SataLink Fleet Proposal- SpaceCom (FEB28)

SataLinkFleet Replacement Proposal

SpaceComBoeing Case Competition

Bach DangSpencer Graham-Thille

Jennifer SheriffYousif Kurdi

3

Introduction

Our company

• Operates commercial satellites

• Sells bandwidth to communications companies

• Faces demand growth at about 5% per year

Situation:

• 10 satellites will retire between 2017-2021

Objective:

• Develop a replacement plan

4

Plan Priorities

SataLink’s priorities

Maximize net present value

Supply all forecasted demand

Plan for the unexpected

• Launch failure

• Low market growth

Generate positive cash flow

Improve company credit rating

SataLink’s business!

Low-risk contracts

Strong earnings

Meanwhile, Boeing wants..

Figure 1

5

Developing a Plan

Made assumptions for our first attempt

• No launch failures

• Market grows at expected rate

• Constant market share Iteratively adjusted plan to meet real-world conditions

• Added resilience to launch failure

• Added resilience to low market growth

• Optimized cash flow and debt Researched additional opportunities

6

Our First Attempt

2017 2018 2019 2020 2021

Americas418 439 461 484 508

Europe315 329 344 359 375

Middle East & Africa

51 54 57 60 64

Asia & Australia 272 286 300 315 331

Figure 2

Looked at the problem from a customer point of view• Projected transponder demand in each region

7

Our First Attempt

2017 2018 2019 2020 2021

Americas-108 -129 -221 -244 -318

Europe-55 -139 -154 -169 -185


-1 -4 -7 -60 -64

Asia & Australia 8 -66 -130 -145 -241

Figure 3

Looked at the problem from a customer point of view• Projected transponder demand in each region• Calculated deficiencies in supply

8

Our First Attempt

2017 2018 2019 2020 2021

Americas 800M 1000L 1000L

Europe 1000L 800M


800M

Asia & Australia

800M 1000LFigure 4

Looked at the problem from a customer point of view• Projected transponder demand in each region• Calculated deficiencies in supply• Selected satellite models that best meet demand

9

Iterations

Checkpoints 1-4: Iterations for sensitivity analysis.

Positive Cash Flow Through 2025

Resilience to Plausible Launch Failure

Resilience to Low Market Growth

Debt Reductions

10

Launch Failure Chances that launches will fail• 43% that no launch failures will occur• 96% that two or fewer failures will occur

We can make our plan 96% resistant to launch failure!

Worst reasonable scenario: two launch failures• NPV: $2.71 Billion• Negative cash flow

Explored 3 alternatives to mitigate negative impacts of a launch failure• Use smaller satellites• Order backup satellites• Launch the satellites early for extra capacity

11

Launch FailureStarting with our preliminary plan…

2017 2018 2019 2020 2021

Americas 800M 1000L 1000L

Europe 1000L 800M


800M

Asia & Australia

800M 1000LFigure 5

Expected NPV: $5.22Worst-case NPV: $2.71[In billions]

12

Launch Failure

Our first alternative deploys more small satellites.

2017 2018 2019 2020 2021

Americas800M 1000L 3 x 600S

Europe2 x 600S 600S 800M


800M

Asia & Australia 800M 1000L


Figure 6

13

Launch Failure

Our second alternative orders backup satellites.

2017 2018 2019 2020 2021

Americas800M 1000L 1000L

Europe1000L 800M


800M

Asia & Australia 800M 1000L

1000L 1000LFigure 7


14

Launch Failure

Our third alternative launches extra capacity early.

2017 2018 2019 2020 2021

Americas1000L 1000L 800M

Europe1000L 800M


800M

Asia & Australia 1000L 800M

Figure 8Expected NPV: $5.14Worst-case NPV: $5.10[In billions]

15

Failure Resistant Plan

2017 2018 2019 2020 2021

Americas 1000L 1000L

Europe 800M


Asia & Australia

Figure 9: An animation to develop the final plan.

800M

1000L

1000L 1000L

800M 1000L

800M

Launching replacements as soon as possible helps reduce risks.

Average transponder fill rate (75%) remains competitive with other competitors.

Purchasing our satellites early ensures bandwidth service.

15

16

Iterations





Debt Reductions

Satellite Market Outlook Several forces impact the growth rates in each region:

We need a plan that works well in any market 17

Americas Opportunities Threats

• Corporate globalization• 4k HDTVs• Broadband growth (Latin

America)

• Streaming services• Fiber optics

Europe Opportunities Threats

• 4k HDTVs • Streaming services• Fiber optics

Middle East & Africa Opportunities Threats

• Growth of TV market• Cellular phone adoption

• West Africa Cable System

Asia & Australia Opportunities Threats

• Corporate globalization• Cellular phone adoption• New TV content• 4k HDTVs

• Streaming services• Fiber optics

Figure 10

18

Market Growth Analysis

Our NPV is sensitive to market growth rates, but adequate in all probable scenarios.

