Commercial Space: Industry Developments and FAA Challenges
Published: 2016-06-22T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. commercial space launch industry has changed considerably since the enactment of the Commercial Space Launch Amendments Act of 2004. FAA is required to license or permit commercial space launches; however, to allow space tourism to develop, the act prohibited FAA from regulating crew and spaceflight participant safety before 2012—a moratorium that was extended to 2023. The U.S. Commercial Space Launch Competitiveness Act, enacted in November 2015, addressed other aspects of the commercial space launch industry.
This testimony summarizes and updates findings from GAO's 2015 report, specifically industry developments and FAA challenges, including FAA's launch licensing workload and budget. For its 2015 report, GAO reviewed FAA's guidance on its launch permit, licensing, and safety oversight activities; interviewed FAA officials, industry stakeholders, and experts who were selected on the basis of their knowledge of FAA's oversight of the commercial space launch industry; and visited spaceports where two 2014 launch mishaps occurred. To update this information GAO reviewed FAA information on the industry and FAA's budget request.
section_title: What GAO Found
paragraphs: In 2015, GAO reported that during the last decade, U.S. commercial space launch companies conducted fewer orbital launches in total than companies in Russia or Europe, which are among their main foreign competitors. However, the U.S. commercial space launch industry has expanded recently. In 2015, U.S. companies conducted eight orbital launches, compared with none in 2011. In addition, in 2015, U.S. companies conducted more orbital launches than companies in Russia, which conducted five, or Europe, which conducted six.
In 2015, GAO reported that the Federal Aviation Administration (FAA)—which is responsible for protecting the public with respect to commercial space launches, including licensing and permitting launches—faces challenges. According to FAA officials and industry stakeholders, FAA faces an increasing workload licensing and permitting launches for transporting cargo, and in the future, crew for NASA's commercial space programs, space tourism, and potentially launching small satellites. FAA also faces the challenges of whether and when to regulate the safety of crew and spaceflight participants—in 2015 Congress extended the moratorium to 2023—and overseeing new types of vehicles and technologies. (See figure for commercial space launch vehicles.) Challenges also include updating FAA's method to calculate maximum probable loss—the amount above which the federal government indemnifies the industry for catastrophic loss.
Virgin Galactic's SpaceShipTwo and SpaceX's Falcon 9
GAO reported in 2015 that FAA's budget requests for its commercial space launch activities generally were based on the number of projected launches, but that in recent years the actual number of launches was much lower than FAA's projections. GAO also reported that, according to FAA officials, more detailed information was not provided in FAA's budget submissions because the agency lacked information on its workload overseeing commercial space launch activities. In addition, GAO reported that the Office of Commercial Space Transportation did not track the amount of time spent on various activities. FAA has taken steps to implement GAO's recommendation that it provide more detailed information in its budget submissions regarding commercial space transportation activities. In its 2017 budget submission, FAA provided workload indices regarding authorizations under which companies conduct one or more launches; on-site inspections; licensing of spaceports; and staffing levels since 2006.Why GAO Did This Study
section_title: What GAO Recommends
paragraphs: In 2015, GAO recommended that FAA, in its budget submissions, provide more detailed information about the Office of Commercial Space Transportation's workload. FAA agreed with the recommendation. GAO is not making new recommendations in this testimony.

section_title: Letter
paragraphs: Thank you for the opportunity to testify today on the commercial space  launch industry. The U.S. commercial space launch industry, which the  Federal Aviation Administration (FAA) reports had estimated revenues of  $617 million in 2015, has experienced considerable change since the  enactment of the Commercial Space Launch Amendments Act of 2004  (“the act”). The act promoted the development of the emerging  commercial human spaceflight industry and made the Department of  Transportation (DOT) responsible for overseeing the safety of the new  industry—a responsibility that DOT delegated to FAA. As part of its safety  oversight responsibilities, FAA licenses and permits launches as well as  licenses launch sites. To allow the space tourism industry to develop, the  act prohibited FAA from regulating the safety of crew and “spaceflight  participants” before 2012, except in limited circumstances—a  moratorium that was extended to October 1, 2023 in the Commercial  Space Launch Competitiveness Act enacted in November 2015. In  addition, in recent years, FAA has been licensing an increasing number of  commercial space launches, including those for the National Aeronautics  and Space Administration’s (NASA) commercial cargo program, which  contracts with commercial launch companies to transport cargo to the  International Space Station (ISS). In 2006, we reported that FAA had  provided a reasonable level of safety oversight regarding commercial  launches, but that the agency faced several challenges in regulating the  space tourism industry. These challenges included FAA’s ability to  determine the specific circumstances under which it would regulate the  safety of crew and spaceflight participants and estimating its future  resource needs to license and permit launch activities.
