Why Elon Musk Is Suing the U.S. Air Force

Elon Musk says he can save American taxpayers billions of dollars, but he'll have to win a lawsuit against the U.S. Air Force to do it.

The tech billionaire turned rocket entrepreneur is suing the Air Force over the way it awards private contracts to launch the Pentagon's satellites. There's big money at stake—the contract for a single launch can fetch hundreds of millions of dollars—but Musk says the military's unfair bidding process has created a de facto monopoly for a rival contractor: United Launch Alliance.

Musk wants to shake that up. His lawsuit in the Federal Court of Claims aims to re-open all future launches to competition, stripping ULA of billions in guaranteed money and allowing companies like SpaceX to make their pitch for more cost-effective rockets.

For a firm to sue the same entity that it is trying to sell its products represents a huge gamble, but Musk is running out of time and options.

In 2012, the Air Force awarded 36 launches over five years to ULA, a combined venture of Boeing and Lockheed Martin.

But for ULA's competitors, there was a silver lining: Another 14 launches happening between from 2015-2017 were set aside for competitive bidding. SpaceX says it will meet the Air Force's certification standards to compete for flights before 2014 is out, and so would have been eligible to compete for those launches.

But in early 2014, days before SpaceX's final required test flight, the Air Force announced it was cutting the competitive launches to seven. SpaceX believes that to mean a maximum of seven, with the possibility that number could dwindle to as little as one. And even the "competitive" bids, according to some within SpaceX, could be tilted in ULA's favor.

The Air Force's current plan, should it go through unaltered, will put satellite launch contracts out of reach for SpaceX for a half decade.

For Musk, who has spent years trying to trying to break into the Air Force's buying process—and whose company has spent years trying to meet the Air Force's launch standards—that's a result too painful to accept.

And so while the legal action is a gamble, Musk says it's sue or admit defeat. "We're essentially left with the only option, which is to file a protest."

A Battle for Billions

The Air Force contracts up for grabs in the court battle are not insignificant. The program, known as the Evolved Expendable Launch Vehicle, will launch somewhere around 50 military satellites over the next five years, many of them GPS satellites. At a total cost of $1.5 billion, the launches are the fourth largest line item in the 2014 defense budget.

Musk wants in on the action and stands to profit hugely from it. SpaceX President Gwynne Shotwell called national security launches "by far the largest single market" the company wants to compete for, pegging potential sales at $3 billion a year.

If the suit is successful and ULA's contracts for 36 launches are thrown into question, SpaceX says it has the rockets to compete for about 60 percent of them.

Even if it doesn't win the suit outright, SpaceX has said it's open to an out-of-court settlement. It has declined to speculate on what that might look like or whether it's likely.

With any sort of expanded launch access, the company says its rockets could quickly generates billions in savings for taxpayers—but only if it's given the chance.

According to SpaceX, ULA has repeatedly overrun its costs—as much as 75 percent over budget. ULA pegs its cost per launch at just more than $200 million. SpaceX says it's closer to $500 million.

Regardless, Shotwell claims SpaceX can put the Pentagon's satellites in orbit for closer to $100 million. When asked why her company's rockets are so cheap, Shotwell says, she counters by asking why everyone else's are so expensive.

Critics say it's easy for SpaceX to make those claims when it hasn't had to deliver on them yet. But the company points to its track record with NASA, for whom its slated to launch 12 missions at about $133 million apiece. If the country's preeminent space agency can trust SpaceX with its payloads—and save money in the process—then what's keeping the Air Force from doing the same?

ULA says it's not as simple as Musk's arithmetic would have taxpayers—and the court—believe. To them, SpaceX is an unproven competitor making overstated claims that don't account for the nuance of the situation.

The company likes to use the term "assured space access" to both highlight its track record and argue that the cost-per-launch argument is oversimplified. ULA provides two rocket systems, the Delta and Atlas rockets, as a failsafe in case one runs into problems. To meet the government's demands of continued launch readiness, ULA lacks the flexibility of a company competing for individual launches.

"What drives our price cost is because I'm funding two systems," ULA CEO Michael Gass said in an April interview. "The question is, will our national security interests be served properly? … What we've provided the nation is be ready 24 hours a day, 7 days a week. You tell us when you want to launch."

Essentially, ULA says its costs are dictated by the government's demands, which include redundant systems and on-call readiness, so it's unfair to compare prices with a company not held to those requirements. ULA frequently bills itself "the only certified launch provider that can support the full range of national security space missions"

At the moment, ULA says, it's the only provider that can be trusted to take the military's satellites to space, citing its 80-plus consecutive successful launches.

To ULA, even the Air Force's five-year rocket buy is a cost-saving measure. It claims block buys are cheaper than per-launch purchasing, and purchasing dozens of rockets in advance costs billions of dollars less than buying them individually—even if it does leave SpaceX out in the cold.