Iridium expects Aireon to pay off $200M debt by end of 2021

Space

WASHINGTON — Aireon, the aircraft-tracking venture Iridium Communications founded to help finance construction of the now nearly completed Iridium Next constellation, is close to securing a new credit line that should allow the firm to catch up on $200 million in overdue payload hosting fees.

McLean, Virginia-based Iridium said Oct. 25 that Aireon expects to finalize the credit line by year’s end, which would ensure the startup can continue paying down what it owes Iridium for the installation and launch of 81 hosted Automatic Dependent Surveillance-Broadcast (ADS-B) receiver payloads aboard the Iridium Next satellites.

Aireon raised $69 million in May from NATS, the United Kingdom’s privatized air traffic management company that’s both an Aireon shareholder and future customer. The fresh influx of capital enabled Aireon to pay Iridium $8.1 million so far this year.

Tom Fitzpatrick, Iridium’s chief financial officer, said Aireon is required to pay at least $14 million of the $200 million debt in 2018 and an additional $16 million in 2019.

Aireon’s pending credit line, Fitzpatrick said during an Oct. 25 earnings call, would enable the company to pay above those minimums — specifically, a total of $35 million in 2018 and $23 million in 2019. The remainder of Aireon’s $200 million debt — $142 million, plus accrued interest — would be paid off in 2020 and 2021, he said.

In addition to the $200 million Iridium expected to have received by now for accommodating Aireon’s ADS-B payloads aboard all 81 Iridium Next satellites, Aireon is obligated to pay Iridium annual fees for continuing to host them in orbit. Those fees include $20 million a year for data service and a $34 million bill, payable over 12.5 years, for the share of the satellites’ onboard electricity required to power the Harris Corp.-built ADS-B payloads.

In March, Iridium borrowed $360 million as a hedge against counting on Aireon hosting fees to maintain its own liquidity as it pays down the debt it incurred building and launching the $3 billion Iridium Next constellation.

Still, Fitzpatrick said last week that Iridium plans to use Aireon payments to pay down its $1.8 billion in French export-credit loans for the 81 Iridium Next satellites ordered from Thales Alenia Space in 2010 to replace its first-generation constellation of mobile voice and data satellites.

Aireon's hosted payload network is carried on the Iridium Next constellation. Credit: Aireon
Aireon’s hosted payload network is carried on the Iridium Next constellation. Credit: Aireon

Iridium Next consists of 66 operational satellites in low Earth orbit, plus nine in-orbit spares and six more spares on the ground. The first 65 satellites were delivered to orbit by a series of seven SpaceX Falcon 9 launches between January 2017 and this past July. The final 10 satellites are slated to launch Dec. 30.

Iridium, which was in a race against time to orbit its new satellites before its first-generation satellites expired, had expected to start launching Iridium Next in 2015. But delays finishing the satellites, problems securing a launch license for a Russian-Ukrainian Dnepr rocket launch Iridium originally intended to use, and Falcon 9 explosions in 2015 and 2016, pushed back deployment.

Flight delay

Iridium’s deployment delays have had a knock-on effect on Aireon’s ability to generate revenue as the completion of the constellation slipped from 2017 to the early 2019 target Iridium is now one launch away from meeting.

The space-based ADS-B network Aireon operates onboard Iridium Next is intended to improve air traffic surveillance by expanding the real-time tracking of planes over oceans and other regions not covered by ground-based radar.

The company has raised $351 million to date, with large amounts coming from Britain’s NATS and other air navigation service provider customers such as Nav Canada and ENAV in Italy that have taken equity stakes in addition to commiting to be customers once the sensor network operational.

Iridium, which founded Aireon in 2011 and later sold a 51 percent share to Nav Canada, still owned 35.7 percent of the joint venture as of Sept. 30, according to a filing with the U.S. Securities and Exchange Commission. Other shareholders include Denmark’s Navair and the Irish Aviation Authority.

“Aireon is in good shape given their early contracts and the strength of their core investors,” Matt Desch, Iridium’s CEO, said during the Oct. 25 earnings call. “We are looking forward to them starting global aircraft surveillance services in 2019 with the completion of Iridium Next.”

Aireon’s progress signing up the U.S. Federal Aviation Administration, which is anticipated to be a major customer, continues to take longer than expected, though Desch said there are positive signs of interest. Desch said the agency informed Aireon it will conduct an “operational evaluation” of Aireon’s space-based ADS-B service in 2020 over the Caribbean.

The trial “sets the table for Aireon to be an important part of the FAA’s air traffic management system in the coming years,” according to Desch. Aireon CEO Don Thoma said in May that Harris Corp., the company’s sensor payload manufacturer, was updating the system to meet FAA requirements — changes initially anticipated would lead to a contract this year.

Aireon
Early data from Aireon’s space-based ADS-B coverage on July 4th with 50 active payloads. Credit: Aireon

Aireon spokesperson Jessie Hillenbrand said the company will roll out two services in the near future. The first is an aircraft-tracking service called GlobalBeacon on Nov. 5 with partner FlightAware that provides airlines with location updates every minute. While service works with the nearly complete network, providing flight regulators with unfailing updates every eight seconds or faster over any area in world requires the entire hosted-payload constellation, she said.

“Because we are providing a safety-of-life service, there is a lot of validation, testing and fine tuning that has to go into that and it requires a full, 100-percent complete and redundant system,” Hillenbrand said.

Aireon’s full service will start in the first quarter of 2019, she said, positioning the company to be cash flow positive in 2020.

She declined to say how much cash Aireon will be able to access through the new credit line it’s seeking.

“Aireon is very optimistic that we will meet the obligations we have committed to with Iridium,” Hillenbrand said, adding that Aireon will use the money to pay “a significant portion of the hosting fees to Iridium and cover Aireon’s operational costs through becoming cash-flow positive.”

A long-awaited (capex) holiday

For Iridium, the imminent completion of Iridium Next positions the company to begin a capital expenditure holiday that should last a decade or longer, barring surprises.

Fitzpatrick said Iridium’s annual capital expenditures should fall from an average of $330 million the past nine years to around $35 million in 2019. That will allow the company to pay down debt as it ramps up revenue from the new constellation.

Desch said more than 90 percent of Iridium traffic is already on the Next network. Iridium Certus, the company’s Next-based L-band broadband service, is expected to start in a month or two, he said.

Iridium is targeting $100 million in Certus revenue by the end of 2021.

Iridium reported $136.8 million in total revenue for the three months ended Sept. 30, up 17 percent year-over-year and a new company record. Profit for the quarter swung to a $12.9 million loss, which Iridium attributed mainly to a $39.2 million increase in depreciation and amortization expense compared to the same time last year because of the increased number of orbited Iridium Next satellites.

Iridium’s subscriber count grew 15 percent year-over-year to 1.092 million, with government and Internet-of-Things customers driving growth. Desch said winning Amazon Web Service as a customer this year should further expand Iridium’s IoT business, particularly among Amazon partners.

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