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How Space X Grew, Part 1

The Space Exploration Technology rocket factory is a large, white hangar-like building near Los Angeles international airport, with a parking lot filled with late-model motorcycles and Tesla electric cars. The vast metal structure once churned out 747 fuselages for Boeing. Today, it’s where Space X is bringing science fiction to life.

Space X facility, once for 737's, now making science fiction reality.Credit: Space X
Space X facility, once for 737’s, now making science fiction reality.Credit: Space X

Designers, engineers, and accountants eat together in the company’s two-floor cafeteria overlooking this spectacle, looking down onto the manufacturing floor.

Visitors can’t snap pictures—the technology is considered sensitive to national security. An enormous robot encircles a carbon-fiber shell that enfolds a satellite mounted on top of a rocket, using sonic waves to test for invisible imperfections. Human workers align nine rocket engines in an octagonal frame (most of the work of building a rocket is not yet mass-production, too specific for any robotic production-line yet imaginable. Other workers use a crane to lift a large panel and move it between workspaces. Even higher overhead, the first Dragon space capsule to leave the atmosphere and come back again hangs as a trophy. Mounted beside it is a project still in development: An enormous metal arc, one leg of a landing gear large enough for a rocket.

In 2014, NASA said it would pay SpaceX its largest single contract ever, $2.6 billion, to shuttle US astronauts up to the International Space Station (ISS). It’s one of two companies that will build vehicles to replace the discontinued space shuttle and return the US to the list of spacefaring nations. The other, SpaceX’s frequently testy competitor Boeing, will do the same job but at more than half again the cost—some $4.2 billion.

In fact, SpaceX has a chance at beating the aerospace giant to be the first private company to fly humans into orbit. This is an enormous milestone for the firm, and also its most dangerous task so far. But building cost-effective space vehicles gives SpaceX a chance to save US space efforts from their own torpor.

Despite successes in planetary science, like the Curiosity rover on Mars, NASA’s manned space program has been floundering. The first plan to replace the space shuttle was cancelled; a new effort to send people to explore the solar system is behind schedule and over budget, to the point where it may be unfeasible. Even the basic effort of getting astronauts up to the ISS—real estate in which the US has invested $75 billion—has been outsourced to Russia, with that plan extended further. One wonders if only a new space-race with quickly emerging China would change the politics and funding of NASA sufficiently to satisfy its critics.

Click for larger version. Credit: Space X

In the private sector, the US, once the leader in satellite launches, now lags behind European and Russian competitors. An existing joint venture between Lockheed Martin and Boeing, the United Launch Alliance (ULA), is using engines bought from a Russian state company until 2017. And as China and India show their prowess to catch-up to the advanced economies with cost-conscious space stations and Mars probes of their own, a US side-bet on commercial space companies has now become the most likely way for the US to get off the ground.

When NASA officials first got involved with SpaceX eight years ago, they thought they were hiring a temp worker for scut work—a so-called “space taxi” while the government focused on higher aims. But now the commercial project may be NASA’s best hope for getting humans into space.

When Elon Musk founded SpaceX in 2002, it was, at best, a millionaire’s flight of fancy. He had made his fortune from tech startups Zip2 and PayPal, and was still two years away from starting Tesla, the electric-car firm.

Musk, as he will gladly tell you, has a vision: Colonize Mars and make humans a multi-planet civilization. He sees it as insurance against a global catastrophe that leads to human extinction. Per Musk, the only sensible policy in this universe is redundancy. Newly wealthy and with time on his hands, he concocted a scheme to send a greenhouse full of plants to Mars as a kind of grand gesture, but couldn’t find any cost-effective rocket to send it there, even on a multi-millionaire’s budget.

He did find people like Tom Mueller, a frustrated engineer at the conglomerate TRW’s aerospace division, who was building a rocket engine for fun in his garage. That—the largest liquid-fueled engine ever built by an an amateur—turned out to be the earliest version of the Merlin, which powers SpaceX’s rockets. Musk also met Hans Koenigsmann, a German engineer who became the company’s fourth technical employee, at a rocketry club launch in the Mojave desert. “My German accent helps in presentations,” Koenigsmann says. “When I say, ‘This will work,’ it is more convincing than other accents for some reason.”

