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Intelsat Loses Use of Satellite

Spacecraft Failure Could Jeopardize Sale of Company

By Justin Blum
Washington Post Staff Writer
Tuesday, January 18, 2005; Page E01

Global satellite operator Intelsat Ltd. has permanently lost one of its orbiting spacecraft because of an electrical failure, the latest threat to a $5 billion deal to sell the company, officials said yesterday.

Intelsat, which is based in Bermuda but employs most of its 700 U.S. workers in the Washington area, said the satellite provided communications services in the South Pacific. Some service areas were without voice and data communications yesterday.

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This is the second satellite operated by Intelsat to experience difficulties in recent months. Late last year, another satellite lost power but partial service was soon restored.

The most recent problem cannot be repaired, prompting the company to announce plans to take a non-cash charge of $73 million, said Dianne Van Beber, Intelsat's vice president of investor relations. The satellite was uninsured, the company said.

The satellite's failure gives the planned buyer of Intelsat, Zeus Holdings Ltd., the right to back out of the deal, according to Intelsat. Zeus has told Intelsat it is evaluating the impact of the satellite's loss, Van Beber said. The deal was to have been completed by the end of the first quarter.

Zeus, a Bermuda company that includes four private equity firms, announced in August that it planned to purchase Intelsat for $3 billion and assume an additional $2 billion in debt. A spokesman for Zeus did not return phone calls yesterday.

Spokesmen for three of the venture firms that make up Zeus -- Apax Partners Inc. of New York and London, Permira Advisers LLC of London and Apollo Management LP of New York -- declined to comment yesterday. An official with the fourth company, Madison Dearborn Partners of Chicago, did not return phone calls.

Van Beber said that Zeus and Intelsat "remain interested in trying to pursue the transaction to closure."

Some industry observers said the satellite's failure could lead to a reduction in Intelsat's sale price. "I think they'll cut the price," said Roger J. Rusch, president of TelAstra Inc., a Palos Verdes, Calif., firm that provides telecommunications satellite consulting services to investors. "This is a negotiating wedge."

Intelsat first detected problems with the satellite it calls IS-804 on Friday. A day later, the company concluded the satellite was a loss, the result of an electrical short, Van Beber said.

The satellite's loss cut off voice and data communications to some islands in the Pacific. News reports said American Samoa, French Polynesia, Tonga and the Solomons were among the affected islands. The company, which could not list locations without service yesterday, said it was attempting to restore communications using other Intelsat satellites.

"In some of those countries, they had other backup systems available to them," Van Beber said. "In some very remote islands, they have been cut off and have lost the ability to communicate."

In November, Intelsat temporarily lost use of its Americas-7 satellite after it suffered a power loss. That problem caused disruptions for some U.S. customers, including a satellite Internet service provider. Before the problem was resolved, officials said it could affect the planned sale. While the Americas-7 remains in use, it is not fully operational.

Intelsat said the problem with the Americas-7 was unrelated to the loss of the IS-804.

The IS-804, launched in 1997, was manufactured by Lockheed Martin Corp., a part-owner of Intelsat. Intelsat said the satellite had operated without incident until now.

Dee Valleras, a spokeswoman for Lockheed Martin Commercial Space Systems in Newtown, Pa., said her company was working with Intelsat to determine the cause of the failure of the Series 7000 satellite. It was one of a family of 12 satellites the company built. Four have had some form of malfunction, but the failures do not appear to be part of some systemic problem, Valleras said. She said the satellite was designed to last 10 years.

Once the cause of the failure is determined, Valleras said Lockheed Martin would determine whether any "lessons learned" should be applied to the other eight satellites from the same series that are currently in use. She said the last model from that series was produced in 1998.


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