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Com Dev Balks at Fixed-price RCM Work

Com Dev Chief Executive Mike Pley. Credit: Com Dev photo

PARIS — Satellite component builder Com Dev on Jan. 10 said it will refuse to build the central electronics system it has been designing for Canada’s Radarsat Constellation Mission (RCM) once the program transitions from a cost-reimbursable to a firm, fixed-price contract.

In a conference call with investors, Com Dev Chief Executive Mike Pley said the company has learned its lesson when it comes to large, fixed-price contracts featuring “challenging hardware with unresolved technical risks.”

“I am not prepared to carry out the remainder of the work on a fully fixed-price basis,” Pley said, recalling the losses Com Dev incurred in the past several years related to five “problem programs” that, like RCM, featured high technical risk inside a fixed-price contract.

Cambridge, Ontario-based Com Dev has just delivered the last of these five money-losing programs and has promised investors it will focus on profitable work only, even if it means refusing contracts on interesting projects.

For RCM, Pley said Com Dev expects about 3 million Canadian dollars ($3 million) under the cost-reimbursable contracts currently under way and expected to end by mid-2013. He said work on the central electronics subsystem that Com Dev has designed will be transferred to RCM prime contractor MDA Corp. of Richmond, British Columbia.

Com Dev’s core business of providing microwave electronics and other payload gear for telecommunications satellites continues to flourish. Pley said he sees no slowdown in global demand for telecommunications satellites, even if the business in the past couple of years has shifted from purely commercial contracts to contracts with governments of emerging-market countries seeking their own telecommunications satellites.

For Com Dev, it is all the same basic work, whether the end customer is commercial, civil or military.

For the 12 months ending Oct. 31, when Com Dev’s fiscal year closes, the company said 30 telecommunications satellites were ordered worldwide, carrying a total of 1,435 transponders.

That compares to 26 satellites in the previous 12-month period with a total of 1,248 transponders. The per-satellite transponder count stayed about the same, but the average payload of a civil government satellite — meaning mainly emerging-market nations — grew substantially, from 19 transponders per satellite in 2011 to 34 transponders in 2012, according to Com Dev’s figures.

The Canadian government has recently confirmed that it will build the three-satellite RCM mission. Pley said that while Com Dev is bowing out of further work on the central electronics, it will bid to MDA for a contract of about the same size — $10 million or more — to provide the Automatic Identification System (AIS) payloads on the RCM spacecraft.

Providing AIS services to global coastal authorities is the full-time business of exactEarth, which is 73 percent owned by Com Dev. Still in startup mode, exactEarth reported $9.7 million in revenue for the year ending Oct. 31, double that of the previous year. The company reported a net loss of $4.5 million, down from a $5.8 million loss in 2011. Orders for exactEarth services were $13.3 million, up from $9.1 million a year ago.

Pley said exactEarth has four more satellites to launch in 2013 and 2014 to complete its first-generation constellation. The company is now digesting nearly 100 million AIS messages per day and relaying that data from ships to coastal authorities.

Peter Mabson, exactEarth’s chief executive, said the AIS payloads on the Canadian government’s RCM satellites do not present a competitive threat to his company as the businesses are not the same. Mabson said exactEarth would be seeking a contract from the Canadian government to process the RCM AIS message flow.

For the year ending Oct. 31, Com Dev reported revenue of 201.6 million Canadian dollars, up 2.2 percent from the previous year. But its gross-profit margin was 26 percent, versus just under 23 percent a year ago, reflecting the company’s increasing selectivity when it comes to contract bids.

Backlog stood at 139 million Canadian dollars, up from 129 million a year ago. Revenue for the year was 48 percent from commercial programs, 32 percent from civil-government satellites and 20 percent from military satellites.

Com Dev spent about $3 million in 2012 on severance payments for some 59 employees who were let go because of the Canadian government’s decrease in space spending. Pley said that despite the welcome RCM news, he does not see the Canadian government reversing the trend anytime soon.

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