Click to watch video of today's SpaceX static test fire explosion. Video source: USLaunchReport YouTube channel.
Risk management involves understanding, analysing and addressing risk to make sure organisations achieve their objectives. So it must be proportionate to the complexity and type of organisation involved.
Nearly a century ago, at the dawn of the 1920s, the U.S. Post Office invested public funds into the new technology of aviation, when private capital was unwilling to invest. Over a period of about ten years, the USPS issued exclusive contracts to vendors that would deliver mail over specified routes in exchange for a percentage of the air mail stamp's value. As the companies matured, and as their contracts came up for renewal, the USPS required the vendors to demonstrate they could fly at night, in bad weather and at lesser cost.
Lives were lost, but by the early 1930s these vendors were carrying commercial aviation passengers, partially financed by government subsidy.
Risk management as a profession didn't exist back then, but essentially that's what the USPS did. They assumed part of the risk so a robust commercial aviation industry could emerge.
Assumption of risk is a legal concept that's part of our everyday lives. You cross the street against a red light. You run out to fetch the paper in a lightning storm. You smoke a cigarette knowing it can give you lung cancer, meaning your insurance company won't insure you.
LegalDictionary.net defines assumption of risk as, “situations in which an individual acknowledges the risks associated with any activity, but chooses to take part regardless.”
SpaceX CRS-7 launched from Pad 40 at Cape Canaveral Air Force Station on June 28, 2015. Two minutes and twenty seconds after liftoff, the upper stage failed, destroying the rocket. The Dragon cargo ship plummeted into the Atlantic Ocean, and was destroyed on impact. The cause was traced to a faulty strut holding a helium bottle in the upper stage.
Government, commercial and educational payloads were lost. They were owed no compensation. SpaceX did arrange for some of the customers to fly again, and gave NASA a discount for future deliveries.
According to a June 2016 NASA Office of the Inspector General report, the agency lost $118 million from the incident, including the first International Docking Adapter (IDA) that will be used for future commercial crew vehicles.
The first-round commercial cargo contracts, known as Commercial Resupply Services 1 (CRS-1), “place much of the risk associated with an unsuccessful mission on NASA.”
According to the report:
However, this is not unusual for Government contracts relating to space operations given the associated expense and risks, and the limited number of capable contractors. Due to the relationship between risk and price, shifting more risk to the contractor would likely increase contract price. To this end, the CRS-1 contracts do not require SpaceX or Orbital to re-fly failed missions or carry upmass from a failed mission on future flights, nor do they make the companies liable for any cargo destroyed as a result of a launch failure or other anomaly. While, as previously noted, if SpaceX or Orbital fail to deliver cargo to the Station the companies forfeit any payment tied to the associated milestones, NASA is not entitled to recover previous milestone payments associated with the launch. Furthermore, the Agency can only recover milestone payments it has made toward missions not yet flown if it terminates the contract for cause — known as “termination for cause.”
In January 2016, NASA issued a second round of contracts, known as Commercial Resupply Services 2 (CRS-2). Among other requirements, CRS-2 added “an insurance requirement to cover damage to government property during launch services, reentry services or transportation to, from, in proximity of, or docking with the space station,” according to a NASA press release.
Six months after the CRS-7 loss, SpaceX returned to flight, delivering eleven Orbcomm commercial satellites into orbit.
December 21, 2015 ... SpaceX launches Orbcomm satellites and successfully lands its first stage. Video source: SpaceX YouTube channel.
The mission carried its own additional risks.
For the first time, SpaceX attempted to launch a Falcon 9 using supercooled liquid oxygen. To keep oxygen at a liquid stage, it must be at -297°F/-183°C. The upgraded F9 would use LOX chilled to -340°F/-207°C. The RP-1 kerosene fuel would be chilled to 20°F/-7°C, instead of its usual room temperature.
SpaceX also chose to attempt landing the first stage at the Cape's former Launch Complex 13, now designated Landing Zone 1.
