Global Eagle purchase of SES inclined-orbit satellite opens new market
PARIS — Airline and maritime satellite connectivity provider Global Eagle Entertainment (GEE), in a move likely to put further pressure on satellite transponder prices, has purchased the entire capacity on an aging satellite to be operated in inclined orbit over North America.
Los Angeles-based GEE is spending $50 million for the satellite, which will be used to buttress GEE’s in-flight-connectivity service to its largest customer, Southwest Airlines. GEE in November extended its contract with Southwest to up to 2025 on what it said were “favorable terms.”
GEE Chief Executive Dave Davis did not identify the satellite but an industry official said it was Luxembourg-based SES’s AMC-3, which was launched in 1997 and in recent months has been moving westward. Most recently it was stationed at 70.3 degrees west.
SES, which is GEE’s largest satellite provider, did not immediately respond to requests for comment on the deal. But SES Chief Executive Karim Michel Sabbagh, while not specifically evoking the use of inclined-orbit spacecraft, has said repeatedly that today’s satellite fleet operators need to tailor their satellites for special purposes and abandon the one-size-fits-all mentality.
Catching a falling knife?
With the arrival of high-throughput satellites (HTS), transponder prices for mobility and broadband applications have been falling sharply in the past couple of years. In this environment, it has been seen as generally advantageous to service providers like GEE to lease capacity for defined periods rather than to purchase their own satellites.
Davis said his company is paying 50 percent less today for a megahertz of satellite capacity compared to what it paid just two years ago.
“I see those price trends continuing,” he said. “We have significantly more buying power now and we are entering a period of HTS, with a lot more capacity coming from [Intelsat’s] Epic and the SES satellites coming on in 2017 and 2018.” GEE is also a major customer for Intelsat.
Davis also referenced the super-HTS satellites being launched by EchoStar’s Hughes Network Systems, whose Jupiter-2 Ka-band broadband satellite is now in orbit and undergoing testing; and ViaSat Inc.’s ViaSat-2 Ka-band satellite, scheduled for launch this year.
Satellite operators are counting on increased sales volume as passengers demand ever-higher bandwidth to at least partially offset the decline in per-megahertz pricing.
But Davis said the inclined-orbit deal was too good to pass up.
Addressing an investor conference organized by Citi Jan. 4, Davis said purchasing the satellite’s capacity — not the satellite itself, nor access to the orbital slot — GEE is paying, on a per-megahertz basis, about half of what it would pay in a lease contract.
Davis said GEE hired an outside consultant to determine the estimated useful life remaining on the satellite and concluded that an outright purchase was the way to go.
Many inclined-orbit Ku-band satellites available, not all at good locations
Satellite fleet operators commonly place aging satellites in inclined orbit to extend their lives by no longer using fuel to keep them stabilized on their north-south axis. The result is a satellite that performs a figure-8 maneuver relative to a given point on Earth — not good for fixed applications such as television broadcast, but acceptable for mobile customers whose aircraft or maritime or land-based antennas are designed to track a spacecraft.
Mobile satellite service providers with geostationary-orbit satellites, including Inmarsat and Thuraya, have long placed their new satellites into inclined orbits.
Estimating how much life remains on a satellite is as much an art as a science, but Davis said GEE factored this into its valuation of the asset.
“We had a third-party comparer come in and give us an estimated useful life,” Davis said. “Even you you haircut that useful life, you look at how much capacity is on the satelilte and then you look at how much we are paying. Our actual cost per megahertz is less than one-half of what we could get if we were leasing.”
There are dozens of Ku-band satellites in orbit that presumably could be put to the same purpose, assuming they could be placed into orbital slots of use to companies like GEE, Panasonic Avionics, Gogo and Thales LiveTV — all of which are leasing in-orbit capacity to serve the fast-growing aeronautical and maritime markets.
“There’s an opportunity to pick up capacity on these inclined-orbit satellites at significant discounts,” Davis said. That’s what we think we’ve done here.”
Awaiting a large Chinese investor and partner
GEE announced recently that HNA Group, a large Chinese conglomerate, had agreed to form a joint venture with GEE under which GEE would be the exclusive in-flight-connectivity partner for HNA’s airline subsidiary, which has 350 aircraft and plans to add another 150 in the coming three years.
HNA has created the Beijing Shareco Technology Co. Ltd., which will invest an initial $103 million into GEE. Its eventual investment will total $406 million. GEE’s current market capitalization on the U.S. Nasdaq exchange is about $560 million.
Once the initial investment clears regulatory approval, GEE and Shareco will create a joint venture that will manage the installation of GEE gear on the HNA Group’s aircraft.
“In-flight connectivity is at a nascent stage in China, really set to explode with some regulatory changes that have happened,” Davis said. “We are now the exclusive supplier of one of the four largest aviation groups in China.
A $150 million acquisition imminent
GEE was founded in 2013 with the merger of two aeronautical service companies and since then has completed multiple acquisitions, the latest and largest being the purchase of EMC Corp., a provider of maritime content and connectivity.
Davis said the company has $150 million to spend on a last acquisition before it “takes a breather.” He declined to identify the target, but said the $150 valuation would be 25 percent in cash, with the rest paid in GEE stock.
“it’s a closely related business to ours, and we’re pretty far along,” Davis said. “It’ll be a highly accretive acquisition.”
Peter B. de Selding