Mr. NELSON. Well, that's not the implication of the question. The question is you all have made some kind of comment or recommendation to NASA with regard to a security zone, and I'd like to know

Dr. Cook. I have not been involved directly myself, but that's my understanding. Yes.

Mr. NELSON. All right. You want to submit that for the record? Dr. Cook. And it's been based on safety considerations. And yes, if I may expand on that for the record, I'd like to do that.

[The information referred to is contained in Appendix 4.] Mr. NELSON. Mr. O'Brien.

Mr. O'BRIEN. Yes. Could I comment on that?

Range safety, going back to the Webb-McNamara agreement of many years ago, is within the purview of the Air Force. We do not have the range safety function in NASA. There is a serious set of considerations under review within the Air Force and I think shortly we will be in joint discussions on just where the limit lines ought to be drawn in the future, and that will have to be resolved, obviously, before the August launch. But that's being worked diligently on both sides.

Mr. NELSON. All right. Let me just suggest that there are a lot of other considerations that have to go into this and I assume you all are going to be taking them under consideration. I mean, this event that's going to occur on or about August 4th is going to be an event that is going to be with the most intense interest. That the entire world is going to be looking and there are just interests there that need to be protected with regard to that inquiry and that ability to watch. So that's on one hand.

On the other hand, you know, if there are legitimate safety concerns as there were 3 or 4 years ago, and which one of the sites was moved from a position of about 3 miles to a position in excess of 31⁄2 miles away because of the possibility of gases floating if the wind patterns were correct. So we want to hear your response. This committee wants to hear that.

Any further comments from you, gentlemen? Thank you very much. We will call up the next panel.

Mr. NELSON. Let's move on. We have Mr. Dan Cassidy, representing the AIAA, and Mr. William English, also representing the AIAA. So we will proceed. Mr. Cassidy?

Please summarize your statement. The full statement will be put in the record.

STATMENTS OF DANIEL E. CASSIDY, CHAIRMAN, TECHNICAL COMMITTEE ON LEGAL ASPECTS OF AERONAUTICS AND ASTRONAUTICS, AMERICAN INSTITUTE OF AERONAUTICS AND ASTRONAUTICS, WASHINGTON, DC; WILLIAM D. ENGLISH, CHAIRMAN, SUBCOMMITTEE ON ALLOCATION OF SPACE LAUNCH RISKS, AMERICAN INSTITUTE OF AERONAUTICS AND ASTRONAUTICS, WASHINGTON, DC

Mr. CASSIDY. We have provided copies of the AIAA position paper, titled "U.S. Commercial Space Transportation Risk Allocation and Insurance."

I'm sure the subcommittee is familiar with the AIAA. The American Institute of Aeronautics and Astronautics is a nonprofit technical professional society with over 40,000 members who are engineers, scientists and other professionals engaged in every sector of the aerospace profession from industry to government to the universities.

For the purpose of furthering scientific and technical advancements, there are approximately 54 technical committees, of which the Legal Aspects of Aeronautics and Astronautics is one. Just to state for the record, Mr. Chairman, the objective of the Legal Aspects Committee is to foster an understanding of legal areas uniquely related to aeronautics and astronautics and space science technology. These areas include national and international space law, legal systems protecting intellectual property, and the laws governing satellite communications, remote sensing of the earth's resources, and the commercial use and industrialization of space. Now, to provide a focal point for the study of one of the major problems facing the U.S. commercial space transportation industry, namely, how to allocate in a commercially reasonable manner the liability risks associated with space launch operation, we formed a subcommittee, and the subcommittee was designated the Subcommittee on Allocation of Space Launch Risks. We believed it was important for the AIAA to investigate and make a statement on this issue.

This subcommittee held extensive discussions with representatives of the U.S. commercial space transportation industry, satellite manufacturers, owners and operators, and the insurance industry, as well as representatives of both the executive and legislative branches of Government. The resulting report, as we've provided, was approved by the Board of Directors as an AIAA position paper. And overall, the position paper examines the nature of the liability risks involved, identifies the problem such risks create, reviews the historic precedents and the current approach of foreign launch competitors in managing these risks, and offers potential alternative solutions, together with key requirements to achieve a solution.

Mr. English is the subcommittee chairman, and he will proceed to review the main points of the position paper.

Mr. NELSON. Welcome, Mr. English.

Mr. ENGLISH. Thank you, Mr. Chairman. Now I will be very brief and summarize the key conclusions of the report, as Mr. Cassidy indicated.

