Intelsat Files Insurance Claim Over IS-19 Solar-array Problem
One industry official said the claim is for about $84 million, which represents 28 percent of the full $300 million insurance policy Intelsat took out on IS-19.
Luxembourg- and Washington-based Intelsat declined to disclose what it is claiming to insurers as a loss, a figure that in any event will be subject to negotiations with underwriters before a final amount is determined. IS-19 is functioning in orbit and its power loss is only marginal for the moment, but it is expected to aggravate as the satellite remains in orbit for a planned 15 years.
IS-19 manufacturerand launch service provider Sea Launch AG continue to investigate what caused the solar-array deployment anomaly but have yet to issue a formal assessment.
In a conference call with investors, Intelsat Chief Financial Officer Michael McDonnell said the company expects to receive the insurance claim either late this year or early in 2013. In addition to the claim, which was expected, Intelsat said it has completed the sale of its Washington headquarters for $85 million in cash.
While it seeks a new locale in the United States, the company will be leasing part of the building’s space from the new owners and paying not much more in rent than it paid in monthly maintenance charges as the building’s owner, McDonnell said. Intelsat said it expects to book a pretax gain of between $12 million and $14 million as a result of the sale.
Offsetting this one-time cash receipt is $82.6 million Intelsat spent to pay off the debt of its New Dawn Satellite Co. Ltd. joint venture. Accompanying the debt payment was a cash payment of $8.7 million to purchase the 25.2 percent of New Dawn that Intelsat did not own.
Intelsat has about completed its current fleet expansion cycle, having launched five spacecraft in 2012. One more — IS-27 — is scheduled for launch in early 2013. IS-27 carries a UHF-band payload intended for lease to government customers, but despite negotiations with the Italian government Intelsat has announced no customers for the UHF capacity.
IS-27 also will increase Intelsat’s Ku-band capacity over Latin America, one of the world’s most robust markets for satellite bandwidth, by the equivalent of 18 transponders, Intelsat Chief Executive David McGlade said. The satellite features a beam over the North Atlantic Ocean for mobile users.
With IS-27 in orbit, Intelsat will have fielded the assets it hopes to use to convince the U.S. equity markets of the company’s long-term value with a $1.75 billion initial public offering (IPO) of stock. The IPO registration was filed six months ago.
Asked to assess the global satellite bandwidth pricing environment, McGlade said that Africa remained difficult given the large amount of fiber capacity that has arrived on the continent’s coastline. Latin America remains a region of continued strong demand, McGlade said. The Asia-Pacific is a mix of strong and soft demand, while Russia remains a healthy market.
Intelsat is broadening its product line to appeal to aeronautical and maritime customers looking for mobile broadband — in Ku-band, in Intelsat’s case.
The company has been launching satellites with dedicated beams over aeronautical and maritime routes, and has announced a new generation of high-throughput satellites, called Epic, that take advantage of Intelsat’s orbital slots to provide broadband-level throughput in C- and Ku-band.
Intelsat has already booked around $500 million in contracts for the mobile broadband offer.
Intelsat reported total revenue of $655 million for the three months ending Sept. 30, flat from the same period a year ago and up 3 percent from the previous three-month period. Backlog stood at $10.8 billion as of Sept. 30, up about 2 percent from where it stood June 30 as a result of bookings on the newly launched satellites and the advance Epic orders.
Intelsat said it had about 2,135 transponders on stabilized satellites as of Sept. 30, up from some 2,100 three months earlier and taking account of the satellites that entered operations by the end of the quarter.
The entire fleet was 77 percent full — the same fill rate as three months ago, which McGlade said shows the company is selling capacity in line with the capacity’s availability for service.
Intelsat said EBITDA, or earnings before interest, taxes, depreciation and amortization, was 78 percent of revenue, up from 77 percent as of June 30.
What Intelsat calls its channel business, mainly point-to-point connections that customers are moving to cable, continues to decline.
Intelsat’s media business, at $213 million in revenue, was up 4 percent from a year ago but flat compared with the previous quarter.
About 20 percent of Intelsat’s revenue comes from government customers, mainly the U.S. government. For the three months ending Sept. 30, the government business reported revenue of $135 million, up 1 percent from a year earlier but an 8 percent increase from the period ending June 30.
McDonnell said between 40 and 50 percent of the company’s government work is performed using other fleet operators’ satellites. While this business is profitable for Intelsat, the revenue generates much lower profit margins.