Virgin Galactic SPCE falls after testing delays hamper tourism service

Virgin Galactic’s shares fell in Friday’s trading after the company’s fourth quarter results revealed delays in its test flight program, with the expected launch of its commercial service now pushed to 2022.

The space tourism company reported a quarterly loss that was in line with what Wall Street analysts had expected, but the next space flight test for its SpaceShipTwo vehicle “Unity” was postponed from February to May. The company encountered an electromagnetic interference problem with a new flight control computer at Unity, with CEO Michael Colglazier saying that the company expects corrective work to take eight to nine weeks.

Delays in Virgin Galactic’s spacecraft test program, which previously suffered a setback after an in-flight engine aborted during a space flight attempt in December, caused the company to delay its schedule for starting regular space tourism flights.

Virgin Galactic shares fell by up to 15% in trading, to close to $ 35, after closing Thursday at $ 42.24. The stock has remained at a significant increase since the beginning of the year, gaining around 60% in the accumulated result for the year, even after Friday’s decline.

Colglazier gave investors an updated overview of the milestones Virgin Galactic hopes to achieve this year, due to delays in testing.

The company’s next big event will not be with Unity, but with 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 correct the problem of electromagnetic interference (EMI) with Unity. The company’s analysis showed EMI as the root cause of the flight’s abortion in December, and other EMI problems during pre-flight preparations caused Virgin Galactic to give up on a space flight attempt that was expected earlier this month.

“To reduce EMI levels, we will be improving the new flight control computer with additional features. Once we have completed these modifications, we will thoroughly test the system on the ground, both in the laboratory and at Unity, after which we will restart our flight test program, “said Virgin Galactic President Mike Moses on the company’s results conference call.

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

In the meantime, Virgin Galactic expects the first SpaceShip III vehicle to “begin gliding tests this summer,” said Colglazier. In addition, the company will begin the assembly of a second SpaceShip III vehicle.

“Our current flight test protocol for the first SpaceShipThree vehicle provides for four planed flights and four motorized flights, and we expect space flights to generate revenue,” said Colglazier.

Due to Unity’s delays so far, Coglalzier has refused to give specific dates for the second space flight attempt, saying only that Virgin Galactic expects this to “happen this summer”. Unity’s second space flight will take four passengers along with the pilots – most people Virgin Galactic will have flown at once.

Next, Virgin Galactic will conduct a third space flight test, with the founder of Unity’s transportation company, Sir Richard Branson, on a journey of nearly two decades.

The company also added a fourth space flight test for Unity, in partnership with the Italian Air Force. Colglazier said the flight will take three passengers and several research payloads, presenting itself as “suborbital astronaut training” for Italians. The flight is expected to “take place in late summer or early fall,” said Colglazier, and will complete Unity’s flight tests.

Next, Virgin Galactic will begin a maintenance shutdown period that Colglazier expects to last for about four months. The company will conduct a “review and renewal period” with its Eve aircraft carriers, Unity spacecraft and SpaceShip III.

“We decided to implement improvements and speed up long-term maintenance updates for our mothership Eve, which will improve the predictability and frequency of the flight rate,” Colglazier.

Given the downtime, Virgin Galactic now expects “Unity will begin flying private astronauts” in early 2022 – which will mark the start of the company’s commercial space tourism service. The company’s last expectation is that “SpaceShip III will be in a position to complete its flight tests” early next year, said Colglazier.

Several analysts have adjusted expectations for Virgin Galactic’s future results, reducing the outlook due to test delays.

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

UBS has a neutral rating for Virgin Galactic, reducing its target price from $ 52 to $ 40 per share. Walton said he sees “a little more technical risk on the schedule than before”, although he was “encouraged by the speed in building a base for scale when the go-ahead for commercial operations is reached”.

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

“What drives our downgrade is a combination of the current stock valuation (stocks rose 78% year-to-date after more than doubling in 2020) and a new management perspective that seems to postulate additional capital expenditures and more time long to reach the way passengers travel, which now seem to us to be in a timeline from the beginning of 2022, “wrote Alembic analyst Pete Skibitski in a note.

Credit Suisse analyst Robert Spingarn also adjusted his company’s target price on Virgin Galactic from $ 36 to $ 42 per share, due to the strong performance of the shares earlier this year.

“The updated plan, which depends on larger numbers and more recent versions of the spacecraft, probably takes more time to build than what we contemplated when we launched the cover,” said Spingarn.

Credit Suisse has postponed its forecast that Virgin Galactic will reach a high volume of Spaceport America flights in New Mexico by 2025 starting in 2024. Spingarn also noted that Virgin Galactic “looks satisfied” with about 11 quarters of money remaining in your track, based on the current quarterly burn rate.

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

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