SES Says World Financial Crisis Could Work To Its Advantage

PARIS
— The world’s largest commercial satellite-fleet operator, SES of Luxembourg, said Oct. 27 that the financial crisis now sweeping the world is having little or no impact on the company’s business and ultimately may work to its advantage.

SES still expects its revenues to grow by 5 percent per year, on average, through 2011, and even more if the U.S. dollar maintains its recent strength against the euro. The company’s gross profit margins for its core business of selling satellite capacity will remain around 82 percent during the period.

In Oct. 27 conference calls with journalists and investors, SES Chairman Romain Bausch said the ongoing credit crisis may work to the company’s benefit.

Bausch said the
U.S.
government, a major customer of SES’s Americom and New Skies divisions, will be more likely to purchase capacity on commercial satellites than to build its own high-cost spacecraft at a time of government belt-tightening.

Second, Bausch said, SES’s modest debt level compared to a couple of its competitors could improve the company’s competitive position to the extent the more heavily indebted fleet operators struggle to finance their debt.

SES’s net debt, of about 3.7 billion euros, is 3.4 times its earnings before interest, taxes, depreciation and amortization (EBITDA), which the company considers an ideal ratio.

For the nine months ending Sept. 30, SES reported revenue of 1.186 billion euros ($2.4 billion), a 7.1 percent increase over the same period a year earlier when foreign-exchange fluctuations are not taken into account.

The company’s fleet reported a 77.6 percent fill rate.

SES has 10 satellites under construction and scheduled for launch between now and the end of 2011, and an 11th satellite under construction that, for the moment, is intended to be a ground spare. The 10 new satellites, once in orbit, will add 28 percent to the company’s commercially available satellite capacity.

SES Chief Financial Officer Mark Rigolle said SES is filing insurance claims following partial power failures on its AMC-4 and AMC-16 satellites. The company recently reduced the available capacity on its AMC-6 satellite as well because of the same problem.

All three satellites are A2100 models built by Lockheed Martin Commercial Space Systems of Newtown, Pa. Lockheed Martin has said the likely cause of the failure is electrostatic discharge, and that the satellite line was modified and, since 2006, the company has not witnessed the problem on other spacecraft.

Bausch said SES may move up the date of an expected order with Orbital Sciences Corp. of
Dulles
,
Va.
, to provide in-orbit replacements for the affected satellites. SES has contracted for three of the five nearly identical Orbital-built spacecraft that were part of a contract signed in 2007.

In other topics touched on during the conference calls, Bausch said, It is “very unlikely” that SES will order an all-Ka-band satellite for consumer broadband service in Europe despite the early success of the Astra2Connect Ku-band broadband offering and the decision by SES competitor Eutelsat of Paris to build a large all-Ka-band spacecraft.

A hybrid Ka-/Ku-band satellite is more likely, he said, unless SES decides to stick with Ku-band as its broadband frequency. Frequency reuse, one of the strengths of spot-beam satellites, is not exclusive to Ka-band, he said. “You can also do that in Ku-band.”

The Solaris joint venture between SES and Eutelsat to offer S-band mobile television and radio services in
Europe
is also exploring two-way communications markets for local and national government agencies and for the automobile market, he said.

Bausch said there remains “a lot of confusion about how fast the mobile TV rollout will be in
. We [at Solaris] are depending on telcos‘ and broadcasters’ response. We will not be the service provider. We still believe that mobile TV” will be a successful business, but “Solaris does not depend on mobile TV.”

The Astra 5A satellite, formerly called Sirius 2, which is located in orbit at 31.5 degrees east – a new SES position – ceased transmissions the week of Oct. 23 but remained in stable, sun-pointing mode. SES officials said they now believe the cause is more likely due to a ground-control error than a problem on board the satellite. Astra 5A, which does not yet have a full complement of customers, will be returned to service, Bausch said.

SES’s chief counsel, John Purvis, said recent developments at the European Parliament and the European Commission suggest that telecommunications regulations now being crafted will take account of long-standing practices at the International Telecommunication Union (ITU) a Geneva-based United Nations affiliate that regulates orbital slots and broadcast frequencies.

SES and other European satellite operators have expressed concerns that the new European regulations would not be compatible with ITU rules, putting
Europe
‘s satellite fleets at a disadvantage.

“The satellite industry has been lobbying very hard to ensure adequate reference to the ITU” in
‘s emergency regulatory regime, Purvis said. With the recent commission agreement that European rules should be consistent with ITU practice, “it’s so far, so good in this regard,” he said.