Telesat Now Expects Anik F1 to Last Until 2016 Despite Flaw

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PARIS — Satellite fleet operator Telesat of Canada said its Anik F1 satellite, which has been the subject of numerous legal battles with manufacturer Boeing and insurance underwriters since its 2000 launch, will operate until 2016 — its contracted retirement date — despite the solar-panel design flaw that had been expected to cut short its service life.

The Ottawa-based company, which on Nov. 9 reported double-digit increases in revenue and operating profit for the nine months ending Sept. 30, nonetheless said it is continuing arbitration against insurance underwriters for unpaid claims totaling $18 million related to the Anik F1 solar-array problem.

Anik F1, launched in November 2000, is one of six first-generation Boeing 702 satellites with defective solar arrays. Telesat has sought damages from Boeing for gross negligence in how the manufacturer handled the problem, and is pursuing arbitration against insurance underwriters that Telesat says have withheld claim payments.

Boeing has denied Telesat’s claims, and the insurers have questioned Telesat’s estimates of how serious the Anik F1 problem is. Telesat had insisted Anik F1 would be forced into retirement in 2011. It subsequently revised its estimate to 2013.

In a Nov. 9 conference call and a filing with the U.S. Securities and Exchange Commission (SEC), Telesat officials said a recent review has concluded that Anik F1 will in fact operate until 2016.

But in the SEC filing, the company said it is continuing to seek an arbitration panel ruling to force insurers to pay $18 million in claims. Telesat filed its claim July 30. Underwriters responded on Oct. 16 with a statement defending their position. Telesat said no arbitration hearing date has been set.

Telesat operates a fleet of 12 satellites and is the world’s fourth-largest commercial satellite operator when measured by 2008 revenue. The company has been able to grow despite a large debt load that resulted from its purchase by Loral of New York and Canada’s PSP Investments in 2007 and came attached with covenants that restrict its use of cash.

For the first nine months of 2009, Telesat reported revenue of 592 million Canadian dollars ($545.3 million at Sept. 30 exchange rates), up 17.4 percent over the same period a year earlier. Adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, was 70 percent of revenue, compared  with 65 percent a year earlier. Operating income, at 223.6 million Canadian dollars, was up 62 percent year-on-year.

Revenue and EBITDA were reduced somewhat by the July sale of the Telstar 10 satellite. The sale also lowered Telesat’s fleet-wide fill rate, which as of Sept. 30 was 84 percent for its North American satellites and 72 percent for its international satellites.

Telesat Chief Executive Daniel S. Goldberg said the company, which had received an offer by an unnamed buyer for two of Telesat’s international spacecraft, is no longer reviewing the possible sale of a second international satellite after the Telstar 10 transaction.

Telesat’sTelstar 11N satellite, with beams pointed at Africa, Europe and North America, entered service in March and was 42 percent booked as of Sept. 30, compared  with 40 percent as of June 30. Goldberg cautioned investors not to expect a rapid filling of the satellite, especially since an unnamed North American customer canceled a lease for communications with Africa. Goldberg said the customer “breached his obligation to us,” but did not say whether Telesat would take legal action.

Telesat expects to sign a contract in the coming weeks for a Nimiq 6 satellite, which has been booked by Canadian television broadcaster Bell TV. Once contracted, Goldberg said, Nimiq 6 will add more than 1 billion Canadian dollars to Telesat’s current backlog of 4.8 billion Canadian dollars.

Goldberg said Nimiq 6 would cost between 250 million Canadian dollars and 300 million Canadian dollars to build, launch and insure. Telesat Chief Financial Officer Michel Cayouette said during the conference call that the company would need no additional outside financing to finance the purchase of Nimiq 6.

Telesat expects its capital spending in 2009 to be between 290 million Canadian dollars and 315 million Canadian dollars, including work on the Telstar 14R/Estrela do Sul 2 satellite, now under construction by Space Systems/Loral and scheduled for launch in 2011. Nimiq 6 spending will begin in early 2010.