Loral Space and Communications, seeking to emerge from bankruptcy this summer and stave off a cash crisis at its satellite manufacturing facility, has reached a settlement with its insurers concerning the Estrela do Sul satellite’s partial failure and with ChinaSat regarding the non-delivery of the ChinaSat 8 satellite.

New York-based Loral, in Chapter 11 bankruptcy since July 2003, will attempt to have its reorganization plan approved by equity shareholders and the New York bankruptcy court at a June 1 hearing. If the plan is approved, a July 13 court hearing would be scheduled, after which Loral would emerge from bankruptcy, according to Loral and bankruptcy-court documents.

While U.S. Chapter 11 bankruptcy law is supposed to protect companies from collapsing as they reorganize their debt, the procedure is destabilizing Loral’s Palo Alto, Calif.-based satellite manufacturing arm , Space Systems/Loral.

During the past 15 months, Space Systems/Loral has won several new satellite contracts from fleet operators Intelsat, EchoStar, PanAmSat and DirecTV Group. But some of the contracts stipulate that Loral must begin work on the spacecraft without receiving any cash payment until the company is out of bankruptcy court.

In a May 9 filing with the U.S. Securities and Exchange Commission (SEC), Loral said it expects to incur $59 million in costs through July on contracts in which milestone payments have been deferred.

Space Systems/Loral will run out of cash by July without some new source of revenue, Loral said. It is for this reason that the insurance settlement has become crucial for Loral.

The company has been negotiating with its Estrela do Sul insurance underwriters for more than a year on a $250 million claim for total loss filed after one of the satellite’s solar arrays failed to open following launch in January 2004. Loral determined that only 15 of the satellite’s 41 high-powered Ku-band transponders could be operated — and only for seven years, not the 15-year service life planned.

Under the Estrela do Sul insurance policy, the loss of more than 75 percent of the satellite’s capacity constitutes a total loss.

With its cash running out and some underwriters balking at paying the full claim, Loral agreed with an initial group of insurers to accept 82 percent of the total. The pro rata share for this group of insurers is $93.3 million, which Loral expects to receive by the end of May following approval of the arrangement May 10 by the New York bankruptcy court handling Loral’s Chapter 11 reorganization.

Loral spokesman John McCarthy said May 12 that Loral is negotiating with the remaining insurers and hopes to reach a similar settlement in short order to complete what would be a $205 million claim settlement.

Loral will retain title to the Estrela do Sul satellite under the agreement. Estrela do Sul’s biggest customer is Connexion by Boeing, a service delivering high-speed Internet connections to passenger airlines.

Loral also has removed a potential liability stemming from the U.S. government’s refusal to allow the company to export the ChinaSat 8 satellite to its owner, ChinaSat Communications Corp. of Beijing.

The satellite was completed in December 1998 and has been in storage at Loral since then. Loral and ChinaSat have all but abandoned any hope that the U.S. State Department will permit its export to China for launch on a Chinese Long March rocket.

ChinaSat had threatened to file a claim against Loral for $134.1 million for breach of contract but backed off after Loral agreed to give ChinaSat free access to the C-band capacity on the Loral-owned Apstar 2R telecommunications satellite. Under the unusual arrangement, ChinaSat leased that capacity back to Loral, which then sold it commercially.

Under an agreement reached with ChinaSat and approved by the bankruptcy court in April, Loral will retake possession of the C-band capacity on Apstar 2R and ChinaSat will drop all claims related to ChinaSat 8.

In return, ChinaSat will be given free access to two Ku-band transponders aboard Apstar 2R and one Ku-band transponder on Loral’s Telstar 18 satellite for the life of both spacecraft. Loral and ChinaSat are both trying to find a buyer for ChinaSat 8.

Loral reported May 9 that its 2005 first-quarter revenues were $135.5 million, with 75 percent of that coming from Space Systems/Loral and the rest from operating Loral’s four telecommunications satellites.

Since it entered Chapter 11 bankruptcy proceedings, Loral has been paying some $1.75 million a month in legal and other fees to manage its case, according to Loral’s SEC filing.

Peter B. de Selding was the Paris bureau chief for SpaceNews.