(FORTUNE Magazine) – EVER SINCE man landed on the moon in 1969, adventure capitalists have dreamed of colonizing and commercializing the high frontier. Microgravity manufacturing. Mining the moon. Tourism. Space burials. Shooting hazardous waste into the sun. But so far none of these ideas have got off the ground. Why? Mostly because, for all the grandiose plans, there remains no cheap, reliable way to get into space. Says physicist Lowell Wood at Lawrence Livermore National Laboratory: ''If you can't get into space, nothing else matters. Everything depends on space transportation.'' U.S. rocket makers are poised to turn out a new generation of affordable launch vehicles that can push into orbit everything from communications satellites to space telescopes to corporate research experiments to man. Unfortunately, these would-be commercial pioneers commonly encounter skittish banks and insurers, indecisive government policymakers, and scheduling problems at NASA's launch facilities. Plus an even bigger obstacle: foreign competition. U.S. aerospace companies face a brand-new kind of Star Wars with rocket makers from Europe, China, Japan, and the Soviet Union. Such is the promise of space that despite all this, and despite setbacks like the recent failure of a Martin Marietta Titan III rocket to place a $150 million communications satellite into the proper orbit, U.S. space transportation sales are up a steep 300% this year, to $600 million. For large aerospace companies confronting a shrinking defense budget, commercial space represents a potentially profitable adjunct to their military business. With dozens of scientific and communications satellites still earthbound in the wake of the Challenger explosion in 1986, Martin Marietta, General Dynamics, and McDonnell Douglas have dusted off their old ballistic missile boosters and started peddling satellite launch services. AT THE heavyweight end, the Titan III can place up to 11,000 pounds in geosynchronous orbit -- the narrow band of space 22,300 miles up where most large communications satellites perch -- for $100 million to $125 million a shot. For about $60 million, General Dynamics' Atlas will put a 5,000- to 8,000-pound payload into geosynchronous orbit. The McDonnell Douglas Delta II comes in at the budget end, doing the same thing with a 3,000- to 4,000-pound payload for around $40 million. To date, the three big companies have won $1.5 billion in nonmilitary contracts from NASA, foreign governments, and private corporations. The first liftoff took place last August, when a Delta II carried a British broadcasting satellite into orbit from Cape Canaveral. Four months later a Titan III hoisted a British and Japanese communications satellite into space. Says Martin Marietta Chairman Norman Augustine: ''Every time we sell one Titan launch overseas, it offsets the import of 10,000 Toyotas.'' General Dynamics plans to launch a scientific satellite for NASA atop a commercial Atlas rocket in June. A number of fledgling aerospace companies are also angling for business. As in the early days of Silicon Valley, scores of visionary engineers are toiling away around the country in cramped offices, trailers, and garages. Their aim: to build a fleet of low-budget launchers that can carry small ''lightsats'' into low earth orbit, 125 miles to 290 miles up, for a bargain-basement $20 million or less. Potential customers include the military; companies such as Merck, 3M, and Du Pont that want to conduct extended experiments in zero gravity; and Third World countries eager to launch inexpensive communications satellites. While hardly flooded with orders, these Lilliputian rocket makers insist that a plethora of new purposes will emerge for microsatellites -- generally under 4,000 pounds -- once there is an economical vehicle for putting them into space. Says David Thompson, 35, founder and president of Orbital Sciences Corp., a space technology company in Fairfax, Virginia: ''I think in the 1990s we're going to see the commercial use of space double for such products as satellite-based search-and-rescue systems and automobile navigation and tracking. We're only beginning to see what can be done.'' FOR THE PAST YEAR, in the isolation of the Mojave Desert, half a dozen youngish Orbital Sciences engineers in jeans, sneakers, and white lab coats have been building a 49-foot winged rocket called Pegasus, designed to be launched from beneath the wing of a B-52 bomber. By offering a way to orbit modest-size payloads that can be simpler and cheaper than the shuttle or bigger boosters, Thompson hopes to bring rockets within reach of customers with smaller pockets. If the gods are willing, Pegasus will make its debut in April carrying two small communications and research satellites into low orbit. Economical boosters are essential not only for commercial development of space but also for military and civilian uses. Last July, President Bush announced an initiative that includes building a permanently manned space station, Freedom; monitoring the earth's environment from orbiting platforms over the poles; returning to the moon to stay; and, in the next century, landing people on Mars. It won't be cheap: The total cost could exceed $500 , billion. Or easy: Freedom has already encountered design problems. To