SUBCOMMITTEE ON SPACE SCIENCE AND APPLICATIONS HEARING ON COMMERCIALIZATION ROOM 2318; 9:30 A.M. - 12:00 NOON WITNESS LIST

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92B00181R001701610007-8
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 23
• Document Creation Date: December 27, 2016
• Document Release Date: February 24, 2012
• Sequence Number: 7
• Publication Date: May 4, 1983
• Content Type: MISC

Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
COMMITTEE ON.SCIENCE AND TECHNOLOCsY
U.S. HOUSE OF REPRESENTATIVES
WASHINGTON, D.C. 20515
Hearing on
Space Commercialization
Room 2318; 9:30 a. m. - 12:00 noon
May 4, 1983
Mr. David Hannah, Jr.
Chairman and Chief Executive Officer
Space Services Incorporated of America
P. 0. Box 4
Houston, Texas 77001
Mr. Charles A. Ordahl
Director of Space Programs
McDonnell Douglas Astronautics Company
5301 Bolsa Avenue
Huntington Beach, California 92647
Mr~. i=R-ucf:: ~~. Ferguson
Vice President and General Counsel
Orbital Systems Corporation
664 North Michigan Avenue
Chicago, Illinois 6061{
._
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28 :CIA-RDP92B00181 8001701610007-8
DAVID HANNAH JR.
CHAIRMAN OF THE 30A.RD
SPACE SERVICES INCORPO?ATED OF AMERICA
SPACE SCIENCE AND APPLICATIONS SUBCOMMITTEE
COMMITTEE ON SCIENCE b,'~'D TECHNOLOGY
U. S. HOUSE OF REPRESEtiTATIVES ?
MAY 4, 1983
- ~
Declassified and Approved For Release 2012/02/28 :CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
Mr. Chairman and distinguished members of the Subcommittee, I am
David Hannah Jr., Chairman of the Board of Directors of Space Services
Incorporated of America (SSI) of Houston, Texas.
I am pleased to have this opportunity to testify before you today on a
most important topic: how government and industry can cooperate to fully
tap the great national economic and social potential of the commercial
development and application of space technologies. SSI believes that
space represents a virtually unlimited frontier for economic growth--a
frontier that the American free enterprise system is uniquely qualified to
develop.
Space Services is a small company, founded in 1980. SSTs corporate
objective is to use proven entrepreneurial techniques as a means for the
private sector to help transfer governmentally developed space technologies
to industrial and commercial applications. Our initial project is the
development of a low-cost commercial launch vehicle--the Conestoga. On
September 9, 19 82, SSI became the first American company to successfully
launch a rocket into outer space. The Conestoga I suborbital flight
accomplished all mission objectives, including a demonstration of the
ability of the company and the vehicle to inject a satellite into orbit.
We now are proceeding with our plans to build an orbital launch vehicle
and to place a commercial satellite into low Earth orbit in late 1984 or
early 1985. Conestoga II is designed to launch a variety of relatively
lightweight, low-orbiting satellites to provide rerote sensing, data
collection, and positioning services. k'e believe for several reasons that
the Conestoga will complement, not compete with, the Space Shuttle and
other expendable launch vehicles.
r_
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
I mentioned that the Conestoga I mission met all of its objectives.
In my opinion, one of the most significant accomplishments of Conestoga I
was the demonstration of a private company's ability to obtain all govern-
mental licenses and permissions necessary for a private sector launch.
SSI received formal approvals from five federal agencies: NASA, the Federal
Aviation Administration, the Federal Communications Commission, the Department
of State, and the Bureau of Alcohol, Tobacco, and Firearms of the Department
of Treasury. SSI cooperated inf ormally with the United States Navy, the
Coast Guard, and NORAD. In breaking this new regulatory ground, each of
these agencies demonstrated both a remarkable degree of flexibility and a
strong support for the concept of private space operations.
NASA and the FAA, in particular, were willing to work very closely
with us in support of the Conestoga mission. Moreover, NASA's decision--
with the consent of this subcommittee and others in the Congress--to sell
us a solid rocket motor from their sounding rocket program inventory ultimately
enabled SSI to undertake the Conestoga I mission. In many ways, then, I
believe that Space Services' success is one rightly shared by the U. S.
government and all our fellow citizens.
As we look to the future of commercial space operations, I believe
governmental policy will continue to play a pivotal role. It is both
symbolically and substantively imperative that the government send a
clear signal encouraging the growth of this emerging high technology
industry. Space applications are particularly capital-intensive, and
investors carefully scrutinize all risks before providing seed capital
for commercial space programs. The two greatest risks confronting almost
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
-3-
any commercial space venture--market size and acquisition of governmental .
approvals--are fundamentally influenced by governmental policy. Moreover,
the viability of this industry in the coming years will be subject to
the impacts of government programs or policies that encourage or discourage
research and development of advanced space technologies and/or the subsequent
transfer of such technologies to commercial entities. I.would like to comment
briefly on each of these three areas--regulation, market, and research and
development and its transfer into commerce--as they relate to government
policy.
