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Hype aside, failure is still a big part of the space industry

Remark

The mission seemed to be going well. The rocket was hoisted up by a 747 and dropped. It then fired off its engines from the first stage in what Virgin Orbit said on Twitter was a “gorgeous 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 seemed to have an anomaly that prevented us from reaching orbit.”

In spaceflight, “anomaly” is a sanitized word for “failure.” And there have been many of them lately, bringing a high-flying industry back to the ground and raising a point that has been overlooked or forgotten as space has emerged as a hot sector in the economy: flying rockets are a hugely risky and difficult business.

The day after Virgin Orbit suffered the loss, another aerospace startup company, ABL Space Systems, experienced “an anomaly and shut down prematurely,” it said on Twitter, meaning the rocket’s engines stopped firing, causing it crashed, crashed into space. launch pad and explode.

In December, a Vega C rocket from the French company Arianespace also failed. A few months earlier, Blue Origin’s New Shepard rocket had an engine problem that triggered the emergency shutdown system and pushed the capsule, which had no humans on board, just science experiments, to safety. (Jeff Bezos, the founder of Blue Origin, owns The Washington Post.)

With the economy tightening, many aerospace companies are now struggling. On the enthusiastic wave of investment, several aerospace companies went public through SPACs, or special acquisition companies, in an effort to raise the money to get them into orbit. Investors jumped in, some with little knowledge of the specific challenges of an industry that relies largely on the careful combustion of thousands of gallons of volatile propellant.

But as the economy tightens and recession fears loom, many of those companies have collapsed and investment is declining.

“The group of space SPACs hasn’t been very helpful in building investor confidence,” Chad Anderson, a managing partner at Space Capital, an investment firm, said in an email. “People have every reason, based on the countless examples, to be skeptical of SPACs. Impossibly optimistic projections, fueled by hype and funded by investors who have put in little or no effort in a sweltering market the likes of which the world has never seen.”

While companies received tens, if not hundreds of millions of dollars, “you still have to do the hard work,” says Jesse Klempner, a partner at McKinsey & Company, the consulting firm. “So in many ways, that share price reflects in my mind the mismatch between financial and investor expectations and timelines with technology reality.”

Enthusiasm for space ventures is not entirely out of place and coincides with a renaissance in space exploration. SpaceX has been hugely successful and blazed a trail for other companies to follow. In 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 is also starting to take notice, eager to take advantage of the technical advances that allow small satellites to play a major role in modern warfare, as well as the drastic reduction in launch costs.

NASA recently completed a successful Artemis I mission that launched the Orion spacecraft into lunar orbit with no astronauts on board. His Space Launch System rocket, the most powerful in the world (for now), had a perfect launch. And Orion’s triumphant splash into the Pacific Ocean last month paved the way for the Artemis II mission, which would take astronauts to the moon.

The James Webb Space Telescope has beamed back image after stunning image, giving scientists new images of the universe that go back almost in time to its creation. Its Perseverance rover has made tracks on Mars. And NASA endured a few tense moments with Russia to continue cooperation on the International Space Station.

In many ways, SpaceX has been the gold standard. It launched 61 times last year, a record, and plans to launch more rockets into 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 pursued since its inception: making spaceflight look easy and routine.

As a result, investors began flooding the wider aerospace industry with investments, going all-in in an industry that was once considered far too risky for serious money. In 2020, investment in aerospace startups was $7.6 billion, up 16 percent from 2019, according to Bryce Space and Technology, a consulting firm.

That was “in line with the six-year trend that began in 2015 of unprecedented levels of venture capital-driven investment pouring into the aerospace industry,” the company said.

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

After the failure, Virgin Orbit, the company founded by Richard Branson, saw its shares plummet and is now trading below $2 per share. Astra, another rocket company targeting the small satellite industry, has also struggled to get off the ground. In November, after a third-quarter net loss of $5 million, it said it would lay off 16 percent of its workforce. That followed a warning from the Nasdaq that it would delist the company after trading no more than $1 per share for 30 consecutive days.

“There’s a spectrum of how sophisticated different types of investors are with respect to space,” Klempner said. “Retail investors probably don’t understand all the complexities of the technological advancements these companies need to make money and achieve economic returns.”

It’s not just the small start-ups that have had to deal with economic turmoil. Boeing, the aviation, defense and space giant, has had all sorts of problems with the Starliner spacecraft it developed to transport 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 will make its first test flight with astronauts on board this spring, it has faced repeated technical delays and setbacks that have forced the company to post nearly $900 million in losses to the program.

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

“The space economy has experienced significant growth over the past decade — solidifying its role as a supranational infrastructure — and that genie can no longer be put in the bottle,” Anderson said in an email. “Despite the challenges posed by macro headwinds, we have never been more bullish on aerospace.”

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