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XCOR and Perry
Texas Governor Rick Perry takes a look at a full-scale model of XCOR’s Lynx suborbital spaceplane, accompanied by XCOR chief test pilot and former astronaut Rick Searfoss. (credit: XCOR Aerospace)

Texas warms to NewSpace

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One of the most commonly used tools by local and state governments to support economic development efforts is the incentive package. Cities and states will put together grants, low-interest-rate loans, tax holidays, or other incentives to induce companies to move existing facilities or establish new ones in their locales. The hope is that the up-front costs of those incentives will be paid back—and then some—through jobs and, eventually, tax revenue, as well as intangibles like civic pride.

“It’s probably the neatest thing that I’ve ever seen,” the head of Midland’s airport said of XCOR’s Lynx.

From that perspective, it’s not surprising that localities are now offering incentives to lure emerging entrepreneurial “NewSpace” companies. Yet, the announcement last Monday, July 9, that XCOR Aerospace would establish its headquarters and research & development center in Midland, Texas, thanks to an incentive package offered by a local development corporation, took many by surprise. That astonishment is in part linked to the company, which has been closely tied to the California town of Mojave since its founding over a decade ago, as well as the unexpected selection of Midland, a city not associated with spaceflight. The bigger story, though, may be that Texas, a state once largely indifferent to NewSpace, is showing increased interested in such ventures, and that interest is being reciprocated by companies.

“Probably the neatest thing I’ve ever seen”

The news that XCOR would set up operations in Midland first leaked on July 6, when local media reported that the Midland City Council and the Midland Development Corporation (MDC), an organization chartered by the city to attract new businesses to the city, were planning to vote Monday on an incentive package that would bring XCOR to this West Texas town of 115,000. Company officials privately confirmed that the deal was in the works, but waited until the votes took place Monday morning to formally announce the deal.

The agreement, as reported the day before the announcement by the Midland Reporter-Telegram, gives XCOR $2 million to move its corporate headquarters from Mojave to Midland. XCOR will set up that headquarters and an R&D operation in a 5,570-square-meter (60,000-square-foot) hangar at Midland International Airport, commonly referred to as MAF after its three-letter FAA airport designation. MDC will provide $3 million to cover renovations and to subsidize lease payments on the hangar for 10 years (MDC will lease the hangar from the city, which owns it, at the market rate of $6,000 per month; MDC will then sublease it to XCOR for just $1 per year.) The remaining $5 million will be reserved for incentives for XCOR if it reaches specific goals, including $12 million in annual payroll there within five years. XCOR officials said they anticipate having over 100 employees in Midland in four to five years.

During a teleconference with reporters after the deal was announced Monday afternoon, company officials said they had identified Midland as a potential site for a future XCOR facility a few years ago, but put those plans on hold when the recession hit. Last year they dusted off those plans, with Midland as one of three or four cities under consideration for a new facility.

At the same time, MDC was looking for companies to lure to Midland as part of its broader efforts to diversify the local economy, which has been tightly linked to the boom and bust cycles of the oil industry. One particular industry they targeted was aviation and aerospace, and during that search an MDC consultant contacted XCOR, unaware that XCOR had already identified Midland as a possible expansion site.

“There were a couple other locations that we considered, and there was some back and forth,” Andrew Nelson, XCOR chief operating officer, said. The incentives played a key role in deciding on Midland, the company indicated, along with the facilities at MAF, availability of airspace, and good weather conditions for flight tests.

But what attracted Midland to XCOR? Asked during the telecon why they specifically targeted XCOR, given the wide array of other aerospace companies out there, local officials didn’t offer much in the way of specific rationales. “Wow. Just looking at XCOR I think that question’s already answered,” said Marv Easterly, director of MAF. “It’s probably the neatest thing that I’ve ever seen.”

“When we were looking at the right fit for our community, taking a chance with bringing in the first large company in our target industry, the fact that they were a leader in this new type of industry, the fact that they had an established business plan” played a key role, said MDC chairman Laura Romans.

“There was no one factor that made the decision make sense for us,” said XCOR’s Greason. “It really was the ensemble of a whole lot of positives and no serious negatives.”

XCOR will gradually start operations in Midland as the city renovates the hangar that will house XCOR, as well as goes through the application process to get a launch site operators license (aka spaceport license) from the FAA’s Office of Commercial Space Transportation, a process MAF officials have just started and could take up to 18 months to complete. In the meantime, XCOR will continue operations at Mojave as it builds and begins flight tests on the Mark 1 prototype of its Lynx suborbital spaceplane. Development of the Lynx Mark 2, which will be able to go higher than the Mark 1 prototype, and a Mark 3 version that would be used to launch nanosatellites, will take place in Midland.

XCOR officials, both publically and privately, emphasized that the company was not moving entirely to Midland. “What we plan on doing is establishing an R&D center here in Midland, and maintaining an operational base in Mojave,” Nelson said. Some people currently working on Mojave will move to Midland, but others will remain there to handle operational flights and new people will be hired. Nelson did say that if they later get a “wet lease” customer for the Lynx flying out of Mojave, “we’d be open to that wet lease customer assuming that operation” from XCOR itself.

Texas versus California

Another factor that played in XCOR’s decision to establish operations in Midland is Texas’s reputation as a “business friendly” state, with a lower tax and regulatory burden than the company’s current home in California. “We do, of course, welcome the friendly regulatory and business climate in the state,” XCOR president Jeff Greason said. “There was no one factor that made the decision make sense for us. It really was the ensemble of a whole lot of positives and no serious negatives.”

