PARIS — A U.S. bankruptcy court’s May 22 decision to allow Lockheed Martin to cancel a satellite construction contract with a near-penniless customer — startup satellite operator NewSat of Australia — has handed the U.S. and French export-credit agencies their first satellite industry failure.
For the U.S. Export-Import Bank, the failure means the apparently unrecoverable loss of more than $100 million at a time when the Washington-based institution is fighting for its life in the U.S. Congress. The bank’s charter expires on July 1 unless Congress renews it.
For France’s Coface, the loss will be substantially less and may yet be recovered, depending on whether the same Delaware Bankruptcy Court agrees to permit launch services provider Arianespace to cancel its NewSat contract or grants NewSat’s administrators more time to allow the company to sell the Arianespace contract on its own.
NewSat’s Jabiru-1 satellite is booked for a ride to orbit in the upper berth of Arianespace’s Ariane 5 rocket, a position reserved for larger satellites, in late 2016. Evry, France-based Arianespace is otherwise fully booked into 2017.
As the Ex-Im Bank and Coface have become increasingly active in satellite financing, industry officials have warned that they are taking on risks that commercial banks have avoided – and with reason. The two agencies have pointed to the low default rates of their customers, and to the jobs they were creating in the United States and France.
Officials had assumed that the first big failure, if it were to come, would be from among the satellite projects whose assets are, in principle, less fungible – in particular, the low-orbiting communications satellite constellations.
Instead, it is the owner of a large geostationary-orbit satellite, more than half completed by Sunnyvale, California-based Lockheed Martin, that is the first to tarnish the U.S. and French agencies’ financing judgment.
NewSat’s administrators – appointed by an Australian court as part of bankruptcy proceedings in that country that have run parallel to the Delaware court’s proceedings – had argued up to the last minute that with a little more funding from the Ex-Im Bank, and perhaps from Malaysian satellite fleet operator Measat, NewSat could survive. Measat and Newsat have a capacity purchasing agreement involving Jabiru-1 and the Measat 3B satellite.
But Lockheed Martin, arguing that every day it continued to work on the satellite was piling more default risk on a project that had already defaulted, persuaded the NewSat administrators to agree to a May 18 deadline. They would find fresh financing to continue the project or allow Lockheed Martin to cancel the contract.
On May 21, NewSat administrators attempted to argue that they needed more time to conclude an agreement. But ultimately the court said a deadline is a deadline. The Ex-Im Bank, for reasons that were not clearly explained – the U.S. Justice Department lawyer representing the bank referred vaguely to “policy/business decisions” – refused to put up any funds to preserve its sunk costs in the project.
The bankruptcy court judge, in the May 21 hearing, expressed surprise that the Ex-Im Bank, with so much at stake, was unable to present a credible go-forward scenario by the May 18 deadline.
On May 22, the court ruled that the Lockheed Martin contract for Jabiru-1 no longer in force. The company has received some $193 million for Jabiru-1, with an additional $78 million required to complete the satellite.
The $193 million was mainly Ex-Im money lent to NewSat. It is now in the form of a nearly completed spacecraft that Lockheed Martin owns and is free to sell without having to pay anything to Ex-Im.
Arianespace is hoping for a similar outcome from the court. Given the state of the commercial launch market, the European launch-service provider should have little trouble in selling the NewSat slot.
The Ex-Im Bank did not immediately return calls requesting comment on NewSat.
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