Regulation. One of the clearest positive signals the government can send
to the private sector is a serious effort to clarify and streamline the myriad
applicable regulations and to coordinate the numerous agencies with authority
over private space ventures. As I noted earlier, all of the government agencies
working with SSI were very supportive and flexible in navigating these hereto-
fore uncharted regulatory realms. Such cooperation was essential, because in
current practice a negative opinion from aay government agency would effectively
prevent a private launch. Consequently, the fact that we received permissions
from all interested agencies is itself ~a strong indicator of governmental
support.
However, SSI did expend a great deal of time, effort, and money to obtain
those permissions. We received the final license only one day before our
scheduled launch date, six months after we began the multiple-applications
process.
We already are beginning to identify and investigate the licenses and
permissions required for our next mission. In 1981 our first attempted rocket
launch (of the Percheron) required lacers es from the FAA and the FCC. As I
r_
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
noted, in 1982 the Conestoga I required five formal permissions and several
additional cooperative arrangements. Our next mission will place a commer-
cial satellite in orbit, which may further complicate this process--although
at this point I cannot say with certainty which, if any, additional licenses
or permissions will be required.
Early delineation of a reasonable regulatory regime for commercial space
ventures constitutes one essential component of a governmental policy designed
to encourage greater private sector involvement in space applications and
operations. While a comprehensive analysis of specific improvements in the
regulatory process is probably beyond the scope of these hearings, I would
like to note that this committee has before it at least one legislative pro-
posal (H.R. 1011) designed to streamline the launch approvals process. I
would encourage this committee, as I did in my previous testimony in
September 1981, to promptly address the need for a single federal agency with
overall responsibility and authority for licensing private sector space
launches, launch sites, and satellite applications. I continue to believe
that the Federal Aviation Administration--which functioned so effectively both
technically and administratively for the Conestoga I launch--is best qualified
to play the lead agency role, supported by proper inputs from other government
agencies, including NASA.
Market. Any entrepreneurial space venture also faces a second risk factor,
the market for commercial space applications and the presence of competitors
for a given market. Because space technology traditionally has been developed
and operated by the government, it is understandable that the principal
competitor for any entrepreneur in commercial space applications (with the
exception of communications satellites) is the U. S. government--for example,
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
-5-
in transportation, NASA; in remote. sensing, the National Oceanic and
Atmospheric Administration; and in navigation/positioning services, the
Global Positioning System of the Department of Defense.
It is extremely difficult to propose a formula for commercial development
that would balance the expectation of many that the government should endeavor
to recover as much of the taxpayers' investment in space applications as
possible with the equal if not more important need to encourage increased
private sector investment in space operations.
I believe that the nation is at an important transition point in the
commercial application of space technologies. Crucially, industry and govern-
went must find mechanisms which promote government/industry cooperation rather
than competition in the internationally competitive marketplace for commercial
space applications.
Mr. Chairman, industry should not expect large direct subsidies to
encourage commercial space technologies, but, concomitantly, industry should
not be forced to compete against government-operated space systems that are
effectively subsidized by taxpayer dollars. In this time of'very real
national budgetary constraints, the goverment must formulate criteria enabling
NASA and other federal agencies to continue to operate space systems critical
to the nation's needs, while simultaneously prese rving industry opportunities
to enter the marketplace and satisfy predominantly commercial needs. I am not
suggesting that the government has no right to offer its se rvices to commercial
users, but rather that we must find procedures to ensure that the government
does not subsidize inefficient space operations and applications, thereby
functionally precluding industry from offering more cost-effective alternatives.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
-6-
I believe that government and industry can develop a consensus on an
overall hierarchy of government and private demand for space operations
and criteria for meeting those needs.. For example, industry should address
purely commercial needs by providing se rvices according to market dictates.
We should look first to industry to satisfy needs which include both commercial
and scientific/research components. If no purely commercial service is
forthcoming, the government then should consider a range of responses to
ensure that the necessary service is provided. Perhaps the first response
should be an effort to jointly develop and/or apply the technology, e.g.,
NASA's joint endeavor agreements. A secoad response might be a series of
inducements (for example, tax incentives) for industry to provide the needed
technology or service. Direct government funding for the technology or
service in question should be the last response, and the government should fund
such operations only as long as industry is unwilling or unable to supply
the service or technology. Furthermore, G~-en the government offers commer-
cial space services, every attempt should be made to recover all associated
operating costs. This policy will promote efficiency in government procure-
went and operation of space systems. Finally, the government may want to
continue direct f unding of scientif is or research and development needs, or
policymakers may want to examine the feasibility of offering sufficient
inducements to industry to encourage basic research and efficient and innova-
tive RED. '
Mr. Chairman, I offer these suggestions only as a starting point for
what I believe is a most important discussion on building industry/government
cooperation rather than competition. These suggestions may be facile or
unworkable, and I'm certain that others in industry and government will have
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
useful insights. However, in my judgaent it is essential that we incorporate
the potential contributions of a new generation of space industries--those
willing to take risks to provide commercial space technologies and services--
into our evaluations of current and planned space technologies and services.
