ECONOMIC MODELING OF FUTURE SPACE MARKETS Revision A 21 July 2006
Mr. A.C. Charania Senior Futurist SpaceWorks Engineering, Inc. (SEI)
[email protected] 1+770.379.8006
Mr. Dominic DePasquale Systems Engineer SpaceWorks Engineering, Inc. (SEI)
[email protected] 1+770.379.8009
SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Introduction Economic Analysis Expertise Nodal Economic Space Commerce (NESC) Model Modeling Sub-Orbital Space Tourism Modeling Commercial Transportation Services to International Space Station (ISS): Sample Case Study
Contents SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Introduction
SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Overview: - Engineering services firm based in Atlanta (small business concern) - Founded in 2000 as a spin-off from the Georgia Institute of Technology - Averaged 130% growth in revenue each year since 2001 - 85% of SEI staff members hold degrees in engineering or science
Core Competencies: - Advanced Concept Synthesis for launch and in-space transportation systems - Financial engineering analysis for next-generation aerospace applications and markets - Technology impact analysis and quantitative technology portfolio optimization
About SpaceWorks Engineering, Inc. (SEI) SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Practice Areas Space Systems Analysis | What is the System? Conceptual Level Engineering Analysis Conceptual Level Engineering Design Life Cycle Assessment Cost Engineering Advanced / Robust Design Processes
Technology Prioritization | What are the Implications? Technology Anticipation Technology Benefit Assessments Technology Prioritization
Financial Engineering | Is the Project Viable? Business Design Future Venture Due Diligence Real Options Analysis
Future Market Assessment | What is Next? Scenario Planning Market Forecasting Market Analysis
Policy and Media Consultation | How to Express the Vision? Government Initiatives Policy Consultation Television, Film, Radio, Internet Presence SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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From Vision to Concept
Including: - Engineering design and analysis - New concept design - Independent concept assessment - Full, life cycle analysis - Programmatic and technical analysis
Including: - Storyboards - Technical concept illustrations (marker and pastel in B&W and color) - 2-D line engineering drawings with technical layouts and dimensions - 3-D engineering CAD models of concept designs - High-resolution computer graphics imaging (renders) - Concept / architecture summary datasheets and single page handouts / flyers
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Sample Trajectory Analysis (via POST):
0
100
200
400
500
600
100
200
Time (s)
300
400
500
Time (s)
600
25,000
Mach
500
25
400
20,000
20
15,000
15
Relative Velocity
10,000 5,000 0 0
100
200
300 Time (s)
Sample Thermal Analysis: Maximum RLV Orbiter Entry Surface Temperature (via SENTRY)
30
400
500
10
ISP (s)
Optimized transition to SSMEonly
300
30,000
Mach Number
Thrust
Weight
450 400 350 300 250 200 150 100 50 0 0
Relative Velocity (ft/s)
4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
“Net” ISP (SSME and RD-180) vs. Flight Time
Relative Velocity and Mach vs. Flight Time
Altitude vs. Flight Time Altitude (thousands of ft)
Mlb
Thrust and Weight vs. Flight Time
SSME
300
RD-180 “Net” Value
200
5
100
0 600
0 0
100
200
300
400
500
600
Time (s)
Sample Thermal Analysis: Maximum RLV Booster Entry Surface Temperature and TPS Tile Thickness (via SENTRY)
TOP VIEW
UNDERSIDE VIEW
Note:Data generated through SENTRY model and exported to data visualization program for eventual display
Sample Performance Analyses SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Economic Analysis Expertise
SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Sample Economic Analysis Tools: NESC Model Sub-orbital Public Space Flight Market
- NESC (Nodal Economic Space Commerce Model, agent-based space market simulation financial tool) - CABAM (Cost and Business Analysis Model, general space transportation) - LMNoP (Launch Markets for Normal People, tourism model)
Recent Projects: -Economic Development of Space (EDS) sponsored by NASA Langley Research Center -Simulating Emerging Space (SES) Industries with Agent-Based Modeling sponsored by NASA Marshall Space Flight Center
Recent Papers (www.sei.aero): NESC Model Commercial Support of the International Space Station (ISS)
-Charania, A., DePasquale, J., "Agent-Based Modeling of the Space Tourism Market," ISDC 2006355, 25th International Space Development Conference, Los Angeles, California, May 4-7, 2006. -Charania, A., Bradford, J. E., Olds, J. R., "Economic Development of Space: Examination and Simulation," IAC-05-E3.3.08, 56th International Astronautical Congress, Fukuoka, Japan, October 17-21, 2005. -Olds, J. R., "A Review of Technology Assessment Methods for Space Transportation Systems," GT-SSEC-B.6, First Annual Georgia Institute of Technology Space Systems Engineering Conference, Atlanta, Georgia, November 8-10, 2005. -Charania, A., DePasquale, D., "Simulating the Dynamic Marketplace: An Introduction to the Nodal Economic Space Commerce (NESC) Model," AIAA-2005-6617, Space 2005, Long Beach, California, August 30 - September 1, 2005.
