SES Global Will Replace NSS-8 with New or Existing Satellite

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WASHINGTON — SES Global expects to decide by late April whether to order a satellite from Boeing that is identical to the NSS-8 spacecraft that was lost in a Jan. 30 Sea Launch rocket failure. An alternative approach would be to move an existing satellite in orbit or under construction into the role that NSS-8 was going to play, SES Chairman Romain Bausch said.

SES Global has eight satellites under construction for its three main divisions — SES Astra, SES Americom and SES New Skies. Bausch said in a Feb. 19 conference call on the company’s 2006 financial results and in a Feb. 20 briefing to reporters here that the company is determined to add capacity to the 57 degrees East orbital position that NSS-8 was to have occupied, a position the company wants to develop for the fast-growing Indian direct-broadcast television and VSAT (very small aperture terminal) business communications markets.

Under the NSS-8 contract with Boeing Satellite Systems International, SES Global must decide within 90 days of the launch failure whether it will exercise a contract option to produce an identical satellite, which contract terms stipulate would need to be delivered within 26 months.

Bausch said SES Global investigated whether the little-used AMC-23 satellite over the Pacific Ocean could be adapted to serve the NSS-8 market, but determined that the AMC-23 antenna configuration and its broadcast frequencies are not suitable for that role. The satellite, which is about 30 percent full, has since been sold to GE Capital as part of a broader transaction in which GE Capital will sell its 19.5 percent equity stake in SES Global back to the company.

Bausch said SES Global and EchoStar Communications Corp. remain confident they will reach an agreement to build a satellite for launch into a Mexican orbital slot for the startup satellite operator QuetzSat. which is now using an aging EchoStar satellite. It is a deal that mirrors what EchoStar and SES Global have done in Canada with Ciel Satellite Communications.

Officials from Intelsat of Washington, one of SES Global’s principal competitors, said EchoStar appears to have too many satellite commitments and has already resorted to selling capacity on its own direct-to-home satellites on the open market, directly competing with SES Global and with Intelsat. These officials said Feb. 20 they are skeptical that the SES-EchoStar deal in Mexico for QuetzSat will materialize. “EchoStar is dumping off capacity in the United States,” one official said. “They are overextended.”

“That is not the case,” Bausch said. “I realize we said in 2006 that we would commit to the construction of QuetzSat, but now I am saying it will be in 2007. It will be in the near future — in the first half of this year. One reason it has taken longer than expected is that EchoStar has been reevaluating the satellite’s antenna configuration.”

Satellite-fleet operator Satmex, which has recently completed the Mexican equivalent of U.S. Chapter 11 bankruptcy proceedings, is about to be sold in an auction. Bausch declined to rule out an SES bid, but said SES, which has just sold minority shareholdings in Brazil and Asia, does not want to purchase a stake in a company that is co-owned by the Mexican government.

Under the rules attached to the Satmex sale, a bidder proposing more than around $566 million may be able to buy out the entire Mexican government stake and retain control of the company. But the new owner would still have obligations to Mexican government authorities regarding satellite capacity on the new Satmex 6 satellite — Satmex’s principal asset.

Satmex also has committed to giving four transponders — two in C-band and two in Ku-band — to its former co-owner, Loral Space and Communications.

SES Global Chief Financial Officer Mark Rigolle said the company must build, on average, between two and three satellites per year for replacement purposes only, with each satellite costing around $250 million to build, launch and insure. SES Global expects its capital spending on satellites in 2007 will total 504 million euros ($655 million), falling to 448 million euros in 2008 and just 160 million euros in 2009. But these figures do not include a replacement for NSS-8, a QuetzSat purchase or any other new business that the company is planning but not yet committed to, Rigolle said.

Reporting its 2006 results, SES Global said its services operations, which have weighed on the company’s overall profitability, surpassed the goal of a 10 percent gross-profit margin in 2006, helping the company’s overall profitability to climb to 70 percent, Luxembourg-based SES Global announced Feb. 19.

The company as a whole reported that in 2006 its recurring revenues — meaning businesses whose scope is comparable to year earlier — increased by 7.4 percent, to 1.32 billion euros ($1.72 billion). EBITDA on these operations — earnings before interest, taxes, depreciation and amortization — were 70 percent of revenues, with the company’s core infrastructure business of selling satellite capacity accounting for more than three-fourths of the total.

SES Global in 2006 added SES New Skies’ satellites and the ND Satcom ground-infrastructure provider to its holdings. When these two companies are added in, SES Global said its revenues totaled 1.62 billion euros, a 28.4 percent increase over 2005. EBITDA including the New Skies and ND Satcom operations was up 22.6 percent, to nearly 1.1 billion euros. In a Feb. 19 conference call, SES Global said the EBITDA of its SES Astra satellite fleet over Europe, the Middle East and Africa was 82.9 percent, reflecting the high profitability of the company’s direct-broadcast television satellite fleet over Europe. SES New Skies’ EBITDA was 74.3 percent, with SES Americom, the division responsible for the Americas, reporting EBITDA of 71 percent.

SES’s satellite services business includes Americom Government Services in the United States; Astra Platform services to support digital television broadcasting in German-speaking regions in Europe; and the Satlynx broadband services supplier. These companies provide satellite services to end customers using both SES and third-party satellites. The services division also includes some of the business of SES New Skies. These operations are much less profitable but help steer customers to SES satellites, bolstering the core satellite operations business. For example, the services business in the Americas in 2006 had an EBITDA margin of just 2.1 percent.

The services activities as a whole reported revenues of 271.7 million euros.

SES Global announced Feb. 14 that it had agreed to sell its Satlynx business and minority interests in satellite operators in Asia and Latin America, plus the AMC-23 satellite over the Pacific Ocean, to GE Capital in return for GE Capital’s 19.5 percent equity stake in SES Global. The GE shares will be canceled.