Eutelsat Sees ‘Frightening’ Cost as Delays Slow Rocket Launches

By Rudy Ruitenberg

Dec. 20 (Bloomberg) -- Eutelsat Communications Chief Executive Officer Giuliano Berretta will watch a $600 million investment blast into space tonight while sipping champagne.

Eutelsat plans to send two broadcast satellites into orbit on the same rocket for the first time, as a dearth of launches confronts satellite operators with price increases and delays.

The cost increase for a launch “is frightening, you would faint,” Berretta said at an industry conference in Paris in September. “There is a problem of access to space.”

SES SA, Intelsat Ltd. and Paris-based Eutelsat, the top commercial satellite operators, mainly rely on three rocket operators to lift equipment into geostationary orbits. Rocket mishaps in past years have caused a backlog of launches, resulting in rising costs and lost sales for operators, as well as delays for broadcasters including Dish Network Corp.

“They’re justified in complaining of the lack of access to space,” said Marco Caceres, director of space studies at Teal Group Corp. “A lot of the major companies are waiting in line. It delays the satellites by months if not years.”

Eutelsat needs additional capacity to satisfy demand from customers including News Corp.’s Sky Italia SpA. Eutelsat’s Hot Bird 9 broadcast satellite has was completed July and been grounded since then amid a shortage of available launches. The delay means Eutelsat is using 96 percent of its capacity, according to deputy Managing Director Jean-Paul Brillaud.

Pricey Rockets

Prices for a Proton launch from U.S.-Russian partnership International Launch Services Inc., or ILS, have risen to about $120 million from $50 million four years ago, according to Eutelsat.

Fees for Arianespace’s Ariane 5 rocket have also risen, Brillaud said in an interview. Arianespace needs to generate sales of about $220 million per launch, or $110 million per satellite, CEO Jean-Yves le Gall said.

“It was inevitable that launch prices would rise, as compared with the below-cost pricing of the 2003-2004 timeframe,” ILS President Frank McKenna said in an e-mailed reply to questions. “Those prices just weren’t sustainable.”

McKenna said prices have increased because of currency exchange moves and rising commodity prices.

Berretta has said fiscal second-quarter growth “will not be particularly good” because Eutelsat can’t add customers as a result of the Hot Bird 9 delay. Eutelsat forecasts annual average sales growth of 6 percent until 2011, which hinges on seven satellites being sent up by the end of 2010.

“That Hot Bird 9 should have been launched in October,” said Kristof Lybaert, a Dexia Securities analyst. “The launch is the largest risk factor. If you lose a satellite you’re stuck with an enormous issue of opportunity costs, missed revenue.”

Dual Launch

Hot Bird 9 and the W2M satellite are lifting off on the same Ariane 5 rocket today from the Arianespace center in French Guiana, the first dual launch by one of the big three operators.

“If you launch the two Eutelsats on separate missions, you balance the risk,” Caceres said. “But if you have to wait an additional six months to get the second satellite in space, it’s probably worth the little extra risk.”

The explosion of a Sea Launch LP rocket on its offshore launch platform in January 2007 and mishaps with Proton rockets in Kazakhstan in September 2007 and March 2008 led to a backlog of satellite launches. Sea Launch’s first mission following the explosion took place in January 2008.

Dish, the second-largest U.S. satellite-TV provider, had to delay high-definition TV services after a botched Proton launch in March left an SES satellite in a lower orbit than planned.

“There is not enough spare capacity to make up for a failed launch,” said Antonio Abad, the chief technology officer of Spanish satellite operator Hispasat.

Military Priority

The U.S. Department of Defense is the largest operator of geostationary satellites, competing with commercial orbiters for launch spots, said Rachel Villain, a consultant at Euroconsult.

“The most privileged client is the U.S. government, so efforts are made to first serve that government,” Villain said.

The U.S. Atlas V and Delta IV rockets, operated by a joint venture between Boeing Co. and Lockheed Martin Corp., have been mostly unavailable to commercial clients because of U.S. military and government needs for launches, according to Berretta.

SES, whose satellite blew up with the Sea Launch rocket in January last year, signed a multilaunch agreement with Ariane and ILS in June 2007.

“We have got some security now over pricing,” said Mark Roberts, head of investor relations at SES. “Those people who haven’t taken the step to secure launches in advance, they clearly have a problem.”

Eutelsat’s Brillaud said the company has booked launches with Arianespace, ILS and Sea Launch, and doesn’t plan to sign a multilaunch deal.

Chinese Challenger

The operators can’t use China’s Long March rockets because most of their satellites contain U.S.-manufactured components subject to export restrictions.

Thales Alenia Space has been building satellites that contain no U.S. components.

“It’s only a matter of time before the Chinese start launching some commercial satellites for the West,” Caceres said. “If prices keep going up in the West, Long March satellites may start looking attractive.”

Intelsat CEO David McGlade said in September he considered buying launches with Chinese rockets.

McKenna at ILS said there will be “limited availability” in 2009 and 2010. There is enough capacity for the next five years, he said.

“They’ll make a ton of money once a satellite is in orbit, so they’ll earn back the launch price quickly,” Teal’s Caceres said. “Their primary goal is to get the satellite up there.”

Eutelsat will toast a successful blastoff with champagne at its launch party in Paris tonight, spokeswoman Vanessa O’Connor said.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.