Why Did Virgin Orbit Firm File for Bankruptcy?

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Why Did Virgin Orbit Firm File for Bankruptcy? 0
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There is no doubt that many businesses struggle
and find themselves in hard financial times for
many different reasons. Small businesses are more
prone to becoming insolvent but it happens to
larger organisations as well, as can be seen in
the recent news that Virgin Orbit Holdings have
recently filed for bankruptcy under Chapter 11.
The business was originally founded by the
billionaire Richard Branson and filed for
bankruptcy given they were unable to secure any
kind of long-term funding after a launch in
January proved unsuccessful.
The filing is sudden, given it comes only two
years after Virgin Orbit originally went public.
It was previously valued at 3 billion but this
valuation went down massively following the
failed launch at the beginning of 2023. Dan
Hart, the Virgin Orbit Chief Executive commented
on the news saying, We believe that the Chapter
11 process represents the best path forward to
identify and finalise an efficient and
value-maximising sale. The company was a
spin-off from Virgin Galactic, which was a firm
centred around space tourism. Virgin Orbit
instead focused on sending satellites into orbit,
rather than sending people. When the news was
announced, it was made public that the company
would be seeking a sale of its assets and also
announced that they would be laying off 750
employees (which is 85 of the workforce as a
whole). In selling the assets, they were listed
for 243 million. This could be an issue given
the business has been valued at 65 million, with
shares only being sold at 15 cents apiece. So,
where did Virgin Orbit go wrong? And What has led
to the filing for bankruptcy? The Failed
Launch One of the major issues that has impacted
the business is the failed launch. In January,
the sixth mission of the company began, which was
where its centrepiece LauncherOne rocket (the
first launched from Britain), failed to reach
orbit. This meant that the payload it was
carrying (which consisted of commercial and
defence-related research satellites) was plunged
into the ocean, rendering them useless. This
problem meant that the Spaceport based in
Cornwall needed to halt operations and also
furlough nearly every member of staff in order to
conserve cash. The former Chief Operating Officer
of Virgin Orbit, Tony Gingiss, had to apologise
to employees in an email, saying that company
leadership should have had more time to keep the
company running. He said, Im sorry we didnt
act sooner and avoid surprising you Im sorry
that I was not able to convince our leader and
board to take a different path to give us more
time to figure things out. The Business
Model Another issue was the business model of the
company. Originally, Virgin Orbit was set up in
order to launch small rockets and be able to
provide short-notice launches from anywhere in
the world, which included launches needed for
tactical military purposes. Whilst this could
work in theory, there was increased demand for
larger rocket launches. Not to mention, the
cost-effective launches done by SpaceX and their
Falcon 9 over the past couple of years meant that
competition was fierce. Additionally, the cost of
capital has increased over the past few years
because of increased global interest, meaning
venture investments into space-related start-ups
have dropped over 50. Dan Hart commented on
this in a court declaration. The changing
capital markets and higher interest rate
environment made obtaining new capital
difficult, he said, whilst also acknowledging
that the company is experiencing, heavy pricing
pressure from well-capitalised competitors in the
commercial launch market.
The Funding
Finally, another major issue was the fact that
Virgin Orbit was unable to obtain any kind of
funding moving forward. About 75 of the company
is owned by Bransons Virgin Group. They said
that they had invested over 1 billion in the
unit as a whole, which included 60 million in
secured loans that were obtained in November.
Another big investor in the company was Mubadala,
Abu Dhabis sovereign wealth fund, which had a
17.9 stake. Whilst Virgin Orbit currently looks
for a buyer, Virgin Investments will help out by
providing 31.6 million. Though the company has
laid off a number of people, they have kept on
about 100 employees so that operations can
continue whilst it finds a rescuer, according to
a regulatory filing. Branson has had a lot of
success with his telecommunications and his
travel businesses however, he has also been
associated with a large number of high-profile
business failures throughout his career which
dates back to the 1970s. One of the largest
creditors which were a part of Virgin Orbit was
the London-based company Arqit Ltd, who are now
owed around 10 million for various services and
as part of a customer deposit. They refused to
provide any kind of comment on the current
situation with Virgin Orbit.
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Another large creditor who was involved with
Virgin Orbit was the American Military, who are
now owed about 6.8 million as a deposit which
was put down for future launches. Again, no
immediate comment has been made regarding the
situation with Virgin Orbit. Does Your Business
Need Help? As can be seen from the above, it is
not just small businesses that are prone to going
insolvent and filing for bankruptcy, there are
large, billion-dollar companies who find
themselves in a difficult position as well. As
such, if you have your own small business and
find yourself in difficult financial times, then
there is nothing wrong with reaching out for
help. When you do this, you need to ensure that
you are working with people who have both your
business and your creditors best interests in
mind. At Simple Liquidation, our team of experts
will sit down with you to better understand
exactly what the current situation with your
business is, and what your best move forward is.
If you require any further information or have
any questions then do not hesitate to get in
touch.
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