My testimony today focuses on (1) developments in the commercial  space launch industry and (2) challenges FAA faces in overseeing and  promoting the industry. This statement is primarily based on our August  2015 report on commercial space issues. For the 2015 report, we  reviewed FAA’s guidance on its launch permit, licensing, and safety  oversight activities; interviewed FAA officials, industry stakeholders, and  experts who were selected on the basis of their knowledge of FAA’s  oversight of the commercial space launch industry; and visited spaceports  where two 2014 launch mishaps occurred. Additional information on the  scope and methodology can be found in our August 2015 report. We  updated information for this statement in June 2016 primarily by reviewing  FAA information on the industry, FAA’s budget request, and contacting  FAA officials.
We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.
subsections: section_title: Background
paragraphs: The commercial space launch industry continues to develop and evolve,  with changes in technology and facilities. Historically, commercial space  launches carried payloads, generally satellites, into orbit using  expendable launch vehicles that did not return to earth. Figure 1 shows  examples of expendable launch vehicles. However, launch companies  are testing reusable elements of expendable launch vehicles. For  example, after launch, SpaceX has recovered four Falcon 9 first stages— three on a barge located at sea and one on land, according to FAA.  United Launch Alliance is also developing capabilities to reuse the first  stage of its Vulcan launch vehicle. Since the Space Shuttle fleet was  retired in 2011, NASA has procured commercial cargo transportation  services to the International Space Station from commercial providers  such as SpaceX and Orbital ATK on these types of vehicles.
In addition, the commercial space launch industry is further changing  technology with the emergence of suborbital reusable launch vehicles  that are capable of being launched into space more than once and could  be used for space tourism. Several companies such as Virgin Galactic,  Blue Origin, and XCOR are in the process of developing and testing  manned, reusable launch vehicles for commercial space tourism. For  example, according to Blue Origin it has launched, recovered, and re- flown the same booster four times. Companies like Virgin Galactic and  Stratolaunch Systems are also developing vehicles that will have the  capability to launch small satellites into orbit. See figure 2.
Further, private companies and states are developing commercial  spaceports—sites used for commercial space launches to support the  expected growth in the launch industry. See figure 3.
FAA’s primary means of authorizing space launch activities is through its  licensing process which includes: licensing launch and reentry vehicle  operations, reviewing applications for experimental permits, reviewing  safety approvals, and conducting safety inspections and oversight of  licensed and permitted activities, among other activities. For fiscal year  2016 for the Office of Commercial Space Transportation, FAA’s budget  request was $18.1 million and 92 full-time equivalent positions. Congress  provided $17.8 million for commercial space activities for fiscal year 2016.
The federal government is authorized to provide catastrophic loss  protection in the event of a launch accident for all FAA-licensed  commercial launches through the Commercial Space Launch  Amendments Act as amended. Thus, subject to congressional  appropriations, the U.S. government may pay third-party liability claims  for injury, damage, or loss that result from a commercial launch-related  accident in excess of the required “maximum probable loss,” an amount  which is calculated by FAA and is capped at $500 million per launch.  The federal government, subject to the availability of appropriations, is  then liable for claims over the maximum probable loss up to $1.5 billion  which when adjusted for post-1988 inflation is about $3.06 billion in 2015  dollars. Launch companies are responsible for third-party liability claims  up to the maximum probable loss and over $3.06 billion. Figure 4  illustrates this regime. FAA’s risk methodology to calculate the maximum  probable loss uses an “overlay” method that entails reviewing the specific  circumstances of the launch including the planned launch vehicle, launch  site, payload, flight path, and the potential casualties and fatalities that  could result from varying types of launch failures at different points along  that path. There has not been a commercial launch-related accident that  has invoked indemnification and thus the federal government has not paid  any third-party liability claims to date.
section_title: The U.S. Commercial Space Launch Industry Has Expanded in Recent Years
paragraphs: As we reported in our 2015 report, during the last decade, U.S.  companies conducted fewer orbital commercial launches in total than  companies in Russia or Europe, which are among the main foreign  competitors. However, in recent years such as 2014 and 2015, U.S.  companies have conducted an increasing number of orbital commercial  launches. As shown in figure 4, the number of orbital launches conducted  by U.S. companies varied over the last 11 years. For example, recently  the number of launches increased from zero in 2011 to eight in 2015. In  2015, U.S. companies conducted more orbital launches than companies  in Russia, which conducted five, or Europe, which conducted six.
