Financial Responsibility Requirements for Licensed Reentry Activities

SUMMARY: The Commercial Space Act of 1998 (CSA) directs the FAA to

establish financial responsibility requirements covering risks

associated with the licensed reentry of a reentry vehicle. The FAA

would determine, on an individual basis, the amount of required

insurance or other form of financial responsibility after examining the

risks associated with a particular reentry vehicle, its operational

capabilities and designated reentry site. This proposal provides

general rules for demonstrating compliance with insurance requirements

and implementing statutory-based Government/industry risk sharing

provisions in a manner comparable to that currently utilized for

commercial launches.

DATES: Comments must be received by December 6, 1999.

ADDRESSES: Comments on this document should be mailed or delivered, in

duplicate, to: U.S. Department of Transportation Dockets, Docket No.

[FAA-1999-6265], 400 Seventh Street, SW., Room Plaza 401, Washington,

DC 20590. Comments may be filed and examined in Room Plaza 401 between

10 a.m. and 5 p.m. weekdays, except Federal holidays. Comments also may

be sent electronically to the Dockets Management System (DMS) at the

following Internet address: http://dms.dot.gov/. Commenters who wish to

file comments electronically, should follow the instructions on the DMS

web site.

FOR FURTHER INFORMATION CONTACT: Ms. Esta M. Rosenberg, Attorney-

Advisor, Regulations Division, Office of the Chief Counsel, Federal

Aviation Administration, U.S. Department of Transportation (202) 366-

9320.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to participate in the making of the

proposed action by submitting such written data, views, or arguments,

as they may desire. Comments relating to the environmental, energy,

federalism, or economic impact that might result from adopting the

proposals in this document also are invited. Substantive comments

should be accompanied by cost estimates. Comments must identify the

regulatory docket or notice number and be submitted in duplicate to the

DOT Rules Docket address specified above.

All comments received, as well as a report summarizing each

substantive public contact with FAA personnel concerning this proposed

rulemaking, will be filed in the docket. The docket is available for

public inspection before and after the comment closing date.

All comments received on or before the closing date will be

considered by the Administrator before taking action on this proposed

rulemaking. Comments filed late will be considered as far as possible

without incurring expense or delay. The proposals in this document may

be changed in light of the comments received.

Commenters wishing the FAA to acknowledge receipt of their comments

submitted in response to this document must include a pre-addressed,

stamped postcard with those comments on which the following statement

is made: ``Comments to Docket No. FAA-1999-6265.'' The postcard will be

date stamped and mailed to the commenter.

Availability of NPRMs

An electronic copy of this document may be downloaded using a modem

and suitable communications software from the FAA regulations section

of the FedWorld electronic bulletin board service (telephone: (703)

321-3339) and the Government Printing Office (GPO)'s electronic

bulletin board service (telephone: (202) 512-1661).

Internet users may reach the FAA's web page at http://www.faa.gov/

avr/arm/nprm/nprm.htm or the GPO's web page at http://

www.access.gpo.gov/nara access to recently published rulemaking

documents.

Any person may obtain a copy of this document by submitting a

request to the Federal Aviation Administration, Office of Rulemaking,

ARM-1, 800 Independence Avenue SW., Washington, DC 20591, or by calling

(202) 267-9680. Washington, DC 20591, or by calling (202) 267-9680.

Communications must identify the notice number or docket number of this

NPRM.

Persons interested in being placed on the mailing list for future

rulemaking documents should request from the above office a copy of

Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution

System, which describes the application procedure.

Background

The Commercial Space Act of 1998 (CSA), Public Law 105-303, grants

new authority to the Secretary of Transportation over the licensing and

regulation of reentry vehicle operators and the operation of reentry

sites by a commercial or non-Federal entity. In addition to licensing

launches of expendable launch vehicles and the commercial operation of

launch sites, the Secretary is now authorized to license reentries and

the operation of reentry sites when those activities are conducted

within the United States or by U.S. citizens abroad. Statutory

objectives in licensing reentry activities are to ensure that public

health and safety and the safety of property are not jeopardized as a

result of reentry activities and consistency with U.S. national

security and foreign policy interests, including treaty obligations

entered into by the United States.

Responsibility for commercial space transportation has been

assigned by the Secretary of Transportation to the Administrator of the

Federal Aviation Administration (FAA), who in turn has delegated

regulatory and related authority over commercial space transportation

to the Associate Administrator for Commercial Space Transportation

(AST).

On April 21, 1999, the FAA issued proposed rules governing

licensing and other regulatory requirements applicable to non-Federal

reentry activities. See 64 FR 19626-19666. Referred to herein as the

Reusable Launch Vehicle or RLV Licensing Regulations, the proposed

rules explain the agency's comprehensive approach to evaluating RLV

mission risk and provide additional insight into the FAA's regulatory

objectives in licensing reentry. The comment period closed on July 20,

1999. Intended as a companion document to the RLV Licensing

Regulations, this rulemaking elaborates upon the FAA's proposed

approach to licensing launch and reentry of an RLV or other reentry

vehicle. It does not reflect a final determination by the FAA on the

scope and characteristics of an RLV licensing program.

In addition to granting reentry licensing authority, the CSA

further amends 49 U.S.C. Subtitle IX, chapter 701, popularly referred

to as the Commercial Space Launch Act of 1984 (CSLA), by extending

existing requirements for financial responsibility and risk allocation

to licensed reentries. In doing so, Congress has committed the

[[Page 54449]]

Government to share in the operational risks associated with

development and use of reentry technology for commercial purposes.

Under the amendments, both the burdens of the CSLA risk allocation

scheme and its benefits apply to licensed reentries. Perhaps of

greatest significance to prospective reentry vehicle operators is

congressional affirmation in the newly enacted legislation that the

payment of excess claims (or ``indemnification'') provisions of 49

U.S.C. 70113 apply to a licensed reentry just as they do to a licensed

launch. Unaffected by the Commercial Space Act of 1998, however, is the

existing sunset provision that appears in 49 U.S.C. 70113(f), limiting

eligibility for Government indemnification to reentries conducted under

a license for which a complete and valid application has been received

by the FAA by the end of 1999.1

---------------------------------------------------------------------------

\1\ If enacted, pending legislation would extend the sunset

provision an additional five to ten years.

---------------------------------------------------------------------------

On August 26, 1998, the agency issued final rules implementing CSLA

financial responsibility (insurance) and risk allocation requirements

for licensed launch activities. 63 FR 45592-45625. The final rules,

codified at 14 CFR part 440, establish in regulations a risk-based

approach, known as maximum probable loss (MPL) methodology, to

determining insurance requirements. Included in part 440 are

requirements for insuring loss or damage to government range property

and for liability insurance providing coverage for all launch

participants, including the U.S. Government, in the event of claims by

a third party for damage or loss resulting from licensed launch

activities. The final rules also implement statutory requirements for

reciprocal waivers of claims among launch participants whereby each

participant is required to waive certain claims it may have for damage

or loss against each of the other launch participants and accept

financial responsibility for losses suffered by its own personnel. And,

in accordance with the CSLA, the final rules reflect the U.S.

Government's participation in statutorily directed risk allocation

through the reciprocal waiver of claims and by providing for payment of

certain third party claims, subject to congressional appropriation of

funds. Under the CSLA, the government may cover or ``indemnify'' third-

party liability of all launch participants when liability exceeds

required insurance, up to a statutory ceiling of $1.5 billion (as

adjusted for inflation after January 1, 1989) above insurance.

As indicated in the financial responsibility rulemaking for

licensed launch activities, the risk-sharing scheme enacted in 1988 and

recently extended to cover licensed reentries benefits the aerospace

industry, including customers of commercial launch and reentry

services, as well as the government. The aerospace industry is relieved

of the risk of catastrophic liability which would be difficult and

costly, if not impossible, to manage with private insurance if each

launch participant had to obtain $2 billion of coverage.2

The government benefits from the statutory risk sharing scheme through

CSLA-mandated liability coverage, up to a defined amount, which

financially insulates the government from its own risk of liability

exposure including liability for certain damage on the ground or to

aircraft in flight when the United States is deemed a launching State

under the terms of the Outer Space Treaties, specifically the

Convention on International Liability Caused by Space Objects

(Liability Convention, entered into force September 1972). Liability

for damage caused elsewhere, such as to satellites on orbit, is also

assigned to the government under the Liability Convention if it is the

fault of persons for whom the launching State is responsible. In

addition, under Article VI of the Treaty on Principles Governing the

Activities of States in the Exploration and Use of Outer Space,

including the Moon and Other Celestial Bodies (Outer Space Treaty,

entered into force October 1967), the United States bears international

responsibility for activities carried on in space by non-governmental

entities.

---------------------------------------------------------------------------

\2\ The amount of $2 billion represents the amount of

indemnification that may be made available to launch participants

without adjusting for inflation, or $1.5 billion, added to the

maximum amount of liability insurance that may be required under the

terms of 49 U.S.C. 70112(a)(3)(A), or $500 million.

---------------------------------------------------------------------------

Risk allocation under the CSLA contemplates the following quid pro

quo arrangement. A launch or reentry licensee provides insurance

covering the first tier of risk for all entities, including the

government, involved in licensed space launch or reentry activity. In

return, the government agrees to be responsible for its own liability

and that of launch or reentry participants, subject to Congressional

appropriation of funds, up to an additional $1.5 billion (with an

adjustment for post-January 1, 1989 inflation). The commercial space

transportation industry is thereby relieved of the risk of catastrophic

losses within the second tier of risk (statutorily required insurance

plus $1.5 billion, as adjusted for post-January 1, 1989 inflation). The

third tier of risk, or claims in excess of the combined total of

required insurance plus $1.5 billion (as adjusted), is the

responsibility of the party adjudged by a court to be legally liable

for the claims. As a regulatory matter, the agency imposes financial

responsibility for the third tier of risk on the launch licensee, and

in this notice proposes to do likewise with respect to a reentry

operator or licensee, unless it has no liability whatsoever for such

claims.

The COMET/METEOR Experience

The authority granted by the Commercial Space Act of 1998 (CSA) is

the culmination of several years of Administration effort to grant

specific licensing authority to the Department of Transportation over

reentry of a reentry vehicle. The agency's efforts began in 1993, when

its evaluation of the COMET reentry vehicle highlighted the limitations

of the CSLA in keeping pace with advancements in technology.

COMET, or the Commercial Experiment Transporter, began as a

commercial program administered through the National Aeronautics and

Space Administration's (NASA's) Centers for the Commercial Development

of Space. COMET was intended to provide a low cost, medium-term (30

day) platform in space for the conduct and return to Earth of

microgravity experiments. (The COMET Program and the agency's approach

to authorizing its activity are described in several Federal Register

Notices. See 57 FR 10213, March 24, 1992; 57 FR 55021, November 23,

1992; and 60 FR 39476, August 2, 1995.) Initially, three operators were

involved and required agency regulatory oversight with respect to

public safety-related operations. EER Systems, Inc., was responsible

for placing in orbit the COMET reentry vehicle system, known as the

Freeflyer, using a Conestoga expendable launch vehicle. Westinghouse

Electric Corporation was responsible for operation of the service

module, the component of the Freeflyer that would remain operational

while on orbit for an additional 180-day period. Upon command from

Earth, the Freeflyer would separate into two components and the reentry

vehicle portion, designed and operated by Space Industries, Inc., would

reenter Earth atmosphere targeting a designated landing site on Earth

where experiments could be recovered.

Criteria utilized by the agency in evaluating reentry safety are

described in a Federal Register Notice (57 FR 10213, March 24, 1992),

and the

[[Page 54450]]

agency's experience in implementing the criteria is recounted in the

related notice of proposed rulemaking referred to herein as the RLV

Licensing Regulations. The COMET Program was terminated due to funding

problems but was subsequently resurrected under a NASA contract. EER

Systems, Inc. became responsible for both launch and reentry

operations. Capability of the reentry vehicle system, renamed METEOR,

was never demonstrated, however, because of the Conestoga launch

failure which destroyed the METEOR system shortly after lift-off.

Initially, the agency's approach to the COMET Program was to

license the reentry event separately from the launch event under its

existing authority to license the launch of a launch vehicle on a

suborbital trajectory. The determination to issue a separate license

for return to Earth of the reentry vehicle was based, in large measure,

on the fact that the reentry vehicle operator's identity was different

from that of the launch operator, and that responsibility over the

subsequent reentry (30 days following completion of the launch) ought

not be imposed regulatorily on the launch operator whose responsibility

for launch safety would terminate upon safing of the Conestoga

expendable launch vehicle upper stage.

By letter from the House Chairman of the Subcommittee on Space to

the Director of the Office of Commercial Space Transportation or OCST

(the predecessor office to FAA's Associate Administrator for Commercial

Space Transportation or AST), OCST was advised that it did not have

explicit licensing authority over payloads but that it should continue

its safety review of reentry vehicle operations associated with the

launch.

In the September 2, 1992 letter, the House Subcommittee Chairman

indicated that the Committee would seek legislation addressing

commercial reentry vehicle licensing issues, including indemnification

and liability.3 OCST continued its evaluation of the COMET

Freeflyer, and then METEOR, under its authority to evaluate missions

and payloads not otherwise licensed by the Federal government, for

purposes of assuring that its launch would not jeopardize public

safety. In the meantime, OCST was further advised by House Subcommittee

staff that claims for loss or damage resulting from reentry of the

COMET reentry vehicle would not be eligible for indemnification because

there was no authority to indemnify claims resulting from operation of

a payload absent a clear causal nexus to the launch event. Accordingly,

as a condition of NASA's contract with EER Systems for the conduct of

microgravity research and experimentation services, NASA required

insurance covering the government's potential liability, including that

arising under the Outer Space Treaties, as a result of the reentry. The

amounts of reentry liability and government property insurance

established by NASA as a condition of its contract were the same

requirements as OCST had ordered for the Conestoga launch using MPL

methodology although OCST had not addressed reentry risk in its

assessment of financial responsibility requirements for launch.

---------------------------------------------------------------------------

\3\ Implicit in the House Subcommittee letter, and made explicit

in congressional report language accompanying passage of the CSA (as

well as predecessor legislation), is rejection by the House

Committee on Science of the notion that the return to Earth of a

launch vehicle on a suborbital trajectory is separately licensable

as a launch under the agency's longstanding launch licensing

authority.

---------------------------------------------------------------------------

Each year since 1993, the Administration has proposed, and Congress

has acted favorably upon, authorizing legislation that would allow the

agency to license reentry operations and establish MPL-based insurance

requirements for licensed reentries. In 1998, legislation was finally

enacted authorizing the agency's regulatory responsibilities for

reentry licensing and risk management.

Risk-Based Insurance

In 1995, the agency completed a study evaluating the sufficiency

and applicability of CSLA financial responsibility requirements to

licensed reentry operations. The study evaluated the adequacy and

appropriateness of using risk-based methodology, known as maximum

probable loss (MPL), in establishing liability and government property

insurance requirements for reentry using a COMET-type reentry vehicle

as a model. MPL has been used successfully by the agency since 1989 in

determining insurance requirements for launch operations, including

preparatory activities conducted at a launch site and flight of a

launch vehicle. The study also evaluated whether statutory ceilings on

launch insurance requirements ($500 million for liability and $100

million for government property) would be adequate for reentry

operations. Finally, the study explored whether insurance capacity

existed in the market to underwrite required coverages at reasonable

cost.

