[Joint House and Senate Hearing, 108 Congress]
[From the U.S. Government Printing Office]



                     COMMERCIAL HUMAN SPACE FLIGHT

=======================================================================

                             JOINT HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON SPACE AND AERONAUTICS

                          COMMITTEE ON SCIENCE
                        HOUSE OF REPRESENTATIVES

                                AND THE

             SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND SPACE

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
                              U.S. SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 24, 2003

                               __________

                           Serial No. 108-26

                               __________

   Printed for the use of the House Committee on Science and Senate 
           Committee on Commerce, Science, and Transportation


     Available via the World Wide Web: http://www.house.gov/science



                                 ______

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                          COMMITTEE ON SCIENCE

             HON. SHERWOOD L. BOEHLERT, New York, Chairman
LAMAR S. SMITH, Texas                RALPH M. HALL, Texas
CURT WELDON, Pennsylvania            BART GORDON, Tennessee
DANA ROHRABACHER, California         JERRY F. COSTELLO, Illinois
JOE BARTON, Texas                    EDDIE BERNICE JOHNSON, Texas
KEN CALVERT, California              LYNN C. WOOLSEY, California
NICK SMITH, Michigan                 NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland         JOHN B. LARSON, Connecticut
VERNON J. EHLERS, Michigan           MARK UDALL, Colorado
GIL GUTKNECHT, Minnesota             DAVID WU, Oregon
GEORGE R. NETHERCUTT, JR.,           MICHAEL M. HONDA, California
    Washington                       CHRIS BELL, Texas
FRANK D. LUCAS, Oklahoma             BRAD MILLER, North Carolina
JUDY BIGGERT, Illinois               LINCOLN DAVIS, Tennessee
WAYNE T. GILCHREST, Maryland         SHEILA JACKSON LEE, Texas
W. TODD AKIN, Missouri               ZOE LOFGREN, California
TIMOTHY V. JOHNSON, Illinois         BRAD SHERMAN, California
MELISSA A. HART, Pennsylvania        BRIAN BAIRD, Washington
JOHN SULLIVAN, Oklahoma              DENNIS MOORE, Kansas
J. RANDY FORBES, Virginia            ANTHONY D. WEINER, New York
PHIL GINGREY, Georgia                JIM MATHESON, Utah
ROB BISHOP, Utah                     DENNIS A. CARDOZA, California
MICHAEL C. BURGESS, Texas            VACANCY
JO BONNER, Alabama
TOM FEENEY, Florida
RANDY NEUGEBAUER, Texas
                                 ------                                

                 Subcommittee on Space and Aeronautics

                 DANA ROHRABACHER, California, Chairman
LAMAR S. SMITH, Texas                BART GORDON, Tennessee
CURT WELDON, Pennsylvania            JOHN B. LARSON, Connecticut
JOE BARTON, Texas                    CHRIS BELL, Texas
KEN CALVERT, California              NICK LAMPSON, Texas
ROSCOE G. BARTLETT, Maryland         MARK UDALL, Colorado
GEORGE R. NETHERCUTT, JR.,           DAVID WU, Oregon
    Washington                       EDDIE BERNICE JOHNSON, Texas
FRANK D. LUCAS, Oklahoma             SHEILA JACKSON LEE, Texas
JOHN SULLIVAN, Oklahoma              BRAD SHERMAN, California
J. RANDY FORBES, Virginia            DENNIS MOORE, Kansas
ROB BISHOP, Utah                     ANTHONY D. WEINER, New York
MICHAEL BURGESS, Texas               VACANCY
JO BONNER, Alabama                   RALPH M. HALL, Texas
TOM FEENEY, Florida
SHERWOOD L. BOEHLERT, New York
                BILL ADKINS Subcommittee Staff Director
                 ED FEDDEMAN Professional Staff Member
              RUBEN VAN MITCHELL Professional Staff Member
                  KEN MONROE Professional Staff Member
                 CHRIS SHANK Professional Staff Member
         RICHARD OBERMANN Democratic Professional Staff Member
                      TOM HAMMOND Staff Assistant
                              U.S. SENATE
           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN MCCAIN, Arizona
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida
               KEVIN D. KAYES, Democratic Staff Director
                  MOSES BOYD, Democratic Chief Counsel
      JEANNE BUMPUS, Republican Staff Director and General Counsel
            ANN D. BEGEMAN, Republican Deputy Staff Director
                                 ------                                

             Subcommittee on Science, Technology, and Space

                    SAM BROWNBACK, Kansas, Chairman
TED STEVENS, Alaska                  JOHN BREAUX, Louisiana, RMM
CONRAD BURNS, Montana                JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi                  Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
JOHN ENSIGN, Nevada                  BYRON L. DORGAN, North Dakota
GEORGE ALLEN, Virginia               RON WYDEN, Oregon
JOHN SUNUNU, New Hampshire           BILL NELSON, Florida
                                     FRANK LAUTENBERG, New Jersey
         JEAN TOAL EISEN, Democratic Senior Professional Staff
         FLOYD DESCHAMPS, Republican Senior Professional Staff


                            C O N T E N T S

                             July 24, 2003

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Hon. Sam Brownback, U.S. Senator from Kansas, 
  Subcommittee on Science, Technology, and Space, Committee on 
  Commerce, Science, and Transportation, U.S. Senate.............     8

Statement by Representative Dana Rohrabacher, Chairman, 
  Subcommittee on Space and Aeronautics, Committee on Science, 
  U.S. House of Representatives..................................     9
    Written Statement............................................    10

Statement by Hon. Bill Nelson, U.S. Senator from Florida, 
  Subcommittee on Science, Technology, and Space, Committee on 
  Commerce, Science, and Transportation, U.S. Senate.............    10

Statement by Representative Bart Gordon, Minority Ranking Member, 
  Subcommittee on Space and Aeronautics, Committee on Science, 
  U.S. House of Representatives..................................    11

Prepared Statement by Representative Eddie Bernice Johnson, 
  Member, Subcommittee on Space and Aeronautics, Committee on 
  Science, U.S. House of Representatives.........................    12

                               Witnesses:

Mr. Phil McAlister, Director of the Space and Telecommunications 
  Industry Analysis Division, Futron Corporation
    Oral Statement...............................................    13
    Written Statement............................................    15

Mr. Dennis A. Tito, CEO, Wilshire Associates, Inc.
    Oral Statement...............................................    18
    Written Statement............................................    20
    Biography....................................................    21

Mr. Elon Musk, President and Chief Technologies Officer, Space 
  Exploration Technologies (SpaceX)
    Oral Statement...............................................    22
    Written Statement............................................    24

Mr. Jeff Greason, President, XCOR Aerospace, Mojave, California
    Oral Statement...............................................    27
    Written Statement............................................    29
    Biography....................................................    31

Mr. Jon B. Kutler, Chairman, CEO, Quarterdeck Investment 
  Partners, LLC
    Oral Statement...............................................    32
    Written Statement............................................    34
    Biography....................................................    36

Discussion
  Impediments to Exploration.....................................    37
  Safety and Certification.......................................    40
  Indemnification................................................    41
  Effects of the Columbia Accident on Investment.................    42
  Effects of Russian Participation on the Industry...............    43
  Timelines......................................................    44
  Appropriateness of Government Regulation.......................    44
  Profitability..................................................    44
  Liability......................................................    45
  Actions That Would Facilitate Growth...........................    46
  Anticipated Launches...........................................    48
  Tax Incentives.................................................    48

             Appendix 1: Answers to Post-Hearing Questions

Mr. Phil McAlister, Director of the Space and Telecommunications 
  Industry Analysis Division, Futron Corporation.................    52

Mr. Dennis A. Tito, CEO, Wilshire Associates, Inc................    55

Mr. Elon Musk, President and Chief Technologies Officer, Space 
  Exploration Technologies (SpaceX)..............................    57

Mr. Jeff Greason, President, XCOR Aerospace, Mojave, California..    58

Mr. Jon B. Kutler, Chairman, CEO, Quarterdeck Investment 
  Partners, LLC..................................................    62

 
                     COMMERCIAL HUMAN SPACE FLIGHT

                              ----------                              


                        THURSDAY, JULY 24, 2003

                  House of Representatives,
                      Committee on Science,
                            Joint with U.S. Senate,
    Subcommittee on Science, Technology, and Space,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.

    The Subcommittees met, pursuant to notice, at 10:15 a.m. in 
Room SH-216, Hart Senate Office Building, Hon. Sam Brownback, 
Chairman of the Senate Subcommittee, and Dana Rohrabacher, 
Chairman of the House Subcommittee, presiding.


                            hearing charter

                 SUBCOMMITTEE ON SPACE AND AERONAUTICS

                          COMMITTEE ON SCIENCE

                     U.S. HOUSE OF REPRESENTATIVES

                             JOINT WITH THE

             SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND SPACE

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                              U.S. SENATE

                     Commercial Human Space Flight

                         thurday, july 24, 2003
                         10:00 a.m.-12:00 p.m.
                    216 hart senate office building

1. Purpose

    The Senate Science, Technology, and Space Subcommittee and the 
House Subcommittee on Space and Aeronautics will hold a joint hearing 
entitled Commercial Human Space Flight on Thursday, July 24, 2003 at 
10:00 a.m. in the Hart Senate Office Building, Room 216. The hearing 
will examine barriers to investing in entrepreneurial space ventures. 
Topics will include the market potential of space tourism, regulatory 
issues, private sector vehicle technology development, and capital 
investment considerations.

BACKGROUND

    In 1994, the U.S. commercial space launch industry performed a 
study identifying future launch market opportunities and defining next-
generation launch systems and requirements. In particular, the study 
concluded that while space tourism could become an economically viable 
industry, the insufficient revenue potential for building a space 
transportation fleet posed a barrier to realizing public space travel. 
Since that time, however, a string of space tourism market forecasts 
and surveys have indicated a growing demand for space tourism. As a 
result, new investors are emerging that are interested in funding 
entrepreneurial space ventures.\1\ Despite the current downturn in the 
commercial space market, which is a reflection of and launch vehicle 
overcapacity, recent long-term forecasts for the orbital and sub-
orbital space tourism markets\2\ indicate that space tourism has the 
potential to generate upwards of hundreds of millions of dollars in 
revenue.
---------------------------------------------------------------------------
    \1\ Wealthy individuals, that are successful in business, have 
decided to enter the commercial space market. Dennis Tito, who 
reportedly paid a $20 million dollars to fly with the Russians to the 
International Space Station in 2001; Elon Musk, who founded his launch 
vehicle manufacturing firm by selling his internet companies for $1.8 
billion; Jeff Bezos, the founder of Amazon.com has also started a 
commercial space research venture called Blue Origin; Bob Bigelow, a 
real estate and land developer in Nevada founded Bigelow Aerospace; and 
Andy Beal, V.P. of Proranking.Com, an Internet search engine developer, 
was involved in the development of a new launch vehicle design are 
among commercial space entrepreneurs interested in creating commercial 
space launch ventures.
    \2\ Studies conducted in 2002 by the Futron Corporation.
---------------------------------------------------------------------------
    Several U.S. entrepreneurial space ventures are developing sub-
orbital launch vehicles. They believe these vehicles are uniformly 
smaller, have lower performance and range (and therefore have less 
destructive potential in the event of an accident), and are inherently 
simpler and more reliable than existing intercontinental ballistic 
missiles (ICBM)--derived expendable launch vehicles, which are used to 
launch objects like satellites into orbit. Many of these sub-orbital 
vehicles can be tested in an incremental fashion, with early flights 
limited to airplane-like performance demonstrations followed by sub-
orbital flight tests.
    By law, any U.S. commercial space launch activity requires a 
Federal Aviation Administration launch license. Among the eight sub-
orbital space launch vehicle manufacturers that have initiated 
commercial launch licensing procedures with the FAA, only three have 
the potential to receive a license within two years. Some sub-orbital 
space launch operators believe a launch license could be granted 
sooner.\3\
---------------------------------------------------------------------------
    \3\ Burt Rutan's Scaled Composites Company is an X PRIZE 
contestant, and has test flown its two-stage sub-orbital launch vehicle 
system (White Knight/SpaceShipOne). Rutan predicts he will be ready to 
fly his launch system to 100 kilometers (sub-orbital altitude) by the 
end of the year.
---------------------------------------------------------------------------
    Because launch vehicles, capable of reentering Earth's orbit, are 
currently too expensive to develop, these sub-orbital vehicles offer 
the U.S. space transportation industry a new, independent source of 
technical innovation beyond government's attempts at space 
transportation development.
    The X PRIZE Foundation, established in 1994 as an educational, non-
profit corporation dedicated to inspiring the private sector to make 
technological advances in space travel, is offering $10 million to the 
first competitor that can carry three people to 100 kilometers altitude 
and then repeat the same flight within two weeks. Donors to the 
organization include Bank One, the Danforth Foundation, and the author 
Tom Clancy.
    Government's role in developing a space tourism industry will be 
one of creating a stable regulatory environment. Furthermore, 
legislation that provides financial assistance for the launch and 
launch range segment demonstrates Congress interest in this area. In 
particular, legislation offered by Rep. Rohrabacher, ``Zero Gravity/
Zero Tax Act of 2003'' (H.R. 914), is intended to provide incentives to 
create new markets in space by providing a tax moratorium on space-
related income and capital gains exclusion for the sale of stock in 
space companies, including those involved in space tourism.

KEY ISSUES

How optimistic are the space tourism market forecasts and surveys?
    A variety of market surveys and forecasts suggest a difference of 
opinion on the future prospects of public space travel. Early market 
research on the demand for space tourism indicated the general public's 
interest in traveling to space. While the findings were promising, 
these surveys did not indicate a potential market. The Futron 
Corporation's recent ``Space Tourism Market Study'' was the first 
undertaking to poll the interests of those financially able to take 
sub-orbital and orbital space flights priced anywhere from $100,000 to 
$20 million. The study also includes 20-year forecasts that indicate 
commercial space travel could manifest into a $1 billion industry by 
2021. These findings are the basis for commercial space entrepreneurs 
deciding whether to enter the space tourism industry.

What is the status of regulatory development?
    Currently, there is no clear policy concerning how the FAA will 
regulate space launch for sub-orbital space tourism. This is primarily 
because of a jurisdictional dispute between two FAA organizations 
involving which has oversight over commercial human space flight 
operations. FAA's Aircraft Certification and Regulations Office (AVR), 
which regulates the commercial airline industry, believes that it 
should regulate sub-orbital space vehicles carrying tourist, because 
according to the U.S. Code for Aviation Safety, it has regulatory 
authority over passenger-carrying vehicles that traverse the U.S. 
national airspace. But FAA's Associate Administrator for Commercial 
Space Transportation (AST), which regulates traditional rockets of the 
kind that launch satellites into orbit, disagrees. AST asserts that its 
authority under the Commercial Space Launch Act (CSLA) [P.L. 98-575] 
authorizes it to regulate the U.S. commercial launch industry, 
including sub-orbital launch vehicles, even those that carry passengers 
should they be developed. Congress may be required to intervene 
legislatively to resolving this agency impasse.


How significant are regulatory barriers in making investment decisions?
    Several U.S. commercial space entrepreneurs have announced plans to 
develop and operate sub-orbital space vehicles, but they face very high 
regulatory burdens. High altitude flight tests for these vehicles are 
currently subject to FAA experimental aircraft safety regulations, but 
those regulations prohibit these companies from flying passengers for 
compensation. Commercial space entrepreneurs are concerned that the 
cost of complying with existing regulations for certifying passengers 
aboard aircraft would be too expensive. They also argue that applying 
an aircraft safety certification regime to sub-orbital vehicles is 
inappropriate, because of the cost involved to comply with experimental 
aircraft regulations. Burt Rutan has claimed that the cost of 
compliance could be ten times as great as the vehicle's development 
costs. Moreover, entrepreneurs would not want to set a legal precedent 
that their launch vehicles are experimental aircraft, because these 
regulations prohibit sub-orbital space launch vehicles to carry 
passengers for profit. They believe this situation can be avoided if 
AST were to regulate the industry and build an affirmative, enabling 
regulatory and legal framework that promotes development of 
operationally safe sub-orbital vehicles and services.

Should the government provide indemnification for space tourism 
        activities as it does for other commercial space launch 
        entities?
    Currently, the government provides indemnification to the U.S. 
space transportation industry as a condition for obtaining a license to 
launch a satellite into orbit. Government liability risk sharing for 
third-party claim (for example, if a rocket flies off course and lands 
in a populated area) against a space launch company follows a multi-
tier regime, in which the FAA determines the level of financial 
responsibility (up to the first $500 million in damages) for the 
company, and requires the company to obtain private insurance against 
such losses. The government agrees to be responsible for damages that 
fall within a range of $500 million to $1.5 billion. The 
responsibilities for damages that exceed this range revert back to the 
company. An indemnification regime regarding sub-orbital space tourism 
does not currently exist, and whether it should exist for these 
vehicles remains an open question. AST believes it is the 
responsibility of the launch operator to acquire liability insurance to 
cover passenger claims.

What are the benefits and drawbacks of indemnifying commercial human 
        space flight ventures?
    All commercial space entrepreneurial ventures are anticipating that 
they will be able to purchase third-party liability insurance. 
Commercial space entrepreneurs believe insurance providers are basing 
their willingness to serve the sub-orbital space tourism market on the 
assumption that the government will grant space travel ventures the 
same liability risk-sharing regime that currently applies to all other 
commercial launch and reentry activities. The commercial space 
entrepreneurs also believe that new companies appear prepared to meet 
the same statutory and regulatory financial responsibility and 
insurance purchase requirements as the large aerospace contractors who 
launch satellites into orbit. But commercial space entrepreneurs 
reasonably expect to share in the existing indemnification protection 
against excess third party claims. On the other hand, indemnifying 
space launch vehicles that perform like airplanes translates into 
higher frequency of launch activity, which in turn, suggests increases 
in the probability of government covering damages to third parties. 
Whether an accident involving a sub-orbital space launch vehicle could 
cause damage in excess of $500 million is unclear.

WITNESSES

Mr. Phil McAlister is the Director of Space and Telecommunications 
Industry Analysis Division at the Futron Corporation. He manages the 
corporations' industry analysis and market research. Over his career, 
he has participated in the design and development of new launch 
vehicles, the redesign of the International Space Station, plus several 
commercial satellite endeavors.

Mr. Dennis Tito is founder and CEO of Wilshire Associates, Inc., and 
created the first asset/liability model for pension funds long before 
actuarial and accounting firms began using the technology. Mr. Tito 
became the world's first space tourist in April 2001 when he was 
launched aboard a Russian rocket to the International Space Station.

Mr. Elon Musk founded two Internet companies Zip2 Corporation and 
PayPal. Mr. Musk is now founder and President of SpaceX, a launch 
vehicle manufacturing company that is developing a family of space 
launchers intended to reduce the cost and increase the reliability of 
access to space by approximately one order of magnitude.

Mr. Jeff Greason is co-founded of XCOR. At XCOR, Mr. Greason has 
managed a team developing small rocket engines and complete rocket-
powered aircraft. XCOR has demonstrated a very low cost reusable rocket 
vehicle, the EZ-Rocket, which has had fifteen flights. Previously, he 
spent two years managing the propulsion team at the Rotary Rocket 
Company.

Mr. Jon Kutler is Chairman, CEO, and Founder of Quarterdeck Investment 
Partners, LLC. Mr. Kutler is a nationally recognized expert in the 
field of aerospace and defense and he has served as Chairman of the 
White House Small Business Task Force on Defense Conversion.







  OPENING STATEMENT OF HON. SAM BROWNBACK, U.S. SENATOR FROM 
                             KANSAS

    Senator Brownback: The hearing will come to order. Thank 
you all very much for joining us today. I'm sorry for being 
late. I was presiding and couldn't get out of the Chair, 
unfortunately.
    Delighted to see the extent of participation this hearing 
has drawn as we delve into the future of space exploration, for 
the future holds--whether it be by way of governmental entities 
or by commercial space entrepreneurs, such as our distinguished 
panel that is joining us this morning.
    I'll be having a brief opening statement, then I'll turn to 
Congressman Rohrabacher, the Chairman of the Subcommittee on 
the House side for this joint hearing, and his statement, and 
then recognize a Democrat from the Senate and then one from the 
House for a opening statement before we go to the witnesses. I 
hope that's acceptable to the other people.
    I understand there may be votes in the House taking place. 
What we'll try to do is just keep the hearing going, if that's 
acceptable, just so that we can move on through the panel.
    I appreciate the participation in this joint hearing that's 
taking place. I think this is a good forum and a good format 
for us to follow as we explore issues on space and how to move 
forward.
    Over the past months, Congressman Rohrabacher and I have 
met to discuss our thoughts about space exploration and to 
help--he and I are both in positions to help push space 
exploration beyond the bureaucracy that's influenced the 
industry for so long. Through conversations with Congressman 
Rohrabacher, space industry representatives, some of our 
witnesses even here today, I realized that we have an important 
duty and opportunity for us in Congress. We must increase the 
sources and numbers of entities entering space.
    In the 1960s, we had the goal of getting a man on the moon 
and return him safely to earth, and that served as an 
inspiration to so many across the Nation. Today, America is 
lacking a similar vision. I'd like to see the U.S. embrace a 
vision, a new vision, an idea of dominating, commercially, 
militarily, and for exploration, the Earth-Moon orbit. This is 
a goal that Americans can grasp and aspire to. NASA will be a 
key entity in this vision, but so will the private sector, 
which we'll hear from today. Also critical will be the military 
and intelligence organizations, and obviously the scientific 
and exploration community. We need to dominate space and the 
Earth-moon orbit for exploration, scientific discovery, as a 
base for future missions to Mars, for security purposes, and 
for commercial enterprise. We will do this for the benefit of 
humanity.
    I stated that I embraced the recommendations of the final 
report of the Commission on the Future of the United States 
Aerospace Industry when I first took over the chairmanship of 
this Subcommittee. I believe this report is accurate, in 
assessment of the aerospace industry, and addresses several 
important areas of space exploration. The Commission 
recommended, quote, ``the United States boldly pioneer new 
frontiers in aerospace technology, commerce, and exploration,'' 
end of quote. It also recommended that, quote, ``the United 
States create a space imperative, where partnerships between 
government agencies and industry share innovations in aerospace 
technologies.'' These are just a few of the many 
recommendations listed in the final report. However, these 
recommendations are why we are here today.
    I want to examine how Congress can help ensure a strong 
future for the United States in the commercial aerospace 
industry. It's my hope that today's hearing will shed a great 
deal of light on the status of commercialization of space and 
the capability for space exploration. Additionally, I hope our 
witnesses will share with us today the experiences they've had 
in this endeavor and what barriers they've encountered that may 
prohibit the private sector from contributing fully to the 
effort.
    I want to thank Congressman Rohrabacher for his leadership 
and efforts in this area. I welcome him and the other House 
Members here to the Senate today. I appreciate our witnesses 
being here today, and I look forward to their testimony and 
engaging in a question-and-answer dialogue.
    With that, I would turn it over to Congressman Rohrabacher 
for his opening statement.

