Virgin Galactic wraps human test-flight; concerns remain

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Sir Richard Branson’s Virgin Galactic ‘spaceship’ VSS Unity achieved a speed of Mach 3 after being released from the mothership, VMS Eve, and reached space at an altitude of 55.45 miles (89 kms) before gliding smoothly to a runway landing at Spaceport America in New Mexico back on May 22nd. The Unity craft carried a pair of Virgin’s test pilots.

Virgin Galactic has a reported 600 or so would-be passengers waiting to make a similar journey into space. But there are concerns. One outfit, a stock market short seller, Kerrisdale Capital Management, has posed some key questions for investors – and would-be astronauts – regarding Branson’s business.

First of all, Kerrisdale alerts passengers that while Virgin Galactic is branding itself as a “space tourism” venture, the reality is that the flights are a very quick “hop up and down” lasting just minutes and not crossing the “border” which marks the start of true space. The Kármán line, which marks the start of space begins at about 62 miles high (100 kms).

Virgin Galactic went public in October 2019 via a so-called blank cheque merger. Kerrisdale cautions passengers that “if they ever happen” the flights, after “17 years of delays and disasters” will offer only the palest imitations of these experiences. In lieu of pressurized space suits with helmets – unnecessary since so little time will be spent in the upper atmosphere – the company commissioned Under Armour to provide “high-tech pyjamas.” Virgin’s astronauts will at best be able to catch a glimpse of the curvature of Earth and a few minutes of weightlessness before plunging back to ground.

Kerrisdale cheekily compares a Virgin Galactic flight with the “Drop of Doom” ride at Six Flags theme park! Indeed, Kerrisdale suggests that company is financially already “screwed”.

Kerrisdale argues that the 17 years of experiments have burned through more than $700 million of investor’s cash. “In 2009 Abu Dhabi invested $280 million for a minority stake in these businesses, and in late 2017 Branson signed a memorandum of understanding for $1 billion from Saudi Arabia – but the deal fell apart the following year in the wake of the assassination of Jamal Khashoggi. Help arrived from an unexpected quarter: a Special Purchase Acquisition Company (SPAC) called Social Capital Hedosophia, created by two tech investors with no experience in aerospace. Within three months of hearing from a financial advisor about Virgin Galactic’s funding needs, Social Capital Hedosophia had already sent the company a letter of intent to invest in it and take it public. In October 2019, the process was complete, and Virgin Galactic, now trading on the New York Stock Exchange, projected “a June 2020 commencement of commercial operations,” with Branson himself as the long-awaited first passenger.”

Last year’s promises have come and gone, and this year’s anticipated profits (of $146m) have changed into projected losses of $129 million.

Moreover, Kerrisdale’s analysis suggests that the founders and early investors have been selling stock lately. Its conclusion is blunt: “We believe that the current wave of market enthusiasm for Virgin Galactic depends on an ignorance of its long and often ugly history, as well as a misunderstanding of its core technology. The original sin goes back to SpaceShipOne, which was jury-rigged to just barely win the X Prize, with no potential for further scaling up to true orbital spaceflight. In the long run, this approach is a dead end – too expensive, unappealing, and uncompetitive to garner sizable revenues – a fact only masked, temporarily, by canny marketing. Even if the company, after nearly two decades of fits and starts, finally does manage to initiate commercial service, we believe it will wind up in the ash heap of history – hopefully without killing or maiming any more people along the way.”

No doubt this report will drive Virgin’s stock price down, which is the aim of Kerrisdale.


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