The study's findings were favorable on all accounts. MPL

methodology was determined to be appropriate and adequate for assessing

reentry risk and statutory ceilings on insurance requirements were

found appropriate to cover reentry risk. The study concluded that if

the $500 million liability ceiling were not sufficient to adequately

address the liability risk that attends reentry activity then perhaps

the reentry proposal under review would prove too hazardous to be

authorized by the agency.4 In this manner, risk assessment

functions as an indicator of acceptable risk in carrying out the

agency's public safety responsibilities, as well as providing the basis

for financial responsibility requirements. Whether the activity under

consideration is launch or reentry, if MPL assessment would yield an

unusually high value (as compared with other authorized space

activities) the FAA believes it may signal the need to mitigate further

the risks associated with a proposed space transportation activity

before a license would be granted, to ensure that risks to public

safety are confined to a reasonable level.

---------------------------------------------------------------------------

\4\ For example, assigning $3 million as the value of life used

for purposes of determining maximum probable loss, as explained in

the notice of proposed rulemaking regarding financial responsibility

for licensed launch activities (61 FR 38992-39021, at 39007, July

25, 1996), the maximum allowable liability insurance requirement

under the CSLA or $500 million, would account for an event resulting

in 167 casualties, assuming no property damage. If a sufficiently

probable event were associated with a reentry proposal that would

result in such significant casualties it would not pass muster under

the FAA's safety review and would therefore not qualify for reentry

licensing.

---------------------------------------------------------------------------

Reentry Technology and Reusable Launch Vehicles (RLVs)

The licensing authority granted by the Commercial Space Act of 1998

(CSA) allows for separate licensing of launch and reentry vehicle

operators, as in the initial COMET proposal, but is equally applicable

to reusable launch vehicle (RLV) concepts undergoing design reviews and

testing protocols at the end of the 20th century.

Certain reusable or partially reusable launch vehicle concepts

currently under development are reentry vehicles, as defined by the

CSA; however, they bear little resemblance to the COMET/METEOR reentry

vehicle evaluated by AST in the early 1990's. Whereas COMET/METEOR was

to be launched as a payload and was intended to provide a microgravity

platform for medium-term experimentation (30 days or more of on-orbit

microgravity environment before intact reentry), the majority of

reentry concepts today are intended to respond to projected growth in

the telecommunications satellite services industry and other demands

for lower

[[Page 54451]]

cost access to low Earth orbit. Constellations of satellites in low

Earth orbit (LEO) provide mobile telecommunications capabilities and

are responsible for 71 percent of forecasted launches over the next 12

years. See 1999 Commercial Space Transportation Forecasts, issued by

the FAA and the Commercial Space Transportation Advisory Committee

(COMSTAC). Demand for such services, including replenishment of large

and small LEO constellations, account for market projections of 975 to

1,195 payloads to be launched in the next 12 years. RLV concepts are

targeting the anticipated surge in launch activity that will be

required to maintain constellation services and intend to obtain market

share by offering faster and cheaper launch services.

Reentry vehicle and RLV concepts vary widely. Some, like

VentureStar, present single stage to orbit capability while others,

such as Kistler Aerospace Corporation's K-1 vehicle, contemplate use of

multiple stages to perform payload delivery services. Other RLV

concepts, such as that under development by Kelly Aerospace, rely on

aircraft technology and airborne launch-assist concepts in combination

with more conventional rocket motor technologies to attain desired

altitude and destination. Airborne launch systems are not new to the

world of commercial aerospace launch concepts, however. The Pegasus

launch system, carried aloft by a modified L-1011 aircraft, has a

proven record of providing reliable expendable launch vehicle services.

RLV Launch and Reentry Financial Responsibility

Mission Approach

The RLV Licensing Regulations describe the FAA's proposal to

fulfill its safety mandate in a manner that accommodates developments

in RLV technology and industry needs. The FAA proposes to retain

discretion to grant both launch and reentry authorizations in a single

RLV mission license using a measure of safety for vehicle operations

consistent with that currently employed for launches of expendable

launch vehicles at Air Force ranges. Both ascent and descent flight

phases must be evaluated and authorized by the FAA in accordance with

FAA safety criteria for the mission; however, launch and reentry

authorizations or licenses may be combined in a single license

document. Application of a combined risk measure to ascent and descent

flight phases of a launch vehicle reflects the FAA's determination that

the public should not be exposed to greater safety risk in

accomplishing a round-trip mission using an RLV to place a payload in

orbit. Nor should the public be exposed to greater risk by virtue of

the vehicle's ability to achieve Earth orbit or outer space before

landing on Earth. See 64 FR at 19631. The FAA's proposed mission

approach to licensing an RLV operator is explained in detail in the

proposed RLV Licensing Regulations issued for public comment on April

21, 1999. See 64 FR 19626-19666.

Occurrences during both launch and reentry must be covered through

financial responsibility provided by the licensee, up to required

amounts. As amended by the CSA, 49 U.S.C. 70112(a) directs the agency

to establish financial responsibility requirements that accompany a

license authorizing launch or reentry, up to statutory ceilings

(currently, $500 million for third party liability and $100 million for

government property damage). Up to $500 million of liability insurance

may therefore be required for launch of an RLV, based upon the FAA's

determination of the maximum probable loss that may result from launch,

as well as up to $500 million of liability insurance to cover third

party liability resulting from its reentry.

The government shares in launch and reentry risks through the

payment of excess claims, or so-called ``indemnification,''

5 provisions set forth in 49 U.S.C. 70113, which provide for

payment by the government of claims related to a launch or reentry in

excess of required insurance. In accordance with the quid pro quo

arrangement contemplated by the statute, an RLV operator would be

eligible for indemnification of excess third party claims that result

during either, or both, the launch phase of licensed RLV flight and its

reentry. Accordingly, it is necessary to define the scope of licensed

launch activities, as distinct from licensed reentry activities,

involved in an RLV mission in order to allocate risk and assign

financial responsibility requirements to the appropriate phase of

licensed flight and to clarify how the government is expected to share

in launch or reentry risk through its indemnification responsibilities

under 49 U.S.C. 70113(a).

---------------------------------------------------------------------------

\5\ Commonly referred to as ``indemnification,'' the payment of

excess claims provisions of 49 U.S.C. 70113 provide procedures

whereby Congress may enact legislation appropriating funds to cover

liability of launch participants that is in excess of the amount of

insurance required under 49 U.S.C. 70112(a)(1)(A).

---------------------------------------------------------------------------

A seamless approach to RLV mission regulation is envisioned for

most of the RLV concepts currently under development and, similarly,

seamless financial responsibility requirements would generally apply as

well. The FAA is proposing a flexible approach to accomplishing this

result. A license order may distinguish launch financial responsibility

requirements from reentry financial responsibility requirements where,

for example, risks presented by launch of a fully fueled vehicle differ

in nature or magnitude from those presented by reentry of an RLV that

has expelled all or nearly all of its explosive propellant and

capability. Alternatively, the FAA may find that a uniform level of

financial responsibility is sufficient to cover both launch and reentry

risk, although insurance must be available to respond to claims that

arise during both launch and reentry, up to the required amount for

each phase of licensed flight.

The agency reserves authority to determine, on a case-by-case

basis, whether to establish differentiated insurance requirements for

RLV launch as opposed to reentry of an RLV from Earth orbit or outer

space. Circumstances in which it would be appropriate to do so include

launch at one site with reentry to a different site because different

populations would be exposed to launch vehicle risks yielding

potentially different MPL valuations. Also, the FAA understands that an

RLV may be greater in size, blast capability and explosive potential

during ascent than descent if it will shed stages, as would the Kistler

K-1 vehicle, before achieving orbit and subsequently reentering into

Earth atmosphere. Moreover, an RLV would be fully fueled for launch

whereas it would have exhausted or expelled all or most of its

hazardous propellants before planned landing on Earth. On the other

hand, launch risks can be mitigated by ensuring that the vehicle's

instantaneous impact point (the point on Earth where vehicle and debris

impact would be realized in the event of a flight failure such as loss

of thrust or vehicle break-up) remains over unpopulated areas or has no

significant dwell time over any populated area, whereas reentry risks

are, at least in some part, a function of vehicle reliability and size

of the targeted landing site. (The related RLV Licensing Regulations

explain the FAA's proposed requirements for assessing the adequacy and

suitability of a proposed reentry site.) Where launch and reentry risks

are comparable in magnitude, however, the FAA may impose parallel

requirements for launch and reentry.

In any case, because an event could occur during both launch and

reentry, particularly where multiple stage

[[Page 54452]]

vehicles are used, financial responsibility must be available to

respond to claims arising during either or both flight phases. Having

uniform or consistent insurance requirement in place over the course of

the mission is not intended to limit responsibility of the licensee to

cover the liability that results from an RLV mission.

The agency requests public comment on its approach to assessing

risk for RLV operations in light of the FAA's proposed mission approach

to RLV licensing, that is, whether it is reasonable and prudent to

separately assess and establish insurance requirements based upon

launch or ascent risks as distinct from reentry or descent risks, and

the circumstances, if any, under which it would be appropriate to do

so. Comments are requested on whether insurance determinations that

distinguish launch from reentry would hinder, rather than help, claims

settlement.

Scope of RLV Launch Authorization

Financial responsibility requirements applicable to RLV launches

are provided in 14 CFR Part 440, whose requirements are intended to

address launch anomalies and losses resulting from a licensed launch.

Losses that result from or are causally related to performance of the

launch vehicle during its ascent would be addressed through part 440

requirements and eligible for indemnification under 49 U.S.C. 70113,

when they exceed required launch liability insurance.

The CSA amended the definition of ``launch'' contained in the CSLA

by including within its meaning ``activities involved in the

preparation of a launch vehicle or payload for launch, when those

activities take place at a launch site in the United States.'' 49

U.S.C. 70102(3). Incorporating this amendment, the FAA's recently

issued licensing regulations define the term ``launch'' to include

``pre-flight ground operations beginning with the arrival of a launch

vehicle or payload at a U.S. launch site.'' 14 CFR 401.5. See 64 FR

19586-19624. The RLV Licensing Regulations propose to continue use of

this definition with respect to RLV launches. 64 FR at 19655.

However, the FAA has proposed a different end point, payload

deployment, for purposes of defining licensed RLV launch flight from

that applied to launch of an expendable launch vehicle or ELV, as

described in the supplementary information accompanying the RLV

Licensing Regulations. 64 FR at 19632-33.6 (The definition

of ``launch'' that appears in Sec. 401.5 of the RLV Licensing

Regulations erroneously fails to reflect the proposed change.) In the

licensing regulations issued recently, the FAA reaffirmed that its

safety mandate, which includes public safety and safety of property,

requires that it exercise licensing authority over the launch of a

launch vehicle through the point after payload separation when the last

action occurs over which a licensee has direct or indirect control over

the launch vehicle. See Commercial Space Transportation Licensing

Regulations; Final Rule, 64 FR 19586, at 19594, April 21, 1999. For

launches of expendable launch vehicles (ELVs), that point typically

occurs upon ``safing'' of the vehicle's upper stage or otherwise

rendering the upper stage inert so as to mitigate sufficiently the

explosive potential of any remaining energy sources on board the

vehicle. Defining the end of licensed launch activity in this manner

minimizes the risk and consequences of collision with other orbiting

space objects as well as orbital debris generation. As previously

noted, the FAA's definition of ``launch'' is codified at 14 CFR 401.5.

---------------------------------------------------------------------------

\6\ The related rulemaking addressing RLV Licensing Regulations

offers detailed guidance, summarized in this Notice, on the proposed

scope of licensed launch and reentry flight phases of an RLV. See 64

FR 19626, at 19631-19633, April 21, 1999.

---------------------------------------------------------------------------

In the RLV Licensing Regulations, the FAA has suggested using

payload deployment to define the end of an RLV launch, instead of the

control test applied by the FAA to define the end of an ELV launch.

Reference to the licensee's last exercise of control over the launch

vehicle is appropriate for ELVs but if applied to RLV technology would

mean that a launch might not be concluded under the terms of the

definition until reentry is complete, contrary to the CSA. Also, in

order to accomplish reentry, an RLV operator would retain (or design

in) certain control over the vehicle in order to ready it for reentry

and energy sources would retain their explosive potential remaining

capable of activation while the vehicle is on orbit. The control test

is simply not appropriate for RLVs.

As discussed in the RLV Licensing Regulations, the FAA proposes

instead to limit the definition of ``launch'' that appears in 14 CFR

401.5 to ELV launches and to use accomplishment of the launch phase of

the mission, that is, the point of payload deployment (or attempted

payload deployment), to define the end of licensed launch activities

when the launch vehicle is an RLV. If adopted in final rules, this

definition offers the added benefit of providing a bright line

reference point for distinguishing the end of licensed launch flight

from other mission phases for most RLV activities that will occur in

the foreseeable future.

Scope of RLV Reentry Authorization

The CSA amends the CSLA by imposing financial responsibility

requirements for RLV and other reentry vehicle reentries in a manner

comparable to that required for licensed launches. Insurance or other

form of financial responsibility would be required to address losses to

third parties and government property resulting from a licensed

reentry.

A reentry subject to FAA licensing authority means ``to return or

attempt to return, purposefully, a reentry vehicle (including an RLV)

and its payload, if any, from Earth orbit or from outer space to

Earth.'' 49 U.S.C. 70102(10). The proposed RLV Licensing Regulations

define ``reentry'' to include ``activities conducted in Earth orbit or

outer space to determine reentry readiness and [that] are therefore

unique to reentry and critical to ensuring public health and safety and

the safety of property during reentry.'' 64 FR at 19656. The

accompanying Supplementary Information further explains that licensed

reentry activity would commence at the point following payload

deployment when vehicle hardware and software begin to be readied for

reentry. Once a payload has been deployed, RLV operations, whether

designed into the vehicle or controlled from Earth, would be directed

at readying the vehicle for reentry and verifying reentry readiness of

structures, propulsion systems, and vehicle orientation, attitude and

safety systems, including software. See 64 FR at 19632-33. For RLVs

intended to enter outer space but not Earth orbit, and for those RLVs

intended to remain on orbit for a relatively brief duration, such as

days or possibly weeks, the RLV Licensing Regulations provide that the

licensed reentry phase of an RLV mission would therefore commence

immediately following payload deployment. In such circumstances, there

would be no on orbit activity that is not covered by a license and

associated statutory financial responsibility requirements. In other

circumstances, such as delayed reentry by design, the FAA has requested

comments in the RLV Licensing Regulations on the appropriate

commencement point of reentry licensing authority from a safety

perspective and now solicits public

[[Page 54453]]

comment from a financial responsibility and risk management

perspective.

In proposing to include within the scope of a reentry license that

period of on-orbit activity during which preparatory activities to

ensure reentry readiness are conducted, the FAA considered the

following: the Report of the House Committee on Science that

accompanied passage of H.R. 1702, the predecessor legislation to the

CSA, H. Rep. 105-347, 105th Cong., 1st Sess. (Committee Report), the

scope of launch licenses for ELV launches, and reentry risks for which

statutorily mandated financial responsibility and risk allocation are

necessary and meaningful.

The FAA's proposed approach to defining those reentry activities

that may be encompassed by a license is consistent, generally, with

concerns expressed in the Committee Report. In its Report, the House

Committee on Science (the Committee) indicated that ``the term

`reentry' is intended to cover a wide range of activities, including

the act of returning a reusable launch vehicle to Earth. In

establishing the legal framework for reentry, the Committee's approach

is to treat reentry of a reentry vehicle the same as launch of a launch

vehicle.'' H. Rep. 105-347, 105th Cong., 1st Sess., at 21. The

Committee further noted that ``for purposes of the license requirement,

reentry begins when the vehicle is prepared specifically for reentry.

