Author Topic: The Reaction Engines Skylon Master Thread (5)  (Read 442204 times)

Offline tl6973

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #620 on: 09/02/2015 09:12 AM »
I have been trying to work out how to understand for myself and state in simple terms why it worth bothering to split the business case into two parts: Development and construction, then operation

Unfortunately for me I am not an expert in economics, but I can see one clear benefit that might be a good reason - i just wanted to check with the knowledgeable souls here in the forum to see if I am barking up the right tree and if i have missed any other key points:

           Say, for argument's sake that your business case shows that the lifetime revenues of a fleet of Skylons can outweigh the development, construction and operations costs (this is an assumption that I'm not trying to tackle here)

If the development programme takes 10 years and the airframe lifetime is 30 years, then that is a very long time for investors to wait to recoup their initial investments.

However, if you split it down the middle, then you can have two sets of investors who will see a much quicker return on investment: those who are rewarded on investing in development through the sale of vehicles to operators, and then those who investment after the development is completed (with lower risk since Skylon has been proven to work), and start seeing a return on investment when operations begin.

So you've turned something like a 40 year investment cycle into more like two different 15-ish year cycles

You can also split your investors into two discrete expert groups: those who have experience in investing in technology (and who will also be very adept/experienced at monetising spin-off technology developments), and those who have experience in logistics, operations, fleet management, customer management etc. 

Does that make any sense? That's the principal benefit i can see of this model over building and operating it as one entity

Offline SteveKelsey

Re: The Reaction Engines Skylon Master Thread (5)
« Reply #621 on: 09/02/2015 09:33 AM »
JCRM said

 "I'm not in the position to buy a launch vehicle of any description, but I doubt I would use a $1bn vehicle with a 50 hour powered flight time as a cargo vehicle, especially when anything that would fit in a Skylon would fit into a main-deck pallet space on a 747."

For clarity that was not my suggestion. I suggested self ferry to a launch site, not using Skylon as an alternative to a 747 cargo plane, which would be absurd.

 and "Much better to have your Sklyon at a spaceport, leasing the infrastructure. I'm guessing in just the same way as airlines use airports."

I agree with that.
« Last Edit: 09/02/2015 09:34 AM by SteveKelsey »
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Offline francesco nicoli

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #622 on: 09/02/2015 09:42 AM »
I have been trying to work out how to understand for myself and state in simple terms why it worth bothering to split the business case into two parts: Development and construction, then operation


When you decide whether to buy an investment good which is available on the market, you don't really care whether the company which originally builds it has its books in order. What matters is whether your own business case as a user of the invstment good closes given the price of the good.  In "normal" space, the exact same logic applies, but the investment good is rather a one-shot investment service.
in the case of an investment good, of course, the whole economic life of the good is to be judged, so the business case is to be evaluated against market conditions.

You might argue that the conditions at which the investment good is provided to the markets depend on the conditions which close the business case for the producer: a product that, once produced, is perfectly viable, may never be built because the business case for production in first place does not close. So if the producer business case does not close, there is no business case at all for the buyer.
Of course, the buyer's business case is incorporated in the builder's business case, because if the former does not close, there will be no buyers.

Of course, the builder ex ante(1)sets a price which allows for its own business case to close, so buyer's acquisition cost reflects the builder business case. In principle, this equations are therefore codetermined.

However, REL has provided a very clear assumptions on the unitary cost and operative cost of Skylons, therefore introducing some information that constrain the builder business case. this allows for judging separately the operator case, provided Skylon works as advertised.


(1) ex post, once the upfront investment is done, the price could be pushed further down by market conditions even if the new price would not repay the initial investment. it happens very often in real economy. This will deter further investment, but not prevent production, as long as the price is high enough to grant that sales cover the company's operating expenditure (including debt servicing).
« Last Edit: 09/02/2015 09:47 AM by francesco nicoli »

Offline pippin

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #623 on: 09/02/2015 10:20 AM »

Thats not correct. and this has been covered before. The principle of Skylon is to offer aircraft like operation. Any nation capable of maintaining military aircraft should be able to maintain Skylon.
Military aircraft operation is heavily dependent on parts and services supply by the vendor. Ask Iran about their F 14s.
Original purchasers of foreign products usually demand either co-production to create knowledge in-country, buy huge amounts of spare parts stock for independence or have a cooperation agreements with the country of origin (like NATO) to assure access.

Independent operation only exists for very old technology aircraft that also have been produced in huge numbers so parts and knowledge are wildly available across the globe.

