PARIS — Mobile satellite services provider Iridium on May 1 raised the possibility that the U.S. government’s widening sanctions on Russia could force a delay in the service entry of Iridium’s second-generation constellation and increase the $3 billion project’s insurance costs.
In the latest example of the growing ripple effect of the sanctions, imposed following Russia’s incursion into Ukraine, Iridium told shareholders its planned June 2015 launch of the first two Iridium Next satellites on a Russian Dnepr rocket, if canceled, could mean the company’s first launch would be of 10 satellites aboard a Space Exploration Technologies Corp. Falcon 9 rocket in late 2015.
In a May 1 submission to the U.S. Securities and Exchange Commission (SEC), McLean, Virginia-based Iridium Communications said inaugurating a new satellite design with 10 satellites instead of two likely would raise the cost of insuring the spacecraft.
Moscow-based ISC Kosmotras, which markets the Dnepr, a converted ballisic missile, is scheduled to launch the first two Iridium satellites. Once in orbit, the spacecraft would permit Iridium to carry out initial system and design-validation tests. This would ease insurance underwriters’ concerns about the satellites’ performance and allow a lower premium for the SpaceX launch of 10 satellites.
Iridium said that if the current U.S. sanctions on Russia remain in effect into 2015, they could prevent the Dnepr launch.
In a conference call with investors on the same day the SEC document was filed, Iridium Chief Executive Matthew J. Desch said that as of now there is no indication that the launch will be affected by the sanctions.
Like other satellite operators and satellite and launch service providers, Iridium is unclear about how far the sanctions against Russia will go. Desch sought to minimize their effects on Iridium.
“We have indications that there is not a broad-based export ban” on Russia, Desch said. “In fact, there is support for a realization that satellites being shipped to Russia to launch from a Russian launch pad are not really an export into Russia, but really just an export through Russia into space. So we see business as usual right now for the Dnepr platform and our first launch.”
Iridium’s second-generation Iridium Next program, financed with the support of the French export-credit agency, Coface, consists of 81 satellites, of which nine are intended as ground spares.
Of the remaining 72, the first two are scheduled for launch on Dnepr. Hawthorne, California-based SpaceX has scheduled seven Iridium Next launches, each carrying 10 satellites, beginning in the second half of 2015 and continuing to late 2017.
The first launch, which had been scheduled for February or March, has been delayed to June because of development delays with the Iridium Next software.
Iridium’s contract with Kosmotras is valued at $51.8 million if the company launches only once with the Dnepr. The two companies in April extended by 12 months a deadline under which Iridium must decide whether to exercise options for three more launches, to Dec. 31, 2015.
Iridium also is considering making Dnepr part of the Iridium Prime program, which offers the already designed Iridium Next satellite platform for owners of sensors and other payloads as part of a turnkey service including launch and some satellite operations.
Desch said three dozen potential Iridium Prime customers have expressed interest in the program.
SpaceX has a crowded manifest. Industry officials — even those who have a stake in Iridium’s success — have questioned whether SpaceX will be able to deliver seven dedicated Falcon 9 launches for Iridium in a little more than two years.
Desch acknowledged SpaceX’s busy schedule but said the launch service provider “is really picking up their launch pace, giving us confidence” that seven Falcon 9 rockets will be available to Iridium between late 2015 and late 2017.
A slowdown in the growth of Iridium’s telephone handset business, coupled with a 2013 defect in its Iridium Pilot maritime communications hardware, which affected revenue and caused unexpected warranty payments as the equipment was exchanged, have forced the company to lower its expected gross profit for 2014.
In addition, the company now forecasts that revenue from its Aireon aircraft flight-monitoring service, using Automatic Dependent Surveillance-Broadcast, or ADS-B, terminals carried on all Iridium Next satellites, will be delayed in coming.
As a result, Iridium has been negotiating loan-covenant modifications with the creditors on its Coface-backed $1.8 billion loan package.
Iridium Chief Financial Officer Thomas J. Fitzpatrick declined to specify what the modifications will be, but said revised loan conditions would be in place soon.
“We have agreed in principle to all the key issues, including the modification of certain financial covenants, and expect that the final resolution is imminent,” Fitzpatrick said during the conference call. “We should have news on this very soon.”
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