Editorial: Who Killed Kistler Aerospace?

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Corporate bailout specialist Doug Teitelbaum cited NASA’s inertia for his decision to stop sinking money into Kistler Aerospace Corp., the startup venture that has come closer than any other to fielding a fully reusable rocket with private capital. His frustration is completely understandable.

It has been seven months since Teitelbaum pulled Kistler out of bankruptcy based on NASA’s expressed interest in procuring international space station cargo-delivery services from the private sector, but the space agency has yet to act. Teitelbaum and his investment firm, Bay Harbour Management LLC, cannot throw money at promises indefinitely.

NASA has said circumstances beyond its control — Hurricane Rita, for example — have delayed release of a request for proposals for space station cargo services. While there is truth to that, NASA has a well-earned reputation for snubbing the often unconventional ideas of the entrepreneurial community. Given the evidence at hand, one can hardly blame Teitelbaum for losing faith.

But to lay the blame for Kistler’s seemingly inevitable demise at NASA’s feet is to ignore the larger body of evidence in this case. A cursory examination of the company’s history makes clear that NASA’s culpability, at worst, runs no deeper than that of a beginning swimmer who tried but failed to rescue a drowning victim.

What put Kistler in deep water in the first place was a combination of factors having nothing to do with NASA, including: exponential cost growth on its K-1 rocket development effort; a sea change in Kistler’s original target market ; and sagging investor interest in commercial space projects. Moreover, when NASA tried to help, it was undercut by a procedural tactic employed against Kistler by one of its entrepreneurial cousins — Space Exploration Technologies Corp. (SpaceX), the rocket startup led by Internet tycoon Elon Musk.

NASA was not in Kistler ‘s plans when the company came on the scene in 1993 . To the contrary, the group of ex-NASA engineers and managers sought to keep their government ties to a bare minimum. Like most of the other entrepreneurial rocket companies that sprang up during the telecom boom, Kistler was targeting what looked like a ripe market for launching large constellations of communications satellites to low Earth orbit.

It was only after that market began disappearing into the ether around the end of the 1990s that Kistler and many of its brethren came running to NASA. By that time, Kistler already had spent nearly $500 million on a project that was supposed to cost $250 million and still needed hundreds of millions of dollars more from a capital market that had all but dried up.

NASA tried to help some of the rocket ventures along, making study money available under programs like the Space Launch Initiative to demonstrate to potential investors that it was in fact interested. Most significantly, NASA in 2004 awarded Kistler — which by that time was in bankruptcy — a $227 million contract for K-1 flight data, with the proviso that the company was on its own in terms of raising the funds necessary to finish developing the vehicle that would eventually provide that data.

That award prompted a protest by potential rival SpaceX, which argued that other companies should have been given the opportunity to compete to provide that data. NASA rescinded the award after it became clear that the Government Accountability Office would rule in favor of SpaceX.

Musk’s gripe was legitimate, and the episode illustrates the problem NASA faces when trying to nurture the commercial space sector: if the government is to be a detached buyer of services, as the entrepreneurial community demands, it has no business tilting the pregame playing field in favor of one prospective provider.

Even after the loss of the data contract, Teitelbaum elected to bring Kistler out of bankruptcy in anticipation of NASA’s space station cargo delivery procurement. He threw in the towel after becoming fed up with the delays on NASA’s end, but by that time Kistler as a business was something akin to a death-row inmate who had exhausted his appeals. A curious side note is that Kistler did not make any visible attempts to market the K-1 to the U.S. Defense Department, which in recent years has demonstrated a strong interest and a willingness to invest in low-cost access to space.

All this is not to say that NASA has nothing to prove when it comes to tapping the kinds of innovative solutions that often are unavailable in traditional procurements, where rules, specifications and old habits tend to stifle creativity and favor the big prime contractors.

NASA at long last appears to recognize this, and is instituting programs like Centennial Challenges that reward results as opposed to processes. The burden is still on NASA to demonstrate that it is serious about such efforts , and Congress must give the agency the funding and budgetary flexibility it needs to make them worthwhile.

Meanwhile, several companies remain eager to provide space station cargo- and perhaps even crew-delivery services. NASA could demonstrate its commitment to use such services by agreeing to pay for a series of flight demonstrations leading in that direction.

It is unfortunate that NASA has taken too long to come out with such a plan to keep Kistler’s hopes alive. But by the same token, it is not NASA’s place to bail out private companies whose business plans have gone awry.