BUSINESS
02/20/2013 08:29 pm ET Updated Feb 28, 2013

Elon Musk, SpaceX Founder, Battles Entrenched Rivals Over NASA Contracts

WASHINGTON -- Last week, Elon Musk, the aerospace and green energy mogul, engaged in a very public spat with The New York Times after the paper gave rough treatment to Musk's high-performance electric car, the Tesla Model S, and its new charging stations. That Musk was out in front personally attacking the Times surprised nobody who has known or worked with him.

It certainly didn't surprise Boeing, another Musk competitor he took on in public just before the Times. Musk mocked the company's lithium battery woes, which have led to the grounding of its much-hyped 787 Dreamliner airplanes. In tweets that were picked up everywhere, he said he had reached out to Boeing's chief engineer on the project in an offer to help the company fix its battery problem.

(UPDATE: "My comments about Boeing were genuine, not mocking," Musk told HuffPost, adding that he approached Boeing to offer help by using Virgin's Richard Branson as an intermediary. Tesla is now assisting Boeing with work on its battery.)

If the tiff with the Times is over the future of the automobile, Musk's battle with Boeing is over the future of space flight. For several years, Musk and his company SpaceX have been locked in an asymmetrical K Street war with the aerospace industry giants Boeing and Lockheed Martin, a war that sheds light on how major players in Washington throw their weight around.

SpaceX, founded by Musk in 2002, is a privately owned aerospace company that builds and manufactures rockets for public and private clients. As its website notes, it's the first private company "to return a spacecraft from low-Earth orbit" -- in December 2010. SpaceX's rapid rise has coincided with the Obama administration and its revamping of the procurement process at NASA, which has awarded Musk's company multiple lucrative contracts.

"We're battling Boeing and Lockheed, and those guys have extremely sharp elbows," Musk told The Huffington Post, dispensing with the typical Beltway niceties. "So, you know, when there's multi-hundred-million-dollar government contracts, which Boeing and Lockheed have had essentially a quasi-monopoly [on], or an actual monopoly in the case of launch, they do whatever they can to prevent us from competing."

"The sharpest elbows we've seen are from Lockheed, specifically Lockheed," Musk said.

More than just a battle between industry heavies and the lean upstart, the Lockheed-Boeing-Musk showdown could dramatically influence the federal government's future spending habits, especially as the sequester -- billions of dollars in automatic cuts that will strike starting in March -- closes in on the defense industry. Even if Congress and the White House reach a deal to avert the sequester, NASA and the Pentagon still confront a future of declining -- or at least less-quickly rising -- budgets. So the aerospace giants are fighting to maintain their hold on ever-dwindling slices of the federal pie.

"Boeing and Lockheed are fatigued with Elon," said one industry insider who knows Musk, adding that he warned top executives at those companies that if they didn't reform their business practices, a startup like SpaceX would eventually threaten them. "His persistence and tenacity began to dislodge them."

In several ways, Musk may be unusually well-suited to compete with the dug-in aerospace companies. Taking them on requires an extreme level of self confidence, a willingness to lose vast amounts of money and a fearlessness in the face of powerful enemies. Those qualities are what pushed Musk to the top, but they are also what have him in the cross hairs now.

In the summer of 2010, Musk sat down with Stephen Colbert to talk space travel and electric cars. "You are either a superhero or a super villain," the TV host said, after ticking off Musk's accomplishments. "What's your choice, sir?"

"I think probably, probably neither," Musk replied.

Over the years, the self-assured innovator -- The New York Times described him as "cocky" long before their recent run-in -- developed a reputation for brilliance and brashness, and displayed an uncommon ability to make enemies.

A former aide to then-Rep. Tom DeLay (R-Texas) recalled Musk coming to lobby the House majority leader sporting a tight black T-shirt. Musk sat silently as the two men he had brought with him lavished praise on him. It was, the aide recalled, one of the more unusual lobbying sessions he ever attended.

Friends and foes alike described Musk for this article in similar, occasionally unrepeatable terms as a hard-charging personality who doesn't take no for an answer.

"It doesn't matter if you're in industry or in government. I've seen him in meetings with undersecretaries where it seems like he doesn't understand or maybe doesn't care that you might be able to get more with sugar than with s***," said an industry insider, who has worked both on and off Capitol Hill. "Elon's pretty ruthless. He's like a pit bull."

In 2010, Musk had a public feud with the powerful Sen. Richard Shelby (R-Ala.). Shelby said that the Obama administration's plan to elevate new contractors like SpaceX "is a plan where the taxpayer subsidizes billionaires to build rockets that NASA hopes one day will allow millionaires, and our own astronauts, to travel to space. The administration claims that if we build up this so-called commercial rocket industry, the private sector market will magically materialize."

