In the span of three months, three different satellite communications providers filed for bankruptcy, raising questions about the challenges facing both new entrants and industry incumbents.

Intelsat SA's May Chapter 11 filing follows in the wake of Speedcast International Ltd.'s April filing and OneWeb LLC's declaration in March. Though all three companies operate in the satellite space, they are quite different. Intelsat operates large geostationary satellites and has struggled for years under a heavy debt load. OneWeb, by contrast, is a startup that aimed to launch a constellation of small low-earth-orbit satellites, and Speedcast tried to grow quickly through a spate of acquisitions.

Due to their different business models and histories, analysts say it is dangerous to draw broad conclusions about the satellite industry from the bankruptcies. However, there are some common threads. First, all three companies were hurt by the coronavirus, as the outbreak disrupted key revenue streams and tightened access to capital. Second, analysts warn that the market's demand for new high-speed satellite connectivity may not match the burgeoning supply.

Both of these factors stand to impact other players in the space.

"There's bad news across the board for the satellite industry," said Tim Farrar, president of the satellite consulting and research firm Telecom Media and Finance Associates Inc. But he noted that the risks faced by companies depend on both their market position and their balance sheets.

Not-so-friendly skies

One pocket of the industry that has been particularly impacted by the pandemic and that faces some of the highest risks is in-flight connectivity. Companies like Gogo Inc. and Global Eagle Entertainment Inc., which provide in-flight broadband internet and entertainment services, have seen their revenues decline as people have stopped traveling.

"All of the players in the in-flight connectivity space are really seeing pressure right now. As long as the coronavirus pandemic continues, I expect the pressure to be on these guys, and we're going to be monitoring them very, very closely," S&P Global Ratings credit analyst Justin Gerstley said in an interview.

Gogo bills the airline per passenger session or bills passengers directly. Global Eagle, meanwhile, is more insulated from passenger declines as its commercial aviation and cruise contracts are more fixed in nature.

But Global Eagle was already feeling pressure before the outbreak. Prior to the pandemic, Global Eagle's S&P Global Ratings-adjusted debt-to-EBITDA was above 10x, and the company had revenue growth and cost-cutting initiatives in place to improve credit metrics. Those growth measures have been hindered by the coronavirus, and Reuters reported in April that Global Eagle had started exploring debt restructuring options.

Global Eagle's one-year market signal probability of default was at 57.7% as of market close May 29, up from the low- to mid-30% range ahead of the pandemic, according to an analysis by S&P Global Market Intelligence using its newly launched Marketplace database. The scores take into consideration share price volatility, geography and industry-related risks.

Gogo's score, by contrast, stood at 17.0% as of market close May 29, roughly in line with pre-pandemic levels.

In-flight to outer space

Declines in the in-flight connectivity space are also having an impact on wholesale satellite operators, which lease capacity to IFC providers.

Gogo, for instance, leases substantial amounts of capacity from Intelsat and SES SA and is renegotiating contracts with its satellite partners to reduce Gogo's costs commensurate with lower demand. Gogo CEO and President Oakleigh Thorne said during a May earnings call that the company is close to signing deals with more than half of its satellite partners, and is "very close to reaching terms" with most of the rest.

S&P Ratings credit analyst Chris Mooney said the contract negotiations put wholesale providers "in a difficult position because that's their fixed revenue." While Intelsat and other wholesale providers could benefit over time by exchanging temporary relief for longer-term contracts, there is still an immediate impact on the top line.

As a result of the pandemic, Intelsat CFO David Tolley said in bankruptcy filings that he expects its revenue and cash flow to be approximately $160 million lower than originally budgeted in 2020, an amount equal to almost 8% of Intelsat's total 2019 revenues of $2.06 billion.

Bigger picture

Still, Gagan Agrawal, a senior analyst for satellite research firm Northern Sky Research, said in an interview that Intelsat's bankruptcy had more to do with the company's specific leverage profile than secular difficulties.

To read more about Intelsat's bankruptcy and its connection to the U.S. Federal Communications Commission's upcoming mid-band spectrum auction, click here.

Intelsat carried almost $15 billion in debt, according to Tolley, supported by adjusted annual EBITDA of $1.5 billion, equating to a debt/adjusted EBITDA ratio of roughly 10x.

"This was more of a structural issue within the company rather than in the industry," Agrawal said.

Farrar believes other wholesale providers are likely to weather the pandemic without too many problems.

"I think we'll still see traditional players coming out of this OK. They'll be hit, but it won't be fatal," he said, pointing to SES and Eutelsat Communications SA.

Gerstley also pointed to existing satellite home broadband providers like ViaSat Inc. and Hughes Communications Inc., noting that they have seen a boost in demand amid the pandemic.

"With people working from home, people need additional bandwidth and it's helping them," he said.

Mooney, though, highlighted that many of these businesses are investing in new technology that allows for "massive" increases in capacity.

"We've struggled with the demand side of that equation," he said, noting that while mobility services like in-flight connectivity were set to grow demand, that growth is no longer assured.

Down to earth

One sector of the industry leveraging new technology is low-earth orbit satellites. Ventures like Elon Musk's SpaceX and OneWeb planned to deploy large constellations of small satellites capable of delivering high-speed broadband with lower latency times than have historically been possible with satellite service.

But OneWeb, following successful launches of 74 of its targeted 648 satellites, filed for bankruptcy in March after it was unable to secure new financing. SoftBank Group Corp. supplied $2 billion of the $3.4 billion in equity and debt that OneWeb raised prior to its bankruptcy filing. OneWeb, however, said in a statement that COVID-19 stopped it from securing an "investment that would fully fund the company through its deployment and commercial launch."

While new technologies have made LEO satellites cheaper to build and launch and capable of delivering faster service, Farrar said the technology "still isn't as good as terrestrial technology's capabilities and costs," which can make investors "reluctant to fund these ambitious new projects."

As such, he does not expect OneWeb to be the last LEO constellation to run into trouble. He named SpaceX's Starlink satellite constellation, which has thus far launched 422 satellites since 2018, as another venture he is watching.

"With ambitious forward-looking projects where the markets are not very well defined, I think we'll see more failures," he said.