Virgin Orbit shares are plunging this morning after the company
ditched its latest mission to launch a satellite into orbit from
UK soil.
Virgin Orbit is ceasing operations for the foreseeable future after
failing to secure a funding lifeline.
Richard Branson's Virgin Orbit filed for Chapter 11 bankruptcy
protection as it fails to secure the funding needed to recover from
a January rocket failure.
Virgin Orbit started out as a program at Virgin Galactic in 2012
before being spun off into a separate company in 2017.
While the former focused on the space tourism market, Virgin
Orbit's goal was to build rockets capable of blasting small
satellites into space.
At the time, this was still a largely untapped market.
They were looking at the third and smallest category of
satellite delivery into orbit.
And what that looks like is satellites that are maybe the range
of like a microwave or an oven that are trying to get into orbit
at low cost or at high speed.
Virgin Orbit had a lot of promise, yet ultimately couldn't deliver,
despite making quite a lot of progress over the years.
Virgin Orbit was one of the most well-capitalized launch companies
in existence, especially amongst startups in recent years.
They are one of only two to have raised over $1 billion,
the other being Relativity Space.
CNBC explores what went wrong with the Richard Branson-backed company
that once held so much promise.
Virgin Orbit was founded by billionaire Richard Branson, who
held a 75% stake in the company.
Emirati sovereign wealth fund, Mubadala, held the second-largest
stake in Virgin Orbit at 18%.
Virgin Orbit targeted the small satellite launch market, catering
to customers whose satellites weighed up to 500kg or 1,100 pounds
like small satellite maker Oneweb.
Virgin Orbit signed their largest ever customer in 2015
with Oneweb before spinning out, and that was for 39 launches, with
an option for up to 100 more.
That's when the company was riding high.
They had a major customer, significant backlog, engineering
strength and it looked like everything was going in their
favor. And that's when Virgin Galactic sought to spin them off
and let them stand as their own company.
Virgin Orbit touted its unusual method of launching its rockets,
known as 'air launch,' as more flexible than launching from a
traditional launch pad like competitors Rocket Lab, Astra and
SpaceX among others.
The method involved using a modified Boeing 747 jet that Virgin
Orbit called, Cosmic Girl, to carry the company's LauncherOne
rocket to about 35,000ft of altitude before dropping it.
From there, the rocket would fire its engines and continue into
space.
By launching from an aircraft, Virgin could take off from almost
any airport around the world and turn these airports into
spaceports. Their last launch was from the United Kingdom.
They were also in discussions with Japan and a launch site out of
Brazil. So they were offering two different countries the ability to,
in a sense, have a sovereign launch capability because the
rocket would take off from their home soil.
From the government's point of view, if satellites got lost in any
conflict in the future, God forbid, you know, we're about the
only company in the world that could replace them within 24 hours.
So they won't have to wait six months for a land-based rocket to
take off.
Air launching satellites was not a completely novel idea in the space
industry. Orbital Sciences, now owned by Northrop Grumman, has been
launching its Pegasus rocket from a plane since 1990.
But Virgin Orbit promised to do this for cheaper.
In the summer of 2021, Virgin Orbit successfully completed its
first commercial mission, launching seven satellites into
orbit for customers, including the US Department of Defense, the Royal
Netherlands Air Force and Polish company SatRevolution.
Management was feeling confident and began planning to take Virgin
Orbit public.
We have a pipeline that is currently at about $4 billion that
spans through about '24 or into '25.
So there's an enormous market that is growing in the small satellite
market. We've got $300 million in active contracts and LSAs,
MOUs and letters of intent.
So with that, we're seeing huge momentum.
Unfortunately for Virgin Orbit, its trajectory was about to change for
the worse. On December 28th, 2021, Virgin Orbit closed the deal
with special purpose acquisition company NextGen Acquisition Corp II
to go public.
Lots of tech startups were using special purpose acquisition
companies as a means to quickly get to market, have an
IPO and raise hundreds of millions of dollars in the process.
This, at the surface looked like a great deal for Virgin Orbit
and arguably would have been had they raised as much money as they
set out to raise.
Virgin Orbit's goal was to raise around $480 million,
but they ended up raising just shy of $230 million.
The result was disappointing for Virgin Orbit, especially
considering the fact that sister company, Virgin Galactic, made a
much bigger splash when it went public in 2019.
The space tourism company went through the SPAC process much
earlier, and the market dynamics, as well as the appetite for risk at
the time was very different than the point at which Virgin Orbit
went public when the SPAC craze had really started to mature and
people were becoming much more wary of these kind of risky, low
revenue ventures, and as a result raised much less capital than
Virgin Galactic did.
The market for rockets that launched small satellites is also
getting crowded. Experts estimate that there are between 100 and 120
small rockets in various stages of development around the world as of
late 2022.
And when you disregard the demand from broadband mega-constellations
like SpaceX's StarLink and Oneweb, which almost exclusively launch on
much bigger rockets, demand for launches of small satellites has
remained relatively stagnant since 2017.
From 2012 to present, the average size of a communication
satellite, or any small satellite, has grown considerably.
Communication satellites like Kuiper or StarLink,
those are so big that they would at best be able to fit one
satellite or none on a LauncherOne.
