PARIS — Intelsat Ltd. is planning a substantial reduction in the size of its in-orbit fleet over the coming years as it elects not to replace retiring satellites at certain orbital positions in the wake of the company’s takeover of PanAmSat, Intelsat Chief Operating Officer James B. Frownfelter said.
Following its mid-2006 purchase of PanAmSat, Intelsat became the world’s largest commercial satellite operator with 51 fully owned satellites in orbit. To keep capital expenses to a minimum and reduce debt, Intelsat is seeking to rationalize the fleet.
In a Nov. 14 conference call with investors to discuss the company’s third-quarter financial results, Frownfelter said the company is compiling a five- and 10-year capital spending plan, and that the exercise has highlighted satellites that will not be replaced.
“What we’re planning on over that 10-year time frame is to be operating in the low 40s or so – total satellites in the fleet,” Frownfelter said. He did not specify the satellites that would not be replaced or the orbital slots that would be abandoned.
Dianne Van Beber, Intelsat vice president for investor relations, said, Nov. 16, that a number of current Intelsat satellites are already in inclined orbit, meaning they produce minimal revenue and are nearing the end of their service lives. Traffic on these satellites “will be absorbed by the existing system or added onto the new satellites we do have planned,” Van Beber said.
Intelsat has six satellites on order – five confirmed and a sixth to be built if the PAS-11 satellite scheduled for launch in late 2007 does not function as designed. PAS-11 construction is being partly financed by an Intelsat customer operating in Latin America.
Bermuda-headquartered, Washington-based Intelsat currently expects that the combined company will generate $92 million in annual savings starting in 2008 once it eliminates duplications between PanAmSat and Intelsat operations. The company is sticking with previous estimates that the streamlining effort will cost $180 million as plants are closed and staff is reduced.
Intelsat Chief Executive David McGlade said integrating the PanAmSat and Intelsat sales forces is proceeding smoothly. He said the drop in Intelsat’s total backlog — from $8.3 billion as of June 30, including PanAmSat, to $8 billion as of Sept. 30 — is not a sign that the company is losing business to competitors.
“Backlog is a lumpy affair in general,” McGlade said, referring to the lack of smoothness in order buildup year on year.
More than half the backlog decline was in former PanAmSat business. Frownfelter said PanAmSat’s video-distribution contracts are for 15 years or more, creating a year-on-year drain on backlog even though the customer has not reduced his business with the company. Many PanAmSat contracts were signed around 2000, Frownfelter said, and will not be renewed until several years from now.
Intelsat reported a net loss of $305.4 million for the first nine months of 2006 on revenues of $1.1 billion. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 62 percent of revenues.
The figures include a $49 million charge Intelsat recorded following the September failure of one of the two solar arrays on the IS-802 satellite operating at 33 degrees east longitude. The sudden failure resulted in the permanent loss of two-thirds of the satellite’s capacity of up to 64 C-band and 12 Ku-band transponders.
Frownfelter said customers aboard IS-802 have been moved to nine other Intelsat satellites, and that some of these customers have been returned to the IS-802, which continues to function at one-third of its original capacity.
In a Nov. 14 filing with the U.S. Securities and Exchange Commission (SEC), Intelsat said it had previously valued the satellite at $70.7 million, not including $1.7 million in satellite performance incentive payments it has yet to pay to the manufacturer, Lockheed Martin Commercial Space Systems.
Intelsat reported a temporary failure of its PAS-6B satellite in late October, a glitch that lasted for several hours. The satellite has returned to normal service.
Frownfelter said the problem was a bubble in the satellite’s fuel line that should not have had a major consequence but was misinterpreted by the satellite’s on-board fault-protection system. The automated system shut down the satellite and placed it in safe mode, facing the sun. Frownfelter said Intelsat and PAS-6B manufacturer Boeing Satellite Systems International are working to prevent a recurrence.
In its SEC filing, Intelsat said it has a deadline of June 2007 to exercise or sell a Lockheed Martin launch contract that it signed before the PanAmSat merger and no longer needs.
If it cannot dispose of the contract it will be liable for up to $30 million in contract-termination penalties that must be paid to Lockheed Martin by then.