Case: Market Growth increases by 7%/year through 2025.• NPV: $7.27 Billion• Generates Positive Cash Flow

Case: Market Growth increases by 3%/year through 2025.• NPV: $3.40 Billion• Generates Positive Cash Flow

Greater Market Resilience

We can change the launch plan over time:• Move satellites later

× Exposes SataLink to launch failure risks• Cancel satellite in 2020 if necessary

× Fails to account for market changes after 2017

We can improve our corporate strategy:• Maintain geographically diverse customer base

Ensures that SataLink will grow even if one market fails

• Invest in fiber optics Guarantees SataLink will serve existing

customers in an unpredictable market19

20

Iterations





Debt Reductions

21

Cash Flow

2014

2015

2016

2017

2018

2019

2020 2021

Operating Cash Flow

$851

$930

$1012

$1089

$1179

$1283

$1380

$1495

Purchase Expenses

(368)

(535)

(603)

(670)

(370)

(203)

(135) (68)

Interest Expenses (293)

(293)

(293)

(293)

(293)

(293)

(293)

(293)

Net Cash Flow $191

$102

$117

$126

$517

$788

$953

$1135

Our CF outlook is strong even if we choose not to pay off our debt. Model assumes debt level remains at $3.25 billion through 2021 Generates positive cash flow every year Don’t need to borrow money to finance the new satellite purchase plan

Figure 11

Strong Cash Flow

22

Iterations





Debt Reductions

23

Debt Reduction

Goal: Improve SataLink’s credit rating

• Better in the eyes of stockholders, suppliers, and customers.

• Higher company valuation.

• In the future, less risk means that we can borrow at lower

interest rates (if we need to).

Option to reduce debt to zero by 2021

• Not necessary, but shows power of plan

• Targeted coverage ratio* of FCF/Total Debt ≥ 5%

*FCF is conservative (Operating cash flow minus capital expenditures).

24

Debt Reduction

2013

2014

2015

2016

2017

2018

2019

2020

2021

NPV

Option A

2850 2721 2667 2591 2498 1998 1298 498 0514

9

Option B

2750 2050 1250 0503

8

Debt Level and associated NPV (in

millions)

Reduce the debt level sooner rather than later, for less interest payments.• Surprisingly improves the Net Present Value (NPV).• Why were we paying so much in interest?• Might be due to poor credit. We’ll improve credit and refinance.

Figure 12

25

Iterations





Debt Reductions

Our final plan, as shown on slide 15, meets all high-level priorities.

26

More Opportunities

SataLink will have $4 billion in cash by 2021 Maximize “Space Real Estate”

• Beneficial due to high profit margins in industry

• Option 1: Acquire smaller competitors SataLink will attain valuable orbital slots

• Our recommendation: Space Com (TASE: SCC)

• Market cap: $1.3 billion

• Allows expansion in African market

• Option 2: Engage in price war to capture customers

✕ Might lose to competitors with larger market shares

27

More Opportunities

Enter fiber optics market

• Allows SataLink to take advantage of existing relationship

with communications companies

• Option 1: Acquire Ciena Corporation (CIEN)


• Provides fiber optic bandwidth to similar customers

• Option 2: Acquire Infinera Corporation (INFN)


• Provides fiber optic systems to similar customers

28

Summary The As Soon As Possible launch plan:

Additional strategic recommendations:• Maintain geographically diverse customer base• Pay back debt early• Acquire a smaller satellite provider such as Space Com• Acquire a fiber optics provider such as Ciena Corporation

2017 2018 2019 2020 2021

Americas 1000L 1000L 800M

Europe 1000L 800M


800M

Asia & Australia 1000L 800M

Figure 13

29

ReferencesLabrador, Virgil. “Trends to Watch (2014).” Satellite Markets and

Research. Spaceconnection, Jan. 2014. Web. 25 Jan. 2014. Discusses political and economic forces in today’s satellite industry.

McClure, Ben. “Cash: Can a Company Have Too Much?” Investopedia. 2010. N. pag. Print. Explains good and bad reasons for firms to hold extra cash. The appropriate amount depends on the industry.“Satellite Telecom Companies.” Bloomberg Markets. Businessweek,

n.d. Web. 25 Jan. 2014. An online listing of SataLink’s real-world counterparts. Includes financials of Echostar, Eutelsat, Loral Comm., Globalstar, etc.

“2012 Annual Report – Intelstat.” Intelstat Investor Relations. 28 Feb. 2013. Web 25 Jan. 2014. Details opportunities and threats for satellite industry, as well as customer

segmentation.

30

Contacts

Spencer Graham-Thille - [email protected]

Jennifer Sheriff - [email protected]

Bach Dang - [email protected]

Yousif Kurdi - [email protected]

Acknowledgements:Jose Arche (Team mentor)Steve Pierce (First Audience)

mailto:[email protected]




Documents

SataLink Fleet Proposal- SpaceCom (FEB28)