IRIDIUM SUPPORTS $25 MILLION BID DEAL COULD SAVE SATELLITE SYSTEM

By Rob Kaiser Tribune Staff Writer October 31, 2000

Iridium LLC, owner of the bankrupt $5 billion satellite system backed by Motorola Inc., has endorsed a $25 million bid for its ill-starred space network from a group led by ex-airline executive Dan Colussy.

Although Iridium has received dozens of offers since declaring bankruptcy in August 1999, this is the first time the company has given its support to a potential buyer.

The last-ditch rescue plan, if approved, could head off an alternate proposal to dispose of the satellites by crashing them into the atmosphere, where the heat of re-entry would disintegrate them.

A hearing on the bid will be held Nov. 8 at U.S. Bankruptcy Court in Manhattan. The court must approve any sale.

The proposed deal would largely end the involvement of Motorola, which conceived the Iridium system and was its largest stakeholder.

The satellite company racked up more than $6 billion in losses, including some $3.5 billion for Motorola, which started the system with the ambitious goal of being able to make phone connections anywhere at any time.

Although Iridium more or less pulled off that technological feat, beginning operations in late 1998, it failed as a business. With a $3,000 price for an Iridium phone, plus international calling rates of up to $7 a minute, the company brought in only 15,000 customers before going bust.

As part of the proposed sale, Motorola would turn over responsibility for operating the system to Boeing Co., according to court papers.

Assuming the deal is completed, "Motorola will have no further obligations to operate, maintain or decommission the constellation," according to a release from the Schaumburg-based technology giant.

Under the proposal, Iridium would receive $6.5 million when the sale is completed and the $18.5 million balance during the next several years. Motorola would provide a $30 million bridge loan to the buyers to cover the costs of operating the system during the several-month period it is transferred to Boeing's control.

Boeing, which does not plan to take a stake in the satellite system, likely would use many of the same facilities and employees to keep the Iridium system operational.

Motorola would retain a 2 percent stake in the satellite system, according to a company spokeswoman.

Despite Iridium's endorsement, Colussy's group still may have to compete with other bidders before it can assume ownership of the satellite system.

Several parties have submitted offers recently to the court, including bids for more than $25 million. But Iridium officials declined to back those bids, saying it was unclear if they were bona fide.

Colussy, a former Pan Am executive, couldn't be reached for comment Monday. The company he formed, which is called Iridium Satellite LLC, is believed to include former Iridium Chief Executive Edward Staiano, who also couldn't be reached for comment.

Colussy, Staiano and other investors in the group were involved in an earlier attempt by New York-based merchant bank Castle Harlan Inc. to buy the troubled satellite system. That deal fell apart in July, when Castle Harlan pulled out of the talks.

Sources said the U.S. Department of Defense wants to preserve the satellite system and likely would pay an unspecified amount for Iridium phone service, thereby ensuring the satellite system would have a certain level of revenues.

In addition to the military, the Iridium service would continue to be sold to customers in remote locations, such as those at sea and oil rig operators.

Originally, the service was aimed at a much broader audience, including international business travelers, but the anywhere, anytime phone service proved too expensive and unreliable to compete with cellular systems.

If the Iridium system is not sold, Motorola plans to "decommission" the satellites, setting them on a course to re-enter the Earth's atmosphere and burn up.

The following link to a more recent Florida Today report confirms the purchase.

http://www.flatoday.com/space/explore/stories/2000b/111600e.htm

So we can all look forward to continued performances by the Iridium satellites - get those predictions ready!

Chris Peat, November 2000