PARIS — Satellite fleet operator Satmex of Mexico has paid $2 million to manufacturer Space Systems/Loral to begin work on a Satmex 8 satellite to replace Satmex 5, whose fuel will run out in 31 months. But the company has no authorization from its creditors to sign a full construction contract, Satmex announced April 1.

In a filing with the U.S. Securities and Exchange Commission, Satmex said its $2 million Authorization to Proceed agreement with Palo Alto, Calif.-based Space Systems/Loral expires in June if it is not followed up by a full-scale Satmex 8 contract.

If Satmex’s bondholders approve the investment by April 22, Satmex 8, carrying 64 C- and Ku-band transponders, could be made ready for launch by July 2012, Satmex said. A later approval would start the 27-month construction countdown at the time of the contract signature.

Satmex estimates that Satmex 8, to replace Satmex 5 in geostationary orbit at 116.8 degrees west longitude, would cost about $350 million to build, launch and insure. To meet the schedule, Satmex would need to make contract payments totaling $65 million in the next five months, the company said.

Replacing Satmex 5 became Satmex’s highest priority in January, when the second of the satellite’s two xenon-ion propulsion systems failed. Satmex 5 remains fully operational but is relying exclusively on its chemical propellant system and will be forced into retirement in 31 months, Satmex estimates.

The Authorization to Proceed will permit Loral to purchase traveling wave-tube amplifiers and other long-lead components to be able to meet the 27-month construction schedule in the event that Satmex wins its bondholders’ approval to undertake construction.

That is far from certain given Satmex’s recent history. In 2008, it paid about $4 million for Loral to start work on a Satmex 7 satellite, and then asked its creditors to amend debt covenants that set strict capital spending limits. Permission was refused, and no further payments have been made on Satmex 7, according to Satmex financial statements.

More recently, an attempt by satellite fleet operator EchoStar of Englewood, Colo., to purchase Satmex was rejected by these same bondholders as insufficiently generous. EchoStar, which said the urgency of the Satmex 5 replacement weighed on the bid, withdrew its offer.

The Mexican government has made statements saying it would like to see Satmex remain a going concern, but it has not specified whether any specific government bailout might be forthcoming.

In an April 1 statement, Satmex said it “continues to evaluate various strategic alternatives for the company, including a sale transaction or internal restructuring, and it remains engaged in communications with its major equity and creditor constituents regarding potential alternatives.”


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