Iridium Expects $200M in Hosting Fees from Aireon Subsidiary

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UPDATED Aug. 3, 5:48 p.m. EDT

IBIZA, Spain — Iridium Communications on Aug. 2 said it expects its newly formed Aireon LLC subsidiary to generate $200 million in one-time hosting fees to integrate and launch commercial aircraft-monitoring payloads on Iridium’s second-generation satellite constellation scheduled for launch between 2015 and 2017.

McLean, Va.-based Iridium, which for now remains Aireon’s only shareholder, said it has agreed to make a $12.5 million investment in the venture. Iridium has also agreed to provide Aireon with the equivalent of $10 million in Iridium Next constellation airtime in the event Aireon cannot make its scheduled payments to Harris Corp., which is building the Aireon satellite-carried gear.

Iridium has agreed to make a further investment of $15 million in Aireon.

In an Aug. 2 filing with the U.S. Securities and Exchange Commission, Iridium said the Harris contract is valued at $114.7 million between 2012 and 2017. Melbourne, Fla.-based Harris will design and build terminals — called ADS-B 1090 MHz Extended Squitter receivers — to be installed on space that Iridium has set aside for third-party payloads on its next generation of 66 operational satellites and six in-orbit spares.

Iridium Chief Executive Matt Desch, in an Aug. 2 conference call with investors, said Aireon is expected to generate “significant and recurring service revenue associated with a long-term data contract for at least to the end life of the new constellation, to about 2030.”

The Aireon service will provide airlines and global air traffic management agencies with data on aircraft positions.

In the conference call, Desch said the Harris-built Aireon gear is not the only hosted payload Iridium expects to book between now and when its satellites are ready for launch. Desch said one or more announcements of other piggyback instruments are expected before the end of the year.

The hosted payload opportunity has been one of the pillars of the financing for Iridium Next, whose budget is estimated at $3 billion including the satellites’ construction and launch.

Iridium said the terms of the bank loan guaranteed by the French export-credit agency, Coface, that is the core of Iridium Next’s funding package has been slightly modified to account for Aireon and Iridium’s investment in it.

Iridium will be obliged, under the new terms, to issue preferred stock or provide other sources of cash if it is unable to sell warrants, valued at $7 per Iridium share. As of June 30, 13.7 million of these warrants were outstanding, valued at $95.6 million.

Iridium also announced Aug. 2 that it has rearranged the launch profile for its 72-satellite Iridium Next constellation to give its primary launch services provider, Space Exploration Technologies Corp. (SpaceX), more time to prepare for the initial mission.

Iridium said the new scenario reduces the total Iridium Next launch cost by a net $15 million and should have no effect on the in-service date of the second-generation system.

Iridium in mid-2010 signed a $492 million contract with SpaceX of Hawthorne, Calif., to launch the Iridium Next satellites nine at a time aboard eight Falcon 9 rockets between early 2015 and 2017.

The restructured contract, which SpaceX and Iridium concluded Aug. 1, calls for seven Falcon 9 rockets, each carrying 10 Iridium Next satellites, to be launched beginning in mid-2015 and ending about 24 months later.

Iridium said it is saving $39 million by ordering seven rockets instead of eight. Desch said the new calendar also gives SpaceX, whose Falcon 9 rocket is relatively new, with only three launches under its belt, more time to digest its already large manifest of customers.

Launching the first Iridium Next satellites several months later than planned “gives SpaceX a little more time to get through the two dozen or so launches that are on their manifest before Iridium Next,” Desch said.

To offset the delayed first flight, Iridium has contracted with ISC Kosmotras of Moscow to launch the first two Iridium Next satellites aboard a Dnepr converted ballistic missile in early 2015.

Desch said having two spacecraft, which feature a new design, in orbit for several months will give Iridium time to perform a thorough in-orbit test regime and make any changes needed for the remaining 70 satellites.

Iridium Chief Financial Officer Thomas J. Fitzpatrick said during the conference call that Iridium is saving a net $15 million with the new launch program, giving an implied price of $24 million for the Dnepr rocket.

Iridium in mid-2011 signed a $184.3 million contract with Kosmotras for up to six Dnepr launches, with none of them firmly booked. Under the agreement, if Iridium elects to exercise none of the options, it will owe Kosmotras $15.1 million.

If that figure is included in the Dnepr launch, the price is $39.1 million.