Avanti tallies $114.1 million in impairment charges for Hylas-1 and 2 satellites

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GLASSBORO, New Jersey— Avanti says the evolution of high-throughput satellites are outpacing the company’s satellite fleet, making it difficult to secure business with the Hylas-1 and Hylas-2 broadband satellites.

The British satellite operator recorded a $53.3 million impairment charge on the seven-year-old Hylas-1 spacecraft and a $60.8 million impairment charge on the five-year-old Hylas-2, blaming falling capacity prices and the finite lifespans of both assets for limiting their competitiveness and value. The amount for both adds up to $114.1 million.

Avanti reported $56.6 million in revenue for its 2017 financial year, which ended June 30, almost a third less than the $82.8 million reported for 2016.

In a year-end financial report to the London Stock Exchange Dec. 27, Avanti described the near-term launch of Hylas-4, now scheduled for March 2018 on an Arianespace Ariane 5, as “critical.”

Pricing pressure

Uncertainty over the outcome of a strategic review Avanti pursued last year that included a potential sale to Inmarsat made prospective customers reticent to commit, Avanti’s interim CEO Alan Harper said in a statement. Only 30 percent of “high probability pipeline” leads as of June 30, 2016 converted to paying customers — less than half the historic rate, he said.

Harper said the arrival of Hylas-4 should significantly drop the cost per Megahertz, “mitigating some of the effects of falling global prices for satellite bandwidth.” Avanti’s fleet-wide price per Megahertz average was $1,400 for the past 12 months, he said.

Hylas-4 is a Ka-band satellite Orbital ATK is building on its GEOStar-3 platform, sporting fixed beams covering Africa and four steerable beams that can reach other geographies, including Latin America. The satellite has experienced some delays in construction, Harper said, and is expected for delivery next month. GEOStar-3 is Dulles, Virginia-based Orbital ATK’s newest platform, offering more power than other models. Early GEOStar-builds are taking longer than expected as the company learns how to scale up to build bigger satellites.

Of greater concern is the Hylas-3 hosted payload on the European Space Agency’s European Data Relay Satellite C (EDRS-C) that OHB Systems of Bremen, Germany is building. EDRS-C was supposed to launch in 2015, but is now projected for a late 2018 launch that could slip further.

“We are disappointed in the performance of the manufacturer of this system and are considering all options,” Harper said.

EDRS-C/Hylas-3 is also based on a new platform, OHB’s SmallGEO, which has similarly suffered delays, albeit more exacerbated than those of Orbital ATK’s GEOStar-3.

Both EDRS-C/Hylas-3 and Hylas-4 are launching on Ariane 5 rockets. Avanti said it has insurance worth $325 million for Hylas-4. The operator also renewed insurance policies for Hylas-1 worth 112 million pounds ($150 million) and for Hylas-2 worth $306 million in November.

Complicated customers

Introducing further difficulty is the termination of a multimillion dollar contract with Indonesia’s Ministry of Defence (MoD) to use capacity on the L-band Artemis satellite in order to preserve the country’s rights to the 123 degrees East orbital slot. That contract was worth $30 million, Avanti said, but the Indonesian MoD ceased payments at $13.2 million, leaving a remaining balance of $16.8 million.

Indonesia hasn’t made any payments in over a year, leading Avanti to initiate arbitration proceedings in London, the company said.

“[The Government of Indonesia] has not disputed that the amounts are due and payable,” Avanti wrote in its 2017 earnings report. “Avanti is confident that the arbitration panel will rule in the Group’s favour and has provided for the debt at the year end until the uncertainty related to the arbitration and particularly enforcing the Group’s expectation of the arbitration panel’s ruling has been sufficiently reduced.”

Avanti decommissioned the Artemis satellite in November, closing out the satellite’s 16-year operational life.

The “consistent non-payment[s]” of another customer, Qsat in Ireland, led Avanti to terminate their contract as well. Avanti made provisions of $700,000 against receivables and $2.5 million against accrued income associated with the Qsat contracts.

German internet service provider Filiago, a part of Avanti since November 2011, is also not meeting targets Avanti said were “set in the recent past.” Avanti is making “significant changes to the way that business is managed,” but in the meantime, quantified the impaired carrying value of Filiago by $9.9 million.

Avanti did gain new business over the year, notably a three-year contract possibly worth up to $21 million for connectivity across Africa for an unnamed government customer, an 8.3 million euro ($9.5 million) SaT5G contract through the European Commission’s Horizon 2020 program, and a contract with international telecoms company Millicom, with whom Avanti is building a satellite gateway in Senegal.

Debt debacle

Avanti’s net debt stood at $562 million for the year. Chairman Paul Walsh said the operator’s current restructuring plan, which proposes issuing new shares to repay notes due in 2023, would reduce the company’s debt by more than $500 million. That plan is subject to shareholder approval at an early 2018 meeting.