six additional motors).
section_title: Potential Cost Avoidance for DOD
paragraphs: The use of ICBM motors for commercial launches could provide a benefit  to DOD by offsetting some of the roughly $17 million DOD spends each  year storing, maintaining, and destroying surplus ICBM motors. DOD  incurs additional costs for refurbishing and ensuring the flightworthiness  of motors selected for space launch. These costs are reimbursed by the  government customer and vary by mission. Currently, the cost to ensure  the safety of motors in storage—approximately $2.8 million for  Peacekeeper and Minuteman II motors—is divided among government  launch customers. According to the Air Force, allowing commercial  launch providers to purchase and use surplus ICBM motors would further  disperse these costs, slightly lowering launch costs to the government.  However, the cost of storing surplus ICBM motors in bunkers cannot be  directly apportioned to each motor and DOD would achieve savings only  over many years. Specifically, RSLP office officials told us that they  typically group surplus motors according to stage and store them as a set  of six or more in bunkers. Therefore, to achieve a meaningful reduction in  storage costs, they said that DOD would need to eliminate the inventory  of an entire bunker of similar motors. For example, clearing a single  bunker of six first stage motors would require six separate space  launches.
section_title: Commercial Use of ICBM Motors Has Several Potential Challenges
subsections: section_title: Decline in Private Investment Opportunities for Commercial Launch Providers
paragraphs: Allowing the use of surplus ICBM motors for commercial launch could  create challenges for the commercial space sector, such as discouraging  private investment for emerging commercial space companies currently  developing launch vehicles. Investment in new commercial space  companies has grown significantly in recent years and this trend appears  to be accelerating. From 2000 through 2015, new commercial space  companies received about $13.3 billion in investments, including debt  financing, and approximately 20 percent of that total investment came in  2015, the most recent year for which data are available. Officials from  several commercial space launch companies, both existing and  emerging, we spoke with cited these levels of increased investment as  evidence that validates current law and policy that limit the use of surplus  ICBM motors to special circumstances. Several commercial launch  providers and an organization representing several hundred investors in  commercial space companies told us that allowing the use of surplus  ICBM motors for commercial launches would add uncertainty to the  commercial space market, complicating their business decisions.  According to the Tauri Group, which gathers data and conducts analyses  for several federal agencies, investors in commercial space companies  consider the potential demand for a company’s product or service when  deciding whether to make an investment. Representatives from the Tauri  Group and an emerging launch provider told us that changing law and  policy to allow the commercial use of surplus ICBM motors could also  discourage investment by signaling to companies and investors that the  government may intervene in the market in the future. NASA officials said  that allowing the use of these motors may stifle innovation in the  commercial space sector.  They told us that emerging small launch  providers are basing their business cases on making innovations in  manufacturing and design of liquid rocket engines and that if emerging  launch providers fail due to market pressures caused by the use of  surplus ICBM motor-based launch vehicles, innovation in propulsion may  be stifled.
section_title: Disruption of Competition Opportunities for Emerging Launch Providers
paragraphs: Allowing the use of surplus ICBM motors for commercial launches could  disrupt competition among emerging providers. Several respondents to  the Air Force’s August 2016 request for information stated that the  availability of surplus ICBM motors may erect unfair barriers to entry in  the space launch market and discourage investment in new space launch  vehicles. We found that the price for a launch using surplus ICBM  motors—assuming the motors are available to commercial customers at a  breakeven price roughly equal to DOD’s costs to prepare the ICBM  motors for launch—would be about $27,000 per kilogram of payload for  Peacekeeper motor-based vehicles and about $71,000 per kilogram for  Minuteman II motor-based vehicles. These estimates assume the  launch vehicles are at full capability. Although the actual price of a launch  varies based on several factors, including the providers’ strategies for  increasing their share of the launch market, these price estimates may be  useful in illustrating how the potential prices of a surplus ICBM motor- based launch vehicles might compare with those of existing and emerging  providers. Table 3 presents the price per kilogram for a Peacekeeper- based and Minuteman II-based launch vehicle.
