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Blowback against Elon Musk has lit a rocket under Europe’s besieged space sector, as countries rethink their reliance on Starlink, the satellite system of President Donald Trump’s favoured tech billionaire.
In Italy, a proposed $1.5bn contract with Starlink for secure military communications has run into opposition. Canada’s Ontario has already ripped up its $100mn deal. In Ukraine, European governments fret that a key plank of campaign warfare — battlefield communications and drone connectivity — is reliant on Starlink and are in talks with four large satellite operators about providing back-up.
Two of these are Luxembourg’s SES and French satellite operator Eutelsat. The latter’s shares virtually quadrupled last week — off a low base — while SES of Luxembourg was up by a quarter.
As things stand, the pair were in a tight spot. Legacy satellite operators have to contend with the rise of new communication services from low Earth orbit, while traditional cash cows such as satellite broadcasting — making up half of Eutelsat’s revenues — face structural decline.
It is expensive to build and maintain a constellation of satellites. Eutelsat is earmarking a €2bn-€2.2bn spend for its low-Earth orbiting satellites through 2029. Its balance sheet is already stretched. Net debt is almost four times annual adjusted ebitda, and was nudging up against covenants before these were extended.
That’s bad enough. But it also faces formidable competition in Starlink, which beats it hands down in terms of capacity, coverage and technology. This is a global business by definition and Starlink operates in 120 countries, meaning orbiting satellites are more likely to be working more of the time.
Effectively a vertically integrated group, Starlink has crunched down costs, manufacturing its own kit and — thanks to Musk’s SpaceX — launching the satellites into space. Much the same will apply to Amazon’s Kuiper, launching this year and which again has much more capacity than OneWeb, Eutelsat’s low-orbit operation.
Bumping up revenues would pivot Eutelsat into positive free cash flow territory next year. Despite its smaller fleet of satellites, Eutelstat has slack; Bernstein estimates capacity utilisation is running at just 15-20 per cent. If the Italian contract switches to Eutelsat — and Musk will not let go lightly — that would be an additional annual $300mn of revenues, roughly half the group’s interim haul.
The concerns about Starlink speed up an existing trend towards more homegrown European satellite spend. Eutelsat is already part of the consortium working on IRIS², a €10.6bn project 60 per cent funded by the EU and due to go into service in 2030.
Of course, what money doesn’t buy is time. Even in the unlikely event that the money was ponied up tomorrow, users need terminals on the ground and any additional satellite orders will need to go to tender. Still, as problems go, these are the nicest Eutelsat has had for a very long time.
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