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starship-design: Space infrastructure

This is the final chapter of the Commercial Space Transportation Study
without the graphics and html. The link to this page is:


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4.1.3 Results

Under current conditions, the space transportation market is considerably
different from nonspace commercial markets. Launch infrastructure, principal
launch assets, and manufacturing facilities are under the control of various
branches of the U.S. government. The market is predominately determined by
governmental budgets. This places a large element of market risk due to the
uncertainties of annual appropriations. Transitioning to a market that is
predominately commercial requires the development of new markets and a major
cultural change in the ways of doing business in space.
Private investment in space transportation can only be a feasible venture if
the investors can be repaid. One measure of success is the internal rate of
return (IRR). An IRR of 15% to 25% over the first 10 years of operations has
been selected as the target value to evaluate commercial feasibility. The
revenues from each flight, based upon the payload capability and the price
per flight, must be balanced against the recurring cost charged to that
flight, repayment of the investment debt incurred in constructing the
system, and some amount of return to the commercial investors. Figure
4.1.3-1 shows the minimum average annual revenues derived from the mission
capture model for the medium-probability model.

Figure 4.1.3-2 shows the results from a hypothetical $5B investment
scenario. The figure shows the payback cash flow per flight required to
satisfy the IRR goal. It also shows the expected flight rates from the
mission capture analysis at different launch prices and vehicle payload

As an illustration from the figure, a vehicle with 30,000 lb payload
capability in the medium-probability model, and priced at $1000/lb pound
will capture 38 flights per year. This system must achieve a payback cash
flow of about $70 million per flight in order to service its debts and yield
a 20% IRR after 10 years of operations. However, at $1000/lb, a 30,000-lb
capability system can only achieve about $30 million in revenues, even
before subtracting out recurring costs of operation. Obviously, it is not
possible for such a system to be economically viable.

Another example, using a vehicle with 55,000-lb payload capability priced at
$600/lb, can capture 70 flights per year. It must achieve a payback cash
flow of about $35 million per flight in order to service its debts and yield
a 20% IRR after 10 years of operations. At a price of $600/lb, the 55,000-lb
capability system can achieve about $33 million in revenues per flight. This
case shows that if investors were able to accept a reduced IRR it might be
possible to attain an economically viable payback.

The 70 flights per year of the 55,000-lb payload capability launch system
priced at $600 per pound can generate about $2,310 million in annual
revenues. From this annual revenue, the operating costs must be subtracted
to determine the annual payback cash flow. Figure 4.1.3-3 can be used to
illustrate how this level of payback cash flow can be used to show the
maximum possible investment. If annual operating costs were zero, the $2,310
million annual payback cash flow would almost be sufficient to recover a
$5,000 million investment at 20% IRR after 10 years of operation.

However, if annual operating costs were one-half the transportation price
charged, then only $1,200 million would be available for the payback cash
flow. This would only allow an investment of about $2,500 at the 20% IRR. If
the operating costs were higher, even smaller investments would be
economically viable.

This market study did not address the cost of space launches, nor the
technical requirements to achieve specific launch cost goals. However, this
analysis indicates that as a commercial investment measured at standard
industrial investment return levels, the investment cost for a new space
launch system must be kept in the range of a few billions of dollars.

This indicates a potential paradox in the commercial space transportation
market. High flight rates appear to be necessary to reduce the price per
flight. However, reduced price per flight reduces the revenue per flight,
and consequently the cash flow available for investment payback.

We have not been able to prove the commercial space market elastic enough to
enable the revenues per flight to be greater than the combined payback and
operations costs per flight for a completely commercially developed system.
To attract commercial investment it appears that some level of government
participation will be necessary.

There are different options that can be considered for this, ranging from
government development and commercial operation (which reduces the
investment cost), to market and loan guarantees (which reduce the
uncertainty in the revenues). Other options including corporate tax
incentive and innovative financial arrangements may also be considered. Some
of these investment options are outlined in Figure 4.1.3-4, along with a
brief discussion of the advantages and disadvantages of each option.

4.1.4 Summary
The business analysis for this initial phase of the CSTS has been used to
define the economic thresholds associated with a commercially viable system.
The CSTS specifically did not analyze the cost and technical constraints on
a new space launch system. Parametric data relationships between investment
and payback requirements indicates that a commercial space transportation
system may be viable at low investment levels and higher launch rates.
To achieve these demanding goals, it appears that joint government/industry
investment into the development of this system will be required. There are
many options yet to be examined for these investment and financial

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As you can see, there are more complications to this chicken and egg story
than we would have thought and the forecast is even worse than we had
thought. For the whole story, the main page for the study is at:


It gives detailed analysis of almost every conceivable factor affecting
development of space in the next few years.