SpaceX Corporation Is in Trouble. Can It Fix the Problems?
What is SpaceX Corporation going to do next? Certainly the incident that saw its “Falcon 9” rocket explode in spectacular fashion on the Cape Canaveral launchpad last week will not help the cause of a SpaceX initial public offering (IPO). Indeed, SpaceX has much work to do now just to recover the good faith of potential customers.
All the while, SpaceX founder and boss Elon Musk is also struggling with production problems at Tesla Motors Inc (NASDAQ:TSLA) and a combination of debt and merger issues with SolarCity Corp (NASDAQ:SCTY).
For starters, SpaceX has now launched a rather public appeal to the U.S. government to recover photos, videos, and sound recordings of the Falcon 9’s explosion. This might be useful to determine the cause of the accident. It’s certainly the first step to recover trust. This is essential if ever Elon Musk plans to launch a SpaceX IPO.
What SpaceX knows now is that the explosion occurred in the rocket’s upper part. This is the area that has the liquid oxygen tank and the cargo capsule. Both possibilities will be examined but, if the investigators find that the fire started in the liquid oxygen area, this could be a major setback for the Falcon 9 program and other space programs. Indeed, this is what caused the explosion of the Falcon 9 rocket in 2015, shortly after its launch.
SpaceX’s success is all about reliable recovery and reuse
The major innovation introduced by SpaceX is the recovery and reuse of rockets. This is the key to cutting the cost of space flight. In 2016, SpaceX performed five successful launches, improving its performance, but this latest explosion could certainly halt SpaceX’s progress. SpaceX is also in competition with Boeing Co (NYSE:BA) and others to become the first private company to transport regular people into outer space.
But first there is the matter of compensating Space-Communications Ltd. (TLV:SCC), also known as Spacecom, for the loss of its satellite. Rumors are that this might be in the range of $50.0 million. (Source: “SpaceX asked to pay $50 million after losing a satellite,” Endgadget, September 4, 2016.) If SpaceX can’t compensate, it will have to agree to provide a free launch next time – and there are those who say there’s no such thing as a free launch (or is that a free lunch?).
The “Amos-6” satellite, which was destroyed in the accident, cost more than $195.0 million. Its task, had the SpaceX Falcon 9 rocket worked properly, would have been to expand the variety of communication services provided by Spacecom. There is no mention of whether SpaceX had insurance. Elon Musk has been rather mute on Twitter (his communication vehicle of choice). There is the feeling that SpaceX cannot wait to get this story out of the way. And who could blame Musk?
Satellite loss has major repercussions for SpaceX plans
In addition to loss of a satellite, Spacecom stock has suffered on the Tel Aviv stock exchange. Such are the business repercussions that Spacecom now worries that its agreed takeover by China’s Beijing Xinwei Technology Group Co Ltd (SHA:600485) will either fail to go through or will happen at a much lower price than expected. (Source: “SpaceX disaster casts doubts on Spacecom takeover,” Financial Times, September 6, 2016.)
The message that SpaceX is sending the world now is rather grim. That message says: beware of sending your valuable game-changing satellites with us. Stick with the more reliable Russians or Europeans.
Apart from Spacecom, the other customer that SpaceX failed to please was none other than Facebook Inc (NASDAQ:FB). The satellite that went up in smoke, along with the Falcon 9 rocket, was intended to provide Facebook the digital connectivity that it wants to establish in parts of Africa, which is still lacking the necessary infrastructure. Mark Zuckerberg said he was very disappointed. Sorry, make that “deeply” disappointed. (Source: “Mark Zuckerberg, ‘Deeply Disappointed’ SpaceX Destroyed His Satellite,” The Huffington Post, September 1, 2016.)
The latest SpaceX incident, therefore, might be the one with the biggest repercussions. It has caused much more collateral damage than previous failed launches. Elon Musk will have to work hard to straighten the prospects of his space company. Can Musk put SpaceX back on track? He will have to work to save SpaceX’s reputation with the public and, in particular, of major customers such as NASA and the satellite manufacturer SES SA (EPA:SESG). Elon Musk will have to convince them that the product is reliable. The much-publicized SpaceX 2024 mission to Mars may have to wait a bit longer.