Thales Alenia Commits To Resolving Globalstar Contract Impasse

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PARIS — The manufacturer of the second-generation Globalstar mobile communications satellites on June 13 said it had every intention of working with Globalstar to find a way out of their contract impasse and avoid a Globalstar loan default.

Emmanuel Grave, Thales Alenia Space executive vice president for telecommunications programs, said his company’s interests are fully aligned with Globalstar’s, especially given the importance of the French export-credit agency, Coface, to Thales Alenia Space’s ability to compete in the global telecommunications market.

Coface has guaranteed the principal bank facility that is financing the construction of Covington, La.-based Globalstar’s second-generation constellation.

Originally intended as 48 satellites, Globalstar and Thales Alenia Space ultimately settled on a 24-satellite program. Under the terms of the Coface-backed contract, the second group of 24 satellites would be built once Globalstar had proved its business plan to Coface and the bank consortium.

Globalstar and Thales Alenia Space in recent months have concluded that Globalstar’s voice and data business can succeed with just 30 satellites in orbit. In a June 13 interview, Grave said his company’s engineers have conducted their own analysis and informed Coface that only six more satellites are needed beyond the 24 already ordered.

But Globalstar’s demand that Thales Alenia Space build the six satellites under the terms of the previous 24-satellite contract were blocked by the American Arbitration Association in a ruling delivered in May. The ruling also ordered Globalstar to pay Thales Alenia Space 53 million euros ($66 million) in contract-termination fees.

Globalstar, which had sought the intervention of the arbitrators, said in a June 11 statement to the U.S. Securities and Exchange Commission that it will seek to vacate the ruling despite contract wording saying the arbitrators’ decision was final.

Under the terms of its agreement with Globalstar and with Coface, Thales Alenia Space was duty-bound to notify Coface of the arbitrators’ award, and Globalstar’s nonpayment. By doing so on May 23, Thales Alenia Space set in motion a 30-day countdown that, if not stopped by a Globalstar payment or a new agreement between the two companies, could force Globalstar into a Chapter 11 bankruptcy procedure, Globalstar said.

In the interview, Grave said Thales Alenia Space will do everything possible within the limits of its legal obligations and of financial common sense to find a way forward that includes the construction of six new Globalstar satellites and avoids a Globalstar loan default.

“It is absolutely clear that the success of Globalstar is in our own interest,” Grave said. “Obviously we had to await the decision of the arbitration board after Globalstar’s decision to seek arbitration. We are hopeful that a way forward can be found so that we produce these six new satellites.”

The immediate question is whether the 30-day deadline for resolving the issue with Coface and the bank consortium before Globalstar is found in default on its bank facility will affect the completion of the last six of the 24 satellites already ordered.

These six satellites are in final assembly at Thales Alenia Space’s Rome facility and on track to be shipped to their launch pad — at the Russian-run Baikonur Cosmodrome in Kazakhstan — in August for a launch in late September or early October.

Grave declined to discuss what would happen if Globalstar is unable to pay the 53-million-euro fee ordered by the arbitrators.

Thales Alenia Space has filed a claim for payment with the U.S. District Court for the Southern District of New York. The satellite builder has agreed to give Globalstar until July 16 to respond to the demand for payment.

It remains unclear whether the 30-day Coface deadline will be extended given the agreement on the July 16 hearing in the New York district court.

Coface has been perhaps the world’s most active export credit agency in backing satellite projects that feature heavy French industry participation. Thales Alenia Space and its fellow French satellite manufacturer, Astrium Satellites, are two of the world’s top commercial satellite builders. Both use the promise of low-cost Coface-backed financing to win orders. Coface also backs launch-services provider Arianespace of France for the sale of commercial launch services.

Industry officials are divided on the effect a Globalstar bankruptcy would have on the global export-credit agency market for satellite projects in general, and on Coface’s participation in that market in particular.

 

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