by Cynthia Boeke
The recent spate of launch failures and in-orbit anomalies may have cast a shadow over much of the satellite industry, but one company has found a silver lining in this celestial cloud. Assuresat, a startup company founded by several well-known satellite executives, is developing an innovative business plan to help operators whose satellites don’t work. Assuresat plans to launch at least two satellites that can provide an instant, in-orbit umbrella.
When it comes to satellite losses, the recent numbers speak for themselves: Spacecraft insurers are paying more in claims than the premiums they take in. "From the insurance underwriters’ standpoint, 1998 was the worst year on record," says Christopher O’Gwen, assistant vice president of U.S. Aviation Underwriters. Last year alone resulted in losses of $1.9 billion, compared to premiums of $950 million, a devastating phenomenon that "eclipsed the profit of the last three years," according to O’Gwen.
Current attention often is focused on the large number of satellites that experience total or partial breakdowns in space. In 1998, 24 in-orbit anomalies and failures cost insurers and underwriters $1.4 billion. The reasons for such failures are complex. "Clearly, commercial pressures have forced manufacturers to cut corners in the testing of satellites," says O’Gwen. "This cutting of corners allowed manufacturers to save money, but, more importantly, time. Not only are these satellites being built faster, they’re using newer technologies that are much larger in size and scope than they have been previously."
In addition to the virtual gale of in-orbit satellite failures sweeping across the industry, the potential for more frequent launch failures is looming on the horizon. A host of new and unproven commercial launch vehicles are entering the market, leading to a possible spike in launch failures. "We do expect that the failure rate will increase as these new launch vehicles meet the market over the next few years," O’Gwen says.
The result: Satellite operators are worried and their customers are fuming. "Between HBO and Turner Broadcasting, we have many billions of dollars of revenue going through satellite transponders each year," says Bob Zitter, senior vice president of technology operations for HBO. "When we start talking to potential vendors for our satellite replacement capacity, reliability is going to come at the very top of that list. If your product doesn’t work, we don’t want to talk to you."
Looking ahead, satellite manufacturers promise improved technical quality. The largest satellite operators have already begun ordering extra spacecraft to back up their fleets. In-orbit satellite insurance to cover lost revenues during outages is on the rise. But these solutions do not always fit the bill. A better track record for in-orbit satellites remains to be seen. Buying extra birds is too expensive for many operators. And, no amount of insurance can replace the loss of long-term customers who may switch operators when a satellite goes kaput.
So what is the answer? One company believes it can resolve the issue, in the case of complete satellite failures, through an innovative service. "Assuresat is going to solve the problem of in-orbit backup of existing satellite fleets," says Jerald Farrell, CEO and president of Assuresat Inc. According to company executives, Assuresat is buying two satellites that will be capable of replacing virtually any of the existing C- and Ku-band satellites in the world, while providing substantially similar coverage and capacity.
Headquartered in El Segundo, CA, Assuresat is headed by several executives deeply familiar with the business they are aiming to serve. Assuresat Chairman Mark Fowler served as the chairman of the Federal Communications Commission from 1981 to 1987. During his tenure, Fowler authorized the sale of satellite transponders for the first time, and reduced orbital slot spacing from three to two degrees, creating new orbital positions for U.S. satellite operators. President and CEO Jerald Farrell ran the Hughes Communications Inc. (HCI) Galaxy satellite system from 1984 until he retired in 1997. Chief Operating Officer Bruce Lederman, a senior partner at Latham and Watkins, represented HCI and Galaxy in structuring and negotiating many of its commercial satellite transactions.
Although new to the public eye, Assuresat has been in development for more than a year. One reason the company took so long to come to fruition is the sheer technical complexity of the project. "It’s not the easiest thing in the world to design a satellite that can back up the majority of the world’s FSS satellites," says Farrell. "Raising money for a venture of this type is time-consuming as well."
Given the Hughes background of two of its top executives, many industry insiders were surprised when Assuresat selected Space Systems/Loral, and not Hughes Space and Communications, to build its birds. "We got good proposals from Hughes, Loral and Lockheed Martin," Farrell says. "We selected Loral based on the winning combination of their technical specifications, cost and performance."
Not surprisingly, Assuresat will be backing up significant portions of the Loral Skynet fleet as part of the deal. Skynet will use Assuresat for launch backups, as well as redundancy for parts of its Telstar and Satmex fleets. But Assuresat is reaching out to a much wider customer base, and does not expect all of its satellites to be built by one company. "Our expectation and hope is to have a diversity of suppliers," emphasizes Farrell. "We will be buying additional satellites as the market grows."
The two Space System/Loral 1300 spacecraft will be technical marvels. They will carry multiple C- and Ku-band antennas that can replace up to 36 Ku- or 36 C-band transponders, or 24 C- and 24 Ku-band transponders simultaneously. Able to operate in any of the three ITU regions, they will have complex switching capabilities. They will also carry a significant amount of extra fuel, since they may need to be moved around the world quite frequently at a rapid pace. The first launch is slated for September 2001.
With a $500 million price tag to build and launch the first two satellites, finding funds for the Assuresat system was no simple feat. "There’s a large amount of both equity and debt that we had to raise," Fowler says. He says Assuresat has major equity commitments from Securitas, an investment fund owned by the reinsurance company Swiss Re, and by Credit Suisse, one of the largest Swiss banks, as well as money from "other venture capital funds." On the equity side, Assuresat is working with Donaldson, Lufkin and Jenrette. Assuresat is also using the Argent Group to complete a secured debt financing package. Fowler will not give names but says "several groups of banks and one other large lending institution have a high interest in providing the debt."
Assuresat will charge an access fee at a "standby rate" to satellite operators who will have the right to lease an Assuresat spacecraft if their own satellite is lost during launch or suffers from a total in-orbit failure. The operator, who can lease the satellite until its own replacement is launched, then pays Assuresat a standard monthly lease fee. Although operators may lose some short-term revenue while they replace their satellite, the real benefit, stresses Farrell, is that they won’t "lose their customer base, which can be worth up to $1 billion."
If multiple customers need to lease an Assuresat bird, "the first person who needs it, gets it," says Farrell, stressing that the odds of such a situation are low. "But," he adds, "that’s one reason we need multiple satellites. Once the satellites are being used, customers stop paying the access fee until we have another available satellite."
It may seem like Assuresat is taking advantage of operators in distress. "Not so," responds Fowler. "In the first place, we are in the protection business. We don’t want to be in the position of not having any Assuresats available. Then we would have unhappy customers. We tried to set this up so we’re mutually indifferent to what happens. Our business plan will succeed with our standby rates alone."
But operators who do not pay the standby rate, and then suffer an in-orbit loss, should not think they can turn to Assuresat for help. "Our standby rate buys operators the right to require us to lease our satellites to them," Farrell says. "If they don’t buy that protection and their satellite fails, they don’t have the right to use Assuresat."
What if the unthinkable occurs, and the Assuresat satellite system fails? "We face the same risk our customers face," Farrell says. "We will need to replace it fast."
Cynthia Boeke is the Editor of Via Satellite.
