Thales Alenia Space to Build Iridium Satellites
Thales Alenia Space will design and build Iridium’s new constellation of low-earth orbit mobile services satellites for $2.1 billion, the companies said Wednesday. French export credit agency Coface issued a promise of guarantee to cover 95 percent of the $1.8 billion credit facility for the satellites, said Iridium. The guarantee offers significant security for lenders and isn’t conditioned on new debt or equity financing, Iridium said. Thales was competing with Lockheed Martin for the contract. Total cost for the constellation, including launch, insurance and ground segments, is about $2.9 billion, the company said. Iridium will pay for the rest of the constellation through its own cash flow.
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Thales will build 72 operational and in-orbit spare satellites and nine ground spares with the first launch scheduled for 2015, Iridium said. The nine ground spares added about $200 million to previous estimates for the constellation but also adds insurance in case something goes wrong with the other satellites, Iridium CEO Matt Desch told reporters. While the company’s past estimates of $2.7 billion was an “appropriate target and aggressive target,” coming within $200 million of the estimate with an additional nine satellites is a “great outcome,” he said. Thales will begin work immediately on the satellites due to an authorization to proceed agreement between the two companies.
Coface must still put a final stamp of approval on the deal and the dollar amounts could change depending on the exchange rates at the time the deal is sealed, Desch said. Raising financing for the contract from undisclosed French and international banks is expected to be completed this summer but, with the French government backing 95 percent of the loans, finding lenders will be easier and rates will be lower, said Desch in a later interview. Still, “I'm looking forward to getting out of the fundraising business and begin dominating the space business,” he said.
Iridium used a comprehensive evaluation including technical submissions and pricing packages in determining the contractor for the satellites. “Thales was the strongest that we've gotten,” said Desch. Greenhill & Co., whose subsidiary recently acquired Iridium, largely served in an advisory role through the process, Desch said.
The Coface guarantee is for far more than most predicted, said Tim Farrar of Telecom, Media and Finance Associates. The backing by the export credit agency was likely based on confidence in the company’s plans as well as a good chance to shore up investment in Thales and other French companies, he said. The Coface deal is “not complete validation but is certainly positive step. It will take time until investors see how they do as a business for over next year or even longer before we know how good the network works,” he said. The show of confidence from Coface provides an important boost to Iridium as the company will face a direct challenge in coming months when Inmarsat begins sales of its handset. “This is great news for end users in that competition will be intensifying,” said Farrar.