[Satellite News 10-06-11] U.K. operator Avanti Communications will announce the commission of its Hylas-3 satellite in the near-term thanks to encouraging pre-sales on the future satellite, Avanti CEO David Williams told Satellite News.

   “We are not going to give a date regarding the Hylas-3 announcement, but it is in the very near-term,” said Williams. “The pre-sales for Hylas 3 almost gets us across the line. We are ready with a procurement contract and we are close to securing Export Credit Agency (ECA) financing, so we are pretty close on it.”

   According to Williams, the operator would have already made the announcement, but instead chose a more patient approach in order to gain access to high-quality ECA financing.    “We could have rushed ahead and had Hylas 3 financed already. We have had lots of offers for finance from investment banks for high-yield debt so we could have moved forward on it six months ago,” he said. “This is a long-term business. It is more important to access low cost financing below 5 percent interest with very high-quality partnerships and to get the financing right rather than to move forward in a hurry.”

   The announcement of a new satellite would follow the release of Avanti’s full-year 2011 financial results issued Oct. 3. The U.K. operator saw revenues of 5.46 million British pounds ($8.47 million) — a slight decrease compared to the same stage last year — along with a significant increase in overall losses at 9.7 million British pounds ($15.05 million). Despite the disappointing profit margin, Williams said the final figures are nothing to worry about.

   “The decrease in revenues and increase in losses are precisely in line with the expectations that we gave to the market over a year ago. The results we have reported include a nine-month period prior to the launch of services on Hylas-1, which were launched in April 2011,” said Williams. “There is only 2.5 months of Hylas-1 revenue in these results and we had actually stopped installing our Ku-band system at the end of 2010. We thought it was silly to install systems that would have to be replaced within a financial year, so there was no installation revenue from our Ku-band system in the first nine months. As a result, the revenues reduced during the first nine months but started to come through in April for Hylas 1 services.”

   In a research note, Nick Bell, a satellite equity analyst at Jefferies International, agreed with Williams’ assertion that the company’s performance had been in line with expectations.    “Backlog of 171 million British pounds ($265.33 million) was up 4 million British pounds ($6.21 million) from the last time they were reported back in April. We estimate that 4 million British pounds ($6.2 million) of satellite sales have been reported since that time, implying an increase of 8 million British pounds ($12.41 million) or 6 percent over the last six months. Pipeline at 473 million British pounds ($733.94 million) shows an increase of 46 million British pounds ($71.37 million) from April, or more than 11 percent. Capacity utilization now stands at 36.7 percent in year three of operation.”

   The operator saw its Hylas-1 satellite enter into commercial service earlier this year with the launch of Hylas-2 less than a year away. The company is five months into a six-year business plan, according to Williams, who is happy with the company’s current positioning. “We expect to see Hylas-1 and Hylas-2 filled within three and five years, respectively. We are just five months in [from Hylas-1’s launch] but we have already sold enough on Hylas-1 to reach 37 percent utilization,” he said. “We are a third of our way towards the Hylas-1 target and less than a sixth of a way through the three years, so it feels as though we are in a very strong position to meet the target of fully saturating Hylas-1 on schedule. The market in Europe for our services is pretty strong.”

   At the time its 2011 results were issued, Avanti also announced it had secured insurance for its Hylas-2 satellite. Williams believes the key fact behind this deal was that insurers are now more comfortable than ever insuring Ka-band satellites. “Hylas-2 is insured for $328 million and we made a massive saving on the premium. That is naturally helpful for cash flow, but it also shows that the insurance market regards Hylas-2 as a well-managed, low-risk project. It is a big advance for Ka-band. It shows that insurance underwriters are totally comfortable with the risk profile of Ka-band satellites. The insurance deal for Hylas-2 was not a difficult deal to close. The significance of it was that it was not difficult and came in substantially under our original budget.”

   Once the Hylas-2 satellite is launched, Avanti will focus its efforts on maximizing expected services growth in emerging markets by dedicating more than 75 percent of its capacity to key regions. “We are really an emerging markets telecoms company. The market is in our favor. We have a long way to go, but we are comfortably on target, if not slightly ahead of targets,” said Williams. “We have also reported that our pipeline for contracts that are in negotiation has increased to 473 million British pounds ($728.8 million). Within that pipeline, there are three or four very large contracts, which are at the board approval stage. We know the sales cycle can take between 9 to 12 months for high-value transactions. We are at the very end of some of those sales cycles and I hope that some of those big contracts will be landing in the near-term.”