Satellite System Procurement 101
Satellite system procurements are, today, more challenging than ever. The financial market status, including the Eurozone crisis, has further increased the difficulty of raising equity and debt to fund unproven satellite systems.
Hybrid satellite-terrestrial systems, designed to extend the “niche” appeal of satellite systems, have extended the system’s appeal, but have been enormously expensive undertakings, and have to date resulted in bankruptcy filings, including for the three United States hybrid system networks: DBSD/ICO, TerreStar and LightSquared. Despite the scarcity of broadband mobile spectrum, it remains challenging to overcome the technological and financial obstacles to deploy these new technologies.
In the face of these challenges, government export credit financing has achieved prominence as the “go to” source for financing of satellite programs. Historically, Coface financing for European satellite system purchases and Export Canada for Canadian satellite system purchases have been strong government supported financing sources, which supplemented the equity and debt markets. Today, in the absence of strong capital markets, satellite system purchasers are turning in record numbers to government export agency financing. The United States Export-Import Bank has risen to become a major financing source for satellite system purchasers buying United States satellites and launch vehicles. Today, export credit agency financing has become the major funding source for the global satellite industry.
In addition to these trends, the procurement of satellite systems remains a very complex and specialized undertaking. Mistakes can be extraordinarily costly, and the complexities only increase with the addition of advanced technology developments (such as the hybrid terrestrial-satellite networks). Even further complexities exist with government-based procurements, and the interaction between government procurement rules and the specialized terms of satellite procurements.