A few days ago I issued a Sell Alert for Virgin Galactic (NYSE: SPCE), spurred by a troublesome lawsuit against the aspiring commercial spaceliner brought by key partner (and Boeing subidiary) Aurora Flight Sciences.

Virgin Galactic previously announced a promising collaboration with Aurora in mid-2022 to help it design and manufacture two next-generation motherships — an effort CEO Michael Colglazier rightly mused was “integral to scaling [Virgin Galactic’s” operations.”

A tale of two beleaguered aerospace companies

Aurora sued Virgin Galactic last week, alleging Boeing and Aurora ended work under the contract with Virgin Galactic after concluding it would be impossible “to produce the new Mothership Virgin Galactic wanted, on the budget available to it, on the [2025] timeline Virgin Galactic hoped to meet.”

Moreover, Aurora says Virgin Galactic not only still owes it more than $26 million from two completed task orders under the preliminary design phase of the contract, but has also refused to destroy proprietary information — namely technical specs and equations related to its designs — that was inadvertently passed to Virgin Galactic along the way.

Virgin Galactic’s countersuit

Today, however, Virgin Galactic filed a countersuit alleging Aurora breached its contractual obligations, accusing its partner of “shoddy and incomplete work.”

Virgin Galactic added that Aurora is unlawfully attempting to force the return of intellectual property, and argued it should be entited to damages derived from the $45 million already paid to Aurora under the contract. Virgin says that total was already “substantially in excess of the actual value of Boeing’s performance.”

A Boeing spokesperson responded earlier today saying Virgin Galactic’s claims are without merit, and that it will “vigorously defend [its] intellectual property and the work performed.”

Boeing, of course, is already under fire for a spate of widely publicized safety incidents involving its commercial airliners — most recently forking over a starting payment of $160 million to Alaska Airlines as part of the settlement after a door shockingly ripped off one of its 737 Max 9 planes mid-flight.

Meanwhile, Virgin Galactic is arguably fighting for the survival of its business in this case. As I’ve publicly suggested before, everything must go exactly as planned for Virgin Galactic to avoid having to raise additional capital over the next two years as it works to scale its own commercial spaceflight operations.

If the challenges of raising cash (and subsequent bankruptcy) of sister company Virgin Orbit a year ago is any indication, I think shareholders should be loathe to stick around given the heightened risk that Virgin Galactic might follow suit — even if it takes multiple years to get there.

In the end, as this new legal battle unfolds, that’s why we remain content with our decision to sell Virgin Galactic this week.

🗞Coming Up: A chat with Steeped Coffee CEO Josh Wilbur