Accumulation of a financial base in detail

Here I am going to include the three additional or new numbers into the break-even-point-analysis. This will gho on by several steps - the first step is to conisder each number without the others. To avoid too long tables first two tables of the numbers that are constants:

I included the costs of infratsructure etc. into the permanent fixed costs although they aren't such fixed costs but fixed costs which will be terminated.
All numbers are summed up over five years.

The virtual credit of $ 100,000,000 is assumed not to be payed back by any rates year by year but by the total sum at once after 5 years.

Fixed Costs inserted into break-even-point-function (derived in earlier post(s)




First I consider the worst-case-scenario. The following table might also simplify the understanding of the link between number of flights, number of customers and total revenues and makes it easier to guess which numbers might be realistic:

Revenues inserted into break-even-point-function (derived in earlier post(s)




The resulting veriable costs I get are listed in the next table. I will email Sigurd an additional version of the Excel spreadsheet I used to get the numbers - it is more flexible than the earlier one.

Resulting variable costs




From this last table it can be seen that the inclusion of interest costs of 6% means that the resulting variable costs are $ 2,000 to $ 11,000 less than the case where there would be depreciation of the vehjicles only (100,000,000 to be depreciated.

This can be read reverse - someone who really has to get a credit of $ 100,000,000 at 6% per year is required to have variable costs by $ 2,000 to $ 11,000 less than Virgin Galactic.

The same holds for the other costs - but they can't be avoided by using a fortune.

There is another insight which could be got by this table: If the difference in variable costs between the column with no permanent fixed costs and one of the columns with permanent fixed costs is divided by the value in the column with permanet fixed costs then the result tells by what amount the variable costs will be decreased if the permanent fixed costs are increased by $ 1. This is a kind of a so-called sensitivity analysis. I was thinking about providing such an anlysis here but currently it appears too economics-sided to me. The analysis wouldn't be that simple as described here - especially since the break-even-point-function is non-linear - but in principle it could be compared to it.


I will go on later.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

(I will correct the tables in the previous post and in this post later - I didn't find out the problem yet. CORRECTIONS DONE


Here the continuation for the best case:

For comparison now the best case of Virgin Galactic getting 400 pioneers instead of 300 only. As already said I don't apply this case as a relevant alernative because the longer period of time to break even is to be considered to be due to the worst case while the shorter period of time is to be considered to be due to the best case.

The nly purpose to apply the best case to find out the variable costs is to show which impact it would have if a higher revenues are required to break even within 5 years.

Table .. changes as follows:







The new results are:





As can be seen by comparisons to the according table of my previous post it would mean that the variable costs are between $ 2,000 and $ 15,000 higher if the bst case would be required to break even after 5 years. Again it would be possible to do a sensitivity analysis which is similar to dividing this difference by the difference in revenues got by the pioneers. This difference is $ 10,000,000.



In parallel to going further with all this in the next posts I am already thinking about a special number oublished since long but not used here up to now.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

Here is some more information you might find useful Ekkehard. Virgin is reported as spending $250m so far on their Virgin Galactic operation, These costs obviously include additional costs to those it has incurred from Scaled which is said to be about £100m.

These extra costs will obviously impact on the time it will take Galactic to become profitable and the amount of flights it has to make. Branson also mentions free flights to people who have gained sufficient air miles and these will reduce the future revenue from ticket sales that he will be able to achieve.

http://www.abc.net.au/news/newsitems/20 ... 525177.htm

I am not that sure that these data are correct and/or valid. The short article explicitly says:



If "have signed up" means "registered" then this number is to high by 6,000 or 7,000 compared to recent quotes of Virgin Galactic where has been spoken of 34,000 or 33,000 people registered. If "have signed up" means contractors then the number is simply wrong because this would mean deposits of $800,000,000.

The problem with the $ 250 million is that Virgin Galactic, Burt Rutan and Scaled Composits repeatedly have said that there contract closed on 2004 is about the delivery of five vehicles at a price of 100 million for all five vehicles together. Since then there was not a single word about increasing that price up to $ 250 million.

For this reason I will watch and observe if Virgin Galactic, Rutan or Scaled will say something like that in the future but not make use of the number as long as they don't.

But if I add on all the fixed costs I made use of up to now then the result already is $ 261 million in five years at least- provided the investment into inrastructure etc. is $ 100 million instead of $ 35 million. The article is talking about the program - which includes and involves much more than the five vehicle only. In so far I might have covered the $ 250 million already. If that's not the case then the hints to do something similar to sensitivity analysis could be appplied as well as the Excel spreadsheet I sent to Sigurd months ago and the one I still have to send to him once I find time to do so.

