The Space Barons

by Christian Davenport

  Musk was particularly interested in the docking adapter of the International Space Station, the port where the spacecraft his team was designing would dock. He wanted to know the dimensions, the locking pin design, even the bolt pattern of the hatch. The more documents Sarsfield sent, the more questions Musk had.

  “Most of us struggle with fear,” Sarsfield said. “We fret about this and that and generally dread looking dumb. I found Elon fearless in this regard. He’s not afraid to ask a question that proves he doesn’t understand something.…

  “I really enjoyed the way he would pore over problems anxious to absorb every detail. To my mind, someone that clearly committed deserves all the support and help you can give him.”

  Sarsfield told his bosses at NASA that Musk could very well make it. In his report to O’Keefe, he predicted that “Falcon 1 will be successful with initial launch series”—though not on its first launch. And he concluded that “SpaceX presents good products and solid potential—NASA investment in this venture is well warranted.”

  But inside the agency headquarters, there were more skeptics than believers.

  “I would say ninety-five percent of the people at NASA thought he would most certainly fail,” Sarsfield said. “I’d say to them, ‘I hear you, and Elon will have bumps along the road. But I guarantee you this guy is not going to fail.’”

  A MONTH AFTER Sarsfield issued his report, Musk e-mailed him again. But this time the tone was different. NASA had just awarded a $227 million sole-source contract to another commercial space company, Kistler Aerospace. Musk wanted to know why SpaceX—or any other company—hadn’t been allowed to bid on it.

  Musk may have had his newly minted millions, but Kistler had considerable pull in NASA and Washington, DC. The company was led by George Mueller, an aerospace legend who had headed the Office of Manned Spaceflight during the Apollo era. He was considered something of a hero at NASA, who along with Wernher von Braun had helped the country fulfill John F. Kennedy’s goal of sending a man to the moon by the end of the 1960s.

  Mueller later helped design the first space station and was considered the “father of the space shuttle.” In 1971, the year Musk was born, Richard Nixon had awarded Mueller the National Medal of Science in a ceremony in the East Room, “for his many individual contributions to the design of the Apollo system.”

  After his government career, Mueller had turned to the private sector, serving as a senior vice president at General Dynamics before taking over as chief executive at Kistler, a small startup. The young company was in trouble, and had filed for bankruptcy in 2003, owing $600 million to creditors. The NASA contract would help it stay afloat.

  Musk was incensed, and felt that the contract was unfair, if not illegal. Kistler was hurting, Sarsfield wrote to him, noting that its executive had long ties to NASA and that “I worry that Kistler’s financial arrangements are shaky (a conservative word), but the money is pocket change when you look at how much we blow through per annum.”

  SpaceX shouldn’t worry, Sarsfield wrote; there would be other contracts coming. But that only made Musk angrier, and more determined. Like Andy Beal, he felt that NASA’s role wasn’t to prop up chosen companies. Competition would promote better and safer technologies, at lower costs. This was an old-boys network, and he wanted in—or to smash it.

  Musk took his complaint to top NASA officials, and in a meeting at NASA headquarters in Washington, threatened to file a legal challenge over the no-bid contract with the Government Accountability Office (GAO). His colleagues warned him that it was not a smart business decision to threaten an agency that could make or break SpaceX. At the meeting, NASA officials intimated that a lawsuit would not be in SpaceX’s best interests. If Musk sued, they might never work with him.

  “I was told by everyone that you do not sue NASA,” Musk recalled. “I was told the odds of winning a protest were less than ten percent, and you don’t sue your potential future customer. I was like, look, ‘This is messed up. This should have been a competed contract, and it wasn’t.’”

  It was a simple matter of right and wrong, though that logic didn’t always appease the executives who’d have to be the ones to work with NASA.

  “Being the customer relationship person, I was always very worried about that,” said Gwynne Shotwell, who would become SpaceX’s president and chief operating officer. “But Elon fights for the right thing. And he says if people are going to get offended by you fighting for the right thing, then they are going to get offended.”

