Virgin Galactic SPCE falls after test delays push tourist service back

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

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

Delays in the Virgin Galactic spacecraft test program, which was previously hampered after an in-flight engine outage during a space flight attempt in December, led the company to withdraw its program to start regular space tourism flights.

Virgin Galactic shares fell up 15% in trading to nearly $ 35 a share after Thursday’s close of $ 42.24. The stock has been growing significantly since the beginning of the year, gaining about 60% so far even after falling on Friday.

Colglazier gave investors an up-to-date overview of the milestones Virgin Galactic expects to reach this year, given testing delays.

The company’s next major event will not be with Unity, but will rather present the launch of the second spacecraft in the Virgin Galactic fleet – and the first generation SpaceShip III. Colglazier said the SpaceShip III vehicle has a “modular design” with “improved manufacturing and assembly processes,” which the company expects to unlock “better flight rate performance” and maintenance.

Meanwhile, this spring Virgin Galactic will work to fix the issue of electromagnetic interference (EMI) with Unity. The company’s analysis showed EMI as the leading cause of flight abortion in December, and other EMI issues during pre-flight preparations led Virgin Galactic to drop a space flight attempt that was expected earlier this month.

“To reduce EMI levels, we will improve the new flight control computer with additional features. Once we complete these changes, we will carefully test the system on the ground, both in the lab and on Unity, after which we will resume our flight testing program, “said Virgin Galactic President Mike Moses in the conference call. of the company.

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

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

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

Given Unity’s delays so far, Coglalzier declined to provide specific target data for the second space flight attempt, saying only that Virgin Galactic expects it to “take place this summer.” The second Unity space flight will carry four passengers along with the pilots – most Virgin Galactic people will be flown simultaneously.

Then, Virgin Galactic will perform a third space flight test, with Unity founder Sir Richard Branson on a journey of nearly two decades.

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

Then Virgin Galactic will begin a maintenance downtime that Colglazier expects to last about four months. The company will conduct a “period of analysis and reconditioning” with its Eve carriers, Unity spacecraft and SpaceShip III vehicles.

“We have decided to implement improvements and accelerations to the long-term maintenance updates of our Eve ship, which will improve the predictability and frequency of the flight rate,” Colglazier said.

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

Multiple analysts have adjusted expectations for Virgin Galactic’s future results, reducing the outlook, given testing delays.

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

UBS has a neutral rating on Virgin Galactic, reducing its target price to $ 40 per share from $ 52 per share. Walton said he saw “a much more technical risk in the program than before,” although he was “encouraged by the speed of building a foundation for the ladder when it comes to the green light of business.”

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

“What drives our downgrade is a combination of the current stock valuation (the stock has increased by 78% YTD after doubling in 2020) and a new perspective from management that seems to present additional capital expenditures and a longer time to to achieve the journeys of passenger consumers, which now seem to us to be on a timeline in early 2022, “Alembic analyst Pete Skibitski wrote in a note.

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

“The updated plan, which is based on a larger number and newer versions of the spacecraft, will probably take longer to build than we thought when we launched the deck,” Spingarn said.

Credit Suisse rejected its forecast for Virgin Galactic, making a large volume of flights from Spaceport America to New Mexico by 2025 starting in 2024. Spingarn also noted that Virgin Galactic “seems satisfied” with about 11 quarters of cash left on the runway. based on the current quarterly burning rate.

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

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