Virgin Orbit employees celebrate the company's late 2021 debut on the Nasdaq stock exchange. The company filed for Chapter 11 bankruptcy protection April 4. Credit: Virgin Orbit

The Discord classified document leak highlights that China has the space capability “to hold key U.S. and Allied space assets at risk.” Yet much of America’s “NewSpace” industry, our best hope to keep our technological edge over China in space and to bring competition to the major defense contractors, is crashing to earth. Virgin Orbit, despite $60 million in loans from Richard Branson since November, has largely ceased operations, laid off most of its employees and filed for bankruptcy. Stock exchanges have sent delisting notices to Astra, which has launched satellites to orbit, Momentus, a space tug company, and Spire, which uses nanosatellites for weather forecasts, because their share prices have dropped to under a dollar.

An array of NewSpace companies were funded through billions raised through SPACs (Special Purpose Acquisition Companies) and venture financing and are at the cutting edge of providing new and cheaper space products. In the launch industry, these include ABL, Astra, Firefly, Relativity Space, Rocket Lab, and Virgin Orbit are producing low-cost rockets. In the Earth observation industry, Planet Labs competes with satellites from big defense contractors in photo-reconnaissance and Capella Space with a constellation that provides low-cost radar imaging. Axiom is building commercial space stations.

The exciting innovation, competition, expansion of our industrial base, deepening of our supply chain and jobs these companies bring provides America the boost it needs to stay ahead of adversaries and bring down defense costs. That’s the good news.

The bad news is that many of these companies are struggling for two key reasons. First, because of the high cost of capital due to rising interest rates, the decline of SPACs and the drying up of venture capital. Venture and other early-stage financing in the space industry dropped by 50% in 2022, according to venture firm Space Capital. The stock prices of many of the publicly traded NewSpace companies, a good measure of the health of the industry, have dropped from 75-95% by one index.

Regulatory red tape

The second reason our startup space industry is threatened is government policies that raise costs for the industry and slow innovation. The space industry faces a myriad of federal agencies as well as state rules. To launch Starship, SpaceX needed permission from the Federal Aviation Administration (FAA), the Federal Communications Commission (FCC), The Environmental Protection Agency (EPA), the Fish and Wildlife Service and many others. Each of these agencies imposes burdensome and time-consuming regulations.

The FAA, for example, gives itself 180 days to approve a launch license. While this may seem like a reasonable timeframe in the bureaucratic context, it creates delays and raises costs for companies. Moreover, the FAA often requests additional information and on other occasions, a company makes tweaks to the launch plan during the review process. When this happens, the FAA can reset the 180-day clock. This is very challenging for start-ups that are smaller than SpaceX and operate on tight timelines and thin margins due to their cash positions. They need to move quickly to stay competitive and improve their technology. The launch approval process is just the start. When a launch fails, as recently happened with SpaceX’s Starship as well as rockets from ABL, Firefly and Astra, the FAA requires detailed reports on why a rocket failed before it can return to flight. In June of last year, the FAA proudly announced in a press release that it would require 75 environmental actions by SpaceX before launching Starship. These required actions were in addition to the agency’s safety, risk, and financial responsibility requirements.

Other agencies impose burdensome regulations on other aspects of the industry. For example, the FCC recently required that satellites at altitudes of 2,000 kilometers or lower be deorbited within five years of when they stop functioning. This was done without the agreement of other U.S. agencies or international coordination and puts American satellites at a disadvantage to satellites lacking such a requirement.

NASA requires information on the mass and size of the components of satellites as part of the overall U.S. licensing process. This is problematic for experimental communications satellites, for example, since an FCC experimental license takes months or years to obtain, and expires after six months or a year, and requires NASA satellite component mass and size component data for approval. Because the combination of agencies’ authorizations takes so much time, the U.S. Space Development Agency has gone to regulators to ask for an exception to the normal process for its latest test satellites because, according to SDA head Derek Tournear, “That could push [us out] many months.” With experimental satellites, the manufacturer may not have this information until late in the process since they may source components from different vendors. Thus, the combination of agency rules means that it may take years from conception until regulatory approval. And then the companies need a launch license!

