MDA’s Latest Results Show Why Firm Bought Space Systems/Loral

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PARIS — MDA Corp. of Canada, which purchased U.S. satellite builder Space Systems/Loral (SS/L) Nov. 2 , reported lower revenue Nov. 6 for the nine months ending Sept. 30 due to declining Canadian government robotics-related work despite higher Earth observation revenue.

The results were an unintended Exhibit A for why Canada’s largest space hardware provider pursued a U.S. acquisition, eventually acquiring SS/L for about $1 billion.

For the first nine months of 2012, Richmond, British Columbia-based MDA reported that its business with Canadian government agencies dropped by 13 percent, to 147.4 million Canadian dollars ($147.4 million). During the same period, its work for U.S. government agencies rose by 16 percent, to 97.4 million Canadian dollars, despite the many handicaps a non-U.S. company has in landing U.S. government work.

All that will change with the SS/L acquisition as MDA funnels its own technology through Palo Alto, Calif.-based SS/L for U.S. government projects in space-based robotics and eventually military satellite communications, MDA Chief Executive Daniel E. Friedmann said in a Nov. 6 conference call.

The decline in Canadian government business was partially offset by increased revenue from MDA’s Geospatial division, which develops products and services using the Radarsat 2 Earth observation satellite.

MDA Chief Financial Officer Anil Wirasekara said during the call that MDA’s geospatial business reported about 37 million Canadian dollars in revenue for the three months ending Sept. 30, up nearly 28 percent over the same period a year ago.

To capture more geospatial work from the U.S. government, MDA in September created a proxy board that will be comprised of U.S. citizens with security clearances to oversee MDA’s U.S. geospatial-related operations. This will open new government opportunities for a division that already does business with the U.S. National Geospatial-Intelligence Agency, which purchases satellite imagery on behalf of many U.S. government agencies.

MDA recently contracted with the U.S. National Ice Center to provide Radarsat data for maritime navigation, Friedmann said.

MDA is the presumed prime contractor for Canada’s next-generation Radarsat Constellation Mission, which has faced multiple delays. On Nov. 2, the Canadian Space Agency sent MDA a formal request for proposals for Phase D, meaning hardware construction, of the project.

Friedmann said MDA would respond within two weeks and hopes for a decision by the government within two months. He said the basic system architecture has not changed.

MDA operates an unmanned aerial vehicle service in Afghanistan. The service no longer counts the Canadian military as a customer, but the Australian Defence Force remains a regular customer and recently made two orders, with a combined value of more than 100 million Canadian dollars, that include extending the surveillance mission through the end of 2014.

In communications satellites, where MDA has made inroads among customers in Israel, Russia and Ukraine, the company expects its work on the payload of Israel’s Amos 6 telecommunications satellite to generate more than 90 million Canadian dollars in revenue. MDA currently is under an authorization to proceed with work valued at 22 million Canadian dollars.

Friedmann said there is likely to be a follow-on contract for a future Israeli communications satellite. Amos 6, whose prime contractor is Israel Aerospace Industries, carries a Ku- and Ka-band payload and is scheduled for launch in 2015.

Friedmann conceded that SS/L’s performance in 2012, both in orders and in operating profit margin, is slightly below MDA’s previous estimates as it was preparing to buy the satellite manufacturer.

He said the regulatory review of the MDA purchase of SS/L may have caused some prospective customers to hesitate given the fact that SS/L’s owner, Loral Space and Communications of New York, had left no doubt about its decision to sell.

Any delays in U.S. regulatory approval of the transaction would have been destabilizing to SS/L’s business because prospective customers might have wondered who could purchase SS/L if MDA’s effort was rebuffed by U.S. regulators.

A second issue relates to the failure of the SS/L-built IS-19 telecommunications satellite in deploying one of its solar arrays. The investigation into that anomaly is ongoing.

Friedmann said SS/L has invested in assuring that whatever the cause of the problem, it does not occur on other SS/L satellites.

Wirasekara said that SS/L also had minor issues with one or two satellites in its factories that reduced these programs’ profit margins. But in general, Wirasekara said, MDA is not worried about SS/L.

“We feel reasonably comfortable that on an ongoing run rate the margins should come back to normal,” he said of SS/L.

For the nine months ending Sept. 30, MDA reported 507.4 million Canadian dollars in revenue, down 13 percent from the same period a year ago. But operating earnings were 17 percent of revenue, compared with 15 percent a year ago.

Backlog stood at 752 million Canadian dollars at Sept. 30, up 14 percent compared with where it was on June 30, the company reported.