Rocket Billionaires

by Tim Fernholz

  The Dragon would be a capsule capable of carrying cargo that is both pressurized—that is, maintained in an earthlike atmosphere—and with electrical power, so scientists could fly a habitat full of mice or a refrigerator full of biological samples to the space station. It would also have an unpressurized “trunk” to carry even more equipment. Once it was separated from its rocket, the Dragon would have maneuvering jets to approach the station. There, a robotic arm would reach out to pull it in, a process called “berthing,” considered safer than allowing the vehicle to dock itself on autopilot. Finally, the Dragon would be recoverable—you could put that habitat of mice, a fridgeful of cells, or anything else back into the spacecraft, which would detach from the station, reenter the atmosphere, and parachute into the ocean to be recovered. NASA scientists particularly appreciated this feature.

  To do all that in space, however, would require a vehicle that weighed four and a half tons before any cargo was loaded. This was far more than could be carried on the Falcon 1 or even on the mooted Falcon 5. That vehicle had originated with a request from Robert Bigelow, the Las Vegas real estate baron turned space hotel enthusiast. He wanted to launch some inflatable habitats he was testing, essentially mini space stations. But the sales team was concerned that the Falcon V was too small of a jump, part of a class of rockets that were being phased out and replaced by the EELV-class rockets that Boeing and Lockheed had developed for the US government. “You don’t want to build a rocket in the market that’s going to fade,” Shotwell told me. By 2005, the company had begun designing a rocket that used nine of the company’s engines—the Falcon 9—to power the booster stage. This powerful rocket would be the Dragon’s ride into space and took pride of place in the company’s pitch.

  The other major finalist for NASA’s space taxi money was a company called Rocketplane Kistler. It was originally founded as Kistler Aerospace, in 1993, by an eccentric Swiss American engineer who had made his fortune developing electronic sensors, many of which were used in the early days of the US space program. Walter Kistler was yet another aspiring rocket billionaire, eager to realize his dream of a reusable spacecraft that would unlock a new space economy. He founded the company to exploit the dreamed-of satellite boom of the nineties and populated it with former NASA engineers. But with the passing of that mirage at the turn of the century, the company’s K-1 space vehicle remained a paper rocket.

  Kistler had participated in previous NASA experiments with private-sector space, but by 2003 it was facing insolvency. But Kistler didn’t die then—distressed debt investors pulled the company out of bankruptcy, and NASA took action, granting the company a $227 million contract for flight test data in order to preserve the intellectual property and the semiconstructed vehicle. Good-government advocates cried foul—the chief engineer at the company, after all, was known as “the father of the space shuttle”—and SpaceX filed a formal challenge of the award. Musk’s company argued that if the government wanted to pay for spaceflight test data, it should allow companies—that is to say, SpaceX—to compete with their own offers. In the end, NASA officials chose to cancel the Kistler contract rather than undergo a challenge they were likely to lose.

  Kistler’s new owners didn’t have the patience for space investing, but they saw a profit opportunity in the commercial contracts NASA began developing in 2005. In 2006, George French, the owner of a company called Rocketplane, attended an industry day held by NASA to explain the new space taxi pitch to companies that might want to throw their hats in the ring. Afterward, he walked into the bar at the Holiday Inn, where an investment banker friend bought him a drink. “George, you should buy Kistler,” he said. “You’re the right guy at the right place at the right time to buy Kistler.” So he did, forming a new company, Rocketplane Kistler, to enter into the commercial space race.

  “I never did understand why one of the big boys didn’t buy Kistler themselves and win this contract,” French said later. “I did several risk assessments, and the thought that I’d missed something was with me all the time. ‘Why isn’t someone who really knows this industry doing this?’”

  The answer was fairly simple: cost, as well as a general loss of confidence in the launch vehicle market. NASA’s experts were still impressed by Kistler’s technology and its talent. But they saw its financial plans as dubious; the company had burned through more than $600 million and still lacked cash. Many of the milestones the company included in its proposal concerned raising additional money, not delivering hardware, since that was the biggest threat to the company’s ongoing viability. For NASA, these assessments were a major challenge. The agency was expanding beyond its traditional role—understanding technology—to assess new variables, like the ability to keep out of bankruptcy. Still, it was either that or the guaranteed profits of cost-plus contracts.

  In August 2006, the final six competitors each sent two representatives for a dramatic final pitch in Washington, at NASA headquarters. Outside the evaluation team’s meeting rooms, the competitors for the contract weren’t sure how NASA would structure this new program—would one company, two, or more get contracts? Would they pick the people with the most NASA credentials, or the fewest?

  A few days later, five months after SpaceX submitted its proposal, Musk called an all-staff meeting in the company lunchroom. He looked stern as employees filed in, and many expected bad news about the contract, or another setback in Falcon 1 flight testing. The room held perhaps eighty people, who waited expectantly as the gloomy Musk began talking. Finally, he broke his act and spilled the beans. SpaceX would ink an agreement with NASA to develop a space taxi for $278 million. The crowd went wild with excitement and relief.

