What went wrong with Richard Branson’s company
The crew of Virgin Orbit pose at the opening ceremony of the bell as a 70-foot model rocket with satellites is placed in front of the NASDAQ in Times Square in New York, USA January 7, 2022.
Typhoon Coshkun | Anadolu Agency | Getty Images
Not so long ago, virgin orbit was in thin air among American rocket scientists, and executives were in New York celebrating his debut at public events.
The scene was true to the marketing style that helped Sir Richard Branson build his Virgin empire by displaying a model rocket in the middle of Times Square.
The deal, orchestrated by the so-called blanche check company, gave Virgin Orbit a nearly $4 billion valuation. But the moment in December 2021 when the craze for public offerings centered on special purpose acquisition companies, or SPACs, faded away, foreshadowed the pain to come.
Now Virgin Orbit is on the verge of bankruptcy. The company went out of business on Thursday and laid off almost all employees. Its shares traded around 20 cents on Friday, bringing their market value to about $74 million.
When Virgin Orbit closed the SPAC deal, it raised less than half of the nearly $500 million expected due to high shareholder payouts, which shortened its runway. As broader markets turned against riskier but loss-making assets such as many new space stocks, Virgin Orbit shares began a steady decline, further limiting its ability to attract significant outside investment.
As CNBC previously reported, Branson, Virgin Orbit’s largest shareholder, was unwilling to fund the company further. Instead, he began to hedge his 75 percent equity stake through a series of debt rounds. That debt gives the screaming British billionaire priority over Virgin Orbit’s assets in the event of a looming bankruptcy.
While Virgin Orbit touted a flexible and alternative approach to launching small satellites, the company was unable to reach the number of launches needed to generate the revenue it sorely needed.
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Virgin Orbit’s technical staff performed well in the company’s short lifespan, but ultimately failed due to financial mismanagement by management. This story is told all too often in the history of the space industry: exciting or even innovative technology does not necessarily mean big business.
It became one of the few US rocket companies to successfully enter orbit using a privately developed launch vehicle. Since 2020, the company has launched six missions – with four successes and two failures – through an ambitious and technically complex process known as “air launch”, with a system that uses a modified 747 jet to drop a rocket in flight and send small satellites into space. . .
But Virgin Orbit dug a nearly $1 billion hole, but only flew missions twice a year as its payroll costs soared. The company’s management was aware of the deteriorating situation and the lack of progress, and even last summer considered making changes to make the business more economical. But no clear or dramatic plan came to fruition, leading to Thursday’s downfall.
This article gathers insights from CNBC’s discussions with company insiders and industry investors over the past few weeks, as well as regulatory disclosures, to explain where things went wrong for Virgin Orbit. These people have asked to remain anonymous in order to discuss internal or competitive matters.
A spokesman for Virgin Orbit declined to comment on the story.
Lack of execution
A Cosmic Girl 747 aircraft fires a LauncherOne rocket into the air for the first time during a drop test in July 2019.
Greg Robinson / Virgin Orbit
Virgin Orbit was spun off from Branson’s space tourism company. Virgin Galaxy, in 2017, after the team at the latter subsidiary saw the potential in using the aircraft as a satellite launch platform. Although launching satellites from the air was not a new idea for Virgin Orbit, the company aimed to outperform the air-launched Pegasus rocket developed by Orbital Sciences, now owned by Northrop Grumman, at a fraction of the cost of a mission.
Virgin Orbit, headquartered in Long Beach, California, operated most of its missions from the Mojave Aerospace Port. The exception was its most recent launch, which took off from the Cornwall launch site in the United Kingdom. Virgin Orbit has worked with other governments to secure launches from airports around the world, signing agreements with Japan, Brazil, Australia and Guam.
The touted flexibility and potential of Virgin Orbit’s approach has attracted a lot of attention from leaders in the US national security community. After meetings with senior Pentagon officials in 2019, Branson said Virgin Orbit is “almost the only company in the world that can replace [satellites] 24 hours” during the military conflict.
At the time, Air Force Purchasing Chief Will Roper said he was “very excited about the small launch” after meeting Branson. He said the US military has “huge amounts of money to invest” in buying missile launchers.
The company hoped to launch its debut mission as early as 2018, but that goal changed every six months or so. After all, Virgin Orbit launched its first mission in May 2020, which failed shortly after the rocket was fired from the plane. It first successfully entered orbit in January 2021.