Offline pippin

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The Reaction Engines Skylon Master Thread (5)
« Reply #624 on: 09/02/2015 10:23 AM »
@francesco nicoli: very good explanation.
« Last Edit: 09/02/2015 10:23 AM by pippin »

Online john smith 19

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #625 on: 09/02/2015 10:41 AM »
The idea that a significant number of governments need or want independent LEO access is not a strong argument. It seems to have its roots in outdated ideas.
Just to be clear is that your opinion we're hearing or there some actual evidence for this PoV?
Quote

Even the idea of a national airline (a far cheaper investment) is a concept that many governments as a whole are moving away from. Unless this capability is *very* affordable, or essential to defense of the national borders, it is not likely that a rush of smaller governments will place Skylon orders.

Believing that government orders for Skylon will solve the business model for REL is IMO dangerously close to wishful thinking.
REL have done market surveys to determine the potential market. While they have not stated what that breakdown is between private and government customers (although they mention that in fact there are ninety three space agencies around the world) it seems likely some of them will be nation states. That's actual evidence of a market, not an opinion.

So far only Arianespace seems to have the level of separation between mfg and launch services company to be able to integrate Skylon into it's operations.

« Last Edit: 09/02/2015 10:42 AM by john smith 19 »
"Solids are a branch of fireworks, not rocketry. :-) :-) ", Henry Spencer 1/28/11  Averse to bold? You must be in marketing."It's all in the sequencing" K. Mattingly.  STS-Keeping most of the stakeholders happy most of the time.

Offline SteveKelsey

Re: The Reaction Engines Skylon Master Thread (5)
« Reply #626 on: 09/02/2015 10:53 AM »

Thats not correct. and this has been covered before. The principle of Skylon is to offer aircraft like operation. Any nation capable of maintaining military aircraft should be able to maintain Skylon.
Military aircraft operation is heavily dependent on parts and services supply by the vendor. Ask Iran about their F 14s.
Original purchasers of foreign products usually demand either co-production to create knowledge in-country, buy huge amounts of spare parts stock for independence or have a cooperation agreements with the country of origin (like NATO) to assure access.

Independent operation only exists for very old technology aircraft that also have been produced in huge numbers so parts and knowledge are wildly available across the globe.

Thats irrelevant.

My point was that it is easier and cheaper  for these nations to acquire  equipment and services that have been developed by a third party than to start an aerospace industry from scratch.

Did Iran have the technical depth and budget required to develop an F-14 from scratch?

Nor would Skylon suppliers and service suppliers abandon their customers. To do so would decrease their sales.

Abandoning Iran was a political decision, not a commercial one. Its not advisable to conflate the two


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Offline Ravenger

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #627 on: 09/02/2015 12:16 PM »
The REL quotes I've seen about this talk about self ferry as an exceptional thing - such as after an abort. (I'm excluding the full orbital delivery/shakedown flight as being self-ferry)

I asked Alan Bond at a BIS lecture if Skylon could self-ferry, and his answer was that D1 could, but "why would you want to?" I can't remember his exact words but the implication was that towing behind a large aircraft was the preferred ferrying method, but before he could explain further he got called away.  :(

Online john smith 19

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #628 on: 09/02/2015 01:22 PM »
One of the things about market surveys is how you ask the question.

If you ask various nations and corporations "Would you like to own your own launch vehicle" the answer would probably be "no."

Because right now "launch vehicle" means expendable and the organization would then have to acquire the staff and skill to do their single flight.

Which is obviously stupid when they can (as people do) hand over their payload to the "Launch Services" arm of the LV mfg.

Now what happens if the question is "Would like to own a fully reusable LV with a minimum of 200 launches in it, does not drop bits of itself across the landscape and you can sell on if you no longer need it?

I think you'd get a few more "Yeses" to that question.

Full reusability makes Skylon an asset not an expense (and in effect a lottery ticket) as current ELV's are.
"Solids are a branch of fireworks, not rocketry. :-) :-) ", Henry Spencer 1/28/11  Averse to bold? You must be in marketing."It's all in the sequencing" K. Mattingly.  STS-Keeping most of the stakeholders happy most of the time.

Offline francesco nicoli

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #629 on: 09/02/2015 03:29 PM »

Full reusability makes Skylon an asset not an expense (and in effect a lottery ticket) as current ELV's are.

of course it's an asset. Only a foolish would think otherwise. The question is whether it is affordable enough for a sufficient large number of countries to buy one, but the price should be really very high to put countries out of the buyers' range.

