Loral Space and Communications reported a sharp revenue increase in its satellite-manufacturing division for the first half of 2006 but flat sales from its satellite-fleet operations and continued difficulties at a subsidiary selling satellite links to government and military organizations.

For the past two years, New York-based Loral’s financial performance has been led by the company’s Space Systems/Loral satellite manufacturing subsidiary, which has had

success in selling large commercial telecommunications satellites. Alone among the four principal U.S. builders of commercial telecommunications satellites

, Loral has no substantial business with the U.S. Defense Department.

The first half of 2006 was no exception to the

trend. Loral on Aug. 7 reported total company revenues of $364 million for the six months ending June 30, up 36 percent from a year earlier. The company reported an operating loss of $27 million, down from a $45 million loss a year earlier. Loral’s 2005 results were skewed by the company’s Chapter 11 bankruptcy proceedings, which ended in November 2005 with a restructuring.

Space Systems/Loral

accounted for 83 percent of the total revenues on the strength of 2006 orders from Sirius Satellite Radio, EchoStar Communications and AsiaSat, plus an order from sister company

Loral Skynet


Space Systems/Loral’s backlog at June 30 stood at $1.1 billion, up from $815 million at the end of 2005. But with the new orders have

come new pressures to add plant and equipment capacity at Space Systems/Loral, and to take on new personnel. The Palo Alto, Calif.-based satellite builder’s work force as of

June 30 was 1,770 people, and hiring continues.

As the revenues and backlog have risen, so have the cost of sales and of completing the contracted work. Space Systems/Loral reported that its expenses

rose by 51 percent, to $264 million, for the first half of the year.

The Loral Skynet satellite-operating subsidiary reported revenues of $74 million for the first half of 2006 and an adjusted EBITDA – earnings before interest, taxes, depreciation and amortization – equivalent to 19 percent of revenues. Revenues a year earlier were $73 million. Backlog as of

June 30 stood at $226 million, down 6 percent from the end of 2005.

Loral Skynet operates four satellites covering

the Americas, Europe and Asia, and recently took ownership of two Ku- and two C-band transponders on the Satmex 6 satellite, which became operational in July and is owned by Satmex of Mexico.

After a two-year waiting period following the sale of its

Atlantic satellite fleet to competitor Intelsat, Loral Skynet as of March has been permitted to sell capacity in the United States, which remains the world’s hottest market for Ku-band satellite capacity.

Loral Skynet has one satellite on order, the Telstar 11N, scheduled to enter operations in 2008 at 37.5 degrees west longitude. Part of this satellite’s 39 Ku-transponder capacity will be aimed at sales in North America.

Loral owns 56 percent of Xtar LLC, a company created with partner Hisdesat of Spain to sell X-band satellite capacity to U.S., European and other government and military authorities.

first satellite, Xtar-Eur, entered operations in mid-2005 and the second, Spainsat, became operational earlier this year.

Xtar sales have been disappointing as the U.S. State Department’s initial contract, valued at up to $139 million in May 2005, has resulted in the actual sale of just two transponders for a total of $19.3 million. Options could bring the value to $34 million. Xtar will owe


$6.3 million per year

for eight X-band transponders on the Spainsat satellite, and that payment is slated to rise to $23 Million per year.

Xtar is responsible for leasing all of the capacity on Xtar-Eur.

Xtar reported a net loss of $5.4 million on revenues of $7.2 million for the six months ending June 30. The company owes $9.5 million to Europe’s Arianespace launch consortium as part of an unusual payment scheme

under which the

satellite was launched aboard a demonstration flight of the Ariane 5 ECA vehicle. Most of the launch fee will be paid to Arianespace from Xtar’s future revenues.

Loral said in its Aug. 7 filing to the U.S. Securities and Exchange Commission that Xtar and Arianespace recently agreed in principle to extend the loan to September 2007. The company said it will need further extensions of the loan, or some other source of revenue, because its sales are not expected to permit a reimbursement by that time.