Author Topic: How frequently does a RLV need to fly in order to amortize its costs?  (Read 11514 times)

Online pippin

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There are statements that indicate they need about 15 launches a year to be profitable once NASA payments for development are gone.

Source? Never, really, never, rely on hearsay for financial information. There's so much misunderstanding going on and it's so easy to make people misunderstand things you are saying. What does "need" in your example mean? To cover their fixed costs as they are now? To not have to shut down the whole company? To generate an operating profit? To create a return on the capital investment going into them? To fund their growth plans? Massive difference between these figures.
« Last Edit: 07/06/2015 01:14 PM by pippin »

Offline guckyfan

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There are statements that indicate they need about 15 launches a year to be profitable once NASA payments for development are gone.

Source? Never, really, never, rely on hearsay for financial information. There's so much misunderstanding going on and it's so easy to make people misunderstand things you are saying. What does "need" in your example mean? To cover their fixed costs as they are now? To not have to shut down the whole company? To generate an operating profit? To create a return on the capital investment going into them? To fund their growth plans? Massive difference between these figures.

I have problems with providing the source. But that statement was made not too long ago. If I recall correctly he said 12 flights a year but as SpaceX staff has increased since then it was extrapolated to 15/16 flights. I assume he or the investors do not care much about return on investment. That comes with increasing value of the company. As many of that staff is involved in development it would include the ongoing development efforts for the next generation rocket, Raptor and MCT. Probably not at present level for the satellite network. And not for building the factory and launch pad that requires. That is a major effort which will need additional funding beyond the 1 Billion $ Google put into the company recently.

Online pippin

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I assume he or the investors do not care much about return on investment.
Depends on whether it's equity or debt. Valuation of the company depends on prospect of long-term returns, so investors usually care a lot, they just care even more about growth potential. Because that means you might generate more return.

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As many of that staff is involved in development it would include the ongoing development efforts for the next generation rocket, Raptor and MCT. Probably not at present level for the satellite network. And not for building the factory and launch pad that requires. That is a major effort which will need additional funding beyond the 1 Billion $ Google put into the company recently.
Exactly. Which is why  say it's difficult to assess.
To some it all up: while you all claim to know very well how SpaceX's business model works all I'm saying is: you don't know any of that. And I bet a lot of the things you are all taking for granted here are high on the "I'd really like to understand this better" list of Elon.

Everybody always seems to assume that developing a business is all about having that great scheme of things in mind and knowing 10 years in advance what will happen while in reality it's nothing like that. It's all about seeing an opportunity, seeing some things you might be able to do better than others and then trying and trying. Even when you are successful, you usually find that 75% of the things you try simply don't work out and then you go on and try something else. As long as the other 25% work well enough that's perfectly fine.

As an entrepreneur you don't assume you know everything and make no mistakes, you assume you will get the important things done even if you make mistakes and make sure to shed the ones that don't work soon enough. And you try a lot of things.
« Last Edit: 07/06/2015 01:39 PM by pippin »

Offline john smith 19

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We'll have to see.

Seriously though. The brightest minds (at the time) engineered the STS. It offered lower cost and a higher flight rate.
Technically the lower cost comes from the higher flight rate.
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The program did not deliver on its reusability promise and that affected its flight rate which then affected its cost.
You've missed out the elephant that was in that room.

The absurd fundingr restriction placed on the programme. From then all all cost goals went out the window in order to get something built.
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Numerous programs, studies, and companies have produced viable reusable vehicles on paper and with prototypes, but they often fail on practicality.
The paper parts correct.

Which ones were you thinking of that went to prototype?
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It seems (with regards to SpaceX's F9R) the first question we should be asking is how much refurbishment (cost wise) after each flight F9R's first stage needs for reuse. Then SpaceX figures out in reality what it actually costs.
Sounds like  you need a cost model you can change the numbers on to see what converges.
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Not sure if what I said just made sense, but anyone that has worked in or studied the LV industry should know that studies and paper rockets are often "optimistic" and don't follow through with their "promises".
Indeed. In the case of the X30 some of the values for the actual physical constants were wrong.

