Virgin Galactic shares slide as FAA opens investigation, aircraft grounded

Shares of Virgin Galactic dropped as much as 7% during yesterday’s intraday stock trading action at $24.9 per share to then settle higher to close the day with a 3% loss after news broke about an investigation from the Federal Aviation Administration (FAA) concerning the company’s 11 July test flight.

According to an exclusive report from The New Yorker, warning lights started flashing on the vessel’s cabin during the mission’s descent on that day, alerting pilots about a deviation from the initially charted course, said sources who were directly involved with the mission and who spoke with the US newspaper in anonymity.

The New Yorker report emphasized that these warning lights were a grave signal that the aircraft was drifting off course and that could result in an emergency landing during what was a highly publicized trip that carried no other than the company’s founder Sir Richard Branson.

Meanwhile, officials from the FAA confirmed that the company is currently under investigation for this abnormal detour while the agency decided to ground Virgin Galactic’s vessels until the probe is concluded. In total, pilots flew off the charted course for around one minute and forty seconds.

This account of the events that transpired during the test flight is very different from the company’s statement regarding what happened on that day as the mission was deemed as a “successful” one despite the dangerous nature of an out-of-control descent.

In regards to the current state of affairs, a spokesperson from the agency stated that Virgin “may not return the SpaceShipTwo vehicle to flight until the FAA approves the final mishap investigation report or determines the issues related to the mishap do not affect public safety”.

A representative of Virgin Galactic (SPCE) addressed the news by stating: “We have been working closely with the FAA to support a thorough review and timely resolution of this issue”.

Meanwhile, the company maintains that its future test flights should not be affected by this ongoing investigation even though the FAA’s comments seem to state exactly the opposite.

Just yesterday, the firm confirmed an upcoming flight carrying three paying passengers from the Italian Air Force and the National Research Council. The flight is expected to take place anywhere between September and October this year.

How have Virgin Galactic shares performed so far this year?

Shares of Virgin have dived over 13% so far in August while they have shed most of the gains they saw earlier this year, first during the short-squeezing frenzy of January-February and then after a series of positive news, including the approval of its FAA license for operating spaceflights.

As part of its latest quarterly earnings report, the company revealed that it will once again allow the public to purchase tickets for its upcoming commercial space flights. Tickets will be sold at an average price of $450,000 per seat while the company boasted over $80 million in customer payments received in advance.

Moreover, Virgin Galactic is expected to be cleared to perform its first commercial flights carrying regular paying passengers during the first semester of 2022. However, this timetable might be affected by this latest investigation from the FAA if the company is unable to fulfill its remaining required test flights.

What’s next for Virgin Galactic shares?

SPCE shares have managed to stay above the two bullish gaps the price action left behind during the May-June run-up. These two supports are the most important to watch at the moment and yesterday’s volumes were particularly high and could be an early signal of future trouble.

In this regard, nearly 40 million shares of SPCE exchanged hands yesterday – a number that exceeded the 10-day average by nearly 2.3 times.

Even though buyers showed up to lift the price to positive territory during the session, sellers ultimately took over and ended up plunging the stock price to its intraday lows of $24.9 per share.

The combination of elevated volumes during what was a highly volatile session indicates that negative momentum might just be starting for Virgin Galactic and the grounding of its ships by the FAA might be the catalyst that ends up plunging the stock price in the near future.

Moving forward, if the price fails to move above the 20-day moving average, which acted as resistance yesterday, chances are that the price action may soon fill the two open gaps below for a total downside risk of 31%.