  It was a huge win—a significantly larger contract than any the company had signed in its two years of existence, combined with real validation from the space establishment at NASA. The company’s employees may have felt liberated from NASA’s constraints by the culture at SpaceX, but many nevertheless arrived at work in T-shirts with the space agency’s iconic “meatball” logo. Now they could have the best of both worlds.

  It was a similar combination of opposites—extensive space know-how and Musk’s ferocious energy—that had swayed the government, too. NASA was impressed by the entirety of the SpaceX plan, and particularly by the kind of people Musk had hired. The team was talented—“not new start-up talent, [but] deep talent,” Lindenmoyer told me. “Elon, he wasn’t the swinger in this; it was the rest of the team.” People like Mueller, Koenigsmann, and Thompson were known quantities in the aerospace world.

  By now, the core group had expanded. The year before, in 2005, Musk had written that his company was undergoing a transformation “from a company that does R&D to one that does R&D, manufacturing, and launch operations.” Musk would go on to recruit experienced manufacturing engineers from Boeing; hire the manager of the Air Force’s EELV program, John Insprucker, when he retired from military service; and recruit James Maser, who led the competing, Boeing-backed Sea Launch company, to be SpaceX’s president and chief operating officer. Hires like these gave serious credibility to SpaceX’s brash promises, even if the Falcon 1 rocket was still in pieces in the Pacific.

  Maser, another veteran of the Strategic Defense Initiative, had spent twenty years at Boeing and Sea Launch before electing to join Musk. “I was starting to think about what I wanted to do next, and joining SpaceX was about as close as I could get to starting my own rocket company,” he says. A visit to the company’s facility in El Segundo won him over when he saw the amount of hardware, finished and under construction, on the shop floor. “Instead of spending a bunch of time on theory, there was a lot of testing being done. It brought me back to the Star Wars satellite days when I was the young person. People were doing their own designs, doing their own analysis, out in the shop helping build things.”

  Still, NASA required SpaceX to take out “key man” insurance on Musk—which would pay out in the event of his death—given how vital he was to the financing and
future of its new partner. “If he went away, that was the end—there was no SpaceX,” Lindenmoyer said.

  NASA also awarded a space taxi contract worth $207 million to Rocketplane Kistler. The new ownership team celebrated, but the deal was still contingent on the company’s raising another $500 million on the open market, something that its backers believed they could do with relative ease.

  The CEO was Randy Brinkley, a former NASA engineer who had left his job as president of Boeing’s satellite division to join Rocketplane. On the technical side, the company progressed quickly, demonstrating to the space agency that its vehicle, purpose-built to dock with the space station, would fit the bill.

  Wall Street, however, turned out to be less forgiving. Investors in public markets wanted more assurance that, once the company had developed its launch vehicle, it would receive service contracts to work for NASA. But NASA would not, and indeed could not, make that promise under the rubric it had devised for the COTS program. A firm commitment to buy anything would come under traditional rules NASA was trying to avoid. This was a bit of a ruse: NASA did intend to buy the service of these space taxis once they were created, through a more traditional contract, though still at flat prices. But this was essentially a handshake deal with the NASA brass, not a contract or a congressional appropriation.

  “The discussions were: what’s our guarantee that there is going to be a follow-on service contract, how do we know that NASA’s not going to cancel it or never issue one; how long is it going to last; and when are we going to get our money back?” Brinkley would recall.

  By summer 2007, Rocketplane Kistler and its investment bankers had managed to win a $200 million letter of intent from the Ontario Teachers’ Pension Board. (This is not as crazy as it sounds, since the fund also controlled a sizable stake in MacDonald Dettwiler, the Canadian aerospace giant.) But the other $300 million was hard going. Brinkley says that when the space station program publicly contemplated a contract for just three launches split between the two competitors—that is, very little business to follow a big investment—the news “basically unraveled everything.” Ironically, the eventual contracts were for twenty-two flights, and he maintains that had they been advertised when the company was raising funds, the whole scheme would have come off.

  “They came and said, ‘If you had given us a contract, we could have closed this,’ but we couldn’t do it,” Lindenmoyer recalls. “We were very sincere and committed, and I remember talking to a lot of their investors, saying, ‘NASA is ready to buy; they just have to develop it and demonstrate it.’”

  Even clarity from NASA might not have been enough: the other big action on Wall Street that summer was in the mortgage market, where cracks were suddenly appearing in the very profitable facade of subprime lending. As the market began to turn, foreshadowing the next year’s globe-spanning financial crisis, investors went on the defensive. Interest in risky schemes like building rockets quickly became ephemeral. “We went from talking to seven hedge funds on Tuesday to talking to nobody on Thursday,” George French would say. “Within two weeks, we lost our $300 million, and after that, NASA cancelled us because we failed to meet our financial milestone.”

  The space agency’s decision to cancel its partnership with Rocketplane Kistler was hotly contested by the company, which still felt that it was the victim of circumstance. Nothing was wrong with its technology that couldn’t be solved with a little more time or money. That might have been true. Canceling a partnership barely a year after it had been awarded didn’t reflect well on NASA’s due diligence or the private space sector, which by now had launched far more bankruptcies than rockets. But NASA had limited itself to the $500 million it had budgeted, no more, and confidence in the entire apparatus might unravel if the program ignored a company missing its first milestones—especially one that NASA had earlier been accused of giving special consideration to. More than anything, however, the commercial nature of the program demanded it: the companies had to be able to stand on their own two feet. NASA had avoided the biggest mistake of the EELV program: being held hostage by failure.