A fact the USAF only discovered about a $Bn into the programme.  :(
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Any speculation based on these unproven studies and paper rockets becomes that more unpredictable and inaccurate.
Yes, the more hardware, and the more accurate hardware that gets built the more likely it will do it claims.
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Offline john smith 19

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So I guess you're saying that the F9, being an ELV, just needs to fly once to cover its costs.
Just like every other ELV.

Yes, just with the bonus that its first stage can fly again. :)
I'm looking forward to that day.

Depends on the elasticity of demand,

That's the brilliant economics in the SpaceX reuse concept. It works at any point of the elasticity curve. It can lower prices if more flights occur, it is very competetive if not.
In which case why do you offer reuse when you're already the lowest cost provider in the first place?

That's the paradox of companies operating a builder/operator model for an RLV, or in SX's case a semi reusable LV.

I can't imagine those because they would completely depend on how competent Boeing is at managing an airline, something we all don't know. There are no implicit cost implications of vertical integration, only business model implications.
According to SX every dollar spend with a subcontractor requires them to spend about $3-$5 in house.

That sounds like quite a large cost implication to me, if you're not on a government contractor where you know the taxpayer will pick up the tab.

In fact I'd like to extend my Boeing airline analogy further.

What if (in addition to running the airline) Boeing planes could operate only from Boeing owned airports?

So now every passenger directly carries the burden of a)The planes design team b)The planes build team c) The planes construction cost d)The airlines staff costs d)The airports construction cost e) The airports operating cost.

Do you doubt there will be some influence on the volume of air passenger travel and it's likely to be negative?

I will repeat no other transport mode operates in this way. If anything it's the "IBM Mainframe" model of the 1905's and 1960's.

I would suggest that as long as an LV architecture starts with a TSTO (or nSTO) ELV that is the way it will always operate due to the deep coupling of payload, vehicle and launch pad.  :(
« Last Edit: 07/06/2015 02:23 PM by john smith 19 »
BFS. The worlds first Methane fueled FFORSC engined CFRP structured A380 sized aerospaceplane tail sitter capable of flying in Earth and Mars atmospheres. BFR. The worlds biggest Methane fueled FFORSC engined CFRP structured booster for BFS. First flight to Mars by end of 2022. Forward looking statements. T&C apply. Believe no one. Run your own numbers. So, you are going to Mars to start a better life? Picture it in your mind. Now say what it is out loud.

Offline guckyfan

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Depends on the elasticity of demand,

That's the brilliant economics in the SpaceX reuse concept. It works at any point of the elasticity curve. It can lower prices if more flights occur, it is very competetive if not.
In which case why do you offer reuse when you're already the lowest cost provider in the first place?

Because Elon Musk is driven by the desire to advance spaceflight, not making profits. Of course he needs to make profits to invest towards his goal. He cannot fund it with profits from elsewhere, like Blue Origins Bezos.

That's the paradox of companies operating a builder/operator model for an RLV, or in SX's case a semi reusable LV.

Your fixation on separating building and operation is a source of constant amazement to me.

Online pippin

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What if (in addition to running the airline) Boeing planes could operate only from Boeing owned airports?
Well, if it meant Boeing could rake in all the subsidies going into airport construction around the world that alone would be a massive push to their business models. Airports are money sinks and the cost is not carried by the airlines. Which, again, aren't profitable on average and who are _also_ massively subsidized in many places around the world.

No, the big advantage of separating the two business models of building and operating airliners is of course that you have competition on both sides so that you can wipe out the more incompetent ones and only leave the better ones as has happened numerous times instead of having all the airline operations go down with the inefficient airliner manufacturer or the other way around.

But that depends a lot on the level of competition you can achieve and the frequency of use.
Airline business as it is developed after WWII when lots of unused transport aircraft were available cheaply, to this day it's never really become a profitable sector.

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I will repeat no other transport mode operates in this way.
Yea, and no transport sector is profitable on it's own, they all get their infrastructure subsidized. All of them.

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If anything it's the "IBM Mainframe" model of the 1905's and 1960's.
Or the Google- and Facebook model of today.


Offline Coastal Ron

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In which case why do you offer reuse when you're already the lowest cost provider in the first place?

It depends on what your motivations are.  For Boeing and Lockheed Martin they did not see a business advantage in lowering the cost to access space, and it could be argued that they actually wanted to increase it when they merged.

