Mis-steps that brought Virgin Orbit crashing back to earth

Eleven days before laying off 675 staff, and amid a crushing financial crisis, the board of Virgin Orbit opted to revamp its executive remuneration policy. Under the terms, chief executive Dan Hart could receive compensation of $1.5mn or more should the company be taken over or go bust.

On Friday evening, Virgin Orbit appeared to be teetering on the brink. Its shares had crashed after an emotional Hart told staff on Thursday evening that the company had “ceased operations for the foreseeable future”.

Last-ditch talks were still under way with potential investors, said several people with knowledge of the situation, but even they were increasingly gloomy. If the discussions fail, Virgin Orbit could file for Chapter 11 bankruptcy early next week, they said.

Just six months ago, the mood at the company’s California headquarters was very different. Virgin Orbit was counting down to its first international mission into low-earth orbit from the UK. That flight was meant to prove its unique horizontal launch system to the world, trigger new revenues and open the door to fresh fundraising from international investors.

Speaking to the Financial Times in mid-October, Hart was already laying ambitious plans for bigger and better rockets to be launched from under the wing of Orbit’s converted 747 jumbo jet. They would fly well beyond the low-earth orbits where most commercial satellites are being placed, he said.

“We are focusing on small satellites but our plan is to add a third stage [to the rocket] and then we would be able to fly to mid-earth or geostationary orbit,” he said.

But that UK mission fell victim to delays and, when it eventually flew, it failed.

In the meantime, Virgin Orbit was burning through an already scant cash pile.

The failed UK mission should not have been the end of Virgin Orbit, say analysts. “Launch failures happen, especially at the beginning,” said Maxime Puteaux, space market analyst at Euroconsult. Virgin had already been more successful than most, with four completed missions out of six since it flew its first rocket in 2020.

But mis-steps had made Virgin Orbit more vulnerable than most, several people inside and outside the company told the FT.

The first mistake was the decision to go public via a special purpose acquisition company just as sentiment turned on space investments in December 2021. Virgin Orbit raised only half of what it had hoped, leaving it more vulnerable than others with less advanced business plans, said one person who was involved at the time. “Their target was $400mn and ended up with just over $200mn. They were already behind the eight-ball [in a difficult situation],” he said.

Then the company opted to pursue an international launch in the UK, instead of raising more funds in the autumn of 2022 after its four successful launches.

“They thought this would allow them to raise money in a difficult market because they had a bunch of international clients that wanted to do stuff, in Australia, the Middle East, Poland and other countries,” the person said.

But the most fundamental mistake, said Puteaux, was that Virgin Orbit had squandered cash while failing to generate more by rapidly increasing the number of launches, even after remarkably successful missions in 2021 and 2022. “They did more than the usual three launches and then bankruptcy,” he said. “But it was a launch every six months. The whole business plan made sense only at high launch rates. One launch a week is the only position that would allow you to have more revenue than their $40mn cash burn a quarter.”

Orbit also failed to move quickly enough to provide services supplementing its launches. “This was a product without a business,” said one insider. “To make rocket launch viable you can’t just be a launcher, and we never really got there.”

While Virgin Orbit struggled to establish its business model, it was nurtured by its British-born billionaire founder, who invested more than $1bn over the years. But it was never really Richard Branson’s baby, say those who know the entrepreneur.

It was founded as a byproduct of an attempt to raise external funds for Branson’s other space project, Virgin Galactic, in the wake of the financial crisis. The Emirati fund Aabar, later subsumed by Mubadala, invested on condition that Galactic explore the potential for using its launcher aircraft to send satellites and humans into space. “[Branson] loved it as an interesting business proposition but he was less emotionally engaged because his passion remains getting more humans into space,” said one Virgin veteran.

Over time, the focus of the two businesses diverged — Galactic selling space tourism to consumers and Orbit offering its launch services to governments and businesses. But now the strategic and operational weaknesses have caught up with the group.

Mubadala, the biggest shareholder after Branson, told the FT it was unlikely to invest any further in Virgin Orbit. “It’s fair to say the next step re Virgin Orbit is with Virgin,” the person said.

But Branson has already made his views known. Even though the technology is proven, and six rockets are sitting on the production line in its California headquarters almost ready to fly, no more money will come from Virgin Investments. “The tragedy is we were so close to the cadence we needed to be a financially productive company,” the insider said. “Space is hard. But space is also expensive.”