KOUROU, French Guiana -- Satellite mobile messaging service provider Orbcomm will file a $50 million total-loss insurance claim for all six satellites it launched in June 2008, arguing that even if only one of them has completely failed in orbit, none of the other five qualifies as a "working satellite" under the company's insurance policy, Orbcomm Chief Executive Marc J. Eisenberg said May 11.

 

In a conference call with investors, Eisenberg said the satellites' Automatic Identification System (AIS) payload, which permits coastal authorities to track and identify ships approaching their shores, has not been affected by the multiple anomalies on the five operational satellites. The six platforms were manufactured by KB Polyot-Joint Stock Co. of Omsk, Russia, under contract to OHB System of Bremen, Germany.

 

Eisenberg and Robert G. Costantini, chief financial officer of Ft. Lee, N.J.-based Orbcomm, said the insurance policy covering the six satellites includes a one-satellite deductible, a condition Orbcomm filled early this year when one of the spacecraft suffered a power failure and stopped responding to ground commands. It is now considered definitively out of service, according to Orbcomm.

 

In a May 11 filing with the U.S. Securities and Exchange Commission (SEC), Orbcomm said the anomalies on the five other Polyot-built satellites include "lower-than-nominal gateway transmission power on one satellite, lower-than-expected nominal subscriber transmission on one satellite, intermittent computer resets on one satellite and outages to the reaction-wheel components of the attitude control system on each of the satellites."

 

Orbcomm incurred a $7.04 million impairment charge in the three months ending March 31 to account for the failed satellite.

 

The other five, Eisenberg said, "are providing levels of messaging service that vary at this time. We are able to utilize these satellites, particularly over our most demanding region of North America. Additionally, AIS is working on all five satellites across our coverage territory."

 

Eisenberg said the five satellites of this six-satellite group launched in June 2008 are covered under a policy that is clear on what constitutes "a working satellite." He said the anomalies already reported on them should be sufficient to qualify all five as what insurers call a constructive total loss, meaning a loss sufficient to trigger a full insurance claim.

 

Costantini said Orbcomm is prepared to negotiate with insurers on a salvage resale that would recognize that the spacecraft retain some value. In this scenario, insurance underwriters would reduce their payment to Orbcomm by an amount equivalent to the remaining value the satellites have to Orbcomm. The underwriters have negotiating leverage with Orbcomm insofar as a full total-loss payment would permit them to take title of the satellites and, in theory, sell them to some other operator.

 

"The satellites probably have some salvage value for insurance purposes, but that has not been determined," Costantini said during the conference call.

 

The satellites were built to shore up Orbcomm's first-generation constellation, built and launched by Orbital Sciences Corp. of Dulles, Va.

 

The first six of Orbcomm's second generation of at least 18 satellites, under construction by Sierra Nevada Corp. of Sparks, Utah, are scheduled for delivery in late 2010. Orbcomm currently operates 28 satellites — including the Polyot-built craft — in low Earth orbit for machine-to-machine data links.

 

Meanwhile, Orbcomm reported $7.4 million in revenue for the three months ending March 31, a 25 percent increase over the same period a year earlier. The revenue figure was helped by a one-time $500,000 payment from Orbcomm Japan.

 

First-quarter revenue also included about $400,000 related to AIS, mainly from the U.S. Coast Guard, which has a multiyear contract with Orbcomm to test the service. Several other companies, along with government space agencies in Canada and Europe, are racing to deploy their own AIS technologies, agreeing with Orbcomm that this niche application could generate substantial recurring revenue in the coming years from global coastal authorities.

 

Orbcomm reported a negative EBITDA, or earnings before taxes, interest, depreciation and amortization, of $7.8 million in the quarter, mainly due to the $7 million charge for the failed satellite.

 

Eisenberg said the company's 2009 prospects have improved since the April settlement with GE Asset Intelligence, which originally had a contract to purchase 412,000 Orbcomm subscriber terminals, of which 270,000 were non-cancellable. GE, which had not met its minimum purchase commitments for 2007 and 2008, agreed to settle the issue with Orbcomm with an $800,000 cash payment and a new five-year contract that ends in late 2013. "We are thrilled to have GE" back with Orbcomm, Eisenberg said of the new agreement.

 

Orbcomm reported more than 476,000 subscribers as of March 31, a 25 percent increase from a year earlier. The company had added 16,000 net satellite subscribers so far this year as of March 31, Eisenberg said.

 

Orbcomm had nearly $73 million in cash as of March 31, which when added to future operating cash flow is considered sufficient to fund the construction, launch and insurance of the 18 second-generation satellites, Costantini said. Orbcomm has an option with Sierra Nevada for an additional 30 satellites, but has not yet exercised it. It has also not yet selected what rockets will launch the first 18 satellites.