However Elon Musk is not motivated purely by profit, as he has a personal goal of making humanity multi-planetary.  So while you need a profitable business in order to help make that goal a reality, it does open you up to changing the economics of how everything works.

To be fair, if there were far more competitors it is likely someone would have been as aggressive as Musk in pursuing reusability, but unfortunately there aren't.

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That's the paradox of companies operating a builder/operator model for an RLV, or in SX's case a semi reusable LV.

We're not far enough down the road yet to understand if SpaceX will always be a builder/operator.  For Musk's personal goals it might be better that they turn into a builder only, and sell to operators - like the airline model.  But if that does happen it might take a while, so for now what we may be seeing as a builder/operator may not represent where the market will eventually go.

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I would suggest that as long as an LV architecture starts with a TSTO (or nSTO) ELV that is the way it will always operate due to the deep coupling of payload, vehicle and launch pad.  :(

No doubt there are still major pieces missing to make a really nice commercial space transportation market.  We're still truly in the early days here, with only guesses as to what will happen in the future.
If we don't continuously lower the cost to access space, how are we ever going to afford to expand humanity out into space?

Offline john smith 19

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Well, if it meant Boeing could rake in all the subsidies going into airport construction around the world that alone would be a massive push to their business models. Airports are money sinks and the cost is not carried by the airlines. Which, again, aren't profitable on average and who are _also_ massively subsidized in many places around the world.
Or national governments could say "You want into our market, you fund it," or indeed a range of other options, depending on wheather they had airline mfgs and/or operators of their own.
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No, the big advantage of separating the two business models of building and operating airliners is of course that you have competition on both sides so that you can wipe out the more incompetent ones and only leave the better ones as has happened numerous times instead of having all the airline operations go down with the inefficient airliner manufacturer or the other way around.
Which kind of suggest the people who run airliner builders really well don't make good airline operators, and vice versa.

Actually that seems to work with all forms of transport except the launcher/launch services business.
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Yea, and no transport sector is profitable on it's own, they all get their infrastructure subsidized. All of them.
The trouble is the subsidy in launch is either tied one type of LV (no such thing as a "universal pad") or range costs are sized on a "per vehicle" basis, so a small LV gets no benefit in lower costs for being small.

Or in anti trust speak the "barriers to entry" are very high.
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If anything it's the "IBM Mainframe" model of the 1905's and 1960's.
Or the Google- and Facebook model of today.
Yes I'd agree with that.

Although I think Google and Facebook are much smarter at not looking like a monopoly.
BFS. The worlds first Methane fueled FFORSC engined CFRP structured A380 sized aerospaceplane tail sitter capable of flying in Earth and Mars atmospheres. BFR. The worlds biggest Methane fueled FFORSC engined CFRP structured booster for BFS. First flight to Mars by end of 2022. Forward looking statements. T&C apply. Believe no one. Run your own numbers. So, you are going to Mars to start a better life? Picture it in your mind. Now say what it is out loud.

Online pippin

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Which kind of suggest the people who run airliner builders really well don't make good airline operators, and vice versa.
Know any who tried? All it means is that builders of airliners not necessarily make the best airline operators and vice versa. Or run lucky in both businesses.

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Actually that seems to work with all forms of transport except the launcher/launch services business.
Ariane has been working quite well for quite a while.

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Although I think Google and Facebook are much smarter at not looking like a monopoly.
Huh? How's that? Both are clearly being seen as monopolies in their respective business by pretty much everyone. The point here, though, is that they are also very much vertically integrated down to the point of developing and building their own hardware for their data centers.
« Last Edit: 07/06/2015 03:15 PM by pippin »

Offline Jim

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Which kind of suggest the people who run airliner builders really well don't make good airline operators, and vice versa.

Not true.  See United Aircraft and Transport Corporation.

Offline Jim

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The trouble is the in launch is either tied one type of LV (no such thing as a "universal pad") or range costs are sized on a "per vehicle" basis, so a small LV gets no benefit in lower costs for being small.


No.