Moreover, the business case for countries buying skylons is far more stronger than for corporations. There are several reasons for it:

1) countries don't have to incorporate profits in their judgements.
2) countries have access to large budgets, money creation, or very low interest rates
3) countries may buy it for defense reasons or fast reaction capabilities.
4) countries often invest into infrastructure even if the toll they charge does not repay the expenditure, for the sake of strengthening the economy.
On this point:
Considers it as an infrastructure you provide to your economy: one billion is a very low pricetag from this point of view. And while a country, of course, makes some analyses on infrastructure use, infrastructures are often seen as preconditions for industry to emerge: they constitute the share of investment a state makes to help the economy grows. So there is little point for a country to by one Skylon if it believes that all 200 flights will be easily filled up: it should buy two!


finally, considers this.
A company with a Skylon (which exists for profits) will set the price just below the market price, which is determined by the most performer competitor (for example, spaceX). So, even if the cost of one LEO transfer is, let's say, 5 millions (as advertised by REL), the price would be just an inch below the SpaceX equivalent. the difference is the Company's profit.
A country, however, is not driven by profit. For the sake of stimulating its space and industrial sector, it could charge just the operating costs, effectively bringing the price down to 5 millions per launch in that country.
Meaning the first countries acquiring a Skylon may experience an incredible inflow of space-related investment.

« Last Edit: 09/02/2015 03:31 PM by francesco nicoli »

Offline pippin

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The Reaction Engines Skylon Master Thread (5)
« Reply #630 on: 09/02/2015 03:52 PM »
A country, however, is not driven by profit. For the sake of stimulating its space and industrial sector, it could charge just the operating costs, effectively bringing the price down to 5 millions per launch in that country.

No, a country could set the price at pretty much anything they want.
And of course if that really happens as much as you seem to predict it would obviously kill all that commercial Skylon market everybody is talking about because subsidized flights at half the price... well...

I still don't see it. I still believe countries are after the development of the technological knowledge if they invest because even today there's enough competition in the world market that you will always find a flight for those one or two sats a decade you really want to launch as a government.

No, if you develop your own access it's because you want to develop a domestic industry, not just make sure you get your birds launched.
« Last Edit: 09/02/2015 03:59 PM by pippin »

Offline francesco nicoli

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #631 on: 09/02/2015 04:03 PM »
well, I guess that at the end it boils down once more market elasticity. But a collapse to 5 m per launch (meaning 300 euros/kg, a 50-fold decrease over current prices) could foster practically any kind of investment in any known market. There is no reason to assume that the space sector price elasticity is so much low than all the other industrial sectors in the world not to produce a shift.

Offline pippin

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #632 on: 09/02/2015 04:38 PM »
Well, we'll see. There was another RLV that was supposed to reach that price range....

Offline A_M_Swallow

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #633 on: 09/02/2015 09:36 PM »
Price elasticity in the space markets can be seen with cubesats. I suspect that soon more cubesats will have been launched than other types.

Offline francesco nicoli

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #634 on: 09/03/2015 07:07 AM »
You are right, in fact I never tought of Cubesats as a sign of strong price elasticity, but now that you pointed at it I think that you got it right. With Skylon in place, the costs could be so low that virtually any municipality could launch a dedicated news smallsat. I think that the margins are huge, although human spaceflight will remain really costly even with Skylon, on the 300.000 eur. /ticket to LEO in the case of a public-owned vector. A dramatic decrease in respect to other plans, but still far away from mass consumption; space access remains, even with Skylons in place, a million-dollar luxury that only the richest can afford.

Offline Impaler

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #635 on: 09/04/2015 06:02 AM »

Thats not correct. and this has been covered before. The principle of Skylon is to offer aircraft like operation. Any nation capable of maintaining military aircraft should be able to maintain Skylon.
Military aircraft operation is heavily dependent on parts and services supply by the vendor. Ask Iran about their F 14s.
Original purchasers of foreign products usually demand either co-production to create knowledge in-country, buy huge amounts of spare parts stock for independence or have a cooperation agreements with the country of origin (like NATO) to assure access.

Independent operation only exists for very old technology aircraft that also have been produced in huge numbers so parts and knowledge are wildly available across the globe.

Thats irrelevant.

My point was that it is easier and cheaper  for these nations to acquire  equipment and services that have been developed by a third party than to start an aerospace industry from scratch.

Did Iran have the technical depth and budget required to develop an F-14 from scratch?

Nor would Skylon suppliers and service suppliers abandon their customers. To do so would decrease their sales.

Abandoning Iran was a political decision, not a commercial one. Its not advisable to conflate the two

Countries create their own 'independent' access to space exactly because of fear of being cut off for POLITICAL reasons, no one has any doubt that commercial launch operators on the international market will always be available at a market price. 

