Loral Looks To Expand Manufacturing Capacity

by












  Space News Business

Loral Looks To Expand Manufacturing Capacity

By PETER B. de SELDING
Space News Staff Writer
posted: 21 August 2007
03:27 pm ET





BOSTON —


Loral Space and Communications believes it can win orders for between seven and nine large telecommunications satellites per year in the coming years and is looking to expand its manufacturing facilities, through purchase or partnership, to be able to meet that demand, Loral Chief Executive Michael Targoff said Aug. 9.



In a conference call with investors, Targoff said New York-based Loral also remains confident that the merger of its satellite-operating division, Skynet, into Telesat Canada and Loral’s purchase of a 64 percent stake in Telesat Canada will be approved by regulators in September.



Loral’s satellite manufacturing division, Space Systems/Loral of Palo Alto, Calif., has been the most successful of the U.S. and European commercial satellite contractors in recent years and has driven the company’s overall growth.



The first six months of 2007 were no exception. Space Systems/Loral reported revenues of $410.6 million for the six months ending June 30, a 36 percent increase over the previous year and a 30 percent increase after an intra-company sale is excluded




.




The satellite manufacturing arm is building the Telstar 11N satellite for Loral’s Skynet division




. The satellite is scheduled for delivery in 2008.



Space Systems/Loral’s backlog stood at $1.23 billion as of




June 30.



Loral




Skynet




reported revenues of $68.9 million for the six-month period, down 7 percent from a year earlier in part as a result of the cancellation of Boeing’s in-flight satellite Internet program. The move




hit Skynet particularly hard, resulting in the




cancellation of a lease for capacity




on a Skynet satellite. Skynet’s backlog was $373 million as of




June 30.



Loral President Eric Zahler said the company’s Xtar business – Loral owns 56 percent of Xtar, with partner Hisdesat of Spain owning the rest – in July paid off its outstanding loan to launch-services provider Arianespace with the modest cash flow the company produces. Xtar LLC, which sells X-band satellite capacity to government customers, is operating well, Zahler said, but the company has not yet won over the U.S. Defense Department – the key target customer in Xtar’s business plan.

In an Aug. 9 filing to the U.S. Securities and Exchange Commission (SEC), Loral said Xtar posted a net loss of $8.3 million on revenue of $9.3 million for the first half of 2007. Revenue in the first half of 2006 was $7.2 million. Loral and Xtar will face increasing pressure to improve sales starting in 2008 because of financial obligations that take effect then.

Space Systems/Loral




has booked orders for four new large telecommunications satellites so far in 2007. Targoff said the market remains robust and that Loral will need to expand its production capacity.



Building its own added capacity would cost around $150 million over three years, Targoff said. Loral has been looking for a less-expensive alternative. Industry officials have speculated that Loral might lease spare capacity at Lockheed Martin’s plant nearby in Sunnyvale, Calif. Targoff said only that the company is “cautiously optimistic” that it will find a way to add capacity without making the $150 million investment.



Targoff said the company would not be seeking the added capacity if it was not confident of being able to win seven to nine




satellites per year, on average, over a sustained period.

In the




SEC filing, Loral said the SEC




has opened an informal inquiry into the company’s $300 million preferred-stock sale to MHR Fund Management LLC, which is already Loral’s principal owner. The sale resulted in sustained protests by other Loral shareholders and several lawsuits have resulted that continue to put a drain on Loral’s financial performance. Loral said the SEC told the company that the inquiry should not be viewed as an allegation of wrongdoing by the company.