Breakingviews: Richard Branson advances the science of SPAC holes

Space investment isn’t exactly rocket science. High-profile initiatives by billionaires Elon Musk and Jeff Bezos, coupled with cheap money, helped the sector soar. With Virgin Orbit crashing into bankruptcy on Tuesday, it’s becoming clearer that such initiatives are mostly just flights of fancy.

Once valued as high as $3.2 billion, the Richard Branson-backed satellite launcher sought protection from creditors in court less than two years after making its market debut via shell company. More than a dozen peers are on a similar trajectory, having lost, on average, 75% of their value, according to Breakingviews calculations.

There was some justifiable rationale for the hype. The cost of delivering satellites into orbit has declined, largely thanks to reusable rockets from Musk’s SpaceX. This fostered new revenue-generating opportunities, such as the company’s Starlink satellite broadband service, beyond tourism. SpaceX, started two decades ago, was valued privately at $137 billion in a funding round earlier this year.

But the constellation of other firms, almost all of which merged with publicly traded special purpose acquisition companies to access capital, ranged from the speculative to the dubious. Broader SPAC disillusionment contributed to investors fleeing. Even Intuitive Machines, whose NASA contracts give it an edge, debuted on the Nasdaq in February with less than a third of the amount of cash it anticipated.

For most, projections were too rosy considering how much cash they require. Virgin Orbit expected the market for the sorts of small satellites it delivers to grow from $8 billion in 2019 to $25 billion by 2029, using management estimates based on figures from Prophesy Market Insights. Eurospace, a non-profit trade group, reckoned that in 2019 it was less than $1 billion.

Other companies, such as Momentus and Astra Space, are also feeling the gravitational pull. All 14 that went public over the past four years are incinerating cash, and only three have enough to make it for more than two years, assuming they don’t moderate their burn rate.

Some may survive. Ones with stronger balance sheets, such as Planet Labs and Rocket Lab USA, could buy rivals on the cheap, keep growing and eventually reach profitability. Higher interest rates and rising skepticism about risky ventures will make the job harder, however. Moreover, SpaceX is sucking up a lot of the industry’s oxygen. The financial physics are pretty easy to grasp.