Air Force budget reveals how much SpaceX undercuts launch prices

Spoiler alert: It’s a lot. 

A Delta IV Heavy rocket launches a national security satellite in 2016. United Launch Alliance

In 2014, the US Government Accountability Office issued a report on cost estimates for the US Air Force's program to launch national security payloads, which at the time consisted of a fleet of rockets maintained and flown entirely by United Launch Alliance (ULA). The report was critical of the non-transparent nature of ULA's launch prices and noted that the government "lacked sufficient knowledge to negotiate fair and reasonable launch prices" with the monopoly.

At around the same time, the new space rocket company SpaceX began to aggressively pursue the opportunity to launch national security payloads for the government. SpaceX claimed to offer a substantially lower price for delivering satellites into various orbits around Earth. But because of the lack of transparency, comparing prices was difficult.

The price uncertainty was largely due to the fact that the government pays both a firm, fixed-price cost for the rocket used for each ULA launch—be it an Atlas V, Delta IV, or Delta IV Heavy—as well as a cost-plus incentive fee known as an ELC contract. This ELC contact was essentially a payment to ULA to maintain "launch readiness" for critical national security payloads. And the large-rocket company, co-owned by Boeing and Lockheed Martin, put the money to good use with a perfect launch record for the federal government. To critics, however, this large, nebulous payment amounted to an anti-competitive subsidy once SpaceX began offering the Falcon 9 rocket as a viable alternative.
Now, transparency is coming to the federal launch market, allowing lawmakers to more directly compare the costs of ULA's launch vehicles against those of new space competitors, such as SpaceX. Because of the fiscal year 2016 National Defense Authorization Act, the Air Force budget request must consolidate rocket launch costs into a single budget line beginning in fiscal year 2020.

A $422 million launch?

The Air Force recently released budget estimates for fiscal year 2018, and these include a run out into the early 2020s. For these years, the budget combines the fixed price rocket and ELC contract costs into a single budget line. (See page 109 of this document). They are strikingly high. According to the Air Force estimate, the "unit cost" of a single rocket launch in fiscal year 2020 is $422 million, and $424 million for a year later.

This is a complex number to unpack. But based upon discussions with various space policy experts, this is the maximum amount the Air Force believes it will need to pay, per launch, if United Launch Alliance is selected for all of its launch needs in 2020. ULA launches about a half-dozen payloads for the Air Force in a given year, on variants of its rockets. Therefore, the 2020 unit cost likely includes a mix of mostly Atlas V rockets (sold on the commercial market for about $100 million) and perhaps one Delta rocket launch (up to $350 million on the commercial market for a Heavy variant).

One person who has reviewed the Air Force budget and is sympathetic to the new space industry said the following:
"That is a tad more expensive than the amount ULA would ever tell taxpayers they are paying for one of its launches, and it illustrates the extent to which those taxpayers are forced to subsidize ULA in order to maintain the fiction that it is a competitive private sector company."
Essentially, then, while ULA has talked publicly about lowering the costs of its boosters for the commercial sector and the federal government, the US Department of Defense is suggesting in its budget that ULA's costs are as high as they have ever been. In response to a media query from Ars, a spokeswoman for the Colorado-based United Launch Alliance referred questions to the Air Force.

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