As the report indicates, the launch of any payload, commercial or Government, into space involves the potential for significant damage to persons and property; for injury or damage to the innocent public, those with no involvement in the launch activities, and for injury or damage to persons and property of the Government and the industry involved in the launch process, including the contractors, subcontractors, the launch pad and associated facilities, other Government property at the launch site, and the launch vehicle and satellite payload. The problem is that in any given launch the accumulation of the risk of liability to the public and for damage to Government and property involved in the launch process can well exceed reasonably available insurance. That is the

conclusion of the extensive discussions we had with the insurance industry as well as the other participants in the industry. For some risks no insurance is available, such as latent environmental risks, which under the Air Force contract as presently written, the industry is required to assume.

The Air Force in providing the essential launch support services and facilities has required the ELV industry to assume both the insurable, as well as uninsurable liabilities on an unlimited basis. Foreign launch competitors take a significantly different approach. Third-party liability is underwritten by these competitors through, in some cases, a government-sponsored combination of guaranteed insurance and indemnification in excess of that insurance coverage provided by the launch service providers. This approach cannot be matched by the U.S. ELV industry without seriously jeopardizing the financial viability of the private companies involved.

With respect to liability for damage to launch facilities and associated properties, the foreign launch competitors include comprehensive cross waivers, relieving all parties involved in the launch process from any liability to each other for property damage. Mr. Chairman, it's quite accurate to say that these foreign launch competitors took their cue from NASA. NASA was the originator of this approach. For third-party liability, NASA recognized the requirement for insurance, but it indemnified in excess of the available insurance, as determined by it. NASA also, Mr. Chairman, entered into compulsory cross waivers as a condition to contracting with NASA for the launch services.

The result of the present scheme for expendable launch vehicle providers is that the industry will be financially vunerable in undertaking commercial launch services and activities. It cannot offer without a bet-the-company risk the unlimited indemnification protection to its customers that foreign launch service providers offer. Consequently, significant uncertainty exists with respect to the longer term viability and competitiveness of the U.S. commercial space transportation industry.

The solution that the AIAA paper recommends is based, first, upon recognition of the distinction between the "probable maximum loss" and the so-called "maximum possible loss" that can arise out of a launch. The former, that is, the probable maximum, is most likely within levels of reasonably available insurance. The latter is that extraordinary incident which would rarely, if ever, occur, but if it does the losses could well exceed available insur

ance.

Given this distinction between probable maximum and possible maximum, the paper recommends a solution that would protect U.S. Government interests and at the same time be manageable by the U.S. ELV industry. And that is, to allocate the risk between the industry and the Government on what it calls a layered or horizontal basis. The U.S. ELV industry assumes the first layer of risk, covering the probable maximum loss up to the level of reasonably available insurance at no cost to the Government. The Government assumes the second layer of risk, the unlikely maximum possible loss, over and above the reasonably available insurance level.

We believe that this is a reasonable allocation of launch operation risks and it can generate significant benefits, not only in the development of a strong and economically viable ELV industry which will provide the foundation for an assured access to space needed to meet our country's goals in space, it will provide also a very substantial insurance protection for the U.S. Government in terms of its exposure to third-party liability as well as for damage to its property, and do so at no cost to the Government.

It will also, we believe, be an attraction to American industry in utilizing space for commercial purposes to the benefit of our international balance of trade and to the Government, which will be able to purchase launch services for its own needs at lower unit prices.

In sum, the United States, its taxpayers and the commercial space industry will mutually benefit from a reasonable and fair allocation of space launch operations risks. We believe the principles and policies of the AIAA paper are reflected in H.R. 3765, Mr. Chairman.

Thank you.

[The statement of Messrs. Cassidy and English and the AIAA Position Paper follows:]

PRESENTATION TO

THE SUBCOMMITTEE ON SPACE SCIENCE

AND APPLICATIONS

COMMITTEE ON SCIENCE, SPACE AND TECHNOLOGY

UNITED STATES HOUSE OF REPRESENTATIVES

OF THE

AIAA POSITION PAPER

ON

"U.S. COMMERCIAL SPACE TRANSPORTATION

RISK ALLOCATION AND INSURANCE"

BY

DANIEL E. CASSIDY

AND

WILLIAM D. ENGLISH

February 16, 1988

American Institute of Aeronautics and Astronautics 370 L'Enfant Promenade, S.W., Washington, D.C. 20024