ECONOMIC MODELING OF FUTURE SPACE MARKETS

ECONOMIC MODELING OF FUTURE SPACE MARKETS Revision A 21 July 2006

Mr. A.C. Charania Senior Futurist SpaceWorks Engineering, Inc. (SEI) [email protected] 1+770.379.8006

Mr. Dominic DePasquale Systems Engineer SpaceWorks Engineering, Inc. (SEI) [email protected] 1+770.379.8009

SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Introduction Economic Analysis Expertise Nodal Economic Space Commerce (NESC) Model Modeling Sub-Orbital Space Tourism Modeling Commercial Transportation Services to International Space Station (ISS): Sample Case Study

Contents SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Introduction


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Overview: - Engineering services firm based in Atlanta (small business concern) - Founded in 2000 as a spin-off from the Georgia Institute of Technology - Averaged 130% growth in revenue each year since 2001 - 85% of SEI staff members hold degrees in engineering or science

Core Competencies: - Advanced Concept Synthesis for launch and in-space transportation systems - Financial engineering analysis for next-generation aerospace applications and markets - Technology impact analysis and quantitative technology portfolio optimization

About SpaceWorks Engineering, Inc. (SEI) SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Practice Areas Space Systems Analysis | What is the System? Conceptual Level Engineering Analysis Conceptual Level Engineering Design Life Cycle Assessment Cost Engineering Advanced / Robust Design Processes

Technology Prioritization | What are the Implications? Technology Anticipation Technology Benefit Assessments Technology Prioritization

Financial Engineering | Is the Project Viable? Business Design Future Venture Due Diligence Real Options Analysis

Future Market Assessment | What is Next? Scenario Planning Market Forecasting Market Analysis

Policy and Media Consultation | How to Express the Vision? Government Initiatives Policy Consultation Television, Film, Radio, Internet Presence SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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From Vision to Concept

Including: - Engineering design and analysis - New concept design - Independent concept assessment - Full, life cycle analysis - Programmatic and technical analysis

Including: - Storyboards - Technical concept illustrations (marker and pastel in B&W and color) - 2-D line engineering drawings with technical layouts and dimensions - 3-D engineering CAD models of concept designs - High-resolution computer graphics imaging (renders) - Concept / architecture summary datasheets and single page handouts / flyers


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Sample Trajectory Analysis (via POST):

0

100

200

400

500

600

100

200

Time (s)

300

400

500

Time (s)

600

25,000

Mach

500

25

400

20,000

20

15,000

15

Relative Velocity

10,000 5,000 0 0

100

200

300 Time (s)

Sample Thermal Analysis: Maximum RLV Orbiter Entry Surface Temperature (via SENTRY)

30

400

500

10

ISP (s)

Optimized transition to SSMEonly

300

30,000

Mach Number

Thrust

Weight

450 400 350 300 250 200 150 100 50 0 0

Relative Velocity (ft/s)

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

“Net” ISP (SSME and RD-180) vs. Flight Time

Relative Velocity and Mach vs. Flight Time

Altitude vs. Flight Time Altitude (thousands of ft)

Mlb

Thrust and Weight vs. Flight Time

SSME

300

RD-180 “Net” Value

200

5

100

0 600

0 0

100

200

300

400

500

600

Time (s)

Sample Thermal Analysis: Maximum RLV Booster Entry Surface Temperature and TPS Tile Thickness (via SENTRY)

TOP VIEW

UNDERSIDE VIEW

Note:Data generated through SENTRY model and exported to data visualization program for eventual display

Sample Performance Analyses SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Economic Analysis Expertise


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Sample Economic Analysis Tools: NESC Model Sub-orbital Public Space Flight Market

- NESC (Nodal Economic Space Commerce Model, agent-based space market simulation financial tool) - CABAM (Cost and Business Analysis Model, general space transportation) - LMNoP (Launch Markets for Normal People, tourism model)

Recent Projects: -Economic Development of Space (EDS) sponsored by NASA Langley Research Center -Simulating Emerging Space (SES) Industries with Agent-Based Modeling sponsored by NASA Marshall Space Flight Center

Recent Papers (www.sei.aero): NESC Model Commercial Support of the International Space Station (ISS)

-Charania, A., DePasquale, J., "Agent-Based Modeling of the Space Tourism Market," ISDC 2006355, 25th International Space Development Conference, Los Angeles, California, May 4-7, 2006. -Charania, A., Bradford, J. E., Olds, J. R., "Economic Development of Space: Examination and Simulation," IAC-05-E3.3.08, 56th International Astronautical Congress, Fukuoka, Japan, October 17-21, 2005. -Olds, J. R., "A Review of Technology Assessment Methods for Space Transportation Systems," GT-SSEC-B.6, First Annual Georgia Institute of Technology Space Systems Engineering Conference, Atlanta, Georgia, November 8-10, 2005. -Charania, A., DePasquale, D., "Simulating the Dynamic Marketplace: An Introduction to the Nodal Economic Space Commerce (NESC) Model," AIAA-2005-6617, Space 2005, Long Beach, California, August 30 - September 1, 2005.

