How VIP astronauts were baling out on Branson even Before taht crash
Little wonder when all they’d got for their £125,000 deposits was invitations to his Caribbean island (for up to £28,000 a week)
For a man who built his fortune the mantra that customers are always right, Sir richard was doubtless troubled by the letter sent to Virgin Galactic headquarters nine months ago. Drafted by lawyers, and dated February 21, it had been signed by ten of the company’s longeststanding clients, who in 2005 and 2006 had paid deposits of up to $200,000 (£125,000) each for a journey-of-a-lifetime to space.
That trip, which they were originally led to believe would take place in 2008, had still not happened. Despite endless hype, they’d suffered year after year of delays, missed deadlines and broken promises.
‘For almost a decade now, we have been founders and avid supporters of the adventure that is Virgin Galactic,’ the letter began. ‘In the early years as ticket holders, we felt as though we and the VG team were “in this together”. There was a feeling of trust and candour, and we felt included in the process.’ Now, however, things were different. The once-loyal customers — three women and seven men, one of whom is (in his day job) a senior Virgin Galactic sales agent — had grown weary of Branson’s endless public statements, in which he invariably declared that lift-off was imminent.
More importantly, they no longer felt able to trust the 64-year-old billionaire with their money.
‘Many of us have had our customer deposits with Virgin Galactic for nearly ten years now, a length of time nobody anticipated at the time of sign-up,’ continued the letter, a copy of which was passed to me this week. ‘We would therefore like to request that the ticket deposits . . . be placed in an escrow account of our attorney’s choosing.’
An escrow account, often used in U.S. property transactions, protects large sums of money until a financial deal has been concluded. It is designed to stop either side losing cash in the event that one suffers insolvency.
From their arm’s-length perspective, that appears to have been starting to cause concern to the ten clients.
‘We’d done our sums, looked at how much Virgin Galactic was spending, had spent and how much cash it now had, and we were seriously worried,’ recalled one, speaking under condition of anonymity.
‘The company was, and still is, getting through tens, maybe hundreds, of millions a year, yet has virtually no income.
‘Branson kept saying he’d be in space by Christmas. But everything we knew about the technical side told us that was nonsense.’
Later, we’ll consider how Virgin Galactic saw fit to respond to that disgruntled letter.
In the meantime, remember that it reflects the opinion, back in February, of ten long- standing Galactic clients, including a man who makes a living selling tickets on the firm’s spaceships.
ToDAy, of course, the commercial picture for Virgin Galactic has grown far, far grimmer. Throughout the summer, the firm’s increasingly sceptical customers watched, and waited, for the slightest sign that its aircraft, SpaceShipTwo, was ready to carry out more of the dozens of test flights it should complete before entering commercial operation.
Having previously claimed that Virgin Galactic was going into space on December 25, 2013 (‘Maybe I’ll dress up as Father Christmas!), Branson had shifted the goalposts to summer and autumn 2014. Now he began publicly saying that its maiden flight wouldn’t actually take place until ‘February or March’ 2015.
Doubtless, he genuinely believed that lofty promise, just as (to cite one of many examples) he believed a line he spun at a 2005 press conference in New Mexico, where he told the media he’d be running 100 space flights a year from 2010.
It was, however, hard to find an informed observer who shared that sunny optimism. And then, last Friday morning, disaster struck.
A few seconds into its first powered flight for nearly ten months, SpaceShipTwo broke into pieces in mid-air and crashed, killing its co-pilot, 39-yearold Michael Alsbury.
It was, in fact, the project’s second fatal tragedy. Three engineers had died in 2007 when one of Virgin Galactic’s ground tests ended in an explosion at its base in the Mojave desert.
Back then, in an ill-fated breach of health and safety protocol, they’d chosen not to watch that experiment from behind a pupose-built large earth barrier 400 yards away, but were instead standing next to a chain link fence, a stone’s throw from the test site.
The causes of last week’s disaster are now being investigated by officials from America’s National Transportation Safety Board, which might take up to a year to work out what happened and who, if anyone, is to blame.
