U.S. Lawmakers Urged To Renew Commercial Launch Liability Shield

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SAN FRANCISCO — The U.S. government’s top commercial launch regulator and space industry officials urged lawmakers to support an extension of at least five years for the Federal Aviation Administration (FAA) launch indemnification program during a June 6 hearing of the House Science space and aeronautics subcommittee.

Unless Congress acts, the FAA program created in 1988 to shield launch providers from the cost of a catastrophic accident that exceeds the amount of insurance coverage operators are required to carry is set to expire Dec. 31. Witnesses urged lawmakers to extend the liability shield saying that it provides important protection for the growing field of U.S. companies developing orbital and suborbital vehicles.

The U.S. launch market is beginning to re-emerge after years of decline, J. Alison Alfers, DigitalGlobe vice president for defense and intelligence, said. As a U.S. company seeking space access for its commercial imaging satellites, Longmont, Colo.-based DigitalGlobe would prefer to rely on U.S. rocket manufacturers. “Foreign launches, especially for our type of payload, come with significant complexities including export control requirements, payload transport, and uncertain insurance costs,” Alfers told members of the subcommittee. “Unfortunately, the current status of reduced competitiveness of the U.S. launch providers combined with the increased availability and reliability of foreign providers mandates that in the best interest of our business and our shareholders we seriously consider foreign providers for future launch requirements.”

While DigitalGlobe ultimately decided to launch its WorldView-3 satellite on the United Launch Alliance Atlas 5 rocket because of its record of reliability, the company came close to sending the payload on one of the rockets built by foreign manufacturers who offered bids that were 35-40 percent lower than the cost of the Atlas. An end to the U.S. government’s launch indemnification program would force U.S. launch providers to insure against additional risk and probably would raise rocket costs further, harming the competitive position of U.S. companies and discouraging new providers from entering the launch market, Alfers said.

George Nield, FAA associate administrator for commercial space transportation, told lawmakers that a five-year extension of the indemnification program “will provide an environment favorable to industry growth amidst highly competitive foreign launch service providers.” Businesses and investors favor stability and predictability. As a result, launch providers would welcome congressional action to make the indemnification program permanent, Nield said. However, the FAA and White House officials understand that lawmakers may want “to periodically examine the program to see if any changes are necessary,” he added.

Foreign governments already indemnify their national launch providers under programs that generally are more favorable than the U.S. program because most other nations do not place a ceiling on the amount of indemnification they offer, witnesses told the House panel. Frank Slazer, vice president of space systems at the Arlington, Va.-based Aerospace Industries Association (AIA), said Europe’s Arianespace is required by the French government to purchase insurance up to 60 million Euros. “Any damages above this cap are the guaranteed responsibility of the French government,” Slazer told lawmakers.

In contrast, the FAA requires U.S. launch providers to obtain insurance to cover the maximum cost of any probable loss to the public or property on the ground up to a maximum of $500 million. To date, the FAA has required launch providers to obtain an average of $99 million in insurance coverage per launch, said Alicia Puente Cackley, the U.S. Government Accountability Office’s director for financial markets and community investment.

In the unlikely event that liability claims from an accident exceeded that amount, the U.S. government offers additional indemnification for launch providers to cover claims with a maximum value of $2.7 billion, Nield said. When the Commercial Space Launch Act was passed in 1988, the maximum indemnification was $1.5 billion, however, that amount has been adjusted for inflation. Since 1988, Congress has extended that risk sharing arrangement five times, most recently passing a three-year extension in 2009.

By repeatedly extending the indemnification program, Congress has created “the reasonable expectation that it will be renewed in the future without completely eliminating the business uncertainty,” Slazer said. Since it often takes five years or longer to develop a new launch vehicle, companies need to know what costs will be associated with insuring a new rocket once it has been built. “AIA believes the sunset provision of this law should be eliminated thereby increasing business confidence and promoting additional new investment,” Slazer told the House panel.

Although the federal government has never paid a claim related to the FAA’s launch indemnification program to date, lawmakers expressed concern about the potential cost of the program. Government Accountability Office officials attempted to answer that question as part of an ongoing study but had trouble due to potential flaws in the FAA’s approach to calculating the maximum probable loss for missions, Cackley said.

The FAA’s method for calculating the cost of damage to third parties has not been updated since the indemnification program was created in 1988. As a result, the FAA may be underestimating the cost of harm to individuals and failing to obtain a clear picture of the cost and probability of potential accidents. Government Accountability Office officials plan to complete their evaluation of the FAA indemnification program and deliver a report to Congress with recommendations for updating the program by the end of the year, Cackley told the panel.

The preliminary Government Accountability Office report presented to the House panel notes that an anticipated increase in commercial spaceflights could have a significant impact on the potential cost of the indemnification program. U.S. companies performed no commercial space launches in 2011. NASA’s plans to rely on private companies to deliver cargo and crew to the international space station as well as the emerging space tourism industry are likely to lead to significant growth in commercial space activity and in the number of flights qualifying for third-party liability indemnification under the FAA program, Cackley said.

 

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