Insight on Sirius' Satellites
June 8, 2006
The announcement today by Sirius Satellite Radio regarding the contracting of a new satellite is very positive, and accomplishes a few things that many are not yet considering.
1. The new satellite will offer state of the art capability for Sirius while at the same time supplementing the existing coverage. The new satellite will be launched into goestationary orbit rather than the geosynchronous orbit that the current constellation uses. This decision by Sirius gives Sirius the advantages of both types of orbit.
2. The existing ground spare, which is already paid for, will remain as a spare, and can replace one of the elliptical satellites when appropriate.
3. The 2008 launch will give Sirius a "staggered" life-span on their overall constellation. This is something that Sirius did not previously have. It gives Sirius options when dealing with their current constellation of 3 elliptically orbiting geosynchronous satellites. The current 3 satellites were all launched in close proximity, and the replacement of that entire fleet at one time would be a financial drain on the company. By implementing a fourth satellite, and having a fully paid for spare, Sirius gains flexibility.
4. Sirius has already been paying for a launch vehicle. By speading out the payments, and planning correctly, Sirius has the ability to avoid a huge expenditure all at one. Further, Sirius garnered a $100,000,000 credit facility with the new contract. Sirius does not plan to use it at this juncture, but the ability to employ that credit facility is very substantial.
5. As many are aware, Sirius does not buy an in-orbit insurance policy for their current constellation. This was a business decision that many companies that have satellites make. Having this new satellite bolsters the argument for the decision not to carry an in-orbit policy (the cost of which is substantial relative to the items that would actually be covered). In effect, Sirius, if need be, could utilize the launch vehicle slated for the new satellite for the current spare if an emergency situation arrived. They could then contract a new launch vehicle for the new satellite, and utilize their credit facility if needed.
Perhaps the most noteworthy item is that Sirius has had this expense covered in their budget planning.
This announcement in no way changed their guidance regarding Cash Flow Break Even. In the past, such an event may well have been followed with a stock offering. The fact that this is not the case speaks to the managements ability to plan correctly. This is something that the street will take note of, and ultimately will further instill confidence that Sirius' management is focused and headed in the right direction.
6/08/2006 10:27:00 AM
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