 STATEMENT OF HON. DANA ROHRABACHER, U.S. REPRESENTATIVE FROM 
                           CALIFORNIA

    Representative Rohrabacher: Well, thank you very much. And 
I wanted to thank my colleague, Senator Brownback, for his 
leadership in determining America's space policy, and that's 
what we're here to do. What is America's space policy, 
especially in this very important part of the space arena?
    Today, we will examine the barriers to investing in 
entrepreneurial space ventures. Dennis Tito's historic trip to 
the International Space Station made the dream of citizen space 
travel a reality. He and other visionaries are now in the 
forefront of revolutionizing--revolutionizing, yes--space 
transportation by supporting sub-orbital commercial human space 
flight.
    The benefit of these ventures offer--and let us stress 
this--offer us things that go a long way beyond ``joyrides for 
the rich,'' as it has been characterized by some of its 
detractors. Opening space to those who are willing to pay for 
the experience of it offers our industrial base a new source of 
technical innovation well beyond the government's sphere of 
activities. I predict that, in the future, we will be having a 
lot of technological advances that take place in the private 
sector being utilized by the government, rather than the other 
way around, which it seems to have been for these last few 
decades. Simply put, by building and flying space-launch 
vehicles, commercial space entrepreneurs have already overcome 
barriers that seem to plague NASA. And that, of course--what 
we're really talking about, in NASA, which we don't see in the 
private sector, is an amazing level of bureaucratic inertia. 
And I have been told--a long time ago, I learned that 
bureaucracy is perhaps the most effective method known to man 
of turning pure energy into solid waste.
    Unfortunately, a major barrier for new space-launch 
ventures is the uncertainty in government's ability to create a 
stable regulatory environment. It is clear that the future of 
space commercialization hinges on the Federal Aviation 
Administration's ability to resolve the issue of how to 
regulate commercial human space flight operations. In my view, 
the Federal Government has the power to promote investor 
confidence by providing a clear regulatory guideline for 
commercial space-transportation operators. It can do that, or 
it can strangle this baby in the cradle. We're either going to 
have a healthy industry because government is doing its part of 
the job, or there will be no industry at all. And this insights 
into this. We're looking forward to our witnesses to talk about 
just how important this is.
    Senator Brownback and I are interested in helping this 
nascent industry realize its tremendous growth potential. Our 
witnesses will provide us with a private-sector perspective 
regarding these and other critical issues.
    And, again, I certainly appreciate Senator Brownback's 
leadership in trying to make sure that we overcome the hurdles 
here, right in the beginning, of what could be a fantastic new 
venture and adventure for humankind going into space.
    Thank you very much. I yield back the balance of my time.
    [The prepared statement of Mr. Rohrabacher follows:]

         Prepared Statement of Representative Dana Rohrabacher

    I want to thank my colleague Senator Brownback for his leadership 
in determining American's space policy. Today we will examine the 
barriers to investing in entrepreneurial space ventures. Dennis Tito's 
historic trip to International Space Station made the dream of citizen 
space traveler a reality. He and other visionaries are now at the 
forefront in revolutionizing space transportation by supporting sub-
orbital commercial human space flight.
    The benefits these ventures offer, however, go way beyond offering 
joyrides for rich guys. Opening space to those willing to pay for the 
experience of it offers our industrial-base a new source of technical 
innovation well beyond government's sphere of activities. Simply put, 
building and flying space launch vehicles, commercial space 
entrepreneurs have overcome a barrier that apparently continues to 
plague NASA's bureaucratic inertia.
    Unfortunately, a major barrier for new space launch ventures is the 
uncertainty in government's ability to create a stable regulatory 
environment. It is clear the future of space commercialization hinges 
on the Federal Aviation Administration's ability to resolve the issue 
of how to regulate commercial human space flight operations. In my 
view, the Federal Government has the power to promote investor 
confidence by providing clear regulatory guidelines for commercial 
space transportation operators, or strangle the baby in the cradle.
    Senator Brownback and I are interested to helping this nascent 
industry realize its tremendous growth potential. Our witnesses will 
provide us with a private sector prospective regarding these and other 
critical issues.
    I welcome the opportunity to learn from the entrepreneurs who are 
revolutionizing the commercial space industry.

    Senator Brownback: Thank you, Congressman Rohrabacher.
    I now recognize Senator Nelson, as the Ranking Senate 
Democrat here, for an opening statement.

    STATEMENT OF HON. BILL NELSON, U.S. SENATOR FROM FLORIDA

    Senator Nelson: Thank you, Mr. Chairman. And what a 
pleasure it is for me to join with my old House colleagues, 
Congressman Rohrabacher and----
    Representative Rohrabacher: Are we really that old?
    (Laughter.)
    Senator Nelson: You don't look it. Nor does Congressman 
Gordon. But I had the privilege of serving with them on the 
House Space Subcommittee, and we had some good times, and these 
are good Members.
    For those of you that I didn't have the pleasure of serving 
with, these two Members know a lot, and I appreciate their 
expertise.
    And, Mr. Chairman, I thank you for doing a hearing like 
this. We are, of course, in the news today, dominated by the 
need to get the Space Shuttle flying again and to find out the 
cause and to fix it. I'm impressed with the Gehman Commission. 
I think they're going to come out with a good report. I must 
say that I think what we're going to find is that we can't do 
space flight on the cheap. And I must say that I was 
disappointed as I have started to go through some of the 
testimony that is held in a confidential manner by the Gehman 
Commission, disappointed as I was looking specifically for 
testimony as to the linkage between not giving NASA the 
adequate funding for safety, and that, over and over in the 
testimony, where the questions were asked and re-asked and re-
asked, of the testimony that I read, they dodged the question. 
So that is something that our Committees, I think, are going to 
have to really dig into as we try to fulfill the dream that all 
of us have, which is that we have a robust and successful space 
program.
    And, Mr. Chairman, I appreciate you calling this hearing, 
on a little bit different tack, as we are clearly involved in 
trying to get the Space Shuttle up and flying again.
    Thank you.
    Senator Brownback: Thank you, Senator Nelson.
    And as the senior Democrat on the House side here, for an 
opening statement, Congressman Gordon.

    STATEMENT OF HON. BART GORDON, U.S. REPRESENTATIVE FROM 
                           TENNESSEE

    Representative Gordon: Thank you, Senator Brownback.
    And let me congratulate you and Chairman Rohrabacher for 
the precedent in having this joint hearing. I think it's a good 
way for us to try to gather information in an orderly way.
    Senator Nelson reminded me of some old history. I was the 
deciding--as a first-term member--the deciding vote on helping 
him to jump our hierarchy in the Space Subcommittee some time 
back and become our Chairman, of which he did a very good job.
    Let me introduce, or rather, welcome our witnesses today. 
I'm glad to see you. I've had a chance to meet and talk with 
some of you before, and our conversations were both thoughtful 
and stimulating.
    It's too soon to say whether public space travel will ever 
be more than a niche market for wealthy adventure tourists, but 
time will tell. In the meantime, I know that individuals on 
today's panels are spending considerable money and energy on 
the development of sub-orbital vehicles that can carry 
passengers to at least the edge of space and back. And there 
are also serious attempts to build commercial passenger-
carrying orbital vehicles.
    I'd like to hear more about your plans, what you consider 
to be the main challenges that you face. I'd also like to have 
the witnesses address some specific issues of interest to 
Congress.
    First, the FAA currently has the authority, under law, to 
license sub-orbital launches. However, the law was silent on 
the definition of ``sub-orbital rocket'' and ``sub-orbital 
trajectory.'' Does Congress need to clarify those terms? And if 
so, what definitions would the sub-orbital industry seek, and 
why?
    Second, if these vehicles are carrying passengers and 
licensed by the Federal Government, I believe that there will 
have to be some type of safety review. Does the industry have 
its own set of proposed safety recommendations? And if so, 
what?
    And, finally, do you think it's appropriate for the 
taxpayers to provide indemnification to companies whose main 
business is likely to be flying wealthy adventure tourists? And 
if so, why? And should you have some responsibility that goes 
along with that indemnification?
    Well, we've got a lot to cover today. I'm glad that you're 
here, and look forward to hearing your thoughts on these 
issues.
    Senator Brownback: Thank you, Congressman Gordon. And those 
are thoughtful questions I hope we'll get the chance to get 
addressed.
    Our panel will be testifying in this order. And what we'll 
do is, we'll run this clock on a--let's run it on a seven-
minute timer, so it gives you a good idea.
    We will take all of your written testimony into the record 
as if presented, so you're entitled to, if you'd like, to just 
summarize. You don't have to read through it. If you choose to 
read through it, that's your choice. If you can keep the 
testimony somewhere in that five- to seven-minute ballpark, and 
then that'll give us the most chance to be able to have as much 
interaction as possible. And then we'll go down through the 
Members in the order that they got here, after the lead 
questions by the Chairman and the Ranking Members, then we'll 
go on the order that people arrived at the Committee for 
questions, and we'll do five minutes of questions each.
    [The prepared statement of Ms. Johnson follows:]

       Prepared Statement of Representative Eddie Bernice Johnson

    First of all, I would like to thank Chairman Brownback, Ranking 
Member Breaux, Chairman Smith and Ranking Member Gordon for bringing us 
together for this rare and noteworthy joint House and Senate 
Subcommittee on Space and Aeronautics hearing today. It is always an 
honor to convene with our distinguished colleagues from other chamber. 
We are also privileged to have such notable witnesses who have agreed 
to testify on this very important issue, and we thank you for coming.
    The purpose of this hearing is to examine obstacles to advancing 
commercial human space travel.
    The much-publicized space tourist flights of Dennis Tito and Mark 
Shuttleworth make it clear that an alternative motivation for human 
space flight has emerged. Human space flight is no longer only about 
meeting the priorities of national governments and space agencies, but 
is also about the tangible possibility of ordinary people seeing the 
Earth from a previously exclusive vantage point.
    The rationale for human space flight is evolving due to a growing 
commercial motivation. Human space flight can profit from an increased 
synergy between the public and private sectors. Space tourism can 
benefit immensely from the development of the necessary infrastructure, 
while public space programs can benefit from increased awareness and 
support for human space flight, generated by high-profile space tourism 
flights and a growing perception that space travel is closer to being 
within the grasp of ordinary citizens.
    It is imperative that we today discuss the role of the government 
in any commercial human space travel program. One primary concern will 
be the regulation of safety, since space travel is inherently 
dangerous. Under no circumstances should we allow the desire for 
profits to ever interfere with the responsibility of maintaining 
safety.
    With that being said, I would like to again thank the Chairs and 
Ranking Members for holding this hearing and the witnesses for agreeing 
to answer questions.

    Senator Nelson: Mr. Chairman, may I be excused at around 
the hour of 11:00 o'clock? We've got the Palestine Prime 
Minister meeting privately----
    Senator Brownback: Sure.
    Senator Nelson: --with our Foreign Relations Committee, and 
I need to leave at that time, with your permission.
    Senator Brownback: Certainly. I understand that.
    The panel will testify in the following order. Mr. Phil 
McAlister--he's the Director of Space and Telecommunications 
Industry Analyst Division for Futron Corporation, out of 
Bethesda. Number two will be Dennis Tito. He's CEO and founder 
of Wilshire Associates, Santa Monica, California, who--he, 
himself has gone to space. Number three will be Mr. Elon Musk, 
CEO and founder of SpaceX, out of California. Number four will 
be Mr. Jeff Greason, President of XCOR Aerospace, out of 
California. And number five will be Mr. Jon Kutler, Chairman 
and CEO of Quarterdeck Investment Partners, out of Los Angeles.
    Gentlemen, we are delighted to have you here on the first 
hearing on this topic of this style, where we've had a joint 
hearing of the House and the Senate. We really are interested 
in how we move this overall industry forward--government, 
private sector, together. And we look forward to your 
testimony.
    Mr. McAlister, please start us off. Welcome to the 
Committee.

       STATEMENT OF PHIL McALISTER, DIRECTOR, SPACE AND 
     TELECOMMUNICATIONS INDUSTRY ANALYSIS DIVISION, FUTRON 
                CORPORATION, BETHESDA, MARYLAND

    Mr. McAlister: Thank you, Mr. Chairman. Thank you, 
Committee Members.
    Futron's contribution to this issue was through an analysis 
of the market for public space travel. We conducted a 
nationwide survey to examine the demand for space tourism with 
a strong emphasis on realism. The survey that we performed 
presented a realistic portrayal of space flight to respondents, 
and selected a survey population that could potentially afford 
to pay for this service. And most of my remarks are extracts 
from that analysis that we performed.
    The current picture today is that tourists that desire 
unique, challenging, and fun experiences are the ones that are 
driving the demand for public space travel. This desire is 
currently fueling a worldwide tourism industry with receipts in 
excess of $450 billion-U.S. Given the generous revenues 
associated with tourism, public space travel represents a huge 
potential market. It is only potentially large, however, 
because of the technical ability to service this market. It is 
only potentially large, however, because the technical ability 
to service this market is currently very limited.
    Orbital space tourism became a reality in April 2001. 
Fellow panelist, American businessman Dennis Tito flew into 
space, docked with the International Space Station and was 
followed by Mark Shuttleworth about one year after that.
    Orbital public space travel is currently limited to one 
spacecraft, the Russian Soyuz vehicle. Russia regularly 
launches Soyuz on supply missions to the International Space 
Station. Because only two cosmonauts are required, and there 
are three seats, the third seat is available to potential space 
tourists. This creates a steady stream of flight opportunities 
for those interested in orbital public space travel.
    And while most of the attention has been on this segment, 
orbital flights, sub-orbital space tourism holds significant 
promise. Space Adventures, a space tourism agency, currently 
claims to have over 100 reservations for sub-orbital flights, 
at a price of $98,000 each, despite the current absence of a 
vehicle capable of offering such a flight.
    The projected price of sub-orbital travel is a small 
fraction of the price of orbital travel; and, as such, puts 
space tourism within the financial means of a much larger 
audience. While there are no vehicles currently that can serve 
this market, a number of vehicles are in development. The 
primary forum for development is for private entrepreneurial 
ventures competing the X PRIZE competition, which will award 
$10 million to the first team to privately build and fly a 
spacecraft capable of carrying three people to a hundred 
kilometers altitude twice in a two-week period.
    All of these ventures--I'm sorry--in addition to the X 
PRIZE participants, there are several other companies and 
entrepreneurs attempting to develop vehicles to serve the sub-
orbital public space-travel market. All of these ventures face 
a number of obstacles in their efforts to turn plans and 
prototypes into operation.
    In addition to the technical obstacles associated with any 
new aerospace vehicle, passenger spacecraft will undoubtedly 
face major financial and regulatory hurdles. Given the nascent 
state of public space travel, Futron examined the current 
demand for this service via a nationwide survey, which featured 
the following components.
    Only affluent Americans were surveyed. That is, the 
population that is most likely to be able to afford this 
service in the near-term.
    Survey respondents were given a realistic description of 
what space travel experience would be like, both the positive 
and not-so-positive aspects. A former Space Shuttle commander 
vetted our description.
    We asked survey respondents direct questions on space 
travel, as well as many other questions on the perceived risk, 
their current health, past buying habits, et cetera, to 
validate their answers, and we interviewed over 450 
millionaires. Interviews lasted approximately 30 minutes, and 
this gave us a margin of error of plus or minus 4.7 percent. So 
we felt very confident about the results that we got.
    Although a number of potential space-travel scenarios can 
be envisioned, we chose to focus on two: a 15-minute sub-
orbital ride to the edge of space, and a two-week orbital 
flight to an orbiting space station.
    Regarding the interest level in sub-orbital space travel, 
our survey results indicated that almost 20 percent of those 
surveyed were either definitely likely or very likely to 
participate in sub-orbital space travel. Further, these 
individuals were interested at realistic price points.
    Regarding the interest level in orbital space travel, again 
almost 20 percent of the respondents indicated that they were 
definitely likely or very likely to participate.
    We also did some options from the standard missions, and we 
noticed that the ability to purchase a trip from a U.S. company 
or to complete the required training, which is quite extensive 
for orbital space travel, inside the United States were 
potential options that most positively influenced interest 
level. Twenty-seven percent of respondents were much more 
likely to participate in orbital space flight if the trip could 
be purchased from a U.S. company. And over 60 percent of the 
surveyed pool would be more likely to participate in an orbital 
trip if they could train within the United States.
    So incorporating these results, as well as the other 
questions and significant secondary research, we developed 
forecasts for these markets. And Futron is neither an advocate 
for or a participant in these industries, so we had a very 
objective, what we feel, realistic view on this market.
    Futron's forecast and our conclusion was that sub-orbital 
space travel is a promising market. Our forecast for this 
industry projects that, by 2021, over 15,000 passengers could 
be flying annually, representing revenues in excess of $700 
million.
    Orbital space travel is also a promising market. Our 
forecast for that service projects that, by 2021, 60 passengers 
could be flying annually, representing revenues in excess of 
$300 million.
    The challenge for the U.S. aerospace industry is to develop 
a vehicle that can cost-effectively meet this demand. The 
company that ultimately meets this challenge may come from the 
X PRIZE competition, it may be a traditional aerospace company, 
perhaps leveraging some government-sponsored technology, or it 
may come from a company not based in the United States. 
However, regardless of where the company comes from or how it 
meets the challenge, the demand for public space travel is 
real, robust, will eventually make someone very wealthy, and is 
one of the few areas where growth can be predicted for the 
launch industry.
    Thank you.
    [The prepared statement of Mr. McAlister follows:]

                 Prepared Statement of Philip McAlister

Introduction

    Yuri Gagarin blasted off into space and into the history books over 
forty years ago when he became the first person to orbit Earth. Alan 
Shepard followed one month later with a 15-minute sub-orbital Mercury 
ride in May 1961. Today, we are witnessing the natural evolution of 
those early events--space travel for members of the general public.
    Despite this clear evolution, a number of factors have constrained 
the development of the market for public space travel. One of those 
constraints is the lack of knowledge about the potential market size 
for this emerging market. Futron Corporation, the industry leader in 
forecasting space-related markets, decided to address this constraint 
by objectively assessing the current interest in public space travel, 
and quantifying and forecasting the future demand for this service.
    As neither an advocate for, nor a participant in, the development 
of public space travel, Futron was able to maintain a balanced and 
objective viewpoint on the future of this industry. Futron conducted a 
nationwide survey to examine the demand for space tourism with a strong 
emphasis on realism. The Futron/Zogby survey presented a realistic 
portrayal of space flight to its respondents and selected a survey 
population that could potentially afford to pay the prices for the 
service. The full results of this survey are available in Futron's 
report, Space Tourism Market Study. My remarks today represent extracts 
from that report pertinent to today's hearing.

Public Space Travel--the Current Picture

    Tourists desiring unique, challenging, and fun experiences drive 
demand for public space travel. This desire is currently fueling a 
worldwide tourism industry with receipts in excess of U.S. $450 
billion. Given the generous revenues associated with tourism, public 
space travel represents a huge potential market. It is only potentially 
large, however, because the technical ability to service this market is 
currently very limited.
    Two distinct services are currently envisioned for public space 
travel: travel to low earth orbit or orbital flights, and short 
excursions beyond Earth's atmosphere and back, or sub-orbital flights. 
Each of these markets is in a different stage of development.

Orbital Flights

    Orbital space tourism became a reality in April 2001 when American 
businessman Dennis Tito reportedly paid U.S. $20 million to fly to 
space. Mr. Tito was launched on a Russian Soyuz spacecraft, which 
docked with the International Space Station (ISS) during the mission. 
Mr. Tito spent eight days in space, six of which were spent inside the 
ISS.
    Tito's successful flight, carried out over the initial objections 
of NASA and other ISS partner nations, opened the door to further 
flights by paying customers. In April 2002, South African entrepreneur 
Mark Shuttleworth became the second commercial space tourist as a 
member of another Soyuz mission to the ISS. At the time of this 
writing, a number of other potential orbital passengers have been 
announced.
    Orbital public space travel is currently limited to one spacecraft, 
the Russian Soyuz vehicle. Russia regularly launches Soyuz on supply 
flights to the ISS. Because only two cosmonauts are required to fly the 
Soyuz, a third seat on each mission is available to potential space 
tourists. This creates a steady number of flight opportunities for 
those interested in orbital public space travel.

Sub-orbital Flights

    While most public attention on space tourism has focused on orbital 
flights, sub-orbital space tourism holds significant promise. Space 
Adventures, a space tourism agency, currently claims to have over 100 
reservations for sub-orbital flights at a price of U.S. $98,000 each, 
despite the current absence of a vehicle capable of offering such a 
flight. The projected price of a sub-orbital flight is a small fraction 
of the price of orbital travel, and as such, puts space tourism within 
the financial means of a much larger audience.
    While there are currently no vehicles that can serve the sub-
orbital space tourism market, a number of vehicles are under 
development. The primary forum for development is private 
entrepreneurial ventures competing for the X PRIZE, a competition that 
will award U.S. $10 million to the first team to privately build and 
fly a spacecraft capable of carrying three people to 100 kilometers 
altitude twice in a two-week period. In addition to the X PRIZE 
participants, there are several other companies and entrepreneurs 
attempting to develop vehicles to serve the sub-orbital public space 
travel market.
    All of these ventures face a number of obstacles in their efforts 
to turn plans and prototypes into operational vehicles. In addition to 
the technical obstacles associated with any new aerospace vehicle, 
passenger spacecraft will undoubtedly face major financial and 
regulatory hurdles as well.

