Sankar,
I think there is a bit of misperception about the relationships
between Loral, SS/L, and Globalstar. While I agree that right now Globalstar is buying all of its satellites from SS/L, this is not as significant as it may seem.
FIRSt, SS/L is the prime contractor for the Globalstar satellite program. This does not mean that SS/L is building most of the satellites. In order to garner international support for the venture, and to make good on the promises of symbiosis made when old Loral sold 49% of SS/L to the "49ers" in Europe, SS/L was forced to farm out a majority of the design and manufucture of the Globalstar satellites to its team-members in Europe and Asia. Thus, total profits (if any) on the design and manufacture of the satellites are really spread out over several companies besides Loral.
SECOND, these companies have significant negotiating power vis-a-vis SS/L, and try to squeeze every cent they can out of the contract whenever a change comes up.
Here's how it works. A team-member (call it X) is under FFP contract to build 56 flight sets. As it works along, it starts to experience cost problems. Since the contract is firm, fixed-price, X can't ask for more money. Then Globalstar, LP decides it wants to make a change to the satellite spec. GLP asks SS/L for a proposal. SS/L asks X, Y, Z, etc for proposals. X thinks, hey! Here's a chance for me to offset some of my overruns, I'll just increase all of my numbers on this new proposal. SS/L then passes the numbers through to GLP, and GLP says you've gotta be kidding! When SS/L and GLP decide they can't agree on a price, LOR steps in a arbitrates. The number is usually somewhere in the middle between the two positions. The problem now is that SS/L must live within this number, but X won't come down off of it's inflated value. X says, Gee, we don't really know if we can honor this contract if you can't pay what it takes...
There is no guarantee that SS/L will make any money at all on this contract. Because it is FFP, SS/L really bears most of the risk of overruns with pretty slim margins. The vendor financing requirements have been a tremendous strain on cash flow, and, remember, if GLP doesn't make enough money for whatever reason, it won't be able to pay back the tens of millions of dollars that SS/L has foregone in this venture.
FOURTH, I don't know if you remember seeing the ads about a year and a half ago, but Hyundai was touting itself as the future builder of Globalstar satellites. I know they are a subcontractor now, and that SS/L has been providing their engineers with training in the satellite business, but there may be some promise that Hyundai will get to make the next set of replacement satellites (i.e. FM65+). This would mean that SS/L is not a monopolist.
Eduardo Fisher |