By way of definition, the Committee intends the term to apply to that

phase of the overall space mission during which the reentry is

intentionally initiated. Although this may vary slightly from system to

system, as a general matter the Committee expects reentry to begin when

the vehicle's attitude is oriented for propulsion firing to place the

vehicle on its reentry trajectory.'' Id. Specifically excluded from the

intended scope of FAA licensing authority over reentry would be

transportation events in space that are wholly unrelated to launch or

reentry, such as maneuvers between orbits, according to the Committee

Report. Id. at 22-23.

As reflected in the RLV Licensing Regulations and summarized here,

the FAA also finds in the Committee's expansive definition of the term

``launch'' guidance that is useful and instructive in delimiting ``that

phase of the overall space mission during which the reentry is

intentionally initiated'' and to which FAA reentry licensing authority

and associated financial responsibility requirements are intended to

apply. Id. at 21. The Committee Report defines the term ``launch'' for

purposes of license coverage to include activities preceding flight

that entail critical preparatory steps to initiating flight, are unique

to space launch and are so hazardous as to warrant agency regulatory

oversight, as long as they are conducted at a launch site in the United

States, even if that site is not ultimately the site of the actual

launch. Id. at 22. Safety concerns over the hazardous nature of such

activities underlie the Committee's rationale for extending the term

``launch'' to include them. To fully comprehend such activities within

the scope of a launch license and to ensure fulfillment of the FAA's

statutory mandate regarding public safety and safety of property, the

FAA recently issued final rules defining ``launch'' to include

activities involved in the preparation of a launch vehicle for flight

when those activities take place at a launch site in the United States,

commencing upon arrival of a launch vehicle or payload at a launch

site.7 14 CFR 405.1. Arrival of a launch vehicle or its

major components was selected by the agency to provide an appropriate

and clear commencement point of FAA regulatory authority over a launch

because that event generally signals a change in risks to public safety

and property due to the hazardous nature of activities that occur

thereafter.

---------------------------------------------------------------------------

\7\ The CSA amends the statutory definition of ``launch'' by

expressly including preparatory activities at a launch site;

however, prior to the amendment the FAA proposed to include such

activities in a regulatory definition ``launch'' in order to fulfill

its safety mandate. See Notice of Proposed Rulemaking, ``Commercial

Space Transportation Licensing Regulations,'' 62 FR 13216-13273.

---------------------------------------------------------------------------

Similarly, risks to public safety and to property, both on orbit

and on Earth, change significantly as a result of RLV operation on

orbit or in outer space due to heightened risk of an anomalous event

that may result in on orbit collision, uncontrolled reentry, or other

non-nominal or unplanned occurrence. Therefore, for safety reasons

comparable to those underlying the FAA's determination that ``launch''

includes preparatory activities preceding vehicle flight, the FAA has

proposed in the RLV Licensing Regulations to define ``reentry'' to

include those ``activities conducted in Earth orbit or outer space to

determine reentry readiness and are therefore unique to reentry and

critical to ensuring public health and safety and the safety of

property during reentry.'' 64 FR at 19656. The event of payload

deployment appropriately marks the end of licensed launch flight and

would be followed immediately thereafter by reentry activities

comprehended by the FAA's licensing authority. Consistent with the

FAA's approach to defining ``launch'' of a launch vehicle, the FAA

approach offers a bright line demarcation between the end of licensed

RLV launch flight and commencement of licensed reentry activities for

purposes of clarity and consistency.

Where a licensed launch would be followed immediately by a licensed

reentry, a seamless risk management program would apply to all vehicle

flight. A seamless approach is therefore contemplated for those

vehicles launched into outer space on a suborbital trajectory and

designed to reenter from outer space without ever entering an orbital

path. It would also apply to those vehicles intended to spend minimal

time on orbit and subsequently reenter purposefully upon activation or

initiation of a reentry system once reentry readiness has been

verified. CSLA-directed financial responsibility and risk allocation

would cover ascent and descent flight phases of such vehicles,

including flight on orbit or in outer space in furtherance of reentry

readiness. However, inter-orbit maneuvers or transfer operations that

are not performed as part of launch or reentry, as defined by the FAA,

are not covered by the FAA's licensing authority and are therefore not

intended to be addressed through statutorily mandated financial

responsibility requirements. Risks associated with those activities

would remain outside the CSLA financial responsibility and risk

allocation program.

Non-Nominal Reentry

The broad scope of reentry licensing authority proposed in the RLV

Licensing Regulations is necessary, in the FAA's view, to fulfill the

legislative purpose underlying statutorily-mandated financial

responsibility in the first instance, that is, financial protection of

launch participants, including the U.S. Government, in the event of an

unplanned occurrence, such as a non-nominal or premature reentry,

resulting in third party liability. It is also necessary to make

eligibility for indemnification by the government a meaningful benefit

for the RLV industry in exchange for its coverage of the government's

liability exposure up to a prescribed amount, at no cost to the

government.

Coverage under the CSLA financial responsibility and risk

allocation scheme is co-extensive with licensed activity and also

addresses proximate results or consequences of licensed activity.

Liability insurance under 49 U.S.C. 70112 provides coverage for claims

``resulting from an activity carried out under the license; * * *''

[[Page 54454]]

(emphasis added) 49 U.S.C. 70112(a)(1). Similarly, indemnification

under the CSLA becomes the government's responsibility, up to the

statutorily prescribed ceiling, to the extent of excess claims

``resulting from an activity carried out under the license.'' (emphasis

added) 49 U.S.C. 70113(a).

The FAA considers that its proposed scope of reentry licensing and

related requirements for financial responsibility are appropriate and

necessary to cover non-nominal reentries, including reentries that are

premature or unplanned and therefore technically

unauthorized.8 Statutory requirements for assuring financial

responsibility of the licensee and the associated indemnification of

liabilities that result from licensed activities acknowledges that non-

nominal events, including accidents, may in fact occur as a result of

the extremely hazardous activities of launch or reentry. As with

launch, licensed pre-flight activity conducted in preparation for

vehicle flight, be it launch or reentry, creates safety risks

warranting regulatory oversight by the FAA and may give rise to

liability owing to its hazardous nature and attendant consequences. To

adequately protect government interests, as well as to ensure financial

resources exist to adequately cover launch and reentry participant

liability, the FAA believes that events that precede the final

initiation of reentry into Earth atmosphere, including the prospect of

a non-nominal reentry, must be covered by a reentry license and

associated financial responsibility and risk allocation requirements.

---------------------------------------------------------------------------

\8\ Inclusion of the term ``purposefully'' in the definition of

``reenter'' and reentry'' clarifies that the unplanned or unintended

reentry of any space object that is not a reentry vehicle, as

defined by the statute, is not encompassed in the agency's licensing

authority. Accordingly, sections 70112 and 70113 (CSLA risk

allocation) would not apply to such events unless they are clearly

and causally related to a licensed launch or reentry. The agency

does not believe that use of the term ``purposefully'' is intended

to necessarily exclude premature or other non-nominal reentries. It

is also not intended to exclude suborbital activities from reentry

licensing coverage simply because reentry occurs ballistically or

through other physical forces. In the agency's view, having the

intent to return a vehicle that has been designed to reenter Earth

atmosphere and remain substantially intact subjects the vehicle

operator to the agency's reentry licensing authority, as long as the

intended point of commencement of reentry is in outer space or the

vehicle has entered Earth orbit.

---------------------------------------------------------------------------

Non-nominal reentries may occur in a variety of ways, including

premature reentry, random reentry due to a major system failure, and

reentry to an alternative or abort site. Non-nominal situations that

are reasonably foreseeable would be considered by the agency in

licensing a planned reentry as part of the agency's safety and risk

mitigation program. Similarly, a finite set of outcomes and risks that

could reasonably result from on orbit operation of an RLV in

anticipation of its reentry would be identified and considered in

setting risk-based insurance requirements.

Non-nominal reentry does not necessarily mean uncontrolled reentry,

however, although some non-nominal reentries may result in failure or

inability of the operator to employ intended controls during the

reentry sequence. When this situation occurs, either prematurely or at

some time after a reentry attempt is aborted or perhaps abandoned,

reentry may occur entirely at random, both as to time and location. For

example, if under the terms of an FAA license, reentry of a reentry

vehicle may only be attempted under defined circumstances (such as

attainment by the vehicle of certain prescribed orbital

characteristics, including attitude, system status and inclination),

and the reentry licensee is unable to verify that it has satisfied the

conditions necessary to conduct a licensed reentry, the licensee would

be required to abort the reentry attempt because it cannot be

accomplished under the safety limitations defined in the license.

However, the reentry vehicle, which has been designed to return to

Earth substantially intact, may reenter Earth atmosphere as a result of

forces other than intentional initiation by the licensee of a reentry

sequence, much like an upper stage that remains in low Earth orbit or

an inactive satellite whose useful life is spent. The RLV industry has

stressed to the FAA that an unplanned, uncontrolled reentry has very

little chance of causing damage or harm because, as with most space

debris that reenters Earth atmosphere, it would burn up due to

atmospheric drag. The FAA believes that an event of this sort may

result from licensed activity and is intended to be embraced by the

agency's reentry licensing authority. The risk of such an event would

be included in the agency's safety analysis and its consequences

comprehended by statutory financial responsibility requirements and

risk allocation. Alternatively, a premature reentry may occur before

the vehicle is oriented properly for propulsion firing, making

adherence to license terms and conditions for an authorized reentry

impossible. Under the FAA's proposed approach to reentry licensing, the

consequences of such an event would likewise be subject to CSLA-based

financial responsibility and risk allocation because they would result

from licensed activity.

Although the FAA has proposed rigid safety requirements to ensure

that the public is not exposed to unreasonable risk, as explained in

the related rulemaking, RLV Licensing Regulations, the possibility

remains that an unplanned event could occur resulting in claims for

damage or injury in excess of risk-based insurance requirements

analytically assessed by the agency. Congress has determined that

indemnification shall be available for licensed reentries to provide an

opportunity for development of this new industry. Therefore, although

the FAA does not propose to regulate on orbit activity other than to

assure reentry safety, the FAA proposes to license pre-descent

activities, on orbit or otherwise in outer space, commencing at the

point of payload deployment from an RLV, and to require insurance for

vehicle operations while on orbit in the event of premature, errant, or

otherwise non-nominal reentry. Inclusion of preparatory activities

within the definition of ``reentry'' is necessary for the related

purposes of fulfilling the FAA's safety mandate with respect to risks

to persons and property on the ground, in airspace, and on orbit, and

implementing a meaningful risk management program in accordance with

the CSLA.

The FAA has proposed this scope of coverage because the agency

believes it is critical to the intended purpose of requiring financial

responsibility and to the industry's acknowledged need for liability

protection from catastrophic claims. As with licensed launch

activities, financial responsibility benefits the United States by

providing assured coverage for liability assumed by the government

under the Outer Space Treaties, and specifically the Liability

Convention, up to a required amount. Indemnification for catastrophic

risks is critical to the success of the RLV industry because of the

potential failure rate associated with new reentry technology.

In proposing a comprehensive approach to reentry licensing and

financial responsibility, the FAA also examined alternative approaches

to ensuring appropriate risk management for reentry-related risks. For

example, the FAA considered how claims would be covered if there were

no license in effect. In other words, if launch authorization ended

upon payload deployment, and reentry authorization became effective

only at the moment of intentional ignition of reentry propulsion

systems, would claims resulting from a premature, non-

[[Page 54455]]

nominal reentry be covered by statutory financial responsibility and

eligible for indemnification?

As previously noted, insurance or other form of financial

responsibility is required to cover claims that result from an activity

carried out under a launch or reentry license. 49 U.S.C. 70112(a)(1).

It therefore appears from the statutory language that licensed activity

must first occur before claims may be considered to be the result or

consequence of that activity. Accordingly, if no license were in

effect, claims that result from unlicensed activity following payload

deployment and preceding the conduct of an authorized reentry would not

be covered by statutory financial responsibility and risk allocation.

Nor would statutory financial responsibility coverage apply to

anything that occurs as a result of a license having been issued. If

that were so, and if taken to the extreme, such an interpretation could

be viewed as including manufacture of a vehicle within the scope of the

statutory financial responsibility and allocation of risk program, an

unintended result. Likewise, mere intent to engage in licensed activity

would also not satisfy the statutory requirement, in the FAA's view.

The FAA remains mindful of Committee Report language indicating

restricted applicability of statutory risk allocation, as follows:

``The Committee notes that these provisions (sections 70112 and 70113)

apply to losses sustained as a result of licensed activities, (i.e.,

launches and reentries) not event or activities between launch and

reentry; after reentry; or uncovered before launch.'' H. Rep. 105-347,

105th Cong., 1st Sess., at 23.

In proposing the comprehensive approach reflected here, the FAA

also considered whether indemnification for a premature anomalous

reentry should necessarily be regarded as causally related to launch of

a launch vehicle. To adopt this approach, the agency would have to

conclude that but for the launch of a launch vehicle the anomalous

reentry would not have occurred. However, consistent with the Committee

Report, the agency does not believe that everything that follows a

launch bears a sufficient causal nexus to the launch to qualify for

indemnification. By corollary, not every reentry event causing damage

to uninvolved persons or property should be viewed as a consequence of

the launch that placed the reentry vehicle in Earth orbit or outer

space. For one thing, a non-nominal reentry may take place days or

months after a nominal launch. While on orbit, or as a result of the

space environment, the reentry vehicle's ability to reenter as planned

and the licensee's ability to conduct an authorized reentry may be

impaired or prevented. It may in fact be impossible to prove the exact

cause of an anomalous reentry and there may be no demonstrable

relationship between performance or operation of the launch vehicle and

the reentry event. In another reasonably foreseeable situation, an

anomalous reentry could occur proximate in time to a perfectly nominal

launch. Even if a launch anomaly affected the reentry vehicle in some

manner, it may be possible, or necessary, to implement on-orbit

corrections or reenter to an alternative site consistent with the

authorization granted by a license. Intervening events of this nature

would or could break the causal nexus that must exist between launch

and subsequent damage or loss, thereby defeating eligibility for

indemnification. Finally, as in the COMET situation, although it seems

unlikely for RLV missions, the launch of a reentry vehicle and its

subsequent reentry may be separately contracted services performed by

distinct operators. Where the launch vehicle operator can prove that it

has no liability for an unplanned or unauthorized reentry by another

operator, there would not appear to be a sufficient causal nexus

between the launch and reentry to warrant eligibility for

indemnification as a result of the launch.

In light of these examples, the agency does not believe it prudent

to inextricably tie reentry indemnification to launch. Although the

ability of a reentry vehicle to reenter nominally may be impaired or

degraded as a result of the natural stresses of a nominal launch or an

anomalous situation occurring during launch, such circumstances should

not be a necessary precondition to eligibility for indemnification in

the event of an unplanned reentry in the FAA's view. Accordingly, the

FAA has proposed to define reentry in a manner that accomplishes its

safety mandate and assures meaningful risk allocation.

As with launch indemnification, at some point the consequences of

an unplanned reentry would be sufficiently attenuated from licensed

activity such that indemnification would not be available to cover

resultant claims. Under those circumstances, the licensee and other

reentry participants would be responsible for covering the entire

liability and should make appropriate provision for doing so in their

risk management programs. Absent indemnification, if a reentering

object causes damage on the ground or to aircraft in flight in another

country, and if the United States is liable as the launching State

under the Liability Convention, there is nothing to prevent the

Government from seeking contribution from the responsible entity after

covering its obligations under the Outer Space Treaties.

