What’s happening?
Chapter 11 bankruptcy, sometimes called “reorganization bankruptcy,” is a way for companies to make themselves more valuable to potential buyers. This process allows the company to remain in ownership and control while reorganizing its debt and operations. It is often used to attempt to save a company before shutting down entirely and returning in another form. During Chapter 11 bankruptcy, the company or “debtor-in-procession” brings forward a plan to pay off its debt or restructure the business to the court for approval. This process can be very long and expensive and is usually a company’s last resort.
In a press release, Virgin Orbit CEO Dan Hart said, “While we have taken great efforts to address our financial position and secure additional financing, we ultimately must do what is best for the business. We believe that the cutting-edge launch technology that this team has created will have wide appeal to buyers as we continue in the process to sell the company. At this stage, we believe that the Chapter 11 process represents the best path forward to identify and finalize an efficient and value-maximizing sale.”
Virgin Investments Limited provided DIP (debtor-in-procession) financing to Virgin Orbit of $31.6 million to get through this process. More than Virgin Orbit received when it laid off its staff. That is how expensive and lengthy it can be.
Will this be the first or more company failures?
Probably not. Someone much smarter than me, Inspiration4/Polaris Dawn commander Jared Issacman talked about the future of the space industry in an interview back in October 2022.
A lot of companies were formed that in much more challenging times would never have been able to survive, that’s not exclusive to space. But for sure the space industry has received a lot of capital and I’m concerned they won’t be able to [continue to] receive it.
That’s not to say the world will just be SpaceX. I don’t think that’s the case, I think there are a couple really good space companies that have been smart on their capital allocation, they bought other companies, they’ve diversified their revenue streams, they’re more vertically integrated.
I think they’ll succeed, but a lot will go away.
Jared Issacmen in a Washington Post interview, October 2022
Many growing sectors have had hard times as the economy has risen and fallen over the years. So it would not be surprising that more space companies don’t survive a maturing sector that might not attract the same level of capital with now higher interest rates.
Rocket Lab is an excellent example of a company that has gained significant amounts of capital through private investments and a SPAC deal and diversified its revenue. The company manufactures satellite components, solar panels, and electric propulsion systems, all on top of a thriving dedicated SmallSat launch business.
Astra is a company I’ve had concerns about for a while now. It, too, raised capital through private investment and a SPAC deal and acquired companies to diversify its revenue. However, its core business model of a mass-producible light-lift rocket has yet to materialize. The company is now burning cash to develop its Launch System 2 by the end of this year. While its Spacecraft Engine provides some revenue, a big question is if it will be enough.
Two other companies in recent weeks have gone into the zone of concern with their stock price dipping below $1. Spire Global and Momentus, both companies that manufacture or deliver SmallSats to orbit, have received delisting notices from their respective stock exchanges. They are potentially opening up a great opportunity for companies like Rocket Lab or SpaceX to purchase and further diversify revenue.
Of course, all companies are not created equally, and just because Virgin Orbit failed to become cash positive doesn’t mean all struggling space companies will do so. In the end, time will tell who will remain, which is a cruel waiting game.