  After the cancellation, Rocketplane Kistler formally disputed the decision. (Brinkley resigned his CEO position in part so that he would not have to be involved in a lawsuit against the space agency where he had spent much of his career.) This time, the decision went NASA’s way: its lawyers’ careful work setting up the program as a partnership, and not a purchase contract, insulated the space agency from legal challenge. Rocketplane Kistler went into bankruptcy.

  In 2008, NASA solicited a second round of plans for the COTS program, to replace the failed firm. Though SpaceX cheekily proposed receiving the rest of the money to accelerate its human spaceflight timetable, Lindenmoyer’s team eventually tapped Orbital Sciences Corporation as the other participant in the program. Though not a prime contractor, the company had a long history—one competing executive joked with me that Orbital “was at one point new space and now somehow they’ve become old space.” It was formed during the pre-Challenger boom in space commerce to launch satellites from the shuttle orbiter, but managed to survive the collapse by occupying vital niches with its expertise. It designed and operated a rocket called Pegasus that launched small satellites from a decommissioned B-52 bomber, while developing product lines in ballistic missile and satellite technology.

  The company’s proposal for the space taxi included the construction of its own rocket, called Antares, using a Russian-built rocket engine. It would also build a spacecraft called Cygnus to carry cargo up to the station. Orbital executives said that they would use their new rocket in the commercial satellite market as well as for NASA, checking off the all-important box for a business plan. But most important, they said they had plenty of money on hand to finance the project. “It was as if this huge load had been lifted, a sigh of relief,” Orbital’s CTO, Antonio Elias, said later, describing the reaction in the room when he discussed his company’s willingness to finance the project. “All of a sudden the great black cloud on top of the COTS program had been released.”

  The space taxi team felt confident in their choice because their real expertise was in evaluating technology, not business plans. But if NASA’s private-sector space boosters got burned on Rocketplane Kistler for their inexperience in the world of high-stakes fundraising, they may have erred in the opposite direction with Orbital: letting a strong business plan cover up flaws in rocket design that would reveal themselves calamitously down the line.

  A Falcon 9 rocket launches two satellites in 2016.

  Courtesy of SpaceX

  Elon Musk gives President Barack Obama a tour of the SpaceX facility at Kennedy Space Center

  Photo by Bill Ingalls, courtesy of NASA

  Landed rocket boosters stack up in SpaceX’s hangar at Kennedy Space Center.

  Courtesy of SpaceX

  A SpaceX rocket attempts to land on a drone ship in 2015 . . .

  Courtesy of SpaceX

  . . . but an awkward touchdown results in an explosion.

  Courtesy of SpaceX

  A SpaceX Dragon capsule is recovered from the sea after returning from the International Space Station.

  Courtesy of SpaceX

  SpaceX’s Dragon capsule, modified to carry astronauts, ahead of a safety test in 2015.

  Courtesy of SpaceX

  The Dragon capsule is secured by the International Space Station’s robotic arm in 2012.

  Courtesy of NASA

  The controls astronauts on the ISS use to snag arriving spacecraft with the station’s robot arm.

  Photo by Donald Pettit, courtesy of NASA

  European astronaut André Kuipers in the window of the ISS cupola in 2012.

  Courtesy of NASA

  The astronauts on board the International Space Station snuck an autographed picture into the first cargo Dragon as a surprise for the SpaceX recovery team.

  Photo by Donald Pettit, courtesy of NASA

  A SpaceX Falcon 9 rocket first stage
lands at Cape Canaveral after a mission in September 2017.

  Courtesy of SpaceX

  Of Course I Still Love You, an autonomous landing barge built by SpaceX, cruises the seas.

  Courtesy of SpaceX

  A “flight-proven” Falcon 9 first stage returns to port at Cape Canaveral.

  Courtesy of SpaceX

  A United Launch Alliance Atlas V rocket is carried to the launchpad in 2016.

  Courtesy of NASA

  A United Launch Alliance Delta IV heavy rocket takes off in 2014, carrying an Orion space capsule on an uncrewed test flight.

  Photo by Sandy Joseph and Kevin O'connell, courtesy of NASA

  An Orbital Sciences Antares rocket, developed as part of the space taxi program, prepares for launch in 2014.

  Photo by Bill Ingalls, courtesy of NASA

  The DC-XA, a prototype reusable rocket that inspired Blue Origin and SpaceX, lands after a 1996 test flight.

  Courtesy of NASA

  Virgin Galactic’s second SpaceShipTwo, VSS Unity, goes through a glide test in 2016.

  ©Virgin Galactic

  VSS Unity flies over the Mojave Desert while slung underneath its carrier aircraft.

  © Virgin Galactic

  This diagram showing how to land a rocket on a barge at sea was at the center of litigation between SpaceX and Blue Origin.