The price per payload kilogram for a launch using Peacekeeper based  launch vehicle is in a similar range with the planned future launch prices  for emerging launch vehicle providers. Emerging providers developing  launch vehicles with capability between 1 kilogram and 2,000 kilograms are estimating their launch prices to be between about $10,000 and  $55,000 per payload kilogram. Among these emerging providers,  several estimate their launch prices will be between $20,000 and $30,000  per kilogram. Many of the emerging providers are designing small launch  vehicles to provide dedicated launch services. However, one company we  spoke with plans to start with a small launch vehicle but eventually offer  launches for medium payloads on new, non-ICBM motor-based vehicles  at capabilities close to a Peacekeeper motor-based vehicle. As satellite  manufacturers examine the launch vehicle market from which they will  choose a launch, they may choose the slightly lower priced ICBM motor- based vehicle to aggregate multiple small satellites on one launch vehicle  at its highest capability. Conversely, the sale of surplus ICBM motors at  the breakeven price for the surplus motors and the cost of higher stage  propulsion may not have an effect on existing providers because the price  per payload kilogram of a launch vehicle using surplus Peacekeeper  motors—approximately $27,000 at its highest capability—is still  significantly higher than the launch prices of most existing launch  providers, with some exceptions. However, the extent of effects to  existing providers would be dependent on the price that the launch  provider chooses to offer. A commercial launch provider is likely unwilling  to purchase Minuteman II motors at the breakeven price we calculated  because the estimated price per payload kilogram of a launch using  Minuteman II motors is significantly higher than and not competitive with  both emerging and most existing launch vehicles. However, a commercial  launch provider may be willing to purchase Peacekeeper motors at the  breakeven price we calculated and sell launches for an aggregation of  small payloads, or compete at the low end of the medium class launch  market to launch the smaller medium class payloads.   Table 17 in  appendix II provides the price per payload kilogram for emerging launch  vehicles in development, and Table 4 below provides the price per  kilogram for existing commercially available launch vehicles.
According to Department of Commerce officials, allowing commercial  launch providers to purchase surplus ICBM motors at a low price may  also disrupt competition by lowering costs for one or a small number of  launch providers. While the Air Force could make surplus motors  available to a broad range of commercial launch providers, because of  technical and financial barriers, the companies most likely to purchase the  motors are those who have existing launch vehicles that can  accommodate the motors without major modification. Only one company  we spoke with expressed interest in purchasing surplus ICBM motors and  has the capability to integrate the motors in an existing launch vehicle.  Several other companies we spoke with told us that, in comparison to  newer, less expensive liquid propulsion motors, surplus ICBM motors use  old technology, and that it would not be cost effective for them to develop  new launch vehicles or convert existing launch vehicles to use the  motors. Specifically, representatives from one company we spoke with  estimated that it could cost $50 million to $60 million to convert an  existing launch system in order to use surplus ICBM motors as lower  stage propulsion. Moreover, these representatives said that designing  and building a new launch system that uses surplus ICBM motors could  cost nearly $400 million.
section_title: Limited Motor Processing Resources Challenge DOD
paragraphs: DOD may encounter challenges balancing an expanded workload with its  other essential missions and tasks. Specifically, DOD officials told us that  their current year plans call for refurbishment of about 11 motors for  government missions and static fire tests, but that this level of productivity  has created schedule pressures and required personnel to work overtime.  Despite these efforts, officials said they expect delivery of one motor to be  at least 2 weeks late. Although RSLP officials estimate that they have the  capacity to process about 15 motors per year based on historical  information and current personnel resources, it would be challenging to  maintain this level of productivity. RSLP officials told us that increasing  their office’s ability to process more than 15 motors per year would  require significant additional resources. For example, officials said that  hypothetically doubling the number of motors they are able to process  each year would require adding a minimum of five persons to the program  office, investments in additional handling and testing equipment costing  about $2 million, and investments of about $5 million in buildings and  equipment to expand motor transfer capacity at Hill Air Force Base.  Additional analysis of the detailed costs and payment arrangements with  potential commercial providers is important in order to determine how  such increases would affect the breakeven prices for the Air Force.  Furthermore, officials said that negotiating terms and conditions with  commercial launch providers and then executing related financial  transactions would be challenging without additional resources.
section_title: Uncertainties Pose Challenges for Effective Decision Making
paragraphs: Officials conducting the Air Force study told us that they would need to  gather additional details and conduct additional analysis beyond the price  of the motors if law and policy are changed to allow surplus ICBM motors  to be made available for commercial launches, as illustrated in the  examples below:
Study officials said that further analysis would be required for allowing  commercial providers to take control of the surplus ICBM motors prior  to delivering the motor to the launch site for integration into the launch  vehicle. Although the RSLP office performs a significant amount of  refurbishment work on the motor, an RSLP official told us some of the  work could be performed by the commercial entity after transfer.  However, according to Air Force officials conducting the study, its  analysis of the potential use of surplus ICBM motors for commercial  launches assumes that the Air Force maintains control and  supervision of engines, including all necessary maintenance,  refurbishment, and transfer activities, until the motors are delivered to  the launch vehicle at the launch site. These officials said that this is to  ensure that the motors remain safe and to avoid a breach of non- proliferation obligations and treaties. A DOD official told us that if a  commercial provider were to take possession of the motors earlier in  the transfer process, the Air Force would need to determine how  national security, particularly treaty obligations and other munitions  control regimes, would be affected. Additionally, RSLP officials told us  that transferring the motors earlier on in the process may affect their  costs; however, such a determination requires additional analysis.
