SpaceX’s entry into $70 billion U.S. launch market draws Lockheed jab

http://www.washingtonpost.com/business/economy/spacexs-entry-into-70-billion-us-launch-market-draws-lockheed-jab/2012/12/23/a0e4fd0c-4a2e-11e2-b6f0-e851e741d196_story.html

by rdp • 14 years ago

128 55 14 years ago

washingtonpost.com

mtgx• 14 years ago

Of course Lockheed is upset. They got used to getting fat contracts with money amounts that had nothing to do with the cost of what they were building. Now they'll have to actually compete as a normal company would do in the market.

Tloewald• 14 years ago

To give Lockheed some credit — their original goal was probably reliability over all else. In most cases their payloads are insanely expensive (ignoring opportunity cost — how much is having a surveillance satellite in place when needed worth?) and saving money on the launch is a false economy. Now they're having the fat pulled out of their contract (i.e. the launches where reliability isn't paramount but the cost structures were already established).

Whether SpaceX can establish itself as a mission critical alternative to ULA remains to be seen — 66 launches is no minor feat (but according to Wikipedia they have had at least TWO failed launches, is that 2/68 or 66 successes in a row or what?)

sliverstorm2• 14 years ago

Not to mention, how much is not having top-secret surveillance satellite land in your neighboor's backyard worth?

davedx• 14 years ago

In sales they teach you that making fun or otherwise disparaging your competition is not the way to close deals. I guess it doesn't apply when you're a billion dollar corporation and you can throw your weight around. Or think you can?

pbateman3• 14 years ago

“You can thrift on cost. You can take cost out of a rocket. But I will guarantee you, in my experience, when you start pulling a lot of costs out of a rocket, your quality and your probability of success in delivering a payload to orbit diminishes.’’

This sounds similar to the cry of every company that is about to be painfully disrupted.

confluence4• 14 years ago

This is why assume-worst-case/at the edge/corner case thinking is particularly useful.

> OK guys let's invert our thinking and stop joking around for a moment. Let's say SpaceX is going to destroy us. Now what do we do?

Being able to think like that should somewhat immunize people against disruption.

jusben1369• 14 years ago

"The Defense Department on Nov. 27 directed the Air Force to end a launch monopoly" "A week later, the service awarded the trial missions to Musk’s firm, known as SpaceX." "SpaceX...now has the opportunity to prove that its rockets are capable of launching satellites serving Pentagon planners, ground troops and the nation’s spies." "The missions, scheduled for 2014 and 2015, are designed to help the company become certified to carry the military and spy satellites."

- Much will be made here of Lockheed's comments. To me the real story is a h/t to government for opening up and encouraging disruption in a key market. Given the general negativity (often deserved) towards government by entrepreneurs it's important to acknowledge when they do positive things.

pbateman3• 14 years ago

Given the general negativity (often deserved) towards government by entrepreneurs it's important to acknowledge when they do positive things.

It's important to also realize they aren't doing this because they're motivated to disrupt the military/industrial complex, they're doing it because Elon is a master of public relations and has promoted SpaceX heavily.

doe88• 14 years ago

Or maybe because they (the government) think they have a shot to lower the cost of actuals 460M$ launches. Competition is great even for public contracts.

Moreover in this case it seems quite unexpected some peoples have been crazy enough to start building rockets and one day directly concurrence and disrupt Boeing and Lockheed. I'm sure Boeing and Lockheed would never have thought such possibility. It's amazing imo.

tsotha• 14 years ago

Whatever the motivations, if Musk can actually deliver at the prices he's aiming for it will be very disruptive.

kunle• 14 years ago

> they're doing it because Elon is a master of public relations and has promoted SpaceX heavily.

While this may be true, one point that your comment doesnt address is that Boeing/Lockheed (and most of the defense industry) are incredibly adept at promoting their business within the broader Gov and DoD. It's both incredible that Elon/SpaceX achieved this milestone amidst intense opposition from the current defense industry, and that the statement from the industry basically defends the practice of massively overshooting on costs and passing that on to the taxpayer.

subsystem• 14 years ago

"become certified to carry the military and spy satellites"

Elon Musk might become the Alfred Nobel of our time.

argumentum• 14 years ago

Given the general negativity (often deserved) towards government by entrepreneurs it's important to acknowledge when they do positive things.

