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Unlocking growth potential through satellite and space asset leasing
Securing funding in the satellite and space sector has become increasingly difficult. Space Leasing International (SLI) offers a proven leasing model that enables companies to lease assets on a monthly basis rather than purchasing them upfront. We spoke with Praveen Vetrivel, SLI’s CEO, to find out more about how this approach frees up capital to support innovation.
Crispin Littlehales, Executive Editor, Satellite Evolution Group
Question: What prompted the creation of Space leasing International and how does its relationship with the Libra Group benefit customers?
Praveen Vetrivel : Our parent company, Libra Group, entered the aerospace leasing market in 2004 with the creation of LCI. The strategy was born out of the group’s 25-year maritime legacy that has strong parallels with aerospace leasing. Our group’s shipping company is an owner of ships with a diverse portfolio. The ships are then chartered to shipping lines, usually for a specified period of time. By chartering a vessel for a limited time rather than owning it outright, the operator is insulated from market volatility and avoids substantial capital investment.
The group realized that exactly the same principles applied to aviation. At that time aviation leasing was facing external market pressures and the group saw a burgeoning commercial opportunity for the long-term. Initially, LCI invested in a mixed fleet of wide and narrow-bodied Airbus and Boeing aircraft. These in turn were leased to major airlines such as British Airways, Air France and Singapore Airlines. As with shipping, the key was to invest in a broad spectrum of asset classes. In each market there was not just an overall market cycle but ‘sub-cycles’ that affected different asset classes in different ways. All this experience feeds into where SLI is today.
In 2014, LCI diversified beyond fixed wing aviation and acquired a fleet of helicopters valued at around $1 billion from Airbus and AgustaWestland (now Leonardo). The, now well-proven, approach to asset finance was again applied. LCI took on the financial risk of owning the assets and they were leased to operators who welcomed the flexibility and lower risk associated with paying for usage of assets under an operating lease. LCI’s helicopters are leased to operators such as Avincis, Babcock and Omni in the offshore services, search and rescue, and emergency medical services sectors.
Having shown how the leasing principle can be applied to the maritime and aviation sectors we realized that there was a very clear gap in the market. The space economy exhibits many similarities to aviation, featuring manufacturers and operators that need to scale their businesses yet may not have the capital to do so. Furthermore, the space economy represents more than just spacecraft, antennas and satellites - it’s the infrastructure behind global connectivity, economic growth, national security, and scientific advancement. The space economy is projected to reach $1 trillion by 2040. By closing the gap between availability of capital and the deployment of assets, we hope to facilitate growth in the space economy.
Our parent company’s nearly 50 years of experience in providing lease finance for high value assets demonstrates to manufacturers and operators alike our intimate knowledge of asset financing – not to mention the reassurance of working with a respected international group that has subsidiaries operating in nearly 60 countries across six continents and is active in six business sectors.
Question: What is the financial advantage of space asset leasing over space asset ownership?
Praveen Vetrivel: The advantages of leasing rather than ownership are now well-proven across multiple industry sectors. Some of the advantages are technical, accounting-driven benefits. Others are purely practical.
From an accounting perspective, companies wanting to gain usage of space assets may want to preserve a healthy “debt-to-equity ratio.” An operating lease is based on deploying operating expenditure rather than capital expenditure and has less impact on debt-to-equity ratios.
Leasing also overcomes the hurdles traditionally associated with outright asset ownership. There is no need for upfront capital investment and no risk of residual value decline. A lease is effectively switching capital expenditure into operating expenditure, freeing capital to support business in other ways.
We offer leasing options to match our customers’ business plans. For example, if you’re looking to expand a fleet of satellites, or upgrade to the next generation of technology, a flexible agreement means access to the latest technology without the upfront financial burden. What’s more, the risk of obsolescence is reduced.
Our experience in the aviation sector has demonstrated, however, that the availability of leasing provides considerable advantages to manufacturers as well as operators. Leasing companies such as ours can commit to substantial orders for new equipment which in turn supports the manufacturer’s own capital investment and product development plans.
Furthermore we can work with manufacturers to create bespoke vendor financing programs so that they can, in effect, offer their customers access to assets using an “as-a-service” model. In other words, we enable manufacturers to offer their products on leasing terms, overcoming capital expenditure headaches for the customer.
Question: On the website, SLI’s stated goal is to “Democratize access to reach the potential of tomorrow’s space economy.” How does working with SLI enable market growth?
Praveen Vetrivel: Too often a constraint on market growth is access to capital. Conventionally, owning a satellite or a ground station requires significant upfront capital expenditure. That means there is an impediment facing the buyer and in turn a constraint on the manufacturer’s ability to produce. Under the conventional model, only large organizations with seamless access to funds can afford to buy the assets and only manufacturers with substantial reserves or access to capital can afford to produce at scale.
