What Abu Dhabi Sees in Virgin Galactic

Richard Branson's space travel venture was something of a joke until Abu Dhabi's Aabar Investments pumped in $280 million. Will it fly?

By Richard Northedge

Until last week Richard Branson's proposed flight into space had looked like a flight of fancy—another personal adventure by the man who has set records for journeys by sea and balloon. Then an Arab investment company bought a third of his Virgin Galactic company in a deal valuing the venture at $900m. Suddenly the space project looked like it might be a business after all.

Sir Richard celebrated the deal with his Abu Dhabi partner by taking his first flight in VMS Eve, the Virgin mothership that will launch the spaceships. "This has been one of the most incredible experiences of my life," he said, as he landed at the airbase in Wisconsin.

He meant the brief trip in Eve but many see the $280m capital injection as equally incredible. Sir Richard refers to Virgin Galactic as "the world's first commercial spaceline", but few others have regarded it as commercial. Has Aabar Investments (AABAR.AD) seen profits where others see only costs, or is the Emirates company—controlled by the sheikh who owns Manchester City—on a flight of fancy of its own?

Aabar's investment values Virgin Galactic at about half the stock market capitalisation of easyJet and not far behind Sir Richard's Virgin Atlantic airline. But Virgin Galactic has yet to make a flight into space; it has no timetable and still awaits approvals from America's Federal Aviation Authority and other bodies.

Sir Richard has never doubted that his project will fly, however. He registered the Virgin Galactic name a decade ago and met the designer of his spaceships, Burt Rutan, through fellow adventurer Steve Fossett. Virgin Atlantic sponsored Fossett, who died in a plane crash in 2007, for his round-the-world, non-stop, solo flight in GlobalFlyer, which Rutan built.

Rutan had also built SpaceShipOne with finance from Paul Allen, the co-founder of Microsoft, with the aim of claiming the Ansari X prize for the first reusable private craft to take a pilot at least 100km into space. When they won in 2004, the $10m award offset part of Allen's $26m investment and Virgin teamed up with the duo to develop a second-generation spacecraft.

Virgin has so far spent about $100m developing the mothership that will carry SpaceShipTwo 50,000ft towards space, where it will launch the craft with up to six passenger astronauts and two pilots in a cabin that is twice as big as the craft that won the Ansari prize, but still only about the size of an executive jet.

This mothercraft flew for the first time last December and had completed 15 test flights before Sir Richard climbed aboard last week. The spaceships are nearing completion and test flights are due to start this year and could last into 2011, when Virgin hopes to start commercial flights.

The $280m investment by Aabar will provide sufficient capital to finance Virgin Galactic until paying passengers come on board, says Sir Richard. It is high stakes for Aabar, however, whose value on the Abu Dhabi stock exchange is just £330m.

It has been on a spending spree this year that has already seen it invest £1.75bn for a 9 per cent stake in Daimler, commit $735m to buying land in Abu Dhabi, another $140m investment in an Austrian property and technology venture, plus the acquisition of the Swiss private-banking subsidiary of AIG, the insurance company bailed out by the US government.

But 71 per cent of Aabar's shares are owned by the International Petroleum Investment Company, a wholly owned vehicle of the Emirate's government and chaired by Sheikh Mansour bin Zayed Al Nahyan, half-brother of the country's president and a minister in the government as well as a businessman—and owner of Manchester City. Besides its oil wealth, including 47 per cent of Spain's Cepsa petroleum group, Aabar's parent owns MAN, the German lorries group, and has just made £1.5bn selling part of the Barclays shares it bought last autumn.

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