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Shit Elon Says - Transcript - Senate hearing on National Security Space Launch Programs with Elon Musk

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Mr Chairman, ranking members of the committee, thank you for having me here today. SpaceX was founded to make radical improvements to space transport technology, with particular regard to reliability, safety and affordability. Today it is arguably one of the leading aerospace companies in the world with nearly 50 missions contracted at a value of approximately $5 billion. We've launched our Falcon 9 rocket eight times with 100% success rate, including four launches for NASA, three which docked with the International Space Station and have launched a sophisticated geostationary satellite for the world's leading satellite companies. We are restoring America's competitiveness in the global commercial space launch market as the only US company that has consistently winning head-to-head competitions for launch opportunities at the international level.

With respect to the EELV program, I have five points to make. The first is that the Air Force and other agencies are simply paying too high a price for launch. The impact of relying on monopoly providers since 2006 were predictable and they have borne out. Space launch innovation has stagnated, competition has been stifled and prices have risen to levels that General Sheldon has called unsustainable. When the merge between Boeing and Lockheed's business occurred, the merger promised, in the press release, $150 million of savings. Instead, there were billions of dollars of cost overruns, and a non-recovery breach for the program exceeding 50% of its cost projections.

According to congressional records, in FY14 the Air Force paid an average of $380 million for each national security launch, while subsidizing ULA's fixed costs to the tune of more than a billion dollars per year, even if they never launch a rocket. By contrast, SpaceX's price is well under a $100 million. Meaning a savings of almost $300 million per launch. Which, in many cases, would pay for the launch and the satellite combined. So, if you took something like a GPS satellite which about $140 million, you could actually have a free satellite with the launch. So, our launch plus the satellite would cost less than just their launch. Which is an enormous difference, and we seek no subsidies to maintain our business.

To put this into perspective, had SpaceX been awarded the missions ULA had been under it's recent non-competed 36 core block buy, we would have saved the tax payers $11.6 billion.

Point number two. Competition is coming to the national security launch market. This has been acknowledged, and we are ready to compete for that. In order to be certified as an EELV provider SpaceX had to meet a number of requirements that were never demanded of the incumbent provider. We were required to successfully launch three flights of our upgraded Falcon 9 vehicle, which we achieved in January. Under our EELV certification agreement we've undertaking vigorous engineering reviews with the Air Force. To-date we've delivered more than 30,000 data items to the Air Force and provided total access to our internal systems. We've talked to more than 300 government officials for certification, and we hope to complete that certification this year.

Point number three is that we really believe that robust competition must begin this calendar year. We applaud the early steps the Air Force and NRO have taken to reintroduce competition into the EELV program. In 2012 the Air Force, under direction from the Secretary of Defense, committed to competing up to 14 missions, with 5 missions available for competition this year. Of course, we would have greatly preferred that the Air Force open all of its missions to competition, and we have serious concerns that the 5 missions that will be competed this year will not actually be awarded this year. We recently learned that perhaps only one will be awarded this year.

Point four, with the advent of competition, launch should really be viewed as a commodity and any competition between new entrants and ULA, should properly acknowledge the launch subsidy received by the incumbent. Consistent with federal procurement regulations, and DoD acquisition directives, when a competitive environment exists, the government should use firm fixed price FAR part 12 contracts which properly incent contractors to deliver on time and on budget. That means eliminating the billion dollar annual subsidy to ULA, which creates an extremely unequal playing field.

The final point is that our Falcon 9 and Falcon Heavy launch vehicles are truly made in America. We design and manufacture the rockets in California and Texas, with key suppliers throughout the country and launch them from either Vandenberg Air Force Base or Cape Canaveral Air Force Station. This stands in stark contrast to the United Launch Alliance's most frequently flown vehicle, the Atlas V, which uses a Russian main engine and where possibly half the airframe is manufactured overseas. In light of Russia's defacto-annexation of Ukraine's Crimea region and the formal severing of military ties, "the Atlas V cannot possibly be described as providing assured access to space for our nation when supply of its main engine depends on President Putin's permission." Given this development, it would seem prudent to reconsider whether the 36 core, uncompeted sole-source award to ULA is truly in the best interests of the people of the United States.

I thank the committee for this opportunity and look forward to addressing any questions.

[Question about sustaining two companies.] Yeah, absolutely. First, I should mention that the premise of perfect success in not quite correct for ULA. They certainly have a very good track record but the first Delta IV Heavy failed and there was a partial failure of one of the Atlas missions, which resulted in a satellite having reduced life. So, it's certainly a good, but it's not quite correct to say it's - it would be a flawed premise to say that it's perfect. What I think is a logical sort of thing going forward is if there would be two families of rockets but not three families of rockets. Currently ULA has both the Atlas and the Delta, but those are redundant. We don't need both of those rocket families, and I think it would make sense to - for the long-term security of the country - to phase out the Atlas V, which depends on the Russian engine, and have ULA operate the Delta family, SpaceX operate the Falcon family, giving the Defense Department assured access to space with two completely different rocket families. I think that's the logical thing to do, going forward, and I think it would be the best thing, in every respect, for the country.