Sample Clients and Partners:

SEI’s Background Related to Economics of Emerging Commercial Space Transportation SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Scenarios of Reusable Launch Vehicle (RLV) Price Sensitivity

Operations Cost Reduction

10,000

$M

CLV

Facilities, Operations, and Flight Tests

8,000 CEV/CM

6,000

Technology Maturation

Surface Systems

4,000

75%

EDS + CEV/SM

CaLV-HLLV

2,000 Other (Robotic/ISS/Shuttle)

35

7,000 6,000

30

5,000 4,000

25

3,000

4,500

Flight Rate [Flights/Year]

120 3,500

100 80

2,500

60 1,500 40

2,000 1,000

20

9,000

Price Per Flight [$/lb]

25% 50% 75% Turn-Around-Time Reduction 40


8,000

35

7,000 6,000

30

5,000 4,000

25

3,000

20

500

25% 50% 75% Turn-Around-Time Reduction 10,000

Price Per Flight [$/lb] 4,500


1,000 0

20 25% 50% 75% Turn-Around-Time Reduction

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

140 120

3,500

100 80

2,500

60 1,500 40

2,000

LSAM

140

Flight Rate [Flights Per Year]

25% 12,000


8,000

75%


500


NASA FY06 Exploration-Related Budget

40

Price Per Pound Payload [$/lb]

14,000

9,000

DDT&E AND TFU COST REDUCTION



$53.4 B (2019-2025) $164.7 B


$111.3 B (2006-2018)


16,000

10,000


25%

Components of LCC (FY06)


Human Exploration Cost Estimates

20 25% 50% 75% Turn-Around-Time Reduction

Year

Space Tourism Economic Modeling Effect of Competition

International Space Station (ISS) Support Market

Effect of Market Entry Date

Discounted Cumulative Cash Flow (US $)

100M Higher-End Operator 50M Lower-End Operator 0M

80M 60M 40M 20M 0M

Higher-End Operator

Lower-End Operator

-20M -40M In Competition with Higher-End -60M -80M

-50M -100M 0

2

4

6

8

10

12

4 Year Market Delay 2 Year Market Delay 0

Project Year

2

4

6

8

10

12

Project Year 5 Commercial Competitors + min. 2 CEV/Yr + Russian Competition

See: http://www.sei.aero/library/technical.html for more information and technical papers on above analyses

Sample Economic Analyses SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Total viewing opportunities

Noon Total viewing opportunities


Dawn

C an yo G n re at W M al t. Ev l er es Py t ra m id s N ew Yo rk Pa ris Sy dn ey To ky o

Total viewing opportunities 14 12 10 8 6 4 2 0 14 12 10 8 6 4 2 0

ra nd

C an yo G n re at W M al t. Ev l er es Py t ra m id s N ew Yo rk Pa ris Sy dn ey To ky o

ra nd

G

G

Hokkaido

14 12 10 8 6 4 2 0 14 12 10 8 6 4 2 0

To ky o

Sy dn ey


Node = Ascending 14 12 10 8 6 4 2 0 Pa ris

C an yo n G re at W al M l t. Ev er es t Py ra m id s N ew Yo rk

ra nd

To ky o

Sy dn ey

Pa ris

C an yo n G re at W al M l t. Ev er es t Py ra m id s N ew Yo rk

ra nd

Total viewing opportunities 14 12 10 8 6 4 2 0 Hokkaido

G

G

DAY AND NIGHT Woomera

Day

Night

ALL OPPORTUNITIES Woomera Dawn 50 deg asc

50 deg desc

Due east

Noon 50 deg asc

50 deg desc

Due east

Space Viewing Opportunities: 50 Orbits, Incl. = 50o, Alt. = 180 km, Viewing Angle = 15o SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Nodal Economic Space Commerce (NESC) Model


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The Nodal Economic Space Commerce (NESC) model is a dynamic, agent-based space market simulation and financial engineering tool Agent-Based Modeling (ABM): allows heterogeneous agents with varied and dynamic behavior -

Qualities: emergent phenomena, natural description of system, flexible Simulation can represent plants and animals in ecosystems, vehicles in traffic, people in crowds, or autonomous characters in animation and games

Modeling space capitalism in NESC -

Between competitors, includes current and future competitors (expendable and reusable) Entrance of new competitors within existing and new markets Explore variations in customer preferences Current markets: sub-orbital space tourism and ISS support Use available data (Futron, etc.) on demand and estimate supply

