The COVID-19 pandemic has taken a sledgehammer to the economy — and the space industry is no exception. While some major space companies are still in operation, considered essential by the US government, smaller startups are grappling with how to move forward as once-reliable funding sources evaporate.
Before the pandemic, the global space industry was really coming into its stride, valued at around $360 billion, according to one analysis. In the US, an eclectic mix of major players and smaller startups comprise this sector, pursuing established markets like building rockets and satellites as well as more niche services like creating space habitats, mining the Moon, and manufacturing in space. For the last few years, space startups with bold ideas could successfully close round after round of funding.
“venture capital firms are pausing on their new investments.”
Now, companies may have a hard time getting infusions from outside investors. “Normally, you have capital to help [companies] continue to grow,” Carissa Christensen, founder and CEO of Bryce Space and Technology, a space analytics and engineering firm, tells The Verge. “You assume that they would be able to find other investors as well, and then you’d be looking for a new deal. Now, in this environment, where it’s unclear how companies are going to be affected by the situation, venture capital firms are pausing on their new investments, and preserving their capital.”
That means companies will likely rely on government contracts — either from NASA or the Department of Defense — now more than ever as a guaranteed source of funding. “A lot of these companies have the government as part of their revenue stream —some of it, the majority of their revenue stream,” Chad Anderson, CEO of angel investment and venture capital firm Space Angels, tells The Verge. “Most space companies have some government money coming in, and the government money is not drying up.”
A few high-profile space companies succumbed at the start of the pandemic. Bigelow Aerospace, which aims to build habitats and hotels in space, laid off all of its employees in late March, blaming orders from the governor of Nevada to close all nonessential businesses. “If we didn’t [close], we would be subject to fines, penalties, and the threat of having our business license revoked,” a spokesperson for Bigelow told The Verge at the time. Internet-from-space provider OneWeb filed for bankruptcy in late March, just after launching its latest batch of internet-providing satellites.
Analysts say these early losses are likely the result of problems that companies had before the pandemic, and the economic downturn just amplified those issues. “There were underlying problems before the virus,” Eric Stallmer, president of the Commercial Spaceflight Federation, tells The Verge. “With OneWeb, it wasn’t corona that took them out. It was the fact that they needed to find $500 million more. It may have been that the virus exacerbated that a little bit or accelerated it.” Bigelow had been vying for government contracts from NASA, but the company had mostly been self-funded. OneWeb also turned to the UK government after an expected investment from its backer SoftBank fell through.
“The companies that are highly capital intensive are going to struggle.”
“The companies that are highly capital intensive are going to struggle, because capital is scarce right now,” says Anderson. “The companies that are profitable, or have found novel, low-cost ways to do things in new ways — or if they’re focused on minimizing costs and focusing on the business model — those companies are going to fare better.”
Some aerospace startups are still figuring out where to focus their attention in this new reality. California-based Rocket Lab put its launches on pause in New Zealand to keep its personnel safe. Relativity Space, which is making a completely 3D-printed rocket, says it is doing well during the pandemic but that there will be a delay in testing its hardware. One startup launch provider, Astra, laid off a couple dozen employees to help survive the pandemic, according to a report from CNBC.
Many smaller space companies are looking for ways to get financial assistance from the government, as they run on tight margins. Some are less than a few years old and employ only 100 or so people, according to Stallmer. But unlike other small businesses, they don’t qualify for government assistance. Many of the venture-backed space startups are disqualified from receiving funds through the CARES Act, which is set up to help small businesses stay afloat throughout the pandemic. There is a stipulation in the law that associates any venture-backed company with the venture capital firm they receive funds from, pushing many of these small firms over the 500-employee limit to get loans through CARES. The CSF wrote a joint letter with other organizations to the Department of the Treasury, the Office of Management and Budget, and the Small Business Administration urging them to change this affiliation rule.
The government is providing a different kind of lifeline to some of the major launch providers and satellite firms. Armed with government contracts, these companies are considered “essential businesses,” allowing them to operate more or less like normal. Launch providers like ULA, SpaceX, and Blue Origin hold multiple contracts with NASA and the Defense Department, allowing them to continue work to maintain their launch capabilities. This “essential” status has been extended to numerous aerospace companies working on government missions. “About 50 percent of our portfolio has been deemed critical infrastructure or an essential service,” Anderson says. “So they have some level of operations that are continuing.”
Many companies longed to have the government as a customer well before there was a pandemic. The government often has bigger pockets than venture capitalists, and early investments from the public sector can be critical for fledgling space companies. SpaceX, for instance, received early government contracts during its first decade of operation that helped the company survive and then thrive, according to a report from Space Angels.
“I would say that existing government programs, contracts, and activities should be relatively stable.”
“I would say that existing government programs, contracts, and activities should be relatively stable,” says Christensen. “Even with the expense of responding to the pandemic, I think there’s going to be some real caution about the economic consequences of abruptly ending government programs.”
The government is still awarding contracts. Last week, NASA awarded three companies — SpaceX, Blue Origin, and Dynetics — contracts to develop landers to take humans to the Moon. Those contracts will last for 10 months, until February 2021, when NASA selects which companies it wants to actually build and do demonstrations with the landers. “Anybody that’s able to jump in and help with that liquidity gap right now is it a lifeline,” says Anderson. “And so the government is acting as that.”
Despite having the government as a customer, more established companies aren’t immune from the effects of the pandemic. “Hypothetically, if their suppliers for their fuel valves or fuel pumps go under because they can’t get enough orders, then that’s gonna have a ripple effect on them,” says Stallmer, potentially making it harder for companies to continue operating and manufacturing on schedule and at the same prices they’re used to.
In the meantime, some space companies are keeping busy by pitching in with the pandemic response. Companies like Planet, Maxar, and more have been providing crucial Earth imaging with their satellites to establish global trends and how the pandemic is affecting people’s movement around the world. Other satellites are being used to provide much need communications and connectivity options, helping doctors perform telehealth visits in rural areas.
Whether they’re keeping busy or just trying to keep the lights on, companies across the industry are all stuck in the same pandemic-induced holding pattern. Like many industries, it’s still too early to say what will happen in the future. But for smaller companies with loftier ambitions, the financial picture has already shifted. To make it through, they’ll have to tighten their belts and adjust their plans or scramble for a government-funded lifeline that keeps their unique space goals alive.