[Question about competition.] I think, as a country, we've generally decided that competition in the free market is a good thing and that monopolies are not good, and it's interesting to note that from the point from which Boeing and Lockheed's launch business merged - the point where they stopped being competitors - the costs doubled since then. I think the reality is, when competition is introduced - reliability is a key factor in competition. That would be a deciding factor in who wins what launches. It doesn't become less important, it becomes more important, but the cost to the US tax payer will drop substantially. I think they would drop, at least to the level that they were before Boeing and Lockheed became a monopoly in the launch business and perhaps even better than that. "And frankly, if our rockets are good enough for NASA, why are they not good enough for the Air Force? It doesn't make sense."

[Question about Air Force certification.] The Air Force certification process appears to be going quite well and we're not aware of any issues that would prevent us from being certified to fly missions - completing that certification this year - we are concerned about any delays in the contracting and hopefully those delays don't materialize. As I mentioned in my earlier testimony, I think in light of recent events on the international stage, it may be wise to consider whether procuring the Atlas as part of the 36 core block buy, which is a five year buy - as mentioned earlier by Mr Gass, they only have a two year supply of engines, and yet this contract is a five year contract for the 36 cores. So, if there are any sanctions or if there is any issue with the supply of those engines, there will not be assured access to space for the Atlas V.

[Question about the 14 competed launches.] I'm very hopeful that the Air Force will adhere to that requirement. [Will you be ready?] I'm highly confident that we'll be able to, yes.

[Question about added overhead costs due to oversight.] Certainly. We provide full and detailed insight into all of our costs. We've been doing so for a long time to NASA and we're also providing that to the Air Force. So, the government has complete insight into our cost structure. There is additional cost for US government missions due to the mission assurance process, because the US government does not buy launch insurance. So, in order to improve the probability of success there is quite a substantial mission assurance overhead that's applied. Which is why our launch costs are estimated to be 50% higher for Air Force flights than for commercial flights. So, instead of $60 million for a commercial mission, it's $90 million, but that compares to more like $380 million for United Launch Alliance. So, even when you add the Air Force overhead, there is still a huge difference. In fact, all of the numbers I was referring to, are including the Air Force overhead. [Should you have the same rules applied to you as ULA?] Absolutely.

[Question about ULA's launch record.] I would, although I'd like to point out that there were two highly publicized failure investigations, one for Delta IV Heavy, one for Atlas. The Air Force conducted failure investigations. ULA has a very good track record. It's not quite as good as 68 perfect launches.

[Question about partial Falcon 9 launch failure.] Right, well, by ULA's definition of success, that mission was perfect. [Reiteration of the question.] Right, the primary mission which was to deliver the CASSIOPE satellite, was 100% successful. There was a secondary satellite that was an optional objective, that was not part of the primary mission. But as I said, if you accept ULA's definition of perfect success then that mission was perfectly successful.

[Question about maintaining ULA subsidy.] Sure. Well, the reality today is that there's a steady cadence of Air Force and NRO missions every year. So, you don't really have the wide difference from one year to the next that you had in the past. So, I think the prior justification for needing that subsidy for stability is no longer there as there is a stable launch demand from the Air Force and intelligence community. Secondly, I go back to the point that there's really not a need for ULA to maintain two families of rocket - both the Delta and the Atlas - and given that the Atlas is dependent upon a Russian main engine which can be cut off at any time, the logical thing to do is to eliminate the Atlas family, have the Delta and Falcon family and that will provide the greatest amount of assured access, and the greatest reliability and the cost savings that the government is looking for.

[Question about meeting Air Force requirements.] I believe SpaceX can manage all of the Air Force requirements. We might argue that maybe some of those requirements shouldn't be there, but we will meet whatever requirements the Air Force asks of us and we believe we can manage all of the Air Force's satellites and then some. [Followup about fixed price vs cost-plus.] I think fixed price competition is the better way to go when - when there's competition, the logical thing to do is to go for fixed price because otherwise if you compete it and it's cost-plus then it gives the companies the opportunity to raise their prices effectively as their costs grow relative to the competition.

[Question about the benefits of cost-plus contracting.] Certainly. I think that the logical thing to do is to do a fixed price competition for the basic vehicle and to the degree that there are mission-unique requirements - which is a fairly small part of the mission - that that would be cost-plus. So, if the Air Force says, well, there's a unique national security satellite, it's going to require these additional changes to the rocket or to the mission, or it's going to require priority, then just that incremental piece would be logical to make cost-plus, but the vast majority of the contract would be fixed price.

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