Sample Clients and Partners:
SEI’s Background Related to Economics of Emerging Commercial Space Transportation SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Scenarios of Reusable Launch Vehicle (RLV) Price Sensitivity
Operations Cost Reduction
10,000
$M
CLV
Facilities, Operations, and Flight Tests
8,000 CEV/CM
6,000
Technology Maturation
Surface Systems
4,000
75%
EDS + CEV/SM
CaLV-HLLV
2,000 Other (Robotic/ISS/Shuttle)
35
7,000 6,000
30
5,000 4,000
25
3,000
4,500
Flight Rate [Flights/Year]
120 3,500
100 80
2,500
60 1,500 40
2,000 1,000
20
9,000
Price Per Flight [$/lb]
25% 50% 75% Turn-Around-Time Reduction 40
Flight Rate [Flights/Year]
8,000
35
7,000 6,000
30
5,000 4,000
25
3,000
20
500
25% 50% 75% Turn-Around-Time Reduction 10,000
Price Per Flight [$/lb] 4,500
Flight Rate [Flights/Year]
1,000 0
20 25% 50% 75% Turn-Around-Time Reduction
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
140 120
3,500
100 80
2,500
60 1,500 40
2,000
LSAM
140
Flight Rate [Flights Per Year]
25% 12,000
Flight Rate [Flights/Year]
8,000
75%
Price Per Flight [$/lb]
500
Flight Rate [Flights Per Year]
NASA FY06 Exploration-Related Budget
40
Price Per Pound Payload [$/lb]
14,000
9,000
DDT&E AND TFU COST REDUCTION
Price Per Flight [$/lb]
Price Per Pound Payload [$/lb]
$53.4 B (2019-2025) $164.7 B
Price Per Pound Payload [$/lb]
$111.3 B (2006-2018)
Price Per Pound Payload [$/lb]
16,000
10,000
Flight Rate [Flights Per Year]
25%
Components of LCC (FY06)
Flight Rate [Flights Per Year]
Human Exploration Cost Estimates
20 25% 50% 75% Turn-Around-Time Reduction
Year
Space Tourism Economic Modeling Effect of Competition
International Space Station (ISS) Support Market
Effect of Market Entry Date
Discounted Cumulative Cash Flow (US $)
100M Higher-End Operator 50M Lower-End Operator 0M
80M 60M 40M 20M 0M
Higher-End Operator
Lower-End Operator
-20M -40M In Competition with Higher-End -60M -80M
-50M -100M 0
2
4
6
8
10
12
4 Year Market Delay 2 Year Market Delay 0
Project Year
2
4
6
8
10
12
Project Year 5 Commercial Competitors + min. 2 CEV/Yr + Russian Competition
See: http://www.sei.aero/library/technical.html for more information and technical papers on above analyses
Sample Economic Analyses SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Total viewing opportunities
Noon Total viewing opportunities
Total viewing opportunities
Dawn
C an yo G n re at W M al t. Ev l er es Py t ra m id s N ew Yo rk Pa ris Sy dn ey To ky o
Total viewing opportunities 14 12 10 8 6 4 2 0 14 12 10 8 6 4 2 0
ra nd
C an yo G n re at W M al t. Ev l er es Py t ra m id s N ew Yo rk Pa ris Sy dn ey To ky o
ra nd
G
G
Hokkaido
14 12 10 8 6 4 2 0 14 12 10 8 6 4 2 0
To ky o
Sy dn ey
Total viewing opportunities
Node = Ascending 14 12 10 8 6 4 2 0 Pa ris
C an yo n G re at W al M l t. Ev er es t Py ra m id s N ew Yo rk
ra nd
To ky o
Sy dn ey
Pa ris
C an yo n G re at W al M l t. Ev er es t Py ra m id s N ew Yo rk
ra nd
Total viewing opportunities 14 12 10 8 6 4 2 0 Hokkaido
G
G
DAY AND NIGHT Woomera
Day
Night
ALL OPPORTUNITIES Woomera Dawn 50 deg asc
50 deg desc
Due east
Noon 50 deg asc
50 deg desc
Due east
Space Viewing Opportunities: 50 Orbits, Incl. = 50o, Alt. = 180 km, Viewing Angle = 15o SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Nodal Economic Space Commerce (NESC) Model
SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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The Nodal Economic Space Commerce (NESC) model is a dynamic, agent-based space market simulation and financial engineering tool Agent-Based Modeling (ABM): allows heterogeneous agents with varied and dynamic behavior -