  From the beginning, SpaceX’s mantra was to “set audacious, nearly impossible goals and don’t get dissuaded. Head down. Plow through the line. That’s very SpaceX,” she said. “That’s kind of the deal.”

  Musk exuded swagger and confidence, and it spread to his employees. “SpaceX is a place where you get to be mouthy,” Shotwell said. “You get to express your opinion. You get to push really hard.”

  Still, Lawrence Williams, one of the few people SpaceX had in Washington to work government relations, got the message and emerged shaken from the meeting at NASA. He had spent most of his career in Washington, and had worked on the Hill as an aide on the House Science, Space, and Technology Committee. The message from NASA was clear, he said: “Elon, if you pursue this, you will lose and likely never do business with NASA.”

  But Musk was unfazed. “He didn’t even blink,” Williams said. “Despite everyone’s stern warnings, Elon didn’t hesitate to sue the entity he wanted as our customer more than any. In my twenty-plus years in Washington, I never witnessed anyone with more conviction and confidence, who never hesitated to risk it all for something he believed.”

  Head down. Plow through the line.

  In its suit, SpaceX even included Sarsfield’s e-mail as evidence that the contract was to help save Kistler. “This goes to show you the way Elon plays ball,” Williams said. “He files as a part of the government contract protest the e-mail from Liam Sarsfield, who was then probably our only friend at NASA, saying that ‘this was a life preserver to Kistler—and don’t worry; we’ll try to do something to help you out down the road.’”

  SpaceX got support from Citizens Against Government Waste, a good government nonprofit whose president, Tom Schatz, said Musk caught NASA trying “to pull a fast one, bypassing full and open competition requirements by doing a sloppy job of assessing the qualifications of other applicants.” He said that an “unwarranted sole-source contract that stinks of a kickback to former employees is a bad omen for NASA’s privatization efforts.”

  Musk even brought his fight to Capitol Hill. He’d been invited to testify before a Senate committee in May 2004 about the future of space launch vehicles, and the role private industry might play. But, blunt as always, he planned to use the audience to his advantage. Musk’s prepared testimony started out going for the jugular, reminding Congress of its long track record of funding flops.

  “The past few decades have been a dark age for development of a new human space transportation system,” he said. “One multibillion-dollar government program after another has failed. In fact, they have failed even to reach the launchpad, let alone get to space.…

  “The reaction of the public has been to care less and less about space, an apathy not intrinsic to a nation of explorers, but born of poor progress, of being disappointed time and again. When America landed on the moon, I believe we made a promise and gave people a dream. It seemed then that, given the normal course of technological evolution, someone who was not a billionaire, not an astronaut made of the ‘Right Stuff,’ but just a normal person, might one day see Earth from space.”

  He went on to propose three ways Congress might help that happen: create more prizes that industry might compete for; focus on vehicles that would lower the cost to space; and ensure fairness in government contracting.

  This was where he wanted to shine the spotlight on his fight over the Kistler contract and bring it to the attention of Congress. He complained that SpaceX and others “
were denied the opportunity to compete on a level playing field to best serve the American taxpayer.” And he took a dig at Kistler, writing that its award “is mystifying given that the company has been bankrupt since July of last year, demonstrating less than stellar business execution (if a pun is permitted).”

  But before he could read his statement to the committee, Sen. John Breaux, a Democrat from Louisiana, raised an objection. He did not want Musk litigating his bid protest at a Senate hearing, saying it was “patently unfair to not have the other side present it at the same forum, dealing with something that’s under a contract dispute.”

  It didn’t matter. Blunt as always, Musk had made his point. And his lawyers had laid out a convincing case that the contract should have never been awarded without competition. The GAO, which oversaw the protest, forced NASA to withdraw the contract. SpaceX had won. NASA would later open up another contract, and this time SpaceX could compete.

  “That was a huge upset—literally imagine, like, a ten-to-one-odds underdog winning,” Musk said years later. “People did not expect this. It blew everyone’s mind that the GAO sided with SpaceX. There are some brave and honest and true people at the GAO. They’re great because they were under such pressure to rule against us. Massive pressure. But that victory with the GAO was important for the future of SpaceX.”