Understanding the Current Demand for Public Space Travel

    Given the nascent state of the public space travel industry, Futron 
examined the current demand for public space travel via a nationwide 
survey, which featured the following:

        1.  Only affluent Americans were surveyed, i.e., the population 
        most likely to be able to afford a trip into space;

        2.  Survey respondents were provided with a realistic 
        description of what the space travel experience would be like--
        a former Space Shuttle commander vetted our description;

        3.  We asked survey respondents direct questions on space 
        travel, as well as other questions on the perceived risk of 
        this and other activities, respondent's health, past buying 
        habits, etc., to validate their responses; and

        4.  The Futron/Zogby survey interviewed over 450 millionaires 
        (interviews lasted approximately 30 minutes each)--the margin 
        of error was calculated at +/^ 4.7 percent.

    Although a number of potential public space travel scenarios can be 
envisioned, Futron chose to focus the study on the two previously 
mentioned public space travel scenarios:

          A 15-minute sub-orbital ride to the edge of space, 
        and

          A two-week orbital flight to an orbiting space 
        station

    Regarding interest level in a sub-orbital trip, the Futron/Zogby 
survey results indicated that almost 20 percent of the survey 
population was either ``Definitely Likely'' or ``Very Likely'' to 
participate in sub-orbital space travel. Further, these individuals 
were interested in this service at realistic price points.
    Regarding interest level in an orbital trip, again almost 20 
percent of the survey population was either ``Definitely Likely'' or 
``Very Likely'' to participate at realistic price points.
    It is interesting to note that the ability to purchase a trip from 
a U.S. company or to complete the required training inside the United 
States were potential options that most positively influenced interest 
level. 27 percent of respondents were ``much more likely'' to 
participate in an orbital flight if the trip could be purchased from a 
U.S. company. And, over 60 percent of the survey pool would be more 
likely to participate in an orbital trip if they could train in the 
United States.

The Future of Space Tourism

    Incorporating these results with other survey responses and 
secondary research, Futron developed forecasts of these markets. Our 
conclusion is that sub-orbital space travel is a promising market--
Futron's forecast for sub-orbital space travel projects that by 2021, 
over 15,000 passengers could be flying annually, representing revenues 
in excess of U.S. $700 million.




    Orbital space travel is also a promising market--Futron's forecast 
for orbital space travel projects that by 2021, 60 passengers may be 
flying annually, representing revenues in excess of U.S. $300 million.




    The challenge for the U.S. aerospace industry is to develop a 
vehicle that can cost-effectively meet this demand. The company that 
ultimately meets this challenge may come from the X PRIZE competition; 
it may be a traditional aerospace company (perhaps leveraging some 
government-sponsored technology); or it may come from a company not 
based in the United States. However, regardless of where the company 
comes from or how it meets the challenge, the demand for the public 
space travel is real, robust, will eventually make someone very 
wealthy, and is one of the few areas where growth can be predicted for 
the launch industry.

    Senator Brownback: Thank you very much, and I look forward 
to some questions about that.
    Mr. Tito, you have been in space, and we look forward to 
hearing your thoughts and comments about this travel and this 
expanding industry.

    STATEMENT OF DENNIS A. TITO, CEO AND FOUNDER, WILSHIRE 
              ASSOCIATES, SANTA MONICA, CALIFORNIA

    Mr. Tito: Well, thank you, Mr. Chairman and Committee 
Members.
    My space flight, two years ago, was probably the most 
euphoric experience of my life. And only by going to space, you 
realize what it's all about. And realizing that dream, after 40 
years, was an experience that I felt, within about the first 
two seconds of burnout, looking out the window, and seeing that 
I was in orbit and had achieved my goal.
    Over the last two years, I've given hundreds of speeches 
and spoke with over 10,000 people. A lot of people came up to 
me after these speeches and expressed their interest in human 
space flight and could identify with me, because I was pretty 
much like them. I was not some young pilot that had ``the right 
stuff,'' other than the briefcase of money, which was labeled 
``the right stuff'' in one cartoon.
    (Laughter.)
    Mr. Tito: They could identify with myself, you know, 
physically. They could see that it wasn't impossible to qualify 
medically or any other ways.
    It began to dawn on me, although I had a very different 
opinion two years ago, that a sub-orbital experience was of 
real value, that even though it gave someone possibly only a 
three-minute slice of being in space, that, indeed, one 
achieved that goal, if, indeed, that was their dream. And for 
three minutes, they would be weightless, they would be able to 
look at 2,000 miles of California coastline or Florida 
coastline, and enjoy that experience and adventure of going to 
space.
    This interest is confirmed by the fact that over 600,000 
people have applied to NASA over the last 40 years to become 
astronauts and also Futron--Mr. McAlister's observations of the 
interest in space travel.
    Now, I am an entrepreneur. I started my own business over 
30 years ago, and I know a business opportunity when I see one. 
And this, indeed, is a huge business opportunity, not only to 
provide the first step of sub-orbital flights, but, in the long 
run, the development of a whole new industry of commercial 
human space transportation, point-to-point transportation that 
would eventually allow flights from New York or Washington to 
Sidney, Australia, in something like 45 minutes. It may be 50, 
100 years before that's realized, but there eventually will be 
that kind of industry.
    So I am ready to make an investment in a sub-orbital 
vehicle. I'm different than most investors, in that Wall Street 
will look at a business opportunity solely on the financial 
merits. I am a person that's passionate about space, so there's 
a lot more than rate-of-return-on-investment that is important 
to me. But, nevertheless, I don't want to pour my money down 
the drain. It's going to take a lot of money, and I want to 
have some reasonable probability of success.
    I think the technological hurdles can be dealt with. I 
think the market is there. I'm not afraid of the competition. I 
would love to compete with Elon and--I think that would be a 
lot of fun, because I think there's big enough market for all 
of us.
    The only problem, big problem, that stands before myself 
and others that want to do this is the regulatory risk. I 
understand what regulation is all about. I'm in the investment 
business. I have a firm that's a member of the New York Stock 
Exchange, regulated by the SEC. We also manage money, and we're 
heavily regulated. But we know who regulates us, and we know 
what the rules are. There are plenty of securities attorneys to 
explain that.
    As far as sub-orbital space flight, we don't know who will 
regulate us. And it looks like the FAA might be involved in 
regulating us, at least on the aviation side, and that is very, 
very scary. For example, it's my understanding that it costs 
$600 million to certify a Lear 45. Well, with that kind of 
certification cost, I would see that it would be impossible for 
this industry to begin. So we need some kind of separate 
recognition, as far as definitions, not only of what is a sub-
orbital vehicle, but also the issue of space flight 
participants, namely--flying people in space, who is going to 
set the safety standards? What are the safety standards going 
to be?
    If you take airplane-type criteria, say, for certifying a 
Boeing 777, I think it's one out of 10 million fatality rate. 
That is something that will be impossible with today's 
technology for space flight. The fatality rates, unfortunately, 
are very high, being one in 50. So we have a long way to go.
    As a person interested in developing this business, I 
recognize that we will have to have a much higher safety 
standard. And one of the benefits of actually developing a 
commercial capability is, I think we will see much improved 
safety as we get a higher flight rate. There will be accidents. 
We have to look back at aviation 90 years ago and people that 
sacrificed to make commercial aviation what it is today.
    The solution that I need comes in legislation. First of 
all, we need definitions of what is a sub-orbital RLV. Some 
definitions that have been suggested by AST, a division of FAA, 
say that the thrust should be greater than the lift of a 
rocket-powered vehicle for more than half the flight. That is a 
definition that I support.
    We have to recognize that individuals are assuming risk, 
and, with some evaluation made medically, psychological, and 
training, they should be able to assume risks that are 
different than what the general public will assume by walking 
on an airliner. The people should be qualified, just like a 
scuba diver would be qualified to take--and trained--to take 
that risk.
    The third area that I think is important is that there 
should be a clear distinction between the Office of Commercial 
Space Transportation and the aviation side of FAA, because if 
the aviation side of FAA gets involved, we're going to go on to 
a bureaucratic deadlock that's going to go beyond my life 
expectancy, and, therefore, be very difficult to invest. And 
that problem, of course, could also be solved by taking the 
Office of Commercial Space Transportation out of FAA and having 
it report directly to Department of Transportation.
    If this maintains--in five years, I see a successful 
business model being developed by people like ourselves, who 
can input capital plus the passion to make--show that the 
business works, that it can be profitable, and then we will see 
Wall Street lining up to invest the billions, tens of billions, 
maybe hundreds of billions, eventually, that will be required 
to develop the full reusable launch-vehicle capability, not 
only for sub-orbital, but orbital.
    Thank you very much.
    [The prepared statement of Mr. Tito follows:]

                  Prepared Statement of Dennis A. Tito

    Thank you to the Chairmen and Ranking Members of both Subcommittees 
for your invitation to participate in this hearing today.
    Over two years ago I achieved a lifelong dream by riding into space 
aboard a Russian Soyuz capsule, visiting the International Space 
Station, and returning safely to the Earth. I was fortunate enough to 
have built a very successful investment business, and equally fortunate 
that less than a decade after the Cold War, our former space race 
competitors had partially privatized their human space flight 
activities and were willing to sell me a flight.
    Since returning from my mission, I have given hundreds of speeches 
to audiences in the U.S. and abroad in which I've shared my space 
flight experience. The response has been universally positive, and many 
listeners--especially young people--tell me how eager they are to go 
into space themselves. This isn't really newsworthy, given that some 
600,000 people have applied to become astronauts over the past 40 
years, and large percentages regularly tell pollsters they would fly on 
the Space Shuttle, even after Columbia's tragic loss. Perhaps more 
importantly, audiences seem genuinely inspired by the plausibility that 
one day they or their children could fly into space themselves.
    Of course, very few people can afford to travel into space as I 
did, by paying roughly $20 million for the privilege. Even that high 
price is probably artificially low, due to the ongoing economic 
hardships of the Russian aerospace industry. At the same time, NASA has 
had to postpone its development of a second generation reusable launch 
vehicle that could carry people and cargo into orbit at lower cost than 
current systems.
    Yet there is a way to make at least a brief experience of space 
flight available to many more people. Just as Alan Shepherd and Gus 
Grissom flew sub-orbital Mercury missions before John Glenn eventually 
orbited the Earth, sub-orbital rockets can provide a person with a few 
minutes of weightlessness and a view of the Earth from 100 kilometers 
up. In just the past year, entrepreneurs in the U.S. and elsewhere have 
made significant progress in developing fully reusable sub-orbital 
vehicles which could economically loft adventure travelers into the 
shallow waters of space.
    Two years ago, when I testified before the House Science Committee, 
I was asked if I would invest in a reusable launch vehicle company. At 
the time I said ``no,'' and that was the right answer. . .then. But 
today, after talking to thousands of people who want to fly into space 
and seeing the progress that's been made, my answer would be different. 
Today I would say ``quite possibly.''
    There is, however, one barrier that keeps me--and probably many 
others--from writing out a check to fund the development of a 
commercial sub-orbital RLV. This stumbling block can only be overcome 
by people who work in this city, because the problem itself is located 
here.
    Please understand me: I am not looking for government funding or 
technology. I don't need an investment tax credit or a loan guarantee. 
I'm not even looking to escape the regulations under which other space 
transportation companies operate. But I would like to know which 
government agency, and which set of regulations, will oversee this new 
industry.
    You see, I am willing to risk my money on a technical concept and a 
team of engineers. I am willing to risk my money on the customers 
actually showing up. And I am willing to risk my money competing 
against other companies in the marketplace. But I am not willing to 
risk my money on a regulatory question mark, on waiting for the 
government to decide who can give me permission to get into business, 
and what the regulatory standards for my business will be.
    The Commercial Space Launch Act of 1984 gave the Office of 
Commercial Space Transportation the exclusive authority to license 
commercial launches, including sub-orbital rockets, and in 1998 
Congress extended this authority to include reentries of reusable 
launch vehicles. But in the meantime, this office was moved into the 
Federal Aviation Administration, an agency that certainly has a lot of 
other issues on its plate.
    Given that some proposed sub-orbital RLVs will have wings and take 
off and land from runways, a question has arisen whether these new 
vehicles will be regulated by the commercial space transportation 
office or by the FAA's much larger and more risk-averse aircraft and 
airline certification division.
    This is not a matter of bureaucratic turf. When aerospace pioneer 
Burt Rutan rolled out his Spaceship One experimental RLV a few months 
ago, he declared that he had no intention of seeking FAA certification 
of his vehicle as a commercial airplane, because it would cost hundreds 
of millions of dollars to meet the same safety requirements as the 
Boeing 777. Rutan's whole privately-funded research and development 
program will cost perhaps a tenth of that amount.
    If the Federal Government chooses to regulate this nascent sub-
orbital RLV industry as stringently as it does the mature, 100-year-old 
airplane industry, then this new industry will die before it is even 
born. Even the possibility of such burdensome regulation may stop these 
new RLVs from ever getting off the drawing board, let alone flying into 
space.
    One reason there is regulatory confusion is that the terms ``sub-
orbital rocket'' and ``sub-orbital trajectory'' are used in the 
original Launch Act but never actually defined. Recently, the FAA has 
attempted to promulgate clarifying definitions of these terms, but has 
been unable to reach internal agreement. This paralysis is a perfect 
example of why investors such as myself are worried about how these 
ventures will be regulated.
    Mr. Chairman, it was these two committees that originally crafted 
this legislation, and which share sole jurisdiction over the U.S. 
commercial space launch industry. I respectfully request that you 
reassert Congress' long-stated goal of promoting greater private 
investment in new domestic space transportation capabilities. This new 
industry needs the Congress to mandate in law an enabling regulatory 
framework for commercial sub-orbital human space flight, and ensure 
that this job be carried out by the Office of Commercial Space 
Transportation.
    If Congress can reduce the huge regulatory risk faced by potential 
investors like myself, I believe that within five years we will ignite 
a revolution in commercial space transportation, and inspire a whole 
new generation of space-faring young Americans. That is a future I want 
to work towards for the rest of my career, and one I believe we will 
all be proud to have helped achieve.

                      Biography for Dennis A. Tito

    Dennis A. Tito is the Chief Executive Officer of Wilshire 
Associates Incorporated, a leading provider of investment management, 
consulting and technology services. Applying science to the art of 
money management, Tito and his team of 250 professionals utilize 
mathematical formulas to advise a wide variety of institutional and 
high net worth investors worldwide. Founded in 1972, Wilshire advises 
on about $1 trillion in assets, directly manages about $10 billion in 
assets, and provides analytical tools to some 350 institutions.
    Tito earned a B.S. in Astronautics and Aeronautics from NYU College 
of Engineering and a M.S. from Rensselaer in Engineering Science. He 
began his career as an aerospace engineer with NASA's Jet Propulsion 
Laboratory at the age of 23. While serving at JPL, he was responsible 
for designing the trajectories for the Mariner spacecraft missions to 
Mars and Venus. Although he left to pursue a career in investment 
management, Tito remained interested in and committed to the 
exploration of space.
    Employing the same methodology he used to determine a spacecraft's 
path, Tito is credited with helping to develop the field of 
quantitative analytics that uses mathematical tools to analyze market 
risks. In 1974, Tito developed the Wilshire Total Market Index (The 
Wilshire 5000), the broadest stock market index that Federal Reserve 
officials cite as a barometer of the U.S. economy.
    Under Tito's guidance, Wilshire has consistently been an industry 
pioneer. As the world began entering the computer age, Wilshire 
integrated computers with engineering and investment concepts, to 
provide some of the first data to money managers, ultimately shaping 
modern portfolio management theories.
    A philanthropist and civic leader, Tito supports and is actively 
involved in many charitable and civic causes including establishing the 
Dennis A. Tito Gene-Nutrient Interaction Laboratory at the UCLA Center 
for Human Nutrition. He formerly served as President of Commissioners 
for the Department of Water and Power of Los Angeles.
    On April 28, 2001, Tito made history by becoming the first 
individual to personally pay to travel into space. Launched from 
Baikonur, Kazakhstan, Tito served as a crew member of an eight-day 
Russian Soyuz taxi mission to the International Space Station. By 
fulfilling his 40-year dream to travel to space, Tito captured the 
imagination of millions of people worldwide and renewed interest in the 
United States space program.
    Born August 8, 1940, Tito has one daughter and two sons and 
currently resides in Pacific Palisades, California.

    Senator Brownback: Thank you, Mr. Tito. I look forward to 
our question-and-answer session, too.
    Mr. Elon Musk, CEO and founder of SpaceX, who is looking to 
invest significantly in space travel, as well, from the private 
sector. Mr. Musk, delighted to have you here today.

 STATEMENT OF ELON MUSK, CEO AND FOUNDER, SPACEX, EL SEGUNDO, 
                           CALIFORNIA

    Mr. Musk: Thank you.
    On behalf of Space Exploration Technologies, I'd like to 
express my appreciation for being able to come before you here 
to address the issues related to access to space.
    It is despairing to consider that the costs and reliability 
of access to space have barely changed since the Apollo era, 
three decades ago. Yet in virtually every other field of 
technology, we have made great strides in reducing the cost and 
increasing capability, often in ways we did not dream existed. 
We've improved computing costs by a factor of 10,000 or more, 
decoded the human genome, built the Internet, and made 
intercontinental flight available to the average citizen for no 
more than a few hundred dollars.
    The exception to this wave of development has been space 
launch. But why? My best guess at the origin of the problem 
relates to the breakdown of a process that the economist, 
Schumpeter, called ``creative destruction.'' He postulated that 
the way an industry improves is that new companies enter a 
market with a lower price or superior product. This creates a 
forcing function for the whole market to improve. Looking at 
space-launch vehicles, we see a situation where there's been 
not one single successful new entrant in four decades, apart 
from one company in the '80s. Even in that case, the solid 
rocket motors that constitute a majority of the manufacturing 
costs of its launches are, in fact, built by an old-line 
aerospace company. So we've really seen no truly new entrants 
to the American launch-vehicle market, and, therefore, should 
not be surprised that costs remain unchanged.
    To address this problem, we must create a fertile 
environment for new space-access companies that brings to bear 
the same free-market forces that have made our country the 
greatest economic power in the world. If we can create such an 
environment, my expectation is that progress in space-launch 
costs and capability will be no less dramatic than in other 
technology sectors.
    We are at a crucial turning point today. The recent 
entrepreneurial activity in space, my company perhaps included, 
shows promise, but it's still embryonic and fragile. It is very 
important that our government, in all its forms, practically 
adopt a nurturing and supportive approach to new space-launch-
vehicle developments.
    It was to help change the equation of space exploration 
that I established SpaceX and set as our goal revolutionizing 
the cost and reliability of access to space, for nothing less 
is needed. Our first offering is a semi-reusable orbital launch 
vehicle called Falcon. Initially, we will deliver cargo to 
orbit in the form of satellites and spacecraft. However, we do 
believe in the long-term market for commercial human 
transportation.
    There is no simple sound-bite that describes why our rocket 
is a fraction of the cost of efforts by existing launch service 
providers. Our approach has been to focus on reducing all of 
the cost elements of a launch-vehicle company, those being 
propulsion, structures, avionics, launch operations, and 
general overhead. We've also listened very carefully to the 
collective wisdom of key engineers involved with all major 
American rocket developments of the past three decades, to 
glean whatever lessons may be learned.
    At this point, we're very comfortable that selling the 
Falcon for $6 million per flight is economically viable. This 
is a reduction of over 75 percent, compared with our nearest 
incumbent competitor. Moreover, as SpaceX refines the recovery 
process for our rocket's first stage, we believe that the price 
can be further reduced.
    As you will no doubt hear from others on this panel and 
have heard, there needs to be clear regulatory authority for 
commercial launch vehicles of all kinds. It is also critical 
that such regulatory authorities recognize the early and 
experimental nature of the commercial launch-vehicle industry, 
providing only the minimum regulatory burden necessary to 
ensure reasonable safety for the general public. I believe that 
should be the key criterion.
    We recommend reaffirming the authority to the AST office of 
the FAA as the primary regulatory agent for space vehicles. 
Moreover, and very importantly, progress in fostering new 
launch-vehicle developments should be a key metric of success 
in the performance evaluation of AST and other federal agencies 
when they report to Congress.
    Environmental approval is a significant issue. For existing 
launch vehicles--for existing launch facilities, where launches 
are routinely conducted, we believe that either a blanket 
environmental impact statement that covers all nontoxic launch 
vehicles, or a categorical exclusion, such as exists for 
airplanes, would be immensely helpful. This would save a 
substantial amount of expense, paperwork and processing time.
    For example, certain issues of environmental concern seem 
to defy common sense. The population of seals in the waters 
around Vandenberg increased by 12.7 percent last year, yet much 
concern is raised about how rocket launches might disturb them, 
and we are forced to spend $10,000 every launch to see if our 
relatively small rocket, which is nontoxic, affects their 
quality of life. This makes little sense. With that population 
growth rate, it seems clear that, if anything, the Vandenberg 
launch activity serves as an aphrodisiac.
    (Laughter.)
    Mr. Musk: Liability. One of the surest ways of preventing 
companies like SpaceX from offering human transportation in the 
future is to make it an unlimited-liability business. Where a 
single unintentional mistake can result in a multi-hundred-
million-dollar jury award, it would instantly kill not only the 
company that made that mistake, but the entire industry.
    General aviation almost perished in the '80s as a result of 
one massive jury award, of questionable justice, after another. 
It was only revived once legislation placed reasonable limits 
on liability. Moreover, in contrast to the fledgling status of 
entrepreneurial space, aviation was a strong and mature 
industry with a well-developed immune system.
    We believe it is appropriate that a limit be placed on 
liabilities such that, notwithstanding clearly egregious 
conduct, a mistake or force majeure event resulting in third-
party injury, loss of life, or damage to property be limited to 
a reasonable maximum dollar figure.
    For those that choose to fly on early passenger-carrying 
spacecraft, individuals should have the right to waive 
liability provided the risks are fully explained, just as would 
be done for extreme sports such as skydiving or mountain 
climbing.
    And I'd like to say just a bit about how we see the market 
for commercial human space flight. The market for satellite 
delivery, while significant, has limitations in size and 
application. I suspect the far larger market in the long-term 
is serving people that wish to travel to space for enjoyment.
    There is some skepticism about the market size and 
dependability. But such skeptics should study the early days of 
aviation as a guide. For many years before airmail service 
became the anchor that allowed the growth of commercial 
aviation, a thriving airplane business was underway around the 
Nation supporting the desire for an unprecedented adventure, an 
incredible notion that humans could fly.
    Barnstormers satisfied that interest and became the crop of 
entrepreneurs and pilots from which commercial aviation would 
be developed. Why do we think that commercial space passenger 
services will be any different?
    If we believe humanity should one day expand to the stars, 
then people must have some way to see for themselves what space 
is all about. They must share in its wonders and experience, 
firsthand, its meaning, and, in so doing, open the doorway to 
space for all.
    Thank you.
    [The prepared statement of Mr. Musk follows:]

                    Prepared Statement of Elon Musk

    Senator Brownback and Members of the Senate Science, Commerce and 
Technology Space Subcommittee; Congressman Rohrabacher and Members of 
the House Space and Aeronautics Subcommittee; on behalf of the Space 
Exploration Technologies Corporation I would like to express my thanks 
and appreciation for the opportunity to come before you today to 
address issues related to access to space.
    It is despairing to consider that the cost and reliability of 
access to space have barely changed since the Apollo era over three 
decades ago. Yet in virtually every other field of technology, we have 
made great strides in reducing cost and increasing capability, often in 
ways we did not dream existed. We have improved computing costs by a 
factor 10,000 or more, decoded the human genome, built the Internet and 
made inter-continental flight available to the average citizen for no 
more than a few hundred dollars. The exception to this wave of 
development has been space launch, but why?
    My best guess at the origin of the problem relates to a breakdown 
of a process that the economist Schumpeter called ``creative 
destruction.'' He postulated that the way an industry improves is that 
new companies enter a market with a lower price or superior product. 
This creates a forcing function for the whole market to improve. 
Looking at space launch vehicles, we see a situation where there has 
been not one single, successful new entrant in four decades, apart from 
one firm established in the late 1980s. Even in that case, the solid 
rocket motors that constitute a majority of the manufacturing costs of 
its launchers are in fact built by existing aerospace companies. So we 
have really seen no truly new entrants to the American launch vehicle 
market and, as such, should not be surprised that costs have not been 
reduced.
    To address this problem, we must create a fertile environment for 
new space access companies that brings to bear the same free market 
forces that have made our country the greatest economic power in the 
world. If we can create such an environment, my expectation is that 
progress in space launch costs and capability will be no less dramatic 
than in other technology sectors. If we truly desire to reduce costs 
and substantially improve access to space, we must seek new approaches, 
new ideas, and support new entrants into this difficult and challenging 
field.
    We are at a crucial turning point today. The recent entrepreneurial 
activity in space (my company perhaps included) shows promise, but is 
still embryonic and fragile. It is very important that our government 
in all its forms proactively adopt a nurturing and supportive approach 
to new launch vehicle developments, whether orbital or sub-orbital, 
manned or unmanned.