Although the Air Force has developed estimates for Peacekeeper  motor storage and disposal costs, because of budget structures and a  healthy motor stockpile, the detailed costs are unknown. For example,  the cost to store Peacekeeper motors at Hill Air Force base is paid for,  among many other things, by the Hill Air Force Base budget, not by  the RSLP office. Additionally, no Peacekeeper motors have been  disposed of due to aging issues, so the RSLP office has not yet  determined, in detail, the exact process for safely destroying a  Peacekeeper motor. RSLP officials told us that a “pathfinder” study  would be required to establish the requirements and details to dispose  of a Peacekeeper motor at an additional cost of about $500,000. As  Peacekeeper motors begin to fail testing and the stockpile shows  signs of aging, there may be budget and workforce implications, as  the stockpile is depleted more quickly than currently planned.
Further analysis on the potential effects to RSLP office costs and  personnel is important if future demand for government missions that  use surplus ICBM motor-based launch vehicles is different than  expected. As discussed earlier in this report, future demand for  launches using surplus ICBM motors would affect the potential costs  and benefits to the Air Force. For example, under a scenario in which  there is low government demand for ICBM motor-based launches,  allowing commercial use of ICBM motors may provide a benefit to the  Air Force by helping it maintain its specialized workforce and facilities.
However, the Air Force recently updated its estimates of future  demand to include several planned government missions that will  likely use ICBM motor-based launch vehicles at a level sufficient to  keep its workforce in use without commercial launches.
The Air Force plans to complete its study on the potential effects of  allowing surplus ICBM motors to be used for commercial launch later this  year. Because its study is not completed, it is not clear the extent to which  it addresses these uncertainties. A detailed analysis of future potential  scenarios is important for informing the way forward for the Air Force if  law and policy change to allow surplus ICBM motors to be sold to  commercial providers for launch. After the Air Force completes its study,  the House Armed Services Committee Report to a bill for the fiscal year  2017 NDAA contained a provision for us to conduct an assessment of  DOD’s report. As such, we are not making recommendations in this  report.
section_title: Agency Comments
paragraphs: We are not making recommendations in this report. We provided a draft  of this report to the Departments of Defense, Commerce, State, and  Transportation; and NASA for comment. We received technical  comments on this report from the Departments of Defense, Commerce,  and Transportation; and NASA, which we incorporated as appropriate.  The Department of State did not provide comments.
We are sending copies of this report to appropriate congressional  committees; the Secretary of Defense, the Secretary of the Air Force, the  NASA Administrator; and the Secretaries of Commerce, Transportation,  and State. In addition, the report is available at no charge on the GAO  website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or chaplainc@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The National Defense Authorization Act (NDAA) for Fiscal Year 2017  contains a provision for us to analyze the potential effects of allowing the  use of surplus Intercontinental Ballistic Missile (ICBM) motors for  commercial launch purposes, including an evaluation of the effects, if any,  of allowing such use on national security, the Department of Defense  (DOD), the solid rocket motor industrial base, the commercial space  launch market, and any other areas the Comptroller General considers  appropriate. We assessed: (1) the options for determining the selling  prices for these motors; and (2) the potential benefits and challenges,  including savings and costs, of allowing surplus ICBM motors to be used  for commercial space launch.
