SES Government Division Shrugs off U.S. Budget Sequestration

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PARIS — Satellite fleet operator SES on May 17 said its government division has felt no pain from the U.S. government budget cuts known as sequestration.

Luxembourg-based SES reaffirmed its forecast of 4.5 percent revenue and gross profit growth in 2013 and said it has sold more than half the new capacity on four satellites scheduled for launch by the end of the year.

In a conference call with financial analysts, SES Chief Executive Romain Bausch said the four satellites in question are scheduled for launch between June and October. Combined, they will have 103 transponders of additional capacity available for sale in addition to the capacity some of them are replacing in orbit.

First up, and the largest of the four in terms of incremental bandwidth for sale with 49 transponders for new business, will be the SES-6 satellite, now scheduled for launch in June aboard an International Launch Services (ILS) Proton rocket. 

Next is the Astra 2E, with 12 transponders available for new customers. It is scheduled for launch aboard an ILS Proton in July following the Proton launch of three Russian government Glonass positioning, navigation and timing satellites.

The SES-8 satellite, with 21 transponders for new customers, is scheduled for launch in mid-August aboard the upgraded Falcon 9 rocket operated by Space Exploration Technologies Corp. of Hawthorne, Calif. The launch, which will be Falcon 9’s first to geostationary transfer orbit, will occur only if the inaugural launch of this vehicle, now scheduled for July, is successful.

SES’s Astra 5B satellite, with 21 transponders for new business, is scheduled for launch in September or October aboard a European Ariane 5 rocket. Two more satellites carrying new business capacity are scheduled for launch by the end of 2015.

Putting up new satellite capacity is key to SES’s claim that it is not only a company with a large satellite fleet providing stable cash flows, but also a growth company seeking new markets.

The U.S. government is not generally viewed as a growth market for commercial operators at the moment. SES competitors including Intelsat of Luxembourg and Washington, Eutelsat of Paris and Inmarsat of London have all reported early 2013 revenue that faced downward pressure from sequestration.

Bausch said this is not the case for SES, in part because the company’s U.S. government business, which accounts for about 10 percent of total SES revenue, has never been as important as this business is to SES’s fellow satellite operators.

In particular, Bausch said, SES’s government business includes nondefense bandwidth sales to multiple nonmilitary agencies that need the capacity over North America. As such, SES is less exposed than some of its peers to the roller coaster of military demand.

Until recently, SES paid a price for this. It did not have much capacity over the Middle East and it missed out on the windfall demand from U.S. military operations in Iraq and Afghanistan. Missing on the upside means not suffering as much on the downside, Bausch said.

Over the longer term, Bausch said, pressure on U.S. government spending should be “very positive” for SES and other commercial operators insofar as the government will have an incentive to use less-costly commercial capacity rather than build its own satellites.

Some industry officials say this reasoning is mere whistling past the graveyard and that demand for commercial bandwidth will suffer from government spending cutbacks just as much as dedicated military satellite development programs.

In its financial results for the three months ending March 31, SES as expected took a big hit when compared with results from a year ago, from the April 30, 2012, end of analog television broadcasting in Germany. Germany’s long-planned move to digital broadcasts deprived SES of about 30 million euros ($39 million) in revenue for the first three months of 2013 and had ripple effects throughout the company’s financial results.

Weighed down by the German analog switch-off, SES’s European revenue was down 6.2 percent from a year ago before calculating foreign exchange fluctuations.

But excluding German analog switch-off, SES reported that its European business increased its revenue by 8.2 percent from a year ago on the strength of new business in Central and Eastern Europe. The increase demonstrates “the growth potential our company is still able to generate and develop in Europe,” Bausch said.

The results in Europe would have been even better if SES had not elected to withhold from sale six pre-emptible transponders on its capacity at 31.5 degrees east. The company preferred to wait for a long-term capacity lease by an unnamed satellite television broadcaster, which took effect in April.

SES’s North American business reported stable revenue despite the loss in 2012 of six transponders aboard the AMC-16 satellite, which is leased to EchoStar Corp. of Englewood, Colo. EchoStar has reduced AMC-16 lease payments because of a longstanding solar-array defect on the Lockheed Martin-built satellite.

SES’s international business — meaning everywhere outside North America and Europe — increased by 5.4 percent excluding exchange rate effects.