Intelsat Sales Up Despite Soft Ku-band Market in U.S.

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  Space News Business

Intelsat Sales Up Despite Soft Ku-band Market in U.S.

By PETER B. de SELDING
Space News Staff Writer
posted: 19 May 2009
03:09 pm ET






KOUROU,
French Guiana
— Satellite fleet operator Intelsat Ltd. on May 13 reported higher revenue and fleet-utilization rates for the three months ending March 31 compared to a year ago, and said its overall business remains strong, especially in certain markets such as
Africa
, and for government customers in general. But the company also said the North American Ku-band market is soft, despite a tight supply, because competitors are selling capacity at rates below what’s acceptable to Intelsat.

Washington-based, Bermuda-headquartered Intelsat also said its gross-profit margin in the first quarter of 2009 was reduced by the company’s long-planned sale of two launch vehicles in contracts under which Intelsat incurred unexpected expenses. Once the second of these launches is completed in June, Intelsat officials said, the company will definitively exit the business of reselling rockets.

In a May 13 conference call with investors, Intelsat Chief Executive David McGlade said that despite the soft market for selling Ku-band capacity to media companies in the
United States
, Intelsat’s Intelsat General government-sales division and Network Services business more than compensated for the resulting sales shortfall.

Intelsat reported revenue of $631.8 million for the three months ending March 31, up 10 percent from a year earlier. Fill rates on the company’s satellites that remain fully stabilized in orbit increased to 85 percent from 82.7 percent at Dec. 31. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 78 percent of revenue, up from 75 percent in the last three months of 2008.

Intelsat’s
backlog of $8.7 billion on March 31 was virtually unchanged from the $8.8 billion announced as of Dec. 31.

Media revenue in the first three months of 2009 dropped by $11.6 million as media companies reacted to the economic downturn.

McGlade
said during the call that Intelsat has seen signs of downward pressure in the North American Ku-band market. Asked to clarify the company’s view of this market, McGlade said in a May 14 e-mail: “Our experience on pricing for Ku-band services in North America is that it is stable. Overall, our fill rate on Ku in North America is quite high, with limited capacity to sell in the region. We have contracted with customers for the limited capacity that has become available from our inventory, but it is fair to say that demand is not as strong in
North America
as in some of the other regions we serve.”

Officials from Luxembourg-based SES, whose Americom New Skies division competes with Intelsat in
North America
, did not give the impression in recent investor presentations that the North American market was softening. More specifically, SES reported that its Americom business was more profitable than ever in the first three months of 2009.

McGlade
and Intelsat Chief Financial Officer Michael McDonnell said Intelsat’s own profitability was eroded in the first quarter, as it was in late 2008, because of the company’s decision in 2005 to purchase two Land Launch rockets from Sea Launch Co. of Long Beach, Calif. Intelsat won bargain-basement prices for the launches, profiting from Sea Launch’s determination to pursue market share for the start-up Land Launch operation.

It seemed like a good idea at the time, but Land Launch has faced multiple delays and has struggled to maintain financial equilibrium, leaving Intelsat to manage relations with the customers for the two launches. More recently, Intelsat agreed to invest cash in Sea Launch to assure that the two launches actually would occur. The first, of Telesat’sTelstar 11N satellite, was conducted in February. The second, of the Measat 1R satellite for Measat of Malaysia, is scheduled for June.

These launch obligations knocked down Intelsat’s EBITDA margin by several percentage points, McGlade said.

McGlade
reiterated to investors that Intelsat’s $15 billion in debt will not stop the company from making carefully selected capital investments when they can be tailored correctly. The decision to invest in an IS-22 satellite for the 72 degrees east orbital slot, with
Australia
‘s military as anchor customer, is an example.

The Australian military is paying $167 million over 15 years for a UHF-bandwidth payload on IS-22. McDonnell said
Australia
is paying $130 million of this between now and when the satellite, to be built by Boeing Satellite Systems International, is launched in 2012.

While the Intelsat-4 spacecraft currently at the 72 degrees east slot has not been a big money-maker and will be retired in 2010, McGlade said that IS-22, unlike Intelsat-4, will be crafted to specific market areas that show promise, in addition to carrying the UHF payload.