[Satelllite News 01-04-09] Avanti Communications will begin 2010 in good spirits after ending 2009 with a secured a debt facility of £194 million ($313.34 million) for Hylas 2 from The Export-Import Bank of the United States and Coface, the French investment vehicle. After procuring the spacecraft from Orbital Sciences Corporation and contracting launch services from Arianespace, Hylas 2 is set to debut in the first half of 2012 with hopes to raise £86 million ($138.90 million) through a share placing.
    Avanti CEO David Williams believes that the Hylas 2 achievements are major steps for the company and that Avanti’s profit potential now is considerably higher. “Having two satellites means we have redundancy and resiliency in our network, and that makes quite a big difference to how our customers will perceive us, not only customers but also suppliers,” Williams said in an interview with Satellite News.
    Williams discussed the operator’s plans ahead of the Hylas 1 launch, scheduled for the first half of 2010.

Satellite News: How does the financing of Hylas 2 affect Avanti’s business strategy over the next couple of years?

Williams: The financing is transformational for us. It makes us safer but also potentially much more profitable. This is a very good transaction all round. It takes our profit potential from about 30 million pounds ($48 million) up to about 150 million pounds ($239.8 million). The equity issue only dilutes shareholders by about 32 percent, but our profit potential increases by 400 percent. It also means that we can take a different type of marketing approach. We are now a much larger, more diversified company with total capital deployed at today’s prices of 550 million pounds ($879.3 million).

Satellite News: Have you acquired all of the financing that you need?

Williams:  This should fully fund the entire project. There are a couple of loose ends that need to be buttoned down, but we have firm fixed price contracts on the satellite and the launch procurement. We are very nearly finished in terms of certainty of costs. The debt plus equity financing builds in quite a significant contingency anyway, so this really should be it in terms of financing now.

Satellite News: How much capacity have you sold on Hylas 1, and are there commercial deals in the works for Hylas 2?

Williams: For Hylas 1, we are at about 15 percent at the moment. However, there are a couple of potential new contract wins in the pipeline that will take us over 20 percent. Additionally, most of our customers buy enough capacity to see them through their first couple of quarters. We are expecting most of our customers to be coming back by the end of the first year to increase their capacity as they ramp up their own subscriber numbers. We think we have enough customers to fill the satellite in the three years that we forecast to fill it. We are in line with our own expectations.
In terms of Hylas 2, we will be hitting the ground running in the new year. We have already begun talks with some potential customers a few months ago. It is overwhelming clear that there is a pretty big demand in all of the new markets that we are addressing. We are ramping up sales staff at the moment. There is a new marketing presentation being put together in terms of the web site.

Satellite News: What markets are you targeting?

Williams:  The countries we have added further eastward beyond Europe, such as Turkey and the Caucasus countries, have high quality economies with very strong rules of law. In many ways, they are similar to European countries. They are low risk to us. Other countries in the Middle East and Africa have different characteristics in terms of economics and regulatory frameworks but tend to have poorer terrestrial infrastructure when it comes to the supply of broadband and, therefore, lower price elasticity of demand. We are attracted to different markets for different reasons. We have a nice blend of risk and reward factors. For the most part, the countries we operate in are poorly served by terrestrial alternatives. Even in Western Europe, there are large populations unserved, so it is not really difficult to choose markets for Ka-band satellites.

Satellite News: Why did you select Orbital Sciences to build Hylas 2?

Williams:  We hosted an international tender, where all the international vendors you would expect were invited to provide a proposal. Orbital was clearly ranked one in terms of their basic delivery versus specification but mainly on pricing and schedule. They have a reputation for delivering satellites on time and on quite aggressive schedules, and that is important to us. They also put in a very keenly priced bid, so they were ranked one.
    We did try and raise money in late 2008, but that was the time that Lehman Brothers were going under. It proved to be quite a foolish time to be in the market raising money, so around Christmas 2008, we had to tell Orbital that we were unable to raise the money commercially. We did not want to partially fund the satellite. We only wanted to move forward if we could raise full financing on the entire project. It was at that point that Orbital introduced us to the U.S. Export Credit Agency (ECA). They made us an offer, and along with some support from our equity shareholders, we were able to wrap up 100 percent project financing on a single deal. Orbital were chosen before we figured out how to finance it. They bought the ECA along with them to make the transaction possible. We also chose the path of least resistance and go with Arianespace, because they simply are the most reliable launch provider. They also work creatively with their ECA, Coface. That together with the U.S. Ex-Im made the transaction possible.

Satellite News: At one time, you were considering SpaceX as your launch provider. Why did you end up going with Arianespace?

Williams:  For Hylas 1, SpaceX could not get there in time. They were simply not ready. They had an obligation to generate heritage and they could not deliver that. We had no choice. The choice was taken away from me. SpaceX’s ability to provide heritage was contemplated in the contract, and they were not able to deliver this. We were fortunate that our shareholders were able to support the choice of Arianespace, who obviously provide a service that is a top end of the price range globally. Nobody chooses Arianespace if they want a cheap rocket, but they choose Arianespace to make sure you get there. They are the sleeping-safely-at-night option. This is very good for investors.

Satellite News: Are you already thinking about Hylas 3?

Williams: There are projects ongoing to design additional satellites, but next year the focus will be on sales for Hylas 1 and Hylas 2. Hylas 2 was not just about being opportunistic and expanding coverage but about providing mitigation of risk across multiple projects and in-orbit resilient capacity over our European markets. We have achieved that risk mitigation. Now, it is about selling capacity. I don’t want to be funding additional satellites unless I have clear cash flows underpinning from existing satellites that we have or from new customer projects. Once we have those cash flows, we will move forward with new satellites.