To address these objectives, we reviewed relevant laws and policies,  such as the Commercial Space Act of 1998 and National Space  Transportation Policies from 1994 through 2013. We also met with  officials at the office of the Under Secretary of Defense for Acquisition,  Technology, and Logistics (USD(AT&L)) and its office of Manufacturing  and Industrial Base Policy, the office of the Principal DOD Space Advisor,  Missile Defense Agency, the Assistant Secretary of the Air Force for  Space Acquisition (SAF/AQS), and the Air Force Rocket Systems Launch  Program (RSLP) office. Additionally we met with officials at the  Departments of Commerce, Transportation, and State; and National  Aeronautics and Space Administration (NASA). We interviewed and  reviewed documentation submitted to us by commercial space industry  stakeholders, including launch providers, satellite manufacturers, and an  earth observation services company. We met with one venture capitalist  whose company makes investments in the commercial space industry, an  association of launch providers, and independent experts and  researchers with expertise in the commercial space launch industry and  history of surplus ICBM motors. We also reviewed all 16 industry  stakeholder responses to an August 4, 2016 Air Force request for  information on issues related to potentially making surplus ICBM motors  available to providers for commercial launch.
To determine the options for pricing surplus ICBM motors, we used  generally accepted economic principles for benefit-cost analysis,  including Office of Management and Budget Circulars A-4 and A-94 to  conduct an assessment of potential economic effects. To begin that  assessment, we developed breakeven prices for which DOD could offer  the motors. These breakeven prices, reflecting our calculations of the net  present value of motor storage and disposal costs, are those at which  DOD must sell the motors to cover the costs of transferring them to  commercial launch providers. We did not include sunk costs, as in the  costs incurred to develop, produce, and sustain the surplus ICBM motors,  but, rather, we calculated potential prices based on fulfillment cost, which  includes all costs that an entity will incur in fulfilling the promises that  constitute a liability. These costs are the value to the entity of the  resources that will be used in liquidating the entity’s assumed liability.  We collected from the Air Force detailed cost information associated with  storing, testing, refurbishing, and disposing surplus ICBM motors, and  discussed with Air Force officials their future launch and motor disposal  plans. We also obtained and evaluated motor transfer costs from two  recent and ongoing Air Force launch missions because they represent the  most current cost data on transferring surplus ICBM motors for launch— that is, moving motors out of storage and preparing them to be integrated  into a launch vehicle at the launch site. A detailed, step-by-step analysis  of our economic assessment is provided in the following section.  Additionally, we reviewed Federal Accounting Standards Advisory Board  (FASAB) criteria to understand other methods for determining the value  and price of surplus ICBM motors.
To determine the potential benefits and challenges of allowing surplus  ICBM motors to be used for commercial launches, we conducted an  assessment of potential economic effects, detailed below, using Office of  Management and Budget (OMB) guidance and generally accepted  economic principles for conducting a cost benefit analysis. We reviewed  DOD’s documentation on storing, maintaining, refurbishing, and  transferring surplus ICBM motors. For example, we reviewed RSLP  program office briefing slides and SAF/AQS responses to our questions.  We interviewed DOD officials who were familiar with the use of surplus  ICBM motors for government launches under current law and who would  be responsible for their potential use to provide commercial launch. To  obtain a range of perspectives on the effects of changes to law and policy  covering the transfer of surplus ICBM motors, we identified representation  among specific categories of industry stakeholders from which to select  industry stakeholders for interviews. These categories covered (1) launch  vehicle providers, (2) spaceports, (3) venture capitalists, (4) industry  groups, (5) solid rocket motor industrial base, and (6) payload satellite  companies. We interviewed 20 stakeholders and entities that represented  a wide range of viewpoints on potential change in policy for surplus ICBM  motors to be used for commercial use. We analyzed the interview results  to identify patterns and themes and attributed the responses to the  categories of entities rather than to individuals or specific organizations.  These stakeholder views are not generalizable across the industry but do  provide a range of perspectives. We estimated potential launch prices for  launch vehicles using surplus ICBM motors at our calculated breakeven  motor prices and compared these prices to publicly available prices of  current and emerging commercial launch vehicles. Additionally, we  reviewed and applied federal guidance on conducting cost-benefit  analyses.
To assess the reliability of the motor storage and disposal cost data, we  analyzed Air Force headquarter and RSLP’s program office data,  interviewed DOD officials, and reviewed detailed cost and launch  schedule documentation. We corroborated the data, when possible,  across at multiple Air Force and RSLP sources and conducted additional  follow up interviews to gain additional insight. To assess the reliability of  commercial space launch price and forecast data, we interviewed officials  at the Federal Aviation Administration, the Tauri Group (which collects  worldwide commercial space launch data), and corroborated the data with  space launch experts when possible. We determined that the data were  sufficiently reliable for presenting the information contained in this report.
subsections: section_title: Economic Assessment of Potential Effects
paragraphs: To address both of our study objectives, we conducted an economic  assessment of potential effects using generally accepted economic  principles for cost benefit analysis, including Office of Management and  Budget Circulars A-4 and A-94. Specifically, we identified the key  elements needed for analyzing the potential economic effects by; (1)  defining our objective and scope; (2) conducting an analysis of effects,  where we described our analytical choices and assumptions used; (3)  considering a range of alternatives; (4) conducting a breakeven price  analysis; (5) conducting a sensitivity analysis; and (6) documenting our  analysis.
