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VENICE, Italy-Two new launch vehicles will require innovative insurance solutions when they start to fly in the next few years.

The new commercial reusable launch vehicle under development by the National Aeronautics and Space Administration and Lockheed Martin Corp.'s Skunk Works unit may need up to $2 billion in hull coverage per flight if it becomes operational after the turn of the century. Current capacity is estimated at $850 million.

Sea Launch L.P. also will need a whole range of new marine, liability, space and workers compensation insurance programs before it launches near the equator in June 1998. The new launch company will be based in Long Beach, Calif., at an old naval base.

New launch vehicles are badly needed to keep pace with the demand for new satellite systems, delegates heard at the Ninth Biennial Space Insurance Conference sponsored by Assicurazioni Generali S.p.A. last month.

"The availability of launch vehicles is a growing concern," said Jack F. Juraco, senior vp and deputy leader of the commercial programs business unit for Hughes Space & Communications International Inc. Mr. Juraco noted that while manufacturers have cut their delivery time for satellites to 20 months, from 30 to 40 months a few years ago, launch vehicle providers have not kept pace.

There also have been too many launch vehicle failures, he said. These included the Ariane V test flight and a Russian Proton rocket last year; and a Delta rocket launched in January from Cape Canaveral.

"The bottom line is that we need more launch vehicles, an improved infrastructure, shorter processing times, lower (launch) costs and increased flexibility to accommodate (satellite) schedule adjustments," said Mr. Juraco.

NASA/Lockheed Martin mission

At the moment, NASA and Lockheed Martin are developing a reusable launch vehicle known as the X-33, which is expected to be privately owned for commercial use. NASA and Lockheed Martin have a cooperative agreement until Dec. 31, 2000, to build the X-33 technology demonstrator at a cost of $1.1 billion-$900 million from the U.S. government and the rest from the company. But the company will make the final decision on whether to manufacture and finance the vehicle privately once the research and development reaches a conclusion. Lockheed Martin would fund the program if it goes ahead.

The vehicle, which looks like an upgraded space shuttle, is expected to reach speeds of up to 15 times the speed of sound. The first flight is scheduled for March 1, 1999.

Because the X-33 is intended to be privately owned, "I sometimes think that it will be the business and legal issues, not the technical ones, that will determine whether or not the RLV will become a reality in the reasonably near future," said Edward A. Frankle, general counsel for NASA in Washington.

For example, because the vehicle is being built in the private sector, "typical governmental protections and immunities will not apply," he said.

In particular, the National Aeronautics and Space Act allows NASA to indemnify users of NASA vehicles against third-party losses. But because the X-33 would not be a NASA vehicle, that law would not apply, said Mr. Frankle.

NASA hopes new legislation will be introduced this year to amend the act "to provide indemnification for test flights of new aerospace vehicles," said Mr. Frankle. However, even if Congress passes such an act "it will only permit us to indemnify above the level of third-party insurance available at a reasonable cost," said Mr. Frankle.

This means Lockheed Martin probably will have to buy third-party liability insurance, even for test flights, for the X-33, he said.

"How many underwriters do you know would be willing to insure the risk of a new, untested hypersonic vehicle at rates low enough that they would not impact the cost of the overall program?" asked Mr. Frankle. "I am confident that everyone will agree that the level of uncertainty surrounding a new vehicle like the X-33 will make third-party insurance much less available."

Once the X-33 is operational, it should produce an income of about $40 million per flight, even though it will offer lower launch costs for satellite owners.

However, the X-33 would need about $2 billion in hull insurance per flight if it is to be insured, Mr. Frankle estimated. Lockheed Martin is considering building an extra vehicle rather than seek hull insurance. Nevertheless, if hull insurance costs about 15% of the vehicle value, the premium per flight would be about $300 million. "Does anyone think it is feasible to spend $300 million to insure a $40 million trip? If that is where we end up, the ultimate effect of developing an RLV will not be a reduction of the cost of access to space but simply to make the cost of insurance the dominant factor in the cost of space access," said Mr. Frankle. "In short, the RLV program will have failed."

"If the X-33 is successful and leads to a real, commercially viable RLV, it changes everything that we have come to understand about access to space. Further, it does so quickly," said Mr. Frankle. "It would be a tragedy for the X-33 program to be technically successful but fail because the business and legal communities could not adapt in time to take advantage of this success."

Sea Launch consortium

Meanwhile, Sea Launch is about a year away from launching its first Ukraine-built Zenit rocket with commercial satellites on board from a converted oil platform about 1,000 miles south of Hawaii in the middle of the ocean. The satellites will be loaded onto the rocket, which will be loaded onto the launch platform at Sea Launch's new headquarters in Long Beach. Then the platform and the command ship with a maximum 240 employees and customers will sail for the launch site near Christmas Island.

When the launch vehicle is ready for liftoff, the ship will move about 3 miles away, where it will serve as the mission control center.

The concept to a layman may sound bizarre, but the idea is ages old, and it has taken many factors, such as the demise of the Soviet Union, for it to become reality, Walter J. Lewis, vp and customer support and operations for Sea Launch in Seattle, said in a later interview.

Indeed, space underwriters and satellite owners are comfortable with the project. Rockets have been launched from the sea for years, though not with commercial satellites on board.

The new launch company is owned by a consortium of companies that are providing the hardware for the project. They are Boeing Commercial Space Co. in the United States, which owns 40%; shipbuilder Kvaerner Maritime A.S. in Norway, which owns 20%; RSC Energia in Russia, which owns 25%; and Yuzhnoye/PO Yuzhmash, which owns 15% and is based in the Ukraine, where the Zenit rocket is built. Boeing is the project manager.

The consortium already has 18 orders to launch satellites for Hughes and Space Systems/Loral, according to its brochure. The first launch will have on board Hughes' latest model communications satellite, known as the Model HS 702.

Hughes has chosen Sea Launch, among other launch companies, because it will decrease total shipment and processing times and costs, according to Mr. Juraco. The new launch company is only 20 miles from Hughes, he said.

Also, "Sea Launch. . .no matter how revolutionary, is based on proven techniques and straightforward upgrades to hardware which has an excellent history of reliability," said Mr. Juraco.

There are a myriad of insurance coverages needed for such a project, which all are being placed by broker J&H Marsh & McLennan Inc. For example, marine builders risk insurance now covers building the ship in Glasgow and the specially designed self-propelled semi-submersible launch platform in Norway, Jan T. Skolmli, finance manager for Sea Launch in Lysaker, Norway, said in a later interview. The coverage is led by Storebrand ASA, he said.

Builder's risk and general liability insurance also covers the building of the "home port" in Long Beach on a former Naval base. The coverages are led by Chubb Corp., said Mr. Skolmli. Though Mr. Skolmli wouldn't give details of any of the coverages, he said the general liability insurance limits "cover the requirements of the Port of Long Beach."

Sea Launch will give a technical presentation to the insurance industry in September in Glasgow before it seeks more coverage for the marine, non-marine and space risks in the project, according to Mr. Lewis.

Other risks to be insured, according to Mr. Skolmli, include:

The shipment of hardware for the rocket to Long Beach from various destinations.

The sailing of the command ship from Glasgow through the Panama Canal to Long Beach; and the launch platform around Cape Horn.

Business interruption, general liability, and workers compensation insurance for employees on the command ship.