Musk responded by saying that a "certain senator in Alabama" had refused to meet with him. "I just don't understand what his beef is," Musk said of Shelby, using a confrontational tone senators aren't used to hearing.

The spat came just days after President Barack Obama had visited a SpaceX launch site. Musk told HuffPost that the presidential tour, which increased the stature of his company, was never supposed to happen. Obama was originally scheduled to appear at a Boeing-Lockheed site, but the Secret Service was concerned about a hydrogen tank there, which a sniper could have blown up from a distance. So the event was moved to the SpaceX site.

"He was actually scheduled to go to their launch site, and literally two days beforehand it was changed to us," Musk said. "But as a result, there's a bunch of photos of me walking around with Obama on the launch site like he's my best friend."

When asked about the charge that Boeing and Lockheed have it in for SpaceX, Todd Blecher, a spokesman at Boeing, said the company had "no comment on any perceived rivalry or whatever Mr. Musk may have told you. That is all we're going to say on that." Lockheed spokeswoman Jennifer Whitlow told HuffPost in an email that "there is absolutely no truth to the allegation" that the company is out to get Musk.

Despite their usual sympathy for enterprising businessmen, some Republican Party insiders have started to view Musk with suspicion over his quick rise and billions in government contracts under the Obama administration. Musk is "on the radar," said one GOP Hill aide. One GOP Senate aide objected to "space companies termed 'commercial' that actually get a ton of taxpayer funding," a common theme in interviews with Republicans for this story.

Musk is a significant (though not top-tier) donor to Democrats. He also gives heavily to Republicans, he said in an interview with HuffPost.

"In order to have your voice be heard in Washington, you have to make some little contribution," Musk said. "But I have found Washington to be really -- I guess it depends on what your benchmark is -- but I haven't found Washington to be as corrupt as a lot of people think it is, meaning it's not as coin-operated as some people may assume, and I'm very, actually, grateful for that, because if it were, we would have zero chance."

A recent report from the Sunlight Foundation, a nonpartisan group that tracks government spending, found that SpaceX has spent $4 million on lobbying Congress since it was established in 2002 and doled out more than $800,000 in political contributions. The political donations went to congressional leaders on both sides of the aisle.

"SpaceX's campaign to win political support has been systematic and sophisticated," Sunlight wrote, adding that Musk himself has donated roughly $725,000 to various campaigns since 2002. In 2004, he contributed $2,000 to President George W. Bush's reelection campaign. This time around, he maxed out to Obama's reelection campaign and donated $5,000 to Republican Sen. Marco Rubio, who represents Florida, a state critical to the space industry.

The Center for Responsive Politics reported that Musk contributed to other Republicans during the past election cycle as well, including $1,000 to then-Sen. Scott Brown (R-Mass.) and $5,000 each to Reps. Dana Rohrabacher (R-Calif.) and Kevin McCarthy (R-Calif.).

All told, Musk and SpaceX gave out roughly $250,000 in the 2012 election cycle.

However, for a man whose net worth is about $2 billion, according to Forbes, Musk's lobbying and campaign contributions are relatively small and pale in comparison to Lockheed and Boeing's spending.

"Boeing and Lockheed spent collectively 25 times more on lobbying last year than we did," Musk said. "If government contribution was the driving factor, we would be dead meat."

The Center for Responsive Politics reports that Lockheed has given out more than $22.6 million in campaign contributions since 1990, and spent more than $166 million in lobbying since 1998. In the 2011-2012 cycle, Lockheed kicked in more than $3.3 million to campaigns and spent another $30 million in lobbying.

Boeing has been just as generous to Washington, contributing more than $18.5 million to campaigns since 1990 and blowing through $171.9 million on lobbying since 1998. For the 2011-2012 cycle, it spent $3.1 million in campaign contributions and $31 million in lobbying.

Paradoxically, Musk's relative lack of giving also incentivizes Republicans to target him with the understanding that doing so could shake loose more campaign and lobbying money to win them over. (Democrats are no stranger to the shakedown. At the height of the Senate's investigation into Google's trade practices in 2011, Judiciary Committee Chairman Pat Leahy (D-Vt.) told HuffPost that the company, which had recently hired a roster of his former staffers, would have been better off if it had done so earlier. "Sometimes a company should pay attention early on, not just when matters happen," he said. "But I can't tell them, nor would I, who they should hire or not.")

While Obama's NASA has been very good for Musk, he insists he has no particular sway with this White House. Indeed, he told HuffPost that when he has tried to influence the White House, he's failed.

"There are only two situations where I've actually sought administration help, and in both the administration has sucked and done nothing," he said. One request for SpaceX, he said, was that the Air Force open up more than 20 percent of its launches to competitive bidding.

