Disillusionment is spreading among investors in the sector of service companies and data services via satellite. Richard Branson’s Virgin Orbit filed for bankruptcy in the US on Tuesday and was placed under Chapter 11 protection. This umbrella is primarily used to enable companies that are ready for bankruptcy to submit a restructuring concept or to wind up existing assets profitably.
Erich Moechel works in Austria as an investigative journalist. He also gives lectures and workshops on data protection and data security, encryption, military IT, etc.
The failure of the first major commercial satellite launch from the UK in January was only the catalyst for bankruptcy; Even a year ago, hardly any investor believed in the viability of Virgin Orbit’s business model. That skepticism is now spreading to the Indo-British OneWeb, even though the company just completed the first phase of its global network rollout with 618 low-Earth Satellites (LEO-SATs) at the end of March.
Eutelsat stock has tumbled from one all-time low to the next since the announcement of OneWeb’s merger with France’s Eutelsat, the world’s largest operator of commercial geostationary satellite services (GEO-SATs). So far, not a single analyst has issued a positive business forecast for this merger, which is expected to be completed in the summer. The outlook of all analysts is consistently negative.
Eutelsat from all-time low to all-time low
The first rumors were already circulating in the industry in spring 2022; When the merger plans became concrete in July, the price of Eutelsat shares plummeted by a good 40 percent in a single trading day. The intermediate highs are deceptive, because many speculators have sounded out whether the bottom has already been reached. A second but by no means decisive factor was that Eutelsat had to give up the two important markets of Russia and Iran one after the other. The share never recovered from the second slump in November, when it became known that the merger would actually take place. The most recent all-time low was just at the beginning of Easter week.
Unlike Starlink, OneWeb does not offer network access for end users, but focuses primarily on mobile operators, ships, offshore platforms and airlines. Eutelsat has been active in the latter – very small – field for years with its geostationary satellite fleet. This allowed Eutelsat to bring its ring of ground stations into the deal, because no LEO network works without ground control. Due to the high latency of the data round trips with radio traffic over 70,000 kilometers to GEO-Sats, all such offers have always only been competitive where there is no other Internet access. So everything seemed fine on paper, but the e3b/forecast:financial parameters don’t match.
Up until 2021, Eutelsat had consistently reported annual sales of almost two billion euros and regularly brought in record-breaking annual profits of around 500 million euros for the industry. Not anymore.
According to the merger agreement, Eutelsat will have to raise a high single-digit billion sum in investments over the next few years, while no investor is already investing. And on top of that, it has now merged with a company whose ten-year history| is a succession of bankruptcies, bad luck and mishaps.
The founder and still the largest owner of OneWeb is the Indian “entrepreneur” Bharti Mittal, who became rich investing in mobile networks in the 2000s. After it was founded in 2012, companies such as Qualcomm, the Virgin Group, Softbank and also Eutelsat invested in OneWeb without even putting a single satellite into orbit.
The first launch of a set of satellites into their orbits did not take place until 2019, after the third satellite launch OneWeb was already insolvent. In 2020, OneWeb was saved by a partial nationalization. For reasons that are not known, the British government paid in a billion-dollar sum of an unknown amount and received a golden share, which is said to be worth 3.4 billion dollars. Other shareholders are Bharti Global, Japan’s Softbank, the industrial conglomerate Hanwha from South Korea, the British government and Groupe Eutelsat.
After the rescue, OneWeb saved 41,000 satellites – instead of the originally planned 47,844 satellites, it was “only” supposed to be 6,372. But even that is too expensive for the analysts.
Digression: Why Virgin Orbit failed
While OneWeb was able to convince Eutelsat, Virgin Orbit failed to find new investors. This investor skepticism was not related to the technical capabilities of Branson’s carrier plans. The Virgin Orbits business model was simply not well thought out. The rocket called “LauncherOne” with a length of 21 meters can transport a payload of less than one ton. This means that only two satellites from the competitor OneWeb or one from the Starlink fleet can be transported into a near-earth orbit of a maximum of 600 km. Virgin Orbit was the only company to use a conventional passenger and cargo jet as the first stage.
In comparison, the latest version of Musk’s Falcon 9 can launch up to 8 tons into low Earth orbit per launch, even at altitudes of more than 1200 kilometers unattainable for Branson’s LauncherOne. At these heights above the LEOs (Low Earth Orbiters), which then provide the Internet connections on earth, extremely broadband data links are already possible on the conventional satellite bands such as the Ku band with very low latencies. The only thing left for Virgin Orbit was the launch of Cubesats, and that alone does not make a business model.
Cubesats are nanosatellites measuring 10 x 10 x 10 cm with a maximum mass of 2 kg and are mainly used by universities and research institutes. This is not a particularly solvent clientele, and on top of that, these Cubesats have been traveling with commercial rocket launches at discount prices for years.
At the end there are questions
How could an investor come up with the idea of relying on such a business plan as Richard Branson must have presented? In any case, significant sums were invested and lost in Virgin Orbit. And how did Eutelsat come up with the idea of joining the periodically growing OneWeb consortium of creditors years ago and watching for years how the money invested becomes less and less valuable when OneWeb is also periodically illiquid?
All of these investors have long been unable to freely dispose of their holdings unless they risk losing everything. Namely, the only actor who hasn’t lost significant sums through OneWeb so far is Bharti Mittal.
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