This is far more like undoing a negative thing. Relatively, it's positive, but it's starting from a bad position that was the result of the government's actions to begin with.

saraid216• 14 years ago

Positivity is always relative. You can always frame the government's actions as negative as long as you put the zero point somewhere besides where they are now.

InclinedPlane• 14 years ago

There are other things going on here which are a little off the radar in the public. Military launch costs have been rather high but the bigger issue has been the cost and management of military satellites. The procurement of next generation spy satellites has been nothing short of a debacle, as they've gone hugely over budget and behind schedule and there are some indications that they've missed the mark in terms of capabilities and reliability as well. All of this is, of course, shrouded in secrecy so there's much we don't know but there's enough publicly available data to be able to divine that the whole thing has been a GDCF for at least the last decade.

This in turn puts more pressure on the launch providers as any failures, delays, or cost increases there just adds salt to the wound. Which partially explains the enthusiasm the DoD is showing for putting military hardware on SpaceX rockets. Also, the ability to take advantage of the Falcon Heavy's increased payload may give some breathing room to the spacecraft manufacturers, since there are few problems in spacecraft design which can't be made easier by merely adding more mass. And the ability to launch cheaper and potentially more often could enable a more iterative style of satellite development, and also a more competitive one (launching full-up prototype satellites prior to awarding a multi-satellite contract, for example). Which could put satellite procurement on a more reasonable footing for the future.

adastra• 14 years ago

In fairness, the DoD didn't just wake up one day and decide to Do The Right Thing. This development is the result of years of effort and millions of dollars spent on lobbying by SpaceX.

And even then, SpaceX is only getting a couple of launches worth at most a couple hundred million dollars. The entrenched monopoly that Lockheed runs, on the other hand, is trying to get locked into about $10 billion worth of no-bid contracts.

These trial missions could be a beachhead for SpaceX in the DoD market, but this is a pretty tiny step in the right direction by the US government.

jacquesm• 14 years ago

Lockheed is going to be in for a rude awakening one day, the jab they're giving SpaceX is nothing compared to the jab SpaceX is about to deliver in return.

Price is indeed just one factor in competition. But if your reliability is the same as or equal to the competition and your price is substantially lower the door is wide open for a massive shift. Ignoring that or making fun of it isn't going to help one little bit. Maybe Lockheed is willing to postpone slashing their prices until they are absolutely forced to but by then it may be too late to stop the shift from happening.

jstrate2• 14 years ago

Launching a multi-billion dollar satellite is a different than a hello world rails application. The ULA record of successfully putting dozens of satellites into the _correct_ orbit is important here. Which I don't even think SpaceX has done yet.

JshWright2• 14 years ago

All three times Dragon has flown, it has ended up in the correct orbit. SpaceX also put RazakSAT in the proper orbit atop a Falcon 1. The Orbcomm failure was only due to the extremely tight restrictions placed on the mission by NASA (the mission called for relighting the second stage to raise the Orbcomm sattilite's orbit, but since they had used slightly more fuel than planned due to the engine outage, NASA didn't let them relight, it's quite likely the rocket was _technically_ capable of completing the mission).

Obviously they have a ways to go before they can be considered 'tried and true,' but comparing SpaceX to a couple college kids putting together the next Instagram-for-Cats in their basement is disingenuous, at best.

jstrate2• 14 years ago

I suppose the point I'm making is to the general sentiment I'm seeing in this thread. It will take better than a 50% success rate of putting satellites into orbit before Lockheed starts thinking about the huge disruption I keep hearing about on this website. If you were to put a billion dollar satellite into orbit who would you choose?

gjkood2• 14 years ago

You are implying that SpaceX is in the business of hello world rails applications and not into serious space exploring technologies.

