17 minute read
What’s next?
Milbank’s Dara Panahy has been practicing law in the space and satellite arena since 1997. He’s guided many companies through the legal requirements, commercial arrangements, and securing financing to engage in space businesses and, as a result, he’s watched the space economy unfold from a front row seat. We caught up with Panahy and asked some difficult questions about the laws governing the industry; who is liable for space debris; the SpaceX monopoly; the growing specter of space weaponry; and when we might see humans on Mars.
Crispin Littlehales, Executive Editor, Satellite Evolution Group
Question: As an attorney, what attracted you to the space and satellite sector and what kind of services and advice do you provide?
Dara Panahy: I got into practicing law in the space and satellite arena in a very roundabout way. I was always interested in space. I aspired to be an astronaut or an aeronautical engineer when I was younger. When I got to college, reality set in. I was capable at some things, but not all the prerequisites for an engineering degree. So, I made the decision to study foreign policy, economics, and languages instead. Fast forward to law school and I realized that I wanted to do something transactional and cross border. I participated in a space law moot court competition and was enthralled with the topics involving things like remote sensing, territorial rights, and defense/national security considerations. At the end of the competition, one of the judges invited me to interview for a position to practice law in the area of space. That was in September of 1997, and I’ve never looked back.
The team here at Milbank supporting the Space Business Practice is now 10 people strong. It’s a corporate and sector-based practice and we are fully dedicated to the space and satellite industry. The key elements are project development, contracts, and financing. Companies that want to engage in activity in space have to acquire assets or the ability to use assets or related services in or from space. They need to precure platforms and launch services. They have to adjust their technologies and build their businesses. We advise and support all of the general corporate elements associated with developing a project that is spaceenabled. We also assist with the financing of these projects—whether it’s private or public capital markets, export credit, or whatever other form of financing—and sometimes we bring in experts from other areas of the firm. We focus on all the risk management aspects of the project including insurance and the various sovereign credit or risk support elements that some countries provide to space -related projects.
There is also the regulatory side. Companies must get licenses to go into space and to communicate with space objects. In the future, there will be more regulation of what you can and cannot do on celestial bodies, including asteroids, while operating in the space domain. That is still a very murky area, and we advise our clients about what to do where there is no specific regulation associated with their contemplated activity.
In addition, we advise on restructurings, bankruptcies, litigations, and arbitrations. Mostly we try to resolve situations before they enter a formal dispute resolution process. We’ve been very fortunate with restructurings - each one that we have been involved in has resulted in the debtor emerging bankruptcy as a newly capitalized company continuing its business in some form or another.
Question: What would you say are the key drivers for market growth in the space economy at present?
Dara Panahy: The space economy is in an evolving next chapter. In the commercial sector we are moving away from heritage space which was a relatively limited set of business silos. In one silo was the distribution of media from point to point or multipoint. Then there were the legacy services including first generation remote sensing, Earth observation, GPS-enabled services, and communications. The third silo was space transportation— basically launch and access to space—which was dominated by a limited number of companies. On the manufacturing side, you had large conglomerate or multinational entities like Airbus, Boeing, Lockheed Martin, Mitsubishi Electric, Orbital Sciences, Space Systems/Loral, Thales Alenia Space and the like.
Over the last 10 years, and at an accelerated pace, we are seeing barriers to entry lower. We’re seeing disaggregation in many of the different business silos and we’re seeing new silos developing. Now that it is less expensive and easier to get to space—in large part thanks to innovators and disruptors like SpaceX and others—the innovation of what can be done in space has increased and we are seeing a lot more growth.
Then, too, there is the evolution of the next generation of the space economy. Private players developing things such as space stations and transportation in space are looking to do things like manufacturing and growing things in space. They are developing the economy in space including space tourism and space-to-space transportation, not just Earth-to-space and back. Some of those emerging areas continue to sound like science fiction. But 15 years ago, providing broadband internet connectivity through multiple constellations in low Earth orbit sounded like science fiction. Within 10 to 15 years a lot of these emerging areas will be ordinary businesses.
There is a report released by the World Economic Forum and done by McKinsey, which looks at the growth in the space industry. One of the interesting conclusions is that in 2035 space will be a US$1.8 trillion economy. The largest growth drivers are going to be nontraditional actors that have nothing to do with space but are benefiting from space-based applications and services.
Question: What do you see as the biggest hindrance to growth right now?
Dara Panahy: This is a very complex question. In my personal view, it is risk aversion and concern about getting to the right tradeoffs in terms of engineering as well as preparation, testing, and development. The issue here is that we’ve got to find a sweet spot in terms of managing over engineering versus under engineering. That methodology is something that Elon Musk and SpaceX have been the flag bearers for. There is the opposite end of the spectrum which are the large legacy industrial and defense companies like Boeing and Lockheed Martin who take a different, more conservative approach but recently seem to be adopting leaner approaches for certain programs. One has to find a balance in terms of the right amount of development, engineering, and preparation so that the capital expense of developing something can become a profitable service or business.