In the meantime, Virgin Galactic finds itself in a sad form of limbo.
Now unlikely to commence commercial operations for several years, it faces a harsh financial reality. Put simply, the company has burned through between $500 million and $600 million (close to £400 million) in almost a decade and has precious little, aside from four dead employees, to show for it.
So far, it has created a ‘ spaceship’ which has reached an altitude of just 71,000 feet (less than a quarter of its supposed target altitude of 327,000 feet) before falling to bits in mid-air, and a rocket motor which several experts regard as dangerous.
Meanwhile, the firm is shipping cash at a prodigious rate.
A staggering 400 engineers now sit on its Californian payroll (costing an estimated £25 million a year in salaries alone), along with dozens of marketing and management staff at a swanky headquarters on London’s exclusive Pall Mall, an operating base in New Mexico and all the usual vast overheads associated with a major engineering project.
Where does this actually leave its finances? It’s impossible to tell because, like much of Sir richard’s highly opaque business empire, Virgin Galactic has been registered overseas.
The firm is, on paper, based in Delaware, a U.S. State which doesn’t require private companies to file accounts.
A majority is owned by the Virgin Group, which is in turn owned by a selection of trusts which benefit Branson (who is resident for tax purposes in the British Virgin Islands) and his family.
A minority stake of just under 40 per cent is also owned by Abu Dhabi investment firm Aabar, which has so far put $380 million into the kitty, but seems unwilling to commit more money until the crash investigation is completed.
The firm will have no proper income stream until passengers can actually be taken into space. And even if things run entirely smoothly, experts believe that process could now take anything from three more years to a decade.
‘With this accident, you won’t see anybody carried up next year, and I wouldn’t be surprised if it takes three to four,’ says Marco Cáceres, senior space analyst at The Teal Group, a U.S. aerospace analysis firm.
The fatal accident may also persuade America’s Federal Aviation Administration to suspend Virgin Galactic’s licence to fly, or insist on vetting its craft in a similar fashion to a commercial airliner, which would potentially add years more to its development process.
Given this state of affairs, it was intriguing that Branson’s Virgin Group should have unveiled plans this week to sell chunks of two of its most precious assets.
One is the Virgin America airline, another is Virgin Money.
A previous float of the latter firm (expected by analysts to be valued at up to £2 billion) was postponed last month, amid reports that the lender considered the market too soft. The lender unexpectedly changed its mind on Tuesday. The sale is now expected to value it at only £1.5 billion.
A Virgin spokesman insisted that the floats were a logical next step for the companies, had been ‘planned for months’ and were not part of a fire sale to raise a quick buck.
He added: ‘ Virgin has strong cash reserves and will invest in Galactic’s space travel as well as its satellite launching business to move the projects forward.’ Nonetheless, Galactic customers, many of whom are intimately acquainted with the world of high finance, are watching with interest.
Before the tragedy, the firm claimed to have between 700 and 800 of them on its books. Together, they had paid a combined deposit of around £88 million, which the company has promised to refund in full if they want to quit. It says it’s currently waiving its usual admin fee for customers who pull out. However, departing clients do not receive interest on the six-figure sums that have been sitting in Virgin’s account for up to a decade.
How many of those 700 to 800 clients are now jumping ship is, at present, a matter of intense speculation.
In a Mojave press conference on Saturday morning, Branson gave the clear impression that none had left since the crash, saying that ‘we may lose one or two [customers], but it doesn’t look like it’.
That, however, was not the case. Several actually quit within hours of the disaster. By Monday, the firm’s spokesman was forced to admit that roughly 20 had, in fact, gone.
‘At the time of Saturday’s press conference Richard was using the latest available information and this was a fast-moving situation,’ says a spokesman.
Some, like Peter Ulrich von May, an asset manager based in Switzerland, had simply grown tired of waiting for the project to achieve lift-off.
‘I want out. I subscribed seven years ago at 63, am still an active private pilot and in good health, but who knows how long it will now take. I have already informed VG of my wish — no reply yet,’ he told reporters. Another told me: ‘To be honest, I’ve been considering it for a long time. This was a final straw.’
