More than Just Lines on a Map: Best Practices for U.S Bike Routes
SataLink Fleet Proposal- SpaceCom (FEB28)
1.
2.
3. Our company
• Operates commercial satellites
• Sells bandwidth to communications companies
• Faces demand growth at about 5% per year
Situation:
• 10 satellites will retire between 2017-2021
Objective:
• Develop a replacement plan
3
4. SataLink’s priorities
Maximize net present value
Supply all forecasted demand
Plan for the unexpected
• Launch failure
• Low market growth
Generate positive cash flow
Improve company credit rating
SataLink’s
business!
Low-risk contracts
Strong earnings
Meanwhile, Boeing wants..
Figure 1
4
5. Made assumptions for our first attempt
• No launch failures
• Market grows at expected rate
• Constant market share
Iteratively adjusted plan to meet real-world conditions
• Added resilience to launch failure
• Added resilience to low market growth
• Optimized cash flow and debt
Researched additional opportunities
5
6. 2017 2018 2019 2020 2021
Americas
418 439 461 484 508
Europe
315 329 344 359 375
Middle East
& Africa
51 54 57 60 64
Asia &
Australia
272 286 300 315 331
Figure 2 6
Looked at the problem from a customer point of view
• Projected transponder demand in each region
7. 2017 2018 2019 2020 2021
Americas
-108 -129 -221 -244 -318
Europe
-55 -139 -154 -169 -185
Middle East
& Africa
-1 -4 -7 -60 -64
Asia &
Australia
8 -66 -130 -145 -241
Figure 3 7
Looked at the problem from a customer point of view
• Projected transponder demand in each region
• Calculated deficiencies in supply
8. 2017 2018 2019 2020 2021
Americas
800M 1000L 1000L
Europe
1000L 800M
Middle East
& Africa
800M
Asia &
Australia
800M 1000L
Figure 4 8
Looked at the problem from a customer point of view
• Projected transponder demand in each region
• Calculated deficiencies in supply
• Selected satellite models that best meet demand
9. 9
Checkpoints 1-4: Iterations for sensitivity analysis.
Positive Cash Flow Through 2025
Resilience to Plausible Launch Failure
Resilience to Low Market Growth
Debt Reductions
10. Chances that launches will fail
• 43% that no launch failures will occur
• 96% that two or fewer failures will occur
We can make our plan 96% resistant to launch failure!
Worst reasonable scenario: two launch failures
• NPV: $2.71 Billion
• Negative cash flow
Explored 3 alternatives to mitigate negative impacts of a
launch failure
• Use smaller satellites
• Order backup satellites
• Launch the satellites early for extra capacity 10
11. Starting with our preliminary plan…
2017 2018 2019 2020 2021
Americas
800M 1000L 1000L
Europe
1000L 800M
Middle East
& Africa
800M
Asia &
Australia
800M 1000L
Figure 5
Expected NPV: $5.22
Worst-case NPV: $2.71
[In billions]
11
12. Our first alternative deploys more small satellites.
2017 2018 2019 2020 2021
Americas
800M 1000L 3 x 600S
Europe
2 x 600S 600S 800M
Middle East
& Africa
800M
Asia &
Australia
800M 1000L
Expected NPV: $5.03
Worst-case NPV: $4.14
[In billions]
Figure 6
12
13. Our second alternative orders backup satellites.
2017 2018 2019 2020 2021
Americas
800M 1000L 1000L
Europe
1000L 800M
Middle East
& Africa
800M
Asia &
Australia
800M 1000L
1000L 1000LFigure 7
Expected NPV: $4.42
Worst-case NPV: $2.84
[In billions] 13
14. Our third alternative launches extra capacity early.
2017 2018 2019 2020 2021
Americas
1000L 1000L 800M
Europe
1000L 800M
Middle East
& Africa
800M
Asia &
Australia
1000L 800M
Figure 8
Expected NPV: $5.14
Worst-case NPV: $5.10
[In billions]
14
15. 15
2017 2018 2019 2020 2021
Americas 1000L 1000L
Europe 800M
Middle East
& Africa
Asia &
Australia
Figure 9: An animation to develop the final plan.
800M
1000L
1000L 1000L
800M 1000L
800M
Launching replacements as soon as possible helps reduce risks.
Average transponder fill rate (75%) remains competitive with other
competitors.
Purchasing our satellites early ensures bandwidth service.
15
16. 16
Checkpoints 1-4: Iterations for sensitivity analysis.
Resilience to Plausible Launch Failure
Resilience to Low Market Growth
Positive Cash Flow Through 2025
Debt Reductions
17. Several forces impact the growth rates in each region:
We need a plan that works well in any market 17
Americas Opportunities Threats
• Corporate globalization
• 4k HDTVs
• Broadband growth (Latin
America)
• Streaming services
• Fiber optics
Europe Opportunities Threats
• 4k HDTVs • Streaming services
• Fiber optics
Middle East & Africa Opportunities Threats
• Growth of TV market
• Cellular phone adoption
• West Africa Cable System
Asia & Australia Opportunities Threats
• Corporate globalization
• Cellular phone adoption
• New TV content
• 4k HDTVs
• Streaming services
• Fiber optics
Figure 10
18. Our NPV is sensitive to market growth rates,
but adequate in all probable scenarios.
Case: Market Growth increases by 7%/year through 2025.
• NPV: $7.27 Billion
• Generates Positive Cash Flow
Case: Market Growth increases by 3%/year through 2025.