The SpaceX Approach

    It was to change the equation of space exploration that I 
established SpaceX and set as our goal revolutionizing the cost and 
reliability of access to space, for nothing less is needed. Our first 
offering is a semi-reusable orbital launch vehicle, called Falcon. 
Initially, we will exclusively deliver cargo to orbit in the form of 
satellites and spacecraft, however we do believe in the long-term 
market for commercial human transportation. The reasoning for an early 
focus on satellites is that we feel this is the path of least market 
risk and it allows Falcon to prove itself as a satellite carrier, 
before we extend its use to other payloads.
    There is no simple sound bite that describes why our launch vehicle 
is a fraction the cost of efforts by existing launch service providers. 
Our approach has been to focus on reducing all the cost elements of a 
launch vehicle company, those being propulsion, structures, avionics, 
launch operations and general overhead. We have also listened carefully 
to the collective wisdom of key engineers involved with all major 
rocket developments of the past three decades to glean whatever lessons 
may be learned.
    At this point, we are very comfortable that selling the Falcon for 
six million dollars per flight is economically viable. This is a 
reduction of over 75 percent compared with our nearest competitor. 
Moreover, Falcon has 30 percent more payload and objectively fewer 
catastrophic failure modes, which speaks to reliability.

How Can the Federal Government Support This New Era of Space?

    What I will provide today is the SpaceX view on concrete and 
rational actions that can be taken by the government to foster the 
nascent entrepreneurial activity. SpaceX is just over a year old, so 
these reflect only what we have learned to date. No doubt, there will 
be more to report a year from now, when, if the future is kind, we will 
have placed our first satellites in orbit.
    It is worth noting that the perspective I bring to the launch 
vehicle industry is drawn from a particularly Darwinian experience in 
the business world, having founded and helped build two successful 
Internet companies in Silicon Valley. Seldom have we seen a faster 
moving, more voraciously competitive business environment or one with 
more tombstones. However, for all the problems associated with that 
era, the rise and fall and perhaps rise again of the NASDAQ, it is easy 
to forget that the vast majority of the monumental work required to 
build what we know as the world wide web was done in less than a 
decade.
    If you doubt that we can possibly see such progress in space 
access, please reflect for a moment that the Internet, originally a 
DARPA funded project, showed negligible growth for over two decades 
until private enterprise entered the picture. At that point, growth 
accelerated by more than a factor of ten. We saw Internet traffic grow 
by more in a few years than the sum of all growth in the prior two 
decades.

Our Suggestions:

Regulatory Authority
    As you will no doubt hear from others on this panel, there needs to 
be clear regulatory authority for commercial launch vehicles of all 
kinds. It is also critical that such regulatory authorities recognize 
the early and experimental nature of the commercial launch vehicle 
industry, providing only the minimum regulatory burden necessary to 
ensure reasonable safety for the general public.
    We recommend reaffirming the authority of the AST office of the FAA 
as the primary regulatory agent for space vehicles. Moreover, progress 
in fostering new launch vehicle developments should be a key metric of 
success in the performance evaluation of FAA-AST and other federal 
agencies when they report to Congress.

Environmental Approval
    For existing launch facilities, where launches are routinely 
conducted, we believe a blanket Environmental Impact Statement that 
covers all launch vehicles within a certain size and capability would 
be very helpful. This would save a substantial amount of capital and 
processing time.
    In particular, certain issues of environmental concern seem to defy 
common sense. For example, the population of seals in the waters around 
Vandenberg increased by 12.7 percent last year, yet much concern is 
raised about how rocket launches might disturb them and we are forced 
to spend $10,000 every launch to see if our relatively small rocket 
affects their quality of life. This makes little sense. With that 
population growth rate, it seems clear that if anything the Vandenberg 
launch activity serves as an aphrodisiac.

Range Safety Approval
    SpaceX has been asked by senior leadership in the Air Force to 
prepare a report on range safety approval once the process is complete 
for Falcon. That will be our definitive view, but these are our 
preliminary conclusions:

    First, we suggest funding a zero-based revision of EWR-127-1 and 
the FAA equivalent documentation with a focus on simplicity, along with 
a clearly defined process for range approval. Rather than trying to 
amend the existing document, we feel, based on conversations with range 
safety personnel who have said as much, that the right approach is to 
do a ground up revision.

    Second is the difficulty of designing and obtaining approval for 
flight termination systems, an important system on untested, high 
energy launch vehicles. This is the on-board equipment and explosives 
that, if needed in a major malfunction, would destroy the launcher and 
its payload. Today's low launch rates only sustain a few companies that 
provide these components. The result is that our flight termination 
system is one of the most expensive and difficult to integrate elements 
of our launch vehicle.
    If the U.S. government wishes to advance commercial launch at our 
ranges, we suggest that range safety offer a standard, integrated 
flight termination system that it could pre-certify and then have 
launch firms simply buy them from the range authority. This would also 
improve issues of compatibility across launch vehicle designs. Our 
discussions with range safety indicate they would be amenable to such 
an approach. We would also strongly recommend eliminating the use of 
explosive for flight termination in favor of non-explosive engine 
shutdown, particularly for reusable components where explosives present 
a hazard upon recovery.

Liability
    One of the surest ways of preventing companies like SpaceX from 
offering human transportation in the future is to make it an unlimited 
liability business, where a single, unintentional mistake can result in 
a hundred million dollar jury award. It would instantly kill not only 
the company that made that mistake, but the entire industry.
    General aviation almost perished in the 1980's as a result of one 
massive jury award of questionable justice after another. It only 
revived once legislation placed reasonable limits on liability. 
Moreover, in contrast to the fledgling status of entrepreneurial space, 
aviation was a strong and mature industry with a well developed immune 
system. We are seeing a crisis in medical care for similar reasons.
    We believe it is appropriate that a limit be placed on liability 
such that, notwithstanding clearly egregious conduct, a mistake or 
force majeure event resulting in third party injury, loss of life or 
damage to property be limited to a reasonable maximum dollar figure. 
For those that choose to fly on early passenger carrying spacecraft, an 
individual should have the right to waive liability provided the risks 
are fully explained, just as would be done for extreme sports, such 
skydiving or mountain climbing. Whatever the final outcome of such 
efforts, it is critical that a complete review be conducted of the 
liability issue as applies to new passenger carrying commercial 
launchers.

Access to Government Markets
    All we seek is the opportunity to sell our launch vehicles to the 
various agencies of the Federal Government. That requires full and 
unfettered access in which the government buys services, and does not 
enter into competition with us, using the public's money. Several 
ballistic missile assets have been retrofitted into commercial 
launchers. These vehicles, built and paid for to defend the country, 
might now prove to be an obstacle to commercial development of space. 
We seek government as a customer, not a competitor.

The Value of Commercial Human Space Flight

    The market for satellite delivery, while significant, has 
limitations in size and application. I suspect the far larger market in 
the long-term is serving people that wish to travel to space for 
enjoyment. For many people, as shown by a number of marketing studies, 
this is the fulfillment of a lifelong dream and they are willing to 
spend a substantial portion of their savings to see that dream 
realized.
    There is some skepticism about the market size and dependability, 
but such skeptics should study the early days of aviation as a guide. 
For many years before Air Mail service became the anchor that allowed 
the growth of commercial aviation, a thriving airplane business was 
underway around the Nation, supporting the fun or adventure factor.
    Barnstormers satisfied that interest and became the crop of 
entrepreneurs and pilots from which commercial aviation would be 
developed. Why do we think that commercial space passenger services 
will be any different? If we believe humanity should one day expand to 
the stars, then people must have some way to see for themselves what 
space is all about. They must share in its wonders and experience 
firsthand its meaning.
    And, in so doing, open the doorway to space for all.
    That is what true access to space is about: creating affordable 
ways for people, payloads, satellites, and experiments to develop the 
space frontier.
    Again, my thanks for the opportunity to come before you today, and 
I look forward to answering any questions that you may have.

    Senator Brownback: Thank you, Mr. Musk. I look forward to 
your question-and-answer session.
    Mr. Jeff Greason, the President of XCOR Aerospace. I 
apologize for mispronouncing your last name earlier.
    Mr. Greason: Understandable.

 STATEMENT OF JEFF GREASON, PRESIDENT, XCOR AEROSPACE, MOJAVE, 
                           CALIFORNIA

    Mr. Greason: Thank you, Mr. Chairman.
    Today, I will discuss the different ways in which aircraft 
regulation and launch-vehicle regulation protect public safety, 
explain why the launch-vehicle approach is more appropriate for 
us, discuss how the line between them should be drawn, and 
close with a few remarks on commercial human space flight.
    Aircraft regulation has always developed after-the-fact. 
The first aircraft regulations did not occur until after 20 
years and tens of thousands of flights of operational 
experience in the aviation industry. When those first 
regulations came into play, the objective was to identify the 
best practices already present in the industry, identify what 
worked, and get rid of that which didn't. The assumption has 
always been that the only way to protect the public is to keep 
the airplanes in the air.
    Over time, more and more such regulations have been drawn 
up. And after 75 years of this, the aviation industry is one of 
the safest human enterprises in the world and also one of the 
most resistant to the commercial introduction of new 
technology. Any innovation that comes along, before it's 
adopted, has to prove itself at least as safe as existing 
practices. That's a very difficult thing to do, given that 
there are millions of flights experience with the current 
technology. Experimental aircraft are allowed to use new 
technologies, but only for noncommercial purposes.
    Reusable launch vehicles are dramatically less mature. All 
launches to date have been single-use expendable vehicles, 
except for the Space Shuttle and very small sub-orbital rockets 
that are recovered by parachute.
    The safety record of current launch vehicles is poor. A 
launcher with a safety record of one in 50 failures is 
considered to be reliable. As a result, launch-vehicle 
regulation has developed completely independently of aircraft 
regulation. In launch vehicles, we assume there is going to be 
a failure, and the emphasis is all placed on, ``How do you 
ensure that that failure does not endanger the people on the 
ground?'' As a result of that practice, no launch-vehicle 
accident has ever caused a casualty on the uninvolved public.
    This safety is achieved by a combination of flying in 
sparsely populated areas and by providing a highly reliable 
means of stopping the flight if it goes awry.
    In 1998, Congress expanded the field of launch-vehicle 
regulation to include reusable launch vehicles, and the Office 
of Commercial Space Transportation, AST, developed regulations 
to encompass those vehicles, based on their predictions of what 
their operation would be like. Because of that, it has taken 
four years of constant effort to work out how to interpret 
those regulations, because there were no precedents to point to 
see how they should be interpreted. But, after that work, we're 
finally getting there. Today, there are three companies, 
including our own, that are going through the licensing process 
for their reusable launch vehicles, all sub-orbital, plus 
there's Elon doing the orbital thing.
    The only way that the emerging launch industry is ever 
going to develop into a profitable taxpaying industry is to 
fly, and to fly for revenue. While we fly for revenue, it's 
obvious that the uninvolved public has to be kept safe. And the 
only regulatory regime we have that allows safe flight for the 
general public while permitting revenue operation of untried 
vehicles is the launch-vehicle regulatory regime. That's how we 
have to fly.
    Now, because some of the reusable launch vehicles being 
developed have wings, and some have pilots, the argument is 
being made that they are not launch vehicles, that they are 
airplanes. That is in spite of the Space Shuttle and Pegasus, 
well-established launch vehicles that have wings.
    Congress defined ``launch vehicles'' to include sub-orbital 
rockets. Now, you might think, well, these are rockets, and 
they don't go to orbit, so isn't it obvious that they're sub-
orbital rockets? It's a little more complicated than that, 
because we don't want to create a loophole in which somebody 
can take an existing aircraft, mount a rocket on it, but fly it 
in an aircraft-like manner and claim exemption from the 
aircraft regulations.
    So it has taken a year of work for AST to come up with a 
definition that is new and that we think makes a lot of sense, 
which is that launch vehicles are rocket-propelled vehicles in 
which the thrust exceeds the lift for the majority of the 
powered flight. And since aircraft are defined--or, rather, 
airplanes are defined as vehicles that are held up in the air 
by their lift, this is a distinction that we think makes sense 
and we can work with.
    I'm going to close with a few remarks on the question of 
carrying people in launch vehicles. Launch-vehicle regulation 
already protects the uninvolved public. But, just as with 
aviation in the early days, there are people who think that 
enterprise is important and exciting, and they want to go. 
Also, just as with aviation in the early days, there's no 
question that the early flights are going to be risky and 
costly. But if we are allowed to proceed, that cost and risk 
will both go down over time.
    We need to go through the same process aviation did. We 
have start flying, find out, with experience, what works and 
what doesn't, and then start improving. If we insist on perfect 
safety at the beginning of the industry, we will get it, 
because nobody will fly.
    I have been responsible for committing a rocket-powered 
vehicle to flight with a pilot on-board 15 times, and I take 
that very seriously. I assure that I and my engineers are going 
to fly on these vehicles before we ever consider them safe 
enough for a paying passenger. And, also, we would never 
consider taking someone who is not fully informed and prepared 
of the risks that they were about to undertake.
    But if Americans are willing to risk their lives and their 
wealth to open a new frontier, why should we stop them? There 
wouldn't be an America if our ancestors hadn't been permitted 
to do the same. Our first flights may seem small and 
unimportant, but they're only the first steps on a very long 
and very important road.
    Thank you.
    [The prepared statement of Mr. Greason follows:]

                   Prepared Statement of Jeff Greason

    Today I will discuss the different ways in which aircraft 
regulation and launch vehicle regulation protect public safety, explain 
why the launch vehicle approach is more appropriate for the emerging 
sub-orbital space flight industry, and discuss where the line between 
aircraft and launch vehicle regulation should be drawn. I will close 
with a few remarks on commercial human space flight.
    A few words about my experience in this area are in order. I am 
President of XCOR Aerospace, an entrepreneurial space company in 
Mojave, California. We have been working on safe and reliable rocket 
propulsion systems and vehicles since 1999. I have been involved in 
launch vehicle regulation issues since 1998 and have been traveling to 
Washington regularly to work with the FAA since 2000. In the last few 
years, XCOR has accumulated over 1,800 firings of rocket engines 
without any safety issues, and we have flown a manned rocket-powered 
vehicle fifteen times. These early flights took place as an 
experimental aircraft, and we are now ready to begin construction on 
higher energy vehicles. We are therefore bridging the two worlds of 
aircraft and launch vehicle regulation.
    Aircraft regulation has always developed after the fact. The first 
aircraft regulations did not arise until after more than 20 years and 
tens of thousands of flights' experience. When the first regulatory 
actions were taken, the operating experience of the industry was used 
to identify best practices and to eliminate things that didn't work. 
The assumption has always been that to protect the public, we must 
prevent crashes. Over time, more and more such regulations have been 
written; usually toward a specific technology, e.g., this kind of 
riveting is acceptable, that kind is not. This kind of instrument is 
acceptable, that kind is not. After 75 years of such rule making, the 
aircraft industry is among the safest enterprises in the world, and 
also one of the most resistant to the commercial introduction of new 
technology. Any innovation must prove itself safer than the established 
practices; a difficult burden indeed, given the millions of flights' 
worth of experience with established methods. Experimental aircraft are 
allowed to use new technology, but only for non-commercial 
applications.
    Reusable launch vehicles (RLVs) are dramatically less mature. All 
space launches to date have been single-use expendable vehicles, except 
for the Space Shuttle and small sub-orbital rockets with parachute 
recovery. The safety record of expendable launch vehicles is poor, 
since a launcher with a failure rate of one in 50 is considered 
reliable. As a result, launch vehicle regulation has developed quite 
differently from aircraft regulation. In launch vehicles, we assume 
that failures will happen and we take steps to ensure that those 
failures will not endanger people on the ground. As a result, no launch 
vehicle accident has ever caused a casualty among the uninvolved 
public.
    This safety is achieved by a combination of flying in sparsely 
populated regions and providing high-reliability means of stopping the 
flight if it goes awry.
    In 1998, Congress expanded the regime for launch vehicles to 
include reusables. Since then, AST developed regulations for RLVs based 
on what they expected operational practices would be. It has taken four 
years of constant effort by AST and industry to devise and refine 
interpretations of those rules in the absence of precedents to point 
to, but we are finally getting there. Today, at least three companies, 
including XCOR, are going through the licensing process for sub-orbital 
RLVs.
    The only way that the emerging RLV companies will ever be able to 
develop into a profitable, job-creating and tax-paying industry is to 
fly, and fly for revenue. And while we fly for revenue, the uninvolved 
public has to be kept safe. The launch vehicle regulatory regime is the 
only available means to protect the public while permitting revenue 
flight.
    As recently as a year ago, I would have thought it obvious that our 
vehicle would be regulated as a launch vehicle. But events over the 
past year have shown that there are contrary opinions, which I hope we 
will lay to rest. The Commercial Space Launch Act of 1984, as amended, 
states clearly that if you have a launch license, no permission from 
any other executive agency is required. That language was put in place 
because the first attempts to launch commercially were stymied by 
overlapping jurisdiction; dozens of federal agencies all claimed the 
authority to say ``no,'' but had no responsibility for the 
consequences, and hence no motive to say ``yes.''
    Now, because some of the sub-orbital RLVs being developed have 
wings and pilots, some argue that these are not launch vehicles, they 
are airplanes. This claim is made despite the fact that NASA's Space 
Shuttle orbiters and Orbital Sciences's Pegasus both have wings. In 
1984 Congress defined launch vehicles to include sub-orbital rockets. 
One might say ``Well, it's a rocket, and it doesn't go to orbit, so 
it's a sub-orbital rocket.'' However, we don't want to create a 
loophole, in which an otherwise conventional aircraft could mount a 
rocket on it and claim exemption from aircraft regulation. After almost 
a year of work, AST proposed a new definition, in which a sub-orbital 
rocket is a rocket-powered vehicle whose thrust exceeds its lift for 
the majority of its powered flight. Since airplanes are defined as 
vehicles supported by lift, we think this is a good definition.
    For those who have exclusively flown experimental-type aircraft, 
the launch vehicle regulatory world can seem daunting. On closer 
examination, it is less so: all that is needed is to demonstrate that 
the public is safe. This is only more burdensome than for experimental 
aircraft because the precedents are not yet set. The regulations and 
regime for test flying experimental aircraft are well known, and the 
failure modes are well explored. There are procedures for 
communications, emergency response, etc., written down. XCOR believes 
that requiring launch providers to document their procedures is 
worthwhile.
    The largest burden in moving from aircraft to launch vehicle 
operation, and the least justified, is that launch providers and launch 
site operators have to assess their environmental impact. Aviation, 
including experimental aviation, operates under a categorical exclusion 
(CATEX) to the National Environmental Policy Act. We have discussed 
pursuing a CATEX with AST, but until there have been a number of 
reusable launch vehicles using non-toxic propellants, it is difficult 
to establish parameters for a category to exclude. Let me make it clear 
that the vehicles we and others are developing have very low 
environmental impact. And while the burden of documenting this is 
substantial, it is likely unavoidable.
    Another advantage of the launch vehicle regulatory regime is that 
liability insurance is already established. Launch vehicles are 
required to carry liability insurance up to a level called the maximum 
probable loss (MPL). Let me make that a bit clearer. For me to launch, 
I have to carry sufficient insurance to cover any reasonably possible 
damage to third parties. The loss probability is set to a one in ten 
million threshold, which is so high that we could fly four times every 
weekday for ten thousand years before an event exceeding the MPL would 
occur. Only in the case of a freak accident, with losses exceeding the 
MPL, does the U.S. government's promise of indemnification come into 
play. By eliminating the need for insurance carriers to consider wildly 
improbable accidents in setting insurance premiums, the insurance costs 
to launch providers are reduced, so far at no cost to the taxpayer.
    I would like to close with a few remarks on the question of 
carrying people in launch vehicles. Launch vehicle regulation already 
protects the uninvolved public. Just as with aviation in its early 
days, many adventurous people see this enterprise as exciting and 
important. They want to go. Again, just as with aviation, this 
enterprise will be risky and costly in its beginning; but if allowed to 
proceed, the cost and the risk will go down over time. We need to go 
through the same process as aviation; start flying, find what works and 
what doesn't, then make improvements. If we insist on perfect safety, 
we will get it because no one will ever fly.
    I have been responsible for over a dozen flights of a piloted, 
rocket powered vehicle. I assure you that I and my engineers will fly 
aboard our vehicles long before we consider them safe enough for paying 
customers. Nor would we ever consider flying someone who was not fully 
informed of the risk involved. If Americans are willing to risk their 
lives and wealth to open a new frontier, why should we stop them. 
America would not exist if our ancestors hadn't done the same. Our 
first flights may seem small and unimportant--but they are only the 
first steps on a very important road.

