- Parabolic Arc
- June 2, 2023
Richard Branson’s Virgin Galactic Goes Public With Extravagant Promises to Keep
by Douglas Messier
After 15 years of making extravagant but unkept promises to fly more than 600 “future astronauts” to space, Richard Branson must now please an entirely new group of people who are usually much shorter on patience: shareholders.
Following the completion last week of a merger with Social Capital Hedosophia (SCH), the British billionaire’s Virgin Galactic suborbital “space line” will begin trading under its own name on the New York Stock Exchange (NYSE) on Monday.
Going public now is an unusual move for a space tourism company that hasn’t flown a singlet tourist to space since Branson announced the SpaceShipTwo program in 2004. Some might see it has putting the cart before the horse.
SpaceShipTwo has flown only two suborbital flights to date. Powered flights total a mere nine, with one failure. Commercial missions originally promised for 2008 will now take place sometime next year. Suborbital space tourism doesn’t even exist as an industry..
Adding to the investors’ concerns: flying aboard rocket-powered vehicles is inherently dangerous. Boosters have a tendency to explode, wander off course and otherwise fail spectacularly. The SpaceShipTwo program has already claimed three lives in a test stand explosion, and one more in an in-flight breakup.
Given all this, what did Virgin Galactic promise to SCH shareholders to get them to approve the merger? And what is it offering people who might decide to buy shares on Monday?
In a word, alot.
Would you believe Branson’s company expects to safely launch one SpaceShipTwo every 32.4 hours in 2023? That it would be profitable in the second year of operation? And that the company is pursuing the development of hypersonic (Mach 5+) civilian transports that would take passengers from New York to Tokyo in a couple of hours?
Virgin Galactic and SCH spelled out these ambitious plans in investor and analyst presentations filed with the Securities and Exchange Commission (SEC) to support the merger.
Before we dig into the numbers, let’s first take a look at the disclaimer that was the second slide in the analyst presentation. (Read a clearer version here.)
To summarize, the presentation is for informational purposes only, is not all inclusive of costs and risks, and includes a lot of “forward looking statements” that Virgin Galactic might never deliver on. The financial and operating forecasts and projections also have not been reviewed by independent public accountants.
In other words, caveat emptor. Buyer beware. Now let’s look at what Sir Richard’s company promised.
An Unprecedented Number of Flights
Virgin Galactic plans to begin flying passengers in June 2020 on its lone completed spacecraft, VSS Unity. The vehicle would carry four passengers initially, increasing to five in 2021.
SpaceShipTwo-02 and SpaceShipTwo-03, which are now under construction at the Mojave Air and Space Port in California, would be completed by the end of 2020 and 2021, respectively. They would begin carrying five passengers per flight before moving to full capacity with six.
Virgin Galactic is also planning to build two additional SpaceShipTwos taht would carry six passengers apiece from the beginning of commercial service. Those ships would begin flights in 2022 and 2023.
The chart above shows the number of passengers rising from 66 next year to to 1,565 in 2023. In total, Virgin projects flying a total of 3,242 passengers over the four-year period.
|SpaceShipTwo Flight and Passenger Projections by Fiscal Year|
|Total Number of Flights per Year||16||115||170||270|
|Total Number of Passengers Flown||66||646||965||1,565|
|Launch Cadence||22.8 days||3.18 days (76 hours)||2.14 days (51.5 hours)||1.35 days (32.4 hours)|
|Average Number of Flights per Vehicle||8||38.33||42.5||54|
|Average Number of Passengers per Flight||4.1||5.6||5.7||5.8|
|Sources: Virgin Galactic/Social Capital Hedosophia data and Parabolic Arc calculations|
The number of flights would increase from 16 next year to 270 in 2023, with a total of 571 over four years. The launch cadence would rise from roughly once every 22.8 days to once every 32.4 hours during that period. The five spaceships would need to launch 54 times apiece to conduct 270 flights in 2023.
