Globalstar, Arianespace in Dispute over Launch Payments

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PARIS — Launch service provider Arianespace has notified customer Globalstar that the mobile satellite services company is in default on payments due from three launches in 2010 and 2011 and must pay by late August or risk suspension of a fourth and final Globalstar launch late this year, Globalstar said Aug. 9.

Covington, La.-based Globalstar, which is working to restore its two-way voice service with a second-generation constellation of 24 satellites, faces a termination of the six-satellite launch if payment is not made within 60 days, the company said. A contract termination would trigger a default on Globalstar’s principal loan facility, which is guaranteed by France’s export-credit agency, Coface.

In a filing with the U.S. Securities and Exchange Commission (SEC), Globalstar said it disputes Arianespace’s claims and is negotiating with the Evry, France-based company on a mutually acceptable agreement. Arianespace delivered its payment-default notification in early August. It sets in motion a 15-day grace period after which Arianespace may suspend preparations for the next launch.

The dispute with Arianespace comes just weeks after Globalstar settled a long-running argument with its satellite prime contractor, Thales Alenia Space of Cannes, France, that similarly threatened to cause a default on the Coface-backed facility and push Globalstar into Chapter 11 bankruptcy.

The Thales Alenia Space settlement, concluded June 25, is already the subject of an inquiry by Coface, which suspects the deal might violate nonfinancial covenants in the Coface-backed facility, which totals $586.3 million.

In its SEC filing, Globalstar said it does not believe the settlement terms cited by Coface constitute default events. The company said it is nonetheless working with its lenders on loan-covenant amendments and waivers that are “expected to be completed promptly.”

Coface and the bank consortium have blocked payment of a final $3 million under the facility pending a conclusion of the inquiry, Globalstar said.

Globalstar’s contract with Arianespace, valued at $216 million, covers four launches of Russian Soyuz rockets, each carrying six Globalstar satellites, from the Russian-run Baikonur Cosmodrome in Kazakhstan. The launches were arranged by Starsem, a French-Russian company in which Arianespace is a major shareholder and acts as sales agent. The contract includes an option for a fifth launch.

The first three launches occurred in 2010 and 2011. The fourth has been delayed repeatedly, in part because of suspected defects on the satellites’ momentum wheels, which maintain satellite stability in orbit.

In an Aug. 9 conference call with investors, Anthony J. Navarra, Globalstar’s president of global operations, said the six final satellites, plus a prototype flight model, should be ready for shipment by Thales Alenia Space in September, with a launch planned in December. Navarra did not disclose the Arianespace dispute during the call.

Navarra said Globalstar is already seeing clear improvement in its customers’ call-completion rates because of the new satellites. In some key markets, 80 percent of calls are now completed, a figure that in these markets should rise to 90 percent by September, when the last of the 18 in-orbit second-generation satellites are placed into service.

Globalstar Chief Executive Jay Monroe said during the call that only one in-orbit satellite has suffered a failure of a momentum wheel. Globalstar previously had feared that several satellites launched in 2010 and 2011 might be affected.

Globalstar and Thales Alenia Space are preparing a software patch that should permit the satellite — and any others whose momentum wheels degrade — to operate for its full 15-year service life without reduced capacity, Monroe said.

“We’re just one launch away from full coverage,” Monroe said of the fourth Soyuz launch of six satellites late this year.

Globalstar originally planned to replace its first-generation constellation of 48 satellites with 48 new spacecraft. But its financial backers, which are mainly French banks whose exposure is 95 percent guaranteed by Coface, limited their support to 24 satellites pending a later review of the company’s status.

Globalstar and Thales Alenia Space recently concluded that Globalstar will be able to provide a global service with just 30 satellites. The production of six final spacecraft, at 25 million euros ($31.25 million) per satellite, is the core of the two companies’ June settlement.

Globalstar has yet to raise the funds to pay for these six satellites. The company said it is pursuing several options for fresh funding, without which it cannot fund its continuing operations.

Globalstar has slashed operating expenses to conserve cash, but its reduction in staff has pushed its employment level below the threshold set in its agreement with the Louisiana Department of Economic Development, which financed Globalstar’s move from California and has agreed to help pay other costs associated with its Louisiana headquarters through 2019.

Globalstar recorded a liability of $1.7 million as of June 30 to cover a shortfall in Louisiana’s expected $352,000 in annual lease reimbursements through 2019 because of the staff reductions, the company said.