Avanti Pursues Arbitration to Settle $7.6M Contract Dispute with SpaceX

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PARIS — Startup satellite broadband provider Avanti Communications Group alleges that launch services provider Space Exploration Technologies (SpaceX) has unrightfully retained a $7.6 million launch contract deposit and is asking a New York arbitration panel to settle the issue, the companies said.

London-based Avanti, whose Hylas 1 Ka-band broadband satellite was launched in November and is expected to enter service over Europe in the coming weeks, had originally signed with Hawthorne, Calif.-based SpaceX for the launch. But Avanti, saying it could not wait for SpaceX’s Falcon 9 rocket to be qualified, subsequently contracted with Arianespace of Evry, France, for the launch.

In its 2010 annual report to shareholders, Avanti says it canceled the SpaceX contract because SpaceX could not assure the requisite number of qualification launches before the Hylas 1 launch, as the contract had stipulated.

Avanti says SpaceX has refused to refund the deposit and that the arbitration panel is scheduled to issue a decision early this year. “The directors are confident that the monies will be recovered and no provision is necessary,” Avanti said.

SpaceX declined to comment on the matter but issued the following statement Jan. 26: “Clearly we disagree with Avanti’s statement. However, our contract with Avanti contains confidentiality provisions so neither party is at liberty to discuss or characterize the merits of arbitration, and any such comments would be in breach of the agreement.”

In its annual report, Avanti, whose second satellite, Hylas 2, is under construction by Orbital Sciences Corp. of Dulles, Va., and scheduled for launch in 2012, says the market for Ka-band satellite bandwidth in Europe and Africa is far larger than Avanti’s current capacity.

Avanti is not alone in setting its sights on this market. Paris-based Eutelsat in December launched its own Ka-Sat satellite to serve Eutelsat’s Tooway consumer broadband service, while SES of Luxembourg continues to market its Astra2Connect service using Ku-band capacity on SES satellites not otherwise booked for television broadcasts.

For Hylas 2, Avanti has secured some 194 million British pounds ($307 million) in support from the U.S. Export-Import Bank and its French equivalent, Coface, for low-rate loans to cover the satellite’s construction and launch.

Avanti in 2010 also restructured its debt, retiring high-interest payment-in-kind bonds earlier than scheduled. Avanti Chairman John Brackenbury said the export-credit agency financing, plus the early retirement of the bond, has given Avanti two years before its debt payments begin.

Avanti raised 89 million pounds in equity in 2010 to complement its Hylas 2 financing. The company says it is paying an average 5.7 percent interest on its export-credit agency-backed financing, which is payable over seven years beginning in December 2012.

Brackenbury said Hylas 2, which will carry triple the capacity of the small Hylas 1, is being aimed at the Middle East and Africa in addition to serving as a backup for Hylas 1. For tax purposes, Avanti has domiciled its Hylas 2 operations in Cyprus, where it expects to pay a 10 percent tax on profit.

To prepare its subscribers for the arrival of Ka-band, Avanti in 2010 stopped marketing its existing Ku-band satellite service, for which the company used rented capacity on other companies’ satellites. The decision cost Avanti revenue in 2010 but had only marginal impact on earnings because the Ku-band rental service provided little profit, Avanti Chief Executive David Williams says in the annual report.

Revenue in 2010 was 5.93 million pounds, down 38 percent from 2009. But gross profit, at 2.68 million pounds, was down just 10 percent from the previous year.

“The service sold 2006-2009 on old-fashioned Ku-band television satellite capacity is comparatively slow and expensive, and it makes a loss,” Williams says.

Avanti reported a net loss of 1.93 million pounds in 2010, following a net profit of 1 million pounds in 2009.

While several prospective Ka-band satellite operators have reported trouble in securing orbital slots and frequencies in their desired coverage areas, Avanti says it has plenty.

“We have enough spectrum available to launch perhaps 20 satellites,” Williams says.