• NPV: $3.40 Billion
• Generates Positive Cash Flow
18
19. We can change the launch plan over time:
• Move satellites later
× Exposes SataLink to launch failure risks
• Cancel satellite in 2020 if necessary
× Fails to account for market changes after 2017
We can improve our corporate strategy:
• Maintain geographically diverse customer base
Ensures that SataLink will grow even if one
market fails
• Invest in fiber optics
Guarantees SataLink will serve existing
customers in an unpredictable market
19
20. 20
Checkpoints 1-4: Iterations for sensitivity analysis.
Resilience to Plausible Launch Failure
Resilience to Low Market Growth
Positive Cash Flow Through 2025
Debt Reductions
21. 2014 2015 2016 2017 2018 2019 2020 2021
Operating Cash Flow $851 $930 $1012 $1089 $1179 $1283 $1380 $1495
Purchase Expenses (368) (535) (603) (670) (370) (203) (135) (68)
Interest Expenses (293) (293) (293) (293) (293) (293) (293) (293)
Net Cash Flow $191 $102 $117 $126 $517 $788 $953 $1135
Our CF outlook is strong even if we choose not to pay off our debt.
Model assumes debt level remains at $3.25 billion through 2021
Generates positive cash flow every year
Don’t need to borrow money to finance the new satellite purchase plan
Figure 11
Strong Cash Flow
21
22. 22
Checkpoints 1-4: Iterations for sensitivity analysis.
Positive Cash Flow Through 2025
Resilience to Plausible Launch Failure
Resilience to Low Market Growth
Debt Reductions
23. Goal: Improve SataLink’s credit rating
• Better in the eyes of stockholders, suppliers, and customers.
• Higher company valuation.
• In the future, less risk means that we can borrow at lower
interest rates (if we need to).
Option to reduce debt to zero by 2021
• Not necessary, but shows power of plan
• Targeted coverage ratio* of FCF/Total Debt ≥ 5%
23*FCF is conservative (Operating cash flow minus capital expenditures).
24. 2013 2014 2015 2016 2017 2018 2019 2020 2021 NPV
Option
A
2850 2721 2667 2591 2498 1998 1298 498 0 5149
Option
B
2750 2050 1250 0 5038
Debt Level and associated NPV (in millions)
Reduce the debt level sooner rather than later, for less interest payments.
• Surprisingly improves the Net Present Value (NPV).
• Why were we paying so much in interest?
• Might be due to poor credit. We’ll improve credit and refinance.
Figure 12
24
25. 25
Checkpoints 1-4: Iterations for sensitivity analysis.
Resilience to Plausible Launch Failure
Resilience to Low Market Growth
Positive Cash Flow Through 2025
Debt Reductions
Our final plan, as shown on slide 15, meets all high-level priorities.
26. SataLink will have $4 billion in cash by 2021
Maximize “Space Real Estate”
• Beneficial due to high profit margins in industry
• Option 1: Acquire smaller competitors
SataLink will attain valuable orbital slots
• Our recommendation: Space Com (TASE: SCC)
• Market cap: $1.3 billion
• Allows expansion in African market
• Option 2: Engage in price war to capture customers
✕ Might lose to competitors with larger market shares
26
27. Enter fiber optics market
• Allows SataLink to take advantage of existing relationship
with communications companies
• Option 1: Acquire Ciena Corporation (CIEN)
• Market cap: $2.3 billion
• Provides fiber optic bandwidth to similar customers
• Option 2: Acquire Infinera Corporation (INFN)
• Market cap: $1.0 billion
• Provides fiber optic systems to similar customers
27
28. The As Soon As Possible launch plan:
Additional strategic recommendations:
• Maintain geographically diverse customer base
• Pay back debt early
• Acquire a smaller satellite provider such as Space Com
• Acquire a fiber optics provider such as Ciena Corporation 28
2017 2018 2019 2020 2021
Americas
1000L 1000L 800M
Europe
1000L 800M
Middle East &
Africa
800M
Asia &
Australia
1000L 800M
Figure 13
29. Labrador, Virgil. “Trends to Watch (2014).” Satellite Markets and
Research. Spaceconnection, Jan. 2014. Web. 25 Jan. 2014.
Discusses political and economic forces in today’s satellite
industry.
McClure, Ben. “Cash: Can a Company Have Too Much?”
Investopedia. 2010. N. pag. Print. Explains good and bad
reasons for firms to hold extra cash. The appropriate amount
depends on the industry.
“Satellite Telecom Companies.” Bloomberg Markets. Businessweek,
n.d. Web. 25 Jan. 2014. An online listing of SataLink’s real-
world counterparts. Includes financials of Echostar, Eutelsat,
Loral Comm., Globalstar, etc.
“2012 Annual Report – Intelstat.” Intelstat Investor Relations. 28
Feb. 2013. Web 25 Jan. 2014. Details opportunities and
threats for satellite industry, as well as customer
segmentation. 29
30. Spencer Graham-Thille - spencer.gt@ucla.edu
Jennifer Sheriff - jsheriffca@gmail.com
Bach Dang - bachdang@ucla.edu
Yousif Kurdi - yousifk@ucla.edu
30
Acknowledgements:
Jose Arche (Team mentor)
Steve Pierce (First Audience)
Editor's Notes
Negative cash flow in 2018 and 1019
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Can add an 800M in 2021
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add color code definition.
Acknowledgements are just people who did some behind-the-scenes work.