Richard Branson’s space tourism company used similar numbers to go public on the New York Stock Exchange. Were investors duped?
by Douglas Messier
Nicholas Schmidle’s book about Virgin Galactic and SpaceShipTwo is coming out on Tuesday. In an essay he wrote for The New York Times, he recounted how Virgin Galactic President Michael Moses didn’t believe the company’s own flight projections when they were presented to him by its then-chief financial officer.
At one point, I was leaked a cache of internal documents. Some revealed the depth of Virgin Galactic’s oftentimes shaky grip on reality.
In 2013, Mike Moses, at the time Virgin Galactic’s senior vice president for operations, was sent an email containing a chart from Virgin Galactic’s chief financial officer at the time, Ken Sunshine. The chart showed a radical uptick in flight operations, projecting 75 flights in 2015, 194 in 2016, 229 in 2017 and 264 in 2018. “No chance in hell,” replied Mr. Moses, who is Beth’s husband. “These numbers are a pipe dream.” (Mr. Moses, through a representative, declined to comment on those emails.)
The exchange came in the same year Virgin Galactic conducted its first powered flight (the eighth anniversary was on April 29). Following the successful test, founder Richard Branson spoke about personally boarding the first commercial flight on Christmas Day 2013 from Spaceport America dressed as Santa Claus.
When that didn’t happen, company officials began forecasting commercial flights by the end of 2014. All those plans were put on indefinite hold following the crash of the first (and only) SpaceShipTwo, VSS Enterprise, on Oct. 31, 2014.
Virgin Galactic finally got its second vehicle VSS Unity into space in December 2018, followed by a second suborbital flight two months later that nearly ended in a second loss of ship and crew. [See: Virgin Galactic’s Second Suborbital Flight Nearly Destroyed Ship and Killed Crew]
After the February 2019 flight, Virgin Galactic grounded SpaceShipTwo. A financial record released later that year shows the company was losing about $17 million a month, with only about $86 million left in cash and cash equivalents by the end of September.
In July 2019, Virgin Galactic announced a deal to go public on the New York Stock Exchange (NYSE) through a merger with billionaire Chamath Palihapitiya’s Social Capital Hedosophia (SCH). Known as a SPAC, or special purpose acquisition company, SCH was a publicly traded entity whose sole purpose was to find a company to take public under its own name.
Branson has said that going SPAC avoided the “rigmarole” of going public through the traditional way. In other words, it saves time and avoids a lot of scrutiny and tough questions. A company only has to convince the investors in the SPAC to approve the merger.
The other advantage is that a company going SPAC can provide financial projections. Despite one fatal accident, a extremely close call, a decade of delays, vast cost overruns and Moses’ assessment of Sunshine’s flight projections as a “pipe dream,” Virgin Galactic and SCH used very similar numbers in PowerPoint presentation they filed with the Securities and Exchange Commission (SEC) to support the deal.
Virgin Galactic projected launching SpaceShipTwo vehicles 571 times during the first four years of operation. Flights would increase from 16 beginning in June 2020 to 270 in 2023 as the number of operational vehicles rises from one to five.
|SpaceShipTwo Flight and Passenger Projections|
|Total flights per year||16||115||170||270|
|Total # of passengers flown||66||646||965||1,565|
|Launch cadence||13.4 days*||3.18 days (76 hours)||2.14 days (51.5 hours)||1.35 days (32.4 hours)|
|Average number of flights per vehicle||8||38.33||42.5||54|
|Number of passengers per flight||4.1||5.6||5.7||5.8|
|Sources: Virgin Galactic/Social Capital Hedosophia data and Parabolic Arc calculations * Assumes seven-month flight period beginning in June 2020|
The launch cadence would rise sharply from once every 76 hours in 2021 to every 32.4 hours in 2023. The five SpaceShipTwos would be flying an average of 54 times per year in 2023.
The number of passengers would rise from 66 people on 16 flights in 2020 to 1,565 people on 270 flights in 2023. The four-year total would be 3,242 people.
The slide above shows that revenues are projected to increase from $31 million in 2020 to $570 million through 2023.
[For an in-depth analysis of the presentation, see: A Closer Look at the Virgin Galactic-Social Capital Merger, Sept. 8, 2019]
SCH shareholders approved the merger. Branson, Palihapitiya and then-CEO George Whitesides were on the NYSE floor on Oct. 28, 2019 as Virgin Galactic began to trade. From an initial price of $10.75, the stock soared as high as $62.80; it has since sunk to $22.15 amid continued program delays.
VSS Unity hasn’t flown to space in 26 months since the near disastrous flight in February 2019. Another suborbital test is planned for later this month. Space tourism flights are now predicted to start in early 2022, more than 17 years after Branson announced plans to develop SpaceShipTwo.
Whitesides stepped down as CEO in July 2020 and was replaced by former Disney executive Michael Colglazier. Rather than lower expectations amid the delays, Colglazier has raised them to even higher levels.
Colglazier has said Virgin Galactic will build a large fleet of SpaceShipTwos that would fly from multiple spaceports around the globe. Each spaceport would generate $1 billion in ticket and ancillary revenues from 400 suborbital flights per year. SpaceShipTwo vehicles would fly 50 times per year over an operating life of 10 years.
So, what kind of numbers is he talking about? Let’s made a few assumptions for the purposes of this analysis:
- Virgin Galactic flies from five spaceports
- each flight carries an average of five passengers (SpaceShipTwo’s maximum capacity is six with two pilots)
- eight to 10 SpaceShipTwos and three WhiteKnightTwo mother ships stationed at each spaceport.
Annual SpaceShipTwo Flights Based on 400 Flights Per Spaceport
|Annual Flights per Spaceport||400||5||2,000|
|Passengers flown per spaceport||2,000||5||10,000|
|Revenues per Spaceport||$1 billion||5||$5 billion|
That’s a lot of flights, a lot of passengers, and a whole boatload of money. It would likely take a lot of time given that SpaceShipTwo and WhiteKnightTwo vehicles have taken years to build. (Colglazier has said the company’s is looking at manufacturing options to speed up production.)
It’s not clear whether Colglazier’s plan is any less of a pipe dream than the one Sunshine had back in 2013. The big question is whether or not SpaceShipTwo and its mother ships will prove robust enough to fly frequently and safely. There’s no real good data on that because SpaceShipTwo has flown so infrequently. Months and even years go by between powered flights.
Virgin Galactic has its quarterly earnings call coming up on Tuesday. Hopefully, the Wall Street analysts who are the only people allowed on the call will ask some tough questions about where Colglazier and Virgin Galactic are getting their numbers.