Qualities: emergent phenomena, natural description of system, flexible Simulation can represent plants and animals in ecosystems, vehicles in traffic, people in crowds, or autonomous characters in animation and games
Modeling space capitalism in NESC -
Between competitors, includes current and future competitors (expendable and reusable) Entrance of new competitors within existing and new markets Explore variations in customer preferences Current markets: sub-orbital space tourism and ISS support Use available data (Futron, etc.) on demand and estimate supply
Companies compete for customers with the goal of maximizing revenues -
Each company autonomously decides its pricing strategy given its unique capacity, costs, and vehicle characteristics Model outputs financial health of each company Model differences in products/services
Based Upon “REcursive Porous Agent Simulation Toolkit” RePast Sources: http://www.duncanrobertson.com/research/simulation.htm, http://sourceforge.net/projects/repast/, http://complexityworkshop.com/cw/tutorial/RePast/index.html
Nodal Economic Space Commerce (NESC) Model SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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P&G to understand the impact of alternative shipment and payment terms on retail in stock positions and company inventory
Macy’s to generate new store layout options for maximizing customer satisfaction and spending Hewlett Packard to understand the effect on organizational performance by a change in hiring practices NASDAQ to understand what happen when the “tick size” changes from 1/8 of a dollar to 1/100 of a dollar U.S. Department of Defense to conduct war games predicting battlefield outcomes in a networked information environment
Pricewaterhouse Coopers to predict CD sales in the Japanese pop (J-Pop) market using 75,000 agents (correlation coefficients of actual and predicted sales between 0.8 and 0.9)
Electronic Arts (EA) and their “The SIMS” game
Sources: “Agent-based Modeling: A valuable new weapon for Chief Marketing Officers in the fight of their lives,” EMM Group, Inc., 2004, http://www.red3d.com/cwr/ibm.html
Users of Agent-Based Modeling (ABM) SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Use Aggregate Market Curve
or
Model Individual Customers
Space Tourism Market Potential Market Multiplie rs
P
P * Q *
Price offering per year
Q
1
2
Customers purchase
2
Company A Company adjusts pricing strategy: • Stay at current • Higher • Lower • Match competitor
Company B 3
4
Has unique: Costs Vehicle Characteristics Discount rate Desires to maximize: Profits = Sales - Cost
1
Limited information sharing: • Price from prior year • Vehicle characteristics
Same logic as Company A but with different product
4
Company C Same logic as Company A but with different product
4
Using Agents to Represent Supply and Demand SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Modeling Sub-Orbital Space Tourism
SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Nodal Economic Space Commerce (NESC) Model: Sub-Orbital Space Tourism SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Effect of Competition
Effect of Market Entry Date
80M
Higher-End Operator 50M
Lower-End Operator 0M -50M
In Competition with Higher-End -100M 0
2
4
6
8
10
12
Discounted Cumulative Cash Flow (US $)
Discounted Cumulative Cash Flow (US $)
100M
Higher-End Operator
60M 40M 20M
Lower-End Operator
0M -20M -40M -60M
4 Year Market Delay
-80M
2 Year Market Delay 0
2
Project Year
4
6
8
10
12
Project Year