Only by encouraging such space entrepreneurs can our aiation truly take full
advantage of its investment in space--an investment that has demonstrated new.
markets and paved the way for a new sector~of economic growth to improve the
lives of future generations.
Research and Development and Transfer Policy. Y often have said that Space
Services would not be here today if it were not for tie government's substantial
ling-term investment in space technology research and{ development. I believe
that commercial space applications will f ulfill their great economic and social
potential only if the U. S. government continues to invest in advanced research
and development of new space technologies--particularly long-term, high-risk,
high-cost, ground-breaking RED. I can think of no better recipient of precious
taxpayer dollars for this purpose than NASA.
Of course, it is equally important that the prodlaicts of R&D are effectively
transferred, when appropriate, to the private sector for further application
and commercial development. The appropriate timing oaf such transfers is often
difficult to determine, but I believe that such transition difficulties are
outweighed by the advantages of government RED, competitive private co~.mercial
space activities, and cooperation between the government and the private sector
to achieve smoother transitions. NASA already has ta~3cen important steps to
facilitate the transfer of RED products to the private sector, and I would
encourage even more efforts in this area. Specifically, I believe that NASA
should promptly act to transfer expendab le launch vehicle operations to the
r
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
private sector. Although ELVs can hardly be classified as a "new" space
technology, their transfer at this time (under the proper conditions) could
generate an important private capability to back up the Shuttle. In the case
of new technologies such as advanced solid state sensors for remote sensing
applications, NASA should actively solicit industry input at an early stage
in the planning process to help identify workable technologies and useful
programs. Subsequently, NASA should make every effort to supply research
results in a timely fashion to any interested company. Whenever possible,
governmentally developed space technologies should be available to any
interested party at cost. In those instances where only limited access is
possible (for example, use of government launch facilities), it is imperative
to avoid monopolies and give equal opportunities to financially and technically
responsible small companies, as well as to well-established large corporations.
By promoting the entry of new entrepreneurial companies into the space industry,
government policy can do much to bring growth, flexibility, and productive
innovation to commercial space operations.
Finally, Mr. Chairman, your letter of invitation specifically requested
my comments on the NASA/industry partnership to develop commercial space
technologies and services. As you no doubt can discern from my testimony,
I believe NASA has played and will continue to play an important role in
encouraging commercial space ventures. In the future, NASA can provide
important technical insights to the lead regulatory agency for licensing
private space operations. To promote the development of private markets,
NASA must carefully scrutinize each existing and new technology and/or
government commercial space service, seeking to minimize competition between
domestic industry and the government. To strengthen the underpinnings of
private and government space activities, '~4SA must continue its efforts to
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
lead the world in advanced space technology research and development--and,
subsequently, NASA must disseminate that technology in the widest practicable
manner, paying particular attention to the needs of small, entrepreneurial
space development corporations.
Thank you, Mr. Chairman, for soliciting my views on this most important
topic.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
Bruce W. Ferguson
Vice President and General Counsel
Orbital Systems Corporation
Subcommittee on Space Science and Applications
Committee on Science and Technology
House of Representatives
May 4, 1983
Mr. Chairman and Members of the Subcommittee:
I am happy to appear before this Committee this morning to present
OSC's views on cooperative arrangements for the commercialization of space.
OSC currently has agreem?nts with both NASA and Martin Marietta Corporation
to develop a high-capacity upper stage for use on NASA's Space Shuttle.
The upper stage, called the Transfer Orbit Stage (TOS), is a
large, single stage solid-propellant rocket that is carried up with its
payload in the Space Shuttle to low earth orbit. The TOS and its payload
are then launched by the Space Shuttle to transport communications
satellites and other payloads from the low Earth orbit of the Space Shuttle
(approximately 160 miles above the Earth) to higher orbits that the heavy
Space Shuttle cannot reach, such as the geosynchronous orbit utilized by
most communications satellites (approximately 22,300 miles above the
Earth).
The evolution of the commercial satellite market to larger, heavier
satellites indicates that an economical high-capacity upper stage such as
TOS is well positioned to capitalize on a significant business opportunity.
Current launch systems, such as the PAM-D upper stage used on the Space
Shuttle, are economical only for smaller satellites. At present, there
exists no economic~.l way to launch large satellites of the TOS class
(approximately 2,800 to 6,800 pounds) into geosynchronous orbit, other high
orbits, or on planetary missions.. A sophisticat ed two-stage rocket, the
Inertial Upper Stage, developed by the Air Force primarily for military use
. on the Space Shuttle, is very expensive, has reliability problems and has a
lower payload capability than the TOS. The only publicly announced program
to develop an economical launch capability for TOS-class payloads, in fact,
is the European Ariane rocket program that competes directly with the Space
Shuttle. NASA must provide a similar capability in order to remain
competitive with Ariane for commercial payloads.