This company in less than a decade has accomplished what other nation states haven't been able to accomplish in over 50 years of investment in space related research.

The ULA record of successfully putting dozens of satellites into the _correct_ orbit has been arrived at after sucking at the teat of _Government_ contracts for over 60 years. Many many failures preceded their current successful_ record. We are just not keeping tabs.

Maybe we should step back and let the little dogs have a chance at it.

The Europeans, the Chinese, the Indians etc. don't see the ULA as the competition for the future. They see SpaceX as the real competition in the global marketplace.

niggler• 14 years ago

On the other hand, SpaceX benefited from decades of NASA and other companies supporting the supply chain and needed infrastructure (which is what enabled them to achieve results quickly)

It's disingenuous to claim SpaceX could have a similar trajectory had they started when ULA started.

gregpilling2• 14 years ago

Lockheed and Boeing are both very capable of building planes at scale, and in a competitive environment. Currently their space vehicles are built on a cost-plus model, but I think that L-B can adapt. Musk has an advantage today in cost, and should be able to maintain that for a few years, but don't think that Lockheed or Boeing can't compete once they realize that the gravy days are over.

It should be an exciting next decade for space travel. Maybe all the sci-fi I read will start to come true. Getting anything into space is a big challenge and hopefully soon the market will have several private companies competing in a real market for space travel. For a nice short story, look up "The man who sold the moon" by Robert Heinlein. Then we can discuss whether or not Elon Musk is the re-incarnation of the fictional character DD Harriman.

btilly2• 14 years ago

I don't know why you say this. Changing your cost structure is extremely hard for businesses. Particularly if, as with Lockheed and Boeing, your cost structure is distributed through a web of other businesses (ie subcontractors) who are all going to be inclined to push back.

gregpilling2• 14 years ago

Which particular this are you referring to? Just the changing of cost structure forced upon you by the adapt or die that sometimes happens in the marketplace? or were there other parts that required more explanation on my part.

dcpdx• 14 years ago

"First they ignore you, then they ridicule you, then they fight you, then you win."

binarray2000• 14 years ago

Knowing that the military-industrial complex has strong influence on US government and its agencies one has to both wonder and be surprised that SpaceX (presumably not part of that complex) gets such a lucrative account. NASA is one thing but US military...

huhtenberg• 14 years ago

> You can take cost out of a rocket. But I will guarantee you, in my experience, (snip) your quality and your probability of success in delivering a payload to orbit diminishes.

What else, conceivably, could Lockheed say?

xiaoma• 14 years ago

"Here at Lockheed, we know just how much is involved in making a successful launch like this and we'd like to congratulate SpaceX. Well done, and we welcome your competition. Ultimately, new competitors push us and advance the market as a whole. Over the course of our 66 consecutive successful missions, we've blah blah blah..."

Vivtek• 14 years ago

Well, they've stopped ignoring! Next will be attacking.

sliverstorm2• 14 years ago

I love how that quote has generally been re-interpreted as proof that being ignored means you're winning.

confluence4• 14 years ago

The quote uses conditional probability - you must have an aforementioned high impact strategy to make it a useful quote.

For example - starting a PC company in the 70s would be a good place to use this quote.

joering2• 14 years ago

Have anyone noticed that Musk is distrubing too much in two important industries whith billions of bollard involved: military/space and transportation? I am seriously concerned about his health, if you know what I mean...

oijaf888• 14 years ago

No I don't...what do you mean?

jff• 14 years ago

It's a bullshit conspiracy reference meant to make the GP look ever so cynical and wise. Specifically, saying that GM, Lockheed, Honda, and Boeing will all get together and assassinate Musk.

orangethirty2• 14 years ago

Some days ago, I toured a Lockheed plant. It was an amazing experience overall. Watching how airplanes get built inside a building. The scale of it just blew my mind. But, at the same time, I was looking at the business aspects of it. In my mind, what I was seeing was a business operating as it still was the 60's. Sure, there were some robots, and a lot of automation. But the whole underlying production pattern was old. made me realize that Lockheed peaked a long time ago and is now riding the gravy train. I'm sure projects like SpaceX will end up replacing them. Funny thing is that it won't take a long time. If Musk manages to turn himself into a good governement supplier (meaning he can make a good track record (so far so good)), then all these old behemoths will have their days counted.

