The space company Masten declares bankruptcy following a dispute with NASA over the moon contract

The lunar-focused company Masten Space Systems filed for Chapter 11 bankruptcy protection on Thursday, with a handful of employees left. A NASA contract awarded to Masten two years ago caused the company's debts to balloon.

A NASA deal once seen as a big win for Masten left the company over budget and unable to raise funds. Masten predates many of the companies that emerged during the past decade's space boom. 

As a gritty shop in the Mojave Desert, close to NASA's Armstrong facility and Edwards Air Force Base, the company was renowned among young engineers looking to learn rocket and spacecraft technologies.

The bankruptcy of Masten highlights the delicate balancing act required for long-term growth and success in the capital-intensive space industry. It is difficult to raise money for high-risk space projects.

The company won awards in 2004 for its reusable lunar landing spacecraft. Most notable was Masten's $75 million award in 2020 for delivering eight scientific payloads to the Moon's the South Pole. At the time of the award, Masten had 15 employees.

The NASA contract was called Masten Mission 1. In 2023, the Xelene lunar lander will carry scientific payloads. Elon Musk's SpaceX will launch MM1. Masten began quickly scaling up to build the lander, according to people familiar with the matter.

As Masten wrote the proposal before the Covid pandemic hit, the award was immediately problematic. Due to the uncertainty around the new pandemic environment, the company had to adjust assumptions about which technologies would be developed in-house rather than purchased.

The NASA contract had to be augmented with extra payloads to hit even aggressive cost estimates for Masten. MM1's budget still exceeded expectations. The mission was expected to go over budget by $10 million to $30 million as development continued.

Earlier this year, Masten's board and senior management sought $60 million in outside capital. Angel investors raised little else. Masten never found a lead investor. In most cases, the company lived contract-to-contract and invested its profits. Pressure increased.

Masten's growth was hampered by a lack of funds and mounting debt. The board effectively removed Sean Mahoney as CEO in January. NASA's $1.4 million payment in February merely kept Covid afloat. NASA provided disaster relief funds to U.S. businesses.

The MM1 team laid off 15 people in June. In July, Masten furloughed most of its employees.NASA said in a statement to CNBC that it received notification that the payloads slated for Masten Mission One may be affected by business operations.

“Nasa will manifest its payloads on other CLPS flights if Masten Space Systems is unable to meet its task order”, the agency said.NASA has already paid $66.1 million to Masten Space Systems.

As a vendor, SpaceX has the largest unsecured claim on Masten's debt. Airbus and Astrobotic are listed as large creditors, among others. Among Masten's property, explosives and hazardous chemicals require immediate attention. 

The 'stalking horse asset purchase agreement' gives Intuitive Machines the first crack at Masten's SpaceX launch contract. Masten's bankruptcy was not addressed by a Masten representative.