Intelsat: Thruster failure may reduce IS-33e’s operational life, but not by much

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PARIS — Satellite fleet operator Intelsat on Sept. 21 said the failure of a thruster on its recently launched IS-33e satellite could reduce the satellite’s in-orbit life, but that the effect would be minimal.

Addressing a Goldman Sachs investor conference, Intelsat Chief Executive Stephen Spengler also said the company would not be replacing all seven of its Intelsat-9 series of satellites, but would use its new Epic high-throughput design to provide equivalent coverage with a smaller number of spacecraft.

Spengler freely admitted that the Epic satellites will make life difficult, and ultimately impossible in a profit-making sense, for traditional wide-beam satellites for data-centric applications.

“People that are putting up wide-beam capacity that is not differentiated in any real way — I think they are going to have IRR challenges when it comes time to replace those satellites,” Spengler said, referring to internal rates of return on investment. “It’s not a sustainable model.”

Intelsat has launched two Epic satellites, IS-29e and IS-33e. IS-29e is in service over the Americas, and 33e, given its thruster issue, will take a few weeks longer to reach its operating position and is expected to begin service a few weeks into 2017.

Insurance officials have said the failure of the main on-board thruster engine and the need to rely on a backup system could reduce IS-33e’s life by 18 months or less.

Should that be the conclusion of the board of inquiry looking into the issue, Intelsat would be eligible to file an insurance claim for the 10 percent loss of service, resulting in a payment of as much as $40 million.

“They would get $40 million now for a problem that they won’t need to confront for 13 and one-half years,” one insurance official said. “Given their condition, that’s not a bad trade.”

Intelsat is chipping away at its $15 billion debt load, purchasing bonds in advance of their maturity, occasionally at a steep discount to their face value. Spengler said some $475 million in Luxembourg-based bonds, also trading well below par and due in 2018, was a likely candidate for a similar repurchase. Spengler sought to minimize the drama of Intelsat’s debt, saying the company had been highly leveraged since 2005 and had still been able to invest in new technology.

For Intelsat and other fleet operators with a large store of wide-beam capacity in orbit, the trick is maintaining the heritage satellites’ revenue base while undermining that base with lower-cost high-throughput satellite capacity such as Epic.

In addition to gradually reducing the 50-satellite fleet by not replacing each satellite with an Epic-class model, Spengler said Intelsat would maintain a wide-beam presence for direct-broadcast television and other media services, using tailored wide-beam capacity — with optimized beams and multiple broadcast frequencies — to “fill in” areas not covered by Epic.

Spengler said early customers on Epic have been signing contracts with durations of “about five or six years” and that the company’s Network Services division, which had suffered from the decline in satellite pricing, was starting to turn around.