Intelsat recently received grudging praise from unexpected quarters when its chief rival, SES, said Intelsat has proven more creative than expected in keeping a satellite presence worldwide despite its massive debt load and its owners’ ultimate goal of cashing out of the business.
Intelsat Chief Executive David McGlade has long said the company would be trimming its in-orbit fleet to focus on the more-profitable regions and orbital slots. Intelsat officials say their current 51-satellite fleet, already down from 54 satellites a year ago, is likely to stabilize at around 45 satellites in the coming years.
SES assumed that would mean an average 2.5 percent annual drop in Intelsat’s commercially available transponders. But following the New Dawn deal in South Africa and the IS-22 agreement with the Australian military, Intelsat has demonstrated it can remain in the game even while focusing on debt reduction. SES now thinks Intelsat’s fleet reduction will be more modest as it finds ways to replace capacity without spending much money.
The Australian contract features replacing Intelsat capacity with a satellite that, in addition to the commercial C- and Ku-band commercial payload, includes a UHF payload for Australia’s defense forces. The financing is such that Intelsat is paying very little to build the spacecraft.
McGlade says defense forces the world over should look at Intelsat’s fleet replacement plans as an opportunity to place defense payloads on every future Intelsat satellite.
An old investing principle advises: Be cautious when others are aggressive, and be aggressive when others are cautious. That may help explain why, in the midst of the worst economic slowdown in decades, Luxembourg-based SES is engaged in an unprecedented fleet expansion.
Nine new satellites are set for launch between 2009 and 2011, adding a net 25 percent to SES’s global transponder capacity. The company is counting on growing annual revenue by 5 percent, at a minimum, between 2008 and 2010.
In addition to its internal growth, SES’s sizable cash flow and low debt give it the ability to scoop up the orbital assets of small operators that are struggling in the current environment. Several satellite operators in Latin America and Asia that own small fleets are having trouble raising capital, and SES – particularly in Asia – stands ready to buy the in-orbit assets and orbital slot assignments as they become available.
SES’s view of the world is that people will not surrender their television subscriptions even in a deep economic recession – assuming the recession lets up by mid-2010. Direct broadcast television in Russia, India, Brazil, China and Eastern Europe will provide new avenues for growth.
Enterprise VSATs, short for very small aperature terminals, will continue to grow at double-digit rates. Add in the presumed increasing demand for commercial satellite capacity from governments and a dash of consumer broadband – Ku-band only, please, according to SES – and you have a formula justifying a substantial capital spending program.
Paris-based Eutelsat shares SES’s view that this is the time for satellite operators with good cash flow and low debt to invest – especially those operators that, like Eutelsat, are highly concentrated on the television market.
Unlike SES, Eutelsat has not used its highly profitable television business in Western Europe as a springboard to try to conquer the world. But it has expanded eastward as far as China, and its profitability and near-term growth prospects are second to none among the major operators. Eutelsat is forecasting that revenue will grow by at least 6 percent annually between 2008 and 2010.
Also unlike SES, Eutelsat believes the satellite broadband market is best served by a high-throughput all-Ka-band satellite. Eutelsat’s Ka-Sat is scheduled for launch in 2010, and the company is working with ViaSat of the United States – whose ViaSat-1 all-Ka-band satellite is due in orbit in 2011 – to stitch together a single, seamless market for consumer, corporate and government fixed and mobile broadband access.
is co-investing with SES in Dublin, Ireland-based Solaris Mobile, one of two companies licensed to provide S-band mobile satellite services in the European Union. But the S-band antenna deployed in April aboard Eutelsat’s W2A satellite has a defect that may limit the coverage or the power of the service, whose business model in any event remains unproven and challenging.
Perhaps the most notable development at Eutelsat in recent months has been the decision to appoint Michel de Rosen, with a background in the U.S. and French pharmaceuticals industry, as successor to Giuliano Berretta as Eutelsat’s chief executive. Berretta, who has been Eutelsat’s chief since 1999, will be stepping down from his post in November.
Canada’s Telesat appears to be in a holding pattern as it must keep capital spending within the limits set by the company’s debt covenants. But Telesat is weighing offers for at least one of its non-core satellites, and recently freed up cash by ending its long-term Telstar-10/Apstar-2R lease arrangement with APT Satellite Holdings of Hong Kong.
Terminating the lease, which had been scheduled to end in 2013, will provide Telesat with a $69.5 million refund for advance lease payments it had made to APT. In addition to putting cash into Telesat’s accounts, it will spare the company the decision of whether to replace the satellite, which is scheduled to be put into at least partial retirement in 2012.
Telesat’s immediate future appears inextricably bound to the fortunes of New York-based Loral Space and Communications, which owns a majority economic stake in the company but only minority voting rights. A Canadian pension fund owns the remaining economic and voting-rights shares of Telesat.
It was the Loral purchase of the company that loaded Telesat with its currently large debt load, and Loral has rights to prohibit Telesat from selling assets that could affect the tax status of the Loral acquisition.
The inherent tensions in having a satellite manufacturer as principal shareholder have recently been on display with respect to the ViaSat-1 Ka-band broadband satellite that Loral is building for Carlsbad, Calif.-based ViaSat. Loral won the contract in part because it agreed to purchase a portion of ViaSat-1’s capacity – in principle to resell those rights to Telesat.
The longer it waits before confirming the purchase from Loral, the higher the price Telesat must pay for the ViaSat-1 rights. Nonetheless, as of midyear Telesat had not yet elected to conclude the transaction.
Sky Perfect JSat Corp.
Sky Perfect JSat reported a 1.2 percent decline in revenue for the year ending March 31 before the yen-dollar fluctuations are taken into account. The company’s purchase of Space Communications Corp. in April 2008 has consolidated Sky Perfect’s position in Japan. A change in Japanese law breaking down the barriers between telecommunications and broadcast satellite services also works to the company’s advantage.
JCSat-12, with 30 Ku-band and 12 C-band transponders, is scheduled for launch in early August, and the company also has rights to five Ku-band transponders aboard the Intelsat IS-15 satellite to be launched late this year into the 85 degrees east orbital slot.
In another joint venture, Sky Perfect JSat will co-own the JCSat-110R satellite with Broadcast Satellite System of Japan. The satellite is expected to be launched in 2011.
The company’s growth plan for 2008-2012 assumes steady growth, at 5.5 percent per year, in the number of pay-television subscribers in Japan. With the change in Japanese law relative to military and civil-government use of satellites, Sky Perfect JSat is also positioning itself toward attracting more government business on its spacecraft.
In a May presentation to investors, company management said 2009 would mark the beginning of a “full-scale market offensive” to improve the performance of its satellite business and maintain its position as Asia’s leading satellite fleet operator.