Why did Virgin Orbit’s lifeline investment fall through?

Virgin Orbit has halted operations and filed for Chapter 11 bankruptcy on 4 April amid funding struggles, particularly after the SVB banking crisis and its failed UK launch in January. As the company lays off most of its workforce, its future remains uncertain. However, industry experts remain optimistic about its potential for recovery, looking to its cutting-edge technology and growing demand in the satellite launch market. Is this goodbye for the satellite launch company, or will it soar again?

- Virgin Orbit has filed for Chapter 11 bankruptcy protection on 4 April due to funding issues following a failed UK rocket launch in January.

- On 30 March, the company said it was laying off a significant portion of its workforce, retaining only 100 employees out of 775.

- Despite these setbacks, former Virgin Galactic president Will Whitehorn believes Virgin Orbit has the potential to rebound, citing its unique technology and industry demand.

Virgin Orbit declares bankruptcy

Virgin Orbit [VORB] has announced a halt to operations "for the foreseeable future" as it struggles to secure funding, resulting in the layoff of almost its entire workforce. CEO Dan Hart revealed during a company-wide meeting on 30 March that Virgin Orbit would file for Chapter 11 bankruptcy protection in the US, enabling the company to address its financial issues while shielding it from creditors, CNBC reported.

Following a failed UK rocket launch, Virgin Orbit, primarily owned by Virgin Group, had been seeking new funding sources and suspended operations to preserve cash. The company will retain only 100 employees, a significant reduction from its original 775-strong workforce.

“We have no choice but to implement immediate, dramatic and extremely painful changes,” CEO Dan Hart said, and assured that departing employees would receive assistance in finding new positions, including a direct hiring pipeline with sister company Virgin Galactic [SPCE].

Late-stage investment discussions with two investors fell through, and shareholders offloaded Virgin Orbit stock on 31 March, resulting in a 40% share price drop to 20 cents per share, marking an 82% decline for the year.

Fallen deals and a shady suitor

Matthew Brown, a self-proclaimed investor and space enthusiast, was in talks for a $200m investment deal with the struggling rocket company. However, the deal fell through as many of Brown's claims about his business experience have been called into question, with an investigation revealing numerous inconsistencies and discrepancies, Quartz reported. Although Brown asserted he has invested in 13 space companies, evidence was found for only three – and these were through buying shares in the secondary market. He also claimed to have advised the Obama White House, T. Boone Pickens, and a renewable energy lab at UC Berkeley, but none of these parties have been able to substantiate his involvement. Further investigation into Brown's background reveals a pattern of inconsistent or unverifiable claims, casting doubt on his credibility and the legitimacy of his supposed investment activities.

Sir Richard Branson, Virgin Orbit's majority owner, has been unwilling to provide further funding. The company was separated from Virgin Galactic in 2017, with Branson holding a 75% stake and the Emirati sovereign wealth fund Mubadala owning 18%. Virgin Orbit had previously engaged bankruptcy firms to develop contingency plans in case a buyer or investor could not be found.

Is this the end for Virgin Orbit?

According to an analysis by Jonathan Amos, a BBC Science correspondent, this is not a goodbye for the satellite launch company. He argued that Virgin Orbit may follow the path of other space companies, such as London-based OneWeb, that have recovered after Chapter 11 by finding new owners, settling debts, and obtaining fresh investments.

Despite its recent financial troubles and a failed UK launch, former Virgin Galactic president Will Whitehorn believes Virgin Orbit has the potential to rebound. He cited the company's track record of placing nearly 50 satellites into space and the growing demand within the industry.

However, with numerous competitors in the small launch vehicle market, Virgin Orbit must differentiate itself. Their unique selling point of responsiveness with their jumbo jet platform has been difficult to demonstrate, as the company only managed two launches last year. Any potential new owner will expect a more frequent launch cadence, in line with the company's original goal of monthly launches.

CEO Dan Hart remains confident that Virgin Orbit's cutting-edge technology will appeal to new owners, but Danni Hewson, head of financial analysis at AJ Bell, warns that the recent failed UK launch may deter potential investors. The UK Space Agency, however, remains optimistic about the industry's future, stating that the UK space sector is thriving and generates £17.5 billion in annual revenue.

Funds in focus: Procure Space ETF

One of the most popular space-themed ETFs is the Procure Space ETF [UFO]. As of 11 April, Iridium Communications is its second-biggest holding, with a weighting of 5.16%, while Sirius XM Holdings [SIRI] is first, with a 5.27% allocation as of 11 April. The fund is up 3.17% in the last six months.

Iridium Communications is the top holding in the Ark Space Exploration and Innovation ETF [ARKX], with a weighting of 8.50% as of 11 April. The fund is up 12.23% in the last six months and up 3.07% in the last month.