WASHINGTON — Virgin Galactic executives said Feb. 22 that they remain on schedule to begin commercial human suborbital missions before the end of the year but acknowledged it will take several years for the company to become profitable.
In an earnings call after the release of Virgin Galactic’s fourth quarter and fiscal year 2021 financial results, executives said upgrades to the company’s SpaceShipTwo suborbital spaceplane, VSS Unity, and its WhiteKnightTwo carrier aircraft, VMS Eve, remained on schedule to allow them to start commercial flights in the fourth quarter.
“We remain on track and on schedule to commence commercial service later this year,” Michael Colglazier, chief executive of Virgin Galactic, said on the call. “We are making excellent progress on the enhancements to our mothership Eve and our spaceship Unity.”
The company announced in October that it started a long-term maintenance period for both vehicles earlier than expected after finding “a possible reduction in the strength margins of certain materials used to modify specific joints” on those vehicles. The company postponed a mission for the Italian Air Force scheduled for that fall and start maintenance work scheduled to last until the third quarter of 2022.
Colglazier stuck to that schedule in the call. Work on the aircraft, Eve, is “progressing towards completion in the third quarter,” he said, with Unity also expected to complete its maintenance that quarter. The upgrades to various components of both vehicles are intended to improve their reliability and increase their flight rates.
At the same time, the company is completing work on its next spaceplane, VSS Imagine, the first and perhaps only vehicle in the Spaceship III line announced last March. Colglazier said flight tests of Imagine will begin later this year, with a goal of beginning revenue flights in the first quarter of 2023, initially carrying research payloads. It will start flying customers later in the year, operating alongside Unity from Spaceport America in New Mexico.
Virgin Galactic expects Unity to be able to fly once per month when it emerges from its maintenance period, while Imagine is designed to fly twice per month. “We’re very excited about delivering this level of capacity from our current ships,” he said.
That flight rate, though, won’t be sufficient to meet Virgin Galactic’s demand for flights. The company is betting its future on a future “Delta-class” spaceplane and next-generation carrier aircraft that the company announced last year. The company has disclosed few technical details about either, but Colglazier said the Delta-class vehicles are designed to be produced in volume and be capable of flying once a week.
He said the company is shifting its manufacturing approach for those vehicles from its past approach of building everything in-house. Virgin Galactic now plans to work with “tier one” aerospace companies to build major subassemblies of those vehicles, with final integration to take place at a new Virgin Galactic facility to be ready by the end of 2023.
“We expect this will provide us with a cost-effective and highly efficient manufacturing model for building out our Delta fleet and future motherships,” he said, with a goal of being able to produce up to six spaceplanes per year once in full operation.
The company needs those additional spaceplanes to serve a growing backlog of customers. Colglazier said the company has a goal of having 1,000 customers by the time commercial flights resume later this year. Virgin Galactic has sold approximately 750 seats, he said, of which 150 came after the company reopened ticket sales last August first to those on a waiting list and, as of Feb. 15, to the general public at $450,000. The rest are from earlier ticket sales, some of which date back more than 15 years.
The Delta-class spaceplanes won’t be able to meet that demand for some time, though. Doug Ahrens, chief financial officer of Virgin Galactic, said on the call that the first Delta-class vehicles should be ready to start commercial flights of research payloads in late 2025 and passenger flights in 2026.
Asked later in the call if the company expected to have flown all its projected initial 1,000 customers by the time the Delta vehicles enter service, Ahrens and Colglazer declined to give a direct answer. “We’ve probably given you enough data out there to track this,” Colglazier said. “You can start to do some of that math on where the numbers will play.”
With Unity capable of carrying four customers and flying once a month, while Imagine carrying six people and flying twice a month, Virgin Galactic will be able to fly 16 customers a month, or 192 people a year, if all flights are devoted to its private astronaut customers. That would take the company more than five years to work through the backlog if the Delta vehicles are not ready.
The limited revenue that will come from those flights, along with the expenses associated with developing the Delta-class vehicles and new aircraft, will keep the company from being profitable for several years. Ahrens said that while the company was not providing multi-year guidance, he expected positive free cash flow by 2026.
That is significantly later than what the company expected a few years ago. In a September 2019 investor presentation, Virgin Galactic projected having earnings before interest, taxes, depreciation, and amortization (EBITDA) of $12 million in 2021, based on plans then to start commercial operations in mid-2020. The company reported Feb. 22 having an adjusted EBITDA of –$244.8 million in 2021.
That presentation was part of Virgin Galactic’s merger with a special purpose acquisition company (SPAC), Social Capital Hedosophia, that took Virgin public in October 2019. The founder of Social Capital Hedosophia, Chamath Palihapitiya, became chairman of the board of the merged company.
Virgin announced Feb. 18 that Palihapitiya has resigned from the board, effective immediately, “to focus on other public company board commitments.” Evan Lovell, a member of the board and chief investment officer of the Virgin Group, took over as board chairman on an interim basis.
Colglazer offered no additional insights on Palihapitiya’s departure but suggested, despite the lack of advance notice, he knew Palihapitiya might leave. “We’ve known the time would come when Chamath would move on to new initiatives,” he said. “I’d like to thank Chamath for his vision and his groundbreaking work in transitioning Virgin Galactic to a public company.”
Colglazer said Virgin has retained a firm to search for a new chairman, but did not give a schedule for selecting that person.
Public company woes
Virgin Galactic’s life as a public company has been a rocky one. The company’s stock closed down nearly 7% at $7.82 a share Feb. 22, near a 52-week low. The company released its financial results shortly after the markets closed, and the stock rebounded slightly in after-hours trading.
Virgin was the forerunner of a wave of SPAC deals that have taken nearly a dozen space companies public, most in the last year. The shares in many of those companies have fallen significantly after going public.
That decline is illustrated in a stock index by SpaceWorks Engineering, an Atlanta-based space engineering and consulting company. The SpaceWorks NewSpace Index (NSI) currently includes 13 public companies involved in commercial spaceflight, most of which have gone public through SPACs.
The NSI started at 100 in January 2021, its value normalized to the Dow Jones Industrial Average and S&P 500. As of Feb. 18, the Dow had a normalized value of 111.7, meaning $100 invested in it in January 2021 would be worth $111.70 now. The S&P 500 had a value of 117.5. The NSI, by contrast, was at 29, its value declining steadily over the last several months.
“These negative trends can be attributed to a variety of reasons depending on the individual company, but we recognize that these are mostly immature companies just getting their products developed and to the market,” Hayden Magill, the SpaceWorks analyst who developed the index, said in a statement. “It will be interesting to observe their market performance over the next months and years.”