I suppose it is about time for a "state of the union" update. There will be an analyst meeting in Palo Alto in early September where even more info will be given, but here is where we are at presently.
FSS-Skynet remains the crown jewel in Loral's arsenal. Capacity is still quite tight over North America thanks to the fumbling bumblers at PanAmSat and Hughes. By the way, SPOT just lost a $20 million/year customer(News Corp) on PAS4 in Asia since India is a worthless beauracratic hole, but that's another story. I am somewhat surprised at the utilization rates offered by Schwartz in the last conference call for T*6 right now. If you look at the bird's inhabitants, it appears busier than he said(some 40-odd percent). Anyway, he did predict a 71%(?) utilization rate by year end INCLUDING T*7 and Orion 2. That would be awesome. Worry points---SatMex is sucking wind. Look at the lineups on those birds and you will understand what I mean. Solidaridad 1 is basically circling the drain and will never attract many customers. SatMex V is completely underutilized, while Solidaridad 2 is chock full of SkyMexico for some indeterminate time. They continue to claim there are problems with the management there, but come on guys! I think you have had plenty of time to fix things up. If demand stinks, tell us. I'm dizzy from years of spin. Worry #2--Orion 2 is to go to the 12.5West slot. Eutelsat has planted their flag there already. Everyone is worried about this issue except Loral. I'll go with the majority here and voice my concern. This will be not just go away--compromise means a capacity cut. Keep your ears open. Asia--Still a wicked place to be in the sat business. get anywhere near the Thaicom constellation footprints and forget about pricing power. How about $1 million per year for a full transponder? Deals could be had not too long ago for $800,000 per year. Ugly. BUT, if you get away from certain areas, demand and pricing is picking up. Loral has the Ku transponders on Agila II that help, but they really could have used Orion 3. No other sat had that kick ass Trans-Pacific coverage that hooked all of Asia to the Orion gateway in Hawaii and from there by fiber to the US. Don't let them downplay this loss too much-there is demand for that connectivity. Replacements? Well, there has been a chunk of APT for sale, even made its way around WallStreet earlier this year. PArtial ownership there would be useful since APT just got approval for broadcast into China, and Apstar IIR is a deluxe new bird with minimal utilization, but the footprint doesn't cut it for Orion 3 replacement. Still, that would be a nice addition to the Loral Global Alliance and it could be had cheap cheap cheap. Any one of the three cancelled Asian birds might work. I am fairly certain that at least two have been restarted in some form or another. Purpose unknown. Explanation from our stealth management hopefully forthcoming. Oh yeah--we still need approval for the late September T*7 launch.
SS/L--Did you note the glee Mr. Schwartz used in talking up the second half possibilities for SS/L? I think he is right on. Margins remain good there. New orders could be forthcoming. Working at capacity. Chinasat 8 is a bit of a problem. Theoretically, Loral could launch the bird itself and then sell it on orbit to the Chinese, that is, if the Chinese would go for that. The Chinese launcher seems to get the collective Congressional panties in a bundle, so that would skirt that issue. Otherwise, rework it to replace Orion 3 in a hurry.
C*/Data--Now we get to the great unknown. The black hole of information. For some reason, the future here is cloudy as hell. The meeting in September should clarify things(though I thought the same thing about the meeting in May!). So far, C* is a total bust. Nobody knows what is going on, and management is oh so UNhelpful in clarifying the issue. Orion has been carrying the load here with its data services. That biz is fine, and getting better. In the conference call, Schwartz mentioned two-way internet service for consumers next year. How will he do that? There are two(actually three) possibilities. One possibility is that he is hopelessly optimistic, which is not that far fetched judging by previous projections. The next possibility is my personal favorite. Loral has been working with ViaSat who holds the key to high-capacity throughput on Ku-band sats. Such a sat could provide this service in a profitable way. The key is attracting a service provider like a Mindspring, Earthlink, AOL, MSN, @Home, etc. to retail the service. Put them all together, and you finally have a service that would attract attention to Loral. The other possibilty is that Loral jumps in the fray with KaStar, which has some very attractive partners(Liberty, News Corp., Kleiner Perkins). They could conceivably get out of the gate early with a not-too-complex bird that could test the waters of broadband to the consumer via satellite in the Ka-band. Otherwise, we wait for Skybridge. The big daddy Ka-band GEOs would follow that in 2003/4 if they ever do.
G*--the near term key, but already has its own thread following its trials and tribulations. I expect much more info on G* out of the Sept. meeting.
Acquisitions--Our fearless leader, well known for his acquisition skills, has been on a dry spell. Ok, the Williams Business TV purchase does qualify as an acquisition, and it looks like a nice little addition. As for gathering up all the sats in space, he needs to catch up. APT, as discussed before, has pieces on the block. Mabuhay could be had. Is Optus a possibility? I am sure other Asian constellations could also be had, but the odd ownership precludes me from making a judgment. Hispasat fits perfectly. Andesat is undoubtedly going to be part owned by Loral at some point. I don't think Loral is especially flush with cash at this point, but there are ways around that.
Misc.--Will L-Star go forward? Will Loral finally be in the DBS business? Could they convince Rupert Murdoch to join them? Echostar will be utilizing the 110 and 119 orbital slots. So far, no broadband plan out of them. C* happens to have a Ka-band slot at 114.5, and KaStar at 109.2. Would a JV make sense for Loral and DISH? Is it a must do? Would a service patterned after Astra.Net make sense? Think of what Loral assets lie between or close to 110 and 119--SatMex has slots at 109.2, 113, and 116, as well as a temporary use of 120. C* has the Ka slot smack dab in the middle, and KaStar close by. Canada is going to grant two of its slots between 107-118 to whoever wins the beauty contest they run. Loral is a possibility there in conjunction with Teleglobe. So, the possibility for cooperation is there, but so are two very strong and opinionated CEOs. Stay tuned.
The Bottom Line--Near term stock movement depends on G*'s success, as well as any broadband announcements that may come down the pike. Remember that this type of service would have to begin soon to get a leg up on the Spaceways and Astrolinks of the future. Work on the sat would have to start immediately(if it hasn't already). |
