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Sea Launch inching closer to recovery as it reviews plans

Posted: October 1, 2009

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Sea Launch has identified several potential sources of financing to help the beleaguered launch provider recover from bankruptcy, assuming the company can follow a profitable business plan and hold on to its customer base.

This file photo shows a Sea Launch Zenit 3SL poised for launch. Credit: Sea Launch
Since filing for Chapter 11 Bankruptcy protection in June, Sea Launch has begun working with a committee of creditors and customers through a Delaware court to get the company back on stable financial ground.

Kjell Karlsen, president and general manager of Sea Launch, said in an interview last week he hopes the company can secure so-called debtor-in-possession financing in October.

That would be the first step in Sea Launch's potential re-emergence from bankruptcy.

"We're working with a couple of potential sources," Karlsen said.

Although Karlsen declined to name the would-be lenders, he said they are familiar with the satellite industry.

"They have either dabbled in operators or in other suppliers to the industry, or are currently involved with suppliers or operators in the industry," Karlsen said.

According to Karlsen, Sea Launch will continue seeking more financing options before making a decision.

"These are pretty expensive facilities and the more alternatives you have the better off you are. And at the moment, I think we're going to have at least a couple of alternatives and we're hoping we can entice a few more in," Karlsen said.

Karlsen would not disclose exactly how much money Sea Launch needs to return to operations, but said it was not a "large amount."

The financing would be the first step in the road back to operations for Sea Launch, but the company must prove it can be profitable under realistic business conditions in the future.

Officials have set an early goal to emerge from bankruptcy by the end of the first quarter of 2010. Launch operations from sea could resume by the end of next year.

Sea Launch is working on a business plan that could be profitable with four missions per year. The company's infrastructure, including ships, rocket and satellite processing, can support about six launches per year.

Karlsen said last week the company now has contracts for four firm Sea Launch missions, plus four options from Intelsat and additional options with other customers.

The company's Land Launch subsidiary has two flights on its manifest, both with Intelsat.

Land Launch is continuing preparations for a November mission with the Intelsat 15 spacecraft from the Baikonur Cosmodrome in Kazakhstan.

The court agreed to a proposal from Intelsat to bypass Sea Launch in favor of working with its Moscow-based partner, Space International Services.

Intelsat will make contract payments directly to SIS for its two upcoming launches.

As of last week, the Sea Launch backlog included two launches for the European operator Eutelsat, one flight for Intelsat, and one mission for Sirius XM Radio.

But in court documents posted Thursday, Sea Launch filed a proposed order rejecting its contract with Sirius XM radio for the launch of its XM 5 broadcasting satellite.

"It would be in the best interests of the parties and the debtors' estates for the debtors to reject the launch agreements," the filing said.

Sea Launch and Sirius XM Radio were not available for immediate comment.

The document is pending approval by the court. If allowed, documents show Sea Launch would owe more than $16 million in damages from the rejection.

Sea Launch's customers have filed motions to compel the provider to reject or assume its contracts. The Sirius XM radio agreement would be the first contract lost since the company's entrance into bankruptcy, but Eutelsat has swapped rockets for its next satellite.

Eutelsat moved their W7 communications satellite to the rival International Launch Services Proton rocket last month.

Eutelsat officials said they needed to launch the satellite this year, and Proton had a slot available in November.

"Timely access to space is an essential component of Eutelsat's significant satellite expansion program of nine satellites to launch between 2008 and 2011, and most particularly in the case of W7," said Giuliano Berretta, Eutelsat's chairman and CEO.

Eutelsat is keeping its contract with Sea Launch for a future unspecified mission.

"Concerning Sea Launch, we firmly intend to pursue our discussions with the shared objective of delivering future Eutelsat spacecraft into orbit," Berretta said in the Sept. 7 announcement.

Sea Launch is also in a disagreement with O3b Networks Ltd., a company planning a satellite constellation to provide global Internet coverage for telecommunications operators and service providers.

O3b Networks signed a contract last year for two flights on Sea Launch. O3b secured a back-up launch capability earlier this year with Arianespace, although the new pact has not been formally announced.

"Sea Launch's financial situation and its impact on their ability to perform affected the decision," an O3b Networks spokesperson said.

The move reportedly occurred before Sea Launch's June bankruptcy filing.

Karlsen said O3b was seeking financing that Sea Launch was not able to provide. In a press release last month, the satellite operator announced it had secured $465 million in buyer credit with the help of Coface, the export credit agency for the French government.

O3b needed the funding to pay for the construction of its constellation of 16 satellites by Thales Alenia Space.

The issues with the Sirius XM, Eutelsat and O3b contracts come on the heels of other customer defections to Proton and Ariane due to the schedule requirements of operators.

According to Karlsen, officials are reviewing Sea Launch's current backlog to ensure each contract is profitable and sustainable in its new business plan. If not, more customers could be forced to make changes.

"If for some reason we're not able to find solutions for some of these contracts, then we will be forced to make some tough decisions," Karlsen said.

Sea Launch's sales team is also negotiating with potential customers for new firm missions.

"We haven't gotten what I would call a firm contract yet, but we were far down the line with, for instance, Intelsat and others on discussions on new satellite assignments. So we are continuing those discussions as part of this process," Karlsen said.

During last month's World Satellite Business Week conference in Paris, Intelsat and Eutelsat leaders expressed support for Sea Launch and said they would launch more payloads on the company's Zenit rockets after its recovery.

"The mood has shifted among the operators, and I think that came out very clearly from Paris," Karlsen said.

Ballooning launch backlogs on Ariane and Proton caused many satellite executives to plead for more options, including Sea Launch, Chinese rockets and the U.S. Atlas and Delta fleets.

"Now we don't see any operator complaining about launch prices anymore. What they're worried about is access to space," Karlsen said.

"Whether they pay $100 million or $120 million for a launch probably is not going to make that big of a difference for a 6,000-kilogram satellite's business plan. But if they don't have their suppliers and can't get access to space, then that will make a huge difference on their business plans," Karlsen said.