Virgin Galactic (SPCE) falls after test delays pushed tourism service back

Virgin Galactic shares fell on Friday after the company’s fourth quarter results revealed delays in its test flight program, with the planned launch of its commercial service now being pushed back until 2022.

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

Delays in Virgin Galactic’s spacecraft testing program, which had already been thwarted after an in-flight engine shutdown during a space flight attempt in December, prompted the company to push back its schedule start-up of regular space tourism flights.

Shares of Virgin Galactic fell 11.9% in session Friday to close at $ 37.23 per share. The stock remains up significantly since the start of the year, gaining more than 55% since the start of the year, even after Friday’s drop.

Colglazier gave investors an updated snapshot of the milestones Virgin Galactic expects to achieve this year given the delays in testing.

The company’s next major event won’t be with Unity, but instead will include the deployment 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 said will allow “better performance in terms of theft rate” and maintenance.

Meanwhile, this spring, Virgin Galactic will be working to resolve the electromagnetic interference (EMI) issue with Unity. The company’s analysis showed that EMI was the root cause of the December flight disruption, and other EMI issues during pre-flight preparations led Virgin Galactic to pull out of a attempted space flight that was expected earlier this month.

“To reduce EMI levels, we will be upgrading the new flight control computer with additional functionality. Once these changes are complete, we will thoroughly test the system on the ground, both in the lab and on Unity, after which we will start over. our flight test program, ”Virgin Galactic President Mike Moses said on the company’s earnings conference call.

Unity’s attempted flight in May will effectively be a repeat of the December test, with just 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 assembly of a second SpaceShip III vehicle.

“Our current flight test protocol for the first SpaceShipThree vehicle provides for four glides and four powered flights, and we anticipate that space flights will generate revenue,” said Colglazier.

Given Unity’s delays so far, Coglalzier has declined to give specific target dates for the second spaceflight attempt, saying only that Virgin Galactic expects it to “happen this summer.” The second Unity space flight will carry four passengers with the pilots – the most people Virgin Galactic will have flown at a time.

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

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

Virgin Galactic will then enter a period of downtime for maintenance which, according to Colglazier, will last approximately four months. The company will lead a “period of analysis and renovation” with its Eve carrier planes, the Unity spacecraft and the SpaceShip III vehicles.

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

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

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

“The big novelty of the publication was the basic change in the flight schedule,” UBS analyst Myles Walton said in a note to investors.

UBS has a neutral rating on Virgin Galactic, lowering its price target to $ 40 per share from $ 52 per share. Walton said he saw “a little more technical risk on the schedule than before,” although he was “encouraged by the speed of building a base for the scale when the green light on business operations is achieved”.

Alembic Global Advisors demoted Virgin Galactic to the neutral overweight position, with its price target dropping from $ 27 per share to $ 39 per share.

“What is driving our downgrade is a combination of the current valuation of stocks (the stock has risen 78% year-to-date after more than doubling in 2020) and a new outlook from management that seems to suggest spending additional capital and a longer timeframe to meet regular targets, so passenger travel, which we now feel is on a timeline in early 2022, ”Alembic analyst Pete Skibitski wrote in a note.

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

“The updated plan, which is based on higher numbers and newer versions of the spacecraft, is probably taking longer to build than we envisioned when we launched the cover,” Spingarn said.

Credit Suisse has pushed back its forecast that Virgin Galactic will achieve high volume of flights from Spaceport America in New Mexico through 2025 from 2024. Spingarn also noted that Virgin Galactic “seems satisfied” with around 11 shifts. money left on its trail, based on the 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 progress and burn rate,” Spingarn noted.

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