The Underachievers: Legacy Launch Services

Why even play in the competition if there’s a competitor? That seems to be the message from the legacy launch providers’ latest new rockets.

There won't be a newsletter next week. Instead of writing, I've taken an excellent family vacation to the Oregon coast.

While writing up the Ariane 6 article, I realized I hadn’t identified what a new rocket should attempt to bring to the world. That realization was partly due to an article from Pierre Lionnet, who explains why he and Eurospace assume that the total cost of a Falcon 9 launch is ~$28 million. Note that their assumption is pretty much in line with SpaceX’s 2020 statement: 

“...reusing rockets can bring prices lower, adding that it "costs $28 million to launch it, that’s with everything." 

Instead of taking SpaceX’s word for it, Pierre does a great job of breaking down why, leading to a “conservative assumption” of $28 million per Falcon 9 launch. Having someone like Pierre, an outsider to SpaceX, provide numbers and perspective is extremely helpful.

It's a Problem of Motivation

Now, before anyone starts writing about how SpaceX is causing launch prices to go down or some other such nonsense, it’s not. Not yet, anyway. Specifically, SpaceX is the only company offering an extremely capable rocket cheaply. Its potential competitors have not brought down their costs to meet SpaceX’s. Almost the opposite–their new rocket launch costs remain closer to their old launch pricing. 

That lack of response is hard to reconcile because, based on Pierre’s analysis, a Falcon 9 rocket could cost customers much less than SpaceX currently charges them. But, 

“…it is not passing these savings to its customers. Considering the dire situation of the competition (Arianespace and ULA mainly) SpaceX has actually no incentive to offer lower prices.”

And he’s right. Even with the advent of TWO new rockets, Ariane 6 and Vulcan, SpaceX’s Falcon 9 leaves them in the dust. That’s because the rocket set a new baseline–new expectations–something ArianeGroup and ULA didn’t just ignore but eschewed. 

SpaceX and the Falcon 9 continued establishing new baselines throughout its operational life, which has been going on for 15 years. Meanwhile, the only customers that will patronize Arianespace and ULA are governments and Amazon, primarily because each has reasons for paying significantly higher launch prices and can afford to do so.

Again, why would SpaceX lower the Falcon 9’s launch pricing if others on the market are already launching at higher prices? But that’s now. Since the legacy stakeholders appear to be unaware (or afraid) of the changes, maybe it’s time for us to throw some ideas at the wall for what a new rocket should bring to the market. What capabilities should rocket manufacturers aim for to “bring it” to SpaceX? Some have problems clearing old baselines, such as not blowing up rockets or identifying viable business plans. To be clear, these new suggested baselines are for competing with the Falcon 9, and as noted in last week’s analyses, none of the new rockets can compete with that older system, much less Starship.

One reason legacy manufacturers are going their merry old way and implementing their same old business models is that they perceive that the market hasn’t changed.

Before starting, the real baseline to consider is whether there is a market for launch services. Based on some of the drops in commercial satellite deployments this year, that’s hard to say. The uncertainty is also why SpaceX is deploying Starlink. It builds up a launch juggernaut while building another, more profitable, business for itself. This is one reason why all rocket services keep pursuing government launch contracts—they aren’t just lucrative—they generally provide a steady business.

So, the market hasn’t changed enough for them to change their businesses. Again, considering that rideshares, spacecraft deployments, and the nations deploying spacecraft all fell during the first half of 2024 compared to the previous few years. So, in their eyes, there’s no reason to change from a model that made their investors money in the past. 

Rocket Businesses Should at Least Consider This

However, the legacy launch companies’ perceptions might close their eyes to changes in what customers value in the launch market. They certainly have been blinded and resistant to changes in rocket manufacturing, talking the talk of cutting costs, etc., but not walking the talk. Perhaps their launches are slightly less expensive but haven’t become affordable. They certainly haven’t brought costs down enough to warrant stories of low space industry launch costs.

Note that Rocket Lab is taking a different approach. It has rethought its business model and considered other ways to win customers with its new rocket plans (while building its own constellations). The following baselines are inspired by Pierre’s observations, Rocket Lab’s activities, and the legacy rocket services' latest rockets. They are suggestions that might be useful for new entrants to consider as they contemplate entering the market. 

Starting with Pierre’s Falcon 9 cost estimate, competitive cost should be a primary consideration. The legacy manufacturers didn’t do this, despite the excellent excuse SpaceX gave them to change. Instead, they appeared to have war-gamed what price they could get away with charging various governments instead of what market competitors were charging. 

Both companies held those customers hostage in the past, charging high prices and commanding higher subsidies. The result of their "strategy" is that their Aimpoint competitor, SpaceX, still charges much less for launches than either company's new launch systems. Worse, at least one of those companies is receiving significant subsidies to make its rocket cheaper than the system it's replacing…and it’s still not competitive. 

