Avanti: Problems ahead?

Inside Satellite reported on Avanti Communications’ interim financial statement on July 10th, stating that they have debts of some £500 million. This was wrong. Their gross debt is just £205 million, and they have cash at hand of £38 million. But there are still quite a few hurdles ahead for Avanti, and bills to be paid, and problems outstanding.

In September, Avanti will deliver its complete financials for the year to June 30th and to be able to make full sense of its performance lately. But clearly selling capacity is proving more difficult than Avanti anticipated.  In February 2012 the operator said it has enjoyed a good December (2011) and January (2012) generating £8.7 million and £14 million in sales respectively. The Feb 2012 announcement from Avanti talked of the Company expecting “that it will sell-out the capacity on Hylas 1 within three years of service launch. In the light of the demand the Company is experiencing, it has also accelerated the guidance previously provided for the sell-out of Hylas 2, from five years after service launch to four years (Hylas 2 is three times the size of Hylas 1 in terms of bandwidth capacity).”

Those expectations are firmly in the toilet. Two years ago one City broker was forecasting annual revenues of £56.5 million for the year just wrapped (and £102 million for the current financial year). Those predictions were subsequently reduced 5 months later to £34.5 million and £68.2 million respectively. We now know that even these reductions were not enough. While the market was not given specific numbers, it was told that expectations needed to be trimmed by “up to” a further £10 million for the year ended June 30th.

Two years ago Avanti was talking optimistically of having filled all of the capacity on Hylas 1 by April 2014, and September 2016 for Hylas 2. The operator also spoke of a full London Stock Exchange listing this year (Avanti is listed on the ‘junior’ Alternative Investment Market).

Avanti’s July 10th statement made reference to its Hylas 2 satellite’s position at 31 deg East, now coming into use, and that the position is “secure in its rights to use spectrum and is protected from harmful interference from other satellites.”

This statement refers to Avanti’s problems with Astra 5b, which will be placed at 31.5 deg East, and also operate in the same Ka-band set of frequencies used by Avanti (and in Ku and L-band). It will launch later this year (probably around September). There is a long-standing dispute between SES and Avanti over the use of the 31 deg East orbital slot, which SES argues was inadequately ‘brought into use’ by Avanti’s Hylas-1 satellite for just 16 days while the ITU requires a 90 day ‘stay’. Besides, implied SES, the satellite was late in arriving at 31 degrees and thus its rights to the slot were void.

Back in November last year the powerful International Telecommunications Union ruled in favour of Avanti, hence the phrases used by the London-based operator in its financial interims.

However, what’s far from clear is whether Avanti has the exclusive rights to the frequencies. Certainly, SES is still maintaining nothing is changing as far as its plans are concerned. Intriguingly, SES will only say that talks over the transmission rights are continuing with Avanti. These sorts of discussions are quite normal where coordination problems exist, but it also usually means that compromises have to be made. While there can be no ‘winners’ or ‘losers’ in such compromise discussions, SES can afford to give a little away from the slot. Avanti cannot.

Then there’s Avanti’s forward financial obligations. In February 2012 it placed 26.7 million shares and raised £73.8 million (net) to fund the design, construction and launch of its Hylas-3 hosted payload comprising 4GHz of Ka-band bandwidth. In other words this is not an Avanti-owned mini-satellite but a portion of a European Space Agency craft that will be undertaking a scientific mission.

With Hylas 3’s build, launch (and one supposes insurance) costs all pre-paid, then Avanti’s capital expenses are firmly under control.  Time will tell as to how they harmonise day-to-day sales and other costs on this extra Hylas 3 inventory, as well as capturing and handling new business.

The quality of that new business will also be under scrutiny. Winning some SNG business from CNN is praiseworthy, but it is much longer-term contracts that the market wants to see in place. It is those very long-term, firmly contracted deals that will add to the company’s backlog and preferably at decent rates/megahertz of capacity.  Meantime, any talk of a 6-satellite system is more than a tad adventurous.

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