                       Biography for Jeff Greason

    Jeff Greason co-founded XCOR in September 1999. At XCOR, Mr. 
Greason has managed a team developing small rocket engines and complete 
rocket-powered aircraft at a cost and schedule far superior to prior 
practice. XCOR has demonstrated a very low cost reusable rocket 
vehicle, the EZ-Rocket, which has had fifteen flights. Previously, he 
spent two years managing the propulsion team at the Rotary Rocket 
Company. There he built a world-class development team, and led key 
technical efforts in rocket engines. Mr. Greason has been involved in 
space vehicle regulation since 1998 during the rule-making process for 
reusable launch vehicles and has been an active member of the FAA's 
Commercial Space Transportation Advisory Committee (COMSTAC) RLV 
Working Group since 1999.
    Prior to joining Rotary Rocket, Mr. Greason served as a technical 
manager at Intel Corporation. In 1992, he received the Intel 
Achievement Award for his work discovering a less expensive BiCMOS 
technology than competitors, which became the basis for the Pentium 
product line. Mr. Greason is an experienced technical manager, has wide 
knowledge of rocket engine and rocket vehicle design from five years 
study and four years experience, and has nine years experience in other 
high tech product development. He holds 18 U.S. patents, has authored 
numerous publications and has a BS degree in engineering from 
California Institute of Technology.

Professional awards:

          Received Intel's Portland Technology Development 
        S.T.A.R. award in 1997, an award given only twice before to 
        recognize outstanding technical achievement, for work in 
        defining the interconnection technology on Intel's 0.18u CMOS 
        process.

          Received the 1992 Intel Achievement Award for 
        contributions to ``defining and implementing a unique, cost-
        effective approach to BiCMOS processing for Intel''

          Received Intel PTD divisional recognition awards:

                  1992: ``Implementing and validating Full Self Test 
                features on the 51S6.''

                  1989: ``The development of CLCD programs for hot 
                electron checking.''

Professional memberships

    AIAA, IEEE, Society of Allied Weight Engineers, British 
Interplanetary Society, National Space Society, Space Access Society, 
Reaction Research Society.

    Senator Brownback: Good points. I was just coming from the 
floor, and we were discussing Lewis and Clark, who went on a 
bit of adventure, themselves, at one point in time.
    Mr. Jon Kutler, Chairman and CEO of Quarterdeck Investment 
Partners, welcome, delighted to have you here.

   STATEMENT OF JON B. KUTLER, CHAIRMAN AND CEO, QUARTERDECK 
          INVESTMENT PARTNERS, LOS ANGELES, CALIFORNIA

    Mr. Kutler: Thank you. Thank you, Mr. Chairman, Committee 
Members.
    I am here today to talk about what Mr. Tito referred to as, 
I think, ``the Wall Street perspective,'' and how institutional 
investors would look at funding developments in this sector. 
I'd personally like to applaud the efforts of the individuals 
before me. I think we all can appreciate that they are the type 
of people who have traditionally taken our country to new 
heights of technological development, pushed the envelope, and 
created new industries and new jobs. That's why I think it's 
appropriate that we sit here on the centennial anniversary of 
the Wright Brothers' flight to talk about the transition of 
human space flight from a government venture to a economic 
business pursuit.
    I think one major issue, though, is a hundred years ago, 
when the Wright Brothers were figuring out how to get into the 
air, the only question they had to ask was, ``Can we?'' Today, 
all these people here with me are really asking, ``Will we be 
allowed?'' And the answer to that question is--while there are 
some technological implications--really will be answered by 
regulators and by investors. I'm quite comfortable that the 
technological advancements will come.
    So who are these investors, and how do they come to want to 
place their bets in this sector? Well, to date, most of the 
investment has come from angel investors, wealthy investors, 
like Mr. Tito, who would view the passion of space flight to 
supplement their classic return-on-investment calculation. For 
this industry to be successful and take the next step, however, 
it has to attract dispassionate people, who will make the 
classic risk-reward tradeoff and view this as a place to make 
their investment decision.
    So, in the risk-reward dilemma--the people before me have 
already talked about the reward, to some degree, so I think 
it's important to discuss the risk profile. If all these people 
were bringing a business plan to a number of investors, what 
would they say? What would they focus on?
    I think the first one they'd focus on is--what I just 
mentioned--is the regulatory risk. And a number of other people 
have talked about that, too. I don't think the industry or 
investors expect there to be an absence of regulation. I think 
they expect, however, to know what the rules of the game are.
    We talked about different industries that are regulated, 
like the SEC. I think another one which is relevant to 
investors is the biotech industry. Billions of dollars have 
been raised on Wall Street by biotech entrepreneurs on just a 
dream and a desire to create something. The difference there 
is, they knew what the rules of the game were for developing 
drugs and having them been approved by the FDA, because it was 
already in place prior to them making the investment decisions. 
So investors know that the FDA decision can mean, not only life 
or death for a patient, but also life or death for an 
investment, and they are able to evaluate that risk, the risk 
of being turned down, and the length of time it will take.
    In this industry, the nascent human space flight industry, 
they don't know. They don't know whether it'll be regulated as 
an airplane, a rocket, what that will mean, whether it will be 
regulated today and it will be changed tomorrow. That is a very 
difficult scenario in which to invest significant capital.
    On top of the regulatory issue, frankly, the timing is also 
bad. Now, clearly, this is a long lead-time business, but if 
you look at the number of the financing hurdles these gentlemen 
have, they're significant.
    The first is that despite last quarter's stock market 
appreciation, venture investors are returning to being 
extremely conservative. In the late '90s, we all know that you 
could raise hundreds of millions of dollars on merely a story 
and not a very significant business plan. That era is gone. I'm 
not sure it won't come back in the future, but, for time being, 
it is.
    In addition, there has been a terrible history on Wall 
Street with investing in commercial startup space ventures. Two 
that come to mind are the LEO (the Low Earth Orbit) satellite 
ventures, were, in the '90s, starting in the early '90s, and 
lots of money was raised to create constellations of 
satellites, for communications purposes, primarily. $14.5 
billion of equity and debt capital vanished in the last few 
years through bankruptcies and restructurings. That sits hard 
in people's memories through names like Iridium, Globalstar, 
and others.
    Another venture which these gentlemen would have to sell 
against is the remote-sensing business, which is also an 
attempt to create what used to be government technology and 
remote sensing from space--spy satellites--and use them for 
commercial purposes. That venture has fared a little bit 
better. But, clearly, what has happened there is, money was 
raised on the promise of commercial applications, which really 
have been extremely slow to mature. So what has kept that 
sector on life support is something that was not anticipated; 
it was government funding, government contracts for 
supplemental imagery. And this whole concept of government 
contracts is an important thing to think about as you think 
about what government could possibly do to help this industry.
    In addition, we have a period of time where safety is of a 
primary concern. Until we put the Space Shuttle back into 
operational performance and solve what are perceived to be 
risks once again in people's mind about the safety of human 
space flight, investors will react negatively to the concept of 
spending money for a commercial venture if NASA still is not 
flying. So that's another significant timing issue.
    So, clearly, these investors need time, need time for the 
concept to mature, for some of these issues to mature. And 
government, if it chooses, can play a role. It can play a role, 
first, of--in deference to the Hippocratic adage, ``do no 
harm,'' you know, in terms of--tell people what the rules of 
the game are, and encourage people, by a fair, up-front 
forecast of what the rules are, and let the capital markets 
raise money.
    Second is increased R&D funding. There are some 
technological challenges. Some of it has dual-use capability 
between commercial markets and federal markets, and there are 
lots of ways for people at this table and the industry they 
represent to develop technologies that could be useful for the 
government.
    Third is government contracts. It has been the lifesaver 
for the remote-sensing industry right now, while they're 
waiting for commercial markets to come back, and it would be an 
important aspect here, if the government chooses to do so.
    So, in conclusion, my sense is that, in the near-term, this 
industry will likely only be funded by wealthy investors until 
a business plan can go full circle and get to the point where 
there is more visibility on risk and more visibility on 
profitability. A business case has not been made yet for large 
investment. There's a significant role government can play, 
should it choose to help facilitate that, but, in the meantime, 
it will take incremental business successes before we're able 
to reach for the stars.
    Thank you.
    [The prepared statement of Mr. Kutler follows:]

                  Prepared Statement of Jon B. Kutler

    Chairman Brownback, Chairman Rohrabacher and Members of the 
Subcommittees, thank you for inviting me to testify this morning. My 
name is Jon B. Kutler and I am the Chief Executive Officer and Founder 
of Quarterdeck Investment Partners, LLC, an investment bank focused 
exclusively on the aerospace and defense industries. Today, it is my 
pleasure to discuss what we see as the major issues facing the 
commercial human space flight industry as its pioneering companies 
progress to the point of seeking external financing from the capital 
markets.
    I must start by applauding the efforts of the individuals who have 
spoken before me. They are the kind of leaders and risk takers who have 
traditionally pushed this country to new heights of technological 
advancement and created whole new industries and jobs. It is 
appropriate that we sit here today in the centennial year of 
celebration of the Wright Brothers' successful completion of the first 
manned powered flight, to discuss the transition of manned space travel 
from a government pursuit to an economic business opportunity. The only 
question the Wright Brothers faced as they started their tests was 
``can we?''. They did not have investors questioning their return on 
investment or a federal regulator asking to certify the aircraft. The 
question before these gentlemen today, however, has become ``will we be 
allowed?''.
    The most important people to answer that question are not 
scientists pushing the bounds of technology. They are regulators here 
in Washington, D.C., who set a framework for these efforts and 
institutional investors who will judge whether this industry is ready 
to be a profitable business opportunity worthy of large-scale 
investment. I am sure that most regulators and investors believe that 
at some point in the future there will be a prosperous commercial human 
space flight industry. The foundation of this discussion, however, 
remains whether the transition from novelty to viable industry will be 
observed in our lifetime.
    To the surprise of many, the sheer size of the capital required to 
fund commercial human space flight is not the issue. There are numerous 
examples of new companies in fields such as biotechnology and 
telecommunications that have raised billions of dollars on the basis of 
someone's dream. The hurdle is the perceived risk profile and return on 
that investment. Some initial start-up capital has already been raised 
and will continue to be available to these commercialization pioneers 
from wealthy ``angel'' investors who have the wherewithal to supplement 
their return on investment calculation with the passion that human 
space flight often evokes. The next critical junction will involve 
institutional funding, however, where the investment decision will be 
based solely upon quantifying the magnitude of return a company can 
potentially generate if successful, measured against the risks that 
could cause the endeavor to fall short of the finish line. The capital 
markets currently believe that this market will remain, in the near-
term, a niche opportunity with a number of substantial barriers 
limiting total demand thus delaying the timing of its growth. Although 
individually manageable, the combined belief of a limited market 
opportunity and potential regulatory obstacles currently results in an 
unattractive investment opportunity.
    Biotechnology companies have raised billions of dollars from 
investors who are quite familiar with the concept of regulatory risk 
through the Federal Food and Drug Administration's drug approval 
process. The pace of approval and ultimate outcome is a life and death 
decision, not only for patients, but investors as well. This process is 
a known and calculated investment risk, which predates the 
biotechnology industry. The commercial human space flight industry and 
its potential investors, however, face the prospect of unknown 
regulatory hurdles, which could entail ``piggy-backing'' off the FAA 
certification process for aircraft or the potential drafting of new 
restrictive regulations.
    The question of potential market size has become the ``Holy Grail'' 
of early-stage investors. Typically, these venture investors will take 
large financial risks if they are confident that the return potential, 
should the funded idea/entity become successful, is proportional to the 
magnitude of risk taken. For example, although with the benefit of 
hindsight Microsoft's success seems obvious, its early investors made 
large financial bets with little tangible assets to show for it. The 
Microsoft investment was a huge success in large part because once they 
had a successful product there existed an untapped and reoccurring 
global opportunity to sell affordable software for billions of customer 
applications. The current per event costs for commercial human space 
flight events are very high, which immediately eliminates a large 
segment of the population from participating. As you know, Mr. Tito's 
orbital trip has been reported to cost $20 million and near-term sub-
orbital trips are still projected to be several multiples of the 
average U.S. annual household income. While Rolls Royce and Ferrari 
also make luxury consumer items that have similar cost parameters, they 
can still be considered an investment--a tangible, saleable asset--not 
an expenditure on a onetime event. As you can imagine, investors in 
either of those car companies might question the capital expenditure 
plan for a new car line if they were told that a prospective customer 
would have the single ride of a lifetime, but subsequently have to 
throw away the vehicle.
    Investors will also further factor the potential addressable market 
by an allowance for competition. This is not just a question of 
measuring the potential market share that could be captured if more 
than one company presenting today becomes fully operational. It is also 
an acknowledgement of competing tourism approaches. Many current 
commercial human space flight business plans are based upon the 
building blocks of an initial sub-orbital joyride approach. Without the 
unique characteristics of a longer stay space tourism destination, 
other companies may be able to further fragment the market by offering 
specific aspects of space travel in a less technologically and 
financially demanding fashion. For example, weightlessness can be 
simulated for commercial customers through conventional aircraft in a 
manner similar to the training regimen for all astronauts. Owners of 
demilitarized Russian aircraft could meet the demands of those seeking 
the g-forces of launch and the thrill of supersonic flight.
    In order to attract investment capital into a risky, new industry 
in its relative infancy, the business plan should have the potential 
for a large financial return, be differentiated in the marketplace and 
based on credible demand patterns. The most likely scenario for this 
may ultimately rest in the build-out of a ``destination'' travel model. 
By offering an overnight stay in space or turning a Mach ten flight 
from a quick joyride to a reliable transportation system that features 
global travel measured in minutes instead of hours and days, the time-
tested demand for destination travel could be leveraged effectively and 
a much larger investment opportunity created.
    Despite the rapid appreciation of stock market indices in the past 
quarter, the capital markets still remain reasonably disciplined with 
respect to calibrating the risks of such early-stage investments. 
Assuming we were still at the height of last decade's investment 
bubble, these financial metrics might have been pushed aside by merely 
the ``story'' of commercial space travel. Unfortunately, companies 
seeking investment in the commercial human space flight sector not only 
have to deal with a more disciplined financing market, they also must 
address the disastrous results of investments made by such investors 
not that long ago based upon the dreams of other commercial space 
start-up ventures. In the mid to late 1990s, companies poised to 
develop and address the low earth orbit (``LEO'') satellite market 
successfully raised billions of dollars of capital by extrapolating for 
investors the rapid growth of bandwidth usage and cell phone 
development. Their business plans implied that nearly the whole world 
would, in the near future, be utilizing the services provided by the 
winners of this race. Since then, more than $14.5 billion in debt and 
equity capital has disappeared as a result of the industry's collapse 
and subsequent corporate sufferings of Iridium, Teledesic, Globalstar 
and ICO. Today, only two of the four companies remain; limping along in 
attempt to stay alive until the market catches up with their business 
plan. Following the Microsoft example, the return potential and market 
opportunity presented to those LEO investors was substantially 
different than the business cases currently provided by commercial 
human space flight ventures. While the longer-term opportunity may very 
well be larger, the current opportunity for which the capital is being 
raised is perceived as much more of a niche.
    In addition to the aforementioned investment history, which has not 
yet been forgotten, there other risks remain that institutional 
investors will consider. In the case of the LEO satellites, many of the 
individual satellites that were intended to build out these 
constellations did not reach orbit or even deploy successfully. This 
potential outcome was factored into business plans and considered a 
business risk, as well as an insurance issue. Should one space tourist 
not safely return during the initial stage of developing the commercial 
human space flight market, the industry would likely shutdown for 
years. It will also take some time to erase the recent image of the 
Shuttle Columbia from the minds of potential investors and tourists, 
and restore confidence in the safety of human space flight. Of course 
this will also be coupled with the risks of litigation and insurance 
costs that will be present in the early days of this market, regardless 
of the obvious use of legal disclaimers. These risks and uncertainties 
that face the commercial human space flight industry can constrain the 
near-term investment prospects and delay the fruition of these 
pioneers' vision, until reasonably quantified.
    What the commercial human space flight community needs is time: (i) 
time for Wall Street to forget earlier failed commercial space 
investments and change its risk profile; (ii) time to get the Space 
Shuttle fleet flying again in a safe and reliable manner; and (iii) 
time for certain new technologies to mature. I expect all three of the 
aforementioned to happen. Time, however, is often the unfortunate enemy 
of many investments and investment ideas. There are a number of actions 
the government can take to buy some of that time should it chose to:

          First, the Hippocratic adage, ``do no harm'' can 
        provide a useful guideline in evaluating any proposed 
        regulatory structure. Burdening the sector with either an 
        inappropriate degree of regulatory control or the lack of early 
        consensus in this area would kill the investment raising 
        ability of otherwise fundable companies.

          Second, increased research and development funding in 
        certain key technologies could have the ``dual use'' benefit of 
        supporting NASA and Defense Department missions while 
        shortening the life cycle of longer-term human space business 
        opportunities with broader market appeal. Over time, this could 
        include developments such as the transition of sub-orbital 
        joyrides to hypersonic single-stage-to-orbit vehicles serving 
        as high-speed commercial transports.

          Lastly, start-up ventures can leverage the stability 
        of mutually beneficial government contracts such as those 
        afforded to the space based remote sensing sector, into further 
        external funding.

    Although not insurmountable, the near-term institutional investor 
interest given to the commercial human space flight sector will be 
limited by a number of risks and constraints that could adversely 
affect investment return. In order for start-up companies to 
participate in the natural transition from the small pools of capital 
available through wealthy individuals to the investor base required to 
fund their next level of growth, the regulatory and financial risks 
associated with these ventures must be further quantified. While these 
ventures may spark the imagination of many, to quote The Right Stuff, 
``No bucks, no Buck Rogers.''

                      Biography for Jon B. Kutler

    Jon B. Kutler is Chairman and Chief Executive Officer of 
Quarterdeck Investment Partners, LLC, an investment banking firm he 
founded in 1992 to focus exclusively on the aerospace and defense 
sector. Mr. Kutler has advised on hundreds of transactions involving 
most of the leading companies in these sectors. In December 2002, he 
sold the firm to Jefferies & Company, Inc., a NYSE traded investment 
bank. Quarterdeck currently operates in five offices globally as a 
wholly-owned subsidiary of Jefferies & Company.
    Mr. Kutler began his investment banking career on Wall Street in 
1984, after serving ten years in various positions in the U.S. Navy. He 
has worked with Goldman Sachs, The First Boston Corporation and was 
Managing Director in charge of the West Coast office and international 
aerospace and defense practice of Wasserstein, Perella & Co., an 
international merchant banking firm.
    Mr. Kutler is a nationally recognized expert in the field of 
aerospace and defense. His articles on consolidation, restructuring and 
defense conversion have appeared in Business Week, The New York Times, 
Fortune, The Los Angeles Times, Defense News, Washington Technology and 
Aviation Week & Space Technology. Mr. Kutler has testified before 
numerous Congressional committees, has served as Chairman of the White 
House Small Business Task Force on Defense Conversion and was a member 
of an advisory panel established by the Congressional Office of 
Technology Assessment to evaluate the status of the space launch 
vehicle industry.
    Mr. Kutler is a graduate of the United States Naval Academy and 
holds a Bachelor of Science degree in Naval architecture. He received 
his Master's of Business Administration degree from Harvard University.

                               Discussion

    Senator Brownback: Thank you, Mr. Kutler.
    Thank the panel. It's been an excellent presentation, and I 
look forward to a discussion.
    We're now in a period of five-minute questions, and we'll 
go back and forth, and we'll go in the order of people coming 
into the room, so we'll recognize those who have been here and 
waiting the longest, after we go with the Chair's questions for 
a five-minute time period. We'll go until we're concluded here 
in time.