"It shouldn't be just 20 percent of it is allowed to be competed," Musk said, adding, "Like, why the hell should only 20 percent of the contracts be subject to commercial, to a competition? And I got flat-out rejected."

According to visitor logs, Musk has only gone to the White House proper twice during the Obama years -- once for a meeting with top presidential adviser Pete Rouse in 2011 and the next year for one with John Holdren, director of the White House Office of Science and Technology Policy. Musk has had five other meetings in executive office buildings affiliated with the White House during Obama's presidency.

Still, Bill Allison, the Sunlight Foundation's editorial director, told HuffPost that Musk's effectiveness at winning government contracts does raise eyebrows.

"It's rare for a startup or a business just coming up online to give so much money," Allison said. "He may be a guy in the right place at the right time. But the fact that he has given so much money to members of Congress and the parties and that he spends so much on lobbyists certainly shows that he knows how to play the Washington game."

Allison suggested that Musk "is seeing an opportunity."

While Musk's campaign contributions are public record, a large subset of government contracts have been more difficult to scrutinize. A GOP Hill source said that Musk has received $911 million from NASA under what are called Space Act Agreements, which began under George W. Bush but became heavy practice under Obama.

With their emphasis on spurring private enterprise with minimal government meddling, Space Act Agreements should be something Republicans champion, at least in theory. But these NASA contracts are less transparent than a number of lawmakers would like. "I think it raises some concerns," the GOP Hill aide said of Musk's success in winning such contracts.

In mid-January, Rep. Frank Wolf (R-Va.) wrote NASA demanding a full list of all Space Act Agreements. His office said NASA plans to release the list this week.

Space Act Agreements also help keep wasteful government spending in check. These deals pay private contractors a fixed price for a project, rather than what's known as "cost-plus" reimbursement -- which pays the costs of a project, plus a fee on top. Cost-plus contracts create an incentive for companies to pad project costs as they go along.

"The game that [Boeing and Lockheed] play is to lowball the offer, then raise the costs after the contract has been won, and then play this game of doing the limbo where they try to raise the costs of the project right up to the threshold of cancellation," Musk said. "You create an incentive to maximize the cost. So the big government contractors really hate the fixed-price, milestone-based approach."

"It's true," one space industry insider said of Musk's claim. "However it would be a mistake to paint everyone in both companies with such a broad brush."

Boeing, Lockheed and other government contractors that take on large projects have had a tremendous run of profitability with cost-plus contracts. But the government, trying to count its pennies, has been looking for several years for a way to lower launch costs. Musk's SpaceX has maneuvered inside that opening.

If SpaceX continues to succeed and fixed-cost contracts become the norm, Lockheed and Boeing's very way of being may come under threat. At the very least, it would represent a dramatic shift in financing for the entire aerospace sector.

"Transitioning to fixed-price contracting could be very helpful in some contexts in keeping costs low, which is particularly important in today's fiscally constrained environment," said Michael Gold, director of D.C. operations and business growth at Bigelow Aerospace, a relatively small, entrepreneurial space company. "The impact of such changes in contracting practices may be even more important at the Department of Defense, where dollars are much larger than they are at NASA."

The space agency NASA is pleased with the use of fixed-price contracts. "Funded Space Act Agreements can be more cost effective in a constrained budget environment than cost-plus contracts," argued Phil McAlister, NASA director of commercial spaceflight development, in an email to HuffPost. He added, "[U]nder Space Act Agreements, industry is responsible for determining the best approach to the design and development of the space system. NASA believes leaving this flexibility in the hands of industry will permit the industry partners to maintain a rapid pace of technical development despite lower funding levels."

McAlister said that NASA has also been "pleased" with Musk's work and cited the successful May 31, 2012, SpaceX demonstration flight to and from the International Space Station as proof. "The mission achieved all of the milestones originally intended to be met over two separate flights," he said. "Moreover, the mission was completed at significantly less cost to the American taxpayers than if we had pursued a traditional, cost-plus development contract approach."

Even if Boeing and Lockheed can beat him back, Musk said, it wouldn't necessarily spell the end of his company.

"In the case of SpaceX, we have about 48 launches under contract of which 13 are U.S. government. So we'd lose -- we'd go down from 48 to 35 launches. Essentially almost three-quarters of our business is commercial. And I think a lot of people don't realize that," he said. "So yeah, it would suck to lose the government as a customer, because it's our biggest customer. But it certainly wouldn't be a fatal blow."

CORRECTION: The story incorrectly stated that SpaceX had received $1.5 billion in Space Act Agreement contracts. NASA has awarded SpaceX with $911 million in such contracts.

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