Suborbital RLV Financial Responsibility

Not all RLVs are reentry vehicles under the statutory definition.

Only those that are designed to reenter from Earth orbit or outer space

substantially intact would qualify as a ``reentry vehicle.'' 49 U.S.C.

70102(13). RLVs that achieve neither Earth orbit nor outer space would

be regulated in accordance with the FAA's licensing authority over

launches of launch vehicles in a suborbital trajectory. As explained in

greater detail in the RLV Licensing Regulations, for the most part, the

distinction between launch and reentry of an RLV that is a reentry

vehicle under the statutory definition and an RLV that is not a reentry

vehicle makes no difference from a safety perspective inasmuch as the

FAA is proposing a mission approach to licensing RLV operations. Under

the RLV Licensing Regulations, a consistent measure of safety would

apply to all RLV missions, whether the proposed activity would be

subject to the agency's licensing authority over both launch and

reentry or only its licensing authority over suborbital launches.

Accordingly, if what goes up will come down, either by operational

design or the laws of physics, the agency would not authorize the

mission unless it concludes, in advance of the launch, that both ascent

and descent of the vehicle may be accomplished in a manner that does

not expose the public to unreasonable risk.

From a financial responsibility and risk management perspective,

however, there is a difference between suborbital RLVs that are also

reentry vehicles and those that are not. Where a suborbital RLV enters

outer space, its launch and reentry would be subject to separate and

distinct MPL determinations based upon the unique risks posed during

each flight phase, although the FAA reserves discretion to impose a

uniform requirement throughout licensed flight. Suborbitally operated

RLVs that do not achieve outer space would be subject to a single

determination of financial responsibility only, issued under 14 CFR

part 440. The FAA requests public comment on this proposed distinction

in financial responsibility requirements.

[[Page 54456]]

Reentry Vehicle Financial Responsibility

Not all reentry vehicle operations will be performed by RLVs. A

COMET-type reentry vehicle may be developed for purposes of operating

in space and subsequent reentry. The Committee Report is particularly

instructive regarding the extent of FAA licensing authority over launch

and reentry of a reentry vehicle that is not an RLV, such as the COMET/

METEOR. The COMET/METEOR reentry vehicle was intended to remain on

orbit for 30 days before its reentry would be initiated, unlike the

rapid turn-around concepts currently under development for RLVs. FAA

reentry licensing would be required to authorize reentry of such

vehicles but not its on orbit operation, consistent with the Committee

Report, and risk allocation under the CSLA would be similarly

restricted to its launch and reentry and would not cover events or

activities between launch and reentry.

Reentry of reentry vehicles that are not RLVs, like COMET/METEOR,

may occur significantly after a launch has been concluded and

unlicensed on orbit operations have occurred. Operators of reentry

vehicles designed to perform on orbit operations and maneuvers

independent of launch and reentry would not have the benefit of

seamless financial responsibility coverage under the CSLA and must be

prepared to manage liability risk entirely through private insurance.

Similarly, claims that result from unlicensed activity on orbit would

not be eligible for indemnification under the CSLA and therefore remain

the ultimate responsibility of the operator and participants in such

activities.9 The Committee Report suggests that reentry

licensing coverage would commence for such vehicles when they are

prepared specifically for reentry, such as when attitude is oriented

for propulsion firing to place a vehicle on its reentry trajectory. Id.

at 21. For purposes of ensuring meaningful implementation of the

statutory financial responsibility and risk allocation regime, comments

are requested on the appropriate commencement point of licensed

activities for reentry vehicles that are not RLVs.

---------------------------------------------------------------------------

\9\ The United States accepts fault-based liability as a

launching State under the Liability Convention for damage to another

launching State's on orbit space object if the damage is the fault

of the government or persons for whom the United States is

responsible. Liability Convention, Article III. Absent a clear

causal nexus to a licensed launch or reentry, statutory risk

allocation provisions, including indemnification, would not apply to

cover liability of launch or reentry participants to third parties

for on orbit damage. Where the statute does not apply, the

government may fulfill its treaty obligations and seek contribution

from those entities at fault for the damage.

---------------------------------------------------------------------------

Section-by-Section Analysis

The FAA proposes to issue financial responsibility regulations for

licensed reentry activities in a form that, for the most part,

parallels regulations governing financial responsibility for licensed

launch activities (14 CFR part 440 or part 440). The reason for doing

so is practicality, not expediency. Principles of fairness, logic and

consistency suggest that the FAA attach financial responsibility and

risk allocation requirements to reentry, including the descent phase of

an RLV mission, in a manner consistent with that applied to launches.

For purposes of soliciting public comment on reentry financial

responsibility, the FAA proposes a new part substantially mirroring

part 440 requirements instead of adding reentry coverage to part 440.

The FAA reserves discretion to merge the two parts in a final rule,

however. Doing so would not represent a substantive change from the

proposed approach and would not result in a second comment period.

The FAA also will reserve discretion to establish uniform launch

and reentry financial responsibility requirements for an authorized RLV

mission and separate insurance requirements for launch as distinct from

reentry when a basis for doing so is identified. Factors that may make

it appropriate to distinguish launch risk from reentry risk for

financial responsibility purposes include disparity between launch and

reentry MPL values, different vehicle operators for launch and reentry,

and sufficient separation between launch and reentry functions such

that risks are sufficiently independent of one another for risk

management and insurance purposes. Launch MPL may be vastly different

from reentry MPL if, for example, the launch site is in an unpopulated

area with no population overflight contemplated and return to the

designated reentry site involves some population overflight, or if

launch risks include significant explosive potential while reentry

risks involve very little risk of break up or explosion, or if launch

involves toxic propellants and reentry would occur with little or no

propellant remaining on board the vehicle.

To facilitate the FAA's ability to impose either uniform insurance

requirements for all flight phases of an RLV mission or differentiated

requirements to correspond to flight phase risks, the FAA finds it

prudent to propose reentry financial responsibility requirements

parallel in structure to those contained in 14 CFR part 440. Although

launch and reentry insurance requirements may, under certain

circumstances, be differentiated in the license, the FAA reiterates

that a single license is envisioned combining the launch and reentry

authorizations required for the conduct of an RLV mission.

By proposing a new part 450, the FAA intends to apply to reentry

the principles of financial responsibility and risk allocation

established in 14 CFR part 440. The interested public is directed to

the rulemaking activity associated with issuance of final rules

governing financial responsibility for licensed launch activities for

discussion and thorough analysis by the FAA of those principles. See

Notice of Proposed Rulemaking (NPRM), Financial Responsibility

Requirements for Licensed Launch Activities, 61 FR 38992-39021, issued

July 25, 1996, and Final Rule, 63 FR 45992-45625, issued August 26,

1998 (referred to herein as part 440 Final Rule). Both documents are

available by accessing the FAA's web site at http://www.ast.faa.gov.

Persons unfamiliar with requirements for liability insurance coverage,

reciprocal waivers of claims, and distinctions established by the FAA

between private party launch participants (PPLPs), Government launch

participants (GLPs), and the employees of each, involved in licensed

activities, among other things, should refer to the part 440 rulemaking

in assessing this proposal and submitting comments.

Highlighted in the discussion below are the unique characteristics

of financial responsibility and risk allocation when considered in the

context of a licensed reentry or RLV mission.

Section 450.1--Scope of Part; Basis

Section 450.1 identifies authorized reentry activities as the

subject of the notice. A licensed operator of a reusable launch vehicle

subject to the FAA's reentry licensing authority would be subject to

financial responsibility requirements covering launch and reentry and

must therefore satisfy both part 440 and part 450 requirements. These

requirements may be combined in a single license order.

Section 450.3--Definitions

Section 450.3 proposes to define regulatory terms in a manner

consistent with 14 CFR part 440.

Certain terms defined in 14 CFR 440.3 refer to entities or persons

involved in licensed launch activities or launch services for such

activities. Persons or

[[Page 54457]]

entities involved in licensed launch activities or launch services are

identified as such in Sec. 440.3 ``definitions'' because they obtain a

certain status under the part 440 regulations, including that of

additional insured or participant in the reciprocal waiver of claims

agreement required for licensed launch activities. Where a licensed

reentry will follow a licensed launch, as in the conduct of an RLV

mission that achieves Earth orbit or outer space, the FAA believes that

persons and entities involved in either flight phase may be potential

defendants in the event of third-party claims for injury, damage or

loss, arising out of the mission, regardless of when the claim arises.

That is, participants in the launch phase may be potential defendants

in the event of claims resulting from an errant reentry and insurance

covering their liability exposure to third parties must also be

provided. Similarly, claims for damage or loss may arise among launch

and reentry participants and a comprehensive inter-party waiver of

claims encompassing launch and reentry participants is proposed in this

notice to minimize the universe of claims for which CSLA-based

insurance must be provided. Accordingly, the proposed regulations are

designed to ensure that participants in all licensed mission flight are

included within the intended embrace of financial responsibility and

allocation of risk requirements during launch or ascent as well as

reentry or descent. Because launch and reentry licensees for any

particular mission are expected to be the same entity for the

foreseeable future, this approach should be non-controversial and easy

to implement.

Theoretically, any private party that is sufficiently involved as

to be a named defendant in the event of litigation arising out of loss

or damage to third parties would be comprehended by required coverage

as a ``licensee,'' ``customer'' or ``contractor or subcontractor.'' To

ensure this result, the FAA proposes to make explicit requirements for

extending reentry coverage to participants involved in associated

launch activities.

The definition of ``contractors and subcontractors'' in part 440 is

already sufficiently broad as to comprehend entities and persons

involved in licensed reentry other than a customer or the government

and its agencies because it includes suppliers of property, services

and component manufacturers of a launch vehicle or payload. However,

unless made explicit, it is not sufficiently clear that contractors

involved in licensed reentry activity would necessarily include

contractors involved in a licensed launch. The proposed definition in

Sec. 450.3(a)(2) therefore includes contractors and subcontractors

involved in licensed launch activity associated with a particular

reentry. Reference to contractors and subcontractors throughout the

regulatory text is therefore intended to include those entities

involved in licensed launch activities related to a reentry. The FAA

understands that this reference may not be obvious to persons

unaccustomed to FAA regulations and has endeavored to include specific

reference to such entities for purposes of facilitating public comment

on the proposal.

The term ``customer,'' as proposed, would also include a launch

services customer as this entity may also confront liability exposure

and is at risk of inter-party litigation by virtue of having procured

launch vehicle services.

The term ``Government personnel'' is likewise similar to that

contained in 14 CFR 440.3(a)(6), except that, for the reasons set forth

above, it would also cover employees of the United States, its

agencies, and its contractors and subcontractors involved in licensed

launch activities associated with a particular reentry.

The term ``third party'' has been discussed at great length in the

part 440 Final Rule. The interested public is referred to the

discussion in 63 FR at 45597-98, and 45603-07. Under the approach

outlined immediately above, involvement in either the launch or reentry

phase of flight removes an entity, but not its employees, from the

``third party'' classification. Consistent with the part 440 definition

of ``third party,'' employees of such entities are third parties;

however, claims of employees of private party participants in a

licensed reentry are intended to be addressed through reciprocal waiver

of claims agreements and their employer's assumption of responsibility

for such claims, as described below in the discussion of proposed

Sec. 450.17. Hence, such claims would not be covered claims for which

liability insurance is required under this proposal. However, as

explained in the part 440 Final Rule, claims of Government personnel, a

defined term, must be covered by the licensee's liability insurance up

to the required limit.

With the development of RLV technology comes the possibility of

crewed or piloted launch vehicles whose operations would be subject to

FAA licensing. For purposes of financial responsibility and risk

allocation, the FAA regards the crew of a launch vehicle as employees

of a private party launch or reentry participant (PPLP or PPRP,

respectively) and therefore financial responsibility for their claims

for damage, injury or loss would be addressed through reciprocal waiver

of claims the same as claims of other PPLP or PPRP employees.

One additional class of persons not previously considered involves

passengers who may, in the future, buy a ride on an RLV. The allure of

space tourism is growing in popularity and the agency anticipates

receiving launch and reentry licensing proposals for passenger-carrying

space vehicles. Although it is premature to establish official FAA

policy on the nature of the regulatory program that would be required

to address passenger safety issues in space, the FAA is interested in

the public's views on the subject and, for purposes of a future

rulemaking, how passenger risk should be allocated. For example, should

passengers be regarded as any other customers who are expected to waive

claims against other participants for injury, damage or loss as a

result of launch or reentry? Should the Government play a role in

establishing limits on liability for injury to space vehicle

passengers? Should indemnification be extended to cover risks of

liability to passengers?

Section 450.5--General

The conduct of authorized reentry activities would be subject to

compliance by the licensee with financial responsibility and risk

allocation requirements. Proposed Sec. 450.5(a) would establish in a

regulation that compliance with part 450 requirements is a prerequisite

to the conduct of a licensed launch involving a reentry as well as a

licensed reentry.

Section 450.5(b) reflects the FAA's intent to continue its current

practice of establishing required amounts of insurance in license

orders, reserving the right to make necessary modifications to those

requirements prior to reentry.

The FAA's need for flexibility in setting insurance amounts is

intended to address changes in liability and property risks that may

occur over the multi-year life of an operator license, or if more

specific performance data is learned about a vehicle's performance over

time to warrant reassessment of failure consequences. It is not

intended as a means of shifting risk from the government to industry

after vehicle flight has been initiated.

A parallel requirement to that proposed in Sec. 450.5(b) appears in

14 CFR 440.5(b) and prompted industry concern that the FAA would vary

[[Page 54458]]

requirements mid-flight. Such concerns are unfounded. The FAA intends

to issue and require compliance with reentry insurance requirements

before launch of a reentry vehicle occurs. The FAA does not envision

changed requirements once launch of an RLV or reentry vehicle occurs

but before its reentry is initiated. The agency is aware that it would

probably be difficult at best or prohibitively costly to obtain greater

insurance coverage for reentry in the event of a launch anomaly or on-

orbit situation that may affect reentry accuracy. Under either

scenario, either the FAA or the licensee operating under its own

procedures, may determine that a reentry attempt must be aborted on

orbit if a significant threat to public safety is presented after

launch of the reentry vehicle is completed, as defined in licensing

regulations. A launch or on orbit failure affecting reentry risk is a

reasonably foreseeable event and would be addressed through the

agency's risk-based methodology for establishing insurance

requirements.

As with launch financial responsibility, Sec. 450.5(c) establishes

that a reentry licensee remains responsible for liability, loss or

damage sustained by the United States, even if the licensee has made an

adequate demonstration of coverage under part 450, subject to four

specific exceptions. The four exceptions are as follows: (1) Liability,

loss or damage sustained by the United States results from willful

misconduct by the United States or its agents; (2) covered third-party

claims, as explained in greater detail in the discussion of proposed

Sec. 450.9, arising out of any particular reentry exceed the amount of

required insurance and do not exceed $1.5 billion (as adjusted for

post-January 1, 1989 inflation) above that amount and are payable under

49 U.S.C. 70113 and part 450; (3) loss or damage to government property

covered under Sec. 450.9(e) exceeds the required amount of insurance

and does not result from willful misconduct of the licensee; and (4) in

the event the licensee has no legal liability for claims that exceed

required insurance under Sec. 450.9(c) plus $1.5 billion (as adjusted

for post-January 1, 1989 inflation).