This trend has led many of Virgin Orbit's competitors to skew towards
making larger rockets.
Henry says it's an approach that's proved beneficial for SpaceX, which
retired its small Falcon 1 rocket in favor of the larger Falcon 9
rocket, which it uses for rideshare missions where small
satellite companies can hitch a ride with other customers as a more
affordable launch option.
An advantage of small rockets over larger ones used to lie in their
ability to insert satellites into their precise orbits.
But space tugs are changing this dynamic.
These vehicles can be launched on a large rocket alongside
satellites, and thanks to their own propulsion systems, can drop
each satellite into its exact orbit, making the prospect of
rideshares even more appealing.
Launch delays also dogged Virgin Orbit.
The company originally hoped to launch its debut mission in 2018,
but didn't manage a launch until May of 2020.
The demonstration mission failed shortly after the rocket was
released. In total, the company launched six missions, four of
which were successful and two of which failed, including the latest
in January of 2023.
Welcome back, everyone.
It appears that LauncherOne has suffered an anomaly which will
prevent us from making orbit for this mission.
Each Virgin Orbit launch costs between $12 and $15 million, though
individual customers could pay less if they were launching
alongside other companies on the same rocket.
While reaching orbit multiple times was a great technical
accomplishment, the company was never able to close the business
case, both because they needed about a dozen or more launches a
year to actually generate meaningful revenue and get close to
profitability, as well as start to reap the benefits of actually
seeing that marketplace that they were promising come to fruition.
Customers grew impatient.
Virgin Orbit has had a backlog of business for years, dating back
to when they spun out from Virgin Galactic.
But a series of delays with getting LauncherOne in
service resulted in a lot of those customers falling off.
Virgin Orbit even sued its largest customer, Oneweb after the company
canceled its launch contract with Virgin Orbit, citing frustration
over the high cost of launches.
A challenge for the company and for any launch company is
having an anchor customer, somebody who you can depend on to
routinely buy a decent number of launches.
Virgin Orbit did not have an anchor customer.
In the absence of a large customer.
Virgin Orbit had to depend on smaller players like Spire Global,
but these were not enough to keep up with the company's mounting
expenses and the rate at which it was burning cash.
One of the more damning details of the past two
years has been the amount of money the company spent on
SG&A costs.
If you look at their annual reports, you'll notice a steady
climb in the amount the company spent on personnel and headcount.
They were adding staff to their payroll at a rate that was much,
much faster than the revenue they were bringing in.
And when you see these two trends paired with a
underwhelming launch rate, it did look like a recipe for disaster.
Henry says that Virgin Orbit did try to diversify its revenue
stream. The company made investments in several space
ventures, including satellite businesses, Hypersat, SatRevolution
and Horizon Technologies, among others.
But they were all too early stage to meaningfully contribute to
Virgin Orbit's needed launch volumes and revenue.
Virgin Orbit's latest financial results seem to be the last nail in
the coffin for the company.
It reported an adjusted EBITDA loss of $42.9 million for the third
quarter of 2022 compared to a loss of $32.8 million for the same
period the year prior.
Virgin Orbit's cash reserves were also dwindling, fast.
The bad news seemed to snowball from there.
Virgin Orbit is furloughing nearly all of its employees and pausing
operations for a week as it looks for a funding lifeline.
Shares tumbling on that news.
For the next two weeks, Virgin Orbit sought out investment that
would help it survive, but to no avail.
With Richard Branson refusing to finance the company any further
after injecting 25 million in new funding in November, Virgin Orbit
was desperate. Virgin Orbit's stock had been on a steady decline
ever since the company signed its deal to go public via SPAC on
August 23rd, 2021.
On April 4th, 2023, Virgin Orbit filed for bankruptcy.
In a statement, Virgin Orbit CEO Dan Hart said, "We believe that the
cutting edge launch technology that this team has created will
have wide appeal to buyers as we continue in the process to sell the
company. At this stage, we believe that the Chapter 11 process
represents the best path forward to identify and finalize an
efficient and value maximizing sale."
If somebody looks at this and chooses to buy them out of
bankruptcy, they might look at it as $1 billion asset
gone on sale. Perhaps a company that is not interested in spending
a billion of their own dollars will instead be willing to spend
tens of millions of dollars to get what would essentially be a
discount launch services provider.
Experts see particular potential for Virgin Orbit in the defense
space, as Virgin's air launch system allows for a quick tactical
response, something that's a national security priority,
according to Henry. Finally, if Virgin Orbit were to reemerge, it
could be with a new focus on hypersonics.
LauncherOne reaches speeds of Mach 5, or about 3,800mph and
could help with weapons systems development, including acting as a
target for hypersonic missiles.
But even if Virgin Orbit were bought out of bankruptcy, experts
say it would be tough for the company to regain its talent in a
space market that's becoming ever more competitive.
I think that this will be a warning sign to other launch companies
to avoid the same mistakes.
They're going to need to be aggressive in terms of hitting
their launch schedules, in keeping their costs under
control.
Virgin Orbit's legacy within the space industry is a story that's
too often told where there are exciting or even innovative new
technologies. But that does not make necessarily for a smart
or financially sound business.
And that's going to be the resounding message that people
should take away from the story of this company.