carry out all these missions, by 2000 the U.S. would need to haul something like 1.5 million pounds of equipment and supplies into space annually. Says Bradley Schwartz, a consultant in KPMG Peat Marwick's commercial space group: ''We can't afford to send up the shuttle every time the astronauts need a wrench.'' Developing the flexible fleet of rockets required for such missions has not been a national priority. Exorbitant costs and uncertain returns have made American aerospace companies reluctant to commit the capital necessary to produce a new generation of rockets that could cart bigger payloads into orbit for less money than older boosters. But that's what it will take to keep the U.S. competitive with foreign rocket makers, which are typically government subsidized. Much of the blame for the country's inadequate space transportation system rests with post-Apollo space policy. In the 1970s the government ordered the dependable fleet of expendable Apollo launch vehicles retired. Then came the Challenger explosion, which led then-President Reagan to ban all nongovernment payloads from shuttle flights and made clear the dangers of depending on a single vehicle for space travel. It takes three months, 10,600 people, and $250 million to turn each orbiter around between flights. At a recent Washington meeting on moon-Mars policy, Boeing estimated that the U.S. could save $60 billion over ten years if it abandoned the shuttle in favor of larger unmanned rockets and a small crew-transfer vehicle that could taxi astronauts to and from an orbiting space station. THE GOVERNMENT may be starting to listen. In November, Bush reiterated a 1988 order to NASA to make maximum use of commercially available rocketry in order to reduce reliance on the shuttle and stimulate the private launch business. Martin Marietta has already won a $157 million contract to launch the Mars Observer space probe, scheduled to fly in 1992. Bush has also directed the National Space Council to look for ways to encourage private- sector investment in launch pads and support services. Says Mark Albrecht, executive director of the Space Council: ''It is ironic that space transportation is the only mode of travel in the modern era where the cost hasn't gone consistently down. Clearly, that will be one of our main goals.'' At the state level, with an eye toward their own economic development, Arizona, Colorado, Florida, Hawaii, Texas, and Virginia have kicked off major programs aimed at attracting entrepreneurial space ventures. Florida and Hawaii have appropriated several million dollars each to develop commercial space ports. A recent report from the Department of Commerce's office of space programs chastised the government for not moving more aggressively to encourage commercial space ventures. It pointed to the struggles of small entrepreneurial rocket makers such as Orbital Sciences. Says Mark Oderman, a managing director of CSP Associates, a Cambridge, Massachusetts, consulting firm specializing in space commerce: ''The small launch world is different from that of big rocket makers. They are trying to create a new market at the same time they are creating a new product.'' So far the biggest fan of small rockets is the military, which has grown increasingly concerned about the expense and vulnerability of large satellites and wants an easy way to launch smaller ones. Other potential customers include corporate and university scientists, who now must wait months, sometimes years, to get their experiments on the shuttle. A small rocket maker needs roughly $10 million to get started. But with risks so high and returns so uncertain, most venture capitalists aren't exactly salivating at the prospect of investing in space ventures. Consider the experience of American Rocket. Amroc, as it is known, a small company in Camarillo, California, was founded in 1985 by a group that included the late George Koopman, special-effects director for the movie The Blues Brothers. Koopman's dream was to build a small, low-cost rocket based on a new hybrid liquid-fuel-solid-fuel technology that the company claims is cheaper and safer than traditional solid-fuel engines. Amroc rapidly grew to 80 employees and was test-firing rocket engines at Edwards Air Force Base when Black Monday hit, scaring off investors and forcing Koopman to lay off most of his workers. An unnamed angel provided an infusion of cash, but last July, three months before the scheduled maiden flight of his industrial launch vehicle, Koopman was killed in an automobile accident. He missed watching his $8 million rocket burn up on the launch pad, the victim of a faulty valve. Amroc says it has lined up further financing and is still plugging away at the hybrid-fuel technology. Amroc's mistake, says CSP consultant Oderman, lay in not securing the government as an anchor customer right from the beginning. The government now accounts for 90% of all space purchases. Says Oderman: ''If the government thinks you have a better product and is willing to buy it, that's what investors like to see, and that's what makes a program fundable.'' ORBITAL SCIENCES formed partnerships with government and industry from the start. Orbital got the Defense Advanced Research Projects Agency (Darpa), the Pentagon's research arm, to