The New Space Economy

[This article originally appeared in Aerospace Industry Association’s quarterly journal, Executive Report, Spring 2017]

Thanks to American ingenuity, the U.S. space industry has long dominated the global marketplace for space systems and applications driven primarily by the satellite sector. And there’s more to come. Indeed, U.S. commercial space businesses are largely responsible for developing the critical enabling infrastructure for the many established civil, military and commercial uses of space, and the new applications that are increasingly critical for national security and economic prosperity. That leadership position, however, is by no means guaranteed.

Competitors in China, India, Japan and Russia as well as in European states see growing market opportunities and are aggressively pursuing new customers. In fact, even Luxembourg is using its low corporate tax rates and incentives to lure companies —both established communication satellite operators and those interested in new space applications. And while American companies continue to do incredible work in making this sector robust, changes to government policies are needed to help advance the ability of the U.S. commercial space industry to keep innovating and pioneering the future.

To this end, in late January, AIA, in collaboration with AIAA and the Space Foundation, offered an “Aerospace 101” briefing for congressional staffers on key aerospace policy issues. The message from one of the speakers, Tauri Group’s Managing Partner Carissa Christensen, was surprising to many and underscored why a briefing on the fiscal realities of space was needed.

“Out of the $335 billion that comprised global space spending (including space equipment and space enabled services) in 2015, just a quarter of that represents the dollars that every government on Earth spends on space,” said Christensen. “Three quarters of that is commercial.” Christensen added that while commercial companies have always helped support the exploration and development of space, initially in the role of government contractors, “now industry is driving what space activities to pursue.”

While satellite broadcasting applications remains the biggest commercial sector, increasingly, commercial space is also about new innovations using constellations of cubesats or “small sats” that may soon bring wireless internet connections to the most remote places on Earth and transmit news and market orders faster than before. It’s about enabling daily commercial imaging of almost any location. Even when space is not explicitly mentioned in public discourse, space systems provide the essential enabling capability — from driverless cars and automated delivery drones to improved aviation traffic management in the new NextGen system now being implemented by the FAA.

Today, it is not at all unusual to read about the latest space achievements and innovative technologies demonstrated by established leaders, including Boeing, Lockheed Martin, Northrop Grumman, Aerojet Rocketdyne, Ball Aerospace, Harris, Orbital ATK, Raytheon, Sierra Nevada and others. These companies are leveraging their demonstrated systems and amazing records of success to develop new approaches and new commercial offerings based on their own investment — everything from crew and cargo transportation capabilities to the International Space Station, new space suits and systems to enable exploration beyond Low Earth Orbit, in-space satellite servicing and the placement in orbit and utilization of large communications and Earth observation satellites, constellations of cubesats, satellite instruments and data streams from space. And new entrants such as Bigelow Aerospace, Blue Origin, Made in Space, OneWeb, Planet and Virgin Galactic are capitalizing on public interest and the availability of venture, international and private capital — including shareholders’— to take on new projects such as inflatable habitat modules, space manufacturing and space tourism.

Yet, the picture for U.S. space companies is not all rosy. It would be easy to describe the rise of international competition as part of the natural order of any global marketplace, but policy missteps and shortcomings have also enabled our foreign competitors to seize opportunities they wouldn’t have otherwise had.

For example, when Congress passed legislation in 1998 mandating that all satellites and related technologies be placed on the U.S. Munitions List, not only did our U.S. commercial satellite industry take a big hit, but the entire U.S. space component and subsystem supply chain supporting both commercial and government systems was crushed. In the soon to be released AIA/Tauri Group report, “Enabling Opportunity: Analysis and Recommendations for U.S. Space Industry Competitiveness,” the author notes these restrictions arguably took away almost $9 billion in potential sales from U.S. companies and diverted commercial research and development expenditures, leaving new intellectual property to foreign firms. The report adds, “Not only did European companies seize the opportunity to catch up in both market share and technology for communications satellites, they effectively cornered the emerging market for imaging craft, where the U.S. technology edge was far greater.”

Furthermore, “the reduction (in international market share) strained the U.S. industrial base that the Defense Department relies on to build its own satellites while encouraging investment by other countries in militarily significant technologies. In other words, rules enacted to enhance U.S. national security wound up doing the opposite.”

The 2014 Export Control reforms supported by the Obama Administration has helped the U.S. industry rebound somewhat, but they didn’t go far enough. As the AIA/Tauri report notes, “Several of the technologies that remain tightly restricted are widely available from other countries that do not have similar controls, thereby placing U.S. industry at a competitive disadvantage. These include satellite imaging cameras with aperture diameters of 0.35 meters or greater, despite the fact that several satellites sold internationally by non-U.S. companies have exceeded this threshold.