A.  range services are independent of vehicle size.  A smaller vehicle doesn't use less range services.  They may use less base services which are cost reimbursable.  But items like telemetry, range safety, range clearance are basically the same cost no matter the size.
b.  it is also independent of with the pad. subsidy is based on the launch service and not the hardware used to launch the vehicle.

Offline ClaytonBirchenough

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The question of frequency shouldn't come into it unless the storage costs (or other time-based costs) for a non-flying vehicle are a significant cost driver (which may be the case, not a professional reusable rocket accountant).

Frequency is a very key point in reducing costs per launch.

If I have 1 RLV and launch it once a year, I have to cover all overhead costs with that one launch! If I launch that RLV 100 times, I only have to cover .01 of my overhead for the year on each launch.

There are many things that need to be amortized on each launch. Development costs, labor, etc. And, in such a drastic exaggeration as I used above, you have your employees refurbish the RLV for reuse. This certainly doesn't take a year. And my bet is, you don't exactly just bring in your "refurbishers" on a part time basis. Economies of scale seem to be your friend in the rocket business. :)

I am by no means a professional reusable rocket accountant either, but from my perspective, it appears that facility and development costs are a large driver in LV prices.

(Correct me if I'm wrong :) )
Clayton Birchenough
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Offline john smith 19

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People have talked a lot about qualitative analysis, range costs, re use rates etc.

With this in mind here is a copy of my current cost model

The 1st tab is for the F9SR design, the next BFR, the third the MCT and the last Skylon.

To use the model put your preferred values in the blue bordered cells and the model shows the results. Cells with red dots have help text or store known or preferred constants for various parameters, in case you overwrite a value and decide you want to try again with the original.

[EDIT. A special note on units used on a cell. Read the relevant label. If you put 0.1 in a cell labelled "percent" that's 0.1%, not 10%. Like wise different costs are entered in $, 1000s or $m. The model tries to ask for entry in reasonable sized units to limit the number of zeros people have to enter if the whole thing was in $ only. I'll consider changing if people really feel the need to see everything to the $]

Certain design options are triggered putting a Y or N in the relevant labelled cells, for example if  you think the staff costs for refurbishment should be charged by number of hours needed on a launch (unrealistic unless the number of launches a year is very high and they are like cars on an assembly line at Ford) or on number of launches per  year

Both number of flights per year and for the overall life of the F9SR are adjustable.

This new version breaks out range usage costs as a separate item (but assumes the range already exists) and lets you set a fixed charge on top of costs rather than a percentage of costs as the final asking price, if you think SX will ride the "cost curve" down while keeping the same level of profit

As previously there is an "arbitrary cost" box (which you can switch off) for a number to cover all the stuff  you can't specifically think that a refurbishment will need, but you're sure it will need.

Error reports, suggestions for improvements and other items to break out as specific costs are all welcome.
« Last Edit: 07/07/2015 12:57 AM by john smith 19 »
BFS. The worlds first Methane fueled FFORSC engined CFRP structured A380 sized aerospaceplane tail sitter capable of flying in Earth and Mars atmospheres. BFR. The worlds biggest Methane fueled FFORSC engined CFRP structured booster for BFS. First flight to Mars by end of 2022. Forward looking statements. T&C apply. Believe no one. Run your own numbers. So, you are going to Mars to start a better life? Picture it in your mind. Now say what it is out loud.

Online pippin

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Sorry, but your cost model assumes a fixed cost structure with only variable costs and no changes to cost structure with utilization, this is completely unrealistic and does costing totally backwards. You make the biggest mistake right at the beginning by assuming something like a fixed "profit" per flight. They might calculate with that at a given target flight rate but it's not a fixed value. One more flight and it goes up, one less flight and it goes down. Even if you know these figures (the assumptions at a given target flight rate) the results would only be valid for a static model with exactly this rate and no changes and can't be used to calculate anything else.

Start with assumptions about manufacturing costs, capex, capacity, material cost, variable costs per launch and so on and build on that.

