Intelsat’s mobility revenue, mainly in-flight connectivity services, has suffered surprisingly little so far from the loss of the IS-29e satellite. Credit: Intelsat


PARIS — Satellite fleet operator Intelsat saw its backlog drop $400 million in the three months ending June 30, mainly due to the April failure of the IS-29e satellite, which was less than four years old and had been a pillar of Intelsat’s future growth strategy.

Backlog stood at $7.5 billion on June 30, down from $7.9 billion on March 31.

Intelsat booked an asset-impairment charge of $382 million during the period as a result of the failure, which a board of inquiry appears to have concluded had little, and perhaps nothing, to do with work quality at manufacturer Boeing Satellite Systems International.

“The failure review board concluded that the anomaly was either caused by a harness flaw in conjunction with an electrostatic discharge event related to solar weather activity, or the impact of a micrometeoroid,” Intelsat said in a July 30 earnings statement.

“We have completed an assessment and concluded that there is a very low risk of a similar event occurring on our other Boeing 702 MP satellites.” Intelsat operates six other Boeing 702 MP models.

Despite the loss of one of its most valuable Epic high-throughput satellites, Intelsat said it is confident it can still make its previous revenue and EBITDA forecast for the full year: Revenue of $2.03 billion at the midpoint, and EBITDA of $1.455 billion — 72% of revenue.

Despite loss of a big aero-connectivity satellite, IS-29e, mobility revenue rose

In one of the surprises for the quarter, Intelsat’s new Chief Financial Officer, David M. Tolley, said the company’s mobility business — a key vertical impacted by the IS-29e loss — actually grew in the first six months of 2019 compared to the same period in 2018.

Tolley declined to disclose precise figures beyond saying that mobility services, mainly to in-flight-connectivity providers to commercial airlines and similar services to maritime customers, constitute about 13% of Intelsat’s total revenue.

Intelsat Chief Executive Stephen Spengler said the Horizons 3e satellite, jointly owned with Sky Perfect JSat of Japan, has mobility coverage over Asia and extending to Alaska and the western sliver of the continental United States.

Intelsat’s IS-37e over the Eastern United States also offers mobility services and the company is moving a satellite over Africa to the the Atlantic region to fill in for some of the rest of the coverage lost with IS-29e.

No immediate plans to replace IS-29e

Intelsat during the quarter raised $400 million in liquidity by adding to an existing debt facility paying 9.25% interest and due 2025.

That amount raised speculation that Intelsat was about to order an IS-29e replacement. But Chief Executive Stephen Spengler said that was not necessarily so.

A new satellite may be ordered, Spengler said, but options also include striking an agreement with other satellite operators for fill-in capacity. He said it would take a few more months for Intelsat to fully assess the financial cost of the IS-29e failure, including opportunity cost of future lost business on IS-29e and the satellites now being used to handle IS-29e customer, dish-reporting costs of customers reimbursed by Intelsat and the cost of third-party capacity made available after the failure, notably by SES.

Intelsat’s current capex plan for 2019-2021 includes five satellites. The first, Intelsat IS-902, is built by Maxar Technologies and is scheduled for launch in early August aboard an Arianespace Ariane 5 rocket. IS-902 features a large capacity purchase by the Ministry of Communications of Myanmar as part of that nation’s broadband deployment.

Myanmar has budgeted some $150 million on what it calls Myanmar-2.

The second satellite, Galaxy 30, is built by Northrop Grumman Innovation Systems and is scheduled for launch, also aboard an Ariane 5, in late 2020.

The three other satellites in the capex planning have not yet been ordered.

From Lowest-Cost, Technically Acceptable to Total Value assessment at U.S. Defense Department

Intelsat has been complaining for several years that the U.S. Defense Department’s purchasing policy has drifted toward a Lowest-Price, Technically Acceptable (LPTA) model that works against Intelsat.

That trend has reversed of late, Intelsat said, in part because of pressure from the U.S. Congress to return to a “total value” assessment and not rely as heavily on the bottom-line price.

“We are glad to see that,” Spengler said.

The company’s Government division, which is mainly business with the U.S. Defense Department, reported $93 million in revenue for the three months ending June 30, a 5% drop from a year ago.

Intelsat said it renewed 90% of its contracts — a total of 1,225 MHz of capacity, or 34 equivalent transponders — up for renewal in the Government division during the quarter.

Some of these were at lower rates than their previous renewals five years ago. But Intelsat said a majority of the business was for capacity on Intelsat’s fleet, and not capacity from other operators’ satellites that Intelsat included in its bid. Revenue generated from Intelsat’s own network is more profitable than “off network” revenue. As of June 30, on-network revenue was 68% of Intelsat’s government business, compared to 66% a year ago.