In proposing regulations that parallel Sec. 440.5(c) of part 440,

the FAA continues to hold the licensee responsible for reentry-related

liability within the third tier of risk, that is, liability in excess

of the amount of risk-based insurance established by the agency plus

the amount of indemnification that would be available under 49 U.S.C.

70113 if Congress appropriates funds for that purpose. Industry

concerns over regulatory assignment of liability were registered and

responded to by the agency in the rulemaking covering financial

responsibility for licensed launch activities. See part 440 Final Rule,

63 FR 45592, Aug. 26, 1998. The FAA continues to maintain that the

Government must have a responsible party that it can look to in the

event the Government is confronted with catastrophic liability under

the Outer Space Treaties and believes that it is reasonable to require

participants in launch and reentry activities to absorb the cost of

obtaining additional coverage for the third tier of risk. Such costs

may be distributed among launch and reentry participants, including

customers.

Section 450.5(d) reflects the FAA's regulatory policy that failure

to comply with part 450 requirements can result in license suspension

or revocation as well as civil penalty enforcement action.

Section 450.7--Determination of Maximum Probable Loss

Section 450.7 would extend, in regulations, application of maximum

probable loss methodology to licensed reentry activities. The NPRM on

Financial Responsibility for Licensed Launch Activities, 61 FR 38992-

39021, describes in extensive detail the assumptions and risk

assessment tools employed by the FAA in calculating the maximum

probable loss or MPL that may reasonably be expected to result from a

licensed launch. Persons interested in MPL methodology are referred to

the NPRM, 61 FR at 39004-39007. Because a similar approach to reentry

MPL would be utilized by the agency that explanation is not repeated

here.

In summary, MPL establishes in a dollar amount the value of the

maximum magnitude of loss for bodily injury or property damage that is

sufficiently probable to warrant financial responsibility protection as

a regulatory matter. Separate MPL studies are conducted for government

property loss or damage and for third-party injury, loss or damage

inclusive of government personnel as defined in Sec. 450.3 but not

inclusive of employees of other participants in licensed activity.

The FAA proposes to use the same probability thresholds of

occurrence for reentry as currently apply to launch failure and

accident scenarios and would establish insurance requirements for

consequences falling within those threshold probabilities. They are

defined in Sec. 450.3(11).

A study conducted by the agency and issued in May 1995 confirms

that use of the FAA's MPL methodology in assessing launch risk is

appropriate for reentry and that the threshold probabilities of

occurrence used for launch MPL would be appropriate in determining

reentry MPL. The study, entitled ``Financial Responsibility for Reentry

Vehicle Operations,'' considered a COMET or METEOR capsule-type of

reentry vehicle, as opposed to a reusable launch vehicle; however, the

FAA concludes the study's findings remain equally applicable to RLV

technologies currently under the agency's consideration. In fact,

enhanced maneuverability and controllability of RLVs may result in

lower MPL determinations because of tighter landing footprints and the

ability to compensate for errors introduced due to wind and

environmental factors, among other things. The study is available on

the FAA/AST home page.

An interesting observation made in the study indicates that if an

MPL determination is extremely high in dollar value it may signal that

the proposed activity is too risky from a public safety perspective to

be authorized by the FAA and that additional risk mitigation measures

may be necessary to ensure risks to the public are appropriately

managed.

Contrary to current thinking, the study also assumed that because

an uncontrolled reentry would not be an authorized event it was outside

the scope of the MPL determination. Nevertheless, it did forecast

(properly) that a reentry would not be attempted unless a determination

had been made that the reentry vehicle would land within its designated

landing site at a predetermined probability level. The FAA is planning

to impose regulatory controls that minimize the probability of a random

reentry and would examine a range of failure and accident scenarios,

including any major system failures that fall within the threshold

probability of occurrence, that may cause a reentry to be uncontrolled

or essentially random. Accordingly, the FAA believes that application

of MPL methodology to reentry will result in insurance requirements

that adequately account for maximum probable reentry risks.

With respect to government property considerations in determining

MPL, the NPRM on Financial Responsibility for Licensed Launch

Activities (61 FR 38992, July 25, 1996) provides an elaborate

discussion regarding the nature and extent of property that must be

covered by government property insurance for loss or damage. In

essence, all property of the government, and its contractors and

subcontractors who are involved in launch or reentry services for a

particular launch or reentry, at a

[[Page 54459]]

Federal range facility must be covered in the event of loss or damage.

Government range property includes that which is located on an adjacent

Federal range facility. Government property located off the Federal

range facility is considered third party property because risks to such

property are no greater than risk exposure of other unrelated off-site

property. A licensee's liability policy is expected to respond to

government claims for property loss or damage to property located off

of a Federal range unless the property is involved in the licensed

activity and has been specifically identified in a license as covered

government property for purposes of government property insurance

coverage.

Government property concerns may be less paramount for reentry than

they are currently for launch because of potential use of non-Federal

sites for reentry. Growing interest in RLV development has been matched

by the number of non-Federal entities interested in offering authorized

sites that could support RLV launch and recovery operations. The extent

to which RLV developers would rely upon the safety services and

facilities of Federal ranges to support vehicle reentry and recovery is

not yet known, nor is the willingness of Federal range facilities to

allow unproven reentry vehicles to land on their property. To the

extent government range or other test assets are identified as being at

risk as a result of a licensed reentry, the FAA would require

government property insurance. However, the agency envisions that

reentry sites may be located on private or state-owned land and that

there may be no government property insurance requirement associated

with a particular reentry license.

MPL methodology would be used to establish third-party liability

insurance requirements for licensed reentry activities. The assessment

would not take into account injury, damage or loss to those

nongovernment-related entities participating in licensed reentry

activities (private party reentry participants or PPRPs), including

employees of those entities. Nor would it take into account injury,

damage or loss to nongovernment-related entities involved in the

licensed launch (private party launch participants or PPLPs) that is

associated with or preceded the reentry because, as indicated above,

their participation in the launch makes them sufficiently involved in a

subsequent reentry as to warrant insurance coverage for their resultant

liability to third parties and their participation in the reciprocal

waiver scheme. As a general matter, entities participating in licensed

flight would either be within the scope of required financial

responsibility coverage as involved parties or outside of it as third

parties, for the duration of the mission. With RLV activities, in

particular, it seems difficult and probably undesirable to attempt to

sever or partition, for purposes of insurance and liability, the

different entities from launch or reentry risks. However, consistent

with 14 CFR Part 440, Government personnel, defined as employees of the

United States and its contractors and subcontractors, involved in

launch or reentry services for licensed activities, are in a unique

position inasmuch as they are additional insureds under the required

liability insurance and are also potential claimants against the

liability policy in the event they suffer personal injury, damage or

loss.

Section 450.7(a), as proposed, provides that the MPL determination

forms the basis of financial responsibility requirements imposed on a

reentry licensee in a license order.

Consistent with 49 U.S.C. 70112(c), Sec. 450.7(b) identifies the

90-day period in which the FAA is required to issue an MPL

determination after all information required of the licensee is

submitted to the FAA. As applied to launch licenses, the agency has

experienced significant impediments to its ability to comply with the

90-day requirement because of the time required to obtain information

from other Federal agencies and then to coordinate the results of the

MPL analysis with those agencies. Factors beyond the FAA's control may

affect timely issuance of an MPL determination; however, the agency

will keep licensees or applicants informed of its progress and

anticipated delays.

Section 450.7(c) directs applicants to Appendix A, where

information requirements to support an MPL determination for licensed

reentry activities are located. It also presents a procedural mechanism

whereby a person requesting an MPL determination can certify the

continuing accuracy and applicability of previously provided

information instead of resubmitting data. Changes in data must be

reported to the FAA to ensure the continuing validity of an MPL

determination.

Prospective reentry licensees contemplate RLVs having rapid turn-

around times. RLV developers have urged the agency not to impose

regulatory obstacles, such as reissuance of MPL and insurance

requirements between missions, to their goal of quick re-deployment.

The FAA intends to work with prospective licensees to ensure their

concerns regarding regulatory impediments do not materialize. One

solution may be to suggest to applicants that they propose multiple

reentry sites in applications so that a change in future reentry plans

does not necessitate an additional review period, either for safety or

MPL determination purposes. Of course, this approach requires much more

extensive data submissions on the part of an applicant and may also

slow down the review process for the agency in that it would have

additional safety and risk considerations to evaluate. The FAA also

intends to continue use of its operator license concept once an

applicant demonstrates its qualifications and doing so should also

facilitate the planned frequency of launch and reentry services

envisioned by the industry.

Section 450.7(d) provides that the FAA would amend its MPL

determination before completion of licensed activity if new information

so indicates. As with amendment of financial responsibility

requirements in general, this provision is not intended to allow the

agency to alter requirements mid-flight. Rather, it provides notice to

licensees that requirements may be changed, raised or lowered, when the

FAA determines it is appropriate to do so on the basis of additional

information learned by the agency. Insurance requirements that

accompany an operator license are intended to remain in force for the

life of the license, proposed as a two-year renewable term in the RLV

Licensing Regulations. Section 450.7(d) provides notice that such

requirements may change during the life of the license to reflect

changes in risk or values.

Persons other than prospective reentry licensees may request an MPL

determination for their activity and the FAA would like to accommodate

requests for advisory MPL determinations, as reflected in proposed

Sec. 450.7(e). For example, a reentry site operator may request a

determination. An existing reentry licensee may be contemplating a

change in operations or its designated reentry site but would be

unwilling to formalize its plans in a license amendment application

until it knows whether those changes would significantly alter its

insurance obligations and possibly its costs. Because priority would be

given to actual license applications, no time limit is provided in

which the agency must comply with a request for an MPL determination

that is advisory in nature.

[[Page 54460]]

Section 450.9--Insurance Requirements for Licensed Reentry Activities

Proposed Sec. 450.9 sets forth the two types of insurance a

licensee could be required to obtain as a condition of its reentry

license. Government property insurance would be required if government

range or test assets would be sufficiently exposed to risk of damage or

loss as a result of reentry activities. As a general matter, liability

insurance would always be required to provide coverage to participants

in licensed reentry activities, including licensed launch activities

associated with a reentry, in the event of their legal liability to

third parties, including Government personnel, for injury, damage or

loss. Claims of employees of participants other than the government and

its involved contractors and subcontractors are the responsibility of

their employer, as explained in greater detail under the discussion of

proposed Sec. 450.17, and are not considered in the determination by

the FAA of the amount of liability insurance that must be available to

cover third party claims.

Section 450.9(a) provides that compliance with insurance

requirements or other demonstration of financial responsibility is a

requirement of a reentry license.

As directed by 49 U.S.C. 70112(a)(4), additional insureds covered

by insurance are identified in proposed Sec. 450.9(b). For a licensed

reentry, the FAA would also require that additional insureds include

persons and entities involved in any launch that is associated with a

particular reentry because they, too, risk liability exposure as a

result of their participation in licensed flight in the event of third-

party loss or damage.

Proposed Sec. 450.9(c) establishes that the amount of required

liability insurance for covered third party claims is based upon the

FAA's MPL determination. The amount of insurance that may be required

is limited by statute to the lesser of $500 million or the maximum

available on the world market at reasonable cost. The determination of

reasonable cost is assigned by regulation to the FAA. Covered third

party claims include claims of employees of the government and its

contractors and subcontractors. Covered third party claims exclude

claims of employees of other participants in a licensed reentry event

or RLV mission (PPRPs), including employees of entities involved in a

licensed launch (PPLPs) associated with a particular reentry. Loss or

damage to government property and that of government contractors and

subcontractors other than that for which government property insurance

is required under Sec. 450.9(d) would also be a covered claim under the

liability insurance requirement. For example, a licensed reentry to the

designated reentry site of Vandenberg Air Force Base would include, as

a condition of the license, insurance covering loss or damage to

government property located on Vandenberg Air Force Base. However, if

the reentry vehicle misses the targeted landing point and impacts the

U.S. Post Office in nearby Lompoc, California, the liability policy

would be required to respond to the claim.

Requirements for government property insurance are proposed in

Sec. 450.9(d). It provides that claims by the United States, its

agencies, and its contractors and subcontractors involved in licensed

reentry activities, for property damage or loss at a Federal range

facility that results from the licensed activity must be covered,

absent willful misconduct by the government or its agents causing such

damage or loss. Damage caused by a government contractor or employee

must be covered by the policy. A detailed explanation of the status of

government contractors and subcontractors appears in the supplementary

information accompanying the part 440 Final Rule (63 FR 45592, Aug. 26,

1998) and the reader is referred to that document for further

information. Government property at a Federal range facility includes

property located at an adjacent Federal range facility. Cape Canaveral

Air Station and Kennedy Space Center are an example of adjacent Federal

range facilities.

Section 450.9(e) indicates that Government property insurance

requirements are based upon MPL and are capped by statute at the lesser

of $100 million or the maximum available on the world market. The

regulation would leave the determination of reasonable cost to the

agency.

The CSLA allows licensees to demonstrate financial responsibility

in a manner other than insurance; however, the FAA's experience is that

insurance is the unanimously preferred choice. Where a reentry licensee

opts to use another method of demonstrating financial responsibility,

the FAA would require a detailed explanation of its adequacy, as

indicated in proposed Sec. 450.9(f).

Section 450.11--Duration of Coverage; Modifications

The required duration of insurance coverage must be sufficiently

broad as to cover anomalous situations that result from planned

reentries. Anomalous situations may include premature reentry, delayed

reentry or reentry to a contingency abort location. Accordingly, to

satisfy statutory objectives, the FAA believes that it is necessary and

appropriate to require that insurance coverage be available to respond

to reentry-related claims, including those that arise before

intentional initiation of reentry or descent flight of a reentry

vehicle.

Licensed reentry activities, and as a practical matter licensed

launch activities associated with a reentry, may not commence without

demonstration by the licensee of financial responsibility. Consistent

with the scope of a reentry license, insurance must be in effect any

time licensed reentry activity takes place, including the conduct of

on-orbit reentry readiness procedures and system checks, and remain in

place to cover claims resulting from an errant or aborted reentry.

Under part 440 requirements, for orbital launches, launch insurance

must remain in effect until the later of 30 days following payload

separation or ignition of the vehicle. 14 CFR 440.11(a). As a practical

matter, therefore, to the extent a reentry anomaly is proximately

caused by a licensed launch, insurance would exist under part 440 to

cover its consequences. However, reentry anomalies may occur wholly

independent of a launch, as previously illustrated in examples. A

reentry anomaly could occur after a nominal launch and, absent a causal

relationship to the launch, may not be covered by launch insurance

unless reentry risks are also specifically included in the policy.

Also, some reentry activities may be planned to take place long after a

launch has been concluded, as was the case for the COMET/METEOR

Program. In such cases, insurance must be available to respond to

reentry-related claims that are wholly distinct from launch-related

events.

The FAA proposes to require that reentry insurance remain in place

for a period of 30 days following initiation of reentry flight, with a

caveat. A reentry may be aborted, leaving a vehicle remaining on orbit

where it could pose risk to other space objects or reenter at some

future time. A reentry vehicle that remains on orbit as a result of an

aborted reentry may enter Earth atmosphere due to forces of natural

orbital decay and cause harm on the surface of the Earth. It is

difficult to predict, as a general matter, when such a ``natural

reentry'' will occur, and in any event, it is possible that the vehicle

[[Page 54461]]

would burn up when it enters Earth atmosphere due to atmospheric drag

effects or risk mitigation measures imposed as a condition of a reentry

license.