Companies compete for customers with the goal of maximizing revenues -

Each company autonomously decides its pricing strategy given its unique capacity, costs, and vehicle characteristics Model outputs financial health of each company Model differences in products/services

Based Upon “REcursive Porous Agent Simulation Toolkit” RePast Sources: http://www.duncanrobertson.com/research/simulation.htm, http://sourceforge.net/projects/repast/, http://complexityworkshop.com/cw/tutorial/RePast/index.html

Nodal Economic Space Commerce (NESC) Model SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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P&G to understand the impact of alternative shipment and payment terms on retail in stock positions and company inventory

Macy’s to generate new store layout options for maximizing customer satisfaction and spending Hewlett Packard to understand the effect on organizational performance by a change in hiring practices NASDAQ to understand what happen when the “tick size” changes from 1/8 of a dollar to 1/100 of a dollar U.S. Department of Defense to conduct war games predicting battlefield outcomes in a networked information environment

Pricewaterhouse Coopers to predict CD sales in the Japanese pop (J-Pop) market using 75,000 agents (correlation coefficients of actual and predicted sales between 0.8 and 0.9)

Electronic Arts (EA) and their “The SIMS” game

Sources: “Agent-based Modeling: A valuable new weapon for Chief Marketing Officers in the fight of their lives,” EMM Group, Inc., 2004, http://www.red3d.com/cwr/ibm.html

Users of Agent-Based Modeling (ABM) SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Use Aggregate Market Curve

or

Model Individual Customers

Space Tourism Market Potential Market Multiplie rs

P

P * Q *

Price offering per year

Q

1

2

Customers purchase

2

Company A Company adjusts pricing strategy: • Stay at current • Higher • Lower • Match competitor

Company B 3

4

Has unique: Costs Vehicle Characteristics Discount rate Desires to maximize: Profits = Sales - Cost

1

Limited information sharing: • Price from prior year • Vehicle characteristics

Same logic as Company A but with different product

4

Company C Same logic as Company A but with different product

4

Using Agents to Represent Supply and Demand SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Modeling Sub-Orbital Space Tourism


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Nodal Economic Space Commerce (NESC) Model: Sub-Orbital Space Tourism SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Effect of Competition

Effect of Market Entry Date

80M

Higher-End Operator 50M

Lower-End Operator 0M -50M

In Competition with Higher-End -100M 0

2

4

6

8

10

12



100M

Higher-End Operator

60M 40M 20M

Lower-End Operator

0M -20M -40M -60M

4 Year Market Delay

-80M

2 Year Market Delay 0

2

Project Year

4

6

8

10

12

Project Year

Customers: 50,000 potential sub-orbital space flight consumers with 1) the financial means to pay, 2) physical condition to fly, and 3) the interest in suborbital flight have been categorized into over 20,000 “agent types” based on personal characteristics such as: pioneer vs. imitator, influence of perceived vehicle reliability, willingness to pay at various ticket prices, influence of cabin freedom (e.g. seat belt requirements), influence of perceived vehicle uniqueness/intrinsic appeal, etc. Providers: A user-defined number of sub-orbital passenger vehicle developer/operators can be included in any simulation: Each provider has a realistic business model including development and production costs, operating costs, vehicle capacity, perceived reliability, etc. Each ‘CEO agent’ can adjust its market price for a ticket from year to year in an effort to improve profitability.

Sample Simulation Results: Sub-orbital Public Space Flight Market SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Sub-orbital public space flight market can allow two companies to be profitable over time -

A third competitor, competing with the top-tier operator, struggles to maintain viability Caveat 1: Given current consumer and company modeling assumptions Caveat 2: Need to re-examine in terms of higher fidelity NESC model (almost complete)

Optimal pricing strategy must take advantage of “pioneer” effect -

Initial prices should start higher (around $300k/ticket in simulations) than some initial “public” rates, companies could then decrease (to close to $150-200k/ticket) to maximize profit

First company to enter market has large advantage in potential revenue generation -

Due to longer period of operation and ability to capture high value passengers

Sub-orbital Space Tourism Market: Preliminary Observations SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Modeling Commercial Transportation Services to International Space Station (ISS): Sample Case Study


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8 Commercial Competitors

8 Commercial Competitors + min. 2 CEV/Yr

5 Commercial Competitors + min. 2 CEV/Yr + Russian Competition

3 Commercial Competitors + CEV

Nodal Economic Space Commerce (NESC) Model: ISS Support Market SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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$300 M 7 Companies + CEV