  MUSK MAY HAVE scored a momentous legal victory over the Kistler contract, but it didn’t win him any friends. If anything, the Washington establishment he was trying to woo at the Air and Space Museum event turned even colder.

  It didn’t help that SpaceX got into a fight in early 2004 with Northrop Grumman. Northrop had been chosen by the Pentagon to oversee SpaceX’s rocket development work. The Pentagon had grown interested in this spunky little company and was keenly interested in harnessing new technology that could help it launch satellites quickly.

  One top air force official called Musk a “pathfinder” and said, “We need him to be successful.”

  But if the Department of Defense was going to trust this new company and its unconventional way of doing business, it wanted deep insight into its manufacturing processes, its workforce and engine designs. Given budget constraints, the Pentagon didn’t have the manpower, however, so it outsourced the oversight to some of its most trusted contractors.

  That’s how a team of Northrop Grumman engineers found themselves stationed at SpaceX’s facility in El Segundo. The only problem was, Northrop was a competitor that also built rocket parts for the Pentagon. There was an inherent conflict of interest. The Pentagon claimed it was doing its best to mitigate the problem—companies like Northrop were supposed to sequester the employees who were embedded with rivals to make sure they didn’t interact with their colleagues working on similar projects.

  “We do everything under the sun” to make sure supervising companies don’t walk away with the secrets of the companies they are supervising, a Pentagon official told the Wall Street Journal.

  The arrangement was tenuous at best. In January 2004, Gwynne Shotwell, then SpaceX’s head of business development, was concerned that the Northrop team was using its access to benefit Northrop. She burst into a meeting and demanded to know whether any of the Northrop team was also involved in developing Northrop’s engines. Five of the eight Northrop teammates raised their hand, the Journal reported.

  The air force replaced the Northrop team with a group of engineers from another company, the Aerospace Corporation. But the damage was done. Northrop fired the first salvo, filing a lawsuit in May, accusing SpaceX of using its rocket-engine designs. Musk had hired Thomas Mueller, SpaceX’s chief propulsion engineer, away from a Northrop subsidiary. Northrop alleged he had brought over inside knowledge about its programs. Northrop also alleged that its rival had many of its internal documents, stamped “proprietary.”

  SpaceX denied the charge, and fired back a month later with its own lawsuit. It accused Northrop of abusing its supervisory position as part of a “surreptitious” attempt to engage in corporate espionage and alleged that Northrop had failed to “preserve, to protect and to not misuse proprietary information.”

  Ultimately, the companies settled and dropped their lawsuits. The legal fight was costly and a distraction, Musk said. But it was important for his little startup to stand up to a company he felt was bullying it. “Northrop wasn’t expecting us to fight as hard as we did,” he said.

  As a kid in South Africa, Musk had been bullied relentlessly. Once he’d even been thrown down a flight of stairs and beaten so badly he’d ended up in the hospital. At the time, he’d retreated into books and computers, reading and playing video games for hours at a time.

  If SpaceX was going to be successful, showmanship on the National Mall was not going to be enough. He was going to have to battle his way in, facing strength with strength. This time he would punch back.

  IN THE YEARS after the September 11 attacks, the Pentagon and intelligence agencies were relying on space more than ever before. The satellites in orbit were playing an increasingly important role, providing secure communications to troops on the ground, often in remote locations. They also beamed GPS guidance to weapons, precision guided munitions, and the drones that were beginning to swarm the battlefields in Iraq and Afghanistan.

  Getting those satellites into space reliably was important—and big business. While NASA may have had the prestige and pedigree, the real money in space at the time was to be made from the Pentagon. For years, the national security space market had been dominated by Boeing and Lockheed Martin. By law, the Pentagon was required to have “assured access to space,” meaning it needed to have at least two rockets certified to launch military and intelligence satellites. If one suffered a failure, there would be a backup. In theory, the companies would also compete against each other—keeping the prices down.

