The Virgin Orbit crew stands at the opening bell ceremony as a 70-foot model rocket with satellites is placed in front of the NASDAQ Stock Exchange in Times Square in New York City, US January 7, 2022.
Tayfun Coskun | Anadolu Agency | Getty Images
not long ago, Virgin Orbit It was a rarity among American missile makers, and New York executives were celebrating the first public stock.
A true spectacle of the marketing pizza that helped Sir Richard Branson build his Virgin Empire, he displayed a mock-up of a rocket in the middle of Times Square.
The deal, facilitated by the so-called blank check company, gave Virgin Orbit a valuation of nearly $4 billion. But that December 2021 moment — when the craze surrounding public offerings centered around special purpose acquisition companies, or SPACs, was fading — I previewed the coming pains.
Now, Virgin Orbit is on the verge of bankruptcy. On Thursday, the company halted operations and laid off nearly all of its employees. On Friday, its shares traded at about 20 cents, bringing its market value to about $74 million.
When Virgin Orbit closed the SPAC deal, it had raised less than half of the projected roughly $500 million due to high shareholder redemptions, shortening its runway. With broader markets turning against riskier but unprofitable assets such as many of the new space stocks, Virgin Orbit’s shares have begun to steadily slide, limiting its ability to raise significant outside investment.
Branson, Virgin Orbit’s largest shareholder, was unwilling to fund the company further, CNBC previously reported. Instead, he began to hedge his 75% stake through a series of debt rounds. This flashy British billionaire debt gives first priority to Virgin Orbit’s assets in the now imminent case of bankruptcy.
While Virgin Orbit promoted a flexible and alternative approach to launching small satellites, the company was unable to reach the launch rate necessary to generate the revenue it desperately needed.
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Virgin Orbit’s technical staff acquitted themselves well because of the company’s short existence, but were eventually undone by the financial mismanagement of its leaders. It’s an oft-told story in the history of the space industry: Exciting, or even innovative, technologies don’t necessarily equal big business.
It became one of the few US rocket companies to successfully reach orbit with a specially developed launch vehicle. It has launched six missions since 2020 — with four successes and two failures — through an ambitious and technically challenging process known as an “air launch,” with a system that uses a modified 747 aircraft to drop a mid-flight missile and send small satellites into space.
But Virgin Orbit dug in close to $1 billion, flying missions only twice a year while payroll expenses soared. The company’s leadership was aware of the deteriorating situation and lack of progress, and even considered changes last summer to make the business more agile. But no clear or dramatic plan came to fruition – leading to Thursday’s downfall.
This story brings together insights from CNBC’s discussions with company insiders and industry investors over the past several weeks, as well as from regulatory disclosures, to explain where things went wrong for Virgin Orbit. These people asked not to be identified in order to discuss internal or competitive matters.
A Virgin Orbit spokesperson declined to comment for this story.
The company’s 747 “Cosmic Girl” launched a LauncherOne into the air for the first time during a drop test in July 2019.
Greg Robinson / Virgin Orbit
Virgin Orbit is separated from space tourism company Branson, Virgo galaxy, in 2017, after a team within the latter’s sister company saw the potential of using an aircraft as a satellite launch pad. While “air-launching” satellites was not a new idea for Virgin Orbit, the company aimed to outpace the air-launched Pegasus rocket — developed by Orbital Sciences, now owned by Northrop Grumman — for a fraction of the cost per mission.
Virgin Orbit is headquartered in Long Beach, California, and has flown most of its missions from the Mojave Air and Space Port. The exception to this was its most recent launch, which launched from Spaceport Cornwall in the UK. Virgin Orbit has been working with other governments to provide fly-by-wire launches from airports around the world, signing agreements with Japan, Brazil, Australia and the island of Guam.
The stated flexibility and potential of Virgin Orbit’s approach has attracted a great deal of interest from leaders in the US national security community. After meetings with senior Pentagon officials in 2019, Branson declared Virgin Orbit “the only company in the world that can replace [satellites] within 24 hours” during a military conflict.
At the time, Air Force acquisition commander Will Roper said he was “very excited about the small launch” after meeting with Branson. He said the US military has “a lot of money to invest” in purchasing missile launches.
The company had hoped to launch its first mission as early as 2018, but that goal kept moving every six months or so. Ultimately, Virgin Orbit launched its first mission in May 2020, which failed shortly after the rocket was launched from the aircraft. It successfully entered orbit for the first time in January 2021.