These numbers would be unprecedented in the history of human spaceflight since 1961. Nobody has even tried to launch as often or fly as many people. Since 1961, there have been 321 orbital and 20 suborbital crewed launches.
|HUMAN SPACE LAUNCHES, 1961-2019|
|PROGRAM||LAUNCHES||FAILURES (INFLIGHT LOV/LOC)||ABORTS||FATALITIES|
|Soyuz||143||2||3 (2 in-flight, 1 launch pad)||4|
|Suborbital Launches (Above 50 Miles/80.4 Km)|
|* The flight of SpaceShipTwo VSS Enterprise on Oct. 31, 2014 did not involve an attempt to reach space. The flight resulted in the loss of the vehicle and the death of co-pilot Mike Alsbury.|
The X-15, which is the world’s most flown rocket-powered space plane, flew 199 times in 9.5 years. Only 13 flights reached suborbital space above 50 miles (80.4 km). One of them crashed, destroying the vehicle and killing pilot Michael J. Adams.
SpaceShipTwo has flown nine times under power, with two flights above 50 miles (80.4 km). Additional flight tests to space are planned before commercial service begins next year.
VSS Enterprise broke up on its fourth flight test — destroying the ship, killing co-pilot Mike Alsbury, and landing pilot Pete Siebold in the hospital with serious injuries.
The SpaceShipTwo program also suffered three casualties in a ground test accident in 2007. Engineers Eric Blackwell, Todd Ivens, and Charles “Glenn” May died when a nitrous oxide tank exploded on a test stand at Mojave.
Branson’s rocket plane is a much larger version of SpaceShipOne, which flew to space three times and under power only six times. Two of the three spaceflights experienced serious problems during flights.
A Bad Day
In 2005, a team at New Mexico State University wrote a business plan for the planned Southwest Regional Spaceport. The facility, since renamed Spaceport America, is where Virgin Galactic is now anchor tenant. The business plan identified accidents as a key risk to the spaceport:
Perhaps the most troublesome and, therefore, most important technological force New Mexico faces in developing and managing the Southwest Regional Spaceport is safety. A fatal accident in commercial aviation barely attracts attention beyond the evening news and causes only a minor hiccup in air travel, if having any effect at all.
A fatal accident in a NASA mission, for example the Shuttle, grounded the fleet for nearly two years and caused a national debate about the merits of manned spaceflight. An accident, which is certainly possible in the emerging commercial space market, could be fatal to the industry if not to particular individuals.
It’s one thing for a test pilot and engineers to die during development. But, what if a half dozen celebrities perish on a single, high-profile flight because their stylish blue “spacesuits” failed to protect them from a sudden high-altitude decompression?
What would happen to reservations as the gory details rapidly spread around the world? How long might the vehicles be grounded? And what might the resulting accident investigation reveal about safety standards? Might pressure to produce profits have played a role in the accident, as occurred with Boeing’s 737 Max’s fatal crashes?
Unlike with commercial airliners, passengers are dependent on the due diligence of their launch provider. Before flying, passengers will be required to sign waivers releasing Virgin Galactic and its suppliers from liability in the event of injuries or deaths. The only exceptions are for gross negligence or intentional harm.
The Federal Aviation Administration (FAA) will not certify SpaceShipTwo as it does airliners. The agency is prohibited from formulating safety regulations for passengers and pilots until after there is a close call or fatal accident.
The FAA’s main concern at present is that people and property not involved in the flight are not injured, killed or damaged if there is a space tourism accident.
All that could change after an accident or close call. Virgin Galactic might find its fleet grounded even longer than it might otherwise be in order to comply with new safety regulations.
A Growing Total Addressable Market (TAM)
Let’s assume for the sake of argument that Virgin Galactic can safety reach the flight rates it has promised to investors. Is there an actual market to support it? Unsurprisingly, Branson’s company believes there is one.
Virgin has $80 million from about 600 reservation holders who have put down deposits on tickets costing $200,000 or $250,000 apiece. (Ticket prices were raised by $50,000 in 2013.) Current reservations amount to 18 percent of the 3,242 passengers Virgin projects it will fly during the first four years.
Virgin Galactic said it had more than 700 reservations prior to the fatal crash of SpaceShipTwo Enterprise on Oct. 31, 2014. Commercial sales were suspended after the accident.