Your model is something you might be able to use to deduct SpaceX's cost structures if you _knew_ all these other figures (cost per launch, overall profit, both of the for a certain number of flights per year, utilization, investment,...) which would then allow you to build on that but since you know none of them except for some vaguely defined gross figures you can't use it to deduct anything.
« Last Edit: 07/07/2015 01:22 AM by pippin »

Online pippin

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If you want to build a  cost model you essentially have two options:

1. build a real cost structure. Here you have to know things like development costs (over several years), investments, depreciation for the investments (or usage times), capacity, labor cost, capital cost,.... then you have to create a model for the fixed costs for a given capacity range and a change to these fixed costs if you expand/contract that capacity and then variable (marginal) costs per flight. Then you can either calculate a price or a profit/loss (if you have the other). Or you can calculate the sensitivity of price/profit to changes to the flight rate/number of flights. Within your capacity constraints.

2. build a cash-flow model. Here you can assume how much cash inflow and outflow they have per year and derive at what rates they can keep operating with a given amount of investment they have ("cash burn rate") or make ("positive cash flow").
With this you can not, though, deduct things like "profits" of any kind, cost structures or costs per flight or per unit and prices (which are generally based as much on market conditions as on actual costs), what you _can_ deduct is the impact on the cash use/accumulation from a changing flight rate. That's probably the best information you can derive from the little data that's really known about SpaceX's business.

Familiarize yourself with concepts like fixed cost and marginal costs, otherwise this whole exercise leads nowhere.

Also, please make sure you understand terms like "profit". "Profit" is an accounting figure you create as a result of what you did over a year. You might then deduct figures like "profit per flight" simply by dividing the profit by the number of flights but that doesn't mean you made that amount of profit per flight. Could be you just broke even with the last flight and your profit actually doubles by having an additional flight. Or your profit could have come from other sources like services and your profit actually lowers if you add another flight. It's meaningless.

What you _can_ use are figures like net cash flow per flight (difference between price and marginal cost) but that's what you then have to use to pay all your fixed costs which will be the lion's share of your overall costs. And even "fixed" costs change when you get out of your defined capacity range. Costing isn't simple if you don't have raw cost structure data.
« Last Edit: 07/07/2015 01:36 AM by pippin »

Offline john smith 19

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Sorry, but your cost model assumes a fixed cost structure with only variable costs and no changes to cost structure with utilization, this is completely unrealistic and does costing totally backwards.
It's actually a bit worse that that.  :)

I don't care what those numbers are.

The model is about what happens to the price (and possible profit, IE what they make above what they directly have to put in to make the LV and later refurb it) of an SX launch if 1st stage reuse happens (which still has not happened).

If SX are not making a profit at this level they will run out of money and go bankrupt. If they are they won't. If they are not making enough profit then their prices will likely rise. My interest is in lowering the price of launch and what that takes.

Will putting up more launch pads cost a lot. Yes. Will design and build on Raptor cost a lot (Musk said a $Bn when Congress asked, but I suspect the costs will change when SX has to fund it themselves). yes.

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Start with assumptions about manufacturing costs, capex, capacity, material cost, variable costs per launch and so on and build on that.
What exactly are your goals here? The model simply says "with these assumptions this is the result."
If you don't like the numbers change them yourself.

If you think the model structure is wrong what would you rather it be?
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Your model is something you might be able to use to deduct SpaceX's cost structures if you _knew_ all these other figures (cost per launch, overall profit, both of the for a certain number of flights per year, utilization, investment,...) which would then allow you to build on that but since you know none of them except for some vaguely defined gross figures you can't use it to deduct anything.
It's good enough to show (roughly) how prices could change with reuse and how (roughly) costs change with how many people you put on the refurbishment and wheather it flies enough to charge by the hrs actually needed or how many flights the LV does a year.

Some of those numbers are very "stiff." It takes a lot of flights before working out how many man hours are spent on a refurb becomes a viable way to charge for staff usage.

I'm interested in what the customer sees. Shotwell said at the Nato conference the full cost of a comm sat on SX is about $100m, same as an Ariane 5 ride share, but without having to find a 2nd comm sat of the right mass in close angular position in GEO to partner with.

IOW the cost reduction of flying SX for comm sats is zero.  :( It's more convenient but it's not $1 cheaper.

I'm looking at what can be deduced from public statements and their impacts on costs and prices charged.

What were you hoping it would tell you?

You've spent a long time explaining the shortcomings of the model. You clearly have a much better accountancy background than I do. The model is deliberately simplistic. A sanity check on price expectations, not to do SX's tax and benefits planning.  :)

Let me suggest you provide a better structure for answering the question in the thread title.

