Telesat Still Weighing Pros and Cons of Selling Two On-Orbit Craft

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PARIS — Telesat Canada continues to evaluate an offer to purchase one or two of its in-orbit Telstar satellites and is unlikely to make a decision before mid-year, a time when it also must decide whether to purchase a replacement for one of them, Telesat Chief Executive Daniel S. Goldberg said March 13.

In a conference call on the Ottawa-based fleet operator’s 2008 financial results, Goldberg said the company has made no decision about whether the Telstar 10 and Telstar 14 satellites and their orbital slots have greater value to debt-laden Telesat as assets to be sold to another operator, or as a focus for long-term Telesat investment.

Telstar 14, located at 76.5 degrees east over the Indian Ocean, was launched in October 1997 and is expected to be retired in 2012. If Telesat is to replace it, the investment decision must be made by June, Goldberg said.

For Telstar 10, located at 63 degrees west, a decision on a replacement will need to be made by the end of this year, Goldberg said.

Telstar 10 and Telstar 14 together accounted for between 5 percent and 10 percent of Telesat’s 2008 revenue of 711 million Canadian dollars ($552.5 million). Revenue for the year increased 6 percent over 2007. EBITDA, or earnings before interest, taxes, depreciation and amortization, was 62 percent of revenue, after adjustments, compared to 53 percent a year earlier, according to Telesat’s March 13 financial statement. The company’s backlog of contracts totaled 5.2 billion Canadian dollars as of Dec. 31.

Telesat estimates it would cost $225 million to $250 million to replace each of the spacecraft.

As of Dec. 31, Telesat debt totaled 3.54 billion Canadian dollars. The company is limited by its debt covenants as to what it can spend each year, and Goldberg assured investors that these limits would be respected. The recent rise in the U.S. dollar relative to the Canadian dollar has not helped the company, as most of its debt is in U.S. dollars.

Telesat’s overall fleet utilization was 83 percent for its North American satellites and 84 percent for what Telesat calls its international fleet. Telesat’s newest satellite, Telstar 11N, was successfully launched in February and is expected to begin commercial service from its 37.5 degrees west orbital slot in mid-April.

Goldberg said Telstar 11N is about 25 percent booked, a preoperational fill rate he said is within the range of what the company expected. Once operations start, he said, the fill rate should climb. He said some of the capacity on Telstar 11N is selling for $1.5 million per transponder per year, while capacity over less-desirable regions sells for less than that.

Overall, Goldberg said, satellite transponder-lease pricing is holding steady in the markets where Telesat operates.

The company’s Nimiq 5 satellite, which has been 100 percent leased to Bell TV of Canada, is scheduled for launch late this year.

Telesat’s Nimiq 4iR satellite, an aging satellite that Telesat leased from DirecTV Group, was retired in February. Goldberg said Nimiq 3, the former DirecTV 3 spacecraft, has less remaining in-orbit service life than Telesat had forecast and will be retired in June – nearly a year earlier than planned.

Telesat estimates that its capital expenditures in 2009 will be between 245 million Canadian dollars and 275 million Canadian dollars, mainly relating to final payments for the just-launched Telstar 11N and continued milestone payments on the Nimiq 5 satellite.

If the company decides to replace the Telstar 10 and Telstar 14 satellites rather than sell them, capital spending could increase by up to 85 million Canadian dollars this year – still keeping the company within the limits set by its creditors, Telesat Chief Financial Officer Michel Cayouette said. He said the debt contracts permit Telesat to spend more in 2009 to the extent that it remained under the spending ceilings in 2008.