What might be correct is the following quote:



I am not that sure that it is but such an estimation could be considered to be reasonable because of the number of registered people of 34,000.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)



EDIT: The flights got because of miles&more and the like simply will be paid by Virgin Atlantic instead of the customer - and Virgin Atlantic will have to pay the official price. They are a different company and are forced to behave like a customer at the market. The only savings possible are costs of administration. And since deposits of 10 million alrteady paid have been reported recently the price might have been dropped to $ 20,000 already - then there would be nearly no impact by that.

The tables are corrected and can now be read better to compare the numbers.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

Since I considered each kind of fixed costs seperated from all others in my previous calculations I consider them in total now.

I mentioned in my answer to Andy Hill's hint to an ABC-article that I the fixed costs already considered sum up to $ 261 million. This is the sum of the sepratedly considered fixed costs. But the 10% safety margin included depends on the investment costs for the vehicles and the infrastructure etc. included. For this reasn and for information here again the table of the fixed costs inserted into the break-even-point-function:



As can be seen the total fixed costs included are by more than 10% above the $ 251 mio. used earlier - and they have been higher in the initial calculations because I applied the 10% safety margin to the licence costs and the labour costs too and would have to applie it to the interest here too. I simply forgot to do that here and perhaps will do that later.



Again I am considering the worst case:

WORST CASE
Revenues inserted into break-even-point-function (derived in earlier post(s)




Resulting variable costs




The next step is to do all this for the best case - perhaps with calculating the 10% safety margin as done in the initial calculations of this thread and correction of the tables of this post.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

Here now the variable costs that would reuslt if the BEST CASE-scenario would be required to break even after 5 years of operations.

I didn't extend the application of the 10% safety margin to all the numbers yet it has been applied to much earlier during this thread because I had very little time to do so for reasons at my job, my federation and regarding my parents but still have in mind to do the corrections. I will restrict that to posting the numbers.

I already said that I don't think that Virgin Galactic's issue about break even after five years is based on the best case - at this point the result is that it would have nearly no impact if it would be done: The range of the possible variable costs has been enhanced from the $-21,000-to-$-121,000 to a range of $ 14,000 to $ 124,000 only. It will be much more interesting to look at it all from another direction by applying the number of 3,000 astronauts per year which I already have in mind. But first I will calculate the impact of the best case on the profits based on the variable costs got in the worst case scenario.


Results

BEST CASE
Revenues inserted into break-even-point-function (derived in earlier post(s)




Resulting variable costs




Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

Here the new profit tables - I comment them below:







Obviously a requirement of the best case would have an impact of around 10% on the profits but the profits remain high. Like done earlier this year I did a pessimistic calculation also which is inconsistent with the break.even-point-algebra. It turns out that the impact is significant at low profits - around 25% - but becomes marginalized by higher flight rates.

The first pessimistic and inconsistent row would cancel all chances of a quick and reasonable accumulation of capital for private orbital vehicles. the remaining two pessimistic rows would keep such chances instead.

The consitsent rows could allow for a development of an orbital private vehicle like t/Space's CXV in four to five years of operation after breaking even.





Here a modification of a table used earlier which I comment below - the table which gave the reductions in time to break even caused by the difference between worst case and best case:






The first purpose of this table is to look for the impacts of interests and/or an infrastructure-investment of $ 35 mio, instead of $ 200 mio. Only the four rows which are to be compared to the rows 7 and 8 show an impact on the time to break even.
Second I wanted to look for the impact of the reduction of time to break-even on the profit - but it is around 10 % only and less. I wondered why it is $ 8 mio. that often and examined it. To do so I used the difference between the revenue per flight and the variable costs per flight which is the economically important amount of coverage. I multiplied the total amount of coverage by the number of flights after break-even and subtracted that fraction of the permanent fixed costs per year which I get by multiplying them by the fraction of the year of break-even. These total amount of coverage and fraction of fixed costs are shown by the two left-most columns of the table.



In the next post I will use the number of 3,000 astronauts in five years Virgin Galactic continues to speak about. This is meant also to stress the algebra used up to now and thus to look if it needs to be changed to allow for those 3,000 people. It might point to additional ideas about their cost policy too.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

The article "New Mexico Spaceport: Getting Down To Business" ( www.space.com/news/060102_nm_spaceport.html ) is reporting a change of the number about the investment into the vehicles: .

