August 2, 2021
Billionaires Richard Branson and Jeff Bezos made history last month when they each launched into outer space in their own private rockets.
This is clearly a watershed moment for space tourism in our country…
And it’s been met with a range of reactions, from excitement at the sheer progress of private space travel to criticism of how these men could have better spent millions of dollars.
Here today to delve into this complex issue is Stansberry Research’s biotech expert, John Engel. John is the editor of Stansberry Innovations Report, a monthly publication that shows subscribers how to invest safely in the next technology revolutions.
He looks for strong companies that are staking out spots in the burgeoning technology industry, treating shareholders right, and providing the opportunity for outstanding gains.
John holds a Master of Science from Johns Hopkins University and has real world experience working at both a biotech startup and large pharmaceutical company. Prior to joining Stansberry Research, John worked as a research scientist in a drug discovery lab where he spent years developing novel therapeutics.
The True Cost of Privatizing the Final Frontier
By John Engel
It takes guts to strap yourself into a rocket and ride it straight up into the dark and endless abyss.
What we witnessed on July 11 and then again July 20 was inspiring… That’s not sarcasm – that’s the truth.
But let’s also call it what else it is: a conspicuous demonstration of superiority… a lively and entertaining contest between two ego-driven billionaires.
On the surface, what we’ve witnessed is nothing more than a schoolyard pissing contest and a challenge defined not by fiscal restraint, but by who has deeper pockets and a bigger rocket.
Richard Branson and Jeff Bezos did what very few human beings have ever done… They’ve crossed the Karman line – that widely regarded and invisible line between Earth’s atmosphere and outer space.
And apparently, courage wasn’t the only requirement to accomplish this…
Twenty-one years after the founding of Blue Origin by Bezos and 18 years after Branson launched Virgin Galactic, the two billionaires fulfilled lifelong dreams. At the cost of billions of dollars in funding, the two men experienced a few seconds of weightlessness and a 300,000-foot view of the Chihuahuan Desert.
Now safely back on ground, Bezos and Branson join the ranks of a rare group of individuals. Less than 600 people in human history have experienced the awe of outer space up close and personal.
Historically, this class of men and women includes American heroes like Neil Armstrong, John Glenn, and Sally Ride. The difference though, between Bezos, Branson, and these American heroes is how they got there…
Branson and Bezos pulled out their wallets. Whereas most of this elite group were handpicked based on prior merits, intelligence, courage, and true grit.
So, are we now to consider these billionaire astronauts heroes by association? Or do we categorize them in a group all their own? I don’t have the answers to that question… But it sure puts a bad taste in my mouth considering them all the same.
Surely, if Branson and Bezos have their way, more wealthy astronauts will follow their contrails on that 10-minute joyride into space. And if you’re anything like me (and probably most Americans) you may be thinking to yourself: who cares?
I’ve spent hours trying to rationalize what this means for the future. How, if at all, will any of this change the landscape of the space economy? Will the novelty of space tourism eventually wear off? Or are we reaching a turning point in the aerospace industry at large?
Sure, the characters leading this charge are just that: a bunch of characters. But to me, this is truly a defining moment. For better or for worse, we’ve reached a crossroads in the commercialization of space.
The transition has far less to do with sending the extremely wealthy on extraterrestrial excursions. It’s more about the coming shift in who maintains control. Private companies are set to take the reins from the government entities that have long held a tight grip on the final frontier.
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NASA Isn’t the Only Game in Space Anymore
For the past 60 years, the U.S. government, funded through taxpayer dollars, has sold the idea of space exploration as a point of national pride… all the while keeping tight control of the technology we depend on for government intelligence, communications, and exploration.
With private enterprises investing in rockets and aerospace technology, NASA’s hold on space travel is eroding quickly. After countless decades of building basic space infrastructure, NASA is being pushed aside by new innovators of this era.
Sure, NASA has always relied on contractors to build its hardware – from the Apollo lunar module built by Grumman to the space shuttle built largely by North American Rockwell.
For years, NASA defined the requirements for launching people into space. It took ownership of the spacecraft and operated them. Yet that’s not the case with many of its programs today. It now works alongside companies to validate their rockets and spacecraft, but the hardware and the launch procedures remain in private hands.