reserve its first six flights to launch communications satellites. Motors for the Pegasus are developed and produced by Hercules Inc., which contributed more than half the $50 million development cost and last November paid $32 million for a 20% interest in the company. Earlier, in July, Orbital and Hercules signed an agreement giving Arianespace, the European commercial rocket consortium, exclusive rights to market the Pegasus in Europe. The strategy has worked. In 1988 Orbital, which was founded in 1982, ranked second on Inc. magazine's list of the country's 500 fastest-growing private companies. According to Thompson, last year Orbital pulled in revenues of $80 million, up from $55 million in 1988; 1990 sales may reach $130 million. Thompson expects that if Pegasus flies successfully, Orbital, which also sells satellites and satellite ground stations, will turn a profit for the first time in the fourth quarter of 1990 and begin steadily earning money in 1991. The company plans to go public this spring. If financing space ventures is difficult, for smaller operators getting insurance is virtually impossible. Even customers flying payloads on big rockets like the Titan III must pay a premium equivalent to 20% or so of the launch cost. Some -- like Intelsat in the ill-fated March launch -- simply do without. Given that disaster, rates will surely go up. Robert Harrity, a managing director of Chemical Bank's banking and corporate finance group, says space insurance raises unpleasant questions: ''What if the Soviet shuttle blows up and our government terminates or curtails U.S. launches? That's the toughest question insurers have to answer. It's like insuring against someone else's accident. And we won't write the check to finance a deal unless the insurers are prepared to do precisely that.'' NOT LONG AFTER Harrity spoke those words, an Ariane carrying a Japanese communications satellite exploded shortly after takeoff. Aerospace executives expect the accident to have little impact on Arianespace, however. After the Challenger tragedy, the European consortium snapped up about half the world market for commercial launch services. Arianespace launches roughly ten nonmilitary satellites each year, leaving the Americans, Soviets, Chinese, and soon the Japanese to compete for the other ten. The Europeans obviously intend to keep their lead. Now under construction is a bigger, cheaper, more reliable Ariane V, due to roll out in 1995. Development cost: $3.8 billion. American aerospace executives are impressed. Says Tony Iorillo, who heads Hughes Aircraft's space and communications group: ''The Ariane V promises to be a very cost-effective system. If the Europeans reach their goals, American rockets can't compete.'' Ariane's stranglehold on much of the satellite launch business alarms the folks at Hughes, which has produced more than half the communications satellites in commercial service worldwide. Over the next decade some 200 communications and scientific satellites will be launched in the West. Hughes worries that customers who use European rockets will be able to buy cut-rate satellites as part of the contract. Says Iorillo: ''If we lose the launch business, we'll lose the satellite business.'' As if the Europeans aren't enough to worry about, the Chinese are sending up payloads on Long March launchers, roughly the size of the Delta and Atlas, for $20 million to $30 million -- less than half the price their American competitors charge. The Japanese space agency plans to launch a brand-new H-II rocket in 1993 that could compete directly with the Titan III and the Ariane family. Perhaps the biggest competitive threat comes from the Russians, who have twice as many different types of launch vehicles as the U.S. and have conducted about ten times as many successful launches over the past seven years. Because of the efficiency of their launching process, the Soviets can also boost satellites into orbit for $25 million to $30 million apiece. Recently they have hinted that they would like to do business with U.S. companies. BESIEGED ABROAD and at home, the large U.S. rocket makers may be in for a shakeout. Even before the mid-March fiasco, for example, many in the industry thought Martin Marietta's commercial Titan business was in trouble. At the moment only two launches are booked -- one more in 1990 and the Mars probe in 1992. The company concedes that its original business plan called for four or five launches a year but dismisses gloomy talk as wishful thinking by competitors. ''We look at one or two launches per year as a very attractive addition to our defense business,'' says Roger Chamberlain, vice president of the commercial launch operation. ''It takes the same factory, tooling, and skills to work on both.'' Others in the industry may be in somewhat better shape, but nearly everyone in it agrees that if President Bush is serious about building a space station and going to Mars, then he must make development of a new cargo rocket a priority. He could give the Air Force or NASA the money to do it, or he could provide other incentives to an industry that seems either unwilling or unable to carry out the job on its own. But without some such support, don't expect the U.S. to be much of a factor in the next -- for-profit -- space race.