Pictured below is one of my favorite images from this decade. The quality certainly isn’t noteworthy, but the story behind it is.
It speaks volumes to the current state of political affairs and sadly runs contrary to what many of us have been led to believe about American strength and ingenuity.
Most people have never even seen it before…
On the left-hand side we see NASA astronaut Kevin Ford. He’s one of three passengers aboard Expedition 33, a two-day trip to the International Space Station (ISS).
Hanging above Commander Ford is a stuffed toy hippo with the word “Russia” in Cyrillic writing. You’ll notice that the hippo seems to be stepping on the American flag.
Whether or not this was intentional, I can’t say. But I certainly wouldn’t put it past Russia to boast about this situation. Personally, I think the placement is a bit too convenient for a coincidence, but I’ll let you decide for yourself.
The image above is actually a still-frame from a video taken inside a Russian Soyuz rocket. Since the shutdown of the space shuttle program in 2011, American astronauts have relied solely on the Soyuz to reach the ISS, and Russia has been charging an insulting amount of money for a single seat.
While the Russian Space Agency (RSA) has never publicized an exact figure, estimates put the cost to launch a Soyuz rocket as low as $45 million. Yet for an American astronaut like Kevin Ford to earn a seat today, the RSA is charging $70 million.
As SpaceX CEO Elon Musk recently put it, we are currently “at the mercy of Putin.”
But hey, at least we get the window seat, right?
Capitalism Will Prevail
When NASA officially ended the space shuttle program’s 30-year run, there was a brief sense of despair from the American public. Many viewed the retirement of space shuttle Discovery as disappointing and the end of an era, but in fact, the exact opposite is true.
The reality is that the space shuttle program, like so many other government-run endeavors, had become a catastrophic failure.
Most people don’t know this, but the space shuttle killed more people than any other space vehicle in history.
Further, it cost American taxpayers a staggering $192 billion from 1982 to 2010. This figure averages out to about $1.2 billion per launch — up to 27 times the expense of a modern Russian Soyuz rocket.
Now, we could discuss the all underlying issues that led to such an insane level of overspending, but it all ultimately boils down to one thing: Space exploration wasn’t being left to the free market.
So while many were saddened to see the end of the space shuttle program at the time, commercial space advocates knew this was actually a major boon for the industry. By cutting the shuttle program, the demand for commercial launch services increased, and a small set of companies were able to reap the benefits.
In 2012 — the year following the cancellation of the shuttle program — commercial launch revenues grew 35%, and cargo transportation services doubled. Companies like Orbital Sciences (NYSE: ORB) began to see increased government contract revenue as well as investor valuation.
Initially, the cancellation of the shuttle program spread fear in the market surrounding commercial space. There was a highly unwarranted sell-off of Orbital in 2011.
But a few savvy investors knew to buy the dip and are now looking at gains well over 100%.
According to a recent forecast report from the Federal Aviation Administration, commercial transportation launches are expected to double again by 2015. Orbital will be among a few companies to benefit from this trend, but investors need to remain cautious about incoming competition from SpaceX.
While Orbital has so far provided more launch services than SpaceX on an annual basis, we can only expect this to last through 2014 — the FAA forecasts the latter will win a majority share of crew/cargo transport missions by the end of 2015.
This outlook, as well as the remainder of SpaceX’s growing launch manifest, can be attributed to the company’s cost-efficient spacecraft model.
Rather than throwing away multi-million-dollar equipment, SpaceX has designed its rockets to be reusable — a concept that would never have seen the light of day at NASA.
There are a few takeaways from all this.
The first is simply the fact that free market capitalism spurs economic growth — it forces innovation among companies and kicks waste to the curb. So long as there is a free and competitive market to back it, public funding will work.
Second is a reiteration that Orbital Sciences faces significant risk post-2014. We’ve enjoyed the run-up so far, but SpaceX will begin to offer the same services at a fraction of the cost. Major satellite companies are already opting with SpaceX on contracts through 2017, while Orbital has little to show for 2015 and onward.
This brings us to our third and final takeaway. Satellite companies establishing new networks and requiring low-orbit services will be doing so on the cheap from this point forward. That means higher margins and improved bottom lines for players such as ORBCOMM Inc. (NASDAQ: ORBC).
Turning progress to profits,
Jason Stutman
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