Given the company’s energy burn rate of about $50 million per quarter, Virgin Orbit has targeted profitability after it exceeds a launch rate, or launch frequency, of a dozen missions per year. When it became public, Virgin Orbit CEO Dan Hart told CNBC that the company plans to launch seven rockets in 2022 to build on that momentum.
At the same time, Virgin Orbit was already in a deep financial hole – with a total deficit of $ 821 million at the end of 2021 due to constant losses since its inception. While Virgin Orbit planned to launch seven missions last year, that number has steadily declined quarter after quarter, ending 2022 with just two completed lunches – the same as the year before.
Some people in the company who were critical of Virgin Orbit’s actions pointed to the experience of several executives in Boeingwho has had his own problems with space for many years.
Virgin Orbit CEO Dan Hart spent 34 years at Boeing, where he was previously vice president of government space systems. COO Tony Gingiss joined Virgin Orbit from satellite broadband company OneWeb, but had previously spent 14 years at Boeing’s satellite division. And Chief Strategy Officer Jim Simpson also spent more than eight years at Boeing’s satellite division before joining Virgin Orbit.
As one person pointed out, the company launched as many rockets in a year with a staff of 500 people as with a staff of more than 750 people. Others have complained about the lack of coordination between departments, with projects and expenditures running in isolation from each other, resulting in inconsistent schedules.
Two people mentioned waste when ordering materials. For example: a company will buy enough expensive goods with a limited shelf life to build a dozen or more rockets, but then only build two, meaning it will have to throw away millions of dollars worth of raw materials.
When Virgin Orbit announced it was laying off employees on March 15, people familiar with the situation said the company had about half a dozen rockets in various stages of production at its Long Beach plant.
As the lack of financial assistance made the situation increasingly desperate, several Virgin Orbit employees expressed dissatisfaction with Hart’s presentation of the company’s position, and even more so with the lack of clarity following the layoffs.
On the day of the initial pause in work, people described how the company’s management frantically ran, while many employees stood and waited for news of what was happening. One person stressed that the tumultuous and sudden layoff was due to executives trying to keep the company going as long as possible. Several employees expressed disappointment that Hart held the March 15 general meeting virtually, spoke from his office rather than face-to-face, and did not answer any questions after the suspension was announced.
This frustration continued after a pause, when employees were baffled by the lack of specifics that investors were talking about to Virgin Orbit management. Thursday’s announcement that the deal had fallen off came as no big surprise to a workforce that was largely in limbo. Many are already looking for new jobs.
Deal efforts are falling apart
The rocket for the company’s second demonstration mission is undergoing final assembly at a plant in Long Beach, California.
A turnaround in Virgin Orbit’s strategy became apparent and needed shortly after the company went public.
Virgin Orbit intended to raise $483 million through the SPAC process, but due to significant redemptions, it raised less than half of that amount, bringing gross proceeds to $228 million. The funds he did raise came from the minority shareholders of SPAC who remained, as well as private investments from the Virgin Group, Emirates sovereign wealth fund Mubadala, Boeing and AE Industrial Partners.
Unlike its Virgin Galactic subsidiary, which boosted its cash holdings to over $1 billion by selling stocks and debt after going public in October 2019, Virgin Orbit has not grown its cash coffers. And that meant leaders had to take charge and make changes to run the company in a more cost-effective way, one person stressed, in order to regain momentum.
And then the perceived strength of Virgin Orbit in the national security sector began to falter. Despite using Space Force satellites for half of its missions, the company lost out to competitor Firefly Aerospace to launch under the Tactically Responsive Space program. The award-winning mission in October looked like it could not have been better than Virgin Orbit, especially since the previous mission under the Space Force program had flown on a similar air-launched Pegasus rocket.
As the financial situation worsened, several bankers who spoke to CNBC wondered why the search for a deal was dragging on. Virgin Orbit could quickly raise $10 million to $15 million to fix the situation until a bigger buyer can be found, one banker said. Another investor estimated Virgin Orbit’s net tangible assets were around $270 million, further sweetening the potential for a wholesale deal even as its declining market value.
The White Knight seemed to show up last week as Matthew Brown, who was discussing the creation An 11-hour deal with Virgin Orbit reportedly injecting up to $200 million into the company. However, negotiations stalled within days. Last week, the company continued negotiations with another, unnamed investor.
But, Hart said on Thursday, Virgin Orbit “has been unable to secure the funding to provide a clear path for this company.”
And while the 675 employees laid off on Thursday likely have good job prospects, Virgin Orbit appears to be doomed to bankruptcy.