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Wednesday, Feb 28, 2024

For Its Next Project, Viasat Thinks Small

Viasat Inc. is targeting 2026 to introduce a constellation of satellites very different from the high-cost ViaSat-3 constellation it plans to launch in the early 2020s.

The recently announced project will consist of smaller, more inexpensive satellites, and there will be more of them: almost 300. They will fly in low Earth orbit, much lower than the satellites in Viasat’s previous plans.

The move was a surprise, analyst Mike Crawford of B. Riley/FBR said in a recent research note.

The prospect of federal subsidies is motivating the company, CEO Mark Dankberg said in calls with analysts in late May.

“Basically it’s the demand side that we’re after. And the only thing that’s really changed on the demand side are government subsidies,” Dankberg said in an interview with an Alliance Bernstein analyst on May 27.

“If the subsidies go away or aren’t there, it’s more questionable how valuable that is,” he said at another point.

Dankberg did not give a dollar value for the subsidies, and the figure was not immediately available through the company.

A Change of Plans

Viasat (Nasdaq: VSAT) was already planning a satellite constellation different from ViaSat-3, one that would operate at what is called medium Earth orbit (greater than 1,240 miles high).

The federal government plans to subsidize rural broadband service with low latency — that is, with less lag time or interruptions — under its Rural Digital Opportunity Fund or RDOF program.

This spring the Carlsbad corporation asked the federal government to let it operate at low Earth orbit, to take advantage of the possible federal funding. Low Earth orbit can be as low as 110 miles and as high as 1,240.

The project is still early in the planning stages. It is still too early to tell whether Viasat can successfully bring in a government subsidy for the project.

First Up: ViaSat-3

In the near term, Viasat plans to launch ViaSat-3. The project consists of three large satellites (weighing 6.4 tons apiece) in geosynchronous orbit (roughly 22,000 miles high). At such an orbit, each satellite moves at such a speed where it seems to hover in one spot over the Earth turning below it. The corporation plans to launch one satellite serving North and South America, a second serving Europe and Africa, and a third serving countries in the Asia-Pacific region.

Viasat is expected to spend more than $2 billion on the Viasat-3 project.

Dankberg, on an investor conference call, said the company’s goal is to ship its first ViaSat-3 satellite to its launch site as early as autumn. Pandemic-related issues, however, might make the schedule slip.

Crawford, in his research note, said the ViaSat-3 satellite serving the Americas may go into service as early as December 2021. He added that by 2026, he thinks Viasat will be “well through its fleet investment phase and generating substantial FCF” or free cash flow.

Taking the Long-Term View

Dankberg addressed other topics in his analyst talks.

Generally Viasat is weathering the economic downturn well. The COVID-19 pandemic has created one significant problem for Viasat. The company offers satellite Wi-Fi service for passengers in specially fitted commercial aircraft. Airlines are flying far fewer passengers these days, so revenue has dropped. Viasat has responded by cutting expenses, including more than 300 jobs.

At one point in his talk with Alliance Bernstein analyst Peter Supino, Dankberg compared the in-flight business with The Walt Disney Corp.’s theme parks.

Disney’s theme parks successfully leverage the value of the company’s other media and entertainment assets. Right now the theme parks are “a huge drag” since no one can go to them, Dankberg said. But if for some reason Disney wanted to sell the theme parks, there would be buyers. “I don’t think there’s another media company in the world that wouldn’t instantly take over all those theme parks if they could,” he said.

“That’s how we look at our airline business,” the CEO said. “Right now The airline business is very stressed and we have a bunch of our business tied up in that. But we think that business is coming back and we wouldn’t trade that for other businesses ….”

Dankberg also told Supino that Viasat has orders from certain airlines to install in-flight communication equipment, but the airlines do not want to announce the orders yet.

In other news, Viasat announced on June 17 that it planned to issue $400 million in senior notes, or bonds. The bonds carry an interest rate of 6.5% and are due in 2028.


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