Recognizing the need for an economical, high-capacity upper stage
for use on the Space Shuttle, NASA signed a preliminary agreement with OSC
on December 17, 1982 providing for further discussions of OSC's proposal to
finance, develop, market and operate the TOS. Based on these discussions,
on January 24, 1983 NASA ceased its own efforts to develop a TOS-class
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
upper stage and on April 18, 1983 NASA signed a final agreement with OSC to
develop the TOS. ?Under the terms of the Agreement, OSC will develop the
TOS using private funds at no charge to NASA and NASA will provide
technical monitoring out of its Marshall Space Flight Center in Huntsville,
Alabama to ensure that the safety requirements of the Space Shuttle are
met. NASA also agrees to provide certain interface data on the Space
Shuttle and related facilities. No subsidies or purchase guarantees are
involved.
To provide technical and manufacturing capabilities necessary for
success of the TOS program, OSC held discussions with a number of large
aerospace companies in late 1982 and early 1983. From these companies, OSC
chose Martin Marietta Corporation to act as OSC's prime contractor in
developing and manufacturing the TOS. Martin Marietta signed a preliminary
agreement with OSC on January 21, 1983 and is now working with OSC under a
contract dated as of April 1, 1983. Under the terms of the contract,
Martin Marietta's Denver Aerospace Division serves as prime contractor to
OSC for the TOS program, performing most of the design, development,
testing and producion of the TOS hardware and aanaging TOS subcontractors.
For its part, OSC will have- primary responsibility for financing and
marketing the TOS. The first TOS is expected to be available for launch by
the fall of 1986.
OSC believes that its rapid progress to date in the space
commercialization area is without recent parallel. This progress can be
attributed to several factors. The most important of these is the business
feasibility of the project - the emergence of a well-defined commercial
market for the TOS in the next three to five years, combined with
relatively low required investment. The business feasibility of the
project has enabled OSC to obtain private financing rather than grants or
subsidies that take longer to arrange. Another key factor is the
acceptability of the project to NASA. The TOS is a new system that will
promote the commercial use of the Space Shuttle, allowing NASA to leverage
its budget with private funding in the-pursuit of its goals. Rather than
take existing. operations away from NASA or compete with NASA, OSC with the
TOS program aligns its interests with those of NASA. OSC's status as a
small-business concern underscores the total commitment of OSC and its
employees to the success of the TOS program. We have further suspected
that, knowing what a demanding project the TOS program is likely to be,
NASA also regarded the relative youth and excellent health of the company's
founders as an asset.
OSC has received the full support of NASA's top officers in its
efforts to establish the TOS program. It is our impression that these
individuals, who include James Beggs, General Abrahamson, Messrs.
Culbertson, Allnutt and Hosenball, as well as Joe Mahon, Jack k'ild and B.C.
Lam in the Special Programs Division and Gene Austin in the Marshall Space
Flight Center, firmly believe in the desirability of private investment in
space and are actively involved in identifying and supporting feasible
private initiatives in the space commercialization area. Because~of the
dominant role that NASA plays in space activity, such support is a vital
prerequisite to future progress in space commercialization. OSC has, also
received cooperation from Martin Marietta Corporation that extends
significantly beyond contract requirements and indicates the personal
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
commitment of Martin Marietta's management, including Norm Augustine, Peter
Teets and Richard Farrell, to making a success of our innovative teaming
arrangement. The marriage of the entreprenurial energy of a small firm
with the technical and production resources of a large aerospace company
has been important to the progress of the TOS program and might serve as a
precedent in future private endeavors in space.
Space commercialization needs some early success stories. The
public -- including the f financial community - is somewhat in awe of the
technical and operational complexity of the space program, and
correspondingly skeptical of efforts to coammercialize space activities. To
the extent that NASA and this Committee support projects with a high
likelihood of success within a few years, public perception of space
commercialization as a new sunrise industry will inevitably increase the
number of high-quality projects and available private investment.
Cooperative arrangements between NASA and private firms, we have found, are
an effective means of demonstrating NASA's support for such projects and
should continue to be implemented where practicable.
Mr. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
Charles A. Ordahl
Directcr of Space Programs
McDonnell Douglas As trenautics
May 4, 1983
Mr. Chaff ..an, Members of the Subcommittee,
I would like to thank you for this opportunity to represent McDonnell Douglas
in providing you with information on our past and current space launch vehicle
commercialization activities and to share with you some of our views related to
the government roles and interfaces in these and future similar space commercial
ventures.
McDonnell Douglas has been involved for more than 20 years in providing space
launch vehicles and services for NASA and the communications satellite industry
first as prime contractor for the Delta launch vehicle and second through our
.Payload Assist tdodules which are upper stages designed to fly on either the
Space Shuttle or the Delta.
Over the last ten years we have undertaken several commercial launch vehicle
ventures involving the commitment of well over 5100 million dollars in develop _
ment expenditures. In addition, for the last six years, we have been working-''
on a co~~ercial project called "Electrophoresis Operations in Space" involving
separation and purification of materials in Space. Mr. Yardley and Mr. Rose
discussed details of that project with the SuScorrrnittee in February. These
projects have all involved highly interactive activities between industry and
government within the structure of agreements between the parties involved.
