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Industry Wants Third Party Launch Indemnification Made Permanent

Marcia S. Smith
Posted: 08-Jun-2012
Updated: 08-Jun-2012 05:44 PM

Industry witnesses at a congressional hearing June 6 asked Congress to make permanent the government's authority to indemnify commercial launch service companies against some of the losses that could result if there was a catastrophic launch accident.  The current authority expires on December 31, 2012.

Frank Slazer of the Aerospace Industries Association and Alison Alfers of DigitalGlobe both asked that instead of another fixed term extension of the indemnification authority for 3 or 5 years, Congress make it permanent by eliminating the sunset provision in the law.   The authority was originally created in the 1988 Commercial Space Launch Act (CSLA) amendments and has been extended several times, most recently in 2009 for 3 more years until the end of 2012.  Congress is assessing the need for another extension. 

Under CSLA, the Federal Aviation Administration's (FAA's) Office of Commercial Space Transportation (AST) calculates what the Maximum Probable Loss (MPL) would be if a launch accident injured third parties -- the general public -- or damaged their property.  The launch operator must obtain insurance to cover that liability up to $500 million.  The government would have to pay for claims above $500 million to a maximum of $2.7 billion.  (The law says $2 billion, but the amount is adjusted for inflation, yielding the current limit of $2.7 billion.)    Losses above $2.7 billion must be covered by the launch operator, but such losses are considered very unlikely to occur.   

George Nield, AST Associate Administrator, said the Administration is requesting that Congress extend the authority for another 5 years.  When asked why it is not asking for permanent authority, Nield said that the Administration recognizes that Congress prefers to have opportunities to reassess the program and a 5-year extension is a compromise. 

DigitalGlobe operates commercial remote sensing satellites.  Alfers, the company's Vice President for Defense and Intelligence, testified as a user of space launch services and stressed the need for the U.S. launch services business to avoid becoming even less competitive than it is today.  Her company recently shopped for a launch service provider and found that U.S. prices are 35-40 percent higher than foreign competitors, she said.  For a variety of reasons DigitalGlobe nonetheless chose a U.S. launch provider, but Alfers warned that if U.S. launch service providers must raise their prices because they have to buy more insurance, that could be the tipping point.  Slazer said not renewing the indemnification authority "would unnecessarily hamstring US companies' ability to compete in the international launch services market." He stressed that "Congress should eliminate the sunset provisions of the act or at least extend them for a much longer time" than it has previously.  Alfers agreed. 

Testimony by Alicia Cackley of the Government Accountability Office (GAO), however, suggests that the cost of insurance is a very small amount of launch prices.  She said in her written statement that it costs one percent of the dollar amount of coverage.  She told the committee that the average MPL for which the launch operator must buy insurance is $99 million, meaning that the insurance costs less than $1 million on average.   Launch prices are generally proprietary, but are on the order of $100 million for a launch to geostationary orbit.

Cackley also testified that some of the insurance companies GAO consulted criticize how the FAA calculates MPL.   They assert FAA's methods are outdated.  Nield responded that the FAA is open to improvements in how it calculates MPL, but must weigh the costs, which could be "many hundreds of thousands of dollars" to purchase a specialized database, with the benefits.

Rep. Ralph Hall (R-TX), chairman of the full committee, said he hopes to bring a bill to the floor of the House before the end of the year to extend the authority.  "It can be done, it probably ought to be done," he said.

At the beginning of the hearing, subcommittee chairman Rep. Steve Palazzo (R-MS) said he wanted to correct the record regarding the commercial cargo program.   He quoted Presidential Science Adviser John Holdren as saying the recent successful SpaceX mission represented a new model for the space program -- "one initiated by this Administration."   (Holdren's remarks were made during ceremonies presenting the 2012 Kavli Prize at the World Science Festival on May 31 and come at the 15:15 mark in this World Science Festival video.) Palazzo said the comment is "at best, misleading," since the Commercial Orbital Transportation Services (COTS) program began in the George W. Bush Administration and the contract under which SpaceX mission flew the mission was signed in 2006. 


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