Loral Aims To Expand Satellite Fleet

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The reshaped Loral Space and Communications that emerged from 28 months of Chapter 11 bankruptcy protection will seek to expand its satellite fleet through internal growth or acquisitions and would like to purchase one or more of the orbiting telecommunications satellites it was forced to sell to competitor Intelsat in 2004, according to Loral Chairman Bernard L. Schwartz.

Schwartz said Loral is determined to keep both its satellite manufacturing arm, Space Systems/Loral, and its satellite-fleet operator, Loral Skynet, under the same roof. Neither is for sale. “We are not in selling mode,” Schwartz said.

In a Nov. 23 interview two days after his company’s exit from bankruptcy proceedings, Schwartz made the following points:

– New York-based Loral will not contest the planned merger of competitors Intelsat and PanAmSat and will not ask U.S. regulators reviewing the deal to force the companies to divest any satellites as a condition of the merger. But Schwartz said if the U.S. government asks Intelsat to sell off some of its North American satellites, Loral is a potential buyer.

“We said to the FCC [the U.S. Federal Communications Commission] that there is no reason for us to object to this merger,” Schwartz said. “But I would like [Intelsat and PanAmSat] to think about us if they are forced to sell these satellites. The government is very energetic about antitrust laws and we don’t know what may happen.”

Loral sold its North American satellite fleet to Intelsat in 2004 in a billion-dollar deal to permit Loral to pay off its senior bank debt.

– Space Systems/Loral cannot handle the recent wave of new orders without boosting its full-time staff at the Palo Alto, Calif.-based satellite manufacturing plant by 600, to 2,000, by late 2006.

Schwartz said Loral would continue to outsource 35-40 percent of the value of its satellite orders to other companies. “Just to handle the work we have and to be able to seek new opportunities we see for 2006, we will need these new people,” Schwartz said.

Loral filed for bankruptcy in July 2003. At the time, Space Systems/Loral had become a commercial also-ran and a subject of speculation that it would be sold to a competitor, or perhaps even closed. But during the bankruptcy proceedings, Space Systems/Loral significantly improved its business and in 2004 booked more commercial satellite orders than anyone else. It has retained its lead in 2005. The division’s backlog as of Sept. 30 was $902 million.

Schwartz said this backlog figure does not include the $130 million in deferred milestone payments that customers have withheld from Space Systems/Loral pending the company’s exit from bankruptcy.

Schwartz said the size and complexity of the four satellite orders it has won this year for customers TerreStar, ICO, PanAmSat and XM Satellite Radio are equivalent, in revenue terms, to five standard-version LS 1300 satellite frames.

Space Systems/Loral’s competitors have watched the company’s turnaround with a mixture of admiration and skepticism. Several privately have questioned whether Loral has been booking orders of dubious profitability. Schwartz denied this. “We are making money on all these programs,” he said.

– Loral Skynet has room to grow without acquisitions because it has several orbital slots over the Indian Ocean, Southeast Asia and the Middle East. The company expects to be targeting those regions to fuel growth in a consolidating global satellite operators’ market, Schwartz said.

Loral Skynet shrank by one-half following the asset sale to Intelsat. The current fleet now stands at five satellites covering South America, Asia, the Middle East and Europe. Under its agreement with Intelsat, Loral is eligible to re-enter the North American market in mid-2006.

Loral Skynet recently ordered a satellite from Space Systems/Loral called Telstar 11N for the orbital slot at 37.5 degrees west longitude. The satellite is due for launch in 2007.

Loral Skynet’s backlog as of Sept. 30 was $502 million.

Skynet’s first chance to re-enter the North American market likely will be through its part-ownership of the Satmex 6 satellite, owned by Mexican satellite operator Satmex and now being refurbished by Loral.

Satmex 6 likely will be launched in late 2006, Schwartz said, adding that Satmex and Loral do not need any further cash infusions to complete the satellite’s refurbishment, purchase insurance and launch it aboard a European Ariane 5 rocket.

“We have it covered,” Schwartz said of the Satmex 6 financing.

“We had hoped for an early 2006 launch but that may not be possible,” he said.

Loral intends to issue stock to be traded on the Nasdaq exchange.

The company’s debt, in the form of Loral Skynet notes, is $126 million.

Cash on hand is about $180 million, Loral said in a Nov. 22 statement.