.Our first such commercial project, undertaken in 1973, was a performance upgrade
of the Delta called the 3914, which increased the Delta payload capability to
2000 lbs into the geosynchronous transfer orbit. At that time, NASA policy was
that no further government funds would be used to improve the performance of
expendable launch vehicles in view of the Nation's commitment to develop the
Space Shuttle. However, the emerging domestic communications satellite industry
was very interested in the cost effectiveness of the additional_Delta launch capa-
bility and this thereby set the stage for our first cortimercial space venture. RCA
became the first customer and agreements were structured between RCA, McDonnell
Douglas and NASA to operate the projects as follows:
? McDonnell Douglas agreed to design and develop the uprated vehicle at
their own risk on commercial funds but with profit limitations.
? McDonnell Douglas agreed to recover its investment through a specified
"not to exceed" customer charge for each commercial launch; however, there
would be no "investment charge" for U.S. Government use of the vehicle.
? NASA agreed to contract for production and launch services of the improved
vehicle as an integral part of the on-going Delta Program and would provide
technical monitoring.
? RCA agreed to contract with NASA for three vehicles and launch services and
with McDonnell Douglas for three User development amortization payments.
The first launch was successful in 1975 and as of May 4, 1983 there have been 23
launches of which seven have been U.S, govern.:,ent missions with the remainder being
commercial and foreign customers.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
Our second commercial venture in this field ryas the Payload Assist Module (PAt~~-Q)
undertaken in 1976. PAM-D is an upper state vehicle for Delta class satellites
designed to assist launch vehicle customers in planning launches in the era of
transition between expendable launch vehicles and the Space Shuttle. The PAM is
basically a part of the payload cargo element and as such it may be used either
as a third stage on the Delta or as an upper stage on Shuttle to carry the satellite
into the geosynchronous transfer orbit. This provides the customer with the flexi-
bility to plan a launch on Delta or Shuttle and a relatively easy means to shift
between the two if conditions should so warrant. Again, McDonnell Douglas began
this development after reaching an agreement with NASA on how the program would be
performed. The primary features of this agreement were as follows:
? McDonnell Douglas agreed to develop the system completely on commercial funds
on a schedule compatible with the Shuttle operational requirements.
? McDonnell Douglas agreed to sell PAM commmercially at a specified "not-to-
exceed" ceiling price along with a fixed escalation for inflationary factors
in addition to profit limitations.
? NASA agreed not to fund or formally solicit the development of competitive
or alternate systems.
? NASA agreed to provide suitable building facilities at KSC for PAM processing
activities with reimbursement as a part of the Shuttle launch service contract
with each customer using PAM.
e NASA agreed to provide interface data and technically monitor the project.
The first commercial PAM contract was signed between Hughes and McDonnell Douglas
in 1978. The first flight was successful for Satellite Business Systems on Delta
in November 1980. The first two flights on Shuttle were successfully completed
in November 1982. To date, McDonnell Douglas has contracted 29 PAM-D missions
of which all 10 have been successfully flown. Sales of PAM are of course highly
interlocked with the availability and pricing of Shuttle and Delta for commercial
launches. To date, this has been generally favorable although several potential
missions were lost to Ariane in the 1984-1985 timer period because NASA was not able
to offer STS launches at the time these contracts were decided and Delta prices were
not competitive. Subsequently, STS launch space is available in those years.
In 1977 McDonnell Douglas signed a similar agreerr~nt to develop a~larger PAM for
Shuttle launch only called "PAM-A." This version has comparable payload capabil-
ity to the Atlas Centaur ELV. After a competition with another aerospace firm,
NASA awarded McDonnell Douglas a Firm Fixed Price Contract for 6 PAM-A launches
which has subsequently been increased to 8. There are, however, no currently
assigned missions for PAM-A and no commercial sales have been achieved.
In 1982 customers began requesting additional performance from the PAM-0 system,
but short of the more expensive PAM-A capability. Asa result McDonnell Douglas
decided to commercially undertake a growth version called "PAM-DII," which in-
cludes a new motor and raises the payload capability to approximately 4100 lbs
into the geosynchronous transfer orbit. PAM-DII retains a vertical Shuttle bay
installation in order to optimize .the overall space transportation price and will .
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
be available for launches in 1985. Our in~t:al commercial contract for PAM-DII
was authorized in August 1983 with an order =ro::i the GTE Satellite Corp. At present
we are negotiating a~formal agreement for t:A~1's technical monitoring of the
PAM-DII Program.
In general we consider these commercial launch vehicle ventures to be successful
although financial returns have been more ci`ficult to achieve than originally
planned primarily due to schedule delays and increased complexity of the projects.
Both the 3914 and PAM Programs have experienced investment/development costs sub-
stantially in excess of initial estimates hh~ch were the basis of ceiling prices
in the agreements and as a result investment return has taken far longer than
planned. As a lesson learned, the most unwieldy part of the PAM Agreement has been
the ceiling price limitation set in 1976 which had inadequate provisions for timely
adjustment to recognize increases in systen complexity, technical direction, and
schedule delay impacts associated with the developing Shuttle system and requirements.