Today, the absolute cost of getting off the ground and producing something that can be revenue generating is still very high for some of the applications and services that are contemplated, including communications and Earth observation, because there is a legacy logic that dictates you can’t put something in space until you are very confident that it’s going to operate in that environment and also not cause other problems and contribute to orbital debris. Elon Musk has argued from day one that the legacy approach involves inefficient over engineering. He champions being “good enough” to operate for specific applications, which makes it cheaper to build and launch and replenish rather than build, launch and operate it for a very long time. He also has made the point that launching a satellite that lasts 15 or more years doesn’t really work anymore because it tends to enable and support technology on Earth which evolves every one to three years. To unlock additional business models, space infrastructure has to achieve the engineering “Goldilocks zone” where something is safe and sufficiently robust to do what it does at a cost point that enables a profitable business. Recalibration is already happening. There are a number of next generation satellite manufacturers that are building smaller satellites that use off the shelf technology designed to last maybe 8 to 10 years. These have the same functionality as legacy geostationary satellites but at half or a third of the cost.
Question: Many observers believe that the laws governing the satellite and space industry are outdated, particularly those designed to keep space neutral and peaceful. Do you think the laws that are in place are enough? Should we be doing more?
Dara Panahy: We definitely need to be doing more. It’s not a criticism, it’s just the evolution of a market. When the existing legal system for space activities was negotiated and agreed during the late 1960’s under the auspices of the United Nations Office of Outer Space Affairs, the only actors in space were just a few sovereign entities. Those treaties, very rightfully, addressed sovereign activity in space and included very broad concepts: for example, an obligation to provide rescue support to astronauts in distress; or if there is a collision or an incident in space that causes harm in space, in Earth atmosphere or on the ground, there’s a structure set up under the liability convention for resolving claims; and no person or nation can appropriate a celestial body or material on a celestial body for its own benefit. If China, Russia, the US, and other nations bring back materials from a celestial body, they can study them and do whatever else they want from a scientific standpoint. On the other hand, if a private company wants to go to the Moon and bring back Moon rocks, there’s nothing stopping them, but the company won’t have a legal ownership interest and won’t be able to do anything commercially with the materials.
These treaties were ultimately ratified and implemented as domestic law by many countries at that time. These laws recognize the domain of space very much in the same way that, centuries ago, laws were enacted to apply to behaviour on the high seas. We are now over 50 years past that time. The space economy is now being driven and accelerated by private actors. Sovereign entities still play a key role but that has now evolved into a regulatory one or one that provides subsidies or certain focused early-stage investments. However, the majority of the new investment and innovation as well as the vision for the future is coming from private industry. Accordingly, we need to draw up a completely new set of rules and regulations on both the national and global levels.
There is nothing that is globally binding right now. The only legal framework that’s applied commercially is the ITU’s role as a standards agency for the prioritization of the ability to use radio frequency spectrum to communicate from Earth to space and/or space back to Earth. The ITU’s regulations contemplated the terrestrial and orbital use of radio frequency spectrum and the ITU was never intended to contemplate how to regulate communications to/from other planets or beyond Earth’s orbit.
When it comes to orbital debris, there are recommendations and guidelines as well as certain national regulations regarding what parties have to do in order to mitigate and limit the addition of new debris in near Earth orbit. There are limited solutions for spacecraft that were not designed to either be orbited back into the atmosphere or be deorbited far away from current operating orbits, but there are no binding global regulations or standards. As a planet, we need to come together and agree to a common denominator set of rules that apply to commercial and sovereign activity in space to address the current and future risk of orbital debris.
The other issue that is top of mind is whether space is now a military domain. That’s an issue that’s currently evolving. All the spacefaring nations need to agree on a framework of do’s and don’ts so that we don’t destroy all the resources that have become critical to our day-to-day existence on Earth. If we were to lose the assets we have, and render near-Earth orbit unusable, the impact would be immediate and devastating.
Question: The mere mention of space weaponry being developed by Russia has sent chills through the airwaves. In truth, Russia is not the only country developing a space arsenal. Do you envision Star Wars in our immediate future?
Dara Panahy: That question is well above my paygrade and understanding but I’ll share with you that all the countries that today have the resources, the ability, and the technology to deploy weaponry in space also grasp the ramifications of doing so. Should a country engage in war-like activity that impacts assets in space, that action is likely to escalate to other theaters of warfare. My opinion, and my hope is that the resulting deterrence is similar to the mutual assured destruction doctrine between the US and Russia during the Cold War. In order words, we won’t go there because the implications are so negative. Widespread warfare in space likely means that the actors are engaged in, or will be engaged in, warfare in domains other than space. One would think that the horrible implications of doing something like that would educate and direct us to the conclusion that it makes no sense to do so.
