Commercial Spaceflight Seen as a Potentially Lucrative, but Long-term, Investment

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SAN FRANCISCO — A flurry of new commercial space activity is attracting interest from investors seeking to profit from the fledgling suborbital tourism trade and cargo transportation business. Space industry executives and financial analysts caution, however, that some of those opportunities are best suited for patient, long-term investors.

“In terms of making money in the short run, I think the most viable option is some of these space tourist projects where there seems to be a large number of wealthy people who want to go to the edge of space,” said Armand Musey, former president of Near Earth LLC, a boutique investment bank in New York.

On March 23, Virgin Galactic’s suborbital space tourism plane, the VSS Enterprise, conducted its first test flight attached to its mothership. Virgin Galactic, part of the London-based Virgin Group, is the most well-known in a pack of firms eager to offer paying customers rides in suborbital or orbital vehicles. The company already has signed up more than 300 customers for flights costing $200,000 a piece. Virgin Galactic states on its Web site that it is not seeking outside investors. In August, Abaar Investments of Abu Dhabi, United Arab Emirates, bought a $280 million stake in the company.

The space tourism field also includes XCOR Aerospace and Masten Space Systems, both of Mojave, Calif., Blue Origin of Kent, Washington, and Armadillo Aerospace of Rockwall, Texas. These companies do not list stock shares on major indices, but they do welcome investors. “You can invest $10,000, $20,000 or $100,000 in one of these companies,” said Esther Dyson, an investor and entrepreneur with holdings in several space companies including Space Adventures of Vienna, Va., and XCOR.

Armadillo Aerospace sets the initial investment level higher. Armadillo states on its Web site that it is not seeking investors but adds, “If you have millions of dollars you’d like to spend on civilian access to space, we’ll listen.”

While this type of investment is not attracting institutional venture capital, it does lure patient, long-term angel investors who are eager to participate in and profit from emerging space enterprises, Dyson said. In addition, recent moves by the administration of U.S. President Barack Obama to turn the job of carrying space station-bound cargo and astronauts over to the private sector will bring more investors to commercial space companies. “If the new NASA budget passes, there will be more investment opportunities and people will be more aware of them,” Dyson said.

The 2011 NASA budget proposes spending $6 billion over five years to seed development of commercial vehicles capable of taking astronauts to and from the international space station. The NASA spending plan also adds $300 million to an ongoing effort by Orbital Sciences Corp. of Dulles, Va., and Space Exploration Technologies Corp. (SpaceX) of Hawthorne, Calif., to develop and demonstrate spacecraft capable of delivering cargo to the space station. In 2008, NASA awarded SpaceX and Orbital contracts with a combined value of $3.5 billion to use their resulting vehicles to each deliver a minimum of 20 tons of cargo to the space station through 2016.

These government programs offer concrete evidence that NASA will provide the initial market for commercial space services. “The market is becoming more visible,” Dyson said. “Investors can see it.”

Peter Diamandis, chairman and chief executive of the X Prize Foundation of Playa Vista, Calif., also believes the Obama administration’s proposed budget will draw new investors to the commercial spaceflight industry. The combination of federal government support and the emergence of new technology that could decrease the cost of space transportation makes the field ripe for long-term investors who can look far ahead to a time when asteroids are mined for precious metals and tourists visit orbiting hotels.

“Not all investors can look that far ahead, but there is a category of investors that recognizes that many of the things we hold in value on Earth — minerals, energy, real estate — are in infinite quantity in space,” Diamandis said. In that category of investors, Diamandis places the 1,000 to 2,000 living billionaires. “Some of these people are long-term, patient investors,” he said.

Financial analysts including Musey are skeptical of space mining projects. “There are not really any known substances that are worth the cost of going up there to get,” he said.

As the cost of space travel drops, Diamandis said, that equation may change. Government support will help to create a competitive market with multiple commercial firms offering space transportation, he said. “There is no question that there is tremendous risk,” Diamandis said. “But at the same time, these are huge potential markets.”