Telesat warns supply chain woes could delay Lightspeed launch

Dan Goldberg
Dan Goldberg

Telesat says the launch of its low-Earth-orbit satellite constellation aimed at delivering high-speed internet service to remote areas could be delayed by up to a year due to supply chain bottlenecks that are slowing production. 

The Ottawa-based satellite communications firm said Friday that Thales Alenia Space, the French-Italian manufacturer it’s hired to build the fleet of nearly 300 LEO satellites, is facing “global supply chain constraints” that are likely to delay the network’s construction and launch, as well as drive up the cost of the multibillion-dollar project.

“There are supply chain issues which are causing delays, and there are inflationary pressures across the entire economy right now, and we’re getting bitten by both of those things,” Telesat CEO Dan Goldberg told analysts during a conference call Friday morning.   

OBJ360 (Sponsored)

While the first LEO satellites were originally expected to make their way into orbit in 2024, Goldberg said that timeline will almost certainly be pushed back.

“If things unfold the way we think they will right now, we’ll be launching in 2025 and entering service in 2026,” he said. “It’s not what we wanted, but that’s what that feels like right now.”

$6.5B price tag

Telesat’s new constellation, dubbed Telesat Lightspeed, is expected to include 298 satellites that will orbit about 1,300 kilometres above the Earth – far closer than traditional satellites. The network is designed to deliver broadband internet speeds comparable to those offered by fibre-optic networks to parts of the planet that currently can’t access such service. 

The cost of the ambitious project had previously been pegged at $6.5 billion, of which Telesat said it has secured about $4 billion. 

The firm has been negotiating with a pair of export credit agencies, Export Development Canada and Bpifrance, to provide the remaining financing. But in financial documents filed Friday, Telesat said production delays have hampered its ability to finalize those deals, forcing the company to consider scaling back the project.

“We either need to raise more money, or we need to de-scope the constellation and bring (capital expenditures) down so it fits within the same spending envelope that we had before those cost pressures emerged,” Goldberg said. “It’s still a wee bit too early for us to say which direction we’re going to go here.” 

The CEO said the company is working with Thales Alenia to assess the impact of the supply chain issues and should have a “real good sense” of the project’s revised timeline and the status of potential financing agreements by the end of the second quarter in June.

The firm’s first 78 LEO satellites are slated to orbit the Earth’s poles, with the next 110 designed to circle near the equator. Goldberg said the Lightspeed system could still effectively deliver high-speed internet service to much of the world even if it needed to be downsized.

“Even with 100 less satellites, for instance, we still have terabits and terabits of capacity and a very capable global constellation that we feel good about,” he said.

Goldberg’s comments came after the firm’s first earnings report as a publicly traded company.

Revenues of $187.5M

Telesat began trading on the Nasdaq and Toronto Stock Exchange in November in a bid to raise additional capital as it goes toe-to-toe against big-name competitors in the LEO space such as Elon Musk’s SpaceX and Jeff Bezos’s Amazon-backed Project Kuiper.

For the fourth quarter ending Dec. 31, Telesat reported revenues of $187.5 million, down from $201.9 million a year earlier.

The company attributed the decline in revenues to lower equipment sales from government customers, the reduction or non-renewal of certain services in the enterprise segment and a reduction of services for one of its North American direct-to-home customers.

Telesat’s net income fell to $97.2 million, a significant drop from the previous year’s total of $255 million. The firm’s operating expenses more than doubled year-over-year from $40 million to $87 million as it ramped up hiring for the Lightspeed project, eating into its profits.

Telesat is projecting revenues of between $720 million and $740 million for fiscal 2022, down slightly from $758 million in 2021. 

Goldberg said where Telesat ultimately lands in that projected range could hinge on whether longstanding direct-to-home customer Dish Network renews its contract, which is worth tens of millions of dollars annually and expires next month. 

Goldberg said Friday that Dish could still opt for a full or partial renewal, but added that if the U.S. satellite TV provider decides not to pull the trigger on a new deal, he expects no shortage of potential replacement customers to be waiting in the wings.

“We’d like a Dish renewal, but we’ve always felt confident that if we didn’t get one that there’d be meaningful demand for the (satellite) capacity,” Goldberg said. “We’re bullish about our ability to resell that capacity.”

Since debuting at just under $50 on the TSX on Nov. 19, Telesat’s shares have fallen to below $30. They were up 87 cents to $28 in late afternoon trading on Friday.

Get our email newsletters

Get up-to-date news about the companies, people and issues that impact businesses in Ottawa and beyond.

By signing up you agree to our Terms of Use and Privacy Policy. You may unsubscribe at any time.

Sponsored

Sponsored