Objective and Scope: This element of an economic assessment is the  first step in assessing potential economic effects and helped us determine  a method by which to develop a potential surplus ICBM motor price and a  range of potential effects. The scope of our review consisted of both  surplus Peacekeeper and Minuteman motors currently in inventory  because DOD officials told us these are the only motors relevant for  consideration for potential commercial use in the United States market,  may be used for testing, or destroyed. According to the Air Force, at the  time of our review, there were 186 Peacekeeper motors and 537  Minuteman II motors in inventory.
Analysis of Effects and Assumptions: This element helped us  determine a method by which to develop potential surplus ICBM motor  prices and a range of potential effects. During this step, we described the  data, analytical choices, and assumptions used. We used motor cost and  storage data provided by the RSLP office as well as information about  future launch demand using surplus ICBM motor-based vehicles. We  chose to analyze the difference between two scenarios: the status quo  and a potential future where motors may be used for commercial  launches. Specifically, we calculated the net present value of storage and  disposal costs under a status quo scenario reflective of current law and  policy that allows some government launches using surplus ICBM motors.  We then compared the status quo model to the net present value of  storage and disposal costs under a range of scenarios that may reflect a  change in law and policy to allow surplus motors to be used for  commercial launches.
We made several assumptions, such as, the number of test fires  consisting of one motor every year, the real discount factors for the  surplus ICBM motors, and the number of motors being launched for  government missions until the stockpile was depleted. We made these  assumptions based on information provided by the RSLP office. The  assumptions are identified in table 5 below:  Range of Alternatives: We considered a range of relevant alternatives.  Because some costs vary depending on the number of projected  launches of ICBM-based launch vehicles, we calculated a range of  potential breakeven prices based on, among other things, low, medium,  and high launch rates. We started by modeling the current expected  numbers of future launches and decommissioning of motors and  compared them with scenarios that assume different commercial and  government demand for motors and calculated the associated annual  cost to store and decommission motors. We analyzed the storage and  disposal costs for the 186 Peacekeeper and 537 Minuteman motors in  inventory, and estimated breakeven prices under the three different  launch rate scenarios.
Breakeven Price Analysis: As one method of pricing the motors, we  calculated breakeven prices—the prices at which DOD covers its costs  for transferring the motors for launch minus the costs avoided (or saved)  depleting the stockpile more quickly. In other words, this is the potential  price at which DOD could break even. We estimated a breakeven price  where DOD would be indifferent between continuing with the current  schedule or providing commercial launches. We calculated the total net  present value of motor storage and disposal costs and then broke the  total down to a per motor set cost savings and subtracted that from the  cost to transfer a set of motors to a government entity for a launch. In  conducting our breakeven analysis for the surplus ICBM motors, we relied  primarily on RSLP office data. We did not develop our own source data  for development of motor prices although we did develop assumptions  about future government and commercial launch demand based on RSLP  program office statements.
We determined that the breakeven price for three Peacekeeper motors  ranges from about $8.3 to $8.4 million. The breakeven price for two  Minuteman motors ranges from about $3.9 million to $4 million. Table 6  shows the breakeven price for a set of three Peacekeeper motors and a  set of two Minuteman II motors, along with the cost of commercial higher  stage motors.
Tables 7 through 12 show the step-by-step results of calculating the per  motor net present value of storage and disposal costs for each motor type  under the status quo and commercial scenarios followed by the total cost  avoidance and resulting breakeven price per motor set— that is, for three  Peacekeeper motors and two Minuteman II motors.
Peacekeeper motors The current net present value storage and disposal  cost of the status quo (only government launches of surplus ICBM-based  vehicles) is between $10.3 million and $15.8 million. It would take DOD  13 to 22 years to deplete the ICBM inventory. Tables 7 and 8 show for  Peacekeeper and Minuteman II, respectively, the net present value of the  storage and disposal costs under the status quo scenario, with no  commercial launches, for the motor stockpile as follows:  Minuteman II motors The current net present value storage and disposal  cost of the status quo is between $36.4 million and $38.7 million, and it  would take DOD 9-10 years to deplete the ICBM inventory.
