PARIS — Intelsat’s decision to increase its capital spending by $235 million this year to order a new satellite, finance completion of a second and secure a 2007 launch for two others appears to counter its competitors’ predictions that a company owned by private-equity investors could not respond quickly to market opportunities that required new expenditures .
Intelsat officials announced March 30 that the new investment would bring their total spending on satellites and launches this year to $615 million. The Washington-based company has a total of eight satellites under construction , including an Intelsat 15 spacecraft just ordered from Orbital Sciences Corp. of Dulles, Va.
In a conference call, Intelsat officials said strong demand for satellite telecommunications capacity in North and South America, Europe, the Middle East and Africa — meaning just about everywhere except the Asia-Pacific region — justifies the new spending.
Intelsat Chief Executive David McGlade said the company’s private-equity shareholders signed off on the new spending once they saw the new growth opportunities that were not there as recently as six months ago.
McGlade conceded that the new spending will do nothing to help Intelsat reduce its considerable debt of $9.3 billion, or 5.8 times the company’s 2006 earnings before interest, taxes, depreciation and amortization, or EBITDA . But capturing new business and profitably increasing revenues, he said, is an Intelsat priority.
“We are committed to de-leveraging the business, but we have to adjust to the marketplace,” McGlade said. “We are very excited by what we are seeing in new opportunities for growth in this industry.”
McGlade outlined the plan for spending the additional funds along with Jim Frownfelter, Intelsat’s chief operating officer.
A substantial portion will go toward switching the launch of two satellites — Intelsat 11 (formerly called PAS-11) and Horizons 2 — from a Sea Launch Co. Land Launch vehicle to Europe’s Ariane 5. The move followed the Jan. 30 launch failure that has grounded Sea Launch. The two satellites are now scheduled to be launched together on an Ariane 5 vehicle in September. Purchasing the Ariane 5 launch, plus completing construction of an Intelsat 11 ground spare on which little work had been done, will cost $130 million, Frownfelter said.
Frownfelter said Intelsat is maintaining two launch reservations on Land Launch for future satellites.
Another $105 million will be spent in part on a new satellite, to be called Intelsat 15, which will be launched in 2009 over the Pacific and Indian Ocean regions to replace the existing Intelsat 709 satellite. Intelsat 709 will be moved to a slot covering Africa and the Middle East.
Intelsat 15 has been ordered from Orbital Sciences Corp. , which is also building the Intelsat 11, the Intelsat 11 spare and Horizons 2 spacecraft, according to Dianne VanBeber, Intelsat vice president for investor relations.
McGlade said satellite-fleet operator JSAT Corp. of Tokyo, a partner with Intelsat on the Horizons 1 and Horizons 2 satellites, has agreed to prepay Intelsat for rights to five full transponders on Intelsat 15. JSAT’s payment of $60 million will be delivered in 2007 and 2008.
A final piece of this $105 million capital expenditure addition will be more capacity for the Intelsat 14 satellite being built byof Palo Alto, Calif. When Intelsat had last told analysts of its capital spending plans in mid-2006, Intelsat 14 had been projected as a small satellite. But under the terms of a contract signed with Loral in January, the satellite will carry 40 C-band and 22 Ku-band transponders.
McGlade said Intelsat remains financially prudent and is not about to return to what he referred to as “the bad old days of earlier this decade” when satellite operators added capacity even if the business case was speculative.
But the tone of the March 30 conference call suggested that, as Intelsat has reviewed its 51-satellite fleet and the markets it serves, the company sees more reasons for investment than for focusing on debt reduction and, eventually, providing a dividend to its private-equity shareholders.
Intelsat’s total fleet is now 70 percent utilized, but this figure masks sharp differences between regions and markets. Frownfelter said Intelsat’s Africa capacity in both C- and Ku-band is just about full. The African market was to have been served by the large NSS-8 satellite owned by Intelsat rivalGlobal of Luxembourg, but it was this satellite that was lost in the Jan. 30 Sea Launch failure.
In South America, despite oversupply in some markets, Ku-band demand for direct-broadcast television is rising. “If this continues, we should see high utilization rates on our satellites in the coming years,” Frownfelter said.
Intelsat reported that its 2006 revenues totaled $2.1 billion, a 2.9 percent increase over 2005. This pro forma figure compares the Intelsat and PanAmSat revenues in 2005 and 2006. Intelsat’s purchase of PanAmSat closed in July 2006.