  In 1998, the Pentagon held a competition for launches worth hundreds of millions of dollars. Boeing came out ahead, winning nineteen launches, while Lockheed won just nine. The decision was a stunning blow for Lockheed, which had been the Pentagon’s preeminent supplier. But federal investigators would later determine that Boeing had illegally acquired thousands of pages of Lockheed’s internal, proprietary data that gave Boeing an enormous advantage in the competition.

  The scandal rocked Washington, and the air force suspended the aerospace giant, hitting it with what the Wall Street Journal called the “stiffest punishment imposed on any major Pentagon contractor in decades.” It took away $1 billion worth of business, transferred seven launches to Lockheed, and also awarded it three more without competition.

  “I’ve never heard of a case of this scale,” air force secretary Peter Teets said at the time.

  But by 2005, the companies made up—or were forced to. There simply wasn’t enough business to sustain them both, they said, and so they announced plans to consolidate their space launch businesses into a single company. The merger would create a behemoth unlike anything the Pentagon had ever seen. Called the United Launch Alliance, it paired the Pentagon’s top two contractors, giving them a monopoly on billions of dollars of its business.

  By banding together, the companies had extraordinary leverage over the Pentagon, which didn’t have anyone else to turn to for satellite launches. Defense officials not only approved the merger, but agreed to also provide the combined company with an additional contract, this one to cover any of the company’s overhead costs, worth hundreds of millions of dollars.

  By now, Musk had sued over Kistler and had battled Northrop Grumman, and he was not going to let the formation of a monopoly go without a fight. The consequences of the merger for SpaceX could be dire: the Alliance was on the verge of locking up a huge contract that would have given it a monopoly through at least 2011. So, SpaceX filed suit in October 2005, alleging that the companies used “strong arm tactics” to force the Pentagon to approve the merger and then hand it exclusive contracts that have “destroyed any pretense of competition in the sale of [rocket launches] to
the government.”

  “SpaceX poses a significant threat to Boeing and Lockheed Martin’s dominant position,” the suit stated. “It has developed new technologies and a new business model that will allow it to reduce dramatically the cost of access to space and increase the reliability of launch vehicles. The rockets being developed by SpaceX will perform better, and will be much less expensive, than those offered by Boeing or Lockheed Martin.”

  It accused the firms of staging “a boycott” to force the Pentagon’s hand, which would then “exclude all other competitors, including SpaceX.”

  For a company that had yet to launch a rocket, it was quite a lawsuit. Lockheed and Boeing denied the claims, and SpaceX’s suit was dismissed. The Alliance was born, and would for a decade hold a monopoly on national security launches, winning billions of dollars from the Pentagon.

  Musk vowed that he would continue to fight. But Boeing and Lockheed didn’t seem particularly worried about Musk or his hard-charging upstart.

  Williams, one of SpaceX’s top Washington operatives, recalled that Lockheed’s head lobbyist “used to refer to us on the Hill as an ‘ankle biter.’” Another company derided SpaceX’s rockets as being made “out of bicycle parts.”

  Backed by Musk’s vision and millions, SpaceX was certainly brash—but it was unproven. In the space business, talk was cheap. And the companies didn’t limit their derision to private Capitol Hill meetings.

  “SpaceX needs to prove themselves, and thus far they have been unable to demonstrate that they are a competitor,” a Lockheed spokesman told the New York Times.

  Boeing was just as dismissive: “Launching into space is an extremely challenging and complex business. For SpaceX to be considered a potential competitor they need to have a launch.”

  DOWN IN MCGREGOR, they were working on it. Musk had assembled a small crew to work on the engine test firings on the Texas plain. It was unlike anything he had ever been involved with. Failed software led to 404 error messages, or a crashed hard drive. These miscalculations set off deafening, window-rattling explosions that sent the cows on nearby pastures running. The failures were so frequent, and loud, that the SpaceX employees, stuck in McGregor with little to do for entertainment, set up a “cow cam” to record their scattering like birds.