Hughes Wins Coface Backing for Ariane 5 Launch of New Satellite

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PARIS — Satellite broadband and ground-terminal provider Hughes Communications has won the approval of France’s export-credit agency, Coface, to provide loan guarantees for 85 percent of the cost of launching Hughes’ Jupiter all-Ka-band broadband satellite aboard a European Ariane 5 rocket in early 2012, Hughes and Arianespace announced May 5.

Industry officials said the Ariane 5 launch of the 6,100-kilogram Jupiter spacecraft will cost around $110 million. The portion to be backed by Coface guarantees and French banks including BNP Paribas and Societe Generale will carry a 5 percent interest rate — “which is very cheap money, in our view,” Hughes Chief Financial Officer Grant Barber said during a May 5 conference call with investors.

The financing, to be completed by September, is the latest example of Coface’s continued active engagement in the satellite sector on behalf of struggling startups and cash-rich, established operators alike.

In addition to providing make-or-break support for Globalstar’s next-generation mobile-communications constellation, Coface has signaled tentative backing for the O3b constellation of satellites intended to deliver broadband links to the less-developed world.

In December, Coface provided guarantees for SES Taps Coface Financing for Four Astra Satellites”>some $700 million in bank financing for four direct-broadcast television satellites to be built by Astrium Satellites of Europe for SES of Luxembourg, whose financial strength puts it at the other end of the spectrum from Globalstar and O3b.

The availability of Coface has been a valuable discriminator for Arianespace of late since its principal competitor, International Launch Services of Reston, Va., which markets Russia’s Proton rocket, has not been able to secure similar backing from Russia’s export-credit agency.

The Chinese government has been willing to extend backing on behalf of Chinese rockets and telecommunications satellites for export customers, but U.S. technology-export regulations currently make it impossible for a U.S.-built satellite to be shipped to China for launch.

Jupiter, which will expand Hughes’ U.S. and Canadian consumer broadband business, is under construction by Space Systems/Loral of Palo Alto, Calif., under a contract valued at $252 million. It is expected to have a throughput capacity of more than 100 gigabits per second, or 10 times that of Hughes’ current Spaceway 3 Ka-band spacecraft.

In a May 5 filing with the U.S. Securities and Exchange Commission (SEC), Germantown, Md.-based Hughes says the contract with Evry, France-based Arianespace was signed April 30.

Reporting its first-quarter financial performance May 5, Hughes said its North American satellite consumer broadband business continues to grow as measured by subscriber additions, revenue per subscriber and the rate at which subscribers quit the service.

The HughesNet service, which has become the company’s principal growth engine, increased its subscriber base by 5.4 percent, to 530,000 on March 31, compared with Dec. 31. Average revenue per subscriber increased to $72 per month, up from $70 in late 2009. Subscriber defections, called “churn,” were down to a record low of 1.98 percent per month.

Hughes continues to load new HughesNet subscribers onto Spaceway 3, allowing the company to gradually reduce the number of transponders it leases aboard Ku-band satellites — at an average cost of $1.5 million per transponder per year — at a rate of about one transponder per month.

Barber said consumers continue to opt for an equipment-rental formula in which they avoid having to pay a $200 fee for the HughesNet hardware, including the rooftop satellite dish, and instead pay an additional $10 per month for their subscriptions.

This practice means Hughes is selling less equipment. While the loss shows up as increased services revenue, it reduces the equipment-sales line on Hughes’ financial statements.

Hughes Chief Executive Pradman P. Kaul said the company surveyed 23,000 of its subscribers and found that, as expected, they view high-speed Internet access as having “a vital role” in their lives.

Hughes’ principal consumer-broadband competitor, ViaSat Inc. of Carlsbad, Calif., is proceeding on the same set of assumptions with its WildBlue consumer broadband service and its ViaSat-1 satellite, to be launched in early 2011.

Kaul said Hughes is reviewing options on how to position itself given that ViaSat-1 is scheduled to be in service several months, and perhaps as long as a year, before Jupiter.

While its services revenue for the three months ending March 31 increased by 16 percent, to $188 million, from the same period a year ago, Hughes’ total revenue was up just 1 percent for the period, to $243.2 million. But operating income, at $10.6 million for the quarter, was up 26 percent over a year earlier.