Despite the loss of about 100 reservations over the past five years, Virgin points to the loyalty of ticket holders who have remained as evidence there is a large market for suborbital space trips. Some have been waiting for more than a decade to fly.
The company estimates there are approximately 1.9 million people with net worth of more than $10 million. That number is expected to grow to nearly 2.4 million by 2023 due to economic growth and growing income inequality.
The number of high net worth individuals worth between $1 million and $5 million totals 37 million. That is a potential market if Virgin Galactic can reduce its current ticket price of $250,000.
The trend to date has been largely in the opposite direction since Branson announced Virgin Galactic in September 2004. Ticket prices started at $208,000, fell slightly to $200,000, and increased to its current level following SpaceShipTwo’s first powered flight in April 2013.
Branson has since announced that the price would increase again once Virgin Galactic restarts ticket sales. That is expected to occur after commercial service begins next year.
The investor presentation projects that each SpaceShipTwo flight will bring in $1.25 million based on five passengers paying an average of $250,000 per seat. After expense, there would be a 66 percent contribution margin totaling $820,000.
The presentation estimates it will cost $121,000 for nitrous oxide and a rubber fuel motor that must be replaced after each flight . The figure assumes that the “price per rocket motor decreases over via additional investments and manufacturing capabilities, as well as learning curve efficiencies and benefits of economies of scale, modestly offset by inflation; fuel costs increase gradually over time, driven by inflation.”
Three days of passenger training, the flight on day four and insurance will total $193,000 per flight. It’s not clear what portion of this amount is insurance. The amount could rise significantly if there is a serious accident.
Operations costs account for another $118,000 per flight. This category includes fleet management, consumables and other flight-related expenses.
The above slide has summary of flights, passengers flown and revenues. Virgin Galactic is expecting revenues to rise from $31 million in 2020 to $590 million in 2023. The four year total would amount to $.1.23 billion.
Earnings before interest, taxes, depreciation, and amortization (EBITDA) would be a negative $104 million in 2020 based on flying 66 passengers on 16 flights.
EBITDA would total $12 million in 2021 rising by $274 million in 2023 based on a launch cadence of every 32.4 hours that year. EBITDA would total $327 million over the four-year period.
This figures do not include what Virgin Galactic will need to spend in capital expenditures to expand its fleet of vehicles and perform other tasks.
The above charts project $225 million in capital expenditures from 2020 through 2023. The expenditures include the cost of completing and testing four additional SpaceShipTwo vehicles and an additional WhiteKnightTwo carrier aircraft.
EBITDA and capital expenditures would total a negative $156 million in 2020 and minus $48 million the following year. The projections improve to $86 million in 2022 and $219 million in 2023. The four-year total would be $101 million.
Virgin Galactic also has another revenue stream from flying microgravity experiments aboard SpaceShipTwo. The company’s ultimate ambition is rapid passenger service between distant cities on Earth.
Earlier this month, Boeing announced it would be investing $20 million in Virgin Galactic to “work together to broaden commercial space access and transform global travel technologies.”
“Boeing’s strategic investment facilitates our effort to drive the commercialization of space and broaden consumer access to safe, efficient, and environmentally responsible new forms of transportation,” said Brian Schettler, senior managing director of Boeing HorizonX Ventures. “Our work with Virgin Galactic and others will help unlock the future of space travel and high-speed mobility.”
The X-15 is the only piloted rocket-powered aircraft known to have flown to hypsonic speed. On Oct. 3, 1967, William J. “Pete” Knight flew X-15A-2 to Mach 6.70 (4,520 miles per hour/7,274 km/h; 2,021 m/s), a record that remains unbroken today. The vehicle was retired after the flight.
Much progress has occurred in hypersonic flight and composite materials over the past 52 years. However, developing a vehicle capable of safely carrying passengers at speeds exceeding Mach 5 that can obtain FAA certification remains a challenging task.
Virgin Galactic will also face competition from SpaceX’s Starship, which Elon Musk is designing to rapidly fly passengers between distant cities.
Since the investor and analyst presentations are essentially sales documents, they leave a number of unanswered questions. One of them is how accurate Virgin Galactic’s projections will be once rival Blue Origin begins flying passengers in its New Shepard suborbital vehicle.
