Virgin Galactic SPCE falls after test delays push back the tourist board

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

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

Delays in Virgin Galactic’s spacecraft test program, which had previously disappointed after an aircraft engine broke down during a space flight attempt in December, prompted the company to shift its schedule for commencing regular space tourism flights.

Shares of Virgin Galactic fell a whopping 15% during trading, to nearly $ 35 a share, after Thursday’s close of $ 42.24. The stock is up significantly since the beginning of the year, gaining around 60% since Friday’s decline.

Colglazier gave investors an updated look at the milestones Virgin Galactic expects to reach this year given the delays in testing.

The company’s next big event won’t be with Unity, but rather the rollout of the second spacecraft in Virgin Galactic’s fleet – and the first of its SpaceShip III generation. Colglazier said the SpaceShip III vehicle is “modular in design” with “enhanced manufacturing and assembly processes”, which the company expects will provide “better flight speed performance” and maintenance.

In the meantime, Virgin Galactic will work this spring to solve the problem of electromagnetic interference (EMI) with Unity. The company’s analysis found that EMI was the main cause of the flight’s abortions in December, and further EMI issues during pre-flight preparations prompted Virgin Galactic to withdraw following a space flight attempt expected earlier this month.

“To lower EMI levels, we will expand the new flight control computer with additional features. Once we have completed these adjustments, we will thoroughly test the system on the ground, both in the lab and on Unity, and then start over. our flight testing program, ”said Mike Moses, president of Virgin Galactic during the company’s earnings conference call.

Unity’s May flight attempt will basically 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 glide testing this summer,” Colglazier said. In addition, the company will begin mounting on a second SpaceShip III vehicle.

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

Given Unity’s delays so far, Coglalzier declined to provide specific target dates 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 of the people who have flown Virgin Galactic at the same time.

Afterward, Virgin Galactic will conduct a third space flight test, with Unity founder Sir Richard Branson on a journey nearly two decades in the making.

The company also added a fourth space flight test for Unity in conjunction with the Italian Air Force. Colglazier said the flight will carry three passengers and multiple research cargoes, with “suborbital astronaut training” for the Italians. That flight is expected “to take place in the late summer or early fall,” Colglazier said, and will complete Unity’s flight testing.

After that, Virgin Galactic will begin a maintenance interruption period that will last approximately four months, according to Colglazier. The company will conduct an “analysis and refurbishment period” with its Eve aircraft carriers, Unity spacecraft and SpaceShip III vehicles.

“We have decided to make improvements and accelerations of long-term maintenance updates to our mothership Eve, which will improve airspeed predictability and frequency,” Colglazier.

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

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

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

UBS has a neutral rating on Virgin Galactic and is lowering the price target from $ 52 per share 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 with which a foundation for scaling-up was laid once the green light for commercial operations is reached.”

Alembic Global Advisors lowered Virgin Galactic from overweight to neutral, with a price target shifted from $ 27 per share to $ 39 per share.

“What drives our downgrade is a combination of the stock’s current valuation (the stock is up 78% YTD after more than doubling in 2020) and a new management vision that seems to point to additional capital expenditure and a longer time for regular consumer passenger travel, who now seem to find us in an early 2022 timeline, “Alembic analyst Pete Skibitski wrote in a note.

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

“The updated plan, which relies on higher numbers and newer versions of the spacecraft, will likely take longer to build than we considered when we launched cover,” said Spingarn.

Credit Suisse lowered its forecast that Virgin Galactic would operate a large number of flights from Spaceport America in New Mexico from 2024 to 2025. Spingarn also noted that Virgin Galactic “appears satisfied” with approximately 11 quarters of cash at 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 combustion,” noted Spingarn.

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