Given the company’s burn rate of close to $50 million a quarter, Virgin Orbit was targeting profitability once it beat the launch rate, or cadence, of a dozen missions a year. When Virgin Orbit CEO Dan Hart announced to CNBC that the company was aiming for seven rocket launches in 2022, it was to build on that momentum.
At the same time, Virgin Orbit was already in deep financial trouble – with a total shortfall of $821 million at the end of 2021, due to continuous losses since its inception. While Virgin Orbit aimed to launch seven missions last year, that number has been steadily directed down quarter by quarter, and 2022 closed out with just two completed lunches — the same as the previous year.
Some people within the company who have criticized Virgin Orbit’s implementation have pointed to the backgrounds of several of its executives Boeingwhich has had its share of space-related hurdles over the years.
Virgin Orbit CEO Dan Hart spent 34 years at Boeing, where he was previously vice president of Government Space Systems. COO Tony Jenges joined Virgin Orbit from satellite broadband company OneWeb, but prior to that spent 14 years in Boeing’s satellite division. Chief Strategy Officer Jim Simpson also spent more than eight years in Boeing’s satellite division before joining Virgin Orbit.
No one has confirmed that the company fired the same number of rockets in one year with a crew of 500 as it did with a workforce of more than 750. Others complained of a lack of coordination between departments, with projects and spending running in silos to one another – leading to disruptions in schedules.
Two people mentioned the waste of ordering materials. For example: A company will buy enough expensive items with a limited shelf life to build a dozen or more missiles, but then only make two, which means it will have to shell out millions of dollars worth of raw materials.
When Virgin Orbit announced an employee furlough on March 15, people familiar with the situation said the company had about six rockets in various states of production at its Long Beach plant.
As the lack of a financial lifeline made the situation increasingly desperate, many Virgin Orbit employees expressed frustration with how Hart communicated the company’s position – and even more so with the lack of clarity after the furlough.
On the day of the initial halt to operations, people described company leadership frantically spinning while several employees stood by, waiting for word on what was going on. One person confirmed that the tumultuous and sudden vacation happened because the executives tried to keep the company alive for as long as possible. Several employees expressed disappointment that Hart held the all-encompassing meeting around March 15, spoke from his office rather than face-to-face, and did not answer any questions after the announcement of the cessation of operations.
That frustration continued after the break, as employees were confused by the lack of specific details investors were talking about for Virgin Orbit’s leadership. Thursday’s update on the deal’s failure came as no surprise to a workforce that has been largely forgotten. Many were already looking for new jobs.
Deal efforts fall apart
The company’s second experimental mission rocket is undergoing final assembly at its Long Beach, California, plant.
The focus of Virgin Orbit’s strategy became obvious and essential soon after it went public.
Virgin Orbit aims to raise $483 million with the SPAC, but large recalls mean it has raised less than half of that, resulting in $228 million in total proceeds. The money it raised came from the minority SPAC shareholders who remained on hold, as well as private investment from Virgin Group, UAE sovereign wealth fund Mubadala, Boeing and AE Industrial Partners.
Unlike sister company Virgin Galactic, which built its cash reserves to more than $1 billion through equity and debt sales after going public in October 2019, Virgin Orbit has not built its cash coffers. One person stressed that this means that leadership has to step back and make changes to run the company in a more agile way, to rebuild momentum.
Then Virgin Orbit’s apparent strength in the national security sector began to falter. Although half of its missions are flown by Space Force satellites, the company lost out to rival Firefly Aerospace for a launch contract under the “Tactically Responsive Space” program. The mission was awarded in October, and it seemed right up the alley for Virgin Orbit, especially since the previous mission under this space force program flew on a similar air-launched Pegasus rocket.
With the financial situation worsening, a few bankers who spoke to CNBC wondered why the search for a deal had been delayed. According to one banker, Virgin Orbit could quickly raise $10 million to $15 million to fill the gap by the time it finds a larger buyer. Another investor estimated that Virgin Orbit has about $270 million in tangible net assets, which increases the likelihood of a wholesale deal despite its low market value.
The white knight appeared to appear last week in the form of Matthew Brown, who discussed an 11-hour deal with Virgin Orbit, pumping up to $200m into the company. But the talks collapsed within days. The company continued discussions with another unnamed investor last week.
But in Hart’s words Thursday, Virgin Orbit “has not been able to secure financing to provide a clear path for this company.”
And while the 675 employees laid off on Thursday likely have strong job prospects, Virgin Orbit now appears headed for bankruptcy.