I wil do as I have announced in the previous post and do alternative calculations - and I will base them on the numbers used up to now.

But I will recalculate the tables by applying the 150 mio too. I will publish the results here but by avoiding to incorporate them into the main text of the post.

Until that is done the differences between the number based on total investments of $ 100 mio, 135 mio and 200 mio can be used as indicators of the results of the recalculations. Also the relation of a change of the variable costs of $ 15,000 per $ 10 mio revenue which I remeber to have got earlier could be used for approximations.

Hello, Andy Hill, the ABC-article you listed to me here at the beginning of December may have to do with the numbers reported by the article - there might have been a printing error regarding the $ 150 mio for the vehicle as well as regarding the estimated 50,000 customers.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

First I should list the contents of this post:

1. Old numbers applied to 3000 astronauts in five years
2. $ 150 million investment into the vehicles instead of $ 100 million only
3. $ 150 million and 3000 astronauts
4. Some conclusions
Appendix Results for $ 150 million vehicle-investment


1. Old numbers applied to 3000 astronauts in five years

A look to the recnt tables about variable cost results in the first lines of the following table. Obviuosly none of the two lines is valid since the variable costs are negative. Negative costs would mean subventions by someone else - and thus that the company never has achance to survive at the market(s).



I added the last two lines by dividing the number of 3000 astronauts by the number of seats available per flight which is seven. This results in 428.57 flights required. Since Virgin Galactic say to be in the profit zone after five years I apllied the break-even-functiion applied up to now. Still the resulting variable costs are negative and the company couldn't survive.

This result means that some of the fixed costs included into the funtion should be considered to be removed or something else. Which fixed costs could be removed easyly? The interests are virtual since Richard Branson is a billionaire and doesn't need credits - the intzerests should be removed. The profitzs calculated earlier would mean an extraordinary rentability which gets them the interests after breaking even. Next the labour costs could be removed and turned into variable costs. There are strategies to do that:

1. The pilots they educate may be given other tasks too which wouldn't be payed that much as for a pilot.
2. The pilots they educate may be working for Virgin Atlantic and "leased" to Virgin Galactic if required. This can be considered to be reasonable because Virgin Atlantic's pilots will have an experience that most of the other pilots don't have.
3. The pilots educated could be freelamcers who were flying for the Air Force formerly.

Since 3000 astronauts in five years mean 428.57 flights within five years there would be 85.71 flights in average per year - this might be speaking for freelancers or Virgin Atlantic's pilots. But it will be interesting to get more informations about that.

Next the article mentioned in the previous post as well as another very recent article reported that Virgin Galactic and New Mexico work together on New Mexico's spaceport - this may save them the investment into Infrastructure. Additionaly I can remove the 10% safety margin. What's left now are the licence costs and the depreciations of the five vehicles.

I applied all this to several alternatives some of which are listed in tables of previous posts while others are not. The best case scenario - 100 founders and 400 pioneers - results in variable costs of $ 6611.11 per flight. Everything else I considered led to negative variable costs.

Perhaps they have found a way to handle the licence costs differently too. They might keep them away from Virgin Galactic - Virgin Atlantic could take these costs from Virgin Galactic but leaving a remainder to them. Another possibility is to reorganize the groupo so that Mojave Aerospace's technology isn't licenced by Virgin Galactic but by another company. That's highly speculative and theory only but I calculated the case that Virgin Galactic has no licence costs also and got variable costs of $ 4666.67 in the worst case scenario and $ 23333,33 in the best case scenario.

To me currently it seems most likely that they need the best case scenario to break even within five years if they really and seriously plan to fly 300 astronauts and do 428.57 fligths only within five years. Their varibale costs would be slightly above the least variable costs of $ 21000 calculated much earlier and so their profits after breaking even would be at the level calculated before the previous post.

But this looks like walking at the edge of a mountain to me and will be very interesting what will to be read if they talk about their variable costs one day - if they will do that at all.

There is another possibility I cannot cover currently - they may have a reasonable idea what the lifetime of the vehicles will be and depreciate the vehicles over their complete lifetime. In that case the break-even-point would mean partially depreciation only. I am looking for a method to cover this possibility.



2. $ 150 million investment into the vehicles instead of $ 100 million only

The change isn't that much - the variable costs I got are between $ 900 and $108,000.

The case of 557.14 or 571.43 results in negatvie variable costs completely now which means that the number of flights would have to be at 1057.14 flights at least merely.

The numbers are listed in Appendix A. But I leave away the calculation of the shift of the tiem of break-even and the profits - they will be adjusted to the $ 150 million later.



