OneWeb files for Chapter 11 Bankruptcy thanks to COVID-19

Satellite challenger OneWeb has filed for Chapter 11 Bankruptcy, blaming the spread of the coronavirus as the reason talks for additional funding fell through.

During the final hours of Friday, OneWeb voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court for the Southern District of New York.

Having launched 74 satellites into the low-earth orbit, secured spectrum licences, begun development of user terminals, with half of its 44 ground stations completed or in development and trials demonstrating 400 Mbps and latency of 32 milliseconds done, the company has run into financial complications.

According to Crunchbase, OneWeb has raised more than $3 billion over four funding rounds, though this has not been sufficient to complete the 648-satellite constellation mission. OneWeb claims to have been engaged in advanced negotiations regarding investment that would fully fund the business through its deployment and to commercial launch, but the financial impact and market turbulence caused by COVID-19 scuppered plans.

With Milbank LLP serving as OneWeb’s legal counsel, FTI Consulting as its restructuring advisor and Guggenheim Securities as the financial advisor, the aim is to restructure the business to allow remaining cash to be directed towards the operation and maintenance of the existing assets, while the proceeds from the sale could be used to satisfy some of the debts.

Unfortunately for OneWeb employees, this means all proactive and development activities will be put on hold resulting in redundancies.

“OneWeb has been building a truly global communications network to provide high-speed low latency broadband everywhere,” said CEO Adrian Steckel. “Our current situation is a consequence of the economic impact of the COVID-19 crisis. We remain convinced of the social and economic value of our mission to connect everyone everywhere. Today is a difficult day for us at OneWeb.”

For those who are not familiar with Chapter 11 Bankruptcy terms, it does not mean the end of an organisation.

Chapter 11 Bankruptcy allows a debtor, in this case OneWeb, to reorganise debts to stay afloat and offer a fresh start. It is an incredibly costly procedure thanks to filing and legal fees, and the debtor will be paying back old debts for a number of years, but it does create a new framework for the business to continue to operate.

Although this is one of the least common procedures to follow due to the complexity, speed and cost, it is not unheard of. General Motors (2009) and United Airlines (2002) are two organisations who have proceeded down this route and are operating healthily today.

“So many people have dedicated so much energy, effort, and passion to this company and our mission. Our hope is that this process will allow us to carve a path forward that leads to the completion of our mission, building on the years of effort and the billions of invested capital,” said Steckel.

“It is with a very heavy heart that we have been forced to reduce our workforce and enter the Chapter 11 process while the Company’s remaining employees are focused on responsibly managing our nascent constellation and working with the Court and investors.”

For OneWeb, the process is being undertaken in pursuit of a sale, begging the question as to whom might be tempted to spend a couple of billion for the satellite business? There are of course rivals who might be tempted, Elon Musk’s SpaceX Starlink or Jeff Bezos’ Project Kuiper, or there might be a few on Wall Street, but this would be a more speculative bet.

Connectivity is proving to be a very popular investment today, the cash being pumped into full-fibre broadband is evidence of this, but these investors are chasing more low-risk returns. The telecoms industry is offering better returns than traditional investments, some Government Bonds are in negative interest rates, though mobile and fibre are connectivity models with proven customer appetite. The promise of satellite is interesting, but the profits are still based on assumptions and theories.

The unproven nature of the low-earth orbit satellite segment is perhaps an explanation why excitement is being driven by billionaire innovators not traditional finance sources, though there are new customers emerging. Satellite connectivity looks appealing to automotive, maritime, enterprise, and aviation industries, as well as cellular backhaul and mobility usecases. Markets are emerging, which might encourage more interest.

The troubles at OneWeb could offer an opportunity for somewhat of a bargain entry into the field.