November 2019 – Whitestone Chambers

Virgin Galactic becomes the world’s first publicly traded space tourism venture

Virgin Galactic has recently become the world’s first publicly traded space tourism venture. It is a vertically integrated aerospace company within the Virgin Group, pioneering human spaceflight for private individuals and researchers.

Virgin Galactic (‘Galactic’) merged with venture capital firm, Social Capital Hedosophia in early October, prior to which Galactic had lost $138 million in the first nine months of that year. It had spent $100 million on research and development for testing rocket-powered space planes ahead of its first commercial flight scheduled for 2020.

The resulting company formed through the merger was named Virgin Galactic Holdings, Inc. (“VGH”) and its common stock, units and warrants began trading under the ticker “SPCE” on 28 October 2019. Merging and trading as a public company are milestones on the path towards building a thriving commercial service business, with the projected worth of this public listing being $2.7 trillion by 2045 according to Merrill Lynch.[1] The deal has given the company a cash influx of $430 million which will ensure that there is sufficient funding while it finishes testing of its vehicle, SpaceShipTwo, which has been under development for more than a decade.[2]

The company plans to send paying customers in groups of 6 on scenic flights to space where they will experience weightlessness for a few minutes. The customers will also experience intense G-forces as the plane makes its way to more than 50 miles above Earth. 600 people already have tickets and have agreed to pay between $200,000 and $250,000 for their trips representing approximately $80 million in total collected deposits and over $120 million of potential revenues. The company is currently not taking any new customers, but its new financial filing has revealed that more than 3500 people have expressed an interest in purchasing tickets.[3]

One potential line of business for Galactic is in using space plane to conduct ultra-fast flights between cities. Sam Korus, an analyst at ARK invest, said that his research indicates that as many as 2.7 million people might be willing to pay up to $100,000 for a long-distance hypersonic flight to reduce their current travel time. According to his research, the market could scale to $270 billion in revenues annually.

Boeing has invested $20 million for a 1% stake in the company to aid the development of hypersonic transit. The companies will work together to broaden commercial space access and transform global travel technologies. The investment brings together two companies with extensive experience in the space industry. Virgin Galactic brings with it the ability to design, build, test, and operate a fleet of advanced aerospace vehicles; Boeing has unparalleled experience transporting people to orbit and building and operating large structures within that environment.[4]

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[1] https://www.washingtonpost.com/business/2019/10/28/virgin-galactic-takes-space-tourism-public-with-historic-nyse-listing/

[2] https://edition.cnn.com/2019/11/13/tech/virgin-galactic-earnings/index.html

[3] https://www.virgingalactic.com/articles/virgin-galactic-completes-merger-with-social-capital-hedosophia-creating-the-worlds-first-and-only-publicly-traded-commercial-human-spaceflight-company/

[4] https://www.virgingalactic.com/articles/boeing-to-invest-in-human-spaceflight-pioneer-virgin-galactic/

Panorama investigation looks at the practice of fuel tankering

A BBC Panorama investigation into fuel tankering, the practice of filling aircraft with extra fuel to avoid having to refuel at destinations that have a higher fuel charge, has claimed that they have seen documents which show that up to six tonnes of extra fuel can be loaded onto a plane per flight. BA confirmed that it emitted 18000 tonnes of additional carbon dioxide in the atmosphere, last year, by indulging in this cost saving practice.

According to Panorama, a recent BA flight to Italy took three extra tonnes of fuel leading to an added 600 kg of carbon dioxide emission whilst only saving £40 in costs.

BA told the BBC that fuel tankering is standard practice within the industry to carry additional fuel due to operational, safety and price reasons. The industry-wide practice could mean extra annual emissions equivalent to a large European city.[1] Whilst admitting that they sometimes indulge in fuel tankering to save money – such as when flying to Glasgow where fuel prices are 25% more expensive than Heathrow, they reasoned that fuel tankering was sometimes important for operational reasons and to save time. BBC Panorama states that for BA, fuel tankering applies largely to only short haul destinations where there are considerable fuel price differences between European airports.

The U.K. is currently a part of the EU Emissions Trading Scheme (EU ETS).[2] The EU ETS is a form of carbon pricing known as a ‘cap and trade scheme’ in which a limit on emissions is set and divided up into allowances, each equal to one tonne of CO2. Each year businesses must surrender sufficient allowances to match their emissions, with large fines imposed on those who do not. BA has committed to reducing carbon emissions by investing in new technologies and sustainable bio-jet fuels[3]. John Sauven, Greenpeace UK’s executive director has suggested the need for government-enforced reduction targets to ensure airlines take responsibility for the damage their emissions are causing. Eurocontrol, the body that coordinates air traffic control for Europe, has estimated that tankering in Europe produces an additional of 901,000 tonnes of CO2. BA have stated that they will carry out a review of its fuel tankering practices and CO2 emissions and has also ensured to offset all CO2 emissions from its UK domestic flights in accordance with the EU ETS by 2020.