After 11 successful suborbital flight tests, Jeff Bezos’ company is planning two more launches with no one aboard. The first flight tests with people aboard are likely to occur sometime next year.
Blue Origin has not started selling tickets yet, although an official recently said the price would be in the hundreds of millions of dollars. Whether Bezos’ company will undercut Virgin Galactic remains to be seen.
Due to the lack of solid information about Blue Origin’s plans, Virgin Galactic’s presentations don’t have a lot of competitive analysis.
Suborbital space tourism doesn’t exist at the moment. Virgin Galactic and Blue Origin are inventing a new industry with many risks and unknowns. Nobody knows how reliable the vehicles will be over the long term. Or how tolerant people will be if there are accidents.
Virgin Galactic is going public promising unprecedented things to shareholders. The number of flights and passengers are very ambitious. On these the promised revenues all depend.
The only thing to say right now is, we’ll see. And good luck.
28 responses to “Richard Branson’s Virgin Galactic Goes Public With Extravagant Promises to Keep”
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It will be interesting to watch.
Doug, you might want to edit that. The saying is “cart before horse.” Horse before cart is how things are supposed to go. 😀
Yikes. Fixed it. Thank you.
No. Just no. No two times.
1. An insurance company can make an unusual move. The world is full of insurance companies, and they mostly make usual moves. Sometimes, an insurance company makes an unusual move. The same is true for railroads, grocery chains and cruise lines. In contrast, all space tourism companies are unusual to begin with. They are incapable of making usual moves. Their mere existence is a strange use case.
2. Virgin Galactic is not going public. They did not just merge. An investment company just bought them and is trading publicly under their name.
AOL did not merge with Time Warner. AOL bought Time Warner. But what they said at the time was that it was a merger, because that’s what they always say, so that the middle management of the purchasee does not immediately light the place on fire. Years after that particular “merger”, people opined that it was a bad deal for Time Warner. Huh? The shareholders of Time Warner had a huge payday and left the auditorium. And it turned out to be a great deal for AOL, because they bought a great company with their ridiculously leveraged Internet bubble bucks.
AT&T did not merge with Southwestern Bell. Southwestern Bell purchased the desiccated husk of AT&T and immediately began doing business under the newly purchased name. Their well earned horrible reputation as Southwestern Bell was the principle reason for doing so. Maybe no one will realize, they opined. They were right. Today, most people think AT&T is the faded remnant of the grand old company that started it all. It isn’t. Money well spent.
Whenever the assertion is made that two companies are merging, one of those companies is always the merger and the other company is the mergee. Generally speaking, you don’t want to be a 50 year old assistant vice president in the accounting department of the mergee.
Here is the title of the article in Yahoo Finance: Social Capital Hedosophia Holdings Corp. to Begin trading as Virgin Galactic Holdings, Inc. on Monday
It is not unusual for one company to purchase another company and begin trading under the purchased company’s name. It’s a branding decision. Given Social Capital’s pre-existing brand, Yahoo Finance describes them as a “blank check” company, it seems like a good move on their part. It seems like a usual move.
Virgin Galactic is dead. Long live Virgin Galactic!
By the way, Social Capital knows all those projections are bogus. Virgin Galactic was a distressed company. That’s how M&A works. You buy a distressed company, turn it around, and reap a windfall.
Next up: Dennis Muilenberg announces that “he wants to spend more time with his family.”
It’s unusual to start publicly trading some company that hasn’t actually delivered anything yet. However it ends up on the NYSE. That was the point.
How is SCH going to turn VG around? It has zero experience in spaceflight. It is relying on VG’s expertise.
Are you implying that the Emperor has no cloths? Don’t you see how beautiful they are!
Virgin Galactic shares rise as the space tourism company begins trading under the ticker SPCE
“Virgin Galactic stock soared Monday as Sir Richard Branson’s space tourism company began trading publicly.”
I am in for some dollars
And you will likely turn those dollars into even more dollars if you read the tea leaves right and have good timing on your exit plan. Investing in the sizzle when the steak is ersatz is often a profitable strategy for the ones that can read the Ponzi.
Meh…expected it would. Stocks are long term.