Customers: 50,000 potential sub-orbital space flight consumers with 1) the financial means to pay, 2) physical condition to fly, and 3) the interest in suborbital flight have been categorized into over 20,000 “agent types” based on personal characteristics such as: pioneer vs. imitator, influence of perceived vehicle reliability, willingness to pay at various ticket prices, influence of cabin freedom (e.g. seat belt requirements), influence of perceived vehicle uniqueness/intrinsic appeal, etc. Providers: A user-defined number of sub-orbital passenger vehicle developer/operators can be included in any simulation: Each provider has a realistic business model including development and production costs, operating costs, vehicle capacity, perceived reliability, etc. Each ‘CEO agent’ can adjust its market price for a ticket from year to year in an effort to improve profitability.
Sample Simulation Results: Sub-orbital Public Space Flight Market SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Sub-orbital public space flight market can allow two companies to be profitable over time -
A third competitor, competing with the top-tier operator, struggles to maintain viability Caveat 1: Given current consumer and company modeling assumptions Caveat 2: Need to re-examine in terms of higher fidelity NESC model (almost complete)
Optimal pricing strategy must take advantage of “pioneer” effect -
Initial prices should start higher (around $300k/ticket in simulations) than some initial “public” rates, companies could then decrease (to close to $150-200k/ticket) to maximize profit
First company to enter market has large advantage in potential revenue generation -
Due to longer period of operation and ability to capture high value passengers
Sub-orbital Space Tourism Market: Preliminary Observations SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Modeling Commercial Transportation Services to International Space Station (ISS): Sample Case Study
SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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8 Commercial Competitors
8 Commercial Competitors + min. 2 CEV/Yr
5 Commercial Competitors + min. 2 CEV/Yr + Russian Competition
3 Commercial Competitors + CEV
Nodal Economic Space Commerce (NESC) Model: ISS Support Market SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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$300 M 7 Companies + CEV
4 Companies + CEV
3 Companies + CEV
Mean and Standard Deviation Net Present Value (NPV) - FY2006
$200 M
$100 M
$0 M Firm 1
Firm 2
Firm 3
Firm 4
Firm 5
Firm 6
Firm 7
-$100 M
-$200 M
-$300 M Note: (w/ CEV, w/ ESA + JAXA IP, w/o Russian Competing), 16 STS flights ISS end-state, 100 Monte Carlo simulations reflecting potential failures occurring throughout program based upon reliability of services, distributions in red reflect two standard deviations, with $400M of NASA COTS funding
Commercial Firms Supporting ISS: 2010-2016 SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Delivery Cost of Crew
0.8
0.05 0.04
0.6
0.03
0.4
0.02 0.2
0.01 0
20
30
40
0.8
0.05 0.04
0.6
0.03
0.4
0.02 0.2
0.01 0
50
0
15
25
35
45
55
Price per Kilogram to ISS ($K)
Price per Passenger to ISS ($M)
Mean Price: $31,000 / kg
Mean Price: $37.1 M / passenger
0.01
0.8
0.008
0.6
0.006 0.4
0.004
0.2
0.002 0
0
50
100
150
200
250
Net Present Value (FY2006 $M)
Cumulative Probability
1
0.03
1
0.025
0.8
0.02
0.6
0.015 0.4
0.01
0.2
0.005 0
0
0
20
40
60
80
100
Net Present Value (FY2006 $M)
Cumulative Probability
0.012
NPV of Firm 7 Probability Density
NPV of Firm 4 Probability Density
NPV of Firm 1 Probability Density
1
0.06
0
10
0
0.07
0.025
1
0.02
0.8
0.015
0.6
0.01
0.4
0.005
0.2
0
Cumulative Probability
0.06
Probability Density
1
Cumulative Probability
0.07
Cumulative Probability
Probability Density
Delivery Cost of Cargo
0
-10
10
30
50
70
90
110
Net Present Value (FY2006 $M)