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[1] https://www.bbc.co.uk/news/science-environment-50365362

[2] https://spice-spotlight.scot/2019/04/05/the-eu-emissions-trading-scheme-and-brexit/

[3] https://www.britishairways.com/cms/global/microsites/ba_reports0809/pdfs/Environment.pdf

Bombardier to sell its Aerostructure Unit to Spirit AeroSystems in $700 Million Deal

Bombardier, a leading manufacturer of planes and trains has reached into a definitive agreement to sell select assets to Spirit AeroSystems, one of the world’s largest tier-one manufacturers and suppliers of aerostructures. It is also acquiring aftermarket service businesses in Belfast, U.K.; Casablanca, Morocco; and its aerostructure maintenance, repair and overhaul (MRO) facility in Dallas, U.S.A. The deal involves assumption of liabilities, including pension obligations. The assets and after-market service business are being acquired for a cash consideration of $500 Million. Additionally, Spirit Aerosystems is assuming approximately $300 Million in net pension liabilities and approximately $290 Million of government grant repayment obligations, for a total enterprise valuation of $1090 Million, which is equals to 10 times the 2019 estimated adjusted EBITDA of the acquired business. The transaction is expected to close in the first half of 2020 and is subject to regulatory approvals and customary closing conditions.[1]

Spirit AeroSystems claims that the acquisition is in line with Spirit’s growth strategy of increasing Airbus content, developing low cost country footprint and growing their aftermarket business. The Bombardier operations will bring synergies by bringing engineering expertise and add to a robust track record of innovation. The Deal would be strategic for Spirit as the acquired business would bring a world-class aftermarket business which more than doubles Spirit’s geographic reach globally.

The move also benefits Bombardier in the sense that the move is part of Bombardier’s plan to shed its commercial aviation business and focus on its higher-margin business jets and rail division. The Belfast factory will continue to remain a major supplier to Bombardier’s business jet programmes.

A Spokesperson for Bombardier said that there would be no workforce adjustments and Bombardier’s employees will be transferred to Spirit including those at smaller operations in US and Morocco.[2] The Unite union is of the opinion that the acquisition has a hope for a positive future for Bombardier workers in Northern Ireland as Bombardier was once on the brink of insolvency and a new owner for the Belfast operations should bring some stability for the workforce and a long-term focus on the business. The GMB union said that it would be seeking talks with Spirit’s management ‘to get assurances on jobs, terms and condition and pensions.’[3]

The transaction is subject to regulatory approvals and customary closing conditions. Spirit’s press release cautioned that the expected profits and revenues are only forward-looking statements and could be susceptible to uncertainty and changes in circumstance.

[1]https://www.spiritaero.com/release/137050/spirit-aerosystems-to-acquire-select-assets-of-bombardier-aerostructures-and-aftermarket-services-business

[2]https://www.theguardian.com/business/2019/oct/31/bombardiers-belfast-factory-sold-to-spirit-in-850m-deal

[3]https://www.bbc.co.uk/news/uk-northern-ireland-50246299

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law@whitestonechambers.com

The dawn of the electrical vertical take-off and landing aircraft

The dawn of the “flying taxi” will soon be upon us through the development and manufacture of the electrical vertical take-off and landing (‘eVTOL’) aircraft. The aircraft as envisaged will carry passengers from specially designed Skyports, enabling the use of eVTOL aircraft in built up areas. The Skyports are designed and built through the collaboration of specialists in architecture, design and engineering to produce landing and take-off sites capable of handling up to 1000 landings per hour in a small space; collaboration between Volocopter and Skyports has resulted in the creation of the world’s first full scale air taxi vertiport, which opened in Singapore on 21 October 2019.

Uber is one of the main competitors in the eVTOL industry, and it plans to “give riders the option of an affordable shared flight”. These aircraft would be autonomously controlled and would pick passengers up and drop them off in a similar way as to how the Uber Pool facility works.

The eVTOL aircraft must comply with the regulatory regimes in each country in which they operate. Singapore and China are places in which the Skyports co-founder and managing director Duncan Walker suggests the aircraft will launch faster, and that in other areas better progress must be made to promote the benefits of these aircraft to governments.

In relation to the regulation of these aircraft in Europe, on 2 July 2019, the European Aviation Safety Agency released its final “Special Condition”, which contains the framework for the Basic and Enhanced certification (aircraft capabilities after a critical malfunction of thrust/lift) for the small aircraft category which “covers aircraft with a passenger seating configuration of 9 or less and a maximum certified take-off mass up to 3175kg” [1].

However, there are currently problems limiting the benefits of this technology. The battery life of these aircraft limit them to short flights as the aircraft achieve a range of about 22 miles, with a maximum speed of 68mph, although prototypes are being designed that may achieve a range of 185 miles. As a result of this, short flights will be the current focus of these companies as there are many potential customers in cities such as London who would use the aircraft to travel to local airports and other destinations.

As these aircraft are developed and are programmed to be fully autonomous, the threat of cyberattacks will loom large, as the effect of an inflight disruption could prove disastrous. Companies using this technology must therefore have detailed plans in case of the event of a cyberattack, as well as a consideration as to whether cyberinsurance will develop to encompass such an event.

[1]https://www.easa.europa.eu/document-library/product-certification-consultations/special-condition-vtol#group-easa-downloads