Bank of America Rips Virgin Galactic for Failure to Disclose Out of Airspace Mishap on Richard Branson Flight

Editor’s Note, Sept. 26: 2021: Story updated to reflect that Richard Branson began selling $300 million worth of Virgin Galactic shares on Aug. 10 the day before the FAA notified the company of a mishap during the July flight that carried the billionaire to space. The sale continued through Aug. 12.

by Douglas Messier
Managing Editor

Analysts at Bank of America who cover Virgin Galactic’s publicly-traded stock are not amused by the company’s failure to disclose that a SpaceShipTwo suborbital flight carrying founder Richard Branson flew outside of its assigned airspace on July 11, resulting in an investigation by the Federal Aviation Administration (FAA) and the grounding of the company’s only operational space plane.

“Point blank, in our view, it is unacceptable to have an event during a flight that, per FAA regulations, is considered a mishap and then claim that the mission was a full success,” analyst Ronald Epstein wrote in a note to investors. “The old adage, it’s easier to ask for forgiveness than permission, generally is a poor strategy in aviation.”

The Virgin Group and Branson sold a combined $800 million worth of stock during a seven week period when shareholders were in the dark about the incident and subsequent actions. The news was only revealed by an article in The New Yorker published on Sept. 1.

During a celebratory press conference following his suborbital spaceflight two months ago, Richard Branson waxed poetically about how great the the flight had been before throwing it over to pilot David Mackay to explain how the mission went from the flight deck.

Mackay didn’t answer. Instead, Virgin Galactic President of Space Missions and Safety Mike Moses jumped in to say the flight went great, the only exception being some drop outs in the video showing Branson and three company employees unbuckling from their seats and floating around happily in microgravity. Those transmission drop outs had nothing to do with the safety of the flight.

It all sounded great. Only it wasn’t true.

According to The New Yorker story, Mackay and fellow pilot Mike Masucci got a red light in the SpaceShipTwo VSS Unity cockpit during powered ascent indicating they were off course. Instead of shutting down the engine and aborting the flight as the author’s unnamed sources said they should have done, the pilots let the engine continue to burn to completion. During descent, VSS Unity strayed outside of its assigned airspace for 1 minute 41 seconds into what is known as Class A airspace, which is largely used by jets.

In the seven weeks that followed, it was business as usual for Virgin Galactic and its largest shareholder, Branson, while shareholders and media remained in the dark about the true story.

July 12: Virgin Galactic files to sell $500 million worth of common stock to the public.

July 12: Branson begins making the rounds of various media outlets taking about how great the flight had been.

July 23: The Federal Aviation Administration (FAA) begins an investigation into the incident.

Aug. 5: Virgin Galactic officials disclose nothing about the anomaly or FAA investigation during an earnings call. Parabolic Arc could find no mention of these matters in documents related to the earnings report or anything else filed with the Securities and Exchange Commission (SEC).

Aug. 10: Branson begins to sell $300 million worth of Virgin Galactic shares owned by himself and various Virgin Group companies. The sale will continue for the next two days.

Aug. 11: The FAA declares a mishap, grounds VSS Unity and directs Virgin Galactic to begin an investigation under agency supervision. The spacecraft is grounded until the investigation is completed and the FAA signs off on it.

Aug. 12: Branson completes sale of $300 million worth of Virgin Galactic shares. Branson and companies he controls have sold about $1 billion in Virgin Galactic stock since the company went public in October 2019.

Sept. 1: The New Yorker publishes its story.

Sept. 2: The FAA reveals that VSS Unity is grounded until further notice.

A Virgin Group spokesperson told Parabolic Arc last week that neither Branson nor the Virgin Group knew about the errand flight path, the investigations or the grounding of VSS Unity when the stock sale was announced two days after the FAA made its judgment.

SEC regulations make it illegal to profit from material inside information that could affect the stock price but has not been disclosed publicly.

Virgin Galactic has disputed what it called “misleading characterizations and conclusions” about the seriousness of the mishap in The New Yorker story. At no time during the flight were the pilots, passengers or anyone on the ground in any danger, the company insisted. The statement blamed stronger than expected high altitude winds for pushing the ship off course, and said the pilots reacted as they had been trained. The company has disputed that the pilots should have shut off the engine and aborted the flight.

The day after the story was published, Virgin Galactic announces a late September-early October launch window for VSS Unity‘s next flight test. That prompted a statement from the FAA that the ship was grounded until the investigation was completed.

Parabolic Arc asked Virgin Galactic last week why it failed to disclose information about the mishap, investigations and grounding. The company responded earlier this week asking if it could provide information on background.

I said no. I felt the incident, the FAA’s investigation, and Virgin Galactic’s subsequent actions (and lack thereof) were too serious to allow them to simply comment on background. It would be a disservice to my readers. It would be a disservice to the shareholders who have put their hard earned money and their trust in the company. They could answer the questions if they chose to do so. Or I could explain exactly which questions they refused to answer.

I’ll let everyone know what they decided to do when I hear back from them.