Sir Richard Branson and Virgin Take On the Small-Satellite Market

By Rich Smith Markets Fool.com

Virgin Group is evolving again -- and may one day give investors an opportunity to profit.

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Three years ago, privately held Virgin Group spun off its Virgin America airline into a highly successful initial public offering, which became even more successful for investors when Alaska Airagreed to buy the airline just two years later. Now Virgin Group may be laying the groundwork for its next successful spinoff.

Virgin Group hopes to dominate the market for small satellite launches with its new two-stage rocket. Image source: Virgin Group.

Introducing Virgin Orbit

Virgin Group is a big conglomerate, comprising some five dozen subsidiaries and doing approximately $24 billion in business annually. One of Virgin's higher-flying subsidiaries is Virgin Galactic, the company whose SpaceShipTwo suborbital spacecraft and WhiteKnightTwo carrier aircraft promise to, in the very near future, fly tourists to the very edge of space -- and earn Virgin a tidy profit in the process. At the same time though, Virgin Galactic has been making investments in a somewhat different business, which promises to lower the cost of space launch by flying small satellites to high altitudes aboard an airplane, then blasting them the rest of the way into orbit aboard LauncherOne rockets.

From time to time over the past few years, Virgin Group has publicly mulled the possibility of spinning off Virgin Galactic as a public company. That hasn't happened yet, but last week, Virgin Galactic announced plans to reshuffle its business somewhat and give LauncherOne a separate identity.

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Going forward, Virgin Galactic will remain focused on its primary mission of commercializing space tourism with manned flight to the edge of space. Virgin Galactic's sister company, "The Spaceship Company," will operate separately as a manufacturer of aircraft for Virgin Galactic. And now the LauncherOne business will be split out as a third Virgin subsidiary, this one rebranded as "Virgin Orbit" and focused on the satellite-launch business.

Boldly going into Orbit

Why split up now? Virgin's Galactic Ventures CEO, George T. Whitesides, says now is "exactly the right time" to separate out Virgin Orbit, with the market for microsatellites expected to explode into hundreds of new launches over the next few years. Challengers are rising up fast in this nascent market, from start-ups such asVector Space and Rocket Labto incumbent space-launch powerhouses such as Orbital ATK, which has its own air-launched rocket-to-orbit business.

Whitesides hopes that Virgin Orbit, though, "will lead the world" in this new market, offering "responsive, affordable, dedicated launch for small satellites." To help make this so, Virgin is poaching Boeing Government Satellite Systems' VP to become Virgin Orbit's new president.

Already, without a single satellite launched, Virgin Orbital boasts a customer roster including such big-name clients as NASA, OneWeb (soon to be part of Intelsat), and Britain's Sky and Space Global.

To service them, Virgin Orbit is putting the finishing touches on its first four LauncherOne vehiclesand has a Boeing 747 carrier aircraft already in house to carry them. Plans call for Virgin Orbit's vertically integrated rocket factory to churn out two-stage LauncherOne rockets at the rate of about one per month. And not a moment too soon.

Analysts predict that this year will see upward of 600 small satellites launched into orbit. Even with a head start of four rockets preparing for launch, Virgin Orbit will need to move fast if it hopes to "lead the world" in this market -- or even just be a contender.

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Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Orbital ATK. The Motley Fool has a disclosure policy.