Loral Announces Numbers, Is Deemed To Be On The Verge Of Becoming A Top-Tier Satellite Player

The announcement that Space Systems/Loral (SS/L) will manufacture the NSS-12 spacecraft for SES New Skies came as small but further indication of the overall health of SS/L’s parent company just two days after the release of Loral Space and Communications Inc.‘s first quarter numbers.

Loral’s revenues reached $221 million in the first quarter, up 28 percent from the first quarter of 2006, the company announced. The company reported a net loss of $17 million in the 2007 first quarter, which closed March 31. In the first three months of 2006, Loral lost $16 million.

Loral credited the revenue gains to a 44 percent, or $200 million, increase in revenues at its satellite manufacturing unit.

"For the past three years SS/L has been increasingly the leader in contracts signed," said Marco Caceres, an analyst with Teal Group.

"From 2004 to 2006, they had a total of 11, which put them among the top five manufacturers. They have continued to do well: In the first quarter they had two, and they have signed another two already in the second quarter, which at that pace they can have six or seven for their best year since 2002," Caceres noted.

"Loral’s results remain on course, carrying our successes from 2006 into a solid first quarter in 2007," said Michael Targoff, CEO of Loral, during a conference call. "Our satellite manufacturing business, SS/L, continues to perform well, winning two awards during the quarter. SS/L has successfully expanded its market over the last year to capture opportunities in the growth of high-definition video services by direct-to-home service providers, mobile multimedia and communications platforms, and broadband data services – all applications that are driving satellite industry growth."

Loral Skynet, Loral’s satellite services unit, reported first quarter 2007 revenues of $34 million, down slightly from $36 million reported in the first quarter of 2006. Capacity utilization on Loral’s satellite fleet at the end of the 2007 first quarter was 72 percent.

Targoff also expressed being "enthusiastic" about the company’s pending acquisition of Telesat Canada, though the deal must still be approved by the U.S. Federal Communications Commission (FCC) and Industry Canada.

"On the satellite services side, we continue to move ahead in our Telesat Canada transaction. With Telesat we have received the antitrust approval and the transaction has moved through the public comment portion of the FCC approval process with no comments being filed. We’re on course to close the transaction this summer, with integration activity planning well underway."

The deal would effectively make the new Telesat the world’s fourth largest satellite operator, with a backlog of more than 5.5 billion dollars Canadian ($5 billion).

The backlog includes the benefit of two satellites under construction whose entire payloads have been leased for the life of the satellites at a combined value of $379 million.

Targoff also noted that the entire Ku-band payload of Anik F3, launched in April, was entering the commercial service in the beginning of this month.

Still, he said "SS/L’s cost of goods sold this quarter did not show the economies of scale that might be expected with the revenue growth we achieved. This was because we experienced higher anticipated costs with subcontracted parts."

While Caceres believed Telesat will remain far smaller than satellite operating rivals Intelsat and SES Global, but "clearly they’ve become a top-tier player," he said.

"You recall a few years ago they were selling off their satellites to Intelsat. I assumed at the time they were probably not going to put much emphasis on their satellite services operation," he said.

Caceres said he now believes that "now with the acquisition, it shows that in a short period of time they have decided to become at least a second-tier player with a commitment to stay in the market."

He addded "that’s good, because you traditionally don’t make a lot of money in the manufacturing or the launching sides. You can live well, but the real money comes when, once you pay for the satellite launch, you can have it up there for 20 or more years leasing out the transponders and making money without really investing anything more."

J.J. McCoy

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