However, reentry vehicles would be designed to withstand the rigors

of reentry, at least under nominal circumstances, and therefore the FAA

does not equate the risks associated with random reentry of a reentry

vehicle with those associated with an expendable launch vehicle upper

stage that enters Earth atmosphere. In the latter case, it is probable

that the vehicle stage would burn up, although an exceptional case may

occur, such as the fuel tank of a Delta II vehicle that entered Earth

atmosphere through orbital decay several years ago and landed

substantially intact. Risks of intact reentry presented by a random

reentry of a reentry vehicle would be assessed by the FAA as part of

the risk assessment performed to determine whether a reentry mission

may be licensed. As a result of that assessment, the FAA believes it

would be able to determine the point in time at which reentry risks are

sufficiently small such that financial responsibility requirements

would no longer be necessary. Accordingly, the FAA proposes to assess

duration of insurance requirements for abort to orbit situations

through a risk-based assessment that indicates when demonstrable risk

from a random reentry is no longer of sufficient consequence as to

require insurance coverage. A similar approach is used under 14 CFR

440.11(a)(3) in establishing duration of insurance for suborbital

launches. As is true for launch, indemnification would be available

from the first dollar of loss when insurance is no longer required,

assuming other eligibility requirements are satisfied. Therefore,

unlike part 440 requirements for orbital launches, the agency is not

proposing a finite duration of insurance measured from a planned event,

whether or not that event occurs nominally or non-nominally.

The FAA believes that its proposed approach is particularly prudent

and necessary to cover the government's liability under the Outer Space

Treaties, particularly the Liability Convention. Under the Liability

Convention, the Government remains strictly liable for damage on the

ground caused by its space object when it is a launching state.

Under proposed Sec. 450.11(b), the FAA continues its current

practice of prohibiting changes in insurance coverage, including

cancellation, without 30 days notice to the FAA and approval by the

agency. The FAA understands that insurers retain certain rights of

cancellation in their policies; however, insurance may not be cancelled

once licensed activities have commenced until the required duration of

insurance has expired. This requirement is particularly important where

an on orbit abort occurs and insurance would be required to remain in

effect for a significant length of time.

Comments are requested on the FAA's proposed approach to ensuring

financial responsibility for foreseeable reentry risks.

Section 450.13--Standard Conditions of Insurance Coverage

The FAA is proposing that insurance policies satisfy the same terms

and conditions for reentry as apply to insurance policies obtained in

conformance with part 440 requirements. The interested public is

referred to the NPRM on Financial Responsibility Requirements for

Licensed Launch Activities and the part 440 Final Rule for a detailed

explanation of proposed terms. (See 61 FR at 39009-10 and 63 FR at

45614, respectively.)

Section 450.13(a)(2), as proposed, would continue the current

practice of requiring that policy limits apply on a per occurrence

basis.10 This requirement has not been controversial nor has

it presented difficulties in terms of industry ability to comply, to

the agency's knowledge. As a practical matter, an accident that causes

substantial liability or government property damage during preparatory

operations at a launch site is probably one that also causes extensive

damage to the launch vehicle, thereby terminating that particular

launch. An accident that causes substantial liability or government

property damage during flight of the vehicle is also one that

terminates the launch. Accordingly, requiring coverage for the

aggregate of claims on a per occurrence basis has not strained

insurance capacity or raised concerns among underwriters.

---------------------------------------------------------------------------

\10\ Financial responsibility requirements for licensed launch

activities provide that insurance policy limits must apply

separately to each occurrence, and that for each occurrence, policy

limits must apply to the total of claims arising out of the licensed

activity in connection with any particular launch. 14 CFR

440.13(a)(2).

---------------------------------------------------------------------------

At the October 1998 meeting of the Risk Management Working Group

(RMWG) of the FAA's Commercial Space Transportation Advisory Committee

or COMSTAC, one insurance broker noted that RLV missions present

underwriting difficulties that do not exist in underwriting ELV risks.

Unlike ELV missions, RLVs present opportunities for multiple

occurrences during a single mission, even if one or more flight phases

are accomplished successfully. For example, Kistler Aerospace

Corporation utilizes a two-stage launch technology. The first stage

separates and is intended to return to the launch site, while the

second stage continues to orbit, enters Earth orbit, and approximately

24 hours later returns to a reentry site on Earth. A covered occurrence

could take place as a result of return of the first stage to the launch

site, anomalous payload deployment by the Kistler vehicle, and upon

final reentry to the designated reentry site. Thus, a combination of

occurrences could result in claims in excess of the aggregate limits of

the policy, assuming a single policy covering launch and reentry is

obtained for the entire mission. According to the broker, underwriters

have expressed unwillingness to insure the uncapped liability which

could result from requiring coverage on a per occurrence basis.

The FAA proposes to separate launch from reentry risk in

prescribing financial responsibility for a single RLV mission. Doing so

may have the added benefit of limiting the combination of occurrences

that may take place during a particular flight phase and the amount of

financial responsibility required to cover all such occurrences. MPL

methodology would take into account the probability of multiple

occurrences during a single flight phase and would reflect the

aggregate value of losses that may result during each phase if multiple

events are found to be sufficiently probable. Another possible approach

to RLV mission financial responsibility may lead the FAA to aggregate

its MPL determinations for each flight phase into an aggregate value

that must be insured for the duration of an RLV mission, thereby

capping liability limits of insurance, albeit at a potentially high

level (although it cannot exceed $500 million or the amount available

on the world market at reasonable rates for launch and for reentry).

The FAA seeks public comment on possible solutions that would ensure

adequate coverage is provided while not depleting insurance market

capacity. In commenting on this issue, the public is reminded that

under the statute, the RLV industry is expected to cover launch risk up

to the maximum allowable MPL, as well as reentry risk up to the same

amount. The FAA's proposed mission approach to licensing RLVs is not

intended to increase financial risk to the government.

Consistent with part 440 requirements, proposed Sec. 450.13(a)(5)

would require that exclusions from

[[Page 54462]]

coverage be specified in insurance certificates submitted to the FAA as

evidence of compliance with financial responsibility. Claims resulting

from excluded risks that are ``usual'' are eligible for indemnification

under the terms of 49 U.S.C. 70113 from the first dollar of loss, under

procedures set forth in proposed Sec. 450.19. Accordingly, the FAA

requests information, in advance of the first licensed reentry,

concerning the kinds of risks for which insurance is not commercially

available at reasonable rates. A complete discussion of ``usual''

exclusions and the FAA's approach to addressing such exclusions is

found in the part 440 Final Rule at 63 FR 45617.

Section 450.13(a)(8) appears different from its companion

requirement for licensed launch activities, 14 CFR 440.13(a)(8). It

addresses certain qualifications of insurers under these requirements.

Following issuance of final rules governing financial

responsibility for licensed launch activities, the agency learned that

a great many insurers involved in insuring aviation and aerospace risks

are not licensed to do business in any State, territory, possession of

the United States, or the District of Columbia, as stipulated in

Sec. 440.13(a)(8). The reason for this requirement is to assure that

additional insureds under a policy can enforce legal rights against the

insurer within the United States. It is not intended as a protectionist

device to restrict or impede access to overseas insurance markets. The

FAA has issued an Advisory Circular, AC No. 440-01, indicating that a

licensee is in compliance with Sec. 440.13(a)(8) as long as each policy

of insurance contains a service of suit clause in which the insurer

agrees to submit to the jurisdiction of a court of competent

jurisdiction within the United States and designates an authorized

agent within the United States for service of legal process on the

insurer. The FAA understands that given the terms of the Advisory

Circular licensees are able to comply without difficulty with the terms

of Sec. 440.13(a)(8). Accordingly, the FAA will accept as compliant

with Sec. 450.13(a)(8) insurance policies that contain a service of

suit clause and designation of agent provision and this is expressly

set forth in the proposed requirement in lieu of an advisory circular.

Section 450.15--Demonstration of Compliance

Under proposed Sec. 450.15, a reentry licensee would be required to

demonstrate compliance with part 450 financial responsibility and

allocation of risk requirements in a manner comparable to that

currently required of launch licensees under part 440.

Reentry proposals presented to the FAA as part of pre-application

consultations include RLVs designed to reenter after a brief stay on

orbit. Accordingly, evidence of reentry insurance must be submitted to

and reviewed by the FAA in advance of the licensed launch that will

place the vehicle in space. For this reason, the FAA proposes to

require satisfaction of financial responsibility requirements under

part 450 at the same time financial responsibility for launch is

demonstrated. Timeframes for submission of proof of insurance and the

required reciprocal waiver of claims and assumption of responsibility

agreement under Sec. 450.15 would therefore be the same as for licensed

launches and would consist of the same elements. These include a

licensee's certification of compliance with applicable license orders,

filing of insurance certificates or other evidence of financial

responsibility, certification that exclusions from coverage are usual

and that insurance covering the excluded risks is not commercially

available at reasonable rates, submission of the reciprocal waiver of

claims agreement in accordance with Sec. 450.17, and an opinion of the

licensee's insurance broker that insurance obtained on behalf of the

licensee complies with applicable requirements.

Section 450.17--Reciprocal Waiver of Claims Requirements and Appendix B

The Commercial Space Act of 1998 extends to reentry licensees and

participants in reentry activities requirements for entering into

reciprocal waivers of claims comparable to those imposed on launch

licensees and participants in launch activities. The scope of required

waivers for licensed launch activities and the responsibilities assumed

by each signatory to a reciprocal waiver agreement are explained at

length in the part 440 Final Rule (63 FR 45592, Aug. 26, 1998) and the

FAA's detailed rationale need not be repeated in this document.

In summary, each participant in licensed launch or reentry

activities is directed to enter into a mutual or reciprocal waiver of

claims whereby each party agrees to waive claims it may have against

the other participants for property damage or loss it may sustain and

agrees to be responsible for property damage or loss it sustains as a

result of licensed activities. Each participant is therefore

foreclosed, or estopped, from asserting claims for property damage or

loss against the other participants, and each is relieved of the threat

and cost of inter-party litigation. When the government is involved in

licensed activities, however, its waiver of claims is limited to

amounts in excess of insurance required to cover claims for damage or

loss to government property. Each participant in licensed activities

further agrees to be responsible for personal injury, property damage

or loss sustained by its own employees as a result of licensed

activities. The final rules issued by the FAA under part 440 clarify

that, except for U.S. Government participants including government

contractors and subcontractors, the obligation of each participant in

licensed activities to assume responsibility for such losses is a

contractual obligation to indemnify and hold harmless the other

participants in the event of losses sustained by one's own employee.

The reciprocal waiver of claims agreement presented in 14 CFR part 440,

appendix B, reflects this contractual undertaking. Therefore, claims of

employees of the various participants in licensed activities, other

than those of Government personnel as defined in the regulations fall

outside the scope of liability insurance coverage required under the

statute and are not eligible for indemnification as third party claims.

Government personnel are treated differently, as explained in the part

440 rulemaking, because of limitations on the Government's ability to

accept an unfunded contingent liability, and therefore claims of

Government personnel are handled as third party claims to which a

licensee's liability policy must respond.

The FAA will require a reciprocal waiver of claims agreement

resembling that presented in 14 CFR part 440, appendix B, which

attempts to fashion a single agreement covering all participants in

related launch and reentry operations. Although the proposed part

focuses upon licensed reentry activities, the FAA anticipates that most

licensed reentry activity will involve reentry vehicles that are RLVs

and has attempted to design a reciprocal waiver of claims agreement

that accommodates both RLVs and other reentries. Participants in a

licensed reentry may suffer damage or loss and their employees may

suffer losses through their involvement in the licensed launch campaign

required to place a reentry vehicle or payload in Earth orbit or outer

space and all such participants would be included in the reciprocal

waiver scheme to accomplish its intended objective of limiting the risk

of inter-party litigation. Where a licensed reentry is intended to

occur

[[Page 54463]]

sufficiently independently of the launch that placed the reentry

vehicle in space, it may be possible to separate launch participants

from reentry participants, and the FAA would address those situations

on a case-by-case basis. For the near-term, the agency is proposing to

utilize a form of agreement that encompasses both launch and reentry

participants. The form of agreement proposed in part 450 reflects the

agency's approach by referring to ``licensed activities'' and

incorporating the broad definitions of ``customer'' and ``contractors

and subcontractors'' provided in the proposed regulations. Where the

identity of the customer for a licensed reentry is different from that

for a launch of an RLV associated with the conduct of a reentry, both

customers must sign the reciprocal waiver of claims agreement.

The reciprocal waiver of claims agreement is intended to be broadly

construed and cover claims regardless of fault, but does not replace

contractual rights and remedies negotiated by the parties in good faith

and for consideration, such as reflight guarantees or replacement

missions. In the part 440 Final Rule, the FAA indicated that only

claims resulting from willful misconduct are necessarily removed from

the reciprocal waiver and declined to remove gross negligence from the

statutory waiver scheme as a matter of regulation. Since issuance of

the part 440 Final Rule, however, the FAA has learned of reluctance

among contractors, subcontractors and customers to include a waiver of

gross negligence leaving participants in licensed launches to negotiate

coverage for gross negligence-based claims to resolve any remaining

ambiguity and to avoid litigation. Rather than facilitate the prospect

of future litigation, the FAA now intends to foreclose that possibility

by continuing to employ a no-fault, no subrogation waiver of claims

agreement comparable to that utilized for licensed launches. In doing

so, the agency affirmatively states that claims for gross negligence

are intended to be comprehended by the reciprocal waiver of claims

agreement in order to fulfill its statutory intent and purpose. The

only exception is willful misconduct by a participant. The FAA believes

that with the sole exception of willful misconduct, all fault-based

claims, including gross negligence, must be waived in order to

satisfactorily fulfill the intent of Congress in legislating a

comprehensive reciprocal waiver scheme and foreclose erosion of its

effectiveness through allegations of gross negligence.

A second concern has also come to the FAA's attention since

issuance of the part 440 Final Rule. As a matter of convenience and to

relieve regulatory burdens, the FAA implements statutory reciprocal

waiver requirements by executing an agreement with the licensee and its

customer and requiring that each of them pass on, or flow down, to

their contractors and subcontractors responsibilities that must be

accepted under the terms of the agreement. The FAA has learned that

customers and contractors of launch participants have been reluctant to

comply with flow down requirements of the reciprocal waiver of claims

agreement. Although the form of agreement utilized by the FAA provides

relief, through an indemnification provision, to a participant that

suffers liability as a result of the failure of a signatory to

implement the agreement properly, the FAA reminds participants that

such relief measures are not intended to be used as an option in lieu

of compliance with agreement requirements. Participants in licensed

launch and reentry activities are directed by 49 U.S.C. 70112(b) to

enter into such an agreement with the government and with each other.

The FAA has qualified the requirement by noting that ``(o)nly those

participants who have their personnel or property involved in licensed

launch (or reentry) activities, and who may make claims against other

participants as a result of loss or damage sustained by their personnel

or (to their) property in the event of an accident, should be expected

to enter into reciprocal waivers of claims.'' 61 FR at 39012. For such

entities, participation is not intended to be elective. Failure to

comply may subject a participant in licensed launch or reentry

activities to enforcement proceedings by the FAA.

Section 450.19--United States Payment of Excess Third-Party Liability

Claims

Proposed Sec. 450.19 would set forth in a regulation the commitment

of the U.S. Government and the procedures by which it accepts

responsibility for satisfying successful third party claims against

reentry and associated launch participants to the extent claims are

covered claims and exceed required insurance up to $1.5 billion (as

adjusted for post-January 1, 1989 inflation) above that amount, absent

willful misconduct by the party on whose behalf payment of the third-

party claim is sought.

