PARIS — Mobile satellite services provider Iridium Communications expects to pay down its export-credit-agency loan early by taking advantage of favorable commercial financing markets to be able to acquire an Internet of Things (IoT) business, Chief Executive Matt Desch said June 13.
Desch did not specify a given investment, but said Iridium would not refinance its $1.8-billion loan from France’s Coface simply to paid down debt.
Iridium’s debt is expected to peak at 6.5 times EBITDA this year, after which the company expects to de-lever quickly. The $3 billion Iridium Next second-generation is being launched in 2017 and 2018.
The current schedule of SpaceX launches — seven Falcon 9 rocket missions of 10 satellites each, and a final launch of five satellites — is scheduled to be completed by mid-2018. The first 10-satellite launch was in January and the second is scheduled for June 25.
Refurbished rocket? ‘Give me a discount and we’ll talk’
Addressing a William Blair investor conference, Desch noted that SpaceX’s next launch, of a Bulgarian telecommunications satellite into geostationary orbit, will use the same Falcon 9 first stage as that used for Iridium’s January flight.
But Iridium’s contract called for all-new rocket hardware and so the company will not be using a refurbished stage for any of its launches.
“I have no problem with using a reused [first stage],” Desch said. “But give me a big discount and then we’ll talk about it.”
Iridium is not the first recipient of export-credit-agency financing to complain that as attractive as were the terms, the conditions attached to the loans are far more restrictive than what occurs in the commercial market.
Desch said that as soon as Iridium begins making big loan repayments to Coface, it will pay off the facility with commercial debt. Some of the proceeds will be used to further reduce debt leverage but a portion of it will be reserved for strategic acquisitions, he said.
The IOT opportunity after Coface
“It was the right thing for our company lot use export-credit financing,” Desch said. “But with a de-leveraging, profitable company, the credit markets are going to be quite open to refinance that and provide us with a lot more flexibility.
“What we do with that additional cash, how we spend it — it won’t be just to immediately de-leverage the company. We can also do some other things.”
“There are some strategic relationships I know that would make sense. I am not going to go into the mass-market broadband business, but I am interested in the IoT business and other aspects that would complement the kind of things we do.”
IoT is one of several revenue lines Iridium expects to grow. Another is the Aireon aircraft-tracking service being commercialized by Aireon LLC. Aireon is scheduled to pay Iridium $39 million a year for hosting the Aireon payload on Iridium Next and for data services, starting in 2019.
Iridium also expects to retain a 25% equity stake in Aireon.
Would a privatized FAA be a boon for Aireon?
Aireon has signed multi-year data-service agreements with 10 air navigation service providers and has memoranda of agreement with another 14, including the U.S. Federal Aviation Administration.
Desch did not address, and was not asked, whether Aireon’s prospects in the United States would be materially enhanced if the Trump administration follows through on a proposal to at least partially privatize air-traffic control.
Aireon payloads are on eight Iridium Next satellites, and the company has been using this initial capability to demonstrate what global, real-time flight tracking will look like once the full constellation is in orbit.
“If they sell this data to all the flight regions of the world this is $750 million worth of revenue they can make on this,” Desch said, referring to the total addressable market for aircraft tracking.
Also coming with Iridium Next is the company’s Certus broadband service, providing up to 1.4 Mbps to users, compared to 128 Kbps on the current satellites.
Certus terminals are being designed by Cobham, L3, Rockwell Collins and Thales and are expected to be in commercial use in 2018. Iridium sees Certus as a $100 million annual business by 2020.
But Iridium’s first order of business is launching its 75 second-generation satellites, paying off SpaceX and satellite builder Thales Alenia Space, and paying down the Coface debt.
“I can’t wait to stop spending money,” Desch said. “When all your cash flow is going out the door for your network, it’s a bit like hitting your head with a hammer. Next year, when we stop hitting our head with a hammer, it’s going to be awesome for the next 10-pus years when we can have free cash flow.”