Orbital Sciences Looks Ahead To Improvement

Orbital Sciences’ [NYSE: ORB] success last week launching the long-delayed OrbView-3 satellite for Orbimage should boost its recovery efforts. Orbital also is helping itself by issuing lower-cost debt to replace higher-cost debt obtained last year when it was unable to secure favorable interest rates.

“We think the worst is behind us. The second half of the year should be better than the first half,” said Barron Beneski, Orbital’s vice president of communications.

Since Orbital won a fixed-price contract to construct the OrbView-3 satellite, the company probably lost between $50 million to $100 million on the satellite due to cost overruns and delays, said Paul Nesbit, an aerospace analyst with JSA Research, of Newport, R.I.

Problems preparing that satellite for launch meant that roughly four years were needed to design, build and deliver the spacecraft, Nesbit said. Many satellites can be built in two years or less. In addition, Orbital will end up paying $4.5 million to Orbimage during the first half of this year because of late fees that were built into the contract.

“For Orbital, the launch means a satellite that had been a millstone around its neck since 1999 when they first started working on it is finally out of its hair,” Nesbit said. “It is a feather in Orbital’s cap that they have launched it successfully.”

The OrbView-3 launch and the debt restructuring are helping Orbital move beyond a financial “bad period,” Nesbit said.

Debt Restructuring

The debt restructuring should go through “very easily,” Nesbit said. That deal would offer $135 million of senior unsecured notes due 2011 and use the proceeds to pay off its current debt.

The debt restructuring should save Orbital roughly $15 million in annual interest payments during the first year alone, Nisbet said.

The company is in much better financial shape now than it was a year ago when it had no choice but to obtain debt at “very onerous” terms, he added. Since then, Orbital’s financial condition has improved and interest rates have fallen.

“Debt is being offered at lower interest rates than it was a year ago,” Nisbet said. “That is the case for everybody, even people refinancing their home mortgages.”

Orbital announced June 19 that it was estimating second quarter revenues of $152 million to $157 million, operating income between $1 million and $2.5 million, and a net loss ranging from $3.5 million to $5 million. The company’s estimated second-quarter free cash flow is approximately $12 million to $15 million.

The expected net loss is due to an operating loss at the company’s electronic systems segment and charges stemming from Orbital’s contract settlement with Orbimage, Beneski said.

–Paul Dykewicz

(Barron Beneski, Orbital Sciences Corp., 703/406-5000; Paul Nisbet, JSA Research, 401/847-1103)