3. $ 150 million and 3000 astronauts

None of the scenarios for 3000 astronauts or 428.57 flights is valid nomore - all variable costs are negative now.



4. Some conclusions

If Virgin Galactic really plans to fly 3000 astronauts within five years and not significantly more then at $ 150 million for the vehicles an additional "model" is required. I can imagine one or two already but have to think about them. One possibility is that they have given up what they e-mailed to Sam Dinkin - the projection of 100 founders plus 300 to 400 pioneers. They may keep the price at $ 200,000 for an unknown number of customers. But they may be faced to competition by Rocketplane beginning in 2007 or 2008. Rocketplane have said that they will offer flights at $ 100,000 to $ 150,000. Their costs will be different to those of Virgin Galactic since they modify an existing airplane simply and apply a single-stage-concept.

But as the the amount of investment into the vehicles has changed the number of 3000 astronauts might be aged too - althought they recently continued to speak about it in an article. The number first has been mentioned by Burt Rutan in late 2004. It is the only official number the quoted spokesmen and Virgin Galactic-officials know.

The only reasonable way to handle this seems to use thre or four "models" in parallel futurely. I will think about how to do that properly.





Next I am going to prepare the improved Excel spreadsheets for sending them to Sigurd or making them public at the board myself.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)



Appendix Results for $ 150 million vehicle-investment































END of Appendix

I couldn't post the Excel-spreadsheet myself by which you can do calculations like I did here yourself and I am going to send them to Sigurd per e-mail now.

Some remarks about some results in the previous post:

The 300 astronauts-case would mean 85.71 flights per year as I already said. This would be 17.14 flights per year per vehicle since there are five vehicles. So the average time between two flights of one and the same vehicle would be 21.2 to 21.3 days - but the trun-around-time of SSO was five days only and they have said that they will reduce the turn-around-time of SS2 below five days. Perhaps the 300 astronauts-number simply is a pessimistic estimation of the numbers of contractor within five years.

The possibility that they don't depreciate the vehicles by five years or don't try to earn all the depreciations within five years has to do with the connection between actual flight rate and the degree to which the vehicles remain intact and in good order. The less flights the higher that degree - and the higher that degree the higher the possible price they could get if they try to sell the vehicles to someone else. By such a sale they would get an amount of their investment back they would have got back by the depreciations otherwise. The potential buyers might be very rich people from all over the world - arabian sheiks for example.

I am thinking about the required new model(s), modifications and I will deliver the recalculated profits and effects of best-case-revenues in the next post I think.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

(Appendix about profits of the $ 150 mio-case containend)

Last weekend Sigurd posted the Excel-spreadsheet - Thank You Very Much, Sigurd.

It seems to have been work because the older one hasn't been re-uploaded to the new location of this board.

The two spreadsheets are to be found under

hhboard12.free.fr/SFS/Virgin%20Galactic%20break-even-analysis%20and%20-sacceleration.xls

hhboard12.free.fr/SFS/calculations%20of%20break-even-points,%20profits%20etc.xls

and I intend to repeat them past my signature of each of my future posts in this thread - the way like I am doing it in this post.

The first and new of these spreadsheets can be used for modified models also provided there are no more than three groups of customers. It also would be valid for companies offering non-suborbital travels (orbital, lunar, martian, asteroidal etc.)

Simply insert values into white columns and read results from the grey columns.

If you want to make use of the second table which shows how much earlier or later the profit zone is achieved if the revenues differ from the case considered in the first table then the third white column needs to contain a non-zero value.

Only the one row already containing values can be used - they are an example.


Regarding the former investment of $ 35 mio. into infrastructure etc. might be an investment into the two motherships called White Knight 2 sometimes. Then the increase up to $ 150 mio in total might be caused by the two WK2s only.

If that would be the case really then the "150 + 100"-case in the previous Appendix posted can be ignored as well as in the Appendix of this post.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

[url=hhboard12.free.fr/SFS/Virgin%20Galactic%20break-even-analysis%20and%20-sacceleration.xls]Virgin Galactic break-even-analysis and -acceleration[/url]

[url=hhboard12.free.fr/SFS/calculations%20of%20break-even-points,%20profits%20etc.xls]break-even-points, profits[/url]



Appendix profits in the $ 150 mio-case

In one of the previous posts I said that I will apply the 3000 astronauts-case and change the perspective of the view on the break-even-point. This was the change announced and it turned out that it was required to change the fixed costs to get vvalid results - provided the older data and the best case is assumed to become reality. Prior to that I had in mind to modify the break-even-point-equation so that a function is available which relates the variable costs to the fixed costs. This would have been a check for the variable costs got by the previously used function.

