Thursday, January 10, 2019

That Canadian Space Plan Where We Give Most of the Funding to a Failing, Foreign Owned Maxar is Dumb

          By Chuck Black

The next Federal budget will be announced within the next three months.

Over the last six months the Canadian space industry, publicly represented by the Aerospace Industries Association of Canada (AIAC) and the #DontLetGoCanada coalition, with funding and resources supplied through Westminster CO based Maxar Technologies, has been lobbying to "help secure our place in space" by committing several billion dollars from the upcoming 2019 Federal Budget to a "3rd generation" Canadarm. This new Canadarm would be built at Maxar's Brampton ON based MDA subsidiary, and provided as Canada's contribution to the proposed NASA Lunar Orbital Platform-Gateway (LOP-G).


The plan was pitched as a way to maintain access to the US space program and its opportunities in much the same way as the original Canadarm provided Canadian access to the International Space Station (ISS) and helped to build Canada's astronaut corps.

But now that Maxar stock has dropped off a cliff, as outlined in the January 7th, 2019 post. "Maxar Stock Drops to New Lows After DigitalGlobe Subsidiary Reports Loss of WorldView-4 Satellite," and its true fiscal situation is on the public record, the obvious question needs to be asked.

Is bailing out a virtually bankrupt, US based hodge-podge of independently failing and overly indebted businesses really the best way to "help secure Canada's place in space?"

This blog doesn't think so.

Maxar's current situation is certainly dire. As outlined in the January 9th, 2019 Motley Fool post, "Why Maxar Technologies Stock Bounced 13% This Morning," after "two straight days of relentless selling, Maxar Technologies (NYSE:MAXR) stock finally caught a break Wednesday" as short sellers closed out their positions and booked their profits.

That doesn't mean that the crisis has passed. It just means that there was no further bad news that day. As outlined in the post, Maxar is losing money and has a huge debt load:
The company carries $3.2Bln US ($5Bln CDN) in debt -- 8.5 times its $380Mln US ($503Mln CDN) market cap. 
With its earnings potential crimped by the loss of a satellite, and bankers still demanding their due, bankruptcy can't be ruled out as an end game for Maxar.
Maxar, as outlined in the December 20th, 2018 Maxar press release, "Maxar Technologies (MAXR) continues to explore range of strategic alternatives for its GEO communications satellite line," also originally promised "to make a decision on the future strategic direction of the GEO communications satellite business in due course and will provide an update to shareholders in early 2019," but that hasn't happened yet, either.

Before giving Maxar any more Canadian funds, we might want to at least wait and see what their plans are for the GEO satellite business.

The New York NY based Spruce Point Capital Management "attack" on Maxar Technologies, which began the run on Maxar stock, began with the August 7th, 2018 Spruce Point Capital press release, "Spruce Point Capital Management Releases a Strong Sell Forensic Research Opinion on Maxar Technologies Ltd. (NYSE / TSX: MAXR)." The full report is still online here on the Spruce Point website and it's well worth reading. Maxar's initial rebuttal to the Spruce Point report is included with the August 24th, 2018 Maxar press release, "Maxar Technologies Provides Comprehensive Response to Shareholders Following Misleading Short-Seller Campaign by Hedge Fund." Over time, the market decided to back the Spruce Point assessment and Maxar lost most of its share value. Graphic c/o Spruce Point

For now, it's just not reasonable for the Federal government to fund Maxar's as per its original plan which, as outlined in the September 18th, 2018 post, "Colorado Based Maxar/MDA Asking for $1-2Bln to Build Another Canadarm for the US LOP-G," was mostly only a request to hand over large sums of money and hope for the best.

As for the part where, as outlined in the November 15th, 2018 post, "Innovation Minister Navdeep Bains Politely Pushes NASA Administrator Jim Bridenstine Under the Bus," senior elements of NASA and the Donald Trump Administration actively campaigned for Canadian funding to support a failing Maxar, this situation is also problematic from a political perspective.

But it might be a problem best dealt with another day.

And if we really want to build a new Canadarm for the US LOP-G, we could always find someone other than Maxar to build it.

That's certainly a sensible and reasonable piece of due diligence, at least until we know that Maxar isn't going bankrupt any time soon.
Chuck Black.
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Chuck Black is the editor of the Commercial Space blog.

3 comments:

  1. Chuck;

    You wrote:

    > And if we really want to build a new Canadarm for the US LOP-G, we could
    > always find someone other than Maxar to build it.

    That's a somewhat glib comment. Robot arms are complicated devices, space robot arms particularly so. Maxar's Brampton Canadarm team has a huge amount of experience knowledge about how to do this right, far more so than anyone else in the world. There is no-one else in Canada that comes even close to that level of knowledge and expertise. Sure, others could come up that learning curve too, if you gave them enough time and money --- it's taken Maxar/MDA/Spar 40 years and about $3B to get to this point, don't expect it to be a whole lot quicker or cheaper to get anyone else to that point.

    Realistically, deciding not to hire Maxar to do a Canadarm-3 for LOP-G would be the same as Canada deciding not to contribute a robot arm to that space station. At which point NASA, ESA or JAXA would step up, and set up some contractor in one of their countries to take over the role of the world's leading space robotic systems provider, and Canada would bow out. That'd be a big decision.

    - Kieran

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    Replies
    1. Just get back MDA or buy all of Maxar. At this price it us a bargain May be Magellan can buy it, I believe they are still Canadian
      If we loose MDA due Maxar bankruptcy all our remaining space industry will suffer.

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  2. To be fair Kieran, Richmond BC based MacDonald Dettwiler was brought on board as the prime contractor for the Canadarm program only after Brampton ON based Spar Aerospace (the original Canadarm contractor) collapsed in the 1990's.

    So Canada does have previous experience dealing with collapsing prime contractors. We make do. Sometimes we even improve.

    As outlined in the August 17th, 2018 post, "Let's Pick a Canadian Contractor to Build the New Canadarm for the Lunar Orbital Platform-Gateway," at http://acuriousguy.blogspot.com/2018/08/lets-pick-canadian-contractor-to-build.html, Canada does have options, and some of those alternatives have even received recent Canadian Space Agency grants to explore next generation Canadarm technology.

    So there are options.

    Besides, government's sometimes change prime contractors on government contracts, Kieran. That's just the way of the world.

    Chuck Black

    ReplyDelete

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