                       Impediments to Exploration

    Let me ask--Mr. Musk, I want to build on your statement, 
because this is something that's really troubled me and 
perplexed me a great deal. After we go to the moon, we develop 
a computer industry that's fantastic, an Internet industry 
that--I just got an Internet e-mail from my wife, while I'm 
sitting here--fabulous things, and yet we're stuck in low-space 
orbit with government contracts in space.
    Now, you say it's the breakdown of creative destruction. 
Others, I take, are saying here that it's the lack of 
commercial entry into the field that's been blocked for some 
reason here. And I appreciate your notion of a space-tourism 
industry, Mr. Tito, and others. Mr. McAlister, you were talking 
about--I have to admit to you, that doesn't attract me a lot, 
from a public-policy perspective, when my view is that we 
should be expanding exploration. I'm willing to be supportive 
of it. I like it. But I want to see us going further in space. 
I want to see us back to the moon and beyond, and pressing the 
bounds of humanity is what I'm after.
    What else is there that has stopped us, as a society, from 
going further than we have over the past 30 years?
    Mr. Musk: Well, I think, as far as the, sort of, greater-
good-of-humanity type objectives, it's difficult to generate a 
commercial return from such things. So that is, sort of, 
necessarily the funding purview of government, the Federal 
Government, and its vessel for doing so, which is NASA. And the 
bias, the exclusive bias, really, of NASA, as far as 
contracting for any significant project, is to go to the 
incumbent corporations--that being, Boeing, Lockheed, and, on 
rare occasion, Orbital Sciences--but, really, not going to any 
new players.
    And that's really what I meant by shutting down 
Schumpeter's process of creative destruction. If you shut down 
the process of new companies getting into such a market, you 
won't see the price decrease, you won't see the quality 
improvement, because there is no forcing function for 
incumbents to change.
    The reason, I think, that space tourism is very important 
is because this is something where you have an objective 
customer. You have someone that is going to choose to fly or 
not to fly based upon the price and the merits of the vehicle, 
exclusively. They don't care who made it. They don't care where 
you're from. The consumer is an incredibly objective judge of 
product. And that's what I've seen in my prior businesses, 
PayPal, in particular. They didn't--we were up against 
Citibank, were up against Microsoft, we were up against AOL, 
and so forth, but----
    Senator Brownback: Let me put a better point on my 
question, because my time's very limited. Is the key for us, 
going forward in space exploration, to engage this commercial 
sector much more robustly, and particularly as the near-term 
point being space travel by tourist?
    Mr. Musk: I think that is it not just the preferred way, I 
think it is the only way.
    Senator Brownback: Mr. Tito, you talked about a number of 
regulatory issues, and I've got those down, and I appreciate 
your identification of those. What are the technological issues 
that you believe are the biggest hurdles for you to face in 
moving forward with a vehicle to take people into space in a 
safe manner?
    Mr. Tito: Well, I think the major technological hurdle is 
reliability. If you're going to have a commercial venture, you 
have to demonstrate a high degree of safety. But part of the 
development will be not only the standard reliability testing 
procedure, but, in addition to that, a lot of flights, a lot of 
flights, none commercially, to demonstrate a very high degree 
of safety.
    Senator Brownback: And you would do this before you would 
take your first passenger? You would fly a number of flights up 
and down before you would take your first passenger?
    Mr. Tito: Yes, before I would take my first paying 
passenger. I might be a passenger, myself, but I wouldn't pay.
    (Laughter.)
    Senator Brownback: Mr. Rohrabacher.
    Representative Rohrabacher: Well, that's very interesting, 
this concept of entrepreneurs and trailblazers actually risking 
their own personas in their vehicles before they open it up to 
the public. I think that speaks very well of you. And I would 
say, in the ancient Romans, you know, there was a--the 
architect, when they--in order to ensure the quality of the--I 
guess, the arch, that the architect was supposed to stand 
underneath the arch as they took away the final beams that were 
propping it up. And so if the arch didn't succeed, of course, 
the architect would face the consequences. So this is a very 
interesting carry-on to that principle, sort of, started by the 
ancient Romans.
    Also, it's interesting to note that, when you asked Mr. 
Tito about the technical obstructions to success, what--he came 
back with liability, which is not really a mechanical technical 
obstruction, but a technical obstruction that's based on law, 
which is based on regulations and law, rather than obstacles in 
engineering, and technology. So that's fascinating.
    Also, last night, when I talked to Mr. Tito, we went out 
for dinner, and he said something that I thought fits right in 
with what Mr. Musk was saying today, which is, you have a 
certain establishment in this whole--in the business, but 
also--and I'm including government in that--there is an 
established--there's a space establishment within the corporate 
world as well as within the government world. And today we're 
looking at some of the government impediments. But big business 
has its own bureaucracy, has its own obstacles in the way. And 
Mr. Musk alluded to that by talking about the incumbents not 
being able to innovate. But, last night, Mr. Tito, you 
mentioned that if we would have relied on the railroads, then 
we might--remind me what you said about space flight--railroads 
were the number-one transportation industry of the day, and yet 
that's not where airplanes came from. And you might give us an 
insight into that.
    Mr. Tito: Well, you would think that major transportation 
companies would be the innovators for the next form of 
transportation, but, instead, it took a couple of bicycle 
mechanics to develop the first airplane. And so you would not 
expect to see a Boeing, for example, develop the first single-
passenger sub-orbital vehicle. They're focusing on their 
business and do not seem to have any interest in this vehicle, 
other than, once we get started, maybe try to buy us out.
    Representative Rohrabacher: I think the dynamics of that is 
important for us to realize if we expect to have progress in 
this area. The railroads didn't finance the--I might note, the 
Wright Brothers, as well, but we also have to note that the 
government didn't finance the Wright Brothers. And also, if it 
would have, they probably would have--it would have taken a lot 
longer to--matter of fact, they probably never would have 
qualified for those government loans at that point, as well as 
the liability factor of having that strange craft going over 
there in North Carolina. Perhaps the North Carolina legislature 
would have had all sorts of liability regulations. And, who 
knows, Mr. Musk? Maybe the Wright Brothers would have disturbed 
the reproduction patterns of the local crabs, or whatever, and 
would have had to have been prevented from moving forward.
    Let's get down to a couple of things--and I see my time is 
running out, as well--in terms of--we're mentioning the things 
that are preventing people from moving forward, and contracting 
by the government and dual-use has been mentioned as something 
that could stimulate investment in this area, of course. And I 
have a bill, zero gravity, zero tax. Tax incentives might. But, 
just looking at the obstacles now, we find that the FAA and the 
way they are approaching, especially, Mr. Tito's venture and 
sub-orbital space travel for regular citizens, what needs to be 
done, Mr. Tito, to make sure that the FAA does not prevent you 
from investing in this venture, which would then create a whole 
new vehicle for humankind?
    Mr. Tito: Well, I think the Congress has to assert its 
authority and allow a definition of sub-orbital RLV, and that 
the Office of Space Commercialization will have exclusive 
authority, not only to license, but also to regulate the 
passenger aspect of it. And the aviation side of the FAA will 
not be part of it.
    Representative Rohrabacher: So this should be taken totally 
out of the hands of those people regulating airplanes, and 
should be a totally different category, or it will not work. Is 
that correct?
    Mr. Tito: That is correct.
    Representative Rohrabacher: All right. Thank you.
    Senator Brownback: Congressman Gordon.

                        Safety and Certification

    Representative Gordon: Thank you, Mr. Chairman.
    I'd like to have a little talk with the panel concerning 
safety, and explore that some more. It would seem to me that if 
we're going to have a successful commercial space tourism 
industry, that there's got to be a perception that there's at 
least some reasonable level of safety and reliability. So I'd 
like to ask the panelists, what is safe enough, and who should 
verify that?
    Mr. Tito is--I think, really, has set a fairly high 
standard. You're talking about maybe a thousand flights 
before--that's pretty expensive a venture. So, again, let me 
ask you. What is safe enough, and how do we verify that?
    Mr. Tito: Well, again, you have to go through the standard 
qualification of a vehicle. And then once that is accomplished, 
if you have a vehicle that can be turned around at a fairly low 
cost--for example, the vehicle that I'm looking at would be 
turned around in something like $10,000, and a thousand flights 
would be $10 million. And if one could fly this vehicle many, 
many times a weekend, fuel it up, turn it around, and have a 
simple mission profile--taking off and landing at the same 
runway, and demonstrate a flawless flight, what I like to call 
is a ``textbook flight''--and we do this a thousand times, I 
think it'll become readily apparent----
    Representative Gordon: So what's it's going to cost you to 
do that a thousand times?
    Mr. Tito: $10 million.
    Representative Gordon: I don't mean to cut you off, but 
we've got a short time here. Let me ask, does anybody have a--
sort of, a ``Katy bar the door'' attitude, sign a waiver and 
take your chances?
    (A show of three hands.)
    Representative Gordon: You do? Okay. Well, so why don't 
we--so almost everybody does, then. So you're all--you're in 
disagreement with Mr. Tito. So why don't you give your side of 
the story, then.
    Mr. Greason: I don't think that those attitudes are 
necessarily in conflict. I mean, it's safe enough when the 
customers start to show up, and you go through a process of 
demonstrating the vehicle over and over and over again. Now, we 
have our own internal business targets about how safe we have 
to know it is before we can base a business on it. But it's 
important to realize that long before we get to the point where 
we know it's safe enough that our expensive asset won't crash 
and be lost to revenue service, something we have to do for our 
own business, long before that point, we will have demonstrated 
safety far superior to what people think of as space flight 
safety as being right now. I mean, the test program, alone is 
probably going to be 50 flights.
    Representative Gordon: I don't want to be discourteous. 
This five-minute, sort of, thing makes it----
    Mr. Greason: Yeah. Go.

                            Indemnification

    Representative Gordon: So let me ask you, our sign-a-
waiver-and-take-off folks, do you think there should be 
indemnification by the Federal Government also?
    Mr. Greason: Of who?
    Representative Gordon: Some amount of--you know, of the 
company, for some amount above your level of insurance.
    Mr. Greason: You're referring to the third-party liability 
indemnification?
    Representative Gordon: Right. Yes.
    Mr. Greason: It would be--it's hard to see why we should--
why the Federal Government should take steps to make insurance 
harder to get than it is already. I mean, it would be nice if 
the currently-existing regulatory regime were left untouched.
    Representative Gordon: Well, then if we're going to provide 
some type of indemnification, then aren't we, in some way, 
making the public think that the government has signed off on 
this, and wouldn't the government have a higher responsibility 
to certify safety?
    Mr. Greason: I think you're mixing the issues of the safety 
of the passengers with the safety of the uninvolved public. I 
mean, I already have to carry, before I can launch a launch 
vehicle, insurance to cover events so improbable that I could 
fly for 10,000 years four times every weekday before they would 
be likely to occur. I mean, it's not like I'm getting some kind 
of break.
    Representative Gordon: But if you're a citizen--maybe you 
read, and you should, all of those pages that go along with 
doing a real estate, you know, closing with your house, and 
maybe when you go into the doctor's office and you've got a 
problem, you read all those waivers, and you should. I think a 
lot of folks don't. I think they somewhat think that if you are 
an operation--again, if you're going to be indemnified in some 
way by the Federal Government, that there probably is somebody 
in some safety office that's at least given this a review.
    But, that's fine. You don't agree with that, and--so, Mr. 
Tito, are you our loan--or what about if you're--what's the 
investment community think about----
    Mr. Tito: I think----
    Representative Gordon: --some type of safety----
    Mr. Tito:--I think--a similar issue, which--I think 
investors won't line up until they can be convinced there's 
some repeatability. The real issue, I think, is not so much 
will an accident happen, because eventually it will, it's 
what's the liability for the company if an accident happens. So 
there's a liability to the passenger, which--I think that 
investors could be comfortable that the waiver covers them 
there. It's really the third-party liability, and could 
somebody else make some claim on that company for some 
liability? So I think it's really an issue of cap, not a 
question of occurrence.
    Representative Gordon: I guess I won't----
    Senator Brownback: You'll probably get a next round in, if 
we can. We'll see if can do that.
    Representative Gordon: If I could, I would just like to ask 
the panelists if they could maybe submit their opinions on this 
issue and where we should go? I don't have a strong opinion, 
but I would like to get more information on it.
    Thank you.
    Senator Brownback: That would be good. That's an excellent 
request.
    Let's see. Congressman Lampson.
    Representative Lampson: Thank you, Mr. Chairman.
    I appreciate the opportunity to come over and participate 
in this panel, and all of you for coming over here. This is 
very interesting.
    In the last Congress, I introduced a piece of legislation 
to address the issue of space tourism, the Space Tourism 
Promotion Act. And the bill would create federally guaranteed 
loans, tax credits, and hopefully a predictable regulatory 
structure for space tourism. The legislation would also spur 
research and development in technologies that will assist the 
private sector to develop operational passenger-carrying space-
transportation systems and on-orbit habitations.
    Humans, obviously, have had a long yearning to travel into 
space and experience the conditions beyond Earth's atmosphere. 
Hopefully, that won't ever go away.
    Forty years of human space flight experience have 
demonstrated the feasibility of travel to and from space, as 
well as the ability of humans to live and work in space. The 
Nation's human space flight program has developed technologies 
and operational procedures that the private sector could make 
use of to enable American citizens to experience space travel.
    Space tourism has the potential to become a significant 
industry and powerful stimulus for advances in space 
transportation. And all of the different ideas that so many 
different people have had have been fascinating to listen to. 
And so I hope that you all do well in promoting this and that 
we do the right kinds of things to make sure that you have 
those opportunities.
    I plan on reintroducing a similar version of that 
legislation in the fall, and I look forward to working on these 
issues with my colleagues. And I would hope that you, too, 
would have suggestions for me, and us, in making sure that we 
include the kinds of things that you want.

             Effects of the Columbia Accident on Investment

    Now, let me ask a couple of questions. My first thought in 
all of this is, how has the investment community reacted to the 
Space Shuttle Columbia accident? Has it affected your ability 
to attract capital? Did that frighten people away? And how will 
it make the transition into a potential accident that might 
occur in your development stages? And any of you can begin.
    Mr. Greason: Somewhat to my surprise--I expected that, 
after Columbia, there would be a lot of people who had signed 
up and saying, ``Yeah, I want to ride,'' that would go away. If 
anything, the reverse has happened. The people who are looking 
to go to space in the early days of this emerging industry are 
fully aware that it's a risky endeavor. And I think the events 
of February reminded them that, in their own way, they're doing 
their part by being willing to take that risk, and increased 
their eagerness to do so.
    I don't think anybody--I don't think the perception that 
the shuttle was safe was held widely in the informed members of 
the public, and so I don't think there was the degree of 
surprise that there was in some other quarters.
    Representative Lampson: Does anybody else have a----
    Mr. McAlister: I concur. When we surveyed individuals for 
this market study, we actually explicitly asked questions about 
the perceived risk of space flight, and most of the respondents 
equated it on the order of mountain climbing. Skydiving is the 
most risky, mountain climbing, space flight was right on the 
order. And so that's a fairly risky activity. And so 
individuals know that this is an inherently risky activity and 
are still willing to go. And a lot of people have asked me 
has--is my impression--has the results of the market study 
changed because of that Columbia accident, and I would say no, 
because people understand that this was risky. We explicitly 
said that it was risky when we asked about their interest 
level. So I think people had a common understanding of what the 
realistic aspects are.

            Effects of Russian Participation on the Industry

    Representative Lampson: The Russian Space Agency has 
already flown tourists into space, including Mr. Tito. Agency 
officials have suggested that Russia might attempt to develop 
more space tourism capabilities. What would happen? What would 
be the impact on the emerging commercial human space flight 
industry if the Russian Government decided to pursue that 
development of a government-sponsored space-tourism program?
    Why don't you start----
    Mr. Tito: Well, there's an effort right now in Russia, 
which is more privately oriented, to build a sub-orbital 
vehicle. And the investment required would be similar to what 
would be required here. And I know, for myself, I would 
strongly prefer investing in America, because, well, I'm an 
American, but also, this is where the market is. And I think a 
very small percentage of those that might be interested would 
actually go to Russia and have to train in Russia and fly in a 
Russian vehicle. So I don't see that as a threat. I think it 
should be done here.
    Representative Lampson: One final comment, and I'll turn it 
back to the Chairman. Mr. Rohrabacher made the comment awhile 
ago that the government wasn't involved in the Wright Brothers' 
efforts. But I might add that the very first thing that 
happened, shortly after that short flight, was the sale of an 
aircraft to the United States Army, and they trained the flyers 
right out here--under contract with the United States 
Government, right out here at College Park.
    Senator Brownback: Excellent comments and excellent 
questions.
    Ms. Johnson.
    Representative Johnson: Thank you very much, Mr. Chairman, 
and thank you for having us join you this morning. And thanks 
to all the witnesses. It's been very interesting.
    About eight years ago, I had a couple of gentlemen come by 
my office and talked about commercializing space exploration, 
and I thought it might have been a joke. I've lived long enough 
now to know that all the things I saw in movies as a kid is a 
reality now.
    Are you all planning separate ventures in different parts 
of the country?
    Mr. Musk: Yes.

                               Timelines

    Representative Johnson: And how quickly do you think you 
can be ready to do it?
    Mr. Musk: Well, in our case, we're building an orbital 
launch vehicle to initially deliver satellites and then, 
subsequently, once it's proven, human transportation. We expect 
to do our first flight sometime in the next eight months. We're 
currently scheduled to launch January 22nd, from Vandenberg.
    Mr. Greason: We've been flying a rocket-powered vehicle 
with a pilot on-board for two years, and when the bigger 
engine's ready, in about a year, we expect to be ready to move 
on to a bigger vehicle.
    Representative Johnson: And these are occupied? By human 
beings, I mean.
    Mr. Greason: Yes.

                Appropriateness of Government Regulation

    Representative Johnson: How do you--do you think it's 
appropriate that there is any kind of government standards or 
any government involvement as you begin these ventures?
    Mr. Greason: I think it's very appropriate that government 
continue as it has begun in having standards that protect the 
uninvolved public. I mean, the public will not accept hazards 
from things--nor should they--hazards from things that they 
have no say in, and there already are very exhaustive 
standards--I mean, I could break this table with the amount of 
paperwork we have to wade through--to keep the uninvolved 
public safe.
    I resist the suggestion that government would put in 
standards for the safety of the people who want to fly, not 
because it is in any way inappropriate, but because it's too 
early. We don't know what standards to put in. The probability 
of doing the wrong thing is very high. And I think we have to 
let the industry develop for awhile and start flying some 
people for awhile before we will gain experience about what 
works and what doesn't.
    Representative Johnson: Mr. Tito, good to see you again. 
You went on a government-sponsored flight. Is that correct?
    Mr. Tito: Well, I would say that it was somewhat government 
sponsored, in that the Russian Space Agency launched the 
vehicle. But, from a financial standpoint, it was sponsored by 
myself.
    Representative Johnson: Yeah, 20 million.
    Mr. Tito: Right.

                             Profitability

    Representative Johnson: Do you think that--do you feel 
confident that a commercial venture would be profitable?
    Mr. Tito: Absolutely. And I wouldn't be interested in doing 
it unless it was going to be profitable.
    Representative Johnson: What did you see?
    Mr. Tito: Pardon?
    Representative Johnson: What did you see?
    Mr. Tito: From space?
    Representative Johnson: Yes.
    Mr. Tito: Well, I saw that this is something that, not only 
I, but thousands of people would get an experience of a 
lifetime. And as those people experience it and relay their 
experiences to all of us here, I saw an opportunity to make 
space flight available to a large number of people, not just 
people that could afford $20 million. But, eventually, people 
who can afford an SUV should be able to afford a flight into 
space.
    Representative Johnson: Let's see how I'm going to 
formulate this other question. The vehicles that you have that 
you are trying out now, how many passengers will they load?
    Mr. Greason: Our initial revenue-generating vehicle will 
only carry one passenger, plus the pilot.
    Representative Johnson: What is the cost to operate?
    Mr. Greason: That's proprietary. But the prices, which 
includes our profit, will initially be about a hundred 
thousand. It will probably come down as new entrants enter the 
field and competition drives the price down.
    Representative Johnson: So, initially, persons who would 
want to make a flight, they would pay, not 20 million, but 
something over a million?
    Mr. Greason: No. About a hundred thousand per flight----
    Representative Johnson: A hundred--so it's----
    Mr. Greason: --is what the initial people are looking at.
    Representative Johnson: --a hundred thousand.
    What do you expect the government role to be?
    Mr. Greason: Let us fly, and keep the public safe, the 
general public.
    Representative Johnson: So meeting safety standards?
    Mr. Greason: The safety standards that we have to already 
meet as a launch vehicle, to protect the uninvolved public, 
yes.
    Senator Brownback: Ms. Johnson, we'll----
    Representative Johnson: Thank you very much, Mr. Chairman.
    Senator Brownback: Thank you very much.
    And we'll go to Mr. Burgess.

                               Liability

    Representative Burgess: Thank you very much, Mr. Chairman. 
And I apologize for being late. This has been a fascinating 
discussion.
    I guess my question, first, is for Mr. McAlister. And you 
talked about how people generally understand the nature of the 
risk when a citizen such as Mr. Tito undertakes this type of 
adventure, but I couldn't help but think about the general 
aviation industry and how that industry was almost taken from 
us because of the costs of liability. And that was not 
liability generated by people who were harmed on the ground 
when a plane crashed, that was liability that was generated by 
pilots, themselves, in some instances, and loved ones who were 
left behind, who perhaps didn't understand the nature of the 
risk that someone undertakes when they strap themselves into 
their small plane and take off into bad weather.
    So I guess my question is, How do you look to manage the 
liability from that standpoint? That is, Mr. Tito had a very 
clear understanding of his risk when he took off, I suspect, or 
at least could get his arms around it to some degree. But I 
would have a strong suspicion, if there had been a very bad 
outcome, then would his family have been so understanding? And 
then that gets to the questions that Mr. Gordon and Mr. Lampson 
were bringing up about the issue of liability and how in the 
world are you going to pay for insurance for someone to go up 
in a commercial space venture.
    Mr. McAlister: I think Jeff's probably more qualified to 
answer that specific question, because he's dealing with how to 
get insurance right now, so I'm going to defer to him.
    Representative Burgess: Okay.
    Mr. Greason: I don't think--I mean, this is not a hundred 
years ago. So the only way that it's practical, in the near-
term, to take people is, they have to be able to waive their 
liability. And there's no--it's going to take years, maybe 
decades, for enough of an operating track record to be built up 
that any insurance carrier would consider writing a policy for 
somebody who actually wanted to ride. I mean, it was only a few 
years ago that you started to be able to get life insurance 
policies that didn't have an exclusion that said if you flew on 
an experimental aircraft, your life insurance was void. Sixty, 
seventy years from now, maybe space travel will be so common 
that we won't have that problem anymore, but today we certainly 
do.
    So when I talk about liability insurance or indemnification 
or any of those issues, I'm really talking only about third 
parties, because I don't think there's any alternative. But the 
people who fly on experimental space vehicles do so at their 
own risk.
    Representative Burgess: Well, very good. All I have to add 
to that is that when Chairman Rohrabacher takes the first Codel 
into space, I'd like to be included in that.
    (Laughter.)
    Representative Burgess: And I will waive my liability.
    (Laughter.)