That pro-business atmosphere was also played up by Governor Rick Perry, who attended a ceremony in Midland last Monday announcing the city’s deal with XCOR. “We couldn’t be happier to welcome XCOR to the Lone Star State, and we couldn’t be prouder to be home to their new Research and Development center,” he said in his prepared remarks. “Part of what makes Texas such an appealing destination for high-tech companies like this one, or any company, for that matter is our world-class economic climate.” Most of his address, in fact, focused on that business climate separate from the XCOR deal, and the next day Perry’s office issued a press release touting the state’s ranking as the “top state for business” by the business news network CNBC.

The XCOR deal is the latest, but not the only, piece of evidence that Texas is showing increased interest in, and attracting interest from, entrepreneurial space companies. This spring SpaceX confirmed that a site on the Gulf of Mexico near Brownsville, Texas, just north of the border with Mexico, was one of three locations the company was considering for a new commercial launch facility. A public meeting in Brownsville in May, tied to an environmental assessment as part of the spaceport licensing process, appeared to show strong local support for a launch site there.

SpaceX already has a rocket test site in McGregor, Texas, a facility it inherited from another, failed, entrepreneurial space company, Beal Aerospace. It’s not the only NewSpace company with Texas links, either. Blue Origin, the secretive Seattle-based commercial space company bankrolled by founder Jeff Bezos, has its own private test site in West Texas, north of the town of Van Horn. Suborbital vehicle developer Armadillo Aerospace is based east of Dallas, although it now conducts its launches from Spaceport America in New Mexico.

“We are seeing a change in perception driven by the recent success of SpaceX and the realization that these companies are ‘for real,’” said Lancaster.

At last Monday’s telecon, XCOR officials said they weren’t aware of SpaceX’s specific interest in a Brownsville launch site until after they were deep in negotiations with Midland. “That didn’t have any bearing on us at all,” Nelson said. “But it’s just great news that SpaceX is wanting to do the same thing, potentially, that we’re doing” in terms of setting up facilities in the state.

These developments do represent a shift for a state that has long been considered a “space” state, but where that space interest was largely focused on supporting NASA activities at the Johnson Space Center in Houston. It’s a relief for local space advocates who were worried that the state was missing the boat with emerging space efforts as it focused attention on those traditional space activities.

Last April, longtime space activist—or, perhaps more accurately, space evangelist—Rick Tumlinson created the Texas Space Alliance to try to educate local and state officials about the prospects of commercial space. (The organization goes by the acronym TXA to avoid confusion with the Transportation Security Administration.) “Everything is built around the NASA legacy,” Tumlinson said in a presentation about the TXA last April at the Space Access ’11 conference in Phoenix. “We’re going to try and change that.”

Bob Lancaster, the current president of the TXA, said in an interview that awareness of NewSpace is growing at the local and state levels. “We are seeing a change in perception driven by the recent success of SpaceX and the realization that these companies are ‘for real,’” he said. There has been no coordinated push yet at the state level to encourage companies to move to Texas, though, he added. “Texas has been successfully encouraging companies of all types to come here for years and now the commercial space companies are seeing the same things seen by those companies.”

Last year TXA played a supporting role in the passage of a spaceflight liability indemnification bill by the Texas legislature that had been sought by Blue Origin, legislation similar to what has been enacted in Virginia, Florida, New Mexico, and Colorado. Lancaster said the TXA will announce later this week its agenda for the legislature’s 2013 session. “A large part of it is economic incentives,” he said of the TXA’s pending proposal, “but also a change in how space company activities and requirements are positively integrated into the state regulatory structure.”

Officials from several states “are visiting aerospace businesses at the Mojave Air and Space Port in an effort to recruit them and their highly-skilled jobs to their states,” Witt said.

The XCOR deal now puts California on the defensive in attracting and retaining entrepreneurial space firms. Mojave Air and Space Port has been widely lauded as the “Silicon Valley of NewSpace”, with a diverse and synergistic collection of businesses working on suborbital and orbital spaceflight. But now XCOR, one of the cornerstones of Mojave, is shifting at least some of its efforts away from Mojave, leading to concerns that others may follow.

“Virginia, Maryland, Texas, Florida, New Mexico, Colorado, and other states, with the support of their governors, legislators, and business communities, are visiting aerospace businesses at the Mojave Air and Space Port in an effort to recruit them and their highly-skilled jobs to their states,” Stu Witt, manager of Mojave Air and Space Port, said earlier this year. He has been working to win support in California’s legislature for incentives to attract and retain those companies, ranging from tax credits to spaceport infrastructure. A version of a liability indemnification bill is currently working its way through the legislature, having passed the state House of Representatives unanimously last month.

“The view from space, if I had a choice, I’d like to see the Golden Gate Bridge and the tip of Baja from my trip,” Witt said during a press conference at the Next-Generation Suborbital Researchers Conference in Palo Alto, California, in February. “The view would sell itself if you have a place to fly from California, and I would like to see some of these companies have the opportunity to stay in California and operate.”

And, despite last Monday’s announcement, XCOR does plan to operate its Lynx vehicles from Mojave, among other locations, even as it moves its R&D work for future version of the Lynx, as well as a future orbital vehicle, to Midland. However, it’s the latest piece of evidence that, as the NewSpace industry expands and matures, no one location—be it a specific launch site or a state—should take that business for granted.