Rocket Firm Lowers Its Hopes After Dramatic Failure : Space: When its craft caught fire on the launch pad last October, the Camarillo firm decided to stay in business by selling engines.

American Rocket Co., a Camarillo company whose first attempt to launch a commercial rocket into space failed when the 58-foot-tall craft burst into flames on the launch pad last Oct. 5, has put off plans for a new rocket launch and will try instead to stay in business by selling rocket engines.

But the company will have to persuade potential customers--from aerospace giants such as McDonnell Douglas to small private-launch companies--that its engines are reliable, which might not be easy after the launch failure.

“My gut feeling is they’re going to have to re-create the credibility of that design,” said one potential customer, former astronaut Donald K. (Deke) Slayton, who runs Space Services, a small Houston company that last year successfully launched a rocket made from an assortment of government missile parts.

In the private commercial rocket business, according to Slayton, “The most important thing we have to sell is reliability. You can’t afford to be perceived as not reliable.”

Since the rocket fire, American Rocket has laid off about 50 of its 80 permanent employees, its president, Paul Estey, said. The company also let go about 40 people it had hired temporarily for the launch. Estey said the company has enough money on hand for a year of development work on the engines.

After the space shuttle Challenger blew up in January, 1986, the federal government opened the way for private commercial rocket launches. Since then, three major companies--McDonnell Douglas, Martin Marietta and General Dynamics, which have been building missiles for decades--have lined up business to launch commercial satellites into space.

A handful of smaller companies, such as American Rocket and Space Services, have tried to develop their own rockets to launch smaller payloads, such as medical experiments, on orbital or suborbital missions. Another such firm, Orbital Sciences of Arlington, Va., plans to launch a rocket in April from a B-52 bomber that will carry it off the ground.

Last fall, American Rocket was intent on trying to jump into the commercial rocket business. It spent $15 million to ready its first unmanned, suborbital launch attempt. But the rocket never got off the ground; after a fire started, it toppled over and punctured its liquid oxygen tanks.

Last month, Estey replaced interim American Rocket President James Bennett, who had taken over after the death of company founder George Koopman in an auto accident last July. Estey was the company’s vice president of engineering.

One reason that American Rocket is putting off another launch attempt is the high cost. Just renting a launch pad and tracking services at Vandenberg Air Force Base on launch day last October cost the little company $100,000. And, Estey said, American Rocket believes that it will have an easier time finding customers for its engines than it would finding companies with payloads that they want to put in space.

Estey said the failure of American Rocket’s launch last October was traced to a faulty liquid oxygen valve. “It’s a relatively easy problem to fix, and people realize that,” he said.

But the company has yet to complete any rocket engine sales.

The company’s engine is a hybrid that burns both solid and liquid fuels. Estey said the engines, made to order, could cost from several hundred thousand to several million dollars.

For small concerns, the commercial rocket business is anything but stable. Last November, Space Services’ second rocket launch failed. The rocket had to be blown up because the payload separated from the engine too early due to a guidance-system problem.

The failure hasn’t prevented Space Services from scheduling another launch in May. “But if we’d had a motor failure on that flight, then we would end up having to go back to the drawing board,” Slayton said.