Virgin Galactic SPCE falls after tests delay tourist service back

Shares of Virgin Galactic fell in price on Friday after the company’s fourth-quarter results revealed delays in its test flight program, with the scheduled launch of its now-boosted commercial service in 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 launched from February to May. The company encountered an electromagnetic interference problem with a new flight control computer at Unity, and CEO Michael Colglazier said the company expects corrective work to take eight to nine weeks.

Delays in Virgin Galactic’s spacecraft testing program, which was previously seen after an in-flight engine abortion during a space flight attempt in December, caused the company to roll back its schedule to start regular space tourism flights.

Shares of Virgin Galactic fell as much as 15% in trading, to about $ 35 a share, after Thursday’s close of $ 42.24. Shares have continued to rise significantly since the beginning of the year, gaining up to 60% so far even after Friday’s fall.

Colglazier offered investors an updated view of the milestones Virgin Galactic hopes to achieve this year, given the delays in testing.

The company’s next major event will not be with Unity, but will include the launch 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 hopes will allow it to “get better performance in terms of flight speed” and maintenance.

Meanwhile, Virgin Galactic will work this spring to address the issue of electromagnetic interference (EMI) with Unity. The company’s analysis showed that EMI was the root cause of the December flight abortion and other EMI problems during pre-flight preparations caused Virgin Galactic to withdraw from a space flight attempt. which was expected earlier this month.

“To reduce EMI levels, we will improve the new flight control computer with additional features. Once we have completed these modifications, we will thoroughly test the system in the field, both in the lab and Unity, and then start our flight testing program, ”Virgin Galactic President Mike Moses said at the company’s earnings conference.

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

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

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

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

Then, Virgin Galactic will do a third spaceflight test, with Unity company founder Sir Richard Branson on a journey of nearly two decades.

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

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

“We have decided to implement improvements and accelerations to the long-term maintenance upgrades of our Eva spacecraft, 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, which will mark the start of the company’s commercial space tourism service. The company expects “SpaceShip III to be able to complete flight tests” early next year, Colglazier said.

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

“The big news flow out of print 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, reducing its target price to $ 40 per share from $ 52 per share. Walton said he sees “a slightly more technical risk on the calendar than before,” though he was “encouraged by the speed in building bases for scale when green light is achieved in commercial operations.”

Alembic Global Advisors changed Virgin Galactic’s category to neutral for overweight, with a price target that changed to $ 39 per share from $ 27 per share.

“What drives our downgrade is a combination of the current stock valuation (shares have risen 78% in YTD after more than doubling in 2020) and a new management perspective that appears to be an additional capital expenditure and a longer time to reach consumer travelers, who now appear to us to be on a timeline in early 2022, ”still analyst Pete Skibitski wrote in a note.

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

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

Credit Suisse pushed back its forecast for Virgin Galactic to achieve a large volume of flights from Spaceport America to New Mexico by 2025 from 2024. Spingarn also noted that Virgin Galactic “seems satisfied” with about 11-quarters of remaining on its track, according to the current rate of quarterly burns.

“We now have a higher capex line that may require additional capital by the end of 2022, depending on the pace of progress and rate of burns,” Spingarn noted.

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