LONDON — Satellite fleet operator Intelsat on July 27 said it is proceeding with a 10% annual increase in satellite capacity between 2017 and 2019 despite debt-service obligations that consume 40% of its gross revenue.
The company also swatted away concerns that its decision not to deploy Ka-band spot-beam capacity will leave it short of supply given the huge demand for aeronautical connectivity.
In a conference call with investors, Intelsat Chief Executive Stephen Spengler said the Ku-band high-throughput-satellites (HTS) being fielded by Intelsat and others will be able to digest the requirements of the in-flight-connectivity (IFC) business.
“We feel very strongly that Ku-band is a viable and strong long-term solution for the mobility segment, whether its aero or maritime or others,” Spengler said, entering a lively ongoing debate in the IFC sector of capacity requirements, especially in the airspace over busy airports.
1,200 new transponders by 2019
Intelsat is adding more than 1,200 equivalent transponders to its fleet, a 10% annual increase through 2019, mainly HTS capacity in Ku- and C-band, which Spengler should ease supply concerns. It is spending about $1.4 billion to build and launch satellites to provide the new capacity.
In addition to these assets, Intelsat has an agreement with start-up broadband constellation provider OneWeb and with mobile network operator SoftBank, OneWeb’s biggest shareholder, on the use of OneWeb capacity for IFC and maritime connectivity, oil and gas and government applications.
Spengler said the commitments were concluded before the SoftBank offer of becoming Intelsat’s biggest shareholder with a cash offer that would have trimmed Intelsat’s debt. The offer was withdrawn when Intelsat bondholders refused the payment terms.
Intelsat and OneWeb are working with Hughes Network Systems, also a OneWeb shareholder, on equipment to enable users to toggle back and forth between OneWeb’s low-orbiting constellation and Intelsat’s fleet in geostationary orbit.
As of June 30, Intelsat had 2,100 station-kept wide-beam transponders in service on its fleet, and 675 “units” of capacity available on Epic satellites.
The company said its fleet was 78% utilized as of June 30. It had booked more than 140 Epic customers as of then. Epic corporate customer demand growth is key to Intelsat’s business plan for the next three years.
Spengler said some prospective Epic customers were taking longer than expected to sign on, and the question for Intelsat and others using HTS satellites is whether the increased volume of business will make up for the fact that the satellite operators are selling capacity at far lower prices per megahertz.
Meet the new debt…
Intelsat’s special case, as has been the case for several years, its $14.5 billion in debt created with successive debt-financed purchases by private-equity owners. It recently traded lower-interest debt for 9.75% notes due in 2025 as part of its ongoing “liability management initiative.”
Intelsat Chief Financial Officer Jacques Kerrest said the company believes that “the market was good for us” in the transaction.
For the three months ending June 30, Intelsat paid $229.1 million in interest on its debt, or 42% of its second-quarter revenue of $533.2 million.
Intelsat said it had $508.8 million in cash as of June 30. In a filing with the U.S. Securities and Exchange Commission (SEC), the company said its operating cash flow declined by about 33%, to $229.2 million, in the six months ending June 30 compared to the same period a year ago.
The company reported a $17.5-million decrease in bad-debt exposure in the three months ending June 30 as two customers paid past-due bills.
Intelsat’s backlog at June 30 stood at $8.2 billion, down 3.5% from March 31 as long-term media contracts converted to revenue and new contracts did not compensate.
In-orbit satellite servicing to reduce capex
In what may have been unexpected remarks, Spengler said the company is already calculating the effect on its capital spending of its pioneering decision to contract for satellite in-orbit servicing.
In a deal with Orbital ATK, Intelsat has agreed to allow Orbital’s Mission Extension Vehicle (MEV) to visit a fuel-depleted but otherwise healthy Intelsat satellite and to supply enough fuel to extend its life by five years. The inguaral flight of the MEV is scheduled for 2018.
If the system works, it will allow Intelsat to delay spending on replacement satellites, defer capital investment and take more time to wait for new technologies to mature before committing to them, Spengler said.
No conclusion yet to IS-33e thruster investigation
Intelsat has filed a $78 million insurance claim following the failure of the primary orbit-raising thruster on its Boeing-built Intelsat 33e satellite just after its August 2016 launch. The satellite eventually arrived, otherwise healthy, at its orbital slot in December. It is unclear how much service life was lost through excess fuel use during the orbit raising.
Intelsat received $1.5 million in insurance payments in the first six months of 2017 and Kerrest said it would take several more months for the remaining payments. He said the company “is confident we will get a lot of the claim paid.”
In its SEC filing, Intelsat said the failure-review commission looking into the thruster failure has not completed its work and has not established the cause.