‘Anomalies’ spell disaster for space companies’ search for money


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The mission seemed to be going well. The rocket was hoisted aloft by a 747 and dropped. It then fired its first-stage engines in what Virgin Orbit said on Twitter was a “beautiful full-duration burn,” with a fire emoji added for effect. The company tweeted that the rocket had successfully reached orbit. But a few minutes later came the bad news — and a correction: “We appeared to have an anomaly that has prevented us from reaching orbit.”

In spaceflight, “anomaly” is a sanitized word for “failure.” And there have been a lot of them recently, bringing a highflying industry back to ground and driving home a point that has been overlooked, or forgotten, as space has emerged as a hot sector in the economy: Flying rockets is an enormously risky and difficult business.

The day after Virgin Orbit suffered its loss, another start-up space company, ABL Space Systems, suffered “an anomaly and shut down prematurely,” it said on Twitter, meaning the rocket’s engines stopped firing, causing it to fall, crash into the launchpad and explode.

Early in today’s flight, all nine of RS1’s E2 engines shut down simultaneously. RS1 impacted the pad and was destroyed.

— ABL (@ablspacesystems) January 11, 2023

In December, a Vega C rocket, operated by the French venture Arianespace, failed as well. A few months before that, Blue Origin’s New Shepard rocket suffered an engine problem that triggered its emergency abort system to fire, shooting the capsule, which had no people on board, only science experiments, away to safety. (Jeff Bezos, the founder of Blue Origin, owns The Washington Post.)

As the economy tightens, many space companies are now struggling. Riding the enthusiastic wave of investment, several space companies went public through SPACs, or special purpose acquisition companies, trying to raise the cash to propel them to orbit. Investors jumped in, some of them without a lot of knowledge about the specific challenges of an industry that is in large part reliant on the careful combustion of thousands of gallons of volatile propellant.

But now, as the economy tightens and fears of recession loom, many of those companies have come crashing down, and investment is tightening.

“The group of space SPACs hasn’t been particularly helpful in terms of building investor confidence,” Chad Anderson, a managing partner at the investment firm Space Capital, said in an email. “People have every reason, based on the numerous examples, to be skeptical of SPACs. Impossibly optimistic projections fueled by hype and funded by investors who did little, if any, diligence in a white-hot market, the likes of which the world has never seen.”

While companies were on the receiving end of tens, if not hundreds, of millions of dollars, “you still have to go and do the hard work,” said Jesse Klempner, a partner at the consulting firm McKinsey & Co. “So in many ways, that stock price in my mind reflects the mismatch of financial and investor expectations and timelines with technological realities.”

Enthusiasm for space ventures has not been entirely misplaced and coincides with a renaissance in space exploration. SpaceX has been wildly successful, forging a path that other companies are following. Over the past decade, NASA has undergone a culture shift, now eager to partner with the commercial companies, awarding them lucrative contracts for some of its most sensitive missions, even flying astronauts. The Pentagon also has begun to pay attention, eager to tap into the technical advancements that have allowed small satellites to play a huge role in modern warfare, as well as the drastic reduction in launch costs.

Recently, NASA completed a successful Artemis I mission sending the Orion spacecraft, without any astronauts on board, into orbit around the moon. Its Space Launch System rocket, the most powerful in the world (for now), had a picture-perfect launch. And Orion’s triumphant splashdown in the Pacific Ocean last month paved the way for the Artemis II mission, which would carry astronauts to the moon.

The James Webb Space Telescope has been beaming back image after jaw-dropping image, giving scientists new views of the universe that go back in time nearly to its formation. Its Perseverance rover has been making tracks on Mars. And NASA has weathered a few tense moments with Russia to keep its partnership going on the International Space Station.

In many ways the gold standard has been SpaceX. It launched 61 times last year, a record, and plans to fire more rockets to orbit this year. After overcoming multiple failures in its early years, the company has achieved the goal that Elon Musk, its founder, CEO and chief engineer, had set out to accomplish from the beginning: to make spaceflight look easy, routine.

As a result, investors began to flood the broader space industry with investment, going all in on a sector that once was considered far too risky for serious money. In 2020, investment in start-up space companies reached $7.6 billion, a 16 percent increase from 2019, according to Bryce Space and Technology, a consulting firm.

That was “consistent with the six-year trend beginning in 2015 of unprecedented levels of venture capital-driven investment flowing into the space industry,” the firm said.

After seeing a record $47.4 billion invested in the broader space economy in 2021, that number plummeted last year by 58 percent, according to Space Capital, an investment fund that specializes in space. In the third quarter of last year, “the market may have hit bottom,” the company said, noting it was “the lowest quarter for investment in the space economy since” the end of 2013.

After its failure, Virgin Orbit, the company founded by Richard Branson, saw its stock plummet, and it’s now trading below $2 a share. Astra, another rocket company aimed at going after the small satellite industry, has also struggled to get off the ground. In November, after posting a net loss for the third quarter of $5 million, it said it was laying off 16 percent of its workforce. That followed a notice from Nasdaq warning it would delist the company after it failed to trade above $1 a share for 30 consecutive days.

“There is a spectrum of how sophisticated different sets of investors are with respect to space,” Klempner said. “Retail investors likely don’t understand all of the complexities of the technological advancement that need to happen for these businesses to make money and provide economic returns.”

It’s not just the small start-ups that have faced economic turmoil. Boeing, the aviation, defense and space behemoth, has had all sorts of problems with the Starliner spacecraft it has developed to ferry NASA astronauts to and from the International Space Station. In 2014, NASA awarded the company a $4.2 billion contract for the program, but Boeing is years behind schedule. While it is set for its first test flight with astronauts on board this spring, it has faced repeated technical delays and setbacks that have forced the company to record nearly $900 million in losses on the program.

Anderson said there are benefits to a more grounded space economy, one rooted in strong business fundamentals instead of hype, especially as it has evolved to become “the invisible backbone of the world’s largest industries,” he said.

“The space economy experienced significant growth over the past decade — solidifying its role as supranational infrastructure — and there is no putting that genie back in the bottle,” Anderson said by email. “Despite the challenges caused by macro market head winds, we’ve never been more bullish on space.”

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