by Douglas Messier
Virgin Galactic has seen the departures of its director of safety and chief legal officer over the past month.
Chief Legal Officer and General Counsel Michelle Kley is leaving Virgin Galactic as of July 19 after two years and seven months with the company. She will become chief legal officer at Volta, a company that runs an electric vehicle charging network.
Her departure comes as Virgin Galactic battles lawsuits from unhappy shareholders who claim to have lost money since the company went public more than 2.5 years ago.
Kley joined Virgin Galactic as executive vice president, chief legal officer, general counsel and secretary in December 2019. She previously served as senior vice president, chief legal officer, general counsel and secretary at Maxar Technologies from July 2016 to March 2019.
Director of Safety Ron Failing departed the suborbital space tourism company in June to become vice president of aviation safety at World View, which is developing a balloon and capsule system for high-altitude tourism flights.=
Failing had been with Virgin Galactic for five years and four months. He joined the space tourism company as senior manager of spaceline safety in March 2017. Failing then served as director of safety for 10 months from September 2021 to June of this year. Before joining Virgin Galactic, he had served as Virgin America’s manager of corporate safety for three years and one month.
SPACs and Suits
In moving from Virgin Galactic to Volta, Kley is moving from one company that went public by merging with a special purpose acquisition company (SPAC) to another. A SPAC is a “blank check” company that is already traded on the stock exchange whose only purpose is to identify a target to merge with and take public under that company’s name.
Virgin Galactic went public on the New York Stock Exchange (NYSE) in October 2019 through a merger with billionaire Chamath Palihapitiya’s Social Capital Hedosophia (SCH). Volta went public on NYSE by merging with Tortoise Acquisition Corporation II in August 2021.
Kley leaves Virgin Galactic as the company is fighting a lawsuit filed in February by a shareholder who said he lost money when the company restated its 2020 earnings in April 2021 due to guidance from the Securities and Exchange Commission (SEC) over the accounting treatment of warrants. The holder of a warrant has the right to buy or sell shares of a public company at a set price prior to a specific date.
Virgin Galactic’s share price plunged 9% after the earnings restatement. The lawsuit claims Virgin Galactic founder Richard Branson and then-chairman Palihapitiya profited from selling shares while the stock was artificially inflated and known flaws in the company’s space tourism vehicles were hidden. Yahoo News reports:
The investor lawsuit, filed February 21 by Virgin Galactic shareholder Thomas Spiteri, seeks damages from the space travel company’s directors and others in management.
Palihapitiya took advantage of his role as company chairman to sell 10 million shares for $315 million on “inside information” before he abruptly left his role last month, the derivative action alleges.
Virgin Galactic founder Branson sold 16 million shares for about $458 million while the stock was “artificially inflated,” the complaint said.
Virgin Galactic is also facing a number of class action suits from shareholders over losses suffered over a sharp decline in the stock price caused by delays in beginning commercial flights. (See details of the lawsuits here, here and here.) Virgin Galactic has lost in excess of $1 billion since going public. The stock, which once peaked at $62.80, was trading at $6.96 on Wednesday.
Branson has sold more than $1 billion in Virgin Galactic stock since the company went public. The sales have reduced his ownership from a majority stake above 50% to 11.9%. He remains Virgin Galactic’s largest single shareholder.
Branson has used the money to bail out his struggling Virgin Group empire, which has been hard hit by travel restrictions imposed after the COVID-19 pandemic began in March 2020.
Palihapitiya invested $100 million of his own money into Virgin Galactic as part of the merger. His sale of all his personal shares at around $315 million thus netted him about $215 million in profit. He continues to own shares of the company indirectly through SCH.
Palihapitiya served as Virgin Galactic’s chairman before abruptly resigning on Feb. 18, four days before the company’s quarterly earnings call. He said he wanted to spend time with his other business ventures.
Delays Have Lengthened
Prior to going public in October 2019, Virgin Galactic and SCH projected that the company would quickly complete flight tests of its VSS Unity SpaceShipTwo suborbital vehicle and begin commercial service in June 2020. Virgin Galactic now projects that it will complete flight tests in the fourth quarter of this year and begin commercial service in the first quarter of 2023.
Delays in starting space tourism flights have resulted from damage to VSS Unity during a flight test, modifications required for the spaceship and its VMS Eve mothership, and the ongoing COVID-19 pandemic which slowed work.
A key reason Virgin Galactic couldn’t meet the June 2020 projection for the start of commercial service is that VSS Unity was seriously damaged during a suborbital flight test in February 2019. President Mike Moses said the crew, which included his wife Beth Moses, were fortunate to survive the flight because the damage could have caused the vehicle to crash.
Neither the incident nor the unflyable state of VSS Unity was disclosed by Virgin Galactic or SCH prior to or after the October 2019 merger. The news only became public after media reports on Parabolic Arc and The Washington Post.
Virgin Galactic did not resume glide tests of VSS Unity until May 2020. Another glide flight was conducted the following month. On Dec. 12, 2020, a powered suborbital flight was aborted as VSS Unity‘s engine began to fire after a computer aboard the spacecraft rebooted. The ship was grounded for five months for modifications.
VSS Unity flew a successful suborbital flight on May 22, 2021 — 27 months after its last one. Founder Richard Branson flew with three Virgin Galactic employees on a flight test on July 11, 2021 that marked the first time the passenger cabin was full.
VSS Unity flew outside of its assigned airspace during the flight test. The Federal Aviation Administration subsequently grounded the spacecraft for two months after the company failed to inform the agency about the violation.
Prior to the grounding, Virgin Galactic had planned to complete the test program with two additional flights in 2021. VSS Unity and its VSS Eve mothership would then be taken out of service for four months for overhauls. Commercial space tourism flights would begin in early 2022.
After the grounding, Virgin Galactic announced it was doubling the overhaul period and delaying the two additional flight tests until this summer. The schedule subsequently slipped to completing the tests in the fourth quarter and beginning commercial service in early 2023.