Inmarsat (ISAT) will provide broadband internet connectivity to passengers flying Austrian Airlines in a further boost to the satellite operator's big money investment project in aviation.
Deals have already been signed with Singapore Airlines, Lufthansa, Air New Zealand and Jazeera Airways for Inmarsat to introduce its in-flight internet service Global Xpress.
Chief executive officer Rupert Pearce says the investment project should deliver incremental annualised revenues of $500m by 2020 though expected profit margins have not been published.
Inmarsat's revenue across all divisions in 2016 was $1,274m and operating margins were 33%.
REVENUE DRIVER
'Our airline customers understand that service differentiators such as high-speed broadband on flights are key to meeting the expectations of today's passengers and therefore strengthening their position in a highly competitive market,' said Inmarsat Aviation chief Leo Mondale.
Inmarsat's revenue is expected to increase 25% to $1.6bn by 2018, according to forecasts published in August by analyst Robert Berg at Berenberg.
Growth in Global Xpress is being offset by weaker performance in other areas of Inmarsat's business, which provides customers in hard-to-reach locations with satellite connectivity services.
'The troubled shipping market, depressed energy industry and weaker business aviation segment has led us to question our medium-term forecasts,' wrote Berg in an 11 August note.
| EARNINGS ESTIMATES | ||||
| Inmarsat - Key financials ($m) | ||||
| 2015 | 2016e | 2017e | 2018e | |
| Revenue | 1,274 | 1,310 | 1,428 | 1,600 |
| Operating profit | 426 | 420 | 431 | 506 |
| Net profit | 282 | 266 | 267 | 302 |
| EPS | 62c | 58c | 59c | 66c |
| DPS | 51c | 54c | 59c | 65c |
| Source: Berenberg, 11 Aug - year-end: Dec | ||||
JURY IS OUT ON GLOBAL XPRESS
'We have, however, for now taken the view that this is cyclical and not structural, and that by 2018 things will have improved. We believe Inmarsat will sign further GX and S-band aviation contracts, but have concerns around the ease with which it does and the subsequent impact on financials.
'We do not think that GX currently offers the best technological solution for Aviation and thus we believe Inmarsat needs to incentivise airlines by taking the up-front capex and opex risk.'
Inmarsat is paying up-front for the costs of installing antenna on aircraft which are needed to connect with satellite signals, meaning the project is capital intensive. Any deterioration in Inmarsat's other businesses would place pressure on cash flow and net debt, which already stands at almost $3bn.
Shares in the satellite operator trade 1.4% higher following the Austria Airlines deal at 733p.