Note: 3 companies (w/ CEV, w/ ESA + JAXA IP, w/o Russian Competing), 16 STS flights ISS end-state, 100 Monte Carlo simulations, with $400M of NASA COTS funding distributed for development offsets
Scenario of 3 Commercial Transportation Firms Supporting ISS: 2010-2016 SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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$6,670M Total
$40 M IP
$730 M
3 Company Scenario Average Flights Per Year 14.2 Total Cargo Delivered 131,062 Total Cargo Revenue $3,903 M Avg. Price per Kg $0.0310 M/kg Total Crew Delivered 75 passengers Total Crew Revenue $2,768 M Avg. Price per Passenger $37 M Overall Failure Rate 0.37
CEV
$5,900 M COTS
$3,000 M
$4,000 M
$5,000 M
$6,000 M
$7,000 M
$8,000 M
Cumulative Cost to Provide Service (FY2006 $M) Note: 3 firms (w/ CEV, w/ ESA + JAXA IP, w/o Russian Competing), 16 STS flights ISS end-state, 100 Monte Carlo simulations, distributions in red reflect two standard deviations, with $400M of NASA COTS funding distributed for development offsets
Total Cost to Support ISS Using Commercial Transportation: 2010-2016 SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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COTS market size is significantly impacted by “completeness” of International Space Station (ISS) -
ISS construction through 16 STS flights is large market, while 10-flight completion phase leaves a marginally attractive COTS market (ISS without any more STS flights would be a very problematic market) Length of simulation is only as long as current projected lifetime of station (until 2016) Gap period of 2010-2012 (without CEV) is difficult to support given failure of vehicles and no domestic U.S. backup
Use of commercial providers for resupply is potential win-win scenario for US Govt. and emerging commercial companies -
NASA savings might approach several billion dollars over seven year period (compared to using government CEV), commercial providers gain an entry market at an attractive price (possibly multi-billion dollar market is enabled) Multiple analyses (even with some failures in program) show that multiple companies can be profitable over time for these markets Using Russian providers of services reduces cost the best, even over the option of using commercial providers There is high reliance on ATV and Russian support for propellant re-supply, current study did not include any commercial company capable of providing such a service (could be a needed capability not addressed in the specific market segments requested by the COTS solicitation)
Cargo (pressurized and un-pressurized) market can support more than one financially viable company -
Companies for this particular simulation based upon projection of a credible COTS provider
All simulations, given credible estimates of reliability, almost always seem to result in failure of some of the companies to deliver crew or cargo over the 2010-2016 period -
Should anticipate failure over the life of the program given the new products being offered and flight rates required Possibly difficult to achieve reliability similar to CEV for commercial companies
Cost is one of the most important factors in determining financial viability -
Lower development costs on smaller vehicles result in companies that can be successful in these markets
ISS Commercial Support: Preliminary Observations SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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Business Address: SpaceWorks Engineering, Inc. (SEI) 1200 Ashwood Parkway Suite 506 Atlanta, GA 30338 U.S.A. Phone: 770-379-8000 Fax: 770-379-8001 Internet: WWW: www.sei.aero E-mail:
[email protected]
www.sei.aero SpaceWorks Engineering, Inc. (SEI) www.sei.aero
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