BTW I do understand things like gross and net profit and the idea of step changes in production costs bought on by exceeding capacity on existing plant (like say the diameter limit on say an FSW tank making machine) and break even to a point where "contribution" turns into pure profit (the attraction for newspaper and magazine publishers). IIRC for the original 707 it was around 60 aircraft sold. And yes I can run an IRR calculation if necessary.

Strictly speaking I'm not sure any LV has actually broken even without the national government of whatever state simply writing off the development costs (and often paying for the facilities as well it seems  :( ).

IOW Exactly what the UK and France did with Concorde and handing them to the (then) state owned airlines of each country.
« Last Edit: 07/07/2015 02:21 AM by john smith 19 »
BFS. The worlds first Methane fueled FFORSC engined CFRP structured A380 sized aerospaceplane tail sitter capable of flying in Earth and Mars atmospheres. BFR. The worlds biggest Methane fueled FFORSC engined CFRP structured booster for BFS. First flight to Mars by end of 2022. Forward looking statements. T&C apply. Believe no one. Run your own numbers. So, you are going to Mars to start a better life? Picture it in your mind. Now say what it is out loud.

Online pippin

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What exactly are your goals here? The model simply says "with these assumptions this is the result."
I don't think you understand the assumptions behind your model.
You say your model was about what reuse does to price and profit but in fact it does nothing like that because it does in no way take SpaceX' cost structure into account. The results of your model are just random figures due to that.

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If you don't like the numbers change them yourself.
It's not about the numbers, it's the model that's wrong. It simply doesn't do what you seem to think it does.

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If you think the model structure is wrong what would you rather it be?
C'mon, I wrote a _really_ long post about that.

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It's good enough to show (roughly) how prices could change with reuse
No, it's not. That's what I've been trying to explain to you.
I took the effort to explain it, please take the effort to try to understand what I wrote.

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Let me suggest you provide a better structure for answering the question in the thread title.
I can't because I don't have the necessary data. But there's no value in creating random figures based on totally wrong calculation models instead and call them calculations. Could just as well roll some dice.
Price and "profit" are irrelevant input values. You need to understand costs and costs structures to know whether reuse will actually reduce or increase said costs.
The comes understanding how reuse affects value for the customer (lower due to higher risk, lower flexibility? Higher due to lower risk? Same because it's just an insured flight? We don't know that, yet, neither does SpaceX or the customers) which in turn affects prices.
When you know that you'll know whether profits increase or not.
« Last Edit: 07/07/2015 04:15 AM by pippin »

Offline ClaytonBirchenough

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I'm not sure, but do investors have any impact on how quickly costs get amortized? I guess it really depends on what kind of investment it is, but from my understanding, in the case of SpaceX, Elon has controlling interest so it doesn't matter what any of the investors actually say (correct?)? Also, not sure if dividends are paid to investors (again speaking about SpaceX). I could see investors wanting to just buy stock to see the value of the company rise and then sell their stake for a profit. Not sure how all that ties in, but it might haha.

Also, do we know how much money Elon has personally put into developing F9R? Is it possible Elon personally paid for a large portion of F9R development so little/very little costs need to amortized over each flight?
Clayton Birchenough
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Controlling stake will not help Elon because investors will demand their own terms for investing, something that's totally common for privately funded companies. They will be much better protected than Musk.

Dividends don't make sense in such a setup. Investors are not in for a cash flow but for a stake in the company and dividends would just reduce the cash available for the company they own anyway. You usually only start paying dividends when you generate so much cash that you can't use all of it for your growth anymore, SpaceX is far from there.

But SpaceX, as I understand, has also taken up debt which will have to pay interest.

All of this (except interest) isn't immediately important in the cost structure because investors only get paid in case of success, important aspects are ongoing investments they have to do (which require additional capital), personnel, machinery, real estate etc. a lot of which will be leased but nonetheless fixed. And then on the variable side contractors, materials and commodities sourced from outside suppliers. Non-commodities sourced from elsewhere fall somewhere in between, depending on the contract because you usually can't just buy more on a short-term basis and you usually have to guarantee certain quantities.

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