Despite the time interval and the Falcon 9’s success, neither company’s rocket can get to the Falcon 9’s commercial cost at a $55-$65 million price level. That's a willful miscalculation on the part of ArianeGroup and ULA, with both discounting the possibility of even matching Falcon 9 at the start of rocket development.

Another baseline should be reliability–as close to 100% as possible. To be clear, this was already a desirable trait in a rocket. No customer likes it when their satellite baby disappears in a bang and a flash. A customer doesn’t like it when an upper stage doesn’t place a satellite into the planned orbit. SpaceX has not only come close to that 100% over ten years, but it’s also been increasing its launch cadence while remaining reliable, a commendable feat (except for that last launch). Ariane 6 and Vulcan might be able to reach that reliability (Arianespace and ULA have a pretty good record with older systems), but it's too early to say. It’s improbable they’ll conduct as many annual launches as SpaceX.

However, the latest Falcon 9 upper-stage anomaly might be a warning about the company’s manufacturing processes limiting its launch cadence increases. The FAA’s hold on further Falcon 9 launches until the incident is studied, explained, and corrected will apply a brake to SpaceX’s launch cadence in 2024. It will probably not have a significant impact, but it might slow the company's launches enough to prevent it from reaching 144 launches for the year. SpaceX will still launch more than its competitors, even with a short investigative delay.

The third baseline would be availability to customers. SpaceX has removed most rocket manufacturing uncertainty from customers’ calculations with a supply of reusable first-stage boosters. While it might face similar supplier challenges for building rockets, it already has a few rockets available for use. Whether offering rideshare or dedicated launches, SpaceX accepts customers with little worry about launch impacts. Prospective customers see the company’s ability to accommodate others and may lean towards SpaceX as their launch provider of choice. 

Neither Arianespace nor ULA has that advantage. Part of their challenge might be a chicken-and-egg scenario: There's no customer growth to find because their rockets cost so much to use. However, their rockets cost so much because there's no launch customer growth (and because the governments don't care about launch costs, which keeps them high). That challenge is just a guess.

Both companies would rather build rockets as needed, not caring how the flexibility of a reusable system benefits their launch operations, whether for a low launch cadence or a high one. Both businesses rely on building rockets and then passing the charge of building that single, disposable technology to the customer. In the meantime, SpaceX exploits its competitors’ reliance on rocket-building and high-rolling customers, charging a smaller sum for the rocket whether the company launches more or less during a given year. And yet it hasn't charged the least it could, based on Pierre's examination, and it's already dominating orbital space launch.

However, the one thing that SpaceX must manufacture for each Falcon 9 launch, the second stage, exposes the company to the same challenges facing its competitors. This is why the upper stage of the Starship launch system is important to SpaceX. If the rocket is fully reusable, it gives the company more reliability in its operations, more profit from its launches, and grows the customer launch base through availability. SpaceX is almost there with a partially reusable system. Again, all those should have been baseline characteristics for the launch systems of SpaceX’s competitors.

Baseline is Only the Beginning

Actual competitors, though, would have gone beyond the new baseline. That the legacy companies haven't even attempted to reach it speaks volumes. Markets have seen that attitude before, whether it was Microsoft never referencing Apple as a competitor or Blackberry's lack of competitive responses to the iPhone. Remember the Blackberry Storm? There are several reasons why you might not. While Microsoft is still around, Blackberry isn't. Microsoft is a changed company because of Apple, eventually responding to the competition by making its software (a Microsoft strength) available on every platform.

Admittedly, those are consumer-focused companies, and the launch market is not that. However, the companies catering to the launch market can't be government-focused if they want market growth, either. At least two companies don't believe there's growth to be had, investing billions in status quo rockets. One company, Rocket Lab, is developing a rocket that does meet those baselines (we’ll see about reliability over time). If Neutron becomes a reality, it will compete for some of the launches that currently go to SpaceX by default.

In the meantime, by only focusing on those high-paying customers, Arianespace's and ULA's development of non-competitive rockets has succeeded in giving SpaceX more time to consolidate whatever lead it has over them, even as it convinces those high-paying customers to use the Falcon 9 increasingly. Their new rockets minimize the impacts of SpaceX's mistakes, as the company knows those alternatives to its rocket–aren't. 

One just has to look at SpaceX's upper-stage challenge and see that no one else can take advantage of that pause and launch. Someone needs to step in and take care of SpaceX's customers, even with new rockets theoretically able to launch. It's not clear that they'd be able to do that even if Arianespace and ULA were fully operational. They didn’t even reach the new baseline.

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