Iridium negotiates payment delays with lenders, contractor to mitigate Aireon shortfall
PARIS – Mobile satellite services provider Iridium Communications on July 28 said it had opened negotiations with its lenders and its satellite manufacturer to reduce or delay Iridium payments in the event Iridium’s Aireon air traffic surveillance affiliate cannot make its scheduled payment to Iridium.
The company said Aireon may have trouble paying Iridium $200 million in cash between 2016 and 2017, in part because some expected Aireon customers, including the U.S. Federal Aviation Administration (FAA), had not yet committed to the service.
In a conference call with investors, Iridium Chief Executive Matthew J. Desch said he saw no special issue with the FAA, which had already signaled its interest in the Aireon.
“It’s more a matter of when, not if,” Desch said of an FAA contract with Aireon. “It’s how much [airspace] they will survey, and when, and it’s looking more like a 2017 event rather than a 2016 event.”
First SpaceX launch of Iridium Next slips to Sept. 19
McLean, Virginia-based Iridium said the first launch of its second-generation constellation of satellites, called Iridium Next, had slipped again, this time at the request of launch-service provider SpaceX of Hawthorne, California.
Iridium now expects the launch of the first 10 Iridium Next satellites to occur on Sept. 19 from Vandenberg Air Force Base, California, aboard a SpaceX Falcon 9.
The delay is the latest in a series attributed to the Iridium Next satellites and, more recently, to scheduled maintenance at the launch base and the site’s launch manifest.
A week’s slip in a launch is not normally an issue for a satellite fleet operator. But for Iridium, it means an automatic delay in the second SpaceX Iridium launch, which for insurance and debt-covenant reasons cannot occur until three months following the first launch. That means a second launch no earlier than late December.
After that, the five remaining SpaceX launches should occur at 60-day intervals, Desch said.
Desch said SpaceX had assured Iridium that the December launch would occur on schedule.
“It’s a little hard for me to be patient with these ongoing short delays, but we’re getting very close and I’m sure it will all be worth it with a successful launch under our belts,” Desch said.
Iridium said in a July 28 filing with the U.S. Securities and Exchange Commission (SEC) that it had lost two first-generation satellites in the three months ending June 30. The company said it had no in-orbit spares in the affected orbital plane but that Iridium customers should see no reduction in service quality.
But the disclosure highlighted why Iridium is sensitive to any issues that would delay the replacement of the first constellation, which is long past its contracted service life.
Iridium looks to delay payments to creditors and satellite builder
Iridium is counting on Aireon payments to help repay Iridium debt and fund operations once the company’s large credit facility, backed by France’s Coface export-credit agency, is exhausted.
Aireon’s payment comes in the form of a one-time, $200 million hosting fee in return for Iridium mounting the Aireon air traffic surveillance payloads on all Iridium Next satellites.
Desch said Harris Corp. of Melbourne, Florida, had delivered the Aireon payloads in June, ahead of schedule. They are now being mounted onto the satellites before shipment to the launch site.
Iridium Chief Financial Officer Thomas J. Fitzpatrick said during the conference call that Iridium is negotiating with Iridium Next prime contractor Thales Alenia Space of France and Italy on delaying a portion of the milestone payments until beyond 2017. Fitzpatrick also noted that $150 million in milestone payments for Thales Alenia Space have also shifted from 2016 into 2017.
Iridium is in parallel negotiating with its lenders on delaying or reducing payments into a debt-service account, which under the loan covenants must be maintained at a certain level.
The third source of funding to cover the Aireon shortfall would be to skip quarterly dividend payments to owners of Iridium’s preferred stock.
Fitzpatrick said these measures could mean Iridium reaches its highest debt-to-gross profit level in 2017 rather than in 2016, but that the company would still remain well under the covenants’ debt ceilings.
Big growth in U.S. military revenue and subscriber count
Iridium reaffirmed its forecasted revenue and gross profit margin for 2016.
For the three months ending June 30, Iridium reported $109.2 million in revenue, 76 percent of it being service revenue. Service revenue was up 7 percent over the same period a year ago.
The company said it had 823,000 subscribers as of June 30, up 4 percent from March 31 and 7 percent from a year ago. The company’s government business grew both in revenue and subscriber count. Fitzpatrick said the revenue growth from the company’s U.S. Defense Information Systems Agency (DISA) business had been foreseen in the contract and would not repeat.
Under the contract, the U.S. Defense Department can use all the Iridium service it wants. As the government adds more customers, there is no automatic increase to Iridium’s service revenue line, but because these new customers are purchasing Iridium handsets, the company’s hardware revenue increases.