In 2015 we found that a number of factors are responsible for the recent  expansion of the U.S. commercial space launch industry. First, increase  in demand through federal government contracts, such as NASA’s  commercial cargo program, have supported the industry and have  resulted in an increase in the number of U.S. commercial launches. For  example, in 2015, SpaceX conducted three cargo resupply missions for  NASA. NASA also procured eight launches from Orbital ATK in 2008  that were scheduled to occur between 2014 and 2016 with one launch  taking place in 2015, one launch taking place in 2016, and another  scheduled for July 2016. In addition, in January 2016, NASA announced  its selections for companies to conduct Commercial Resupply Services  (CRS2) to the ISS. SpaceX and Orbital ATK were selected again, and  Sierra Nevada Corporation was added as a new participant. According to  NASA, these awards require a minimum of six missions to the ISS from  each participant between 2019 and 2024. In addition to fulfilling  government contracts, these companies also conduct launches for other  customers, including international customers.
Second, according to representatives from two commercial space launch  companies, including SpaceX, and an advisory group and an expert  whom we interviewed for our 2015 report, the growth in the U.S.  commercial space launch industry is largely due to SpaceX because it is  more price competitive compared with foreign launch providers. The  Chairman of the Commercial Space Transportation Advisory Committee  said that SpaceX’s prices are significantly lower than foreign providers.  Some companies are seeking ways to further reduce costs. For example,  Blue Origin is developing new main engine elements for United Launch  Alliance’s expendable launch vehicle. Representatives from one company  and an industry association and an expert told us that reusable stages  may further lower launch prices. In previous work, we reported that— according to industry stakeholders—launch prices, along with launch  vehicle reliability, were the major factors that customers focus on when  selecting launch providers.
Third, the emerging space tourism industry and small satellite industry in  the United States also may help the U.S. commercial space launch  industry expand. As noted earlier, some U.S. companies are developing  launch vehicles to carry spaceflight participants on suborbital flights and  to place small satellites into orbit.
section_title: FAA Faces Multiple Challenges Regarding Developments in the Commercial Space Launch Industry and Requested Additional Resources to Address Some Challenges
subsections: section_title: Challenges
paragraphs: In our 2015 report, we asked FAA officials, representatives from nine  commercial space launch companies, and three experts to identify the  challenges that FAA faces—and is likely to face in the near future—to  address significant developments in the commercial space launch  industry over the last decade. The challenges for FAA that they identified  included: (1) determining whether and when to regulate the safety of crew  and spaceflight participants and (2) handling an increased workload  relating to licensing and permitting launches and launch sites. In addition,  in our 2015 report, we noted that changes in the number and types of  commercial space launches could affect the government’s overall  exposure and indemnification for launches.
Determining whether and when to regulate the safety of crew and  spaceflight participants: In 2014, FAA released a set of  recommended practices on human spaceflight occupants’ safety that  the agency indicated could be a starting point for the industry to  develop standards, or if needed, for FAA to develop regulations. In  2015, we reported that FAA officials said that the agency did not have  plans to issue regulations regarding the safety of crew and spaceflight  participants but was looking to industry to develop industry consensus  standards detailing validation and verification criteria that are needed  to implement the agency’s recommended practices. As part of the  U.S. Commercial Space Launch Competitiveness Act, Congress  required FAA in consultation with an industry advisory group—the  Commercial Space Transportation Advisory Committee—to submit  two reports to Congress on this topic. The first report is on metrics  that could indicate FAA’s and the industry’s readiness to transition to  a safety framework that may include regulating crew, government  astronaut and spaceflight participant safety and is due by August  2016. The second report is on the industry’s progress in developing  voluntary industry consensus standards and is required to be  submitted by December 31, 2016 and periodically afterwards until  December 31, 2021.
Increased workload relating to licensing and permitting launches  and launch sites:
Licensing more launches: In fiscal year 2015, FAA licensed and  permitted 14 launches and re-entries, up from seven in fiscal year  2006 and compared with an average of about 11 launches and re- entries during each fiscal year from 2006 to 2015. We found a  large part of this increase was due to launches for NASA’s  commercial cargo program. In the future, FAA also will need to  license launches for NASA’s commercial crew program and  potentially launches of companies placing small satellites in orbit.
Conducting more inspections: In fiscal year 2015, FAA conducted  216 commercial launch inspections, up from 27 in fiscal year 2006  and compared with an average of 90 inspections during each  fiscal year from 2006 to 2015. Officials said that FAA has  conducted more safety inspections, especially those associated  with pre-launch and reentry activities, to allow the agency to  identify safety issues early for correction and to avoid launch  companies’ noncompliance with regulations and the conditions set  forth in the launch license. FAA conducts different types of  inspections such as launch and reentry operations and launch site  operations, and FAA inspectors are present at launches.