The former client said he’d been initially seduced by Virgin Galactic’s marketing bumpf, which proclaimed that clients would gain entry to a glamorous network of ‘future astronauts’ at exclusive parties, and that: ‘Our future astronauts have visited Necker Island with Sir Richard.’
That promise turned out to be true, but only up to a point, he says. Because invitations for Virgin Galactic customers to party with Sir Richard on his Carribbean hideaway usually came with one rather inconvenient caveat.
Twice a year Virgin Galactic does indeed invite its customers to spend a week on Necker. However, its invitation points out that if they take up the offer, they will be expected to pay up to $45,000 (£28,000), for their week’s accommodation.
‘Our rates include all your meals and drinks (even fine champagne!)’ it declares, saying that a room in Mr Branson’s private home can be rented for $35,000, while for $26,850 you can experience ‘a separate house we call the Love Temple — this room, as you might expect, is quite private!’.
each February Virgin Galactic customers are invited to join peers for a week-long summit at Sir Richard’s ski chalet in Verbier (price on application). Late last year, they were also invited to spend six days with other ‘future astronauts’ in South Africa, staying at Sir Richard’s safari lodge. Total cost: $16,000 per head. The regular invitations to spend gargantuan sums on Virgin holidays began to grate, the former client recalls. ‘It just all felt sleazy, like we were being constantly shaken down for extra cash,’ he said.
Another ‘future astronaut’ says he decided to jump ship earlier this year, after coming to the conclusion that emails informing him of latest developments in Virgin Galactic’s testing programme were not giving a clear picture of the firm’s activities.
He cites a message sent to all Virgin Galactic clients on January 11, saying its spaceship had just completed a third rocket-powered test flight.
‘In the coming few months, the Scaled [Scaled Composites, the firm that builds the rockets for Branson] and Galactic test teams will continue to expand the rocket-powered test flight envelope,’ it read.
In fact, the firm did not run another rocket-powered test flight till last week’s ill-fated one. The reason? Late in 2013, it decided to dramatically redesign its rocket motor configuration.
‘They must have known this email was misleading — they weren’t actually going to do another test for months — but they sent it anyway,’ says the former client.
‘Once I realised that, I just lost trust in what they were doing. And if you lose trust in someone on the ground, you aren’t going to let them take you to space, are you?’
Virgin Galactic did not comment about that email.
Understandably, although its clients are undoubtedly in possession of derring- do, fears about the firm’s safety record are growing.
ON THAT front, I can reveal that Jon Turnipseed, Galactic’s vice president of safety, left the job in January 2014. According to his CV on LinkedIn, the online networking site, he is now in retirement in Idaho.
Despite his departure, the ‘our team’ section of Virgin Galactic’s website was, as recently as October 6, claiming that Turnipseed was still doing the vice president of safety’s job.
Of this apparent anomaly, a Virgin spokesman said: ‘Jon’s still involved in the programme [on a freelance basis], and his former role is being filled by several different people, each highly experienced and truly capable on his or her own.’
Time will tell whether investigators are satisfied with that explanation, just as it will presumably tell us what exactly caused last week’s crash.
It seems at present that a pilot may have prematurely released the lock on a ‘feathering’ mechanism designed to activate the craft’s moving tail, triggering aerodynamic forces that made it plummet to earth.
However, even with the lock activated, that mechanism ought not to have deployed without a second lever being pulled, raising the prospect of mechanical error (perhaps exacerbated by severe vibrations from the rocket engine) actually being at the centre of the disaster.
All of which brings us back to those ten weary clients who, in February, asked for their deposit cheques to be moved into an escrow account.
The move, I gather, was flatly rejected by Virgin Galactic, which says customer deposits have never been used to fund the project and are kept separately from development funds.
Nevertheless, two of the ten clients are no longer ‘future astronauts,’ and at least one more is now said to be ‘seriously considering’ his position. The rest remain on board for now. ‘It’s perhaps against our better judgment, but we are not yet ready to let go of the dream,’ said one, via email.
Sir Richard must hope he has plenty of customers with such faith.