Insurance Premiums Likely to Soar : Satellite Failures Stagger Communications Industry

Culminating the worst week in the history of the commercial satellite industry, Hughes Communications announced Monday that a satellite launched last month from the space shuttle Discovery has been declared a total loss.

It was the third loss of a satellite in less than a week, costing insurance underwriters more than $234 million and pushing total insurance losses for failed satellites to more than $500 million, international underwriters said.

“We are just shocked,” said James Barrett, president of International Technology Underwriters of Washington, D.C., one of the leading space insurers.

It was a stunning setback for the El Segundo aerospace giant and the communications industry as a whole, which now faces massive increases in insurance premiums.

Two other communications satellites--one American and one European insured for a total of $149 million--were lost Thursday when European Space Agency officials were forced to destroy an Ariane rocket less than 10 minutes after it was launched from French Guiana. The rocket began losing altitude after its third stage failed to ignite and posed a threat to inhabited areas.

The most recent casualty is Leasat 4, which was to have been part of a four-satellite network built by Hughes and leased to the U.S. Navy. The $85-million satellite stopped relaying signals back to Earth two days after it had reached its assigned orbit.

The loss is especially disappointing because it follows the near failure of a previous member of the system earlier this summer.

That satellite, Leasat 3, drifted around the Earth for more than four months after it failed to activate itself, forcing a rescue effort by the same shuttle crew that launched Leasat 4 in August.

The rescued satellite was successfully “hot wired” last month by two space-suited astronauts, allowing ground controllers to take command, but Hughes engineers estimate that the chances are no better than even that it will reach its assigned position.

Hughes executives fear that the “hot wired” satellite will explode when its main rocket is fired at the end of October to carry it to its permanent spot over the Indian Ocean.

Two Were Successful

Two of the four satellites were launched successfully, and Hughes has a spare satellite that could take the place of Leasat 4.

The spare satellite could be launched in December, but Hughes sources indicated that questions over the cause of the most recent failure could delay that launch. And even if the spare satellite is deployed successfully, the Leasat rescued last month would have to function successfully for the network to be complete.

A sixth satellite could be built but the construction time for satellites at Hughes averages 30 months, and the Leasat generation is more complex than most, a Hughes official said.

The satellites can function independently and the two launched successfully are being used currently by the Navy. The working satellites are positioned over the continental United States and the Atlantic Ocean. Areas left uncovered by the missing satellites include the Pacific and Indian oceans.

Out of Reach

There is no chance of rescuing the most recent casualty. The satellite reached its assigned orbit 22,300 miles above the Earth, where it remains stationary relative to the ground, and is far beyond the reach of the space shuttle.

Although the satellite has small rockets used to keep it on station, it does not have the fuel to return to an orbit where the shuttle could reach it, according to a Hughes statement.

Details of what caused the failure are sketchy. Hughes executives refused to be interviewed about them.

In a formal statement, Hughes said the satellite had reached its assigned position on Sept. 3, five days after it was released from Discovery, and “functioned normally for about two days.”

Cause of Failure

At that point, the satellite stopped relaying transmissions back to Earth. The most probable cause of the “lost signal,” according to the Hughes statement, lies in the failure of a cable that links the satellite’s transmitter with its antennas.

Engineers worked over the weekend in an attempt to revive the satellite, but by Monday it became apparent that their efforts had failed.

Hughes announced its intention “to submit a total loss claim to its insurance underwriters.” The $85-million bill will arrive less than a month after the underwriters paid the same amount for Leasat 3. If last month’s rescue of that satellite turns out to have been successful, the underwriters will recoup up to $65 million of that loss.

Barrett, who has emerged as one of the principal spokesmen for the consortium of insurance firms that cover space endeavors, said recent events have left him bewildered.

Dilemma for Underwriters

“We’re in the process of trying to understand all of the things that are happening,” Barrett said in a telephone interview.

He said insurance companies have paid out $500 million more than they have collected in premiums for communications satellites since 1968, and the events of the past few days will probably force many of the underwriters out of the business.

“Those of us who stay in will have to increase our rates substantially,” he said, adding that space insurance will have to restructure itself to “lay the increased premiums on those who control the risks.”

Under that system, manufacturers such as Hughes would pay the highest premiums because of the risks incurred during launch. Lower rates would be offered to satellite owners who would take over after the satellite is operating in orbit. Currently, the entire cost of the insurance is born by the owners.

“We think it’s time for a change,” Barrett said. “We have paid our dues.”