This policy shortcoming, combined with imbalanced tax policies and lingering regulatory challenges, have continued to undermine the growth of U.S. industrial base and markets. Additionally, U.S. trade efforts in these matters are crippled by the inability of the Export Import Bank of the United States to provide loan guarantees and credit insurance for international satellite and launch service until Congress approves a quorum for the Board of Directors. The Export Import Bank allows American industry compete on a level international playing field.

Policy Changes are Needed

Clearly, central to keeping American innovation and market leadership out front is having the policies and operating environments in place to enable further growth and opportunity for made-in-America commercial space systems to export, for U.S. launch systems to launch international commercial spacecraft out of U.S. spaceports and to compete globally.

While congressional action and other regulatory reform efforts can address some of these shortcomings, the restoration of the National Space Council, which has been discussed by the new Trump Administration, could also play a central role in shaping new policies to spur further American market growth and expansion. A restored National Space Council oversight role could aid the government’s sense and understanding of the national mission that is space. In the Tauri Group report, three focus areas of policy recommendations to enhance and strengthen the U.S. commercial space sector were highlighted. First, to “Level the Playing Field” in the international commercial space marketplace, the policy report calls for the following actions:

  • Provide a responsive regulatory environment for commercial space activities.
  • Continuously review, update and improve export rulemaking and policies to reflect market and technological
  • Restore stability to the Export Import Bank of the United States.
  • Leverage commercially developed and sustained capabilities to advance government missions.
  • Consider a new tax regime designed to attract and keep commercial space businesses in the U.S.

The next focus area, “Protect Space Market Opportunities,” notes that a fair and reserved allocation of spectrum is needed to ensure that the public continues to benefit from space communications services and data from satellite applications, and that “the government should continue to closely monitor the orbital environment while exploring ways to incentivize efforts to minimize and even reduce the amount of hazardous debris,” which threatens our orbiting space infrastructure without overly regulating orbital activity and encouraging U.S. firms to move overseas. And the final focus area, “Prioritizing Space Competitiveness is Vital to Our Nation,” advocates that government leaders should recognize commercial space as being vital to our nation and take actions such as:

  • Consider designating a senior U.S. government official as a commercial space market advocate.
  • Encourage an enhanced leadership role in trade and export objectives for the Commerce Department’s International Trade Administration.
  • Identify space security cooperation with allies and partners as a priority for getting the most benefit from U.S. military space capabilities.

Dr. Scott Pace, director of the Space Policy Institute at the George Washington University, is keen on bolstering the government’s role in support of space market expansion. “We need to strengthen and empower the Department of Commerce to be a better advocate and leader within the government on behalf of space commerce,” he says. Pace added, “We also need our State Department to promote greater recognition of pro-commercial space best practices and international agreements. International engagement is an important way for us to ensure the sustainability of all space activities against threats such as orbital debris and radio frequency interference. We need to work with other countries to ensure that space-related markets can grow sustainably and safely.”

As much as national policies are now in the spotlight, it’s also worth noting the increasing role of states as facilitators of commercial space activity. The Virginia Commercial Space Flight Authority (Virginia Space) for example, is working to build upon the role of the Mid Atlantic Regional Spaceport (MARS) and its launch facilities located on Wallops Island as a commercial space hub. In addition to an operational launch facility — used by Orbital ATK for its International Space Station cargo resupply launches. Virginia Space is seeking to bring into the state more small satellite work as well.

Jeff Bingham, vice chairman of Virginia Space and a veteran U.S. Senate staffer and NASA Associate Administrator, explains that, “Beyond having our own launch facilities and other operational capabilities, we need to expand education opportunities, business development, engineering services, small sat work, payload integration and more if we want to be a magnet for these opportunities.”

Florida, the home to America’s space heritage, is equally aggressive about attracting new space activity. With the active support of state political leaders, Space Florida, the state’s aerospace economic development agency, is offering established companies and emerging entrepreneurs a “toolbox” of tax and other incentives to anchor their operations in the “Sunshine State,” which has long hosted NASA and U.S. Air Force space activities.

“We see that real growth opportunity is on the commercial side,” says Dale Ketcham, Space Florida’s chief of strategic alliances. “It’s in Florida’s interest to get away from government dependency and it’s even better for us to recapture the commercial space launch market.”

Florida and Virginia are not alone in pursing growth in the commercial space sector. Alaska, California, New Mexico, Texas and dozens of other states are making investments to attract commercial space enterprise.

That fact is true even beyond U.S. borders as international competition from China, India, Russia and other state actors continues to grow in commercial space. But there may be an “X Factor” in terms of planning for the market’s future. Whether we’re talking about sports, or singing or any industry, it’s a truism that Americans love competition. If our companies are given a fair chance to compete, you can always count on American ingenuity to create new worlds of opportunity, especially those one hundred miles up and beyond.

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