I can guaranteed you that Skylon manufacturers will be barred from selling to governments that the UK deems hostile, and the supply of parts would be subject to being pulled the moment relations turn sour, the more nations are involved in building it the more would have a veto on who can buy it, it would be as closely guarded as ICBM technology because Skylon is a fairly obvious substitute for an ICBM.

Space access is highly politically charged due to the extreme military importance of space assets and the national prestige attached to having access.  It is not like selling an AirBus to Indonesia.

Skylon is so cutting edge that only the worlds most advanced airo-space companies have a prayer or even being able to build it IF it can even be built, it makes most military air-craft look like balsa-wood gliders by comparison.  No hypothetical buyer nation outside the G7 could maintain such a vehicle on it's own, they would all be dependent on a constant stream of parts and skilled labor from the manufacturer so much so that it would be a de-facto lease.

Offline SteveKelsey

Re: The Reaction Engines Skylon Master Thread (5)
« Reply #636 on: 09/04/2015 07:44 AM »
 Please excuse me if I bin the quotation string at this point, its becoming too long for legibility


Skylon is intended to be precisely like selling an Airbus to Indonesia, that is Reaction Engines stated design intent,an SSTO with aircraft like operations.

You are also referencing construction which is irrelevant. non-G7 nations donít have to build Skylon, they only need to buy it and run it. If they can buy and run military aircraft they can buy and run Skylon.

The political restraints you raise apply to any G7 military manufacturer The Skylon purchase market is restricted by these conventions to the same markets as served by Lockheed Martin,Boeing,BAE,Northrop Grumman,General Dynamics,EADS, to name a few. These markets have both the appetite and the ability to purchase advanced aircraft. They may not have the ability to design and develop their own space access system-thats the point. Skyline is a shrink wrapped space program and seen this way it looks cheap. Any customer nation of the defence contractors noted would be capable of buying and running Skylon.

A second market exists that would be able to lease time on Skylon. These customers need a payload and a cheque book- note the discussion on cubsats above.

As to the difficulty of building Skylon in the first place I will leave others to comment if they wish to. Personally from what I have read I think you may be overstating the case. Its simpler than the Shuttle and the Shuttles were built decades ago. Materials have improved since then, design tools have developed substantially since then, manufacture and assembly of components made from exotic materials has broadened since then, and the major components will be built in technically advanced G7 nations.

Finally, as has been commented on many times, Skylon makes a terrible ballistic missile. Its launch profile is leisurely in comparison to an ICBM, its a very fluffy design and so its re-entry is slow  and its final approach is even slower,and it provides a very large heat signature for the bulk of its decent.  Although I have never purchased an ICBM, I also suspect from the construction differences between say a Polaris and Skylon, Skylon would be extravagantly expensive as a ballistic missile substitute. This is where Skylon would be at a severe market disadvantage.

I think we are straying into repetition at this point.
« Last Edit: 09/04/2015 07:59 AM by SteveKelsey »
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Offline adrianwyard

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #637 on: 09/04/2015 03:54 PM »
It's worth repeating what others have said before: while Skylon would indeed be a launcher you could buy 'off the shelf' it's continued value would be dependent upon it being inspected, serviced, and having parts replaced. Whoever provides those services (presumably REL or a spinoff) could hold everyone's space program to ransom.

Or you could attempt to service it yourself and make spare parts, but my guess is establishing and maintaining that capability is cost prohibitive.

Note: I'm not saying that Skylon won't meet their reliability and reusability goals, but no-one should have the impression you could just buy one with cash and then expect to just pump in H2 and LOX and then sell it after 200 flights. The analogy with 4th/5th generation fighter aircraft is probably about right.

Offline SteveKelsey

Re: The Reaction Engines Skylon Master Thread (5)
« Reply #638 on: 09/04/2015 04:11 PM »
And any defence supplier could do the same with precisely the same result, the loss of their customer base . Who would buy from them in the future.
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Offline adrianwyard

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Re: The Reaction Engines Skylon Master Thread (5)
« Reply #639 on: 09/04/2015 04:21 PM »
And any defence supplier could do the same with precisely the same result, the loss of their customer base . Who would buy from them in the future.

I agree 100%. The difference is Airbus/Boeing/Lockheed-Martin are massive companies with long-term government contracts/subsidies so you can guarantee they'll be around for a few years and will want to keep their customers happy. REL on the other hand could fold comparatively quickly, and would not be bailed out if the financials didn't look compelling.

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