In the future we will have technical working agreements with NASA while allowing
the price to be governed by the substantial competitive environment that is de-
veloping in the communications industry, thereby obviating any further need for
government price controls. ~ ~ ~~-'="
Overall our relations with NASA have been excellent in working toward our objectives
since these projects have been so closely interrelated with NASA's Delta and Shuttle
Programs. Some learning on both sides has b_en experienced on the PAM-D Program in
determining the extent of NASA's technical direction since no government investment
was involved. Although the cost burden has remained completely on McDonnell Douglas,
each technical issue arising to date has b~ec ultimately resolved.
In our commercial projects we have been careful not to compete with NASA but rather
to be compatible with and companion to their efforts. This was a prime objective
of our PAM-D agreement. We are fully willing to compete with any other commercial
firm but not directly with NASA. In general, where other business factors are
favorable, commercialization can be encouraged through agreement by the government
not to compete with industry in selected areas. We believe this is especially
significant in space launch services where the government has such a dominant
position.
Space commercialization can also be encouraged by the government through favorable
and stable allocation and pricing of governrr~nt facilities and resources. Decisions
by the government in these areas will be a substantial and increasing factor as the
size and scope of space commercialization projects expand. In fact, in some cases
it may well be a deciding factor in whether or not a commercial project is undertaken.
So far in this area we have experienced excellent cooperation from NASA for the com-
mercial ventures that I have discussed.
In summary, we at McDonnell Douglas consider these corcnercial ventures to be suc-
cessful thus far and look forward to continued cooperation with the government in
improving our interactive relations and in expanding our efforts in areas of mutual
benefit thereby improving o.ur Nation's overall space capabilities.
This concludes my prepared remarks.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 ~ , Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
Director of Space Programs
McDonnell Douglas Astronautics
May 4, .1983
Mr. Chairman, Members of the Subcommittee,
I would like to thank you for this opportunity to represent McDonnell Douglas
in providing you with information on our past and current space launch vehicle
commercialization activities and to share with you some of our views related to
the government roles and interfaces in these and future similar space commercial
ventures.
McDonnell Douglas has been involved for more than 20 years in providing space
launch vehicles and services for NASA and the communications satellite industry
first as prime contractor for the Delta launch vehicle and second through our
Payload Assist Modules which are upper stages designed to fly on either the
Space Shuttle or the Delta. _~
Over the last ten years we have undertaken several commercial launch vehicle
ventures involving the commitment of well over $100 million dollars in develop-_
ment expenditures. In addition, for the last six years, we have been working~'~
on a commercial project called "Electrophoresis Operations in Space" involving
separation and purification of materials in Space. Mr. Yardley and Mr. Rose
discussed details of that project with the Subcommittee in February. These
projects have all involved highly interactive activities between industry and
government within the structure of agreements between the parties involved.
Our first such commercial project, undertaken in 1973, was a performance upgrade
of the Delta called the 3914, which increased the Delta payload capability to
2000 lbs into the geosynchronous transfer orbit. At that time, NASA policy was
that no further government funds would be used to improve the performance of
expendable launch vehicles in view of the Nation's commitment to develop the
Space Shuttle. However, the emerging domestic communications satellite industry
was very interested in the cost effectiveness of the additional Delta launch capa-
bility and this thereby set the stage for our first commercial space venture. RCA
became the first customer and agreements were structured between RCA, McDonnell
Douglas and NASA to operate the projects as follows:
? McDonnell Douglas agreed to design and develop the uprated vehicle at
their own risk on commercial funds but with profit 1?imitations.
? McDonnell Douglas agreed to recover its investment through a specified
"not to exceed" customer charge for each commercial launch; however, there
would be no "investment charge" for U.S. Government use of the vehicle.
? NASA agreed to contract for production and launch services of the improved
vehicle as an integral part of the on-going Delta Program and would provide
technical monitoring.
? RCA agreed to contract with NASA for three vehicles and launch services and
with McDonnell Douglas for three User development amortization payments.
The first launch was successful in 1975 and as of May 4, 1983 there have been 23.
launches of which seven have been U.S. government missions with the remainder being
commercial and foreign customers.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
Our second commercial venture in this field was the Payload Assist Module (PAM-D)
undertaken in 1976. PAM-D is an upper stage vehicle for Delta class satellites`
designed to assist launch vehicle customers in planning launches in the era of
transition between expendable launch vehicles and the Space Shuttle. The PAM is
basically a part of the payload cargo element and as such it may be used either
as a third stage on the Delta or as an upper stage on Shuttle to carry the satellite
into the geosynchronous transfer orbit. This provides the customer with the flexi-
bility to plan a launch on Delta or Shuttle and a relatively easy means to shift
between the two if conditions should so warrant. Again, McDonnell Douglas began
this development after reaching an agreement with NASA on how the program would be
performed. The primary features of this agreement were as follows:
? McDonnell Douglas agreed to develop the system completely on commercial funds
on a schedule compatible with the Shuttle operational requirements.
? McDonnell Douglas agreed to sell PRIM commercially at a specified "not-to-
exceed" ceiling price along with a fixed escalation for inflationary factors
in addition to profit limitations.
? NASA agreed not to fund or formally solicit the development of competitive
or alternate systems.
? NASA agreed to provide suitable building facilities at KSC for PAM processing
activities with reimbursement as a part of the Shuttle launch service contract
with each customer using PAM.
e NASA agreed to provide interface data and technically monitor the project.
