Virgin Galactic SPCE drops after test delays delay touring service

Pre-flight operations in progress on Unity’s SpaceShipTwo vehicle and mothership Eve.

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Virgin Galactic shares fell in trading on Friday after the company’s fourth-quarter results revealed delays to its test flight schedule, and the expected launch of its commercial service is now postponed to 2022.

The space tourism company reported a quarterly loss that was in line with Wall Street analysts’ expectations, but the next space flight test of its SpaceShipTwo “Unity” vehicle was brought forward from February to May. The company found an electromagnetic interference problem with a new flight control computer at Unity, and CEO Michael Colglazier said the company expects corrective work to take eight to nine weeks.

Delays to Virgin Galactic’s spacecraft test program, which previously suffered after an in-flight engine aborted during a spaceflight attempt in December, caused the company to push back its schedule to begin regular sightseeing flights. space.

Virgin Galactic shares fell as much as 15% in the trade, to about $ 35 a share, after Thursday’s close of $ 42.24. The stock continues to rise significantly from the beginning of the year, gaining about 60% to date even after Friday’s slide.

The new 2021 plan

Colglazier provided investors with an updated overview of the milestones Virgin Galactic hopes to reach this year given the testing delays.

The company’s next big event will not be with Unity, but will feature the launch of the second spacecraft in Virgin Galactic’s fleet, and the first of its generation SpaceShip III. Colglazier said the SpaceShip III vehicle features “a modular design” with “improved manufacturing and assembly processes,” which the company hopes will unlock “better performance in terms of flight speed” and maintenance.

Meanwhile, this spring Virgin Galactic will work to fix the electromagnetic interference (EMI) issue with Unity. The company’s analysis showed EMI as the primary cause of the December flight abort, and other EMI issues during pre-flight preparations caused Virgin Galactic to pull out of a spaceflight attempt that was expected earlier this month. .

“To reduce EMI levels, we will upgrade the new flight control computer with additional features. Once we complete these modifications, we will thoroughly test the system on the ground, both in the lab and in Unity, after which we will start over. our flight test program, “Virgin Galactic President Mike Moses said on the company’s earnings call.

Unity’s flight attempt in May will effectively be a repeat of the December test, with only two pilots on board.

Meanwhile, Virgin Galactic expects the first SpaceShip III vehicle to “begin flight tests this summer,” Colglazier said. In addition, the company will begin to assemble a second SpaceShip III vehicle.

“Our current flight test protocol for the first SpaceShipThree vehicle requires four glide flights and four powered flights, and we expect spaceflight to generate revenue,” Colglazier said.

A gloomy look at the company’s next-generation SpaceShip III.

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Given Unity’s delays so far, Coglalzier declined to give specific dates for the second spaceflight attempt, saying only that Virgin Galactic expects it to “happen this summer.” Unity’s second space flight will carry four passengers along with the pilots, the most people Virgin Galactic will ever have flown at one time.

Then Virgin Galactic will conduct a third spaceflight test, with Unity company founder Sir Richard Branson, in a nearly two-decade journey in the works.

The company also added a fourth spaceflight test for Unity in partnership with the Italian Air Force. Colglazier said the flight will carry three passengers and multiple research payloads, billed as “suborbital astronaut training” for Italians. That flight is expected to “occur in late summer or early fall,” Colglazier said, and will conclude Unity’s flight tests.

Virgin Galactic will then begin a maintenance downtime that Colglazier expects to last approximately four months. The company will conduct a “review and overhaul period” with its Eve aircraft carrier, Unity spacecraft and SpaceShip III vehicles.

“We have decided to implement improvements and accelerate long-term maintenance upgrades on our Eve mothership, which will improve the predictability and frequency of the rate of flight,” Colglazier.

Given the downtime, Virgin Galactic now expects “Unity to begin flying private astronauts” in early 2022, ushering in the company’s commercial space tourism service. The company expects “SpaceShip III to be in a position to complete its flight tests” early next year, Colglazier said.

Wall Street lowers expectations

Virgin Galactic pilots walk toward the company’s SpaceShipTwo Unity spacecraft, attached to the Eve carrier plane.

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Several analysts adjusted expectations for Virgin Galactic’s future results, trimming the outlook given the testing delays.

“The big news that came out of print was the flight schedule baseline change,” UBS analyst Myles Walton said in a note to investors.

UBS has a neutral rating on Virgin Galactic, lowering its price target to $ 40 a share from $ 52 a share. Walton said he sees “a little more technical risk in the schedule than before,” although he was “encouraged by the speed in building a foundation for scale when the green light for business operations is achieved.”

Alembic Global Advisors downgraded Virgin Galactic from overweight to neutral, and its price target changed to $ 39 per share from $ 27 per share.

“What drives our downgrade is a combination of the stock’s current valuation (the stock is up 78% to date after more than doubling in 2020) and a new perspective from management that appears to call for additional capex. and more time to achieve regular consumer passenger travel, which now appears to us to be on an early 2022 timeline, “Alembic analyst Pete Skibitski wrote in a note.

Credit Suisse analyst Robert Spingarn also adjusted his company’s Virgin Galactic price target to $ 42 a share from $ 36 a share in light of the stock’s strong performance earlier in the year.

“The updated plan, which is based on higher numbers and newer versions of the spacecraft, will likely take longer to build than what we envisioned when we launched coverage,” Spingarn said.

Credit Suisse delayed its forecast that Virgin Galactic would achieve high-volume flights from Spaceport America in New Mexico until 2025 beginning in 2024. Spingarn also noted that Virgin Galactic “appears content” with approximately 11 quarts of cash on its runway, according to the current quarterly burn rate.

“We now have a higher capex line that may require additional capital by the end of 2022, depending on the pace of further progress and the rate of burnout,” Spingarn noted.

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