Regulation to protect public safety, the environment, wildlife, and the use of spectrum, among other goals, is important, but the U.S. currently does this in an unnecessarily burdensome, slow, and uncoordinated manner. The result may be companies running out of cash as instead of engineers, they have to hire compliance teams and law firms.

Government action can solve both the problems of the capital crunch and the regulatory quagmire facing the industry.

Defense Secretary Lloyd Austin testified before the House Appropriations defense subcommittee in March that DoD’s 2024 budget request would “make long-term investments of $33.3 billion in the resilience of our space architecture in the event of an attack.”

In the past, all too much of this spending has gone to a small number of large defense contractors. Yet such funding provides a great opportunity for American innovation to succeed if it is used to help grow the NewSpace industry. SpaceX, a former start-up, was saved in 2008 by government contracts to supply the space station when both the company and Elon Musk were out of cash.

The U.S. government can preserve America’s technological edge in space by providing a fair shot and helping hand to the NewSpace industry. Not cash subsidies, but rather open competition and contracts that promote the development of the industrial base by tasking these companies to provide the products and services DoD, the intelligence community, NASA, NOAA, and other agencies need.

For example, Congress, over the last few years, has added funding to the defense budget for a Tactically Responsive Space, which funds demonstration projects for companies to launch small satellites on short notice. For the first time, the White House budget provided $30 million for this program, which is less than Congress has in the past but is still progress. NASA’s Venture Program has helped satellite companies by purchasing low-cost Earth science missions. But these are very small programs. In satellite services, the happenstance of the war in Ukraine brought new government business to Planet Labs and Capella Space to provide, respectively, photo and radar imagining. U.S. National Reconnaissance Office satellites do this for our government, but we do not wish to share this sensitive data with Ukraine, so the U.S. government turned to these private companies to provide them with imaging from these commercial companies.

Instead of chance, we should have a specific plan for funding to preserve competition in each aspect of the space industry.

We should also have a coordinated industry approach to reduce regulation. While that is a tall order, the FAA needs Congressional reauthorization this year. This must-pass legislation provides a legislative vehicle to reform regulation across the industry.

China’s space program is accelerating rapidly. In 2022 they had 62 successful launches, second only to the U.S., which had 72. The next closest was Russia, with 21. And 61 of the U.S. launches were by SpaceX. China is advancing on other fronts. The new head of the Space Force, Gen. Chance Saltzman, testified before a Senate Armed Services subcommittee in March that China has operational anti-satellite missiles and is “testing on-orbit satellite systems which could be weaponized… to physically control and move other satellites.” The recently leaked classified documents indicated that China can also electronically seize control of American satellites.

The innovative, NewSpace industry will not only help us meet the challenges from China abroad, it will also help us address the problem of a decades-long process of defense industry consolidation at home. Elon Musk and SpaceX made the space industry sexy again, and it attracted entrepreneurs who might otherwise have gravitated to startups in other parts of the technology industry. The NewSpace companies these innovators founded or joined can provide increased competition on price and innovation to companies like Boeing, Lockheed Martin, and Northrop Grumman. But we are already seeing the beginnings of consolidation in the industry. Lockheed bought a share of launch provider ABL, and Northrop Grumman is partnering with Firefly. The U.S. needs to act soon to avoid failures and fire sale acquisitions.

The NewSpace industry has given hope that America can rebuild and diversify its defense industrial base. This will lead to lower costs, more innovation, and provide the United States with the technological edge it needs to stay ahead of its adversaries. But if Congress fails to reform U.S. space procurement policy, that hope will be in vain.

Edward Hearst is an attorney and government relations expert. He is a former executive at space launch company Astra, and former Deputy Assistant Secretary of the Treasury for International Affairs (Acting), Senior Advisor at the Commerce Department and Senior Counsel on the House Energy and Commerce Committee.

This article originally appeared in the May 2023 issue of SpaceNews magazine.