It's a bit like going into labor, but before giving birth. Nine months after its original launching date, Amos 2, the second Israeli telecommunications satellite, is still on the ground, hoping for a launch on December 27 from Baikonur, the renowned former Soviet imperial launching pad in Kazakhstan. No one, however, is really sure that the date is final.
The first part of this interrview with Spacecom Satellite Communications CEO David Pollack, was conducted on December 18. At that time, Pollack said there was a very low probability that the launch would be delayed. But it was delayed, due to concern over a gas leak from one of the rocket tanks. Any further postponement would put the launch in 2004, and Pollack does not want that to happen, as it would cause financing problems. He wants a 2003 launch, come what may.
As of now, Pollack says the launch will be carried out on schedule, on December 27. At 11:30 PM Israel time, the Amos 2 will be launched into space by a Russian Soyuz rocket, which Pollack calls “an old Russian veteran with 1,700 launches to its credit,” involving a great many Russian cosmonauts.
Had he a choice, Pollack would not have picked Soyuz and Baikonur. He wanted the Arianne facility in France, not its Starsem Russian subsidiary. Arianne, however, was apparently fed up with the delays in the satellite’s construction caused by Israel Aircraft Industries (IAI). That is the main reason for the delays, and Pollack implicitly admits this. The previous deadline before December 2003 was July 2003, when Arianne had trouble with another satellite, and postponed the Amos 2 launch to 2004.
Spacecom, which sold transponders to Israeli and overseas customers, encountered serious financial problems, though no one expected it to meet its obligations. This is not the place to discuss the details of those problems, which involve interest rates and bonds; suffice it to say that financial collapse was looming. Since then, however, the launch was put forward to the end of 2003, and for the moment, Amos 2 appears to have kept itself out of the swamp.
On December 27, God, Arianne, and the old Soyuz launcher willing, several hundred guests will watch a live broadcast of the launch on a huge screen, somewhere in Tel Aviv. The shareholders (Eurocom Communications, Mer Group subsidiary Mer Services Group, Meir Amit group subsidiary General Satellite Services Co. (GSSC), and IAI) will make speeches, drink toasts, and Amos 2 will be on its way. The excitement, however, will not be as great as when Amos 1 was launched, when all of Israel held its breath.
”Globes”: Is Amos 2 ready for launching?
Pollack: ”It has passed the tests with flying colors, and is now being transferred by ship from the testing station in Germany to the Baikonur site.”
Had the launch taken place in July, would Amos 2 have been ready?
”My opinion is that Arianne thought that the satellite wouldn’t be ready in July, and that’s why the postponement occurred. IAI signed the launching agreement with the French company.”
When the postponement was reported, IAI wanted to sue Arianne for violating the agreement.
”We were very angry; I’m still angry. The delay cost us $30 million in revenue. At the time, we hadn’t anticipated that the satellite wouldn’t be ready. What angered us was Arianne’s announcement that the alternative was a 2004 launch. The Soyuz option came later, after we responded. Every month of delay costs us money. We originally promised service to customers in 2003.”
Better satellite coverage
What is Amos 2 capable of doing?
”Amos 2 covers the US, which Amos 1 didn’t. In professional jargon, this is called an Atlantic bridge. All the customers who positioned antennas to receive Amos 1 will receive service from Amos 2. The number of transponders is 50% more than the Amos 1. Amos 2 has 22 active 36-Mhz segments, while Amos 1 has 14. Not only can Amos 2 serve more transponders, but the transponders are more powerful: 76 watts per transponder, compared with 33 watts per transponder with Amos 1. That has enabled us to expand our European coverage very significantly, to the Ural mountains in the east, London in the west, and the Balkans in the south. We also have better coverage of the Persian Gulf countries.”
What is the significance of the agreement signed with the banks?
”The postponement of the launch posed a problem for us, because the agreement with the banks specified a launch date. The banks held up further financing until we reached a new agreement with them. What is important about the agreement is that it enables us to pay the bondholders their interest, as approved in the November 17 meeting.”
How much does the YES satellite TV broadcasting company owe Spacecom, as of now?
”Their debts for Amos 1 are mostly to IAI. For Amos 1, we were merely the IAI marketing arm. Amos 2 is ours. YES and IAI negotiated, and signed an agreement. We returned the agreement with YES to IAI, and they rescheduled the payments.”
What happened with Arianne, and how can Spacecom guarantee that the launch won’t be postponed again?
”The launch has been postponed a number of times. At least the first two times were because the satellite wasn’t ready, and now it’s ready. We visited Kazakhstan, and we saw that the launcher is ready. Are you asking me whether I can guarantee that the launch won’t be delayed? I can’t. Is the probability of a postponement very low now? Yes.”
How much has been invested in Amos 2 to date?
”Sixty million dollars. That’s what has actually been paid. We owe IAI money, which we’ll start paying after the arrangement with the bondholders is approved. The amount paid is $60 million, but we should have paid $80 for the work that was done.”
What orders are guaranteed for Amos 2?
”Amos 2 got underway with 55% guaranteed orders. Because of the launch postponements, several more contracts that should have been closed were delayed or canceled. We’ve had no cancellations from the customers on which the financing round was based: the Israeli government, YES, the Israel Broadcasting Authority, the Second Broadcasting Authority, and others. These are the contracts that we presented to the banks. As of now, we have another one-and-a-half transpondents, with puts us at about 70%. We’ve leased 15 out of our 22 segments.”
Not dependent on YES
If YES goes out of business, will it take Spacecom down with it?
”If YES goes out of business, it won’t take Spacecom down with it. YES is using four segments in the first year, and another two in the second year. That’s less than a third, so a YES bankruptcy won’t kill us. It may make it difficult for us to meet our payments, or it might not, because we’d find other customers. I hope to have a fully occupied satellite at the end of 2004. If we were in my room, I could show you the table with the specifications for Amos 3.”
Isn’t that premature? You haven’t launched Amos 2 yet.
”It’s not premature. Actually, we’re lagging behind our Amos 3 timetable. Our plan is for Amos 3 to replace Amos 1, and we’re behind schedule. We’re not megalomaniacs. Unless we work on Amos 3, there will be a gap between Amos 1 and Amos 3. We took customers Israel's Channel 1 and Channel 2, and Gilat Satellite Networks (Nasdaq: GILTF) - off Amos 1 and assigned them to a satellite belonging to Lockheed Martin (NYSE: LMT) and Intelsat. It cost us a lot of money.”
When will Amos 2 start earning money for you?
”Between January 15 and February 1 2004.”
What’s happening with the satellite Internet venture?
”We now have two satellite Internet deals for Amos 2. One is a tender in a European country, for two-way Internet in outlying areas. The other is one-way Internet just downloading data.”
Will Israel get satellite Internet?
”Yes, if we manage to make an economic business plan. We decided to do it, and we had already started our own satellite Internet venture, based on YES’s infrastructure. When the intense competition between Bezeq (TASE:BZEQ) and the cable companies began, however, the conditions changed, and the business plan was no longer valid. A one-way Internet venture is suitable for Israel.”
When is Amos 1 set to expire?
”In 2008. We need Amo 3 in orbit by the end of 2007. That’s a short timetable.”
According to your business plan, when will you make a profit?
”We’ve been making an operating profit for quite a while.”
What if you include the Amos 2 investment?
”I think we’ll always have a positive cash flow. We’ll make back the investment itself within six years. The one-year launch postponement was very damaging to the company, but since we didn’t lose customers, I predict that we’ll go back to our original business plan, with a one-year delay.”
Published by Globes [online] - www.globes.co.il - on December 18, 2003