It’s become a tradition for the commercial launch industry in the US: every several years they ask Congress to extend the current regime for launch indemnification. This system requires launch providers to take financial responsibility (usually through insurance) for any third-party damages from a commercial launch up to a “maximum probable loss” determined as part of the launch licensing process; any losses above that level, up to a very high level ($1.5 billion in 1988 dollars) would be the responsibility of the government, subject to appropriations. The industry usually seeks a long-term, or even permanent, extension, but typically gets only three to five years at a time. The last extension, passed in late 2009, expires at the end of this calendar year.
Last week the space subcommittee of the House Science Committee examined the fiscal year 2013 budget proposal of the FAA’s Office of Commercial Space Transportation (AST). One of the topics discussed in the hearing was the need to extend the indemnification regime this year. “It has to be extended, at least for a year,” said Will Trafton, chairman of the Commercial Space Transportation Advisory Committee (COMSTAC), an industry group that provides advice to AST. A one-year extension would give the industry some near-term certainty while providing time to “work the fine details” of a long-term extension, he said. “We, COMSTAC, would just like to get that behind us, as soon as possible.”
Industry, of course, would like a much longer extension, as George Nield, the FAA associate administrator for commercial space transportation, noted in the hearing. However, one member of the subcommittee openly wondered if the indemnification regime was necessary. Rep. Donna Edwards (D-MD) tried to differentiate between commercial launches of satellites and those carrying people as she asked if indemnification was still necessary. “Why is that on the commercial side the taxpayers should enjoy pretty much all the risk and the companies engaged in the activity bear really not a lot of the risk?”
Nield disagreed, noting that what is called indemnification would be more accurately called “conditional payment of excess third-party claims”, and that companies still bear the risk up to the maximum probable loss set in their license. (No commercial launch to date has triggered the indemnification provision.) Edwards continued to argue that as the commercial industry matures, it should bear the full risk to the public. However, a lack of indemnification would put US launch providers at a competitive disadvantage to those in Europe, Russia, and elsewhere, Trafton said. “We need it to be competitive internationally. Everybody else has this,” he explained.
In a statement after the hearing, Edwards continued to make a distinction between commercial launches of satellites and commercial launches of people, which for the purposes of third-party liability indemnification are considered the same. “However, I am concerned that we have yet to get answers to many questions that remain, including how safety regulations will be developed and whether the U.S. government should extend shared liability and indemnification protection to the commercial human spaceflight industry,” she stated.
The chairman of the subcommittee, Rep. Steven Palazzo, said that the committee would hold a hearing specifically about indemnification in the latter half of May, with GAO expected to testify on “an extensive analysis of the market” that it is performing. Meanwhile, according to industry officials, legislation is under development in the Senate that could extend the indemnification regime by up to five years and also make some other tweaks to current law.
Under the Outer Space Treaty, nations bear responsibility for damages caused by launches under their jurisdiction. If a Boeing, LockMart, OSC, or SpaceX upper stage falls on a cruise ship in international waters and kills hundreds, the U.S. government is going to be on the hook for the damages above what the launch was insured for and what the launch company can sustain, regardless of whether there’s an indemnification clause in existing legislation or not. It makes little sense not to provide this protection for domestic third parties, when it’s required for foreign third parties. It would be a bad double standard if the families of the Canadian tourists on the cruise ship example above are made whole and the families of the U.S. tourists are not.
There’s also the practical issue of how much capital is available within the insurance industry to cover these launches. Without indemnification, segments of the insurance industry could be bankrupted, regardless of whether we care about the liable launch company or not.
I’d also note that the U.S. government routinely provides indemnification over longer time periods for other industries, such as the Price-Anderson Nuclear Indemnification Act.
I doubt that Edwards understands the relevant issues at all. Certainly there’s no evidence that she does from anything she said.
Hardly surprising. How many politicians really understand the issues that they’re supposed to be legislating or even debating?!
This amounts to privatizing gains while socializing losses, a lose-lose for the taxpayer. International law (and insurance) are much different for commercial aviation, passenger and cargo, where the airline and its insurers are held responsible for a crash into the aforementioned cruise ship, with maybe Boeing or Airbus thrown in for grins. If this was truly a “commercial” enterprise, gains and losses would be privatized. As it is, we’re just looking at state-sponsored capitalism, which isn’t capitalism, as I understand it. The money to support a fully-functioning commercial economy in space just isn’t there yet.
International law (and insurance) are much different for commercial aviation, passenger and cargo, where the airline and its insurers are held responsible for a crash into the aforementioned cruise ship, with maybe Boeing or Airbus thrown in for grins.
There is a reason for this. You might want to look up something called the Outer Space Treaty, and the Liability Convention.
“If this was truly a ‘commercial’ enterprise, gains and losses would be privatized.”
Private entities, launch insurers and the companies themselves, are responsible for the losses. But the energies, and thus maximum probable losses, involved in space transport are an order of magnitude greater than they are in aviation. This puts the higher-end liabilities outside the capability of the private sector to insure or absorb.
“The money to support a fully-functioning commercial economy in space just isn’t there yet.”
This has little to do with how big the industry is, dollar-wise. It’s a function of the physics involved.