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Analysis: Amos-6’s launch failure: An additional episode of the chaotic Israeli space adventureBusiness analyst Karine Gallula, who has vast experience in the satellite market, explains to JOL readers how the loss of Amos-5 and the recent loss of Amos-6 impacted Spacecom. While the loss of Amos-6 might thwart an acquisition deal with a Chinese conglomerate, this is not seen as a major hitch in Israel. This outcome might be good news for Israel as it will allow Spacecom’s technology to remain Israeli.
Footage of the disaster at Cape Canaveral
The recent launch failure of the Amos-6 satellite was a very harsh surprise for Spacecom, the Israeli satellite operator, but it also tremendously jeopardized the strategy of the company. However, ever since its first launch in 1996, the company has experienced several troubles in spite of its dynamic approach to the market.
Since its establishment, Spacecom has created 6 satellites, five of which were launched, that intended to cover several markets inside and outside the Israeli one. The beams of the satellites cover Central Europe and a part of Russia as well as a part of Africa. Over the years, Spacecom has signed several contracts with TV platforms in many countries and has managed to expand outside of its local market.
The satellite company currently operates three satellites including Amos-2 and Amos-3, which are co-positioned at the same orbital position providing service to the Israeli market as well as those of Central Europe and Ukraine. The satellite TV package Yes Satellite, which is very popular in Israel with over than 630,000 subscribers, uses a large part of the capacity. The remaining capacity is used for TV packages over Central Europe. Amos-4, which is operated from an eastern position, mainly broadcasts television programs from the Indian market to Nepal. Amos-4’s main customer is the Nepalese satellite TV package Dish Home.
Amos-6, which was supposed to be launched on September 3, 2016, was considered the most sophisticated satellite built in Israel with components from several well-known satellite manufacturers. Outside the 39 Ku-band transponders that are generally used for TV services, the satellite was composed of 24 Ka-band upload that was supposed to provide high speed Internet services to African countries. The Ka-band capacity was leased co-jointly by Facebook and Eutelsat, a European satellite operator. The deal for the lease of the capacity was announced in October 2015 for a turnover of 95 million dollars for a five year period with an option to lease the capacity for two more years. In addition to this critical deal, Amos-6 was supposed to replace Amos-2, which has now nearly reached its life expectancy.
The loss of Amos-6 before its launch is, however, not the first hard blow for Spacecom, which experienced the loss of Amos-5 in late 2015. Only four years after its launch, all communications with the satellite were lost. In 2013, Amos-5 already experienced power problems that were solved but two years later, the signals of the satellite were suddenly interrupted. The loss of the satellite affected mainly customers in Africa for whom Direct-to-Home television services were suddenly frozen. The satellite was providing a $40 million turnover per year to the company through its lease of capacity, which represents approximately one third of the company’s annual revenue. The estimated backlog of the satellite (revenue from the lease of capacity for the total life expectancy of the satellite) was estimated at 136 million dollars, a fifth of the total company backlog. The loss of Amos-5, therefore, severely affected Spacecom’s actual and future turnover.
As a matter of fact, the loss of these two satellites mainly reduced the company’s opportunities to expand in the African market especially in the Internet and television fields. Spacecom estimated that it will take two to three years to replace Amos-5 and Amos-6. Moreover, the deal signed by Facebook, Eutelsat and Spacecom included an agreement giving the parties the right to terminate the contract if Amos-6 was not in service as of January 2017.
These two consecutive events also affected the worth of the company on the stock exchange market. Following the loss of Amos-5, the shares of the company plunged and lost 30% of their value. Following the loss of Amos-6, the shares lost again 32% of their value in one day, which tremendously reduced the market capitalization of the company. Prior to the Amos-5 loss, the shares of the company on the Tel Aviv Stock Exchange (TASE) were valued at approximately 5,200 NIS each. As of today, the share is valued at approximately 2,600 NIS. As a result, in less than one year, the capitalization of the company dropped from 1.1 billion NIS in November 2015 to 542 million NIS currently.
The blow of Amos-6 is also supposed to jeopardize the recent deal that was concluded regarding the acquisition plans of the Spacecom Company by the Chinese conglomerate Xinwei Technology group. On the August 24, 2016, the Chinese company announced that it plans to acquire Spacecom for an amount of $285 million in cash. The deal was, however, under the condition that Amos-6 will be launched and working properly. Until now, the two companies have not made any announcement regarding the deal but the explosion of the Falcon 9 rocket should, in any case, change the terms of the contract or could lead to its cancellation.
Nevertheless, many experts are not so pessimistic about Spacecom’s future. The company has already claimed from the insurance amounts that should cover the building of new satellites. In the meantime, we have seen that many satellites continued to transmit signals for several years even after they reach their life expectancy. As a matter of fact, if Amos-2 is not replaced, it should still remain at its position until the launch of a new satellite or until it will cease to operate.
The cancellation of the acquisition deal with the Chinese Xinwei conglomerate is not also seen as a major setback in Israel. Some experts estimated that the sale of the company could have led to a loss of confidence from current customers who could have canceled their contract and switch to some other satellite operating in the same region. Officials from the Israel Aerospace Industries, which have been in charge over the years of building the Spacecom’s satellites, see the loss of Amos-6 as an opportunity to keep Spacecom an Israeli company. If the deal with Xinwei is aborted, the IAI has greater chances of building the next Spacecom satellites and preserving the technology as Israeli.
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