Although Zeus Holdings Ltd. has the right to terminate its acquisition of Intelsat following the recent failure of the IS-804 satellite, industry observers believe the transaction will go through, but with a renegotiated price.

“It will probably lead to a renegotiation [of the price],” Michael Weaver, telecom analyst with Fitch Ratings, told Satellite News. The IS-804 failure is not a significant “to the extent that it would stop the sale, but it will probably reduce the acquisition price.”

Weaver said the satellite, if it were brand new, would be worth about $200 million and this particular satellite “didn’t necessarily have a full useful life left in it, [so the likely result would be] about a $100 million reduction in the [$5 billion] acquisition price.”

Weaver added that based on the region that the satellite covered as well as the fact that Intelsat does not have a real good back-up satellite that could duplicate the coverage in the Asia-Pacific region, the failure “will lead to some modest revenue reduction in the range of about $20 million per year.”

The other impact going forward, Weaver said, could come in the form of altered capital expenditure plans. “It potentially could increase some capital spending plans throughout the next two to three years where [the new owners] would also have to factor in a replacement of this satellite.”

An industry observer, who requested his name to be withheld from publication, said that from a general standpoint, Zeus Holdings will be looking at the entire Intelsat fleet and not just on the two recent failures as it makes its decision to move forward with the acquisition.

The IS-804 failure “is probably not a catastrophic loss,” the source said.

A spokesman from Zeus Holdings declined to comment on the impact of the IS-804 loss on the current negotiations.

Second Failure In Two Months

The IS-804 is the second satellite failure Intelsat has experienced in as many months. The spacecraft, which offered telecommunications and media delivery services in the South Pacific, went dark on Jan. 14. About 80 customers used the satellite, Intelsat spokeswoman Jodi Katz told Satellite News.

Katz noted that all IS-804 customers have been offered alternative capacity. Katz added that unlike the recent Intelsat Americas-7 blink, Intelsat “does not believe restoration [of the IS-804 satellite] is possible at this time.” The Intelsat Americas-7 satellite went dark on Nov. 28, 2004, but partial service was restored about a week later.

The IS-804 satellite is a Lockheed Martin 7000 series satellite. It had been in service since 1997. Intelsat said the satellite experienced an unexpected electrical power system anomaly, causing the total loss of the spacecraft. Katz said Intelsat and Lockheed Martin are working together to determine what exactly caused the catastrophic failure.

Katz said that there are three more satellites in Intelsat’s fleet that share a similar design to the IS-804 and those spacecraft are operating normally. The failures of the IS-804 and the Intelsat Americas-7 satellite are unrelated as the two spacecraft are of different designs and were built by different manufacturers (IA-7 was built by Space Systems/Loral).

Dee Valleras, spokeswoman for Lockheed Martin, said there are a total of eight 7000 series satellites still in orbit and operating normally. And although the root cause of the failure has not yet been determined, Valleras said, “Right now there are no indications of a systemic issue” that could result in problems or failures with the other eight 7000 series satellites still in orbit. “Once the cause of the anomaly is determined, we will review it with our customers to determine if there are any lessons learned to be applied” to prevent other satellites from experiencing the same failure.

The IS-804 failure was not the first experienced by the 7000 series satellite. Two satellites in Telstar’s fleet, which are now owned by Intelsat, failed, including the Telstar 401, which failed in 1997 after a solar array short after about three years of service and the Telstar 402R, which failed in 2003 from a power short after eight years of service. Other current operators of 7000 series satellites include New Skies, AsiaSat and EchoStar Communications Corp.

At press time, Katz did not have any information regarding whether Intelsat will accelerate any plans to launch a replacement for IS-804 satellite. Katz said the first priority was to return all IS-804 customers to service and questions regarding replacing the satellite would be answered at a later time. Intelsat said in a press release that it expects to record a non-cash impairment charge of approximately $73 million to write off the value of the satellite, which was not insured. It is Intelsat’s practice to not insure satellites with a net book value of less than $150 million.

–Gregory Twachtman (Michael Weaver, Fitch Ratings, 312/368-3156; Jodi Katz, Intelsat, 202/944-8223; Dee Valleras, Lockheed Martin, 215/497-4185)