Design Flaw May Be Cause of IS-804 Failure

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BOSTON – Satellite fleet operator Intelsat Ltd. said early indications are that the failure of one of its satellites in January was caused by a design flaw that could affect three of its other spacecraft, but added that the company’s in-orbit fleet is sufficiently robust to prevent a serious business loss even if another mishap occurs.

In an Aug. 11 conference call with financial analysts — Bermuda- and Washington-based Intelsat has publicly issued bonds, but no publicly traded stock — Intelsat said the depth of its in-orbit fleet permits it to move satellites around in the event of a failure.

The Intelsat IS-804 satellite, a Lockheed Martin 7000 series model, abruptly failed in orbit in January. The company has three other satellites of this model — the IS-801, 802 and 805 — in orbit over the Atlantic Ocean and Africa. The satellites have three and a half years, nine years and 11 years, respectively, of expected service life remaining, according to Intelsat.

The Lockheed Martin-led investigation into the failure is continuing and will not be concluded until late September. But Intelsat Chief Executive David McGlade said it “is more likely related to the Lockheed Martin 7000 series design under certain operational and environmental conditions,” and not an anomaly that is limited to the one satellite. A failure of one of the three remaining 7000-series satellites owned by Intelsat, he said, “is unlikely to have a materially adverse impact on backlog or revenue.”

Satellite fleet operator New Skies Satellites Holdings of The Hague, Netherlands, also has 7000-series spacecraft in orbit. On Aug. 11, New Skies Chief Technology Officer Stephen Stott issued a statement saying it is too early to say whether other satellites of this model are subject to the same in-orbit failure. New Skies, which does not have the in-orbit-backup capability of Intelsat, intends “to take all appropriate steps, as and when [the cause of the failure] is identified, to protect the continued safe operation of our satellite fleet.”

Intelsat has 27 satellites in orbit. Intelsat Chief Operating Officer Ramu Potarazu said a failure of one of the three remaining 7000-series satellites would affect less than 1 percent of the company’s revenue. Intelsat recently decided not to renew the annual in-orbit insurance policies for much of its fleet, opting instead to save on the premiums and rely on its in-orbit backup capacity .

Intelsat reported $289.8 million in revenues for the three months ending June 30, an increase of 11.3 percent over the same period in 2004. The period is the first in recent years in which Intelsat has been able to compare its fleet performance as it is today with its performance a year earlier. The company’s billion-dollar purchase of Loral’s Atlantic satellite fleet was effective in March 2004.

The company reported a net loss of $53.4 million for the period, compared to a profit a year earlier. Intelsat said the loss was partly due to higher interest payments on its debt, which totaled $4.8 billion as of June 30. Contract backlog totaled $3.7 billion as of June 30, down slightly from the $3.8 billion reported March 30.

Intelsat’s earnings for the second quarter of 2005 also were reduced by a one-time payment of a $58 million launch-insurance premium for its IA-8 satellite. Intelsat paid a total launch premium of about $64 million for IA-8, but 90 percent of that sum was refunded by insurers when the launch was delayed. It then became due just before the launch in June.

IA-8 entered service July 29 at 89 degrees west longitude, from where it can service the robust North American market for Ku-band satellite services.

This is a new orbital position for Intelsat, but Potarazu said demand for Ku-band services in North America is so strong that half the Ku-band capacity on the satellite already has been sold. IA-8 also carries C- and Ka-band payloads.

Intelsat’s heritage network services and telephony-type telecommunications business continues to erode, and the company is counting on the Loral fleet acquisition and other measures to boost its presence in the video and government-services markets.

Government services in particular is one of Intelsat’s growing business segments. For the first six months of 2005, government contracts accounted for 21.5 percent of Intelsat’s revenues, compared to 11.5 percent a year earlier. Meanwhile, the network services and telecommunications business segment declined to 61 percent of revenue, compared to 69 percent a year earlier.