Viasat appears spectacularly optimistic these days. The company is talking up massive increases in its satellite capacity and, despite another small delay in the ViaSat-3 launch, expects that satellite to be carrying traffic early in 2022.
There is good reason for the positive outlook. The company is riding high on the news that Delta Air Lines will split its in-flight connectivity operations, adding the Viasat Ka-band solution on some 300 aircraft starting this year. Even with the delays on the ViaSat-3 launch those aircraft are coming online. And once the new satellites enter service the company sees potential for significant additional growth in the Aero market, adding to the 1,000 aircraft backlog the company currently has under contract.
ViaSat-3 Schedule Slips
The company disclosed a slip in the launch of the first ViaSat-3 satellite, now expected to orbit in Q1 2022. This is attributed to “intermittent work delays, both internally and with our supply chain” related to COVID case counts spiking in Arizona where the payload facility is located. Still, the first satellite payload is “well over 95% complete,” with handover to Boeing for integration expected “in a few weeks” according to CEO Rick Baldridge.
Once the satellite does launch the transfer to orbit and activation is expected to be quick. The company expects just a month for raising it into geosynchronous position, much quicker than the ViaSat-2 launch.
And while there will be extensive testing lasting several months before significant customer loads transition on to the new satellite the overall pacing to get all three in service is not too delayed. The second satellite is still expected to launch 5-6 months after the first. And the third is now “maybe a little closer than it was before behind the second one,” leading to a full constellation of global coverage in orbit by 2023.
While the delay in launching that additional capacity has some adverse effects relative to demand today, Viasat is confident that it is not a terrible thing, especially with respect to the aviation market.
Domestic success, International expansion
Viasat’s operations in the US market are proving a multi-pronged success. The company continuing to grow its share of connected aircraft in the busiest commercial aviation market where in-flight connectivity has the highest penetration and the greatest demand from consumers. The recent Delta deal is arguably the first conversion of aircraft away from second generation satellite connectivity to a new or different satellite offering (2Ku to Viasat’s Ka system). That alone is a milestone worth celebrating.
But the success in the US also carries over to international markets. Executive Chairman Mark Dankberg summed it up during the company’s recent earnings call, “The fact that we’ve been very successful in the North American market is going to help us in these international markets where the airlines have less experience about the role of in-flight connectivity in their overall value proposition. We’re really optimistic that a lot of growth is going to come in that Asia Pacific market.”
While the delay of the ViaSat-3 constellation initial launch hurts a bit on this front the company does not expect that to cascade through too much for the third satellite which will serve that Asian growth market. A brief pause in the overall equipage of aircraft has ended and the company is once again growing its in-service fleet and backlog.
And executives see no reason that growth will subside. Dankberg went so far as to called out the competition, showing more than a bit of swagger with respect to the company’s commercial aviation offering, “The times that when we don’t win, when we’re not successful in the market, it’s usually because somebody discounted equipment or an install or dangled some offer that they weren’t able to fulfill because they didn’t have enough bandwidth to really scale the offer.”
Permanently Positive Free Cash Flow
At some point shortly after the second ViaSat-3 satellite launches with EMEA service the company expects to become free cash flow positive, thanks to waning capital costs tied to the building of the new constellation. And, according to Baldridge, “we expect to stay there after that,” even as future satellites are built and launched.
There’s always a risk of that changing, but Baldridge suggests that would require “we do something completely different that I don’t know about.”
Even bigger with ViaSat-4
The terabit satellites in the ViaSat-3 constellation are a massive increase in available capacity to the market, but Viasat is not stopping there. Dankberg suggests that for the ViaSat-4 satellites capacity “in the range of 5, 6, 7 terabits is what’s possible.” And ViaSat-5 will likely double that, based on the current concepts.
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