Israeli Satellite Company Falls Victim to Debt and Politics

Spacecom shares sink as investors lose faith in ability of the company, owned by tycoon embroiled in Netanyahu's bribe case, to sign contract to build its next satellite

Spacecom's Amos 6 satellite, 2015.
Space Communications

The fallout from the police’s Case 4000 (Bezeq-Walla) investigation is strangely enough affecting Israel’s communications satellite capabilities.

Spacecom, the company that owns and operates a fleet of Amos satellites, was controlled by the telecommunications tycoon Shaul Elovitch. But as police and Israel Securities Authority probes mounted against him and his debt piled up, Elovitch lost his empire, including Spacecom, to his bank creditors.

Spacecom today is administered by attorney Hagai Ullman, who is running Elovtich’s investment holding company Eurocom Communications.

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The absence of a controlling shareholder couldn’t have come at a worse time for Spacecom, which is struggling with debt of some $520 million as well as the failure to reach an agreement on building a new satellite to service customers.

Spacecom’s problems have caused its shares to sink on the Tel Aviv Stock Exchange more than 23% in the past month, including an 8.4% drop on Monday to 9.93 shekels ($2.65) a share. Its market cap is now just 207 million shekels, compared with 890 million two years ago.

There have been no business developments at Spacecom to justify the decline; rather, investors don’t see how the company can’t repay its debt with the tiny profits it is generating, nor do they see how its reaching an agreement to build its next satellite.

Spacecom has had its share of bad luck in the past, including the loss of contact with its Amos 5 satellite while in orbit in 2015 and an explosion that destroyed its Amos 6 the following year while it was on a Launchpad.

The company reached an agreement last March for the U.S. company Space Systems/Loral to build the Amos 8 for $112 million, but in September Spacecom was forced to back out of the deal under heavy pressure from Israel Aerospace Industries. IAI can build satellites but not as quickly or cheaply as Loral.

IAI had lost out to Loral because it couldn’t match the American company’s prices for its end-2020 delivery date. But state-owned IAI and union leaders exerted heavy pressure on the government, which in turn threatened not to sign agreements to use Amos 8 services.

As Yair Katz, chairman of the IAI workers committee and the son of Labor Minister Haim Katz said: “If [the decision makers] disappoint us, you can assume that they won’t continue enjoying the confidence of the workers in the Likud Party primaries.”

Without the Israeli government as a customer, Amos 8 wasn’t financially viable, leaving Spacecom no choice but to cancel its agreement with Loral and SpaceX to launch the satellite.

Since then, however, no agreement has been reached with IAI either; indeed, Spacecom has never said on the record it had any agreement at all with the company. Spacecom has refused to pay more than the $112 million Loral had agreed to and so far the Israeli government hasn’t committed to covering the difference.

The waiting game and doubts about its outcome have caused stock market investors to give up hope on Spacecom.

Beyond the company’s problems the delays have raised doubts about Israel’s ability to remain a player in the global satellite communications sector.

In a report released two months ago, the government’s State Comptroller recounted a decade of wrongheaded planning and policy. That has “seriously jeopardized the country’s capabilities in the field and the technological and human infrastructure that has been built over the decades.”

The only good news regarding Spacecom is Amos 17, the $161 million satellite the company contracting with Boeing to build to replace the ill-fated Amos 5. Due to be launched in second-quarter 2019, it already has $30 million worth of contractual commitments from users.