This was a launch replete with risks, for both SpaceX and its customers. But all eleven satellites were delivered to orbit, and the Falcon 9 became the first booster to launch an orbital payload and safely land on a pad.
With subsequent launches, SpaceX struggled at times with tanking problems and aborts due to the supercooled LOX, but their last few launches had been without incident.
SpaceX entered this month having landed six Falcon 9 boosters — two at the Cape, and four at sea on their Autonomous Spaceport Drone Ship (ASDS). Confident that they had demonstrated minimal risk, the company sought a commercial vendor willing to fly on a previously launched booster.
On August 31, SES and SpaceX announced that the Luxembourg-based company would fly a satellite on the Falcon 9 used to launch SpaceX CRS-8 in April.
According to the press release:
“Having been the first commercial satellite operator to launch with SpaceX back in 2013, we are excited to once again be the first customer to launch on SpaceX's first ever mission using a flight-proven rocket. We believe reusable rockets will open up a new era of spaceflight, and make access to space more efficient in terms of cost and manifest management,” said Martin Halliwell, Chief Technology Officer at SES. “This new agreement reached with SpaceX once again illustrates the faith we have in their technical and operational expertise. The due diligence the SpaceX team has demonstrated throughout the design and testing of the SES-10 mission launch vehicle gives us full confidence that SpaceX is capable of launching our first SES satellite dedicated to Latin America into space.”
Space journalist Eric Berger of Ars Technica commented:
SpaceX has not yet specified how much it will charge for launch services on one of its flown boosters, but industry officials anticipate about a 30 percent discount on SpaceX's regular price of $62 million for a Falcon 9 launch. The company has not shared how much it is spending to refurbish and reuse a Falcon 9 stage, nor has it offered much public information about the extent to which the vehicle's engines have had to be tested and prepared for a second flight.
To make good on its goal of low-cost, reusable launch services, however, it is not enough for SpaceX to make spectacular landings at sea and on land. The company must now take the critical step of showing that rockets that have flown into space and made high-energy returns to Earth are capable of being turned around in reasonably short order, and at a low cost, to make reusable rocketry practical. Launching by the end of 2016 — at a discount — would begin to deliver on that promise.
July 28, 2016 ... SpaceX posts a video of a previously flown Falcon 9 being test-fired at its McGregor, Texas facility. Video source: SpaceX YouTube channel.
While the NewSpace industry celebrated the first contract for the commercial relaunch of an orbital booster, NASA's Inspector General expressed a more cautious view.
Earlier today, the OIG issued an update on NASA's commercial crew vendors. According to the summary:
The Commercial Crew Program continues to face multiple challenges that will likely delay the first routine flight carrying NASA astronauts to the ISS until late 2018 — more than 3 years after NASA’s original 2015 goal. While past funding shortfalls have contributed to the delay, technical challenges with the contractors’ spacecraft designs are now driving the schedule slippages. For Boeing, these include issues relating to the effects of vibrations generated during launch and challenges regarding vehicle mass. For SpaceX, delays resulted from a change in capsule design to enable a water-based rather than ground-based landing and related concerns about the capsule taking on excessive water.
The report continued:
As part of the certification process, Boeing and SpaceX conduct safety reviews and report to NASA on potential hazards and their plans for mitigating risks. We found significant delays in NASA’s evaluation and approval of these hazard reports and related requests for variances from NASA requirements that increase the risk costly redesign work may be required late in development, which could further delay certification. Although NASA’s goal is to complete its review within 8 weeks of receipt of a hazard report, the contractors told us reviews can take as long as 6 months. We also found NASA does not monitor the overall timeliness of its safety review process.
Risk management of the commercial crew program is specifically discussed on Page 7.
For the Commercial Crew Program, Boeing and SpaceX are contractually obligated to identify and track risks and their progress toward certification. In addition, they are required to provide NASA access to their risk systems and related data so that they can work with the Agency to address identified risks.