hatberet• 14 years ago

Well, I think part of the problem is the size of their market. How many more people do you think would buy Mach 6 spy planes if the cost could be reduced by a couple orders of magnitude? Government would buy a few more, but John Q. Public doesn't really have a need for a vehicle that can fly him to 100 kilofeet (even if it only costs a couple hundred grand). So, unlike the car business, where you expect to sell tens of thousands to hundreds of thousands of units per year, the best you can ever expect in the airplane business is a few hundred to a thousand over the total useful life of the model.

To further put this in perspective, Honda (not the biggest automobile manufacturer) sells almost as many Accords (not their most popular model) in just one month as total number of 172's (the most-produced civilian aircraft) that Cessna has ever sold in all of history. Note that the wikipedia page on this topic (http://en.wikipedia.org/wiki/List_of_most_produced_aircraft) is dominated by military aircraft produced for WWII, as well as pre- and immediatly-post-war civilian aircraft.

What this means is that you can't just hand-wave away the costs of building tooling (for making forged parts with complex shapes, for example) and optimizing the assembly line. Fixed, upfront costs do not get amortized to a near-zero per-unit cost they way they do with software and most consumer electronics. This is also part of the reason avionics prices always seem to be so badly out of step with consumer electronics: As an avionics manufacturer, the maximum theoretical size of your market is tens to hundreds of thousands, (there are on the order of half a million civilian airplanes in the world today) and your suppliers usually want you to go through a distributor for orders that size.

There was a company, named Eclipse, that recently tried to revolutionize the way aircraft are produced. Among other things, they badly mis-estimated the size of the Very Light Jet market (which they more-or-less invented) and failed to over-deliver (some would say they over-promised). Suppliers, creditors, customers, and investors got soaked, though the firm is apparently still a going concern. One data point doesn't make a trend, and Eclipse faced fairly daunting macroeconomic conditions, but the fact remains that the manufacturer using the most "modern" production techniques had to go through bankruptcy.

One final point: The aviation market also tends to be cyclical. Loans don't go away, but you can have your employees work fewer hours.

orangethirty2• 14 years ago

Very good points. I appreciate you taking the time to make them. I'm not very well versed in the aeronautics market or its financials(aside from knowing to not buy airline stocks).

confluence4• 14 years ago

Bravo! Good points all round.

However this only works if the market is decently efficient.

Looking at defence contracting incentives - this is not remotely the case.

31reasons• 14 years ago

Its a great timing for SpaceX as all government agencies are looking to reduce their costs with fiscal cliff and all.

rayiner• 14 years ago

The pot shots at LM are a little bit misplaced. Let's not forget that it was the DOD and LM, Rockwell, etc, that built all of this technology in the first place. The industry is now mature and ready for competitive, cost-focused companies, but SpaceX is riding some very long coattails here.

tobyjsullivan• 14 years ago

This must be my favourite (worst) argument ever:

“Cost doesn’t matter at all if you don’t put the ball into orbit," said Lockheed’s Stevens, who is retiring as chief executive [officer]...

Effectively trying to rationalise doubling costs of every project as "necessary". He thinks this will win him credit in any industry?

confluence4• 14 years ago

I have a list of contra-indicators, which are indicators that I use to probabilistically look for interesting industries that are about to change a lot/see a lot of disruption/have various competitors who are about to head downhill.

Making fun of your competitors or suing them into the ground to show your own superiority is indicator #7. If you have to talk to explain your walk then you will soon be mocked.

MSFT is doing that with it's Google attack ads. AAPL is doing that with its various Samsung lawsuits and general adolescent behaviour.

rickdangerous1• 14 years ago

What are the other indicators?

SpaceX’s entry into $70 billion U.S. launch market draws Lockheed jab

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