Musk decided to start a company to provide the service he couldn’t find—an affordable ticket to Mars. Successful tech entrepreneurs love starting space companies: Jeff Bezos (Amazon), Paul Allen (Microsoft), Larry Page and Eric Schmidt (Google), and Richard Branson (Virgin) are all involved in firms dedicated to space tech. Most are seen, to varying degrees, as vanity projects.

“So many of his friends advised him not to do SpaceX,” Luke Nosek, who helped build PayPal with Musk, told Quartz.

 Nosek is now a member of SpaceX’s board of directors.

Just as Musk’s company was beginning to approach the space business with a clean slate, NASA was, too. The impending expiration of the space shuttle program, which flew US astronauts and cargo into orbit from 1981 to 2011, prompted a scattered response in the US space agency. In 2005, the Bush administration launched the first successor program, Constellation, intended as a ticket to both the ISS and the moon. The cost was originally estimated at $97 billion; it would eventually be cancelled in 2009.

But Mike Griffin, the aerospace engineer who became the top NASA administrator in 2005, had a bit of an unusual background: He was a former president of In-Q-Tel, the CIA’s in-house venture-capital fund for national security tech. And like Musk, he saw space travel as a key to the future of humanity. He just thought it was a job for NASA, not the private sector.

With so much money going into Constellation, Griffin decided to spend $500 million on a commercial space program, outside of the traditional NASA contracting approach, in the hopes of producing a cheap way to service the orbital distraction while NASA focused on grander aspirations. This commitment had his top staff wondering if he saw the ISS—at a total cost of $150 billion, the most expensive single object ever built by mankind, but of relatively limited scientific and economic value—as “a huge rat hole we’re just throwing money down.”

Advising Griffin was a physicist and venture capitalist, Alan Marty. One of the first things he did was write a two-page book report on Clayton Christensen’s classic Silicon Valley tome The Innovator’s Dilemma and distribute it to senior NASA executives. At Marty’s insistence, NASA’s attorneys were able to exploit a loophole created by the slapdash nature of the agency’s original founding. In the panic after the Soviet Union got to space first with Sputnik, the White House had demanded a civil space agency fast, and to avoid missing any opportunities, a young attorney had added a kind of universal action clause (section 203, sub-section a, part 5) to the 1958 law that founded NASA. “You know how Sherwin-Williams [Company] paint covers the world?” NASA general counsel Michael Wholley said. “He basically said, ‘If I’ve forgotten something, use this.’”

And so in 2006 Griffin and his colleagues came up with a system to sort-of invest in two companies, SpaceX and Rocketplane Kistler, to develop space transit. There would be no sharing of equity or intellectual property, but also no guarantee of payment before technological and financial milestones were reached.

Musk and the Falcon 9. Picture credit Space X
Musk and the Falcon 9. Picture credit Space X

“I knew enough about the federal government to know that if you invested money and you got none of your money back, everybody would get angry,” Marty said. “But it also turns out that if you invest money and you get five times your money back, everybody gets angry too, because then you’re competing with the private sector.”

Rocketplane Kistler would eventually be dropped from the program, eventually flaming out in bankruptcy after failing to raise enough money from New York hedge funds and pension investors it targeted just as the economic crisis began. SpaceX, on the other hand, would eventually collect $396 million from NASA while contributing $454 million of outside capital, including an initial $100 million of Musk’s own money in 2006.

The company’s outside fundraising strategy was simple: Turning to Musk’s deep-pocketed friends in Silicon Valley, who were more willing than hard-pressed New York financiers to take a flyer on something new. There was also an attractive quirk of the satellite launch business: Customers pre-pay to build their rocket. That meant if the company could prove its concept in a successful test, the company wouldn’t need to raise another round of working capital, protecting early investors’ stakes from dilution.

Come back and read part 2 of this story on Space X’s further development, and NASA’s involvement with commercial space ventures. Credit to NASA and the aural history project for sources.