The first commercial PAM contract was signed between Hughes and McDonnell Douglas
in 1978. The first flight was successful for Satellite Business Systems on Delta
in November 1980. The first two flights on Shuttle were successfully completed
in November 1982. To date, McDonnell Douglas has contracted 29 PAM-D missions
of which all 10 have been successfully flown. Sales of PAM are of course highly
interlocked with the availability and pricing of Shuttle and Delta for commercial
launches. To date, this has been generally favorable although several potential
missions were lost to Ariane in the 1984-1985 timer period because NASA was not able
to offer STS launches at the time these contracts were decided and Delta prices were
not competitive. Subsequently, STS launch space is available in those years.
In 1977 McDonnell Douglas signed a similar agreement to develop a~larger PAM for
Shuttle launch only called "PAM-A." This version has comparable payload capabil-
ity to the Atlas Centaur ELV. After a competition with another aerospace firm,
NASA awarded McDonnell Douglas a Firm Fixed Price Contract for 6 PAM-A launches
which has subsequently been increased to 8. There are, however, no currently
assigned missions for PAM-A and no commercial sales have been achieved.
In 1982 customers began requesting additional performance from the PAM-D system,
but short of the more expensive PAM-A capability. As a result McDonnell Douglas
decided to commercially undertake a growth version called "PAM-DII," which in-
cludes a new motor and raises the payload capability to approximately 4100 lbs
into the geosynchronous transfer orbit. PAM-DIT retains a vertical Shuttle bay
installation in order to optimize the overall space transportation price and will
?_ 2
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
be available for launches in 1985. Our initial commercial contract for PAM-DII
was authorized in August 1983 with an order from the GTE Satellite Corp. At present
we are negotiating a formal agreement for NASA's technical monitoring of the
PAM-DII Program.
In general we consider these commercial launch vehicle ventures to be successful
although financial returns have been more difficult to achieve than originally
planned primarily due to schedule delays and increased complexity of the projects.
Both the 3914 and PAM Programs have experienced investment/development costs sub-
stantially in excess of initial estimates which were the basis of ceiling prices
in the agreements and as a result investment return has taken far longer than
planned. As a lesson learned, the most unwieldy part of the PAM Agreement has been
the ceiling-price limitation set in 1976 which had inadequate provisions for timely
adjustment to recognize increases in system complexity, technical direction, and
schedule delay impacts associated with the developing Shuttle system and requirements.
In the future we will have technical working agreements with NASA while allowing
the price to be governed by the substantial competitive environment that is de-
veloping in the communications industry, thereby obviating any further need for
government price controls. " --
Overall our relations with NASA have been excellent in working toward our objectives
since these projects have been so closely interrelated with NASA's Delta and Shuttle
Programs. Some learning on both sides has been experienced on the PAM-D Program in
determining the extent of NASA's technical direction since no government investment
was involved. Although the cost burden has remained completely on McDonnell Douglas,
each technical issue arising to date has been ultimately resolved.
In our commercial projects we have been careful not to compete with NASA but rather
to be compatible with and companion to their efforts. This was a prime objective
of our PAM-D agreement. We are fully willing to compete with any other commercial
firm but not directly with NASA. In general, where other business factors are
favorable, commercialization can be encouraged through agreement by the government
not to~compete with industry in selected areas. We believe this is especially
significant in space launch services where the government has such a dominant
position.
Space commercialization can also be encouraged by the government through favorable
and stable allocation and pricing of government facilities and resources. Decisions
by the government in these areas will be a substantial an'd increasing factor as the
size and scope of space commercialization projects expand. In fact, in some cases
it may well be a deciding factor in whether or not a commercial project is undertaken.
So far in this area we have experienced excellent cooperation from NASA for the com-
mercial ventures that I have discussed.
In summary, we at McDonnell Douglas consider these commercial ventures to be suc-
cessful thus far and look forward to continued cooperation with the government in
improving our interactive relations and in expanding our efforts in areas of mutual
benefit thereby improving our Nation's overall space capabilities.
This concludes my prepared remarks.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 ~? ~ Declassified and Approved For Release 2012/02/28: CIA-RDP92B001818001701610007-8
Bruce W. Ferguson
Vice President and General Counsel
Orbital Systems Corporation
Subcommittee on Space Science and Applications
Committee on Science and Technology
House of Representatives
May 4, 1983
I am happy to appear before this Committee this morning to present
OSC's views on cooperative arrangements for the commercialization of space.
OSC currently has agreements with both NASA and Martin Marietta Corporation
to develop a high-capacity upper stage for use on NASA's Space Shuttle.
The upper stage, called the Transfer Orbit Stage (TOS), is a
large, single stage solid-propellant rocket that is carried up with its
payload in the Space Shuttle to low earth orbit. The TOS and its payload
are then launched by the Space Shuttle to transport communications
satellites and other payloads from the low Earth orbit of the Space Shuttle
(approximately 160 miles above the Earth) to higher orbits that the heavy
Space Shuttle cannot reach, such as the geosynchronous orbit utilized by
most communications satellites (approximately 22,300 miles above the
Earth).
