OT Iridium update: Two groups after I*, no selection yet.
(Thanks to Phillips Telecon)
Jeff Vayda
Should This Satellite System Be Saved?
There is a certain dignity in dying an honorable death. In the case of Iridium LLC, it is time for
the industry to move on. The bankruptcy still to this day casts a dark cloud over the mobile
satellite services industry in particular and the satellite industry in general. The best thing to do
may be to let the constellation die an honorable death.
But that does not appear to be happening anytime soon. As Motorola Inc. [MOT] (more) gets
ready to pull the plug on the Iridium constellation, two companies have stepped up to try and
save the Iridium business.
The $50 million question (the amount being offered for Iridium's assets) is can some other
management company succeed where Iridium failed? Can they turn the technological marvel into
a profit-generating company?
...And In This Corner...
Two groups have stepped up to try and save Iridium: Venture Partners Inc. and the venture
capital firm Castle Harlan. Last week, the two companies appeared before a U.S. Bankruptcy
court judge to present an 11th hour plan to save Iridium.
U.S. Bankruptcy Court Judge Cornelius Blackshear ordered a June 21 status conference to
review the two competing offers for Iridium assets. The judge also acknowledged that the
no-strings-attached Venture Partners bid would be preferred if it could produce the money
needed to match the non-binding $50 million offer for the Iridium assets from Castle Harlan,
Gene Curcio, a California-based telecommunications entrepreneur who is leading the $50
million bid of Venture Partners.
Curcio said he was pleased with last week's proceedings and the order issued by Blackshear.
Venture Partners' bid calls for General Dynamics [GD] (more) to replace Motorolaas the
operator of the Iridium constellation. Iridium's service would be revamped to provide voice
communications to Third World countries, data bursts and meter reading for utilities.
Curcio's proposal also includes a deal with Hughes Global Space [GMH] (more) to provide
communications to the U.S. government, military and for other users such as NATO, the World
Bank and the World Health Organization.
Standing opposite Venture Partners is Castle Harlan. However, it is not clear at this time what
Harlan has planned for the Iridium constellation, as the company has not completed its due
diligence yet.
Neil Forrest, a partner with Freeman Forrest & Levy LLP who is representing Venture
Partners in the Iridium proceedings, said July 21 is the date that Castle Harlan is scheduled to
complete its due diligence. The Venture Partners bid is superior to the Castle Harlan proposal in
many ways, including the absence of a break-up fee, due diligence or further delays, Forrest
said.
Motorola has set a June 30 deadline for bidders to emerge and begin paying to operate the
66-satellite constellation. The company would start to de-orbit the $5 billion-plus system July 1.
...But Is It Worth The $50 Million?
While the public has been given a glimpse as to what Venture Funding will do with the system,
the question still remains is it even worth spending the money to acquire the in- orbit assets.
A lot of factors seem to suggest that bailing out Iridium would not be the wisest investment. Even
at the bargain basement price of acquisition, there are still residual costs, namely operations and
satellite replacement. Conquering these costs is going to be the true test of Iridium's would-be
saviors.
"Motorola said they got the monthly cost down to $20 million," said Roger Rusch, president of
Palos Verdes, Calif.-based satellite consultancy TelAstra Inc. "Revenue was only $1.5 million
per month when the system was in full operation and many users probably have gone elsewhere
- Globalstar [GSTRF] (more) and Inmarsat - and some abandoned satellite service
altogether. Operating costs will remain higher than revenue for a long time, probably forever."
Ahmad Ghais, president of McLean, Va.-based Mobile Satellite Users Association agreed.
"The real albatross around the neck of the bidders is the operating costs. I don't think much of
the Iridium saviors' proposals," he said.
The replacement costs could be the key cost breaker in this equation. Iridium spent more than
$5 billion to design and get the initial constellation in orbit. Granted, replacement satellite would
cost a bit less because the technology is already developed, but it still represents a major hurdle
to the long term viability of any company looking to resurrect Iridium.
Maybe the would-saviors see something the rest of us don't and can turn the technology into a
profit-generating company. But if one of these bids is accepted and a second high-profile
bankruptcy follows, then the Iridium legacy will be further tarnished, a fate that should be spared
the engineers who made the system work in the first place.
In the end, it may be time to just let the constellation go quietly into the night. Give us the chance
to look back upon Iridium and remember the engineering feat that was accomplished without the
dark clouds of bankruptcy casting its shadow over it and the satellite industry. |