In discussing SpaceX performance with their contract, the report comments on Page 13:
As of June 2016, SpaceX had not revised its schedule and was still planning its first certified crewed flight in December 2017. However, given the delays in achieving milestones necessary to receive certification, we believe it highly unlikely SpaceX will meet this goal.
Page 16 of the report concludes with this prescient observation:
As stated earlier, SpaceX is scheduled to complete the final phase of its Critical Design Review in August 2016. As part of this review, SpaceX and NASA will assess lessons learned from the SpaceX’s failed June 2015 cargo mission. According to the Associate Administrator for Human Exploration and Operations Mission Directorate, the accident provided an opportunity to gain a better understanding of weaknesses in SpaceX’s rocket design, which in turn can be used to inform its crew design. Although SpaceX officials told us that the mishap has not delayed its crew development efforts because it had built sufficient margin into the schedule, they also noted the lack of margin remaining to accommodate any additional unexpected issues that may arise.
An unexpected issue arose today at 9:07 AM EDT.
This official statement was issued on Twitter this afternoon by SpaceX:
SpaceX founder Elon Musk tweeted:
Loss of Falcon vehicle today during propellant fill operation. Originated around upper stage oxygen tank. Cause still unknown. More soon.— Elon Musk (@elonmusk) September 1, 2016
This image shows two consecutive frames taken from the above video by USLaunchReport.com. The first is the last frame before the anomaly, the second is the first frame showing the fire.
Image source: Phil Wilson Twitter account @FxPhilW.
The extent of the damage to Pad 40 awaits an extensive inspection. Distant video seems to show the horizontal integration hangar is intact.
But the damage will be far more than physical.
It's unclear if Spacecom, the customer that lost its AMOS-6 communications, was insured for today's incident.
Reporter Peter B. de Selding of SpaceNews tweeted:
Spacecom insured Amos-6 for $285M in marine cargo market, not space insurance market. Launch +1 yr policy would kick in at rocket ignition.— Peter B. de Selding (@pbdes) September 1, 2016
Space News journalist Jeff Foust published this report listing the nine SpaceX customers who were scheduled to fly later this year.
Mark Fahey of CNBC posted this article about the volatile nature of the space insurance industry, and recent significant financial losses.
It seems likely that NASA won't be able to count on SpaceX for commercial cargo deliveries until at least early 2017. As the OIG predicted, the optimistic December 2017 operational date for commercial crew should slip into 2018.
And who knows what this will do to the Falcon Heavy, the company's next-generation heavy-lift launch vehicle. The Falcon Heavy essentially is three Falcon 9 boosters connected together. Although SpaceX has insisted it would fly the first test from Kennedy Space Center's Pad 39A by the end of 2016, COO Gwynne Shotwell stated August 9 at the Small Sat conference in Colorado that the Falcon Heavy is “actually a harder problem than we thought.”
The 2018 NASA SpaceX Red Dragon joint mission to Mars also seems unlikely to launch on schedule. With launches timed to when Earth and Mars are closest, it seems likely Red Dragon won't happen until at least late 2020.
The biggest question, in my opinion, will be to see in upcoming months whether SpaceX commercial satellite vendors will bolt for other launch companies. They will crunch the numbers, they will calculate the risk, and determine if it's worth rolling the dice with SpaceX.
The cost of mitigating the risk of flying on a previously launched Falcon 9 might have priced reusable rockets out of the market, until SpaceX can demonstrate more reliability. Two losses in a little more than fourteen months won't incline insurance companies to provide coverage.
The Department of Defense, already a bit skittish about trusting SpaceX, may listen to those inside the Pentagon (and the halls of Congress) who argue that United Launch Alliance's track record of reliability makes that company worth the additional expense.
The biggest loss today may not be the rocket, or the payload, or the pad.
It may be the SpaceX business model.
If customers can't afford the risk, SpaceX can't fly.