Following expiration of the policy period required under the

regulations, or if coverage is not available because of a ``usual''

exclusion, the Government undertakes responsibility for third-party

claims from the first dollar of loss, as long as the claim is eligible

for indemnification. According to House Science Committee report

language, a clear causal nexus must exist between the licensed activity

and the claim to give rise to the government's obligations. Absent this

causal nexus, the legally liable party would be fully responsible for

satisfying claims and, in the event of Government liability under a

treaty obligation, the Government could pursue contribution from the

responsible party. As previously noted, the interested public may refer

to the part 440 Final Rule (63 FR 45592, Aug. 26, 1998) for a

discussion of the FAA's approach to ``usual'' exclusions.

Paperwork Reduction Act

This proposal contains information collection requirements. As

required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)),

the Department of Transportation has submitted the information

collection requirements associated with this proposal to the Office of

Management and Budget for its review.

Title: Financial Requirements for Licensed Reentry Activities.

The FAA is proposing to establish financial responsibility

requirements covering risks associated with the licensed reentry of a

reentry vehicle. The FAA would determine, on an individual basis, the

amount of required insurance or other form of financial responsibility

after examining the risks associated with a particular reentry vehicle,

its operational capabilities and designated reentry site. This proposal

provides general rules for demonstrating compliance with insurance

requirements and implementing statutory-based Government/industry risk

sharing provisions in a manner comparable to that currently utilized

for commercial launches.

The required information will aid the FAA in establishing financial

responsibility requirements covering risks associated with the licensed

reentry of a reentry vehicle. The information to be collected supports

FAA determining the amount of required liability insurance for a

reentry operator after examining the risks associated with an reentry

vehicle, its operational capabilities, and its designated reentry site.

Data collected for the reentry case closely parallel information

associated with financial responsibilities for licensed launch

activities. The frequency of required submissions, therefore, will

depend upon the number of prospective reentry vehicle operators

authorized to conduct licensed reentry operations.

[[Page 54464]]

The Respondents are all licensees authorized to conduct licensed

reentry activities. ESTIMATED AVERAGE ANNUAL BURDEN 1566.

The agency is soliciting comments to: (1) Evaluate whether the

proposed collection of information is necessary for the proper

performance of the functions of the agency, including whether the

information will have practical utility; (2) evaluate the accuracy of

the agency's estimate of the burden; (3) enhance the quality, utility,

and clarity of the information to be collected; and (4) minimize the

burden of the collection of information on those who are to respond,

including through the use of appropriate automated, electronic,

mechanical, or other technological collection techniques or other forms

of information technology (for example, permitting electronic

submission of responses).

Individuals and organizations may submit comments on the

information collection requirements by December 6, 1999, and should

direct them to the address listed in the ADDRESSES section of this

document.

According to the regulations implementing the Paperwork Reduction

Act of 1995 (5 CFR 1320.8(b)(2)(vi)), an agency may not conduct or

sponsor, and a person is not required to respond to a collection of

information unless it displays a currently valid OMB control number.

The OMB control number for this information collection will be

published in the Federal Register after it is approved by the Office of

Management and Budget.

Regulatory Evaluation Summary

Proposed and final rule changes to Federal regulations must undergo

several economic analyses. First, Executive Order 12866 directs that

each Federal agency shall propose or adopt a regulation only upon a

reasoned determination that the benefits of the intended regulation

justify its costs. Second, the Regulatory Flexibility Act of 1980, as

amended in May 1996, requires agencies to analyze the economic effect

of regulatory changes on small entities. Third, the Office of

Management and Budget directs agencies to assess the effect of

regulatory changes on international trade.

In conducting these analyses, the FAA has determined that the

proposed rule would generate benefits that justify its costs and is ``a

non-significant regulatory action'' as defined in the Executive Order

and the Department of Transportation Regulatory Policies and

Procedures. The proposed rule is not a significant action because of

public interest nor on the basis of economic impacts. The proposed rule

is not expected to have a significant impact on a substantial number of

small entities and would not constitute a barrier to international

trade. In addition, this proposed rule does not contain Federal

intergovernmental or private sector mandates. Therefore, the

requirements of Title II of the Unfunded Mandates Reform Act of 1995 do

not apply. These analyses, available in the docket, are summarized

below.

Baseline for Analysis

For the purpose of this evaluation, the baseline is defined as

industry practice that existed prior to the Commercial Space Act of

October 1998 (CSA). The CSA authorizes the Secretary of the U.S.

Department of Transportation to require reentry licensees to meet

financial responsibility requirements, generally satisfied by acquiring

liability insurance to cover those risks imposed by their intended

reentry activities. Such requirements would be implemented in the form

of this proposed rule. The baseline should represent routine industry

practice in the absence of any proposed rulemaking requirements by FAA

and prior to statutory authority received from Congress.

Costs

Reentry commercial space operators are likely to also be launch

activity operators, given that RLVs will, for the foreseeable future,

constitute the bulk of reentry vehicle activity. Since reentry

operators would repeat much of the compliance process for the recently

released final rule for launch financial responsibility, cost-saving

knowledge will be gained that would be helpful in meeting similar

proposed requirements for reentry financial responsibility. Even though

reentry activities take place at different times than launch

activities, still the personnel involved in both activities are

expected to have acquired a high level of proficiency and cost-saving

practices. The potential cost of the proposed reentry financial

responsibility requirements are expected to be lower than they

otherwise would be, as the result of knowledge gained from launch

activities by such operators.

The proposed rule should result in a stronger, more stable,

commercial space transportation industry by formalizing the statute

from the CSA into regulation. Limiting risk based on maximum probable

loss (MPL) should result in greater certainty of the potential

liability costs (and resulting lower business risk) to commercial space

transportation firms. The Federal Aviation Administration defines MPL

as the tool that establishes the dollar value of the maximum magnitude

of loss among probable accidental events causing casualties or property

damage; the accidental event in question must be sufficiently probable

to warrant financial responsibility protection.

The proposed rule would potentially impose costs on U.S. commercial

space reentry operators and the U.S. government as the result of these

two requirements.

Insurance Requirements for Licensed Reentry Activities.

In accordance with the Statute, the proposed rule would require U.S.

licensed reentry commercial space operators to acquire insurance to

cover possible damage or loss of Government property. The licensee

would also be required to obtain insurance to cover possible

liability to participants in reentry activities in the event of

death, injury, damage or loss to third parties (including Government

personnel). These requirements also include the duration of

insurance.

Provisions Requiring Private Party Participants in

Licensed Activities To Waive Claims Against One Another. The

proposed rule would require that potentially impacted operators

enter into cross-waiver agreements with each other. Specifically,

the private parties in licensed activities sign waivers by which the

parties agree to forfeit the right to sue each other for damages or

injuries associated with the activities. The licensee not only

assumes responsibility for its own losses, but now also assumes

responsibility for claims of its contractors and subcontractors

against other private party participants in the event the cross-

waiver requirement has not been properly applied to those parties.

The proposed 30-day duration of insurance coverage following a

planned reentry may impose additional costs on reentry operators. Such

costs are not expected to be significant since potential 30-day costs

for reentry would be nearly the same as an existing requirement for

launch activity, and reentry insurance coverage falls within the

typical period of coverage routinely used by the commercial space

industry. The shifting of expected costs above MPL of damage and loss

claims or of injury claims from the licensees to the Government would

also aid the commercial space transportation industry. The shifting of

these costs onto the Government would relieve the licensees of the need

to insure for these claims and would also demonstrate U.S. government

support for the commercial space transportation industry. The cross-

waiver provisions of the proposed rule should lower any costs of

litigation among private party participants in licensed activities. The

proposed requirement for cross-waivers limits the risk of liability to

others in licensed

[[Page 54465]]

activities and results in a more certain business environment (or lower

business risk) for all involved parties.

The FAA estimates that the proposed rule would result in the

reallocation of expected liability insurance costs from licensees to

the Federal government of about $4,200 ($3,700, discounted) over a

five-year period. This estimate is based in part upon work by Princeton

Synergetics Inc. (PSI), under contract with the FAA, which analyzed the

consequences of the U.S. government's assumption of risk exposure of up

to $1.5 billion (subject to adjustment for inflation after January 1,

1989) for third-party claims. The additional administrative (or

paperwork cost) to the Federal government associated with FAA's

responsibilities under the proposed rule is estimated at $7,600

($5,800, discounted) over five years. Thus, the total cost to the FAA

would be about $11,800 ($4,200+$7,600) over the next 5 years, as the

result of the proposed rule. This cost estimate represents the amount

that would be incurred by the FAA for financial responsibility aspects

of the licensing process (which take into account those proposed

provisions to protect private party participants against claims by

third parties and provisions of cross-waivers).

Benefits

The primary benefit of the proposed rule is that it would support

and promote U.S. commercial space reentry activity within the United

States and by U.S. firms. It is clearly in the interest of the United

States to remain in a worldwide position of leadership in commercial

space flight. Specifically, the proposed rule would ensure that the

United States reentry operators are not subject to a competitive trade

disadvantage by their rivals abroad as a result of their inability to

acquire adequate liability insurance to cover risks associated with

their intended reentry activities.

This proposed rule would also generate other potential qualitative

benefits in two forms. First, in terms of third parties, this proposed

rule would provide added assurance that any damages to property or

casualty losses (e.g., fatalities or serious injuries) resulting from

reentry activities would be adequately covered either by commercial

liability insurance purchased by reentry operators or by the U.S.

government. This potential benefit would be generated by the proposed

requirement that all reentry operators have liability insurance

coverage up to the MPL amount for risks resulting from their intended

reentry activities and statutory risk sharing provisions whereby the

U.S. government provides indemnification up to $1.5 billion (subject to

adjustment for inflation after January 1, 1989) above the required

insurance by this proposal. And last, the proposed cross-waiver

requirement would also generate potential cost-savings by likely

mitigating or eliminating litigation costs between reentry

participants.

Initial Regulatory Flexibility Determination

The Regulatory Flexibility Act of 1980 establishes ``as a principle

of regulatory issuance that agencies shall endeavor, consistent with

the objective of the proposed rule and of applicable statutes, to fit

regulatory and informational requirements to the scale of the business,

organizations, and governmental jurisdictions subject to regulation.''

To achieve that principle, the Act requires agencies to solicit and

consider flexible regulatory proposals and to explain the rationale for

their actions. The Act covers a wide range of small entities, including

small businesses, not-for-profit organizations and small governmental

jurisdictions.

Agencies must perform a review to determine whether a proposed or

final rule will have a significant economic impact on a substantial

number of small entities. If the determination is that it will, the

agency must prepare a regulatory flexibility analysis (RFA) as

described in the Act.

However, if an agency determines that a proposed or final rule is

not expected to have a significant economic impact on a substantial

number of small entities, section 605(b) of the 1980 Act provides that

the head of the agency may so certify and an RFA is not required. The

certification must include a statement providing the factual basis for

this determination, and the reasoning should be clear.

The Small Business Administration has defined small business

entities relating to space vehicles (Standard Industrial Codes 3761,

3764, and 3769) as entities comprising fewer than 1,000 employees. The

FAA has been unable to determine the extent to which the proposed rule

would impact the five commercial space reentry entities currently

developing reentry technology, due to the lack of information for the

required cost of insurance, as explained previously in the cost section

of this evaluation. The proposed rule could impose additional costs on

potential small reentry operators in the form of higher insurance

requirements (which often result in higher premiums), as the result of

the proposed requirement to cover MPL for both third party liability

and Government property. On the other hand, the proposed requirement

could be partially offset or entirely offset by the potential cost-

savings from the federal Government's statutory risk sharing

indemnification feature of the proposed rule. This feature would shift

the cost of insurance coverage from the licensee for any liability

beyond MPL after 30 days, up to $1.5 billion (subject to adjustment for

inflation after January 1, 1989). This cost-savings is estimated to be

at least $4,200 for all of the potentially affected operators over the

5-year period (2000-2004). Still, with some degree of uncertainty, this

information would suggest that the potential cost of compliance for

reentry small operators might not be significant.

Despite the absence of quantitative cost information for potential

reentry licensees and pursuant to the Regulatory Flexibility Act (5

U.S.C. 605(b)), the FAA certifies with reasonable certainty that the

proposed rule would not impose a significant economic impact on a

substantial number of small entities. While there maybe significant

costs incurred by some operators, such costs are not expected to impact

a substantial number of them. Since there is no cost of compliance

information available to derive a quantitative cost estimate, there is

still uncertanity about compliance costs. Because of this uncertainty,

the FAA solicits comments from the commercial space reentry operators

as to the net cost of compliance with the proposed rule. The FAA also

solicits comments from affected entities with respect to this finding

and determination. All comments must be clear and well documented.

International Trade Impact Assessment

The proposed rule contains revisions to commercial space

transportation licensing regulations that would not constitute a

barrier to international trade, including the export of domestic goods

and services out of the United States. As noted in the benefits section

of this evaluation, the proposed rule would implement statutory

provisions such as measures aimed at strengthening the competitive

position of U.S. reentry operators by allowing the U.S. government to

share risks of additional liability insurance for reentry activity.

This practice is done in other countries around the world for launch

operators who compete with U.S. launch operators. The proposed rule

would ensure that U.S. reentry operators would remain competitive with

their counterparts abroad. For this reason, the

[[Page 54466]]

proposed rule is not expected to place domestic commercial space

reentry operators at a competitive trade disadvantage with respect to

foreign interests competing for similar business in international

markets. It would also not hinder the ability of foreign commercial

space rivals to compete in the United States. Therefore, the proposed

rule is neither expected to affect trade opportunities of U.S.

commercial space reentry doing business abroad nor would it adversely

impact the trade opportunities of foreign firms doing business in the

United States. The FAA invites comments on the validity of this

assertion and any potential impacts related thereto.

Federalism Implications

The regulations proposed herein will not have a substantial direct

effects on the states, on the relationship between the national

government and the states, or on the distribution of power and

responsibilities among the various levels of government. Therefore, in

accordance with Executive Order 12612, it is determined that this

proposal would not have sufficient federalism implications to warrant

the preparation of a Federalism Assessment.

Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995, enacted as

Public Law 104-4 on March 22, 1995, requires each Federal agency, to

the extent permitted by law, to prepare a written assessment of the

effects of any Federal mandate upon State, local, and tribal

governments, in the aggregate, or by the private sector, of $100

million or more (adjusted annually for inflation) in any one year. In

1998 dollars, this estimate of $100 million translates into $105

million using the GDP implicit price deflators for 1995 and 1998.

Section 204(a) of the Act, Title 2 of the United States Code 1534(a),

requires the Federal agency to develop an effectiveness process to

permit timely input by elected officers (or their designees) of State,

local, and tribal governments on a proposed ``significant

intergovernmental mandate.'' A significant intergovernmental mandate

under the Act is any provision in a Federal agency regulation that

would impose an enforceable duty upon State, local, and tribal

governments, in the aggregate, of $100 million (adjusted annually for

inflation) in any one year. Section 203 of the Act, Title 2 of the

United States Code 1533, which supplements section 204(a), provides

that before establishing any regulatory requirements that might

significantly or uniquely affect small governments, the agency shall

have developed a plan that, among other things, provides for notice to

potentially affected small governments, if any, and for a meaningful

and timely opportunity for any affected small governments to provide

input in the development of proposed rules.

