WASHINGTON, July 18 — There are "clouds on the horizon" for the commercial space industry and the federal government’s power to bolster it is limited, a panel of witnesses told the House Space and Aeronautics subcommittee Tuesday, July 18.
Government incentives like tax breaks, loan guarantees and tax-free bonds for space-oriented companies will aid the firms for a period of time, but won’t support a failing business model indefinitely.
Congressional Research Service specialist Marcia S. Smith said this year’s Federal Aviation Administration (FAA) forecast for commercial launch services over the next 10 years is 20-percent lower than last year’s and that the International Space Business Council 1999 revenues are almost 5-percent lower than estimated.
"The issue of financial incentives from governmental programs to support these ventures must take a back seat to the issue of whether or not there is a commercially viable program to be supported," said Robert B. Landis, a managing director with Deutsche Banc Alex. Brown.
Besides the sluggish launch-business forecast, witnesses cited the challenges faced by the commercial space industry in attracting investors.
"Small entrepreneurial companies face a difficult task of finding sufficient investment to do aerospace projects," Wexler Group president Robert Walker said.
Walker, a former congressman and chairman of the space subcommittee, pointed to the high costs and the experimental nature of commercial space enterprises as having a chilling effect on investors.
Landis said that investors are also hesitant to buy into space companies because of the period of time — as long as five years — before the companies begin to generate revenues.
Walker urged the subcommittee to create tax-free bonds for the development of space infrastructure.
Often issued by states and cities, tax-free bonds are used to finance projects that are in the public interest, such as highways, stadiums or power plants. Walker envisions a new class of bonds, issued by an agency like the FAA, that would be used to finance commercial space projects.
The bonds would provide space companies with the seed capital that they need in order to develop their businesses and provide investors with an immediate return, Walker said.
But Molly K. Macauley, a senior fellow at Resources for the Future fears that government financial incentives like tax-free bonds or income-tax exemptions for space firms could prop up failing business models and stifle development of the industry.
"There seems to me to be plenty of money for space," she said, drawing a parallel between the space and pharmaceutical industries.
She said that space companies face many of the same challenges as drug makers — high research costs, strict governmental regulations and long development periods — but noted that drug companies have no trouble attracting investors.
Investors are more interested in pharmaceutical companies because they have an appreciation of prescription drugs while space business, unlike space exploration, fails to excite investors, Macauley said.
She encouraged NASA to meet with companies that are not already involved with space commerce to see what changes to space policy would make it more business-friendly.
The subcommittee also looked into ways the government could help prevent high-profile space company failures. Most questions focused on Iridium LLC, the satellite telephone provider that filed for Chapter 11 bankruptcy protection in August 1999.
Smith told the panel that government tax incentives would probably not have staved off Iridium’s bankruptcy. He said its problems stemmed more from problems with the company’s business model and competition in the wireless telephone industry.
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