Question: SpaceX currently has a huge lead when it comes to launching capabilities and functioning communications satellites in LEO. Is this something that the industry needs to worry about?
Dara Panahy: I don’t think we need to worry. In any industry that’s going through an innovation and growth cycle, it’s inevitable that there may be a couple of players with an outsize market share for a period of time. Space X, by evolving a closed loop launch system that’s reliable and reusable, brought the cost down for access to space. Next, SpaceX developed Starlink by putting together equipment that’s not perhaps exquisitely engineered for long term performance in orbit but is “good enough” for the end-use, then having the willingness to let if fail and learn from it and use the return of experience to improve and evolve the engineering. That’s the difference between SpaceX and certain other companies. This approach has given SpaceX a couple of leads in launch and low Earth orbit broadband communication, but the leads will not last forever.
Innovation is ultimately never limited to one company and SpaceX has taught many others how to approach a problem in a different way and how to evolve from it. We’ll see multiple players take SpaceX’s logic and methodology and improve it. Someday SpaceX will be overtaken by somebody that it actually inspired. Interestingly, SpaceX is open to launching satellites manufactured by its competitors. When it comes to SpaceX, I think the innovation that they have brought to the industry far outweighs any temporal concerns about market concentration.
Question: Space debris and situational awareness are huge challenges. We are definitely making some progress as the problem has been defined and discussed, but can we effectively address this challenge before the Kessler effect sets in?
Dara Panahy: Like many things in space, it’s a race. We have a number of governments and companies racing to develop solutions to solve the problem. At the same time, we also have companies that are racing to get assets up into orbit as cheaply as they can to have profitable businesses. We are looking at a big dilemma here. Space has become more accessible and that is spawning new business models and services.
Those are all good things, but as we populate low Earth orbit, we are increasing the odds of having a conjunction which causes debris which then causes secondary impacts and moves us towards the Kessler effect. I don’t want to say it is inevitable, but we are certainly moving in that direction and it’s a matter of physics. It’s more likely than not that we are going to see conjunctions and resulting debris fields before we have very effective ways to clean it up. I do worry that the problem is not going to get the global spotlight it needs until we have a live impact event where financial and political pain is felt. I am afraid that we cannot get to the solution phase until we arrive at a common denominator of recognition which will drive cooperation.
Question: Elon Musk wants to get humans to Mars in the next 10 years and Jeff Bezos wants to move all polluting industry into space. Do you think either of these visions are even possible and if so, how long might it take for us to achieve these goals?
Dara Panahy: I believe humans will land on Mars within the next 20 years or so, not 10. The Moon was hard, and Mars is a lot harder. We are not 100 percent certain about the environment once we get there and there is no credible plan in place for getting the astronauts back to Earth. Are we as a society willing to embark on a one-way trip and trust that, in time, a way will be devised to bring people home, if at all? That seems to be the Elon way to do things.
Even though I hold the view that we must focus on Earth, and I don’t adhere to the notion that we need to leave the planet because we cannot fix it, I nonetheless hope we get to Mars one day. Still, in my mind it is essential that we improve science and figure out how to deal with both natural and human-caused problems that plague us on Earth.
Moving polluting industry into space? It’s one solution of many and we need to iterate on all the solutions. We must figure out how to have less of a polluting footprint for all our activities on Earth. If we could get to the point where we could safely launch nuclear waste or other sorts of highly toxic things to a place where we are not just punting the problem down the line, but solving it, that would be great. Just putting pollution somewhere where it’s not immediately affecting us, is neither the right or moral thing to do, maybe not even the economic thing to do. However, if Jeff Bezos can find a way to launch such items directly to the Sun, where it would completely vaporize and leave zero trace—perfect!
It took us 50 years to get from only sovereign actors in space to where we are now and that’s pretty remarkable. Today, we are in that first big step of transitioning. With that comes this balance of risks versus the rewards that result from innovation and growth. Centuries ago, humans got on ships not knowing what they would endure; not knowing what they could handle on the oceans. Some died along the way and we are going to see that happen in space as we progress forward. There will be problems. There will be accidents. These are the unfortunate but necessary realities of reaching out into the frontier of space, and perhaps to a better, more interesting future.
Space is the next big domain, and we are just scratching the surface of what can be done from space, not just to enable economies, but also to make life a little better here on Earth. With the evolution of orbital sensors and spaceenabled science we can tackle all sorts of issues in a new manner, and from a different perspective. To me the most exciting thing is that we don’t really know all the benefits that will unfold but we are embarking on the next big steps to get there.