                  Actions That Would Facilitate Growth

    Representative Burgess: One last point, then, is, if you 
could just sum up, Is there one thing that you would like to 
see us do in the near-term--us, here in Congress--that would 
facilitate you all getting off the ground? No pun intended.
    Mr. Greason: Define sub-orbital in a way that keeps it out 
of the hands of the airplane guys.
    Representative Burgess: Is that in general agreement from 
everyone there?
    Mr. Tito: And also define the role of flying passengers for 
hire and, you know, recognize the ability of the individual to 
go through certain checks and ultimately waive his or her 
rights, you know, to any claims.
    When I flew to the ISS, I waived all claims that either--
would be made either to the Russian Government and to the U.S. 
Government. My kids would have gotten nothing if I did not come 
back.
    Representative Burgess: I guess that's really the question. 
Would the heirs and signs of the Wilshire Corporation have been 
so understanding if something bad happened? Would that be 
defensible? Would that hold up in court? I'm not a lawyer, and 
I don't play one on the floor, but--I guess that's a question I 
need to find out.
    Thank you.
    Senator Brownback: Thank you, Mr. Burgess.
    We'll go through another round here, as long as we can. If 
the panel can continue to participate with us, we'd like for 
you to do that.
    Mr. Kutler, if we got the regulatory structure right, 
limitation and liability right, the various regulatory issues, 
to where this industry--where we were, in Congress--the 
Administration was saying, ``We want this industry to move 
forward. We think it's a key portion of the U.S. dominance in 
space, is we've got to engage the private sector of this 
country.'' If we got that right, do you think that we could 
attract the billions of dollars private-sector money to cause 
this industry to move forward?
    Mr. Kutler: I think there's no question you could, over 
time. Obviously, whether it's investors or it's passengers, 
these things tend to happen in a stair step function. You start 
at a small threshold, you have some successes, you, therefore, 
go out and do it again, and you work your way up the chain. So 
I think, in a logical progression, you certainly can raise the 
capital required to do this over a period of time.
    Senator Brownback: And do you see any key particular 
factors we have to get right in order to attract the capital 
into the private sector of this business?
    Mr. Kutler: Well, I think there's two elements to assess--
we've already laid out, or the panel has, from a regulatory 
standpoint what needs to happen. If that happens, then the 
burden really is on industry to have these incremental 
successes in order to prove the concept to raise the capital 
required to get to the next level.
    Senator Brownback: Okay. Now, the same question to you, Mr. 
McAlister. If we get the regulatory structure right, we get the 
limitation of liability right that this industry can move 
forward, will we be able to attract the billions of dollars, 
either from investors or from consumers willing to take these 
flights?
    Mr. McAlister: Yeah, I concur with Jon. I think, almost 
certainly, the money would be made available. The question is--
the key question is, Can we produce a--can we produce a vehicle 
that can satisfy this demand in a cost-effective manner so that 
a profit can be shown to be made? But if that business case can 
be made, then, yes, the investment capital would come.
    Senator Brownback: Mr. Musk, do you concur?
    Mr. Musk: Yes, I do. I think it's really critical to have 
that one good example. The Internet was really quite stagnant 
until Mark Andreessen and Jim Clark got together, funded by 
Angel Capital from Jim Clark. Where Netscape was shown to be 
successful, that really broke open the flood waters, and the 
Internet became what it is. I think the same can happen with 
space.

                          Anticipated Launches

    Senator Brownback: And, for me--I want to, you know, 
reiterate--my interest in this is, I want to see the United 
States dominate the Earth-moon orbit. I want to see it for the 
good of humanity, for commercial, military, intelligence, 
exploration, scientific purposes.
    It seems to me what you're presenting here today, which is 
a rational presentation, is that the key for us is going to be 
unlocking billions of dollars of private capital for that to 
move forward. We've been stagnant in the public investment 
area. We've invested fair in it, but not heavily. And we need 
to unlock that private capital, and this would be a key for us 
to go forward.
    Mr. Greason, when would you be ready to take your first 
commercial passenger up in space? And I'm going to ask the 
others, as well.
    Mr. Greason: That depends, in part, on factors that are not 
entirely in my control, like how fast we lock up some of the 
remaining investment. But if the investment is in hand, not 
sooner than about three years, because we have an extensive 
test program we have to go through.
    Senator Brownback: So you believe you would be ready to 
offer commercial space flights for private-sector individuals 
by 2006?
    Mr. Greason: We could be, yes.
    Senator Brownback: That presumes that we will be able to 
get the regulatory structure and limitation of liability?
    Mr. Greason: Yes, sir.
    Senator Brownback: And how is your capital formation? I 
know that's proprietary, but are you being fairly well received 
to date?
    Mr. Greason: It's been a long road. There was--as the 
gentleman to my left said, this has been a track record of bad 
results, but I'm quite optimistic about our prospects for 
getting the rest of the money that we need. And right now, 
we're solvent, based on current contracts.
    Senator Brownback: Mr. Musk and Mr. Tito, when could you 
take your first commercial paying human customer into space?
    Mr. Musk: Well, the task that SpaceX has set for itself is 
probably an order of magnitude greater than sub-orbital flight. 
We've really aimed at orbital flight, really essentially the 
job that the Space Shuttle does. That's a longer road. But I 
think it's conceivable we could get something done in the 2006 
time frame, as well.
    Senator Brownback: Mr. Tito.
    Mr. Tito: Well, my time frame is the time that I would make 
a commitment to invest. And then, depending on who I invest 
with, it would depend on their timetable. But it would be 
consistent with, you know, the three- to five-year period. But 
as far as my personal timetable, I'm ready to write the check, 
have the pen in hand. It's a matter of getting the regulatory 
approval.

                             Tax Incentives

    Senator Brownback: Congressman Rohrabacher.
    Representative Rohrabacher: When talking about attracting 
investment, of course, we attract investment by individuals who 
are excited about the idea of being involved in space projects, 
but also just regular investors. And when you can attract 
regular investors, that's when a flood of revenue may come in. 
I have the zero tax, zero gravity legislation, Mr. Chairman, 
that you might think about on the Senate side--it's H.R. 1914--
which excludes new space ventures from capital gains and other 
type of business-related taxes.
    Mr. Kutler, do you think that this--giving people an 
incentive in this way would attract the type of capital that's 
necessary to kick off this part of this adventure?
    Mr. Kutler: Well, I think, obviously, anything helps, 
because what it does is changes the return-on-investment 
equation for an investor. But that will only help if some of 
the preliminary steps are taken to solve the regulatory and 
other issues we talked----
    Representative Rohrabacher: I see.
    Mr. Kutler: --about today. If those aren't taken, then 
nobody will take you up on your offer and start companies to go 
ahead and advantage themselves of the capital gain.
    Representative Rohrabacher: So for our tax incentive to 
work, we've got to make sure we have the liability and 
regulatory reform----
    Mr. Kutler: Correct.
    Representative Rohrabacher: --that's necessary. Well, 
that's a very good answer. But let us note that, under this 
bill, space tourism is certainly a new venture in space that 
would be covered by zero gravity, zero tax.
    I thought that the comparison with general aviation, about 
liability, was an important point, Mr. Chairman, to come out of 
this hearing, that general aviation in our country was almost 
strangled in the cradle. I mean, it wasn't even in the cradle, 
it was actually--it was an adult by then, and we almost killed 
an adult industry with an irrational liability standard. And 
today, of course, general aviation is thriving, and many 
thousands of people, if not tens of thousands of people, earn 
their living manufacturing general aviation planes, servicing 
general aviation planes. It's a very important part of our 
economy.
    I remember, when I was a young man, I would go to Palm 
Springs and celebrate Easter, and it was a pretty wild time out 
there. And one of the things we would do--Mr. Tito remembers 
these days very well--and we would rent motorcycles, and we'd 
go out in the desert and ride our motorcycles that we would 
rent. But something that's happened that today's generation of 
young people don't have the ability to rent a motorcycle and go 
out in the desert and enjoy the same type of thing that I 
enjoyed, the freedom, the exhilaration, the experience of 
riding a motorcycle in the desert in that same area. And why is 
that? Because someone along the line sued someone. Because when 
I rented the motorcycle, I assumed my liability. And somewhere 
along the line, a lawsuit or a law case by some lawyer who was 
seeking financial reward--for himself, I would imagine--was 
able to change the rules of the game. People can no longer sign 
off their liability in renting motorcycles in the desert.
    So what do we have? We have a whole generation of young 
people that aren't able to experience this, and we've got 
people, who are in that industry, who no longer have jobs, 
renting motorcycles to people who want to go out and experience 
something on the weekend or in their holiday.
    It almost happened to general aviation. We want to make 
sure, in this industry, which we believe will have a tremendous 
benefit to the United States and to humankind, that we don't 
eliminate this industry with that same sort of irrationality of 
liability standards that are irrational.
    In fact, as I say, I think that we are entering an era when 
the spinoffs of investment by private individuals, like Mr. 
Musk and Mr. Tito, will actually help us in our national 
defense. We will actually--instead of having the Defense 
Department invest in technology that flows into the private 
sector, we will actually see people move forward in Wright-
Brothers-type entrepreneurial activity, producing technologies 
that will flow into our own defense system and into other 
commercial endeavors. And that's why it's important that we 
permit the entrepreneurs to get involved by having the right 
regulatory and liability standards, and perhaps some of the tax 
incentives, as well.
    And, with that, I want to thank, especially Mr. Musk and 
Mr. Tito and the others, who are willing to put their money 
where their mouth is. The fact is that these two gentlemen--Mr. 
Musk has invested considerable amounts of his money into a 
space venture. Mr. Tito is willing to do that as long as we 
make sure we're doing our job. And I think that this is a--this 
type of entrepreneurship is in the best tradition of the United 
States of America, and that's why we lead the world, because 
we've got people like you.
    So thank you all very much. And thank you, Mr. Chairman.
    Senator Brownback: Thank you, Congressman Rohrabacher.
    I want to thank the panelists for joining us today. It's 
been an excellent hearing. We're going to try to put together a 
series of those, of how we can move forward in the space 
ventures for the United States, that's leading up to and then 
past the Gehman Commission that'll be reporting out, I presume 
sometime in September. So it's all part of that effort to try 
to figure out how we can move forward in space as a country, 
and move forward aggressively.
    Thank you very much for being here. The hearing is 
adjourned.
    [Whereupon, at 11:55 a.m., the hearing was adjourned.]

                              Appendix 1:

                              ----------                              


                   Answers to Post-Hearing Questions

Responses by Phil McAlister, Director of the Space and 
        Telecommunications Industry Analysis Division, Futron 
        Corporation

Questions submitted by Chairman Dana Rohrabacher

Q1.  What barriers must be overcome for commercial human space flight 
to succeed as a viable business?

A1. Within commercial human space flight, there are two segments: 
orbital space travel and sub-orbital space travel. These are very 
distinct markets, each with there own issues.
    Orbital commercial human space flight currently exists with the 
Russian Soyuz launch vehicle. The primary ``barrier,'' or rather the 
primary ``hindrance'' is financial--the current price for orbital space 
flight on the Soyuz limits the potential market to the super-affluent 
population.
    There is no current supplier within the United States of orbital 
space flight, and the barriers to this market are similar to that of 
sub-orbital space flight within the United States. The barriers are 
technical, financial, and regulatory. Technically, no organization has 
ever built a reliable production-level sub-orbital space vehicle. And, 
no organization has ever come close to doing it cost-effectively (the 
financial barrier). From a regulatory perspective, the lack of a clear 
regulatory framework for this industry is also a major barrier.

Q2.  How optimistic are you that these barriers will be overcome?

A2. I am somewhat optimistic that the barriers within the U.S. will be 
overcome. I put the odds at 50-50.

Q3.  When, if ever, do you think commercial human space flight will 
become a viable business?

A3. As mentioned, orbital commercial human space flight is a business; 
although, it is debatable whether it is ``viable.'' Futron estimates 
that the earliest sub-orbital commercial human space flight could 
provide service is 2006, and it would be several years after that when 
the business would become ``viable,'' depending on how you defined that 
term.

Q4.  What barriers must be overcome for commercial human space flight 
to succeed as a viable business? How optimistic are you that these 
barriers will be overcome? When, if ever, do you think commercial human 
space flight will become a viable business?

A4. There is no question in my mind that commercial human space flight 
will become a viable business. The major determinants are economically, 
not technologically driven. Furthermore, the major economic unknown/
`barrier' is the regulatory framework which is within the control of 
the Federal Government and therefore so is the projected time frame is 
for the maturation of the business opportunity.

Questions submitted by Representative Bart Gordon

Q1.  Should the Federal Government provide third-party liability 
indemnification for commercial human space flight activities, and if 
so, why? What, if any, ``cap'' should there be on the government's 
level of indemnification?

A1. It depends whether the space flight activity in question is sub-
orbital or orbital.
    For orbital space flight, indemnification already exists. There is 
no qualification for indemnification regarding the purpose of the 
flight (e.g., commercial human space flight, launch of a 
telecommunications satellite, etc.).
    For sub-orbital space flight, it would depend on the goal of the 
government. If the goal is to treat sub-orbital and orbital activities 
in a consistent manner, then the government should provide 
indemnification. If the goal is to stimulate sub-orbital space travel, 
then again the government should provide indemnification. The 
government should not provide third party indemnification if the goal 
is to minimize government involvement in private sector activities. 
Commercial insurance companies can provide third-party liability 
insurance. It may turn out that commercially-provided liability 
insurance is exorbitant, and therefore it may be a barrier to the 
expansion of sub-orbital commercial human space flight. However, 
theoretically, any activity can be insured.
    If the government decided to provide indemnification, it should be 
at a level consistent with orbital space flight indemnification, i.e., 
at a level equal to the maximum probable loss of the vehicle.
    Unfortunately, litigation, and the potential for extraordinary 
financial awards, are a way of life in this country. It brought a 
mature general aviation industry to its knees in the 1980s. This 
bankrupted many participants, cost a large number of jobs and delayed 
any significant new investments/advancements for over a decade. The 
industry is still digging out from that train wreck. The potential for 
a single similar judgment could kill the entire fledgling commercial 
human space flight industry before it gets off the ground. Should the 
Federal Government seek to promote this industry, third-party liability 
indemnification will be an essential part of the plan. Such 
indemnification should, however, be carefully legislated so that it is 
a temporary, not institutionalized benefit. Once a track record of 
successful space flight is achieved, I am confident that the 
corporations involved will work with industry insurers to consider what 
an appropriate risk sharing is going forward. The other important 
insurance element is the ability for a reasonable waiver of liability 
signed by passengers to be considered valid/enforceable and not subject 
to reversal in court.

Q2.  What, if any, regulatory role should the Federal Government play 
relative to the commercial human space flight industry, and why?

A2. Again, for orbital space flight, the regulatory regime is already 
established.
    For sub-orbital space flight, the government should regulate the 
safety of the uninvolved public. In this regard, the orbital space 
flight safety regime should be used as a template for sub-orbital space 
flight.
    Other than the safety role, the government should not be involved. 
Particularly, the government should not be in the business of 
determining what is an acceptable risk level for paying passengers of 
sub-orbital space travel. The provider of sub-orbital space travel and 
the customer are involved in a consensual, private transaction. The 
customer should be free to weigh the risks, rewards, and price of such 
a service and decide whether or not to purchase the service. The 
customer should also be free to decide whether or not to waive his/her 
liability against the supplier.
    Like many sectors with large potential legal risks, the industry is 
not likely to receive the full funding required to develop without a 
regulatory framework set by the Federal Government. Investor's fears of 
what could be' may be even more harmful than having a set of 
regulations which are only partially industry-friendly. There should 
therefore be early Federal Government oversight regulating commercial 
human space flight. The key is to balance the regulatory burden to be 
placed upon start up companies and primarily focusing on the risks of 
the uninvolved public.

Q3.  Should the government certify the safety of your vehicles prior to 
the commencement of commercial, passenger-carrying operations? If so, 
how should that be done? If not, how should your industry address 
safety considerations?

A3. No (see the answer to question 2). The government should only 
certify/license vehicles as safe for the uninvolved public. Again, the 
orbital regulatory regime can be applied for this purpose.
    It is up to the industry to demonstrate to the public that its 
vehicles are safe. The risk/reward equation is unique for each 
individual and it should be left up to the individual customer to make 
that determination. Even if sub-orbital human space travel turns out to 
be enormously risky, it should be up to the individual to determine if 
the risk is worth the reward. If the industry cannot demonstrate its 
safety, it will not get any customers and the question becomes moot.
    Government certification of experimental spacecraft will place a 
huge financial burden on start-up companies. Unlike the early days of 
the commercial aerospace industry, today there are minimal 
technological contributions made by small companies. The current 
regulatory burden on the industry has become an effective `barrier to 
entry' for new technologies and ideas, except those developed by the 
largest of companies. Of course since those large companies have huge 
investments in the current state of technology, development will 
continue to lag what it otherwise technologically possible. For that 
reason, the Federal Government should recognize the inherent 
experimental nature of early commercial manned space flight and not 
require companies to spend more on attorneys than engineers. Paying 
passengers should be permitted to assume risk for themselves, rather 
than relying on a Federal Government to regulate space flight to a 
safety level comparable to a commercial aircraft in these early 
developmental days. Over time, as the industry matures, safety metrics 
will develop and at some point it would be appropriate for the 
government to regulate the industry just as it does other means of 
transportation.
    One analogy to compare it to is the regulatory oversight of the 
Securities & Exchange Commission. The SEC has a regulatory framework in 
place to protect investors. Certain sophisticated investors, as defined 
based upon their net worth and experience in investing, are permitted 
to make investments with minimal disclosure that otherwise would not be 
generally available to the public. In this case the SEC views those 
investors as being capable of making a risk assessment for themselves. 
During the early days of human commercial space flight, the cost of a 
ticket will be high enough to permit the Federal Government to think 
about this risk assessment by individuals alone in a similar manner.

                   Answers to Post-Hearing Questions

Responses by Dennis A. Tito, CEO, Wilshire Associates, Inc.

Question submitted by Chairman Dana Rohrabacher

Q1.  In establishing safety standards for commercial human space flight 
activities, what features of current aircraft safety standards and 
space launch safety standards should be applied to commercial human 
space flight?

A1. As I stated in my testimony, commercial aviation is a mature and 
well-established industry. Aircraft safety standards reflect 100 years 
of powered flight experience, and are part of a 75+ year history of 
federal regulation increasingly focused on protecting the safety of 
airline passengers as well as uninvolved third parties.
    The commercial space launch industry is a somewhat less mature 
industry, with just over two decades of commercial experience. This 
industry's heritage, however, is based on over a half-century of 
military and civilian development and testing of ballistic missiles and 
their descendant launch vehicles. Missiles and most current launch 
vehicles have significant destructive potential and, because they are 
expendable, cannot be flight tested, fixed, and re-tested in the way 
aircraft or other reusable systems can. Launch safety standards have 
therefore focused on detailed oversight, complex system redundancy and 
flight termination (self-destruct) capabilities.
    Neither of these two operational safety paradigms is appropriate 
for commercial human space flight. There may be some similarities 
between aircraft and sub-orbital reusable launch vehicles, and others 
between RLVs and expendable rockets. However, I predict that these new 
space planes will in fact merit their own operational safety 
approaches. At this point, we need to develop and fly some vehicles so 
we can learn what to do and what not to do. That, after all, is the 
beauty of the competitive marketplace: better ideas are rewarded while 
less-good approaches suffer until they are improved or die off.

Questions submitted by Representative Bart Gordon

Q1.  Should the Federal Government provide third-party liability 
indemnification for commercial human space flight activities, and if 
so, why? What, if any, ``cap'' should there be on the government's 
level of indemnification?

A1. In general I believe that the Federal Government should provide a 
level playing field for all commercial space transportation endeavors. 
If policy-makers believe that the current third-party excess liability 
risk-sharing regime, commonly known as ``indemnification,'' should be 
continued for expendable launch vehicles, then I would expect it to 
apply to reusables as well.
    Personally, continued provision of indemnification is not an 
absolute requirement for me to make an investment in the sub-orbital 
RLV industry. I am not seeking to be regulated by the FAA Associate 
Administrator for Commercial Space Transportation in order to obtain 
indemnification. I am seeking a predictable, stable, and streamlined 
regulatory environment so that if my investment leads to a successful 
RLV, the company I invest in will be able to pursue commercial revenues 
in the marketplace without the burdensome regulation faced by the 
existing mature aviation industry.
    I predict that the inherent reliability and fairly small size of 
sub-orbital RLVs will make their likelihood of incurring significant 
third party liability much less than current large commercial ELVs. To 
the extent this is proven out over time, the government's risk of ever 
actually paying an excess claim will decrease even as the number of RLV 
flights dramatically increases. That is certainly a win-win for all 
parties.

Q2.  What, if any, regulatory role should the Federal Government play 
relative to the commercial human space flight industry, and why?

A2. First and foremost, the government should continue its space 
transportation regulation focus on protecting uninvolved third parties. 
Just as the Federal Aviation Administration allows people to risk their 
lives jumping out of planes while protecting other air traffic and 
people and property on the ground from skydiving operations, the 
Federal Government should allow people to experience the inherently 
risky adventure of human space flight. So the primary regulatory focus 
should be to protect public safety.
    Because this industry is not even in place yet, I would be very 
hesitant to suggest that the government take a prescriptive approach to 
regulating the design or operation of vehicles in order to somehow 
guarantee the safety of space flight participants. The only way to 
guarantee safety is to not allow these vehicles to fly in the first 
place. If policy-makers agree that it will help America's national 
space enterprise to allow more of its citizens to personally 
participate in the opening of the space frontier, especially if 
citizens will voluntarily pay for the experience and/or invest in 
developing these vehicles without federal funding, then you cannot 
preempt the industry's need to naturally evolve through flight 
experience. In short, if vehicles can't be funded to fly for revenue 
because someone might get hurt, we won't learn to build safer and more 
cost-effective vehicles and achieve the kind of safe operation of RLVs 
that aviation enjoys today. Government cannot short-circuit the risky 
``barnstorming'' phase of space flight, although it can work with 
industry to maximize the learning from these early years.

