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Why Virgin Galactic Stock Is Down Again Today

By Lou Whiteman – Sep 3, 2021 at 11:15AM

Key Points

  • The FAA has grounded Virgin Galactic while it investigates a course deviation during the company's July flight.
  • The issue is likely a minor one, but the reputational damage to Virgin Galactic could linger.

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The FAA has some questions about the company's historic July launch.

What happened

The Federal Aviation Administration is getting tough with Virgin Galactic Holdings (SPCE -0.87%), and investors are worried about what that means for the space tourism company. Shares of Virgin Galactic traded down more than 6% on Friday, adding to losses Thursday after the FAA grounded Virgin Galactic's SpaceShipTwo.

So what

July 11 was a day of celebration for Virgin Galactic, as the space start-up successfully launched its founder, Richard Branson, to the edge of space. The event was supposed to mark the launch of the space tourism industry, but the FAA is putting that on hold while it conducts an investigation into a mishap during the July flight.

The United spacecraft glides to Earth.

Image source: Virgin Galactic.

"Virgin Galactic may not return the SpaceShipTwo vehicle to flight until the FAA approves the final mishap investigation report or determines the issues related to the mishap do not affect public safety," the FAA said in a statement to news agencies.

The issue, which is related to a deviation in the descent flight path, appears minor. Virgin Galactic in a response said it was cooperating with the FAA and working internally to address the causes of the issue, noting "at no time were passengers and crew put in any danger."

SpaceShipTwo is next scheduled to fly in late September or early October.

Now what

If past FAA enforcement is a guide, Virgin Galactic will likely have to agree to a plan with the regulator to ensure the deviation does not happen again, and then will be cleared to return to the sky. Depending on the timing, it is possible the next scheduled mission will go on as planned.

Still, the issue is a big deal for Virgin Galactic. The company's business model requires convincing tourists to pay a six-figure sum for a few minutes of weightlessness. There is some risk inherent with space travel, but Virgin Galactic's best chance for success is to have a squeaky-clean safety record.

The FAA move, if nothing else, is a ding to that reputation. Virgin Galactic would be wise to do whatever it can to resolve this matter as soon as possible.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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