Here’s what went wrong with Virgin Orbit

not too long ago, virgin orbit Rarity was in the air among American rocket builders, and executives were celebrating the debut of public stock in New York.

The scene was just right for the marketing pizzazz that has helped sir richard branson Build your Virgin Empire of Companies, performing with a rocket model in the middle of Times Square.

The deal, facilitated by the so-called blank check company, gave Virgin Orbit a valuation of around $4 billion. But that moment in December 2021 – when the craze for public offerings focused on special purpose acquisition companies, or SPACs, was coming to an end – previewed the pain to come.

Now Virgin Orbit is on the verge of bankruptcy. company on Thursday ceased operations and laid off almost all of its employees, Its stock was trading around 20 cents on Friday, giving it a market value of about $74 million.

When Virgin Orbit closed its SPAC deal, it raised less than half of the approximately $500 million expected due to higher shareholder redemptions, shortening its runway. With broad markets turning against risky yet unprofitable assets such as many new space stocks, Virgin Orbit’s shares began a steady slide, limiting its ability to raise substantial outside investment.

Branson, Virgin Orbit’s largest stakeholder, was unwilling to further fund the company, as CNBC previously reported. Instead, it began hedging against its 75% equity stake through a series of debt rounds. The loan gives the flashy British billionaire now first priority over Virgin Orbit assets in the face of impending bankruptcy.

While Virgin Orbit touted a flexible and alternative approach to launching small satellites, the company was unable to reach the rate of launches necessary to generate the revenue it desperately needed.

Virgin Orbit’s technical staff acquitted themselves well over the company’s brief existence, but were ultimately undone by the financial mismanagement of its leaders. It’s an often-told story in the history of the space industry: Exciting, or even innovative, technologies don’t necessarily equate to great businesses.

It became one of the few American rocket companies to successfully reach orbit with a privately developed launch vehicle. It has launched six missions since 2020 – with four successes and two failures – through an ambitious and technically difficult process known as an “air launch”, with a system that allows the center of the rocket Uses modified 747 jets to launch and launch small satellites into space. ,

But Virgin Orbit took a roughly $1 billion hole, flying missions just twice a year while its payroll expenses soared. The company’s leadership was aware of the deteriorating situation and lack of progress, and even considered changes last summer to make the business more lean. But no clear or dramatic plan materialized – which led to Thursday’s decline.

This story gathers insights from CNBC’s discussions with company insiders and industry investors over the past several weeks, as well as regulatory disclosures, to explain where things went wrong for Virgin Orbit. Those people asked to remain anonymous discussing internal or competitive matters.

A spokesperson for Virgin Orbit declined to comment for this story.

Virgin Orbit was spun off from Branson’s space tourism company. Virgin GalacticIn 2017, a team within the latter’s sister company looked into the potential of using an aircraft as a platform to launch satellites. While “air launching” satellites was not a new idea for Virgin Orbit, the company aimed to surpass the air-launched Pegasus rocket developed by Orbital Sciences, now owned by Northrop Grumman – for a fraction of the cost per mission. .

Headquartered in Long Beach, California, Virgin Orbit flies most of its missions from the Mojave Air and Space Port. The exception to this was its most recent launch, which took off from Spaceport Cornwall in the United Kingdom. Virgin Orbit was working with other governments to provide launches by flying from airports around the world, signing agreements with Japan, Brazil, Australia and the island of Guam.

The advertised flexibility and capability of Virgin Orbit’s approach attracted considerable attention from leaders in the US national security community. After meetings with top Pentagon officials in 2019, Branson declared that Virgin Orbit was “the only company in the world that can replace [satellites] in 24 hours” during a military conflict.

At the time, Will Roper, the Air Force’s acquisition chief, said he was “very excited about the small launch” after meeting with Branson. He said that the US military had “a lot of money to invest” in launching the rocket.

The company had hoped to launch its first mission in early 2018, but that goal kept moving every six months. Eventually, in May 2020, Virgin Orbit launched its first mission, which failed shortly after the rocket was released from the jet. It successfully reached orbit for the first time in January 2021.

Given the company’s burn rate of close to $50 million per quarter, Virgin Orbit was targeting profitability after moving to a launch rate, or cadence, of a dozen missions per year. When it went public, Virgin Orbit CEO Dan Hart told CNBC that the company was aiming to launch seven rockets in 2022 to build on that momentum.

At the same time, Virgin Orbit was already in a deep financial hole – with total losses of $821 million at the end of 2021, due to continuous losses since its inception. While Virgin Orbit aimed to launch seven missions last year, that number has been steadily guided down quarter by quarter, closing out 2022 with just two full launches — the same as the year before.

Some people at the company who criticized Virgin Orbit’s execution pointed to the backgrounds of several executives. boeingwho had his share space related snags over the past few years.

Virgin Orbit CEO Dan Hart spent 34 years at Boeing, where he was previously vice president of government space systems. COO Tony Gingis joined Virgin Orbit from satellite broadband company OneWeb, but before that he spent 14 years in Boeing’s satellite division. And Jim Simpson, chief strategy officer, also spent more than eight years in Boeing’s satellite division before joining Virgin Orbit.

As one person asserted, the company launched as many rockets in a year with a workforce of 500 as it did with a workforce of more than 750 people. Others complained about a lack of cross-department coordination, with projects and spending carried out in silos of each other – causing a disconnect in schedules.

Two people mentioned wasteful expenditure in ordering material. For example: The company will buy enough expensive items with limited shelf-life to make a dozen or more rockets, but then only build two, meaning it will have to throw away millions of dollars worth of raw materials.

When Virgin Orbit announced a staff layoff on March 15, people familiar with the situation said the company’s Long Beach factory had about a half-dozen rockets in various states of production.

As the lack of a financial lifeline made the situation increasingly more dire, many Virgin Orbit employees expressed frustration at how Hart communicated the company’s position – and even more so at the lack of clarity following the furloughs. with.

On the day of the initial halt in operations, people described the company’s leadership running around like crazy, while many employees stood around waiting to see what was happening. One person lamented the turmoil and abrupt departure as executives tried to keep the company alive for as long as possible. Several employees expressed frustration at Hart for conducting the March 15 all-hands meeting virtually, speaking from his office instead of face-to-face, and not responding to any questions following the announcement of the halt in operations.

That frustration continued after the pause, with employees confused about the lack of specifics investors had been talking to Virgin Orbit leadership about. Thursday’s update that a deal fell through came as little surprise to a workforce that had largely been in limbo. Many were already looking for new jobs.

A white knight appeared last week as Matthew Brown discussed making 11th hour deal Along with Virgin Orbit, reportedly to inject up to $200 million into the company. However, within days, the talks failed. The company continued discussions with another unnamed investor last week.

But in Hart’s words on Thursday, Virgin Orbit “was not able to secure the funding to provide a clear path forward for this company.”

While the 675 employees laid off on Thursday have strong job prospects, Virgin Orbit is now destined for bankruptcy.