Anik F1 troubles won’t affect Telesat’s bottom line; alternative birds considered

Telesat Canada’s bottom line won’t likely be affected by its malfunctioning Anik F1 satellite, according to a satellite analyst, though operators around the world are likely re-evaluating their business and procurement strategies in the wake of several such high-profile failures and skyrocketing in-orbit insurance costs. Telesat is echoing this sentiment. For over a year, Telesat has been telling investors that Anik F1 could be partly knocked out of commission as early as mid-2005 due to declining power levels as a result of a manufacturer’s problem that has plagued other operators globally. At issue is Boeing Satellite Systems’ 702 model spacecraft, which has suffered several failures to its solar array. Though the root of the problem isn’t perfectly clear, the problem is that the arrays are turning foggy and losing their optical quality, resulting in decreasing power levels as they are unable to properly focus the sun’s rays on the solar panels. According to sources, the 702 bus starts with 16 kW of power and was designed to have 15 kW after 15 years. The Anik F1 generation of birds, however, is expected to have only 12 kW after 15 years. Telesat has made investors and clients aware of the situation, which will likely disrupt the satellite’s operations seven years ahead of schedule. International concern over 702 To date, approximately US$950 million in insurance claims have been made in relation to the 702 model. PanAmSat and XM Satellite Radio have both made claims, while Thuraya made a whopping US$371 million claim on the failure of its Boeing Geosynchronous Mobile (GEM) satellite, which is based on the 702 design. It’s uncertain how large a claim Telesat might make for the lost revenue associated with the premature life span of Anik F1. But Phil McAlister, an analyst with Futron Corp., an aerospace consulting firm based in Maryland, expects the charge will come in at several hundred million dollars. He notes that the problem shouldn’t overly concern customers and investors, however, and that Telesat likely has the matter well in hand. "At the top level in terms of Telesat’s bottom line, this shouldn’t have a significant adverse effect," McAlister tells Report on Wireless. "However, you never like these things to happen. It’s going to be a distraction. You’re going to have to negotiate with your underwriter for the claim. You are going to have to move capacity from one satellite to another. And, eventually, they’re going to have to replace the F1 much earlier than they thought. So, they’re going to be compensated for that through their insurance policy. "At the total top line, in terms of (Telesat’s) customers and its business, it shouldn’t materially affect their business case or their business model or even their financials." But, McAlister says, Telesat and other operators are likely re-evaluating their satellite-buying philosophy as a history of costly failures puts the future of large birds in doubt. The 702 is the largest satellite available with 100 transponders, but big buses are failing at a disproportionate rate. A Futron report indicates that in the last four years space insurance rates have risen by 129 per cent, and in-orbit anomalies have risen by 146 per cent. Over approximately the same period, average power payload has nearly tripled. Higher-powered satellites, such as the Boeing 702, tend to fail at a higher rate, notes the report, entitled Satellite Insurance Rates on the Rise – Market Correction or Overreaction? Their higher numbers of transponders means higher claims when operators lose their revenue generating ability, the report highlights. McAlistar says the larger satellites require a new generation of heavy-lift rockets that carry high insurance premiums, and the headaches associated with the procurement process have operators second-guessing decisions to buy large satellites. "Telesat’s not immune from the global economic situation which is affecting the demand for satellite services…The price for fibre has not just gone down; it has dropped like a rock and to some extent that is eroding the customer base for all satellite operators. (Telesat is) going to have to make some careful decisions, especially when they’ve got so much capacity up there….I’m not saying that they won’t buy another 702 or another big bus and put up another 100 transponders. I’m just saying that that decision is going to get a lot more scrutiny than it has in the past." Telesat, in fact, has another Boeing 702 under construction, the Anik F2, which is nearing completion and is scheduled to launch in June 2003. Another satellite, Telesat’s second direct broadcast bird, Nimiq 2, is being manufactured by Lockheed Martin Commercial Space Systems and is scheduled for launch in late December. The solar array problem that will reduce service on the F1 has been solved, according to Boeing. Last June, the first redesigned bus was launched, and PanAmSat took control of the bird on October 21 after it successfully underwent in-orbit testing. In the meantime, Telesat is making little comment on how much it will claim from its insurer. Spokesman Ted Ignacy will only tell Report on Wireless: "The philosophy is that we’ll make a claim that covers our losses. It’ll be determined by whatever the eventual loss on the Anik satellite is…Obviously the insurers are aware of the problem with the spacecraft. We have kept them current with respect to that information. We haven’t made any indications at this point in time as to what the details of the claim will be." Nor will he discuss in any detail plans to move existing customers to backup facilities. Ignacy does say, though, that the operator is giving hard thought to future procurement strategies. "Obviously, these kinds of failures are quite challenging for any company. To the extent that the latest technology gives rise to additional risk, it’s something that you’ve got to take into consideration. I think with the insurance market where it is today, with the industry itself from a revenue perspective or a business end being that much more challenging, it’s not the time to take on an undue amount of risk. That would lead you to looking at more tried and true technologies."

Anik F1 troubles won’t affect Telesat’s bottom line; alternative birds considered

News | 11/25/2002 5:00 am EST

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