Space tourism company Virgin Galactic (SPCE -1.09%) has a dream: to enable anyone who wants to fly to the edge of space -- and has $450,000 burning a hole in their pocket -- to experience a few minutes of weightless flight, and take a gander at Earth's big blue marble.
Hundreds of people have bought tickets to take this trip with Virgin Galactic, and by 2028 some analysts think the company could be sending as many as 2,000 space tourists to space every year. But here's the thing: Right now, Virgin has only one operational spaceplane, capable of carrying six passengers at a time, and one "mothership" to carry that spaceplane to 50,000 feet altitude before releasing it to blast into space. In order to fully realize the company's potential, and achieve Virgin Galactic's stated aim of flying as many as 400 missions a year, generating $2.7 million per flight (so $1.1 billion in annual revenue), Virgin Galactic is going to need a lot more planes.
Spaceplanes and motherships
And I don't just meant spaceplanes -- Virgin Galactic is already basically finished building a second one of those, and has plans to build more -- but also motherships to carry those spaceplanes as well.
Virgin Galactic is capable of doing the math, and it knows all of the above quite well. And that's why, last week, Virgin Galactic inked a deal with Boeing (BA 1.51%) subsidiary Aurora Flight Sciences to build it not one, but two brand new motherships to carry its future fleet of spaceplanes into the skies.
As the company confirmed, each of the new motherships will be rated to fly at least 200 times per year, such that, once completed, the two new planes will meet Virgin Galactic's requirements to support a 400-flight-per-year cadence. There are, however, a few caveats to consider.
Caveats and provisos
Caveat No. 1 -- and this is the elephant in the room -- is that Virgin Galactic did not name a purchase price for the two mothership aircraft.
Indeed, it's possible even Aurora doesn't know how much it will cost to build them just yet. After all, the prototype Virgin MotherShip "Eve" (VMS Eve) wasn't built by Aurora, but by Northrop Grumman (NOC 2.84%) subsidiary Scaled Composites -- and Northrop presumably won't be interested in sharing details of the construction with its competitor Boeing.
A corollary to that caveat is that, however much it costs to build two new VMS Eve lookalikes, Virgin Galactic may not have the cash it needs to accomplish the task. According to data from S&P Global Market Intelligence, Virgin Galactic currently has only $867 million in the bank (offset by $456 million in debt).
Consider further that Virgin Galactic is burning through its cash at the rate of more than $250 million per year. This implies the company could be down to as little as $100 million cash in three years -- around the time Virgin Galactic will want the first new mothership to enter service. Unless the company has dramatically dialed back its cash burn rate by that time -- or a brand new mothership costs a whole lot less than I expect it will cost -- it's hard to see how Virgin Galactic will have the money available to pay for one new mothership in 2025, much less two.
The upshot for investors
Given these obstacles, a Virgin Galactic investor could be forgiven for wondering: Why isn't Virgin Galactic just building these motherships itself, and at least keeping the money in-house? After all, the company has an entire aerospace manufacturing company within its own corporate structure -- "The Spaceship Company" -- which is already charged with building the spaceplanes that its motherships will carry.
Given that Virgin Galactic isn't outsourcing production of its spaceplanes, it seems strange that it is outsourcing the production of its motherships. At the very least, you might expect it to outsource mothership production to the company (Northrop) that built the original mothership VMS Eve, and which could presumably build duplicates at the cheapest cost.
Nevertheless, this is the way Virgin Galactic has apparently decided to go, and so far, it appears to be the route that shareholders approve of. Since making its announcement about the Boeing partnership, Virgin Galactic investors have bid up the stock by nearly 8%.
Fingers crossed that they're right about that.
