Satellite Defect Slowing Globalstar’s Momentum

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PARIS — Mobile satellite services provider Globalstar has removed from service one of the six second-generation satellites it launched in October following discovery of a second defective momentum wheel and has been forced to shut down a wheel on another of the six satellites launched then, Globalstar said Aug. 4.

Globalstar also said it has begun arbitration proceedings to force its satellite prime contractor, Thales Alenia Space of France and Italy, to begin work on a second set of 24 satellites. Thales Alenia Space and Globalstar are at odds on the terms and conditions under which the additional satellites will be built.

The 24-satellite batch now completing construction was financed with the backing of France’s export-credit agency, Coface. Financing for the additional 24 satellites has not been secured.

In an Aug. 4 conference call, Globalstar Chairman Jay Monroe said the company will miss a Coface deadline for registering the second-generation constellation with the United Nations. Such registration is required by U.S. regulators before Globalstar will be allowed to operate its second-generation satellites in North America.

The Coface-backed loan requires Globalstar to have a permanent U.S. license by Aug. 31 or risk being declared in default on its Coface-backed financing.

Monroe said the French space agency, CNES, certified in July that the second-generation constellation — which unlike the first-generation constellation is registered in France, not the United States — meets French standards and has sent this recommendation to the relevant French government authorities.

A final French government approval is now not expected before September, Monroe said. Once that occurs, France will forward its decision to the United Nations and Globalstar will be free to switch on its U.S. ground stations within days.

Anthony J. Navarra, president of Globalstar operations, said the company is likely to ask Coface for an extension of the Aug. 31 deadline.

Globalstar was forced to delay the launch of its second batch of six satellites by nearly two months, until mid-July, while it replaced suspect momentum wheels. Navarra said all six of the satellites launched in October may be affected by manufacturing and testing issues at momentum-wheel manufacturer Goodrich Corp. of Charlotte, N.C.

Navarra said the second six-satellite batch launched in July is working correctly, with one of them declared operational on Aug. 3. A third six-satellite group is scheduled for launch in October, with the fourth and final six to be orbited by the end of the year.

Navarra said during the call that the company is closely watching the performance of the momentum wheels on the six satellites launched in October 2010 and is working with satellite prime contractor Thales Alenia Space on a software upload that may solve the problem.

For the moment, Navarra said, Globalstar has no reason to believe that the four as-yet unaffected satellites launched in October 2010 will suffer the same problem other than the fact that Goodrich has informed the company that all six spacecraft were subject to the same manufacturing and testing procedures that are believed to have caused the anomaly.

Momentum wheels maintain a satellite in stable position in orbit. Each Globalstar satellite has four wheels and needs three to function. A first momentum-wheel malfunction was noticed last spring, and Globalstar quickly took it out of service and activated the spare wheel.

But in mid-July, the spare wheel showed signs of the same problem. Navarra said the satellite was removed from commercial operations July 20 and placed in “safe-hold mode.” Subsequently, a wheel on a second satellite showed signs of degradation and was replaced by the spare wheel. So far, he said, the replacement wheel is working fine.

Covington, La.-based Globalstar expects to use its second-generation constellation to return to full operations following the steady decline in two-way communications capacity of its first generation of 48 satellites that began in 2007.

Deprived of its most-profitable revenue source, Globalstar has created a new market, selling tracking and messaging through the Spot series of consumer pocket devices. While this service has been successful — more than 200,000 Spot devices had been sold as of June 30 — its revenue volume and profitability cannot replace the voice service.

Globalstar reported revenue of $19 million for the three months ending June 30, a 7.8 percent revenue increase from the same period a year ago. Dirk J. Wild, Globalstar’s chief financial officer, said during the call that the company is counting on Spot-related revenue to tide it over while it awaits the return of full two-way functionality on the constellation.

Wild said Globalstar had $94 million in cash available as of June 30 and will need $88 million to fulfill its obligations for the rest of 2011, including payments to Thales Alenia Space, to launch-services provider Arianespace of Evry, France, and to ground-infrastructure provider Hughes Communications of Germantown, Md.

Globalstar has already persuaded Hughes to accept a delayed payment schedule, with payments not due until July 31. In return, Hughes demanded that payment delays after July 31 be subject to 10 percent annual interest.

Wild did not say whether Globalstar had made a Hughes payment by the July 31 deadline. He said the company is in negotiations with ground-equipment suppliers with a view to deferring payment milestones. He also said Globalstar has begun exploring ways to finance the second batch of 24 satellites. Repeating the Coface backing, he said, would be “an attractive option.”

Thermo Capital Partners of Denver, of which Monroe is a part-owner, has been Globalstar’s principal backer since Globalstar emerged from Chapter 11 bankruptcy protection in 2004. Thermo is responsible for $20 million of the $38 million Globalstar raised in July.

Monroe sought to reassure investors during the call that Thermo’s support remained intact.

“Thermo has continued to invest in Globalstar through thick and thin — to date, to the tune of more than half a billion dollars,” Monroe said. “This is an investment that reflects our belief in the significant, unrealized value of Globalstar and we will continue to do what we need in order to see the company’s success going forward.”

 

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