FAA grounds Virgin Galactic's spacecraft during investigation of Branson flight issues

The Federal Aviation Administration grounded Virgin Galactic on Thursday, as the federal regulator investigates the company’s previous spaceflight that carried founder Richard Branson.

“Virgin Galactic may not return the SpaceShipTwo vehicle to flight until the FAA approves the final mishap investigation report or determines the issues related to the mishap do not affect public safety,” the FAA said in a statement to CNBC.

“The FAA is responsible for protecting the public during commercial space transportation launch and reentry operations. The FAA is overseeing the Virgin Galactic investigation of its July 11 SpaceShipTwo mishap that occurred over Spaceport America, New Mexico. SpaceShipTwo deviated from its Air Traffic Control clearance as it returned to Spaceport America,” the regulator added.

Shares of Virgin Galactic, which rose as much as 5% earlier in trading, turned negative and fell 3% after the FAA’s announcement to close at $25.99.

Branson’s spaceflight was not as flawless as it seemed to viewers of Virgin Galactic’s live broadcast. During the ascent, while spacecraft VSS Unity’s rocket engine was firing, a warning light came on due to the vehicle going off trajectory.

The FAA confirmed in a statement to CNBC on Wednesday that warning light was because the spacecraft “deviated from its Air Traffic Control clearance” and flew outside its designated airspace for 1 minute and 41 seconds.

The New Yorker first reported the issue that arose during Branson’s trip to space. The report emphasized concerns with Virgin Galactic’s technology and safety culture, highlighted by the recent departure of flight test director Mark “Forger” Stucky — who reportedly was fired over a video call following Branson’s spaceflight. The New Yorker stressed that Stucky repeatedly issued warnings internally at Virgin Galactic about the safety of the company’s flight tests.

Virgin Galactic, in a statement to CNBC on Wednesday, disputed “the misleading characterizations and conclusions in the New Yorker article.”

“At no time were passengers and crew put in any danger as a result of this change in trajectory,” Virgin Galactic said. It said VSS Unity’s trajectory was pushed off course by “high altitude winds” but that “our pilots responded appropriately.”

Virgin Galactic confirmed that VSS Unity flew outside of its FAA-protected airspace but said the regulator’s “representatives were present in our control room during the flight and in post-flight debriefs.”

Virgin Galactic was targeting late September to early October for its next spaceflight test, carrying six people on board — two pilots and four passengers.

Initially, after The New Yorker’s report published Wednesday, the FAA said only that it was investigating the incident. But on Thursday morning Virgin Galactic issued a press release to unveil the crew for its next spaceflight test, called Unity 23, which will carry three members of the Italian Air Force.

A few hours later, the FAA issued an updated statement grounding the spacecraft until the issues identified with the Unity 22 flight are resolved.