By Blaine Curcio

Intelsat—the world’s largest or second-largest satellite operator, depending on whom you ask and how you count—recently completed its Epic Next Generation, or EpicNG constellation of GEO high throughput satellites (HTS). The constellation represented 6 satellites providing high throughput capacity globally, with a customer base including MNOs, mobility service providers, and media companies. Overall, EpicNG has been touted as a generally CAPEX-efficient way of replacing a lot of satellites. Intelsat’s fleet of more than 50 GEO satellites requires regular replacement, and with satellites costing >$300M, Intelsat (and others) hope to take advantage of HTS—Intelsat can launch a single HTS for perhaps 1.2-1.5x the cost of a legacy satellite, but the HTS has as much capacity as several legacy satellite. Therefore, if one EpicNG replaces 2-3 traditional satellites, it can be a winning proposition for Intelsat. As long as the new satellites work.

At the beginning of April 2019, Intelsat-29e—the first EpicNG satellite launched by Intelsat (2016)—sprung a fuel leak, and started experiencing communications issues shortly thereafter. In the hours following, the satellite began to drift across the GEO arc, and eventually it was considered a total loss by Intelsat. While not necessarily catastrophic for the company, the fact that Intelsat-29e was uninsured beyond its first year of life, and the fact that it was such a large satellite over such a critical region for the company (Americas), means that the loss is significant. The impact of the Intelsat-29e loss may be felt for some time.

The Financial Impact

Shortly after the satellite’s loss, Intelsat released Q1 2019 results, with the company indicating therein that the loss of the satellite would impact 2019’s financials to the tune of US$45-50 million. With the satellite not being insured, this means that the company will see 2019 revenues impacted by around 2%, causing the lower end of the company’s previous guidance to become the baseline. With that being said, a glimmer of hope could be taken from the figure on 29e. The fact that the company lost out on US$45-50M in revenues for 9 months of the satellite’s lifetime (April 2019-December 2019) indicates that the satellite was earning around US$60 million in revenues per year—at least.

The reason that the US$60M figure falls at the lower end is because Intelsat said the US$45-50M impact would be on revenues, not on profits. This means it could be possible that the satellite was earning US$75M per year, for example, and Intelsat can now either migrate to other satellites (thus not impacting revenues), or buy US$15M per year worth of capacity elsewhere, re-sell it to existing customers, and are thus losing US$60M worth of customers as a pure loss, i.e. no chance of migrating to another Intelsat satellite or a third party satellite, via Intelsat leasing capacity and re-selling.

Admittedly,  it is not impossible that management saw this event occur, and will make use of it as a reason to lower revenue expectations for what may be a tough year, but if we are to take Intelsat at face value, we can assume that this satellite was generating around US$60M per year in annual revenues. If so, this is significant, insofar as it is a vote of confidence in the capability of HTS to markedly increase the revenue generation capability per CAPEX dollar spent. For example, the US$60M in implied revenues for Intelsat-29e is ~2x the average per-satellite revenue for traditional satellites. However, the cost to manufacture + launch 29e was, probably at most, ~1.5x the cost of traditional satellites, and the revenue generation of US$60M was likely being done at a relatively low fill rate (perhaps 50%).

The Technological Impact

Boeing has earned a reputation as one of the world’s leading space companies, manufacturing highly advanced satellites and rockets among other things. However, the failure of one of the highly advanced EpicNG satellites at such an early age (3 years) may cast a shadow over the company—at least until the issue is fully understood. Potentially to the benefit of Boeing, the satellite’s core issue was a fuel leak, which may be less concerning than some serious problem with something like the C-band frequency reuse being used on 29e, the first satellite to employ such technology.

The remaining 5 EpicNG satellites all employ some combination of HTS and FSS widebeam capacity, and they have a combined ~70+ years of on-orbit life remaining. Moving forward, Boeing may be somewhat more deliberate in the final signing off on Amos-17—a C-band, Ku-band, Ka-band HTS to be launched for Spacecom in Summer 2019, as well as Kacific-1/JCSAT-18, to launch in Autumn 2019. With that being said, this event will likely not stop Boeing from maintaining its role as one of the premier GEO satellite manufacturers, although one could rightly point out that such a distinction is becoming rapidly less attractive as the GEO market continues to experience a prolonged slump in orders.

Risk Management

Intelsat-29e was not insured by the company, and Intelsat announced that they would likely experience a US$400 million impairment charge associated with the satellite failure. As is the case with many satellites, Intelsat-29e had insurance for the launch, in-orbit raising, and some months of operation. Therefore, at this point in the satellite’s life (nearly 3.5 years after launch), the satellite was wholly uninsured.

As satellite operators such as Intelsat continue to launch larger HTS payloads, and potentially, consolidate existing customers from multiple satellites onto single satellites, such a development could lead to higher propensity to buy insurance on those specific satellites that account for a disproportionately large amount of revenue.

On the whole, the risk management impact of the 29e failure is likely to be that operators become slightly more aware of the risks of in-orbit failures. After a fairly long dry spell, the last several years have seen a few odd total in-orbit failures.

Conclusions

The total loss of Intelsat 29e punches a large hole in Intelsat’s newly-completed EpicNG constellation. With that said, the company maintains a lot of capacity onboard the remaining 5 HTS payloads, and significant capacity on the rest of its fleet. The short-term impact on Intelsat’s finances will apparently be negative. Capacity in the Americas has become scarcer than before, as ~25 Gbps of capacity have been taken out of the market. Overall, the market continues to move forward, with Intelsat-29e’s failure being a reminder, above all else, that space is indeed hard.