Paying a premium for obsolescence

 

On 30 September, the US Air Force awarded United Launch Alliance (ULA) a $1.18 billion contract modification to support the launch of five Delta IV Heavy rockets stretching through the end of February 2024. When combined with an earlier $1.01 billion production contract, each launch will cost a hefty $438 million. The contract modification was necessary because, with the end of the EELV program, ULA will lose its annual “mission assurance” payment that had averaged ~$880 million over the past five years.

While the operations contract was essentially a foregone conclusion (the Air Force had already purchased the vehicles beginning in 2016), the timing could hardly be worse.

Days earlier, the Air Force certified SpaceX’s Falcon Heavy to conduct national security space launches following three successful demonstration flights. The Falcon Heavy is more than twice as powerful as Delta IV Heavy (64 tons to LEO vs. 23 tons for Delta IV), and the Air Force paid a mere $156 million (all-in) for its June Falcon Heavy mission (STP-2).

The Air Force justified its decision based on the “unique and complex launch requirements” of these missions, but this argument ignores the fact that the STP-2 mission was itself exceedingly complex, and the Air Force needs to onramp an alternative vehicle to replace the soon-retiring Delta IV Heavy.

The mistiming of the contract’s award was further highlighted by the latest presentation that SpaceX’s Elon Musk provided on September 28, two days before the contract was awarded. Behind Musk, during his presentation, sat the latest of his company’s creations—a prototype “Starship.” According to Musk, Starship would be reusable, inexpensive to manufacture, a mass workhorse (150 tons to LEO), and available soon (launching to orbit next year).

If SpaceX can achieve its 2020 stretch goal, the Air Force (often viewed as the most technologically advanced service) would effectively be stuck using an obsolete, expensive rocket for the next four years. In the Air Force’s defense, the Delta IV Heavy has a near-perfect track record stretching back to 2004, but a reduced production/launch cadence (following the retirement of the Delta IV “single-stick” in August) could undermine the vehicle’s reliability.

Meanwhile, growing competition for government space launches represents a unique problem for ULA, which hasn’t conducted a commercial launch since 2016 (EchoStar 19). The company’s new Vulcan rocket (maiden launch 2021) could change this calculus, but satellite operators, including Intelsat, Telesat, SES, and even EchoStar, have increasingly jumped on the SpaceX bandwagon.

If those companies have figured out that their money is better spent on things other than launch, it seems like a matter of time until the U.S. government figures it out. Especially if Starship becomes a reality, which may be sooner rather than later.