Virgin Galactic Again Threatens New Mexico Pullout

The Associated Press reports that Virgin Galactic is once again threatening to pull out New Mexico, this time over unfinished work at the $209 million, taxpayer-funded Spaceport America:

Virgin Galactic has agreed to start paying New Mexico rent on the nearly quarter-billion-dollar spaceport the state built for British businessman Richard Branson’s space tourism business, but it says it is doing so under protest and without waiving its right to walk away from the project, according to documents obtained by The Associated Press.

In a Jan. 16 email to the New Mexico Spaceport Authority, Virgin Galactic said it does not believe the state has finished the work necessary to trigger activation of its $1 million annual rent obligation, and said if the work is not complete to its satisfaction by March 31, it “may either stop paying rent, pay reduced rent or give notice to terminate” its lease.

This is the second rationale Virgin Galactic has advanced for potentially pulling out of the deal in recent months. It had previously suggested that it would abandon the state if legislators did not extend limited liability protections against lawsuits to spacecraft manufacturers and suppliers. A compromise measure is now speeding through the Legislature.

The rent dispute stems from the “base building standard completion” milestone that the state reached on Nov. 14. That milestone meant that the facilities was essentially complete and nearly ready for use. New Mexico and Virgin Galactic drew up a punch list of items to be completed prior to the company taking possession of the facilities.

The milestone also began a 60-day countdown toward a Jan. 15 date that would trigger a series of financial payments from Virgin Galactic. Those obligations include:

Performance Guarantee: $2 million (upfront)
Facilities Rent Payments: $1 million per year ($83,333.33 per month)
Ground Rent: $30,000 per year ($2,500 per month)
User Fees: $600,000 per year minimum ($50,000 per month)

Minimum Annual Total: $1.63 million per year
Minimum Monthly Total: $135,833.33

Despite the Jan. 15 start date, the Associate Press reports that the first monthly facilities and ground rent fees are due on Friday, Feb. 1.

Virgin Galactic is disputing that it owes any of the user fees, which cover flights out of New Mexico. The $600,000 annual charge is a minimum set by the lease to help cover spaceport expenses during the early days of Virgin Galactic’s occupancy, when the company would be operating few flights.  A reading of the lease seems to indicate that Virgin Galactic owes these fees whether it is flying or not. There is an elaborate user fee structure that will kick in as Virgin Galactic flies more frequently.

Virgin Galactic is not ready to fly from Spaceport America yet, and may not be for another year. The Associate Press reports that Virgin Galactic is claiming that New Mexico has agreed not to charge the company any user fees until it actually starts to fly.

In a response to Virgin Galactic, New Mexico Spaceport Authority Executive Director Christine Anderson disputed that claim. She also said the punch list completion date does not affect rent obligations.

In a response dated Thursday, Anderson said the statement that New Mexico has agreed to waive user fees “is not quite correct” and states that “NMSA confirms its current right to demand User Fees for a minimum number of missions or terminate the lease if VG fails to fly at least 25 missions in a calendar year. While the starting date is ill-defined in the lease,” she continued, “I think this highlights the need for VG to provide NMSA accurate flight projections with frequent updates as appropriate.”…

“Frankly, whether NMSA completes the punch list by March 31st or not, does not change the fact that Base Building Standard was achieved on November 14 and thus rent was to commence on Jan. 15 per the lease,” she wrote.

Providing that the company doesn’t break the lease, it remains unclear precisely when Virgin Galactic will begin flying commercially out of New Mexico. Virgin Galactic officials have hinted at the end of this year or early 2014 if flight tests go well this year. However, they have been consistently wrong in their past predictions, and there is evidence it might be happening again.

The company’s SpaceShipTwo vehicle, which is undergoing testing in Mojave, Calif., has yet to have a single powered flight. Virgin Galactic officials have said that powered flights are set to start this year using a “starter” engine. That propulsion system is believed to be a smaller version of the full-scale hybrid motor that would power SpaceShipTwo into transonic flight. These tests would be followed by flights with the full hybrid engine capable of reaching suborbital space.

Providing those flights go well, SpaceShipTwo would need to go through the Federal Aviation Administration’s (FAA) licensing process in order to fly commercially. FAA has never licensed a commercial space plane previously, so it’s not clear how long that process will take.

More fundamentally, there are questions about SpaceShipTwo’s RocketMotorTwo propulsion system. The company had contracted with Sierra Nevada Corporation to produce a hybrid engine powered by nitrous oxide and rubber. However, persistent stories that have circulated in Mojave for years that the design doesn’t work very well.

Virgin Galactic appears to be hedging its bets. Reputably sources indicate that there is on-going development and testing of three alternative hybrid motor designs. This would tend to indicate a lack of confidence in the Sierra Nevada motor.

Virgin Galactic is also working on a long-term solution, a liquid motor for the LauncherOne rocket that would be air launch satellites from WhiteKnightTwo. That motor could eventually replace the hybrid one on SpaceShipTwo in about three or four years.

Developing new hybrid or liquid engines usually takes a couple of years. It’s not clear exactly where the alternative hybrid designs are in their development. Or whether Virgin Galactic will need to switch to them.

However, if the company needs to switch engines, it could mean a substantial delay during which Virgin Galactic will be paying $1.63 million in annual rent on Spaceport America without flying any millionauts into space.

That would be expensive for the company. It’s also bad for New Mexico because the state will only really benefit from Spaceport America once Virgin Galactic is flying a lot of wealthy clients from Spaceport America. Those clients will generate jobs and user fees, stay in local hotels, and draw in tourists to watch them fly into space.