Based on the evaluation and impacts reported herein, the proposed

rule is not expected to meet the $105 million per year cost threshold.

Consequently, it would not impose a significant cost on or uniquely

affect small governments. Therefore, the requirements of Title II of

the Unfunded Mandates Reform Act of 1995 do not apply to the proposed

regulation.

Environmental Assessment

FAA Order 1050.1D defines FAA actions that may be categorically

excluded from preparation of a National Environmental Policy Act (NEPA)

environmental assessment (EA) or environmental impact statement (EIS).

In accordance with FAA Order 1050.1D, appendix 4, paragraph 4(i),

regulatory documents which cover administrative or procedural

requirements qualify for a categorical exclusion.

Energy Impact

The energy impact of the rulemaking action has been assessed in

accordance with the Energy Policy and Conservation Act (EPCA) and

Public Law 94-163, as amended (42 U.S.C. 6362). It has been determined

that it is not a major regulatory action under the provisions of the

EPCA.

List of Subjects in 14 CFR Part 450

Armed forces; Claims; Federal building and facilities; Government

property; Indemnity payments; Insurance; Reporting and recordkeeping

requirements; Rockets; Space transportation and exploration.

Proposed Amendments

In consideration of the foregoing, the Federal Aviation

Administration proposes to amend Chapter III of title 14 of the Code of

Federal Regulations in one of the following two ways:

1. Subchapter C of Chapter III, Title 14, Code of Federal

Regulations, would be amended by revising Part 440 to include the

Financial Responsibility Requirements for Licensed Reentry Activities:

or

2. Subchapter C of Chapter III, Title 14, Code of Federal

Regulations, would be amended by adding a new Part 450 to read as

follows:

PART 450--FINANCIAL RESPONSIBILITY

Subpart A--Financial Responsibility for Licensed Reentry Activities

Sec.

450.1 Scope of part; basis.

450.3 Definitions.

450.5 General.

450.7 Determination of maximum probable loss.

450.9 Insurance requirements for licensed reentry activities.

450.11 Duration of coverage; modifications.

450.13 Standard conditions of insurance coverage.

450.15 Demonstration of compliance.

450.17 Reciprocal waiver of claims requirements.

450.19 United States payment of excess third-party liability

claims.

Appendix A to Part 450--Information Requirements for Obtaining a

Maximum Probable Loss Determination for Licensed Reentry Activities.

Appendix B to Part 450--Agreement for Waiver of Claims and

Assumption of Responsibility.

Authority: 49 U.S.C. 70101-70121; 49 CFR 1.47.

Subpart A Financial Responsibility for Licensed Reentry Activities

Sec. 450.1 Scope of part; basis.

This part sets forth financial responsibility and allocation of

risk requirements applicable to commercial space reentry activities

that are authorized to be conducted under a license issued pursuant to

this subchapter.

Sec. 450.3 Definitions.

(a) For purposes of this part--

Bodily injury means physical injury, sickness, disease, disability,

shock, mental anguish, or mental injury sustained by any person,

including death.

Contractors and subcontractors means those entities that are

involved at any tier, directly or indirectly, in licensed reentry

activities, and includes suppliers of property and services, and the

component manufacturers of a reentry vehicle or payload. Contractors

and subcontractors include those entities as defined in

Sec. 440.3(a)(2) of this chapter involved in licensed launch activities

associated with a particular reentry.

Customer means:

(1) A person who procures reentry services from a licensee or

launch services associated with a particular reentry;

(2) Any person to whom the customer has sold, leased, assigned, or

otherwise transferred its rights in the payload (or any part thereof),

to be reentered by the

[[Page 54467]]

licensee, including a conditional sale, lease, assignment, or transfer

of rights.

(3) Any person who has placed property on board the payload for

reentry or payload services; and any person to whom the customer has

transferred its rights to such services.

Federal range facility means a Government-owned installation at

which launches or reentries take place.

Financial responsibility means statutorily required financial

ability to satisfy liability as required under 49 U.S.C. 70101-70121.

Government personnel means employees of the United States, its

agencies, and its contractors and subcontractors, involved in reentry

services for licensed reentry activities or launch services for

licensed launch activities associated with a particular reentry.

Employees of the United States include members of the Armed Forces of

the United States.

Hazardous operations means activities, processes, and procedures

that, because of the nature of the equipment, facilities, personnel, or

environment involved or function being performed, may result in bodily

injury or property damage.

Liability means a legal obligation to pay claims for bodily injury

or property damage resulting from licensed reentry activities.

License means an authorization to conduct licensed reentry

activities, issued by the Office under this subchapter.

Licensed reentry activities means the reentry of a reentry vehicle,

including a reusable launch vehicle (RLV), as defined in a regulation

or license issued by the Office and carried out pursuant to a license.

Maximum probable loss (MPL) means the greatest dollar amount of

loss for bodily injury or property damage that is reasonably expected

to result from licensed reentry activities;

(1) Losses to third parties, excluding Government personnel and

other launch or reentry participants' employees involved in licensed

reentry activities, that are reasonably expected to result from

licensed reentry activities are those having a probability of

occurrence on the order of no less than one in ten million.

(2) Losses to Government property and Government personnel, as

defined in this section, that are reasonably expected to result from

licensed reentry activities are those having a probability of

occurrence on the order of no less than one in one hundred thousand.

Office means the Associate Administrator for Commercial Space

Transportation of the Federal Aviation Administration, U. S. Department

of Transportation.

Property damage means partial or total destruction, impairment, or

loss of tangible property, real or personal.

Regulations means the Commercial Space Transportation Licensing

Regulations, codified at 14 CFR Ch. III.

Third party means:

(1) Any person other than:

(i) The United States, its agencies, and its contractors and

subcontractors involved in reentry services for licensed reentry

activities or launch services for licensed launch activities associated

with a particular reentry;

(ii) The licensee and its contractors and subcontractors involved

in reentry services for licensed reentry activities or launch services

for licensed launch activities associated with a particular reentry;

and

(iii) The customer and its contractors and subcontractors involved

in reentry services for licensed reentry activities or launch services

for licensed launch activities associated with a particular reentry.

(2) Government personnel, as defined in this section, are third

parties.

United States means the United States Government, including its

agencies.

(b) Except as otherwise provided in this section, any term used in

this part and defined in 49 U.S.C. 70101-70121 or in Sec. 401.5 of this

chapter shall have the meaning contained therein.

Sec. 450.5 General.

(a) No person shall commence or conduct reentry activities that

require a license unless that person has obtained a license and fully

demonstrated compliance with the financial responsibility and

allocation of risk requirements set forth in this part.

(b) The Office shall prescribe the amount of financial

responsibility a licensee is required to obtain and any additions to or

modifications of the amount in a license order issued concurrent with

or subsequent to the issuance of a license.

(c) Demonstration of financial responsibility under this part shall

not relieve the licensee of ultimate responsibility for liability,

loss, or damage sustained by the United States resulting from licensed

reentry activities, except to the extent that:

(1) Liability, loss, or damage sustained by the United States

results from willful misconduct of the United States or its agents;

(2) Covered claims of third parties for bodily injury or property

damage arising out of any particular reentry exceed the amount of

financial responsibility required under Sec. 450.9(c) of this part and

do not exceed $1,500,000,000 (as adjusted for inflation occurring after

January 1, 1989) above such amount, and are payable pursuant to 49

U.S.C. 70113 and Sec. 450.19 of this part. Claims of employees of

entities listed in Sec. 450.3(a) in the definition of third party, in

paragraphs (1)(ii) and (1)(iii) of this part for bodily injury or

property damage are not covered claims;

(3) Covered claims for property loss or damage exceed the amount of

financial responsibility required under Sec. 450.9(e) of this part and

do not result from willful misconduct of the licensee; or

(4) The licensee has no liability for covered claims by third

parties for bodily injury or property damage arising out of any

particular reentry that exceed $1,500,000,000 (as adjusted for

inflation occurring after January 1, 1989) above the amount of

financial responsibility required under Sec. 450.9(c) of this part.

(d) A licensee's failure to comply with the requirements in this

part may result in suspension or revocation of a license, and subjects

the licensee to civil penalties as provided in part 405 of this

chapter.

Sec. 450.7 Determination of maximum probable loss.

(a) The Office shall determine the maximum probable loss (MPL) from

covered claims by a third party for bodily injury or property damage,

and the United States, its agencies, and its contractors and

subcontractors for covered property damage or loss, resulting from

licensed reentry activities. The maximum probable loss determination

forms the basis for financial responsibility requirements issued in a

license order.

(b) The Office issues its determination of maximum probable loss no

later than ninety days after a licensee or transferee has requested a

determination and submitted all information required by the Office to

make the determination. The Office shall consult with Federal agencies

that are involved in, or whose personnel or property are exposed to

risk of damage or loss as a result of, licensed reentry activities

before issuing a license order prescribing financial responsibility

requirements and shall notify the licensee or transferee if interagency

consultation may delay issuance of the MPL determination.

(c) Information requirements for obtaining a maximum probable loss

determination are set forth in Appendix A to this part. Any person

requesting a determination of maximum probable loss must submit

information in accordance with Appendix A requirements, unless the

Office has waived requirements. In lieu of

[[Page 54468]]

submitting required information, a person requesting a maximum probable

loss determination may designate and certify certain information

previously submitted for a prior determination as complete, valid, and

equally applicable to its current request. The requester is responsible

for the continuing accuracy and completeness of information submitted

under this part and shall promptly report any changes in writing.

(d) The Office shall amend a determination of maximum probable loss

required under this section at any time prior to completion of licensed

reentry activities as warranted by supplementary information provided

to or obtained by the Office after the MPL determination is issued. Any

change in financial responsibility requirements as a result of an

amended MPL determination shall be set forth in a license order.

(e) The Office may make a determination of maximum probable loss at

any time other than as set forth in paragraph (b) of this section, upon

request by any person.

Sec. 450.9 Insurance requirements for licensed reentry activities.

(a) As a condition of each reentry license, the licensee must

comply with insurance requirements set forth in this section and in a

license order issued by the Office, or otherwise demonstrate the

required amount of financial responsibility.

(b) The licensee must obtain and maintain in effect a policy or

policies of liability insurance, in an amount determined by the Office

under paragraph (c) of this section, that protects the following

persons as additional insureds to the extent of their respective

potential liabilities against covered claims by a third party for

bodily injury or property damage resulting from licensed reentry

activities:

(1) The licensee, its customer, and their respective contractors

and subcontractors, and the employees of each, involved in licensed

reentry activities and in licensed launch activities associated with a

particular reentry;

(2) The United States, its agencies, and its contractors and

subcontractors involved in licensed reentry activities and in licensed

launch activities associated with a particular reentry; and

(3) Government personnel.

(c) The Office shall prescribe for each licensee the amount of

insurance required to compensate the total of covered third-party

claims for bodily injury or property damage resulting from licensed

reentry activities. Covered third-party claims include claims by the

United States, its agencies, and its contractors and subcontractors for

damage or loss to property other than property for which insurance is

required under paragraph (d) of this section. The amount of insurance

required is based upon the Office's determination of maximum probable

loss; however, it will not exceed the lesser of:

(1) $500 million; or

(2) The maximum liability insurance available on the world market

at a reasonable cost, as determined by the Office.

(d) The licensee must obtain and maintain in effect a policy or

policies of insurance, in an amount determined by the Office under

paragraph (e) of this section, that covers claims by the United States,

its agencies, and its contractors and subcontractors involved in

licensed reentry activities resulting from licensed reentry activities.

Property covered by this insurance must include all property owned,

leased, or occupied by, or within the care, custody, or control of, the

United States and its agencies, and its contractors and subcontractors

involved in licensed reentry activities, at a Federal range facility.

Insurance must protect the United States and its agencies, and its

contractors and subcontractors involved in licensed reentry activities.

(e) The Office shall prescribe for each licensee the amount of

insurance required to compensate claims for property damage under

paragraph (d) of this section resulting from licensed reentry

activities in connection with any particular reentry. The amount of

insurance is based upon a determination of maximum probable loss;

however, it will not exceed the lesser of:

(1) $100 million; or

(2) The maximum available on the world market at a reasonable cost,

as determined by the Office.

(f) In lieu of a policy of insurance, a licensee may demonstrate

financial responsibility in another manner meeting the terms and

conditions applicable to insurance as set forth in this part. The

licensee must describe in detail the method proposed for demonstrating

financial responsibility and how it assures that the licensee is able

to cover claims as required under this part.

Sec. 450.11 Duration of coverage; modifications.

(a) Insurance coverage required under Sec. 450.9, or other form of

financial responsibility, shall attach upon commencement of licensed

reentry activities, and remain in full force and effect as follows:

(1) For ground operations, until completion of licensed reentry

activities at the reentry site; and

(2) For reentry activities, thirty days from initiation of reentry

flight; however, in the event of an abort that results in the reentry

vehicle remaining on orbit, insurance shall remain in place until the

Office's determination that risk to third parties and Government

property as a result of licensed reentry activities is sufficiently

small that financial responsibility is no longer necessary, as

determined by the Office through the risk analysis conducted to

determine MPL and specified in a license order.

(b) Financial responsibility required under this part may not be

replaced, canceled, changed, withdrawn, or in any way modified to

reduce the limits of liability or the extent of coverage, nor expire by

its own terms, prior to the time specified in a license order, unless

the Office is notified at least 30 days in advance and expressly

approves the modification.

Sec. 450.13 Standard conditions of insurance coverage.

(a) Insurance obtained under Sec. 450.9 shall comply with the

following terms and conditions of coverage:

(1) Bankruptcy or insolvency of an insured, including any

additional insured, shall not relieve the insurer of any of its

obligations under any policy.

(2) Policy limits shall apply separately to each occurrence and,

for each occurrence to the total of claims arising out of licensed

reentry activities in connection with any particular reentry.

(3) Except as provided in this paragraph, each policy must pay

claims from the first dollar of loss, without regard to any deductible,

to the limits of the policy. A licensee may obtain a policy containing

a deductible amount if the amount of the deductible is placed in an

escrow account or otherwise demonstrated to be unobligated,

unencumbered funds of the licensee, available to compensate claims at

any time claims may arise.

(4) Each policy shall not be invalidated by any action or inaction

of the licensee or any additional insured, including nonpayment by the

licensee of the policy premium, and must insure the licensee and each

additional insured regardless of any breach or violation of any

warranties, declarations, or conditions contained in the policies by

the licensee or any additional insured (other than a breach or

violation by the licensee or an additional insured, and then only as

against that licensee or additional insured).

[[Page 54469]]

(5) Exclusions from coverage must be specified.

(6) Insurance shall be primary without right of contribution from

any other insurance that is carried by the licensee or any additional

insured.

(7) Each policy must expressly provide that all of its provisions,

except the policy limits, operate in the same manner as if there were a

separate policy with and covering the licensee and each additional

insured.

(8) Each policy must be placed with an insurer of recognized

reputation and responsibility that is licensed to do business in any

State, territory, possession of the United States, or the District of

Columbia. A licensee complies with this section if each of its policies

of insurance obtained under this part contains a contract clause in

which the insurer agrees to submit to the jurisdiction of a court of

competent jurisdiction within the United States and designates an

authorized agent within the United States for service of legal process

on the insurer.

(9) Except as to claims resulting from the willful misconduct of

the United States or its agents, the insurer shall waive any and all

rights of subrogation against each of the parties protected by required

insurance.

(b) [Reserved.]

Sec. 450.15 Demonstra

This text is long and has been trimmed here. Open the source document for the complete record.