[Via Satellite 10-21-13] Iridium Communications has been boosted by a $400 million, multi-year, fixed-price contract win with the Defense Information Systems Agency (DISA) to provide satellite airtime services to meet the communications needs of the U.S. Department of Defense (DoD) and their federal partners. This five-year contract renews the provision for delivering Enhanced Mobile Satellite Services (EMSS) airtime effective October 22.

Chris Quilty, senior vice president, Raymond James & Associates, said in a research note that the company was reiterating its “strong buy” rating on the Iridium stock, and that the deal would help Iridium both in terms of refinancing as well as its bottom line.

“With the DoD contract in place, Iridium should be able to renegotiate its loan covenants with Coface before the end of the year. We do not expect any requirement for Iridium to raise additional equity. Given the fixed nature of the EMSS contract, nearly all of the revenue upside should fall to the bottom line. Consequently, we are raising our 2014 OEBITDA estimate by 3 percent,” Quilty said.

Iridium’s U.S. Government service revenue for the full-year 2012 was $61.8 million. The EMSS fixed-price rate in each of the five contract years is $64 million in fiscal year (FY) 2014, $72 million in FY 2015 and $88 million in FY 2016, 2017, and 2018. In 2012, U.S government services and support made up 20 percent of Iridium’s revenues.

The U.S. government market is key for the operator, but it is also targeting the broader hosted payload market in general. It recently launched Iridium PRIME, a new hosted payload initiative, which offers a turnkey solution to customers. Matt Desch, Iridium’s CEO, is confident the operator will have a strong dealflow for the program.

“Any sales of Iridium PRIME buses will be positive and beneficial to our bottom line and our business. I would be disappointed if there was not a steady stream of two to six satellites per year that would be taking advantage of this. But, even a much lower rate of one or two satellites per year will be positive to our business and extremely attractive to the customers it serves. So, I think Iridium PRIME is a win/win whichever way you look at it,” Desch said.

In other U.S. milsatcom news, SES announced that it had won a two-year contract extension with U.S. Air Force Space and Missile Systems Center. The contract allows the Air Force to continue its research and development mission through the use of the Commercially Hosted Infrared Payload (CHIRP) aboard the SES 2 satellite. With last week’s Hosted Payload Summit still fresh in the memory, this is another key deal for the sector. In a recent interview with Via Satellite, Douglas Loverro, deputy assistant secretary of defense for space policy at the U.S. Department of Defense, said the DoD has been making “incremental decisions and each of them re-affirms that hosted payloads are potential parts of the solutions that we see in the future.” The new IDIQ contract will provide the vehicle to bring about these deals, and could act as a catalyst for heightened activity in this area. “The IDIQ contract represents paced, intentional progress towards the goal of hosted payloads, but without a huge commitment of resources,” Loverro said.

The relationship between the commercial satellite industry and the DoD could change given the dynamics of the landscape. “One of the changes I have seen is that more satellites built these days are built by the commercial industry than by the U.S. government. That is the first time ever that has been the case. As a result, the commercial industry provides not only a vehicle we can host payloads on, but it provides a ready made production line of buses that we can leverage, as either hosted or fully-owned entities. That is a big change from when the U.S. DoD had to build their own satellite bus for every mission that we flew. That dynamic, more than the dynamic of hosted payloads, is a big shift for the future,” Loverro said.