For sale by owner: World’s most successful commercial satellite manufacturer in recent years. Location: California’s Silicon Valley. Terms: TBD. Sales pitch: Multiple daily direct flights from Washington’s Dulles airport.
Loral Space and Communications of New York wants to sell all or part of its satellite manufacturing arm, Space Systems/Loral (SS/L) of Palo Alto, Calif., now that the parent company has decided not to pursue the sale of satellite fleet operator Telesat, which it owns with Canada’s PSP Investments.
Industry officials have different opinions as to why the Telesat sale fell through. Several officials said PSP was holding out for a higher price, and that Loral, which has a majority economic interest but only minority voting rights in Telesat, was obliged to go along.
Telesat and Loral officials have said they are now weighing a dividend recapitalization to provide Loral and PSP with a large cash payment in lieu of the proceeds from a sale.
Whatever the reason for the owners’ decision not to accept any of the offers they received for Telsat, Loral is now free to focus on cashing in on its investment in Space Systems/Loral, a company that has ridden the market demand for high-powered satellites in recent years.
Space Systems/Loral was for sale in the late 1990s as well, before an ill-timed detour into a new market niche forced it to seek protection under Chapter 11 of the U.S. Bankruptcy Code. At that time, its next-door neighbor, Lockheed Martin Space Systems of Sunnyvale, Calif., was interested. Lockheed and El Segundo, Calif.-based Boeing went so far as to discuss a possible joint bid for Loral.
Satellite industry officials said Lockheed might find today’s Loral more to its liking. Loral has almost no presence in the U.S. government satellite market, where Lockheed has excelled while maintaining only a marginal presence in the commercial market even though its A2100 satellite line does compete with Loral’s 1300 platform.
The same might have been said of Boeing several years ago. But Boeing has returned to the commercial market, specializing in the same kind of large, high-powered platforms that Loral builds.
Astrium Satellites and Thales Alenia Space, Europe’s two largest satellite manufacturers, already compete directly with Loral on a regular basis for commercial contracts because Europe’s military space sector has never been big enough to support either company. Industry officials said the overlap in their business with Loral’s is too big for a merger to make sense.
Space Systems/Loral has shown that building commercial satellites can be profitable, especially if a volume of at least five satellites per year is maintained. But the margins are still single digit only, which means finding a private-equity investor, or a satellite operator, to invest in the business will be no easy task.
That leaves Orbital Sciences Corp. of Dulles, Va., which has a large government satellite business and whose commercial presence is centered on smaller, low-powered satellites that do not address Loral’s core market.
“Orbital is obviously the most logical fit with Loral,” said an official with one satellite fleet operator. “They have complementary product lines. But whether Orbital wants the marriage is another question.”
Orbital Chief Executive David W. Thompson declined to address the question Sept. 13.
