Satellite start-up SpaceLink fights for survival

Weapons manufacturer and space laser company Electro Optic Systems is seeking buyers for its satellite data transfer company, SpaceLink.

Jul 14, 2022 – 7.20pm

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Electro Optic Systems (EOS), a company known for being a short sellers’ dream, is suddenly at the centre of a critical discussion about Australia’s global defence capability, thanks to its ownership of a satellite start-up offering military-grade communications.

Former chief of army and EOS chairman, Peter Leahy, says an EOS subsidiary called SpaceLink has the potential to be a critical part of the AUKUS security pact, but it needs more capital than can be supplied by EOS.

Electro Optic Systems needs about $300 million to make the SpaceLink medium earth satellite technology commercially viable. Supplied

Leahy says there are good geopolitical reasons why the Australian government should step in to provide longer-term funding for SpaceLink, which needs up to $300 million to achieve its commercial goals.

“It allows for almost instantaneous global communications, which means you can move information securely and safely in large volumes.

“That means you can command globally dispersed operations which is something we’ve been trying to achieve for a long time.

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“When defence forces are deployed across the globe in Afghanistan and Iraq, you need these really high levels of communications to coordinate air, naval, land and marine assets.”

Leahy, who replaced former EOS chairman Fred Bart in July last year, says the results of a strategic review of the entire EOS business should be known in three weeks. The review was informed by advice from investment bank Greenhill & Co.

It comes after a horror year for the stock, which has fallen 86 per cent to a market capitalisation of $148 million. In August last year, it needed debt funding because of delays in receiving payment from a Middle East customer.

The EOS balance sheet remains under pressure, as shown by Leahy’s admission that the board recently sought advice from two restructuring firms.

The company burnt through about $20 million in cash in the March quarter. It raised $15 million in fresh equity capital last month but it needs more capital.

“We’re monitoring the solvency very closely, and we’re working hard to raise capital,” says Leahy.

The EOS business, which includes military hardware manufacture and a space laser system, lost its CEO Ben Greene this week. Greene, who founded the company decades ago, will remain on the board.

SpaceLink is a Delaware registered company with about 33 staff working in offices in Silicon Valley and North Virginia. Its goal is to have four medium earth satellites in orbit in late 2024.

SpaceLink uses medium earth orbit satellites to relay data collected from low earth orbit satellites. Without the medium earth orbit connection, a low earth orbit satellite can download data for only about 10 minutes every 90 minutes.

Two critical aspects of the SpaceLink technology is it does not need to use foreign terrestrial communication to get data back to Australia, and there is no latency in data transmission.

A teaser sent to potential buyers by EOS and seen by Chanticleer says SpaceLink forecasts 2028 revenue of $574 million and EBITDA of $338 million. It says at least $70 million of capital is needed this year, and another $252 million is required to achieve its initial target.

“This is a real strategic asset, and our first priority is to keep it for Australia,” Leahy says.

“The second priority would be to keep it for the alliance – Australia and the United States. This would be a strategic advantage for AUKUS.”

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Gregory Clark, a leading Australian scientist and expert in satellite technology, says if Australia were to maintain ownership of SpaceLink, it would have a critical technology facility that fits with the country’s aspirations to build a space industry.

“If it does not own SpaceLink, it will be dependent on hardware software, security and artificial intelligence from the US and UK at significant cost,” he says.

Clark was pivotal in bringing the SpaceLink investment to EOS in 2020.

One of the largest shareholders of EOS is Washington H. Soul Pattinson, which supports the company’s efforts to reduce the pressure on its balance sheet from the high research and development required for SpaceLink.

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Tony Boyd is the Chanticleer columnist. He has more than 35 years' experience as a finance journalist. Connect with Tony on Twitter. Email Tony at tony.boyd@copyright link