WASHINGTON — Mobile satellite services provider Iridium Communications faces substantial obstacles in its attempt to win U.S. Export-Import Bank financial support for Iridium’s second-generation satellite constellation because of Iridium’s clear identity as a U.S. company, an Export-Import Bank official said March 15.
John L. Schuster, director of the bank’s power sector and, since 2003, the principal manager of satellite transactions reviewed by the bank, said even if Bethesda, Md.-based Iridium created a company outside the United States to manage the Iridium Next contract, it would not necessarily pass muster with the Export-Import Bank.
Speaking at the Satellite 2010 conference here, Schuster did not mention Iridium by name and said he was only speaking hypothetically about the hurdles any U.S. company would face in winning support from the U.S. export-credit agency, created to ensure that U.S. manufacturers are given “a level playing field” against foreign companies when bidding for foreign contracts.
Iridium is reviewing bids by two competitors for the $2.7 billion Iridium Next constellation of 66 low-orbiting satellites. One is from Lockheed Martin, which Iridium has said it would like to pair with Export-Import Bank support; the other is with Thales Alenia Space of France and Italy, which is assembling a package using up to $1.5 billion in loan guarantees from France’s export-credit agency, Coface.
Iridium has hired Goldman Sachs, Societe Generale and Hawkpoint to help assemble the Iridium Next financial package and expects to select a winning bid by this summer.
Industry officials said Iridium is almost certain to win Coface support for the Thales Alenia Space bid. In addition to providing low-cost loans for the work done in France, a Coface package could include support for up to 30 percent of the Iridium Next work done outside France.
For security reasons related to hardware Iridium may place on the Iridium Next constellation for the U.S. Department of Defense, about 40 percent of the Thales Alenia Space work on Iridium Next would be performed by Ball Aerospace & Technologies Corp., Boulder, Colo.
Industry officials said Iridium has been soliciting opinions from law firms on how it can crack the Export-Import Bank restrictions. They said one option might be to open a legal entity outside the United States, and steer the Iridium Next work through that foreign operation, thereby qualifying Iridium as non-American in the eyes of the Export-Import Bank.
In a brief interview after his public remarks here, Schuster said the bank is not naïve and does not accept fig-leaf arrangements of this sort. He said any foreign entity of a U.S. company must have been established well before the company solicits Export-Import Bank support.
And even if the foreign entity qualifies as a legitimate part of the petitioning company’s corporate structure, it still must clear U.S. Commerce Department definitions of what constitutes a non-U.S. company, Schuster said.
“If the sales and other capabilities of the company are only in the U.S. and the business is global, that would not be characterized as an export,” Schuster said.
The Commerce Department selection criteria include a review of what percent of the company’s business is done overseas and other factors that may or may not argue in Iridium’s favor.
Iridium has long viewed the U.S. Defense Department as its anchor customer, but the Pentagon is now less important to Iridium’s overall revenue than it used to be. In 2004, Defense Department users constituted 37 percent of Iridium revenue. For the first nine months of 2009, that had dropped to 23 percent.
Schuster said that in 2003, the Export-Import Bank engaged in just two satellite-related transactions. In the past year alone, he said, the bank has agreed to support two satellite deals and is reviewing two to four others. “There has been an enormous increase — really an explosion — in volume” in the number of satellite transactions asking for bank support, he said.
That is also true for France’s Coface, according to Regine Schapiro, head of Coface’s telecommunications and space division.
Schuster said that while companies occasionally try to play Coface and the U.S. Export-Import Bank against each other, the two export-credit agencies do not view themselves as competitors. They offer similar levels of support in keeping with a convention among export-credit agencies among Organisation for Economic Co-operation and Development governments.
“It sounds like they have the same credit standards as we do,” Schuster said, referring to Coface, with which the Export-Import Bank has collaborated in the past on satellite transactions involving, for example, a U.S. satellite builder teamed with either a France-based manufacturer or with France’s Arianespace launch services consortium.
Several industry officials unaffiliated with Iridium said that while the company faces obstacles in getting Export-Import Bank support, it has nonetheless succeeded in persuading the bank to make a detailed review of the proposal. These officials said Iridium’s pitch to the bank may include positioning a little-known Iridium subsidiary outside the United States as the vehicle through which the Iridium Next contract would be managed.
“They have gotten past the bank’s door, which is the first step,” one industry official said. “Whether they will be successful in portraying a subsidiary in, say, Ireland as a legitimate contracting vehicle remains to be seen.”