Hey, I didn’t say they would succeed. They may not. You don’t get a bargain price on a company with rosy prospects. Real capitalism involves real risk.
But if they get more money out than they put in then they’ve succeeded. And due to the madness of crowds, that may not require that any Virgin Galactic promises get kept. They may be hoping that the public will buy the stock because it’s a pure space launch play. Are there any others that are publicly traded?
The first day of trading was fairly meh, but it didn’t crater. The stock was actively traded. Perhaps Branson made himself whole today.
They may bring in some people. They may toss out some people. Who knows?
the only one of the “new space dudes” who never seems to over promise is Bezos…from Musk to Branson to well just about everyone the “sizzle” of their plans is almost nauseating . Just ask the Musk fan boys here…Starship flies next year sometime anyway
Branson will be interesting because he is likely the first who will have the rubber meet the road with trying to fly passengers with little or no real training as a business profile.
we should all hope he is good at it and makes money…other wise the musings of Musk and the gang will seem more and more sci fi
No. They claimed they’ll have the New Shepard in regular service like two-three years ago. The Blue Moon stuff is all bollocks too.
How did this story about Virgin Galactic become a Musk vs. Bezos debate? Anyone have anything to say about VG?
I worked my butt off on this story. And all you guys want to talk about is something else.
I suspect that it is because most of us agree with your analysis about VG. It is like watching a beautiful old sailing ship being blown towards the rocks. The technology may work but the space world has moved on and the business model for VG, which was always very weak, has only become weaker as a result. The same is true for Chamath Palihapitiya’s business model for Social Capital Hedosophia. Which is why this looks more like Sir Richard Branson and Chamath Palihapitiya grasping at straws to prove their models are right rather than a rational business decision. But folks on Wall Street, not familiar with space tourism, or even space commerce, are drinking the kool-aid.
That said, you have indeed done a very good job, but to be honest I think it is being wasted as a blog post. What I recommend is that you gather all the stories you have done on VG, the Ansari X-Prize and Spaceport America and turn them into a book. You have most of the research done, its mostly a matter of organization and editing. And as with all successful books timing is everything and now is the time for such a book. Indeed, if it comes out before the ship actually runs aground you will likely gain a reputation as a prophet, which is good in journalism.
I know that I for one would contribute to any crowd funding you might do to create such a book as it would be a good book to read. I expect others here would do so as well.
The technology may work but the space world has moved on
silly . there is no space world here…there are three forms of space “efforts now” …commercial satellite launches which are mostly not exclusivly but mostly com sats, there are NASA payloads of all kinds and DoD payloads.
there is no other space world. Branson is trying to create one, where people come up and pay money for a short ride in space …we will see if he does that. but if he fails its not for “the competition”. there is no competition to take “the average person” up into space right now…
If he fails it will be for safety issues OR simply there is no real interest in people doing flights into space.
who do you think is “moved on”. Starship? dont start me laughing
Starlink will certainly skew things back in your posited “mostly comsat” direction, but, as of now, I think there are far more commercial Earth-imaging smallsats of various kinds than there are comsats by quite a large margin.
You’re correct that Branson is trying to make manned flight a significant sector. If he had started actually doing that 12 years ago, as planned, he would be justly regarded as a major figure in NewSpace. But he went whole hog for the sunk-cost fallacy and here we are.
He is, in any case, not the only one looking to make short space joyrides a major market. Blue Origin’s New Shepard is in a dead heat with SpaceShipTwo after a considerably shorter, and far less checkered , development period.
Then – and at the extreme risk of provoking inappropriate laughter from Capt. Oler – there’s the wild card, SpaceX. Once Starship is demonstrated to be orbit-capable and quick to turn around, it could easily support flights by 100 or more people at a time to actual orbit for a Gagarin-or-greater experience at ticket prices equal to or even lower than what VG already charges and what Blue has hinted will be a comparable tariff.
If that happens, I think both SpaceShipTwo and New Shepard quickly become museum exhibits and Elon Musk chalks up another significant new line of business for SpaceX.
Obviously because everything is a Musk vs something debate. There can be only one!
Not “you guys” so much as one Capt. Robert G. Oler who introduced both Musk and Bezos into the mix.
