Fleet Recapitalization Cycle Likely To End in 2-3 Years

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PARIS — The world’s four biggest satellite fleet operators are all in the middle of a sizable capital spending cycle that is all but certain to decrease in the next two to three years, raising the question: What happens when the rainmakers stop making it rain?

The ecosystem that depends on healthy satellite operators — launch service providers and satellite builders — has been told for years that a difficult period was on the way. But the day of reckoning has been delayed, in part because satellite program schedules slip, pushing the spending into the next calendar year. It is also due in part to decisions by the world’s two largest operators, Intelsat and SES, to order several satellites at a time.

Intelsat’s agreement last year to purchase four satellites from Boeing and SES’s contract this year with Astrium for four satellites have buoyed the satellite market. But the inevitable market drop, when it comes, is likely to be much more severe as a result.

Luxembourg-based SES alone plans to spend around $1 billion in 2010 as it replaces midsize satellites with larger ones and expands its in-orbit fleet by 30 percent — as measured in terms of commercially usable transponders — by 2014.

Intelsat’s capital spending is not far behind, at between $825 million and $900 million in 2010. Paris-based Eutelsat is spending more than $500 million a year through 2012, and Telesat of Canada expects to spend around $275 million.

SES has said its capital spending will decline steadily in the coming years. By 2014, it expects it will be spending 50 percent less per year than today as it awaits its next satellite replacement cycle.

Intelsat of Washington and Luxembourg also is likely to decrease spending in the coming years, especially if, as many expect, it prepares an initial stock offering to enable its private-equity owners to cash in on at least part of their investment.

While Eutelsat has little debt and a highly profitable core business, it is unlikely to pick up the slack left by SES and Intelsat.

At SES’s annual Investor Days conference held June 1 in London, company officials forecast a total C- and Ku-band market growth of 3.1 percent per year between 2009 and 2017, with government demand leading the growth at a rate of 9.8 percent per year.

The company forecasts that broadband applications for C- and Ku-band capacity will drop sharply, by 28 percent per year, during the same period, as the availability of terrestrial links widens, and as some of the remaining satellite broadband markets switch to Ka-band.

Intelsat also is focusing on the government market as a demand driver in the coming years, and has been among the most active satellite fleet operators in urging governments, particularly the U.S. government, to deepen their relations with commercial operators.

SES has decided to limit its field of activity to selling raw satellite capacity and is trimming its services portfolio to sharpen the focus on satellite leasing.

Intelsat, through its Intelsat General subsidiary, is taking a more active role in providing both the satellite capacity and the end services to its government customers.