Dave McGlade. Credit: Intelsat

PARIS — Satellite fleet operator Intelsat on Feb. 20 reported a slight increase in gross profit in 2013 on zero revenue growth compared with 2012 and forecast a 5 percent revenue drop in 2014 as U.S. military business and the market in Africa continue to weigh on performance.

In a conference call with investors, Luxembourg- and Washington-based Intelsat said that with no new satellite capacity entering service until late this year, its performance in 2014 should be measured by an expected $400 million drop in its $15.2 billion debt load.

In a clear indication that, so far at least, the decline in satellite bandwidth needed for U.S. military boots on the ground in Iraq and Afghanistan is not being matched by capacity needed for “eyes in the sky,” or intelligence, surveillance and reconnaissance platforms, Intelsat said its 7 percent drop in government business in 2013 would be followed by another 15-20 percent decline in 2014.

Intelsat Chief Executive David McGlade, who has spent years trying to win U.S. military and congressional support for a change in military satellite bandwidth-purchase practices, said he remained optimistic that a tougher U.S. defense spending environment would force military customers to engage commercial fleet operators.

Intelsat and other commercial satellite companies argue that longer-term military leases would save money for U.S. taxpayers and give the private sector confidence to better tailor their fleets to military requirements. One-year leases, they say, cost users more per megahertz and do not allow companies to plan ahead.

Intelsat government revenue in 2013 totaled $486.1 million, down 7 percent from 2012. McGlade said the company’s forecast of a double-digit percentage drop in 2014 is based on the most recent round of bandwidth-lease contract renewals with the U.S. Department of Defense.

“The pipeline of new business is rather limited,” McGlade said, allowing that military users, forced to operate on smaller budgets, have become smarter in the way they use bandwidth in the same way that desert regions get smart about water consumption.

“They’ve learned to live with less and to be more efficient,” McGlade said. “We do not see that [business] coming back anytime soon — or at all.”

Starting in late 2012, Intelsat and other fleet operators said the arrival of fiber-optic cable to African shores caused cable-delivered bandwidth to drop sharply. That, plus the encroachment of terrestrial-wireless providers in certain markets and the arrival of new satellite capacity, put downward pressure on satellite-lease prices.

One result of this has been that Intelsat customers, locked into contracts signed when satellite bandwidth could be sold to their end customers at higher prices, defaulted on their contracts or won new terms on renegotiation with Intelsat.

Intelsat Chief Financial Officer Michael McDonnell said Intelsat’s bad-debt account in 2013 was a record $30 million, compared with $8 million the previous year and figures not far from $8 million in the past decade.

Intelsat said the situation in Africa appears to be easing, at least to the extent that the number of customer defaults or other problems was lower in late 2013 than it was early in the year. “We’re hopeful that we’re through the worst of it,” McDonnell said, adding that Intelsat has put into place stricter financing terms with its customers to prevent the problem from recurring.

McGlade said a return to growth for Intelsat given the issues related to the military and to Africa would await the launch of new satellite capacity. Intelsat has four satellites scheduled for launch by late 2015 and five beyond that to enter operations between 2016 and 2019. A tenth satellite, to launch in 2016, includes an Intelsat payload on another company’s satellite.

The first four — Intelsat IS-30, IS-31, IS-34 and IS-29e — are either already sold out or will be at launch.


Intelsat officials had said during the company’s initial public offering of stock last April that debt reduction and the corresponding increase in equity value would be a priority. Taking advantage of a low-interest-rate environment, the company has refinanced much of its debt. McDonnell said debt-service payment has dropped to an average of less than 6.5 percent, or around $950 million per year.

Intelsat reduced its debt by some $600 million in 2013 and plans to reduce it by another $400 million in 2014, McDonnell said. Intelsat plans about $600 million in capital spending on satellite construction in 2014, and expects between $75 million and $100 million in customer prepayments, which are one way of offsetting capital spending charges. But they also dilute the revenue jump when a new satellite comes into service, and customers making prepayments often insist on lower lease rates.

Intelsat said its customer prepayments would drop to no more than $75 million in 2015, with zero prepayments contracted for 2016.

Intelsat reported $2.60 billion in revenue in 2013, down slightly from 2012. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 78 percent of revenue, slightly better than 2012 in part because the reduction in military contracts in 2013 came mainly on lower-profit contracts Intelsat handled for third parties.

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Peter B. de Selding was the Paris bureau chief for SpaceNews.