Since I got only one valid value for the 3000 astronauts-case I in between can't see any value of that function and recognized another perspective to be relevant: Ob viously the projections Sam Dinkin has reported no longer could be kept given the new data saying that the vehicles will cost $150,000,000.

So a function - based on 3000 astrionauts - relating variable costs and ticket price to each other seems to be more interesting. I prefer to use the variable costs as independent variable and the ticket prices as the dependent variable because the variable costs and the number of flights - which was the independent variable previously - have one property in common: There are no data about them.

The equation is quite simple. At the break-even-point the profit is zero. So the costs and the revenues have to be equal:

fixed cost + number of flights * variable costs = total revenues

There are sufficient data about fixed costs - the only thing required is to insert alternative values for the variable costs and the results are alternative required revenues. Now the data about the projections can be applied - but only two of the three groups of customers can be applied to find out what is required regarding the third group left. there are several alternative interesting ways to do that:

1. subtracting the revenues got from 100 Founders and 300 Pioneers from the required revenues and dividing the result by the 2,600 customers left - which results in the price each of the 2,600 must pay.
2. subtracting the revenues from the Founders and the revenues got from the 2,600 if their price is kept at $ 20,000. The result are the revenues required from the Pinoneers. Division by 300 results in the price the Pioneers would have to pay then.
3. doing the subtractions but not calculating new prices but the number of customers to be shifted from the 2,600 to the Pioneers or from the Pioneers to the Founders - perhaps plus a shift from the 2,600 to the Pinoneers.
4. doing 1. for the best case of 400 Pinoneers
5. doing 2. for the best case of 400 Pinoneers
6. doing 3. for the 400 Pinoneers-case - for comparisons only because this case is the shift.

Variations regarding the Founders are invalid in between because there are already 500 contractors at least 100 of which already pay $ 200,000 - the only possible alternative is that the number of Founders is increased.

In this post I am doing the first. The calculation is simple as described above - for this reason I don't provide an Excel-spreadsheet for this unless it is wanted

I also avoid to list all the distinct values but prefer ranges now.



The impact of the increase of the investment into the vehicles on the price the 2,600 customers left after Founders and Pioneers ois significant obviously. And the result given in the last row left-most column indicates that a shift either a shift from the 2,600 to the others or an increase of the price the Pioneers have to pay might be required. This result already would trun all the 2,600 customers into Pioneers if the price is the criterion.

A special result has to be mentioned here also. The lowest price listed above got my attention and I did the calculations for the case that the only fixed costs were $ 100,000,000 of the vehicles - the result is that at variable costs between $ 1,000 and $ 10,000 is closely around $ 20,000. So it might be that the projection is speaking about rounded prices, based on variable costs between $ 1,000 and $ 10,000 and fixed costs of $ 100,000,000 only. This could mean that the two White Knights aren't included or/and that they don't consider the vehicles to be depreciated completely at the break-even-point. It could mean that the former $ 35,000,000 as well as $ 50 mio of the current $ 150 mio are the White Knights.



(I still have to deliver the numbers about the earlier break-even in the best case etc. for the $ 150 mio-case. But there are a few more negative variable costs and at least one other negative value is involved and so I still have to think about if it makes sense. Might be that I leave it away competely perhaps.)



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

Virgin Galactic break-even-analysis and -acceleration

break-even-points, profits

In the previous post I didn't calculate profits yet. So I list them here and then go on in the next post with the tables of variable costs which now will include the profits.

Profits at increased prices for post-Pioneer-customers



The profits for the 300flights-case are that large that I feel doubts if the new price level is realistic since 3000 flights per year are meant. But it may be that the flight rate per year never will be that large regardless of the reason being the market or something else. So the tables to be calculated fro the next post may be closer to reality.



Dipl.-Volkswirt (bdvb) Augustin (Political Economist)

[url=http:\\hhboard12.free.fr/SFS/Virgin%20Galactic%20break-even-analysis%20and%20-sacceleration.xls]Virgin Galactic break-even-analysis and -acceleration[/url]

break-even-points, profits

Ekkehard

I know this is the Financial Barriers section but continually producing financial tables doesn't aid the discussion very much, its turning an interesting discussion into a ledger book. I can only speak for myself of course but I have stopped trying to follow every table you post as its all getting to much like trying to understand another language.

PS please dont publish another table to explain it to me either.