The evolution of the commercial satellite market to larger, heavier
satellites indicates that an economical high-capacity upper stage such as
TOS is well positioned to capitalize on a significant business opportunity.
Current launch systems, such as the PAM-D upper stage used on the Space
Shuttle, are economical only for smaller satellites. At present, there
exists no economical way to launch large satellites of the TOS class
(approximately 2,800 to 6,800 pounds) into geosynchronous orbit, other high
orbits, or on planetary missions. A sophisticated two-stage rocket, the
Inertial Upper Stage, developed by the Air Force primarily for military use
on the Space Shuttle, is very expensive, has reliability problems and has a
lower payload capability than the TOS. The only publicly announced program
to develop an economical launch capability for TOS-class payloads, in fact,
is the European Ariane rocket program that competes directly with the Space
Shuttle. NASA must provide a similar capability in order to remain
competitive with Ariane for commercial payloads.
Recognizing the need for an economical, high-capacity upper stage
for use on the Space Shuttle, NASA signed a preliminary agreement with OSC
on December 17, 1982 providing-for further discussions of OSC's proposal to
finance, develop, market and operate the TOS. Based on these discussions,
on January 24, 1983 NASA ceased its own efforts to develop a TOS-class
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
upper stage and on April 18, 1983 NASA signed a final agreement with OSC to
develop the TOS. Under the terms of the Agreement, OSC will develop the
TOS using private funds at no charge to NASA and NASA will provide
technical monitoring out of its Marshall Space Flight Center in Huntsville,
Alabama to ensure that the safety requirements of the Space Shuttle are
met. NASA also agrees to provide certain interface data on the Space
Shuttle and related facilities. No subsidies or purchase guarantees are
involved.
To provide technical and manufacturing capabilities necessary for
success of the TOS program, OSC held discussions with a number of large
aerospace companies in late 1982 and early 1983. From these companies, OSC
chose Martin Marietta Corporation to act as OSC's prime contractor in
developing and manufacturing the TOS. Martin Marietta signed a preliminary
agreement with OSC on January 21, 1983 and is now working with OSC under a
contract dated as of April 1, 1983. Under the terms of the contract,
Martin Marietta's Denver Aerospace Division serves as prime contractor to
OSC for the TOS program, performing most of the design, development,
testing and producion of the TOS hardware and managing TOS subcontractors.
For its part, OSC will have primary responsibility for financing and
marketing the TOS. The first TOS is expected to be available for launch by
the fall of 1986.
OSC believes that its rapid progress to date in the space
commercialization area is without recent parallel. This progress can be
attributed to several factors. The most important of these is the business
feasibility of the project -- the emergence of a well-defined commercial
market for the TOS in the next three to five years, combined with
relatively low required investment. The business feasibility of the
project has enabled OSC to obtain private financing rather than grants or
subsidies that take longer to arrange. Another key factor is the
acceptability of the project to NASA. The TOS is a new system that will
promote the commercial use of the Space Shuttle, allowing NASA to. leverage
its budget with private funding in the pursuit of its goals. Rather than
take existing operations away from NASA-or compete with NASA, OSC with the
TOS program aligns its interests with those of NASA. OSC's status as a
small-business concern underscores the total commitment of OSC and its
employees to the success of the TOS program. We have further suspected
that, knowing what a demanding project the TOS program is likely to be,
NASA also regarded the relative youth and excellent health of the company's
founders as an asset.
OSC has received the full support of NASA's top officers in its
efforts to establish the TOS program. It is our impression that these
individuals, who include James Beggs, General Abrahamson, Messrs.
Culbertson, Allnutt and Hosenball, as well as Joe Mahon, Jack Wild and B.C.
Lam in the Special Programs Division and Gene Austin in the Marshall Space
Flight Center, firmly believe in the desirability of private investment in
space and are actively involved in identifying and supporting feasible
private initiatives in the space commercialization area. Because of the
dominant role that NASA plays in space activity, such support is a vital
prerequisite to future progress in space commercialization. OSC has also
received cooperation from Martin Marietta Corporation that extends
significantly beyond contract requirements and indicates the personal
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
 . Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8
commitment of Martin Marietta's management, including Norm Augustine, Peter
Teets and Richard Farrell, to making a success of our innovative teaming
arrangement. The marriage of the entreprenurial energy of a small firm
with the technical and production resources of a large aerospace company
has been important to the progress of the TOS program and might serve as a
precedent in future private endeavors in space.
Space commercialization needs some early success stories. The
public -- including the financial community -- is somewhat in awe of the
technical and operational complexity of the space program, and
correspondingly skeptical of efforts to commercialize space activities. To
the extent that NASA and this Committee support projects with a high
likelihood of success within a few years, public perception of space
commercialization as a new sunrise industry will inevitably increase the
number of high-quality projects and available private investment.
Cooperative arrangements between NASA and private firms, we have found, are
an effective means of demonstrating NASA's support for such projects and
should continue to be implemented where practicable.
Mr. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions.
Declassified and Approved For Release 2012/02/28: CIA-RDP92B00181 8001701610007-8