4 Companies + CEV

3 Companies + CEV

Mean and Standard Deviation Net Present Value (NPV) - FY2006

$200 M

$100 M

$0 M Firm 1

Firm 2

Firm 3

Firm 4

Firm 5

Firm 6

Firm 7

-$100 M

-$200 M

-$300 M Note: (w/ CEV, w/ ESA + JAXA IP, w/o Russian Competing), 16 STS flights ISS end-state, 100 Monte Carlo simulations reflecting potential failures occurring throughout program based upon reliability of services, distributions in red reflect two standard deviations, with $400M of NASA COTS funding

Commercial Firms Supporting ISS: 2010-2016 SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Delivery Cost of Crew

0.8

0.05 0.04

0.6

0.03

0.4

0.02 0.2

0.01 0

20

30

40

0.8

0.05 0.04

0.6

0.03

0.4

0.02 0.2

0.01 0

50

0

15

25

35

45

55

Price per Kilogram to ISS ($K)

Price per Passenger to ISS ($M)

Mean Price: $31,000 / kg

Mean Price: $37.1 M / passenger

0.01

0.8

0.008

0.6

0.006 0.4

0.004

0.2

0.002 0

0

50

100

150

200

250

Net Present Value (FY2006 $M)

Cumulative Probability

1

0.03

1

0.025

0.8

0.02

0.6

0.015 0.4

0.01

0.2

0.005 0

0

0

20

40

60

80

100



0.012

NPV of Firm 7 Probability Density



1

0.06

0

10

0

0.07

0.025

1

0.02

0.8

0.015

0.6

0.01

0.4

0.005

0.2

0


0.06

Probability Density

1


0.07


Probability Density

Delivery Cost of Cargo

0

-10

10

30

50

70

90

110


Note: 3 companies (w/ CEV, w/ ESA + JAXA IP, w/o Russian Competing), 16 STS flights ISS end-state, 100 Monte Carlo simulations, with $400M of NASA COTS funding distributed for development offsets

Scenario of 3 Commercial Transportation Firms Supporting ISS: 2010-2016 SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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$6,670M Total

$40 M IP

$730 M

3 Company Scenario Average Flights Per Year 14.2 Total Cargo Delivered 131,062 Total Cargo Revenue $3,903 M Avg. Price per Kg $0.0310 M/kg Total Crew Delivered 75 passengers Total Crew Revenue $2,768 M Avg. Price per Passenger $37 M Overall Failure Rate 0.37

CEV

$5,900 M COTS

$3,000 M

$4,000 M

$5,000 M

$6,000 M

$7,000 M

$8,000 M

Cumulative Cost to Provide Service (FY2006 $M) Note: 3 firms (w/ CEV, w/ ESA + JAXA IP, w/o Russian Competing), 16 STS flights ISS end-state, 100 Monte Carlo simulations, distributions in red reflect two standard deviations, with $400M of NASA COTS funding distributed for development offsets

Total Cost to Support ISS Using Commercial Transportation: 2010-2016 SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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COTS market size is significantly impacted by “completeness” of International Space Station (ISS) -

ISS construction through 16 STS flights is large market, while 10-flight completion phase leaves a marginally attractive COTS market (ISS without any more STS flights would be a very problematic market) Length of simulation is only as long as current projected lifetime of station (until 2016) Gap period of 2010-2012 (without CEV) is difficult to support given failure of vehicles and no domestic U.S. backup

Use of commercial providers for resupply is potential win-win scenario for US Govt. and emerging commercial companies -

NASA savings might approach several billion dollars over seven year period (compared to using government CEV), commercial providers gain an entry market at an attractive price (possibly multi-billion dollar market is enabled) Multiple analyses (even with some failures in program) show that multiple companies can be profitable over time for these markets Using Russian providers of services reduces cost the best, even over the option of using commercial providers There is high reliance on ATV and Russian support for propellant re-supply, current study did not include any commercial company capable of providing such a service (could be a needed capability not addressed in the specific market segments requested by the COTS solicitation)

Cargo (pressurized and un-pressurized) market can support more than one financially viable company -

Companies for this particular simulation based upon projection of a credible COTS provider

All simulations, given credible estimates of reliability, almost always seem to result in failure of some of the companies to deliver crew or cargo over the 2010-2016 period -

Should anticipate failure over the life of the program given the new products being offered and flight rates required Possibly difficult to achieve reliability similar to CEV for commercial companies

Cost is one of the most important factors in determining financial viability -

Lower development costs on smaller vehicles result in companies that can be successful in these markets

ISS Commercial Support: Preliminary Observations SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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Business Address: SpaceWorks Engineering, Inc. (SEI) 1200 Ashwood Parkway Suite 506 Atlanta, GA 30338 U.S.A. Phone: 770-379-8000 Fax: 770-379-8001 Internet: WWW: www.sei.aero E-mail: [email protected]

www.sei.aero SpaceWorks Engineering, Inc. (SEI) www.sei.aero

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