Ottawa-based Telesat says it’s ready to shift production of its multibillion-dollar satellite constellation into high gear after a new supplier has agreed to build the high-tech devices in a deal that will lower capital costs by up to US$2 billion.
Questions about the future of the project, dubbed Telesat Lightspeed, swirled in recent months as supply-chain disruptions and soaring inflation forced the company to revise its timeline for launching the low-Earth-orbit (LEO) satellites.
But the new contract announcement on Friday morning sent Telesat’s share price skyrocketing. By late Monday afternoon, the firm’s stock was trading at $19.30 on the Toronto Stock Exchange, up nearly 70 per cent from its closing price of $11.39 last Thursday.
OBJ360 (Sponsored)
Giving Guide: The Anglican Diocese of Ottawa
What we do The Anglican Diocese of Ottawa (ADO) focuses on compassionately caring for vulnerable people. Our ministries are dedicated to supporting those struggling with poverty, mental illness, addiction, and
Giving Guide: The Snowsuit Fund
What we do Now in our 43rd season, The Snowsuit Fund purchases and distributes nearly 17,000 snowsuits annually to children 15 years and younger from low-income families living in Ottawa.
“It would be hard to overstate how pleased we are with the arrangements we have put in place for Lightspeed and how keen we are to get out there with customers, investors and others,” Telsat CEO Dan Goldberg said Friday morning during a conference call with analysts.
“It’s been a long road – much longer than we anticipated. But we’ve always said we see a huge opportunity in the global enterprise broadband market and that we were laser-focused on finding the most compelling path forward. Given where we’ve landed, it’s been well worth the wait.”
Telesat’s original plan called for 298 LEO satellites to be supplied by French-Italian aerospace giant Thales Alenia Space at a price tag of about US$5 billion, with the initial launch targeted for 2024.
But supply-chain disruptions and soaring inflation pushed the estimated cost up to US$5.5 billion, forcing the Ottawa company to delay production as it sought additional financing. Last year, Telesat announced it was cutting the program to 198 satellites in a bid to rein in costs.
On a call with analysts in May, Goldberg said Telesat was “making headway” with potential investors and was open to switching suppliers should rising costs prompt a review of expenditures.
On Friday, the company announced it was indeed pulling out of its deal with Thales Alenia Space and going with Canadian aerospace firm MDA, which was already poised to provide phased array antennas for Lightspeed and will now manufacture the entire constellation.
Goldberg said the Brampton-based firm’s cutting-edge digital beamforming antenna technology can deliver better signal quality than Thales Alenia’s system for a lower price because MDA’s satellites will be smaller and cheaper to manufacture.
The CEO told analysts that Telesat looked at using MDA’s technology several years ago, but it “wasn’t ready for prime time.”
Since then, he said, MDA has refined its beamforming know-how to the point where the technology is now “sufficiently mature.” MDA, which was formerly known as MacDonald, Dettwiler and Associates and is probably best-known for creating the Canadarm, recently won a contract to provide 17 LEO satellites to U.S. satellite communications giant Globalstar.
“The performance improvement relative to the analog (antenna technology) is dramatic,” Goldberg said. “It’s game-changing. It’s just a home run.”
The total capital cost of the Lightspeed project is now expected to be in the range of US$3.5 billion, Goldberg said. In addition to the estimated US$2 billion in capital cost savings from switching to MDA, Telesat said it also expects “substantial savings due to significantly reduced financing costs relative to the company’s prior plan.”
Telesat said it has lined up about US$2 billion in funding from its federal and provincial government partners, financing that is contingent on conditions such as completion of due diligence and the conclusion of definitive agreements.
That money, combined with additional cash from vendors and its own reserves, will pay for the first 156 satellites, Goldberg said, enough to give the company “full global coverage.”
The remaining 42 satellites will be funded from existing cash flows once Lightspeed gets up and running at full speed, he added. The company expects to start launching the satellites in mid-2026, with global service scheduled to begin by the end of 2027.
The LEO satellites will be located about 1,000 kilometres above the Earth’s surface, much closer than traditional satellites. That will allow for lower latency, or lag time, which is expected to translate into better wireless service for customers in remote areas and mobile locations such as airliners and cruise ships.
While other competitors such as Elon Musk’s Starlink are targeting the direct-to-consumer market with their LEO constellations, Telesat is going after enterprise customers such as airlines, cruise ship operators, governments and telecom companies.
Goldberg said Friday the global market for LEO services is pegged at more than US$400 billion, split about evenly between the direct-to-consumer and enterprise segments.
If Telesat can capture even two per cent of the enterprise market, he explained, “we’ll be hitting our business plan.”
The CEO also didn’t rule out expanding the Lightspeed constellation in the future.
“That will purely be a function of what the demand environment looks like at the time,” he said.
