No Capex Holiday for Inmarsat Following Third Global Xpress Launch

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PARIS — Mobile satellite services provider Inmarsat on Nov. 6 gave investors a hint of who will pay for what in its 10-year contract with airliner Lufthansa to connect 150 Lufthansa aircraft to Inmarsat’s Ka-band passenger broadband service.

The answer: Inmarsat is financing just about all of it.

In a conference call with investors, Inmarsat Chief Executive Rupert Pearce and Chief Financial Officer Tony Bates would not be pinned down on the exact cost of the contract. They said they would go into details in March, when London-based Inmarsat is expected to have a clearer idea of the cost and the revenue potential.

“Our long-term agreement with Lufthansa requires a substantial up-front investment by Inmarsat,” Pearce said. “We will be responsible for installing the onboard equipment and for providing the service, representing a substantial commitment to both capex and opex.

“But in return, Lufthansa has committed to us for 10 years and permitted us direct access to their passengers and the revenue-generating opportunity that this creates,” Pearce said. “You can’t take on a 10-year deal like the one we just won with Lufthansa without supporting with the infrastructure. But that will support a very, very long-term revenue opportunity.”

Bates said early indications are that Inmarsat will be able to maintain capital spending at below $400 million per year in 2016 and 2017. This figure could rise or fall depending on a number of factors.

Any thought that Inmarsat would ease off on spending once the third and final Global Xpress Ka-band broadband satellite was in orbit — it was launched in August and is expected to be declared ready for service early next year — has been swept away.

The company is looking at major new investments on at least four programs. The Global Xpress aviation opportunity is one, starting with blue-chip customer Lufthansa, Europe’s largest airline, but continuing with other airlines the company hopes to sign on to similar agreements.

Inmarsat CEO Rupert Pearce
“Our long-term agreement with Lufthansa requires a substantial up-front investment by Inmarsat,” Inmarsat Chief Executive Rupert Pearce said. Credit: SpaceNews/Tom Kimmell

Another is the launch of the fourth Global Xpress satellite, initially ordered from Boeing Space and Intelligence Systems of El Segundo, California, as a spare in case of a launch failure.

Inmarsat has a launch option on the yet-to-be-flown Falcon Heavy rocket operated by SpaceX of Hawthorne, California, for a late-2016 flight. Pearce said a decision on whether to confirm this launch reservation will be made early next year, but he left little doubt but that the satellite would be launched.

Several business cases are emerging that would justify the launch, he said, with customers in different regions vying to have the satellite placed over their areas of interest.

The third area of near-term spending is Inmarsat’s European Aviation Network (EAN) program to provide hybrid — satellite-based and air-to-ground — broadband for air travelers in Europe’s high-density air corridors.

Inmarsat has a large S-band satellite under construction at Thales Alenia Space of France and Italy, and a launch contract with SpaceX — also for the Falcon Heavy, in late 2016.

Pearce said SpaceX, still recovering from a June launch failure that has grounded the company’s Falcon 9 rocket, might not be able to provide a late-2016 flight but that any delay should not extend past March 2017.

To provide the S-band service, Inmarsat estimates it will need to build some 300 ground-based antennas to assure the capacity needed given the crowded European Union air routes. Telecommunications network operator Deutsche Telekom has partnered with Inmarsat for this project, although it remains unclear how the two companies will divide the associated costs.

“We’ll also be investing substantially in establishing our own complementary service delivery capabilities,” Pearce said of the hybrid EAN infrastructure.

A fourth area of new spending is the Inmarsat 6 next-generation L-band satellite system. Inmarsat has already begun consultations with prospective satellite builders and wants the first Inmarsat 6 satellite in orbit at the end of the decade, which would mean a contract signature sometime in 2016.