— Telesat Canada’s selection of Space Systems/Loral to build the Nimiq 5 direct-broadcast satellite sent a clear signal to the industry that Loral, which has agreed to purchase a majority stake in the Canadian satellite-fleet operator, will be Telesat’s favored supplier.


The Jan. 4 Nimiq 5 announcement came less than a month after Loral’s agreement to join with a Canadian pension fund to purchase Telesat Canada and merge Loral’s Skynet satellite fleet into Telesat. The merger, announced Dec. 18, is expected to clear regulatory approval by mid-year and will consolidate Telesat’s position as the world’s fourth-largest satellite-fleet operator, in terms of annual revenues, behind Intelsat, SES Global and Eutelsat.


In discussing the Telesat purchase with investors Dec. 18, Loral Chief Executive Michael B. Targoff said that in addition to creating a stronger satellite operator, the transaction could create “a platform to supply Loral’s satellite expertise going forward … on the basis of arm’s-length business transactions.”


Ottawa-based Telesat in recent years has purchased telecommunications satellites from most of the other U.S. and European satellite builders, and recently has become a regular customer for Astrium Satellites of Europe. It had never purchased a Loral satellite.


The speed with which the Nimiq 5 contract was conducted suggests that Palo Alto, Calif.-based Space Systems/Loral will have the inside track any time Telesat needs new capacity. Telesat in 2007 is weighing orders for its G-series satellites, including additional Ka-band capacity for the Canadian consumer-broadband business that has been created via the company’s Anik F2 spacecraft.


How many other satellite builders will make serious bids for the G-series spacecraft is now open to question. In the past, whenever a satellite operator has shared corporate ownership with a satellite manufacturer, the operator almost never went outside the company for its spacecraft. For example, Hughes Electronics became the primary supplier of satellites to PanAmSat when both were part of the same company. In addition, Loral Skynet has traditionally bought its spacecraft from Space Systems/Loral.


“I think Telesat will be hard-pressed to get a lot of bids for its future satellites,” said Rick Masoni, executive vice president of Lockheed Martin Commercial Space Systems, a company that has sold satellites to Telesat Canada in the past. “We will be inclined to sort of write off Telesat in the future. If they are able to break through their in-house supplier, it will be a first in the industry.”


The Nimiq 5 win by Loral is all the more remarkable for its timing. Telesat had planned to order the satellite in 2006. Its entire payload of 32 Ku-band transponders has been presold to Canadian satellite-television provider Bell ExpressVu.


The satellite’s specifications were written and bid requests solicited and returned well before the Telesat-Loral acquisition was completed in early December.


In a Jan. 4 statement announcing the Nimiq 5 deal, Telesat Chief Executive Daniel S. Goldberg left little doubt about the company’s new direction: “We look forward to working with [Space Systems/Loral] to expand our satellite fleet and assure a generation of Canadians reliable access to advanced video programming,” Goldberg said.


Nimiq 5 will be based on Space Systems/Loral’s 1300 platform and will be operated from Telesat’s 72.5 degrees west orbital position.


Telesat Canada and Loral Skynet will merge their businesses into a single Canadian-based satellite operation following the sale of Telesat Canada to Loral and Canada’s PSP Investments, Loral and Telesat owner BCE Inc announced Dec. 18.


The combined company, which will retain Telesat’s name, would have had revenues of $568 million for the 12 months ending Sept. 30, with a backlog of $4.9 billion.


Loral and PSP Investments will be paying 3.25 billion Canadian dollars ($2.8 billion) in cash for Telesat, plus the assumption of 172 million Canadian dollars in Telesat debt.


New York-based Loral, which emerged from Chapter 11 bankruptcy in 2005, had been looking for a way to grow the Skynet business to better compete with the large satellite operators in a consolidating market.

“The transaction puts Loral strongly into the DTH [direct-to-home television] business, a high-value, high-growth” sector, Targoff said in the Dec. 18 investor conference call.


Only Loral’s Skynet and network services business is merging with Telesat Canada. The company’s interest in Mexico’s Satmex, the Xtar joint venture with Spain’s Hisdesat, its remaining stake in the satellite telephone company Globalstar and what is left of Loral’s ties to the Rainbow direct-broadcast television business managed by EchoStar will remain with Loral, Targoff said.


Targoff declined to quantify the synergies that might emerge once the Skynet and Telesat operations are merged, but he said he expects such savings. Loral has been criticized on Wall Street for its corporate-overhead charges, but Targoff declined to say whether these would be reduced following the Telesat sale.


Loral will have a 64 percent economic interest in the merged company, with PSP Investments — a company that manages the pension funds for Canadian federal employees and its military — owning the remaining 36 percent.

But in keeping with Canadian-ownership regulations applicable to telecommunications carriers like Telesat, PSP Investments will have a 66.7 percent voting interest in the company, with Loral’s voting equity 33.3 percent. Seventy percent of the new Telesat’s board “will be resident Canadians,” BCE said in a Dec. 18 statement.


The company will be “global in scale, but Canadian-based and Canadian-controlled,” BCE Inc. Chief Executive Michael Sibia said in the statement.


BCE had said it was weighing both an outright sale of Telesat and a stock offering for a minority stake in the company. BCE said in its statement announcing the deal that the Loral-PSP purchase “represents a significant premium to comparable public market valuations.”


Morgan Stanley and UBS Securities were the principal investment advisors for the transaction and have agreed to provide $2.8 billion in debt financing to Loral and PSP Investments.