Licensing new types of vehicles and technologies: Companies are  developing a variety of new vehicles and technologies. For  example, the space tourism industry is developing hybrid launch  systems such as SpaceShipTwo, which have elements of both  aircraft and rocket-powered components. Some companies are  also testing autonomous flight safety systems, which would allow  a launch vehicle that is off course to be terminated without  humans taking action. Most licensed launches as of August 2015  have involved flight termination systems that were human- operated.
Licensing more and complex launch sites: Although launch sites  traditionally have been located in coastal areas at federal launch  facilities, in 2014 FAA licensed an inland launch site that is co- located with a commercial airport in Midland, Texas. In addition,  FAA is licensing more nonfederal launch sites. As of June 2015,  there were 10 FAA-licensed commercial launch sites, compared  with six in 2006. In addition, as of May 2015, FAA had received  partial applications for four additional launch sites.
Also, in our 2015 report we noted that changes in the number and types  of commercial space launches could affect the government’s overall  exposure and indemnification for launches for several reasons. First, the  number of launches and reentries covered by federal indemnification is  forecasted to increase and the federal government’s potential exposure to  third-party liability claims would increase with the added volume. In  general, by increasing the volume of launches and reentries, the  probability of a catastrophic accident occurring is also increased. A  catastrophic accident could result in third-party losses over the maximum  probable loss, which would invoke federal indemnification. Second,  forecasted types of launches and reentries include newly developed  launch vehicles that have a shorter launch history than “legacy” launch  vehicles. For example, Virgin Galactic’s SpaceShipTwo, XCOR’s  Aerospace’s Lynx, and Blue Origin’s New Shepard are new vehicles.  However, increased flights of a launch vehicle could also make a vehicle  more reliable. We have previously reported that although some industry  changes may alter the government’s exposure, an accurate maximum  probable loss calculation will mitigate the effects to some extent. If the  maximum probable loss calculation is accurate, the estimated losses will  adjust for the risk profile of each license, in such a way that the likelihood  the government would indemnify a third-party remains the same  regardless of the industry change. However, in July 2012, we reported  that FAA’s risk methodology—which was first established in the 1980s— could be updated given advances in catastrophe modeling. We  recommended that FAA review its maximum probable loss methodology.  Congress mandated that FAA review the methodology and report back to  the Congress by May 2016. FAA officials told us that in June 2016 that  they have drafted a report which is currently under agency review.
section_title: FAA Request for Resources
paragraphs: In 2015 we found that FAA’s budget requests for its commercial space  launch activities generally were based on the number of projected  launches, but that in recent years the actual number of launches was  much lower than FAA’s projections. For example, during 6 of the 10 years  from fiscal years 2005 to 2014, FAA generally based its budget  submissions on the number of launches that it was projecting for the  following year; none of those projections was realized in the actual  number of licensed and permitted launches. FAA officials said at that time  that although other metrics existed besides the number of projected  launches, they were not consistently used in the agency’s budget  submissions. In addition, other activities, such as time spent on pre- application license consultations, were not included in the metrics used in  preparing the budget requests. According to FAA officials, more detailed  information was not provided in their budget submissions because the  agency lacked certain workload metrics regarding its commercial space  launch oversight activities. We also found that the Office of Commercial  Space Transportation did not track the amount of time spent on the  office’s various activities. However, the officials indicated that they were  continuing to develop a labor analysis methodology that began in fiscal  year 2014 and that the office was considering implementing a new time  recordkeeping system in 2016 to supplement the development of  additional workload metrics.
To provide Congress with more information about the resources  requested to address developments in the commercial space launch  industry, we recommended that FAA provide more detailed information in  its budget submissions about its workload. FAA agreed with the  recommendation, but DOT also had some concerns about how issues  were presented. FAA has taken steps to implement our recommendation.  In the 2017 budget submission, FAA provided workload indices based on  the number of authorizations which the agency uses to authorize  companies to conduct one or more launches, the number of licenses and  permits, the number of on-site inspections as part of licensing launch  sites, and staffing levels since fiscal year 2006. We will continue to  monitor FAA’s progress toward implementing this recommendation.
Chairman LoBiondo, Ranking Member Larsen and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to answer any questions at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information on this testimony, please contact Gerald. L.  Dillingham, Ph.D., at (202) 512-2834 or dillinghamg@gao.gov. In  addition, contact points for our Offices of Congressional Relations and  Public Affairs may be found on the last page of this statement. Individuals  making key contributions to this testimony include: Catherine Colwell, Bob  Homan, Dave Hooper, Maureen Luna-Long, Stephanie Purcell, Namita  Bhatia Sabharwal, and Travis Schwartz.
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