Tables 9 and 10 show calculations of the total net present value of  storage and disposal costs for each motor type in the stockpile under a  commercial launch scenario across a range of assumed numbers of  government and commercial launches. If commercial launches are  allowed, the net present value of storage and disposal costs of  Peacekeeper motors for DOD would be $8.5 million to $10.3 million with  the rest of the cost being absorbed as a discount from the price for  commercial launches, and it would take 11 to 13 years to deplete the  inventory of ICBM motors.
If commercial launches are allowed, net present value of storage and  disposal cost for Minuteman II motors for DOD would be $35.5 million to  $36.4 million with the rest of the cost being absorbed as a discount from  the price for commercial launches, and it would take 9 years to deplete  the inventory of surplus ICBM motors.
In order to find the prices at which the Air Force would be indifferent  between maintaining the status quo and adding commercial launches, we  found the difference between the net present value of the storage and  disposal costs and then broke those costs down by motor set, as shown  in tables 11 and 12.
Total Peacekeeper storage and disposal savings per motor set increases  as demand for launches decreases because of the growth in the number  of years it takes to deplete the stockpile. Total Minuteman II motor  storage and disposal savings per motor set decreases as demand  decreases because of the relatively low cost to store the motors, the large  number of motors that are decommissioned each year —about 50—and  the relatively small difference in number of years that it takes to deplete  the stockpile of those motors.
Sensitivity Analysis: We used the sensitivity analysis element of an  economic assessment to determine how the use of surplus ICBM motors  for commercial launch may affect the commercial launch industry. We  compared the cost per payload kilogram of an ICBM motor-based launch  vehicle to the price per kilogram of commercial launches with publicly  available price data. According to generally accepted economic  principles, a sensitivity analysis adequately justifies the data, analytical  choices, and assumptions used. It explicitly addresses how plausible  adjustments to each important analytical choice and assumption affect  the economic effects and results of the comparison of alternatives. Our  analysis assessed quantitatively how the variability of the key uncertain  data underlying the estimates of economic effects—like future launch  demand and capacity that may be used on a launch vehicle—affects  these economic effects and the results of the comparison of alternatives.  The sensitivity analysis shows that the resulting price per kilogram is  sensitive to assumptions about launch demand, resulting storage and  disposal cost avoidance, and the resulting number of years until the motor  stockpile is depleted. The parameters and results of our sensitivity  analysis are below:  Peacekeeper Motors Sensitivity Analysis:
Levels of government motors launched: 12 (high), 9 (mid), 6 (low)
Levels of commercial motors launched: 3, 6, 6
Payload capacity of 500 kilograms, 1,000 kilograms, and 1,800  kilograms.
Minuteman II Motors Sensitivity Analysis:
Levels of government motors launched: 8 (high), 6 (mid), 4 (low)
Levels of commercial motors launched: 2, 4, 4
Payload capacity of 100 kilograms, 300 kilograms, and 500 kilograms.
We used a range of potential payload capacities that could be launched  by a Peacekeeper or Minuteman II based launch vehicle and applied this  variable across a range of potential future launches using the motors. We  estimated the launch prices per kilogram by first adding to the breakeven  prices the costs of the required higher stage propulsion and then applied  a 20 percent factor to the totals in order to calculate launch prices.  According to the Air Force, propulsion costs historically account for 20  percent of a launch vehicle’s price and this is a reasonable assumption  for projecting prices. Tables 13 and 14 show the resulting prices per  launch after adding the higher stage and ICBM motor propulsion  breakeven prices and applying the 20 percent factor.
We then divided the launch prices by the range of payload capacity.  Tables 15 and 16 show the price per kilogram of launches using  Peacekeeper and Minuteman II motors, respectively.
Documentation of Our Analysis: We concluded our assessment of  potential surplus ICBM motor prices and resulting effects by documenting  our analysis. Based upon the results of our assessment, the analysis can  inform decision-makers and stakeholders about the potential economic  effects of the action examined.
We conducted this performance audit from June 2016 to August 2017 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.
section_title: Appendix II: Existing Global Commercial Launch Vehicles
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Cristina T. Chaplain (202) 512-4841 or chaplainc@gao.gov.
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Rich Horiuchi (Assistant  Director), Erin Cohen (Analyst-in-Charge), Pedro Almoguera, Andrew  Berglund, Stephanie Gustafson, Wendell Keith Hudson, Jordan Kudrna,  and Jacqueline Wade made key contributions to this report.