Blue Origin released a market study that projects growing demand for launch services

Updated Sept. 25 with Air Force comment

WASHINGTON — Just weeks after filing a protest over the Air Force’s plan to select two companies in its next procurement of launch services, Blue Origin is further pressing its case that the Air Force is stifling competition in the national security launch program.

To back up its claim, Blue Origin released a market study Sept. 24 that projects growing demand for launch services and estimates that at least three, if not four, U.S. launch suppliers would be needed to fill that demand.

Blue Origin, a launch vehicle and rocket engine manufacturer owned by Amazon founder Jeff Bezos, commissioned the study to an unidentified global management consulting firm. A summary of the study was provided to reporters Sept. 24. Blue Origin said it could not disclose the name of the consulting firm.

Blue Origin CEO Bob Smith told SpaceNews that the company commissioned the study to help bring fresh data into the ongoing debate on the National Security Space Launch Phase 2 Launch Service Procurement.

The Air Force intends to select two winners in 2020 to split 60/40 all national security missions from 2022 to 2026. Four companies are competing — United Launch Alliance, Blue Origin, SpaceX and Northrop Grumman.

Smith repeated some of the points the company has been making for months: That narrowing the field to just two providers undermines the U.S. launch industry by freezing out competitors for the five-year period of the Phase 2 contract and beyond.

The launch market study commissioned by Blue Origin looked at the potential demand over the next 10 years. “Even in the conservative baseline scenario, at least three, and possibly even four, U.S. launch providers can operate profitably,” says the study. It defines the “addressable market” as four main customers: U.S. national security launch, government civil space, commercial operators of large geosynchronous satellites and non GEO constellations, and foreign governments that don’t have indigenous launch capabilities or strong ties to a non U.S. launch provider.

That addressable market averaged 38 launches per year from 2010 to 2018, according to the study. It forecasts demand could reach 46 to 82 launches per year from 2020 to 2030. By comparison, the Air Force and its main launch provider United Launch Alliance have estimated future demand at 20 to 30 launches per year.

The high end scenario assumes that several non-geostationary constellations that are projected to be built by commercial companies and by the Defense Department’s Space Development Agency will materialize. National security launches represent about 20 percent of the historical addressable market, the study says.

Even though national security launch is only a fraction of the market, the Air Force’s Phase 2 strategy weakens the broader national launch industrial base, Smith argued. The Air Force would terminate development funds for those providers not selected in Phase 2 and this approach essentially locks the national security launch sector into a duopoly for well over a decade, he said, restricting competition that would lower launch prices and support diversity in the industrial base.

According to the Air Force, if the commercial market can sustain three or more providers, whoever doesn’t win Phase 2 should be able to wait for another opportunity to win Phase 3. Officials have said they want to prevent a repeat of what happened in the late 1990s when the commercial demand collapsed and the Air Force had to subsidize its two launch providers Boeing and Lockheed Martin.

Smith suggested that the Air Force has it backwards. “The Air Force feels they need to support launch vehicle providers or play the role of anchor customer. That is the exact opposite of what we believe they should be thinking about, which is ‘How do they best leverage commercially available launch services?” Smith said. “That’s a different approach.”

The Air Force would benefit from a larger base of commercially viable suppliers that can spread their cost out, Smith insisted. If they select providers that only focus on the government market “they will be inherently more expensive and less capable than those that actually can address the commercial market.”

GAO protest pending

Blue Origin on Aug. 12 filed a “pre-award” protest with the U.S. Government Accountability Office, arguing that the rules set by the Air Force for the Phase 2 procurement do not allow for a fair and open competition. GAO has to deliver a ruling in November.

The company wants GAO to compel the Air Force to change the structure of the Phase 2 contract and break up the five-year block-buy into smaller lots of launches so there would be more frequent competitions and “on ramps” for new players. Blue Origin also wants the Air Force to reverse its decision to cut off development and infrastructure funding to the losers of Phase 2. “If the infrastructure is not built out they won’t compete, they won’t be certified,” said Smith. “We continue to advocate this to Capitol Hill and the Pentagon.”

The protest also claims the final request for proposals issued by the Air Force on May 3 has unclear and ambiguous selection criteria and discriminates against new competitors by asking bidders to offer a backup launch vehicle.

The Air Force has stood firmly behind its strategy and has insisted that any modifications would jeopardize efforts to end its reliance on the Russian RD-180 that serves as the main engine for ULA’s Atlas 5 rocket. Air Force officials were on Capitol Hill last week defending the Phase 2 strategy to congressional committees. The House version of the National Defense Authorization Act calls for changes to open up Phase 2 to more competitors. The Senate version backs the Air Force plan.

Air Force rebuttal

When asked for response, Air Force spokeswoman Ann Stefanek said, “during source selection, we will not comment or provide any further specific details.”

An Air Force white paper distributed to service leaders, a copy of which was obtained by SpaceNews, rebuts Blue Origin’s allegations cited in the protest.

To Blue Origin’s complaint that the selection criteria is ambiguous, the Air Force’s response is that the Phase 2 is a “best value tradeoff source selection conducted in accordance with Federal Acquisition Regulations.” The Air Force also denies that it is aiding ULA by allowing a backup vehicle to be offered. “The RFP does not allow industry to propose a secondary launch vehicle as a part of their response,” says the white paper. “It will not be considered as part of the risk mitigation strategy. The source selection team cannot use secondary launch system availability as the basis for their evaluation of any proposal. There is no advantage during the source selection.”

On the larger issue that the Air Force is unduly restricting competition, the Air Force’s response is that the most important factors in the selection of providers in Phase 2 is “mission success and assured access to space.” While price is an important factor, says the white paper, “reducing the Phase 2 ordering period would put critical missions at risk and decrease the value to both industry and the government.”

The Air Force also defended the five-year block buy. The potential pricing benefit of an “indefinite order requirements contract” would be lost if suppliers are not able to amortize their costs over a longer period of time and more launches, the white paper states.

A five-year contract, the Air Force contends, also would give companies an incentive to invest in heavy-lift rockets that can meet the so-called “Category C” requirements to launch very large satellites for the intelligence community. The Air Force wants a lower cost alternative to ULA’s Delta 4 Heavy rocket but there is no demand for that type of vehicle in the commercial market so the Air Force expects Phase 2 winners to invest in that capability. “The National Reconnaissance Office’s most critical missions in FY25 and FY26 may not be included in the reduced ordering period which would result in costly multiple early integration efforts,” the white paper says. “Shortening the contract may dis-incentivize providers from developing all the capabilities required to launch the entire manifest, resulting in niche providers and significant risk to maintaining a certified Category C launch capability. This scenario could force the government to buy more Delta 4 Heavy launch vehicles at an extreme cost.”