But since you ask, I think the most interesting part of the story is VG’s stated intention to serve three routes with Mach 5 hypersonic passenger service. If you’re responsible for breaking these two bits of actual news, good on ya as the Aussies say.
Up to now, VG’s maunderings about point-to-point passenger service always seemed to be in the context of something SpaceShipTwo would evolve into – which was just bonkers. The specific routes identified here and the notional cruise speed of Mach 5 both make it plain that SpaceShipTwo and its tire-fire engine tech will play no part in any such plans.
So what are the plans? By an interesting coincidence, Reaction Engines, Ltd. (REL) – like Virgin Galactic, a British company – announced success on a key test of a key component for a future SABRE aero engine that might support Mach 5 cruise over long routes. Perhaps Virgin intends to use REL’s SABRE engines, when available, to power a Mach 5-capable passenger liner airframe? Wouldn’t that be something?
Why have you summoned me here?
This does not seem like much of a stretch to me. Have you seen their Texas manufacturing facility? They’ve got sheds. And tanks. They’ve got that thing for burning off gaseous methane. They’ve got cowed and sullen retirees.
Falcon 1 got to orbit in 2008. Falcon 9 in 2010.
Falcon Heavy got to orbit in 2018. Starship…
Orbiting Starship is not the big challenge. Re-entering, bleeding off speed with that sky diver belly flop manuever, and setting it down gently by the side of the road in Boca Chica will be the challenge. Also, procuring a super heavy launch license for a pad just five miles from South Padre Island. But they may elect to fly from 39a.
After that, there’s on-orbit fuel transfer to be mastered and fitting out Starship for human transport. The fuel transfer is a development project. It’s doing a new thing. There’s no telling how long that will take. At some point it may occur to the FAA that an on-orbit explosion would be an unfortunate happenstance.
And readying Starship for human occupation, while not breaking new ground, is likely to take some time and involve some proving out.
But those things come after first flight. Orbiting and landing alone gets Starship into the commercial cargo market. If the raptor engines are really ready for prime time then I don’t see why that can’t happen in 2020.
Interesting article on the probable costs of the Starlink System. It appears Starship will be able to launch 400 Starlink satellites per flight.
SpaceX president teases Starship’s game-changing Starlink launch
By Eric Ralph
Posted on October 28, 2019
I read the CNBC article. Gwynne was feeling a bit feisty that day.
I’m looking forward to the next batch of satellites sporting the laser mesh technology, which seems to be the key innovation necessary to deliver on Starlink’s promise.
It is comforting to observe that Starlink lines up nicely with the DOD’s interests. It goes some way toward allaying the unease brought on by the suspicion that the people most in need of Starlink are also the people least able to pay for it.
People in the sticks in the 30 to 50-degree north latitude belt won’t have a problem paying for it. Deepest Grasshutistan, in the corresponding south latitude belt is another matter. Even there, though, access will be gained even if it takes a whole village to do it. Much of Grasshutistan already has cell service based on shared-subscription models of various kinds. The same will prove true for LEO satellite-based Internet broadband.
That will be a real boon, and a positive contribution to people upon whom it may well have an outsized effect. And perhaps, as a knock on effect, it will temper the outlooks of some of the youngsters on my side of the political divide who are openly hostile to Tesla & SpaceX because Elon Musk is too good at making capitalism look good.
But Starlink is supposed to be the cash cow that funds the Mars adventure. One subscription per village across the rural third world won’t do that, methinks. The DOD, on the other hand, is a spare-no-expense kind of operation. A really big one.
The initial rollout appears to focus on the US, so I guess that’s where they see the lowest hanging fruit. But retail penetration in high density areas will likely strain their resources in the early going. They will have to make sure they don’t taint the brand early with over subscriptions. Subscription+ business from the military might ease the path forward.
The DoD seems certain to be a major customer. High-density urban areas will be the last places Starlink goes. It’ll be a decade or more before anyone on Manhattan island or in San Francisco has a Starlink subscription. Manhattan, KS, on the other hand…
when it happens we can start cheering…
We’ll all cheer. But only you will do so with a note of shocked surprise in your voice.