And although it may seem like this is all happening at once, this transition has been in the making for years.
In December 2015, privately held Aerospace technology firm SpaceX – led by the eccentric billionaire Elon Musk – launched a Falcon 9 rocket from Cape Canaveral, Florida.
The first stage burned for about 180 seconds, taking its payload from the ground to about 45 miles above Earth. With most of its fuel now burned, it broke off before the second stage rocket kicked in, sending it deeper into space.
Normally, the first-stage rocket is sacrificial. It breaks through the atmosphere and then freefalls back to Earth, crash landing somewhere in the ocean where it’s damaged beyond repair.
SpaceX redefined this slightly flawed practice. On its famed 2015 launch, it guided the first-stage rocket in a controlled descent back down to a prepositioned landing pad – with all components intact. It was the first time it had ever been done.
It’s analogous to launching a pencil over the empire state building and having it land on its eraser on the other side. It’s not an easy problem set, but in practice, it makes a big impact on costs. The first-stage rocket is the most expensive part of a launch vehicle. It accounts for roughly 75% of the total costs for a rocket launch.
SpaceX has been met with plenty of bumps in the road in the development of this innovation. Now that it can salvage expensive rocket components, it has a sizable advantage over other launch providers like Arianespace and the United Launch Alliance. Its launch capabilities mean that it can offer customers much lower prices.
Now, SpaceX is the launch provider for countless players in the space economy. Its launch manifest – a list of companies and organizations with planned future SpaceX launches – includes NASA and the U.S. Air Force, among many others.
SpaceX’s launch strategy is changing the game. The privately held company is disrupting how launch providers have been operating for decades. If you watched Bezos’ Blue Origin launch on July 20, you’ll notice his rocket used a nearly identical strategy. And it won’t be long until every launch provider is forced to do the same or risk being driven out of business…
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The True Value in Space
There’s no shortage of hype surrounding the commercialization of the final frontier as this trio of billionaires – Branson, Bezos, and Musk – lays claim to their stake in the burgeoning space industry. But while these same tech leaders promise us moon bases and settlements on Mars, the space economy has thus far remained, and in my opinion will continue to remain, distinctly local.
In 2019, 95% of the estimated $345 billion in revenue earned in the space sector was for services produced in space for use on Earth, like technologies associated with telecommunications, Internet infrastructure, and national security satellites.
Despite all of the media attention from the billionaire space race, satellite communications are what matter for the future of the space economy. No matter how much attention it gains, space tourism will remain a drop in the bucket compared with the industry for satellite communications.
According to the Union of Concerned Scientists, which keeps a record of satellites in space, there were 6,542 “birds” in orbit at the beginning of this year. Roughly, half of those satellites are active. The remaining are decommissioned “space junk.”
Building satellites comes with high capital costs, which is why historically only government agencies and corporations with deep pockets have been able to break into this business. A typical weather satellite carries a price tag of about $290 million. An intelligence satellite might cost an additional $100 million. Then there is the expense of maintenance and repair… Companies pay for satellite bandwidth similar to the way you might pay for cellular service, which can easily cost $1.5 million a year per satellite.
Putting this all into context, roughly 75% of today’s $400 billion global space economy is generated by the satellite-communications industry. The launch-services industry, which is a beneficiary to growth in the satellite-communications industry, contributes about $5 billion (or 1%) to that top line number.
Progress for a Price
This recent burst of space activity is exciting… And yes, the space economy is expanding. It’s set to double its size from $400 billion to $800 billion by 2030. Yet, projections for space tourism are estimated to reach a paltry $3 billion over that same period.
And with three competing firms, Blue Origin, Virgin Galactic, and SpaceX, all jockeying for ownership in this subsector, things seem quite crowded at present.
It feels a bit morose, the idea that the romance of space… the mystique of the stars at night… becoming commercialized, at the hands of a few Silicon Valley kingpins no less. But this is progress – the inevitable march of civilization.
And perhaps we should all be questioning what the privatization of space would bring for humanity…
Because when humans get their hands on anything of value, we usually find ways to muck it up.
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Publisher, American Consequences
With Editorial Staff
August 2, 2021