Q3.  Should the government certify the safety of your vehicles prior to 
the commencement of commercial, passenger-carrying operations? If so, 
how should that be done? If not, how should your industry address 
safety considerations?

A3. If by ``certify'' you mean the same process used by the FAA to 
certify a commercial airplane for regular passenger operation, the 
answer is clearly no. Neither the FAA nor industry know enough about 
reusable launch vehicles to conduct an aircraft-style certification 
process. And we will never learn unless vehicles can fly for revenue 
under the existing RLV licensing process. Furthermore, any functional 
equivalent of government certification would create an inappropriate 
expectation on behalf of RLV customers that their space travel 
experience will be as safe as riding a Boeing 737 from Los Angeles to 
San Francisco.
    That does not mean that the RLV industry does not need to pay 
attention to the safety of its customers, nor that the government 
should take a passive role. First and foremost, the government's 
regulation of RLVs to protect safety of the general public will 
encourage increasing vehicle reliability and other features (e.g., 
fail-safe designs and multiple abort modes) which will inherently tend 
to protect space flight participants as well. Furthermore, the 
government must require that RLV companies fully disclose the safety 
record of their vehicles to potential customers, and help RLV companies 
to set appropriate medical and training standards as part of the 
licensing process.
    However, the industry also must bear a significant responsibility 
for developing its own ``best practices'' to evolve towards safer space 
travel experiences. In this regard, another historically risky 
``adventure travel'' industry--commercial scuba diving--may provide an 
excellent model for the commercial human space flight industry.
    With the commercial introduction of Jacques Cousteau's aqualung 
after World War II, more and more scuba-oriented diving shops opened up 
around the U.S. during the 1950s. As more people began to participate 
in the late 1950s and early 1960s, more accidents occurred. The 
industry responded by creating professional certification organizations 
and training courses to ensure that diving customers had the requisite 
training and skills to safely enjoy their diving experience. By the 
1970s, diving certification cards were regularly required for the 
purchase or rental of diving equipment, and new technological 
innovations were diffused throughout the industry to improve the 
reliability of all manufacturers' equipment.
    I see no reason, particularly with an active facilitating role by 
the Federal Government, why the commercial human space flight industry 
cannot develop similar practices and methods to provide an increasingly 
safe--but still adventurous--space flight experience to our customers.

                   Answers to Post-Hearing Questions

Responses by Elon Musk, President and Chief Technologies Officer, Space 
        Exploration Technologies (SpaceX)

    These questions were submitted to the witness, but were not 
responded to by the time of publication.

Questions submitted by Chairman Dana Rohrabacher

Q1.  The Space Launch Initiative (SLI) was intended to encourage 
innovative ways for reducing launch vehicle development cost. In your 
opinion, why didn't SLI succeed?

Q2.  To what level should industry standardization be pursued during 
the early stages of commercial human space flight development? How does 
standardizing launch vehicle components contribute to the goal of low-
cost launch operations?

Questions submitted by Representative Bart Gordon

Q1.  Should the Federal Government provide third-party liability 
indemnification for commercial human space flight activities, and if 
so, why? What, if any, ``cap'' should there be on the government's 
level of indemnification?

Q2.  What, if any, regulatory role should the Federal Government play 
relative to the commercial human space flight industry, and why?

Q3.  Should the government certify the safety of your vehicles prior to 
the commencement of commercial, passenger-carrying operations? If so, 
how should that be done? If not, how should your industry address 
safety considerations?

                   Answers to Post-Hearing Questions

Responses by Jeff Greason, President, XCOR Aerospace, Mojave, 
        California

Question submitted by Chairman Dana Rohrabacher

Q1.  In establishing safety standards for commercial human space flight 
activities, what features of current aircraft safety standards and 
space industry launch safety standards should be applied to commercial 
human space flight?

A1. Because of the immaturity of this industry, we believe that 
standards should be generic rather than specific, guidelines rather 
than specifications.
    We have sought in vain for a set of applicable standards covering 
the type of vehicle we are developing. Many existing standards cover 
systems, subsystems, and components of aircraft and launch vehicles. 
These are derived from FAA, NASA, DOD, OSHA, DOT and non-governmental 
bodies such as AIAA, SAE, and NFPA. While we refer to these standards 
frequently we have found few to be wholly applicable.
    Standards are often written in a very prescriptive manner: ``you 
will do it this way.'' As one example, a certain common aircraft 
material (such as aluminum alloy 2024-T3 per Federal Standard QQ-A-250/
4) may be specified for a pressure vessel, and it works quite well when 
used on an aircraft. It may, however, be completely incompatible with 
launch vehicle propellants, or reentry temperatures, or it might simply 
weigh too much to be acceptable in a launch vehicle. Any given 
standards document usually covers multiple systems, and while one 
element of it may apply to our case, several others will not.
    Therefore, if by ``features of current standards'' you mean pieces 
of the standard that we can adopt, I cannot recommend adoption of any 
such combination of standards.
    We think more in terms of design criteria than standards. A 
standard suggests something uniform across several vehicles; and 
successful standards are based on experience. It is clearly too early 
to develop such standards for sub-orbital or orbital commercial manned 
vehicles, since there are no such vehicles to use as the basis of 
experience. In setting the design criteria used in any given vehicle, 
we have examined a large collection of standards used in various 
arenas. We have often found that these standards are useful resources 
in developing design criteria for a specific vehicle. The requirements 
in a standard are there for a reason; usually in responses to some 
failure that has occurred in a given system. While we may not be 
preventing that type of failure in the same way, we need to prevent it 
in some way. The applicability to any given vehicle can only be 
determined on a case-by-case basis.
    Therefore, at the current stage of maturity in commercial human 
space flight, we need a regulatory framework that avoids design 
standards that are too specific to an assumed design. Vertical takeoff 
rockets may need a completely different set of standards than winged 
vehicles that take off from a runway. Instead, we need performance-
based standards; an approach which says ``you will demonstrate this 
level of performance,'' rather than ``here is how you do it.'' As the 
industry develops a track record, the time will come when design 
standards will be appropriate, but this can only be learned through 
experience.
    While the current AST regulations have many shortcomings, their 
outstanding feature is that they are being developed in a performance-
based manner. Their approach to public safety relies on a quantitative 
safety standard (expected casualties) rather than specifying the design 
methods which will achieve the desired level of safety. This leaves 
each launch company free to develop the designs which will be used to 
achieve that level of safety, and AST is left with the task of 
confirming that they are adequate to protect public safety. The single 
most useful feature of the existing regulations is that they preserve 
the performance-based approach to regulation.

Questions submitted by Representative Bart Gordon

Q1.  Should the Federal Government provide third-party liability 
indemnification for commercial human space flight activities, and if 
so, why? What, if any, ``cap'' should there be on the government's 
level of indemnification?

A1. The government currently does carry such third-party 
indemnification per international treaty, and I see no reason to change 
this. In other words, there is no reason why the current launch of, for 
example, a satellite that will be used to broadcast entertainment 
should be treated differently in this respect from the future launch of 
space flight participants. The justification for third-party liability 
indemnification for commercial launches of non-government payloads is 
that the health of the industry is important to the United States. The 
health of an industrial base for frequent, safe, reliable, and 
affordable space transportation is at least as important, economically 
and strategically, as the commercial direct broadcast satellite 
industry.
    Singling out one segment of space transportation to be excluded 
from the already existing indemnification regime would make it 
extremely difficult to obtain third-party liability insurance. Space 
insurance is already a small and highly specialized business, and the 
existing insurance suppliers and customers have stated publicly that 
the current indemnification regime is important to them. Therefore it 
would be an unfair burden to emerging space transportation developers, 
who are least able to afford expensive insurance, to drive up their 
insurance rates while leaving the existing players indemnified. This is 
essentially the same argument I made at the hearing: ``why make 
insurance more difficult to get than it is already?''
    So far, I have asked only for equality of treatment. This is 
separate from the question of what the indemnification regime should 
be. Let me summarize the current situation. The only ``indemnification 
regime'' for launch vehicles covers third-party losses in excess of the 
maximum probable loss. The intention is that the losses to the 
uninvolved public from unforeseeable, extraordinary, less than one-in-
ten-million accidents be covered by the U.S. government. That, in turn, 
was necessary because the Liability Convention, to which the U.S. is a 
party, establishes the U.S. government as the ultimately responsible 
party for third-party damages in international launch accidents. The 
so-called ``indemnification'' regime actually limits the exposure of 
the U.S. government by requiring launch operators to purchase very 
expensive insurance to cover a significant fraction of the potential 
risk which otherwise, by treaty, would be the province of the U.S. 
government.
    Furthermore, before the government provides indemnification and 
issues a launch license, all parties to the launch activity must agree 
to waive liability claims against all other involved parties, including 
the government. This ``cross waiver'' means that the government does 
not protect a launch provider against claims by, for instance, the 
launch customer. This situation would continue in the case of the sub-
orbital RLV industry, so that the government would not be placed in the 
role of indemnifying the vehicle operator against claims by a space 
flight participant. Nor could the participant expect to make claims 
against the government, since they would have waived that right as part 
of the cross waiver which is required as a condition of the launch 
license.
    In 1988, the Congress and Executive Branch decided that the brand-
new U.S. commercial launch industry could not bear the burden of 
assuming unlimited liability for every possible (however improbable) 
launch accident. Insurance for such liability would be unobtainable or 
prohibitively expensive. The result was the current indemnification 
regime.
    It should be noted that other countries offer indemnification 
provisions to their launch operators which are at least as generous as 
that offered by the U.S. From time to time, the U.S. Congress has 
questioned whether these justifications still apply, and that 
discussion will probably go on. I will note in passing that it is easy 
to criticize the indemnification regime, but not so easy to suggest an 
alternative without at least some substantial drawbacks. I also note 
that the government has never paid a claim for a commercial launch 
accident, only for government launches.
    If the sub-orbital RLV industry is encouraged and fostered, we will 
be able to build up a large flight database. Once this has been done, 
the nature of the insurance problem may change. One reason that space 
insurance is so specialized and so expensive is that the flight 
frequency is too low to apply normal statistical techniques. As 
customer demand and flight rates increase, this will change; when there 
are hundreds of flights per year, failure rates will be predictable and 
the pool of possible insurance providers will be much larger. At that 
time, a reexamination of the indemnification strategy will be called 
for.
    But for now, the indemnification regime has helped foster the 
existing ELV industry, can help foster a new RLV industry, and has not 
cost the taxpayers a dime. It is difficult to see a near-term need for 
change.

Q2.  What, if any, regulatory role should the Federal Government play 
relative to the commercial human space flight industry, and why?

A2. The Federal Government has two critical roles in the commercial 
human space flight industry: protecting the public, and promoting the 
development of the industry.
    Striking the right balance between these objectives calls for 
vigilance; the regulations need to evolve with the industry. Right now, 
we face regulations which are a mix of old missile-derived ELV 
regulations and RLV regulations based on regulators' best guesses about 
how the RLV industry would develop in the future. There is also the 
usual human tendency towards regulatory mission creep, developing new 
regulations in advance of a clear requirement, even in advance of the 
regulated activity actually occurring (and along with it any experience 
base that would properly inform the regulatory process).
    What the nascent sub-orbital RLV industry needs is a flexible and 
enabling regime in which we face the minimum set of regulations 
necessary for the protection of public safety. It should not be 
sufficient that a proposed regulation be useful or plausible, it has to 
be demonstrably necessary. The AST regulatory approach has elements of 
this approach but much work remains to update and streamline the 
regulations. We believe that as soon as several RLVs are actually 
flying, a review of the regulations will be necessary, and we will 
likely find that many of them need to be revised or replaced. Today's 
RLVs are turning out to be somewhat different than what was predicted a 
few years ago when the existing regulations were originally drafted.
    The ``promotion'' mission could use some more emphasis. The most 
important way to promote the industry is with a predictable and 
workable regulatory regime, but more could be done. AST has many 
initiatives underway which will take time to bear fruit, including 
tools to simplify the safety analyses, and most importantly, developing 
a categorical exclusion (CATEX) from the National Environmental Policy 
Act for sub-orbital RLV activities to lift the needless burden of 
individually assessing each launch license for NEPA compliance.
    It also seems to us that AST would profit from shifting resources 
away from regulatory development and towards field experience with the 
RLV developers. We believe AST has the right ingredients to grow into 
an effective agency for promoting the development of a safe RLV 
industry. However, because this industry is so young, they lack 
practical experience needed for developing future regulations. Assuming 
that sub-orbital RLVs will continue to be regulated by AST, these 
suggestions represent more a fine-tuning of their regulatory approach 
than a radical change.
    There are some who have suggested rolling back the progress since 
1984 and placing sub-orbital RLVs under the aircraft regulatory regime. 
That would be a huge mistake; a nascent new area of technology and 
business cannot be appropriately regulated by an agency that oversees a 
fully mature industry and has no promotional mandate. Much of aircraft 
regulation is design-specific, rather than performance based. Certain 
technologies are either explicitly or implicitly assumed to be in use 
in the aircraft world, and flight regime is assumed to be subsonic in 
air thick enough to lift the vehicle. While some RLVs will employ some 
aviation-derived techniques, they will deviate from aircraft practice 
in many ways, far more than the most unusual certificated aircraft has 
ever done. The aircraft regulatory system simply cannot evolve fast 
enough to keep up with the pace of technological development in this 
new industry because it, appropriately, errs on the side of caution to 
protect the general public which rides on commercial airplanes. As 
discussed above, the AST regime is not perfect either, but our chances 
of succeeding with this much smaller and more flexible agency are much 
better.
    I believe the government also has a very important role to play in 
developing passenger safety, by adopting a paradigm of seeking 
continuous improvement in passenger safety, rather than imposing a 
specific solution. I discuss this more in the answer to the following 
question.

Q3.  Should the government certify the safety of your vehicles prior to 
the commencement of commercial, passenger-carrying operations? If so, 
how should that be done? If not, how should your industry address 
safety considerations?

A3. The government should absolutely not certify the safety of our 
vehicles prior to the commencement of commercial, passenger-carrying 
operations. Today, we have a gap of one-million-to-one between the 
safety of space flight (roughly 40 fatalities per thousand emplanements 
for U.S. space missions) and aircraft (roughly 25 fatalities per 
billion emplanements for U.S. scheduled air carriers). When aviation 
started, its accident rate was as bad or worse than today's space 
transportation technology. In the early days, carrying passengers for 
``barnstorming'' was one of the few sources of revenue in the aircraft 
industry. Today, risk tolerance is lower than in the 1920s. We believe 
we can and must do better. But if commercial RLV operators are ten 
times safer than government space flight efforts (which may be 
achievable), that is still 100,000 times less safe than aircraft. We 
are clearly too early for any kind of certification regime as that 
practiced in commercial aviation.
    Early generation RLVs should be allowed to fly as long as the 
uninvolved general public are kept reasonably safe. The key is a system 
which investigates failures and shares the methods used successfully. 
The best and fastest path to safety is establishing a regulatory 
culture of continuous improvement based on experience; and the more 
flights we get, the faster we will gain that experience. Attempts to 
shortcut this process by establishing standards based on guesses or 
predictions about future technologies will stifle innovation, fix in 
place present practices, and slow the pace of safety improvement. This 
might not be so bad if the current safety record of space 
transportation were something to preserve. But it is not; it is 
something to change for the better.
    If this is so, how should our industry address safety 
considerations for passengers? We will field an array of quite 
different vehicles with different costs, safety records, level of 
training needed for passengers, and passenger comfort. Among the 
adventurous early participants, we face a spectrum from the old to the 
young, from the very fit to those with various medical limitations, and 
a wide variation in tolerance for risk. There are those who have spent 
much of their life seeking a way into space and would gladly risk their 
lives, and those for whom it is merely a passing fancy. Trading off 
these many variables is not a task for regulation; no regulator can 
look into the hearts and minds of the passengers and decide, whether an 
operation is safe enough for this or that passenger.
    I am not suggesting a passive role for regulators regarding 
passenger safety, however. For passengers to be able to make these 
decisions in an informed manner, the operators must be required to 
fully disclose their safety operating record in unambiguous terms. How 
else can the passengers seek out the safer vehicles? Furthermore, some 
vehicles will require more stringent medical standards than others, and 
some will require more training than others. What is the right level of 
each? Currently the answer is ``we don't know.'' Nobody knows what the 
market will support; and it is likely not going to be a single answer. 
There will probably be those space flight participants who seek a 
hands-on flight, which will require substantial training, and those who 
just want a thrilling ride.
    Market mechanisms can work only when consumers have access to the 
information they need to make decisions. So we certainly need some 
regulation so that all operators are forced to disclose their safety 
records, giving safer operators a way to attract customers. But 
arbitrarily requiring some level of safety today, possibly more than 
today's technology will permit, will only drive up costs and actually 
slow down the rate of progress toward safer operations. What is the 
right trade off? It is different for different customers, but the safer 
we get, the more customers we will attract.
    The training and medical issue is less obvious but similar in 
nature. If one vehicle requires strict screening and extensive training 
for hands-on participation, and another is hands-off, then applying the 
same standard to both vehicles has negative effects. If the standard is 
loose, passengers in the hands-on vehicle are not being adequately 
screened, with safety implications for both the passenger and the 
public. But if the standard is strict and all passengers must be 
screened and trained, then what of the innovator who sought to bring 
space to the masses with a hands-off vehicle? That operator is out of 
business: no customers have been attracted because the passengers all 
had to be trained and screened for a competitor's vehicle.
    The argument is sometimes made that decisions on safety are too 
difficult for passengers to make. I believe in the wisdom and ability 
of free citizens to make such decisions for themselves; and that it is 
proper in a free society to let them do so. People are allowed to risk 
their lives mountain climbing, parachuting, SCUBA diving, or driving 
race cars--we do not believe the decision to travel to space, facing 
the risks of doing so, is any different.
    The current safety situation will change when operational track 
records are established. It is very likely that there will be dramatic 
differences in safety between vehicle types. When that happens, AST, 
industry, and the NTSB need to collaborate on raising the bar, perhaps 
by establishing minimum safety records, perhaps by design standards, or 
a mix of both. As this evolves, it will be important to avoid applying 
these new regulations to vehicle test flights. Research and development 
test flights should continue with the sole burden of protecting the 
safety of the general uninvolved public. In this way we can hope that 
people will look back on the first century of private space flight and 
see the same dramatic improvement in safety which has been demonstrated 
by aircraft.

                   Answers to Post-Hearing Questions

Responses by Jon B. Kutler, Chairman, CEO, Quarterdeck Investment 
        Partners, LLC

Question submitted by Chairman Dana Rohrabacher

Q1.  What barriers must be overcome for commercial human space flight 
to succeed as a viable business? How optimistic are you that these 
barriers will be overcome? When, if ever, do you think commercial human 
space flight will become a viable business?

A1. There is no question in my mind that commercial human space flight 
will become a viable business. The major determinants are economically, 
not technologically driven. Furthermore, the major economic unknown/
`barrier' is the regulatory framework which is within the control of 
the Federal Government and therefore so is the projected time frame is 
for the maturation of the business opportunity.

Questions submitted by Representative Bart Gordon

Q1.  Should the Federal Government provide third-party liability 
indemnification for commercial human space flight activities, and if 
so, why? What, if any, ``cap'' should there be on the government's 
level of indemnification?

A1. Unfortunately, litigation, and the potential for extraordinary 
financial awards, are a way of life in this country. It brought a 
mature general aviation industry to its knees in the 1980s. This 
bankrupted many participants, cost a large number of jobs and delayed 
any significant new investments/advancements for over a decade. The 
industry is still digging out from that train wreck. The potential for 
a single similar judgment could kill the entire fledgling commercial 
human space flight industry before it gets off the ground. Should the 
Federal Government seek to promote this industry, third-party liability 
indemnification will be an essential part of the plan. Such 
indemnification should, however, be carefully legislated so that it is 
a temporary, not institutionalized benefit. Once a track record of 
successful space flight is achieved, I am confident that the 
corporations involved will work with industry insurers to consider what 
an appropriate risk sharing is going forward. The other important 
insurance element is the ability for a reasonable waiver of liability 
signed by passengers to be considered valid/enforceable and not subject 
to reversal in court.

Q2.  What, if any, regulatory role should the Federal Government play 
relative to the commercial human space flight industry, and why?

A2. Like many sectors with large potential legal risks, the industry is 
not likely to receive the full funding required to develop without a 
regulatory framework set by the Federal Government. Investor's fears of 
`what could be' may be even more harmful than having a set of 
regulations which are only partially industry-friendly. There should 
therefore be early Federal Government oversight regulating commercial 
human space flight. The key is to balance the regulatory burden to be 
placed upon start up companies and primarily focusing on the risks of 
the uninvolved public.

Q3.  Should the government certify the safety of launch vehicles prior 
to the commencement of commercial, passenger-carrying operations? If 
so, how should that be done? If not, how should the industry address 
safety considerations?

A3. Government certification of experimental spacecraft will place a 
huge financial burden on start-up companies. Unlike the early days of 
the commercial aerospace industry, today there are minimal 
technological contributions made by small companies. The current 
regulatory burden on the industry has become an effective `barrier to 
entry' for new technologies and ideas, except those developed by the 
largest of companies. Of course since those large companies have huge 
investments in the current state of technology, development will 
continue to lag what it otherwise technologically possible. For that 
reason, the Federal Government should recognize the inherent 
experimental nature of early commercial manned space flight and not 
require companies to spend more on attorneys than engineers. Paying 
passengers should be permitted to assume risk for themselves, rather 
than relying on a Federal Government to regulate space flight to a 
safety level comparable to a commercial aircraft in these early 
developmental days. Over time, as the industry matures, safety metrics 
will develop and at some point it would be appropriate for the 
government to regulate the industry just as it does other means of 
transportation.
    One analogy to compare it to is the regulatory oversight of the 
Securities & Exchange Commission. The SEC has a regulatory framework in 
place to protect investors. Certain sophisticated investors, as defined 
based upon their net worth and experience in investing, are permitted 
to make investments with minimal disclosure that otherwise would not be 
generally available to the public. In this case the SEC views those 
investors as being capable of making a risk assessment for themselves. 
During the early days of human commercial space flight, the cost of a 
ticket will be high enough to permit the Federal Government to think 
about this risk assessment by individuals alone in a similar manner.