Iridium LLC Bankruptcy
Team 2:
Yusuf Akkoca
Tom Bloom
Karen Delton
Shweta Hire
Eric Johnson
David Mahzonni
Greg Roy
April 12, 2012
What caused Iridium to fail: was it a bad
strategy, bad execution, or bad luck?
• Bad strategy and bad execution played a part in the bankruptcy
• Bad strategy
– Took big bang approach to greenfield technology instead of an organic and phased
approach
– No pilot program to test feasibility and gather consumer feedback
– Phone is too large and too expensive
– Logistical problems trying to distribute phones
– No service inside buildings
– Short satellite life in years
• Bad execution
– Failure to analyze infrastructure needs and costs
– Need to negotiate and finalize agreements with local service providers in 240 countries
– Too much spending and not enough cost management and controls (debt to capital ratio
of 60% is extremely high)
– Advertising campaign began before phones were available for sale
– Could not answer one million sales inquiries
Why did Motorola finance Iridium with project
debt rather than corporate debt?
• Money is ‘cheaper’ through corporate debt
– Loans guaranteed by Motorola:
• 1996: $750 million at prime rate (7.75%)
• 1998: $750 million at prime rate
– Loans not guaranteed by Motorola:
• 1997: $800 million at 13% and 14%
• 1997: $300 million at 11.25%
• So why did Motorola choose project debt?
– Risk management
• Non-recourse nature of project debt protects Motorola and their shareholders
• Motorola assets are $9.4 billion while Iridium was expected to cost $3.4 billion
(36% of Motorola assets)
• Motorola received $3.2 billion from Iridium between 1995 and 1998; Motorola
spent $100 million between 1990 and 1993
• High threat to non-completion would have hurt Motorola’s balance sheet;
failure would have dragged Motorola down
What lessons regarding large, greenfield
projects do you draw from this case?
• Understand your market—for what is there a
market? What demand and what price?
• Use an organic, phased approach to
implementation—spread risks through time
• Hire good project managers
• Manage finances well and protect cash flow
• Be flexible with plans if problems arise
Where is Iridium now?
• Bought in 2000 and made into Iridium Satellite LLC
• Changed from a consumer-oriented business to a
Commercial Business Service
• They currently have the largest commercial satellite
network in the world
• Only satellite phone/data service that covers the
complete globe
• Iridium OpenPort® is launched - the world’s first and
only global voice and data service engineered for the
maritime market, delivers up to three phone lines and
features always-on data with speeds up to 128 Kbps on
an all-IP backbone.
• Now called Iridium Communications Inc. and is a
publically traded company.
• http://www.youtube.com/watch?v=sZWN65NqNOc&fea
ture=related
Thank you!
Team 2:
Yusuf Akkoca
Tom Bloom
Karen Delton
Shweta Hire
Eric Johnson
David Mahzonni