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Boeing, Loral report commercial space setbacks BY JEFF FOUST SPACEFLIGHT NOW Posted: July 15, 2003 The commercial space industry was hit with a double dose of bad news on Tuesday when satellite operator Loral announced it was filing for bankruptcy protection and selling six of its satellites, while Boeing announced it would take a billion-dollar charge against its launch and satellite businesses while suspending commercial sales of its Delta 4 rocket. New York-based Loral Space and Communications announced Tuesday morning a blockbuster deal whereby it will sell six of its communications satellites to rival Intelsat. The deal, valued at up to $1.1 billion, includes four satellites currently in orbit, Telstars 4, 5, 6, and 7. It also includes Telstar 13 (a joint venture with EchoStar also known as EchoStar 9), slated for launch later this year, and Telstar 8, scheduled for launch next year. All six are designed to serve the North American market. Loral plans to use most of the proceeds of the sale to pay off $959 million in secured bank debt, part of more than $2 billion in overall debt the company is burdened with. In order to sell the six satellites "free and clear of any encumbrances", Loral filed for Chapter 11 bankruptcy protection with the US Bankruptcy Court in New York. Loral officials did not reveal how long the company would remain in bankruptcy protection, although they did say it would take four to six months to complete the deal. "Loral's principal challenge has been to overcome the effects of the prolonged economic downturn that led to the lack of satellite manufacturing orders across the industry and a slowdown in growth of fixed satellite services (FSS)," Loral chairman and CEO Bernard Schwartz said. "We have concluded that a sale of the North American satellites, coupled with a Chapter 11 reorganization, represents the best way to resolve the financial difficulties that have resulted from the downturn." The sale will leave Loral with just three satellites in orbit, Telstars 10, 11, and 12. In addition, Loral will retain two other satellites, Telstar 14 (also known as Estrela do Sul), and Telstar 18 (also known as Apstar 5), scheduled for launch by early next year. Loral will also retain its Space Systems/Loral, its satellite manufacturing division. As part of the sale agreement, Intelsat agreed to purchase a new satellite from Space Systems/Loral, and will pay a $100-million down payment for it once the sale of the six satellites is concluded. For Intelsat, the sale offers them an opportunity to instantly obtain a fleet of satellites to serve North America, a market that has been underserved by the global satellite operator. "The transaction would provide Intelsat a North American franchise that, given the scarcity of orbital locations, is virtually impossible to build on an organic basis and can be quickly integrated into our business," said Intelsat CEO Conny Kullman. Less than an hour after Loral announced its satellite sale and bankruptcy filing, Boeing announced that it would take a $1.1 billion charge in its fiscal second quarter to account for the poor performance of Launch and Orbital Systems, its launch vehicle and satellite division. The bulk of the charge‹$835 million‹is designed to take into account the lack of anticipated commercial business for its Delta 4 launch vehicle, while the remainder accounts for cost growth of several projects at Boeing Satellite Systems. "Launch and Orbital Systems has suffered from a terrible marketplace, from some technology problems and from some performance problems," Boeing CEO Phil Condit said during a conference call with financial analysts Tuesday. Boeing had planned that the Delta 4, developed as part of the Air Force's Evolved Expendable Launch Vehicle (EELV) program, would get half of its business from the commercial sector and the other half from the government. However, those projections were made in the mid and late 1990s, when the commercial launch market was booming. Since then the market has dropped drastically as a number of communications satellite ventures have folded and established companies have completed efforts to replenish their fleets of satellites. The drop in demand has created an increasingly competitive environment among commercial launch providers. This has made it difficult for Boeing to sell launches on the relatively high-priced Delta 4.While the inaugural Delta 4 launch in November 2002 was a commercial launch, which Eutelsat reportedly purchased at a steep discount, Boeing has had difficulty since then securing commercial customers. Because of those problems, Boeing executives said they anticipated no commercial launches for the Delta 4 at least for the next five years, as the company focuses on the government market. Jim Albaugh, head of Boeing Integrated Defense Systems, the parent of the Launch and Orbital Systems division, said it might be possible for Boeing to start selling Delta 4 boosters commercially late in the decade "when people are willing to pay a premium price for a reliable launch vehicle." Boeing anticipates it will split the government launch market 50-50 with Lockheed Martin's Atlas 5 for launches from Cape Canaveral, Florida. Boeing currently has all the launches from Vandenberg Air Force Base in California because Lockheed Martin built no facilities there for the Atlas 5, a decision the company is reportedly reconsidering. However, at the same time Boeing is facing scrutiny for possible illegal activities by two of its employees during the EELV bidding process in the mid-1990s. The Air Force is investigating whether Boeing employees improperly obtained and used confidential Lockheed Martin documents when preparing its bid, allowing Boeing to win the majority of the original set of EELV launch contracts announced in 1998. Lockheed Martin filed suit in federal court last month alleging misappropriation of trade secrets. Boeing is also facing a number of problems with its satellite manufacturing business, which it acquired from Hughes in 2000. The first set of the large Being 702 satellites had problems with their solar concentrators, reducing the amount of power available to the satellites over time. The older Boeing 601 series of satellites have also experienced problems with onboard electronics that have led to the premature loss of several orbiting spacecraft. On Monday, satellite operator PanAmSat reported that two its Boeing 601HP satellites have suffered failures of their xenon ion propulsion systems (XIPS), small ion thrusters used for stationkeeping. The satellites have backup chemical-propellant thrusters, but have only enough propellant to operate for a few years. Albaugh said Tuesday that Boeing became aware of the XIPS problem 18 months ago and performed Monte Carlo modeling to determine when other 601HP satellites currently in orbit might experience similar problems. "We predicted that we would see the kinds of failures that were recently seen by PanAmSat," he said. "Clearly we were disappointed in the failure, but it was what we would have predicted based on the number of those systems that are in orbit." Boeing officials said the charge assigned to Boeing Satellite Systems covers cost increases for four satellite programs, including Wideband Gapfiller, a military communications satellite based on the Boeing 702. Albaugh said that the company has experienced problems with contamination with electronics used for the spacecraft, as well as difficulties with antennas for the spacecraft. Other changes are in the works for Boeing's commercial space division. Condit said that Boeing will announce a number of management changes in the unit in the next week. One change announced Tuesday was that David Swain, the chief technical officer of Boeing, would become the chief operating officer of the Integrated Defense Systems unit. |
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