By “democratization” we mean that we enable a large community of companies to invest in the technology that they need – because they can lease assets via a simple monthly payment rather than pay for assets upfront. Basically, we are switching costs to a more flexible model based on operating rather than capital expenditure.
The result is that innovative, talented operators with market potential, suddenly have the financial burden lifted and can lease technology on the basis of a fixed monthly term.
SLI also facilitates business at the manufacturer end – because the availability of leasing terms helps manufacturers to manage innovator risk. Companies can commit to R+D and production schedules knowing that the eventual customer will not be restrained by lack of available capital. So SLI helps to create more products and more customers to fuel the growth of the space economy.
As a parallel, aviation leasing first arose in the 1970s and transformed the way that airlines acquired and managed their fleets. It is generally accepted that the emergence of aviation leasing led directly to growth in the industry, unlocking capital to the benefit of both manufacturers and airlines and ultimately the passengers.
Question: How does the asset acquisition and leasing back process work?
Praveen Vetrivel: In many cases we find that an operator already owns an asset or has placed an order and is looking at the various financing options for the commitment they have made. In such cases we can act as a bridge between the manufacturer and the user of an asset through a sale-and-leaseback agreement.
Where the operator already owns an asset such as a ground station or a satellite SLI, being the lessor, simply acquires the asset and then leases it straight back to the operator who becomes a lessee. There are two very clear benefits to the user of the asset: firstly, they have access to the financial capital that arises from the sale and can put it to other uses. Secondly, they can continue to use the assets that they formerly owned.
The other mechanism by which we undertake sale-and-leaseback agreements is to take over the contract at the point of purchase. So, an operator may have already ordered an asset or a fleet of assets then, at the point of purchase, decides that they would rather lease the assets. At this point the lessor, such as SLI, would acquire the assets from the manufacturer and lease them to the operator who can then make alternative use of capital originally destined for the purchase.
Sale-and-leaseback, or SLB agreements have been deployed for many years in other industries, notably real estate and heavy industrial equipment. It is a convenient way of liberating capital that is tied up in asset ownership.
Question: Can you provide a real-world example of the SLI model being applied by the space sector?
Praveen Vetrivel: Our first leasing project in the space industry was undertaken with RBC Signals, which is a global provider of Ground-Station-as-a-Service (GaaS). Their whole business is based on having a wide network of satellite ground stations strategically deployed across the globe. Inevitably, a GaaS provider has considerable demands on capital expenditure.
For RBC signals, leasing is a perfect route for rapid business development without a need for major capital expenditure. As a result, we became a strategic partner to RBC Signals and agreed to acquire up to 21 ground stations as they rolled out their ground station network.
By partnering with SLI, RBC Signals has been able to expand its infrastructure while preserving operational agility and reducing on-balance sheet expenditure.
We have already completed the purchase of 13 ground stations in six high-demand satellite communication regions around the world that are now leased to RBC Signals.
Our initial investment supported the construction of a new ground station in the Alaskan Arctic, a critical location for monitoring climate change. In March this year, we acquired 10 satellite ground stations previously owned by Microsoft to ensure their continued operation by RBC Signals.
The ground stations we have acquired are located across five continents and support vital government and commercial communications around the world.
Question: What is the biggest challenge to getting companies in the satellite and space sector to use your service?
Praveen Vetrivel: That’s simple: it’s the unfamiliarity of this form of asset finance in the space sector. As in so many markets, it will take some creative early adopters to show others the simple financial sense of this approach. It is worth remembering that the aviation industry did not embrace leasing overnight. In 1976 less than two percent of commercial aircraft were leased. This rose to 15 percent by the early 1990s and 25 percent by 2000. Today more than 50 percent of commercial aircraft are leased rather than owned by the airlines.
We have already demonstrated how ground stations are an ideal candidate for leasing. When it comes to satellites, I believe that aviation leasing has been an ideal proving ground, so I would estimate that adoption in the space sector would be a little quicker.
Question: How do you see SLI evolving over the next 2-5 years?
Praveen Vetrivel: I do not have a crystal ball and am always much happier saying what we have done than what we will do! Suffice to say, however, within two years this company will expand its portfolio to embrace emerging aerospace technologies, in addition to growing our global portfolio of ground stations assets.
Our mission now? Help the space tech world see asset use in a whole new way. Built on ambition and breakthrough thinking, this industry is ready for its next evolution—bringing that same pioneering spirit to asset finance.
