Apr. 14, 2008 (Investor's Business Daily delivered by Newstex) --
SpaceX has had challenges getting off the ground.
The company was founded and funded by Internet entrepreneur Elon Musk to build rockets for space launches. Of its two test launches thus far, the first exploded shortly after takeoff. The second launch failed to reach full orbit as planned.
But neither event has grounded the Hawthorne, Calif.-based company. Nor has it lost any contracts. In August, NASA selected SpaceX and Rocketplane Kistler to share a $500 million contract to develop space vehicles to service the International Space Station. And SpaceX has other government and private contracts.
Musk recently spoke with IBD about his space efforts.
IBD: Why has the U.S. government supported your company?
Musk: In the case of the Defense Department, we offer a fundamentally improved capability to put a satellite up very quickly in the case of (another) satellite being lost either from natural causes or an enemy satellite weapon. I think they see that as fundamentally important for national security.
As far as NASA is concerned, they need something to take over from the Space Shuttle after it retires in 2010. What they have planned to replace the shuttle, the Ares/Orion space vehicle, won't be active for at least five years, and it could be seven years. They have high confidence in our technology.
IBD: When you founded SpaceX did you anticipate that some day you'd be in line to pick up where the Space Shuttle left off?
Musk: I wasn't really thinking about the retirement of the Space Shuttle when we started SpaceX. I was thinking more that it was extremely important that we make space flight more reliable and accessible at a much lower cost. But it became very clear there would be an opportunity, with the shuttle retirement. We then pursued that business very vigorously.
IBD: Is your company profitable?
Musk: We have been cash flow positive for the last six quarters. We were profitable last year. Revenue was over $100 million. I won't say how profitable we were, but it was a pretty healthy number.
IBD: You once said that having three rocket failures could doom the company. Is that still the case?
Musk: My comments need to be put in the proper framework. What I said was that if we have three failures in a row we should probably give up, because nobody will want to buy our rockets. Now (after the second flight), I think the glass is 9/10ths full. To have flown the vehicle within a hair of full velocity and having tested out all the systems and having all the data you need to go operational, that was the intent of the mission. By any reasonable definition, it was a successful test flight. And our customers agree because we signed our first geostationary satellite customer for the Falcon 9 launch vehicle, a U.K. satellite broadcast company. We signed them about six months ago. The Air Force obviously agrees because it will be the main payload on our upcoming Falcon 1 flight. And we expect to announce additional launch customers in the next few months.
IBD: And you say you can do these launches at a cost well below Boeing, Lockheed-Martin and other competition?
Musk: We post prices on our Web site and we've been quite consistent in maintaining lower launch prices. The prices have gone up in relatively small amounts. It's slightly more than the rate of inflation because the cost of raw materials has gone up much more than the rate of inflation. The Falcon 1 is about $8 million per flight. Four years ago, it was about $6.5 million. But we also added more capability to the vehicle. The Falcon 9 started off at about $35 million and is currently $38 million.
IBD: How does that compare with your competitors?
Musk: The comparison to the Falcon 9 would be a Boeing Delta 4 or the Lockheed-Martin Atlas 5. Their cost is about four times more than ours, around $150 million to $160 million.
IBD: And is the cost disparity similar with the Falcon 1?
Musk: Yes. Our nearest competitor there is the Pegasus by Orbital Sciences, although the Falcon 1 has greater capability to orbit than Pegasus. The Pegasus has a NASA list price of $35 million, though I hear you can get it for $30 million commercially. Ours is $8 million.
IBD: Will your prices force rivals to lower their prices?
Musk: I think it will certainly have some competitive effect on the domestic launch business because Orbital Sciences, apart from us, currently has a monopoly in the small launch sector, domestically. Boeing and Lockheed, which merged their launch business into the United Launch Alliance, are now a monopoly.
IBD: When will venture capital firms and other large investment groups begin funding the commercial space industry?
Musk: We'll need to see a company go public or get sold for a lot of money to show a high return of investment. That will be a good proof of concept. The Internet market didn't take off until the public offering of Netscape. That really woke people up.
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