APT AND LORAL SPLIT SATELLITE UNDER NEW CONTRACT
Loral doesn’t have to use Chinese Long March rocket to launch Asia-Pacific Telecom (APT) Apstar 5 satellite if U.S. govt. doesn’t approve export license by Sept. 30, under terms of new $110 million contract with APT Satellite of Hong Kong, Loral announced Mon. APT has decided to allow Loral to break agreement to use Chinese booster in exchange for purchase of half of 54 transponders on Apstar 5 along with sharing $230 million cost of building, launching and insuring satellite, companies said. Loral will retain 50% ownership of satellite regardless of launch site, under contract signed Sept. 20. APT and Loral will select new launcher jointly if State Dept. fails to approve license, companies said. Loral’s capacity on Apstar 5 will be designated Telstar 14. Satellite is scheduled for launch in 3rd quarter next year, Loral said.
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Loral will pay $115 million for 19 C-band and 8 Ku-band transponders in increments through 2008, company said. Total of $57.5 million will be paid before launch and funded primarily from liquidation of existing launch deposits and cash on hand. Second $57.5 million will be paid in increments of $10-$17 million annually beginning in 4th quarter 2005. Payment schedule is expected to coincide with anticipated utilization of satellite. Contract won’t alter projected cash and capital expenditure plans for Loral through 2004, company said.
“This is a low-risk opportunity” to add capacity in Asia, India and China “at very favorable terms,” Loral CEO Bernard Schwartz said: “With no change to our funding requirements, we are increasing our revenue potential earlier than expected.” Schwartz said each of markets served by Apstar 5 had “high growth potential.” Deal gives Loral presence in Asian market and perhaps gives other U.S. companies blueprint on how to work around “cumbersome and restrictive” export licensing process, satellite analyst told us. He said APT “did a complete turnaround” on contract and it appeared “things are going work out in Loral’s favor. They could have really held their feet to the fire.”
Originally, Loral was to enter Asian market with launch of Orion 3 in May 1999, but Delta 3 rocket anomaly left satellite in wrong orbit. When Orion 3 was lost, Loral set up lease arrangement on Apstar 2R satellite to serve Asian customers. It leased all but one of transponders and they still are considered part of fleet of Telstar satellites operated by Loral Skynet unit.
Cost of Apstar 2R lease has been applied to Apstar 5, but contract was contingent upon Loral’s receiving State Department clearance to launch satellite on Long March booster, APT said. Loral was in danger of defaulting on old agreement when current deal was signed. APT expects to apply $18 million deposit paid for Long March launch to future Long March launch of another satellite if Apstar 5 is launched on another rocket, said industry source familiar with contract. APT and Loral wouldn’t confirm specific details of contract. APT said it agreed to sell Loral stake in Apstar 5 to save money and prevent loss during downturn in telecom market. Apstar 5 is scheduled to replace Apstar 1 that’s due to be retired in 2004.
Loral has been seeking export license for Apstar 5 since Jan. 2001. It did receive technical assistance grant, but it didn’t get export licensing authority from State Department by June 2001 as required by APT contract. One of problems facing Loral has been U.S. govt. effort to monitor satellite export agreements with China because of concerns about proliferation of missile technology. Loral paid $14 million fine in Jan. to settle with State Dept. claim it had shared classified information with Chinese without authorization during investigation into cause of explosion that destroyed Long March 3B rocket and Intelsat satellite in 1996. Hughes Electronics and Lockheed Martin also were accused of sharing sensitive information in 1990s, causing crackdown on licensing procedures for U.S. satellites.
U.S. would have to waive 3-year penalty against China that was imposed in 2001 for Loral to receive export license for Apstar 5 launch from China. Loral has another satellite, ChinaSat 8, that has been waiting for licensing authority from U.S. for 4 years. China Telecom hasn’t backed off demand that ChinaSat 8 be launched from China. Nevertheless, company may be softening stance because it hasn’t exercised option to terminate deal with Loral, industry lawyer of rival company said.
Meanwhile, Standard & Poor’s (S&P) lowered senior unsecured debt rating on Loral to triple C- from triple C+ and its preferred stock rating to single C from triple C and placed ratings on credit watch with negative implications. Rating action follows decision by Loral to exchange cash and common stock for each share of Series C and Series D preferred.