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Iridium LLC Bankruptcy

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?.

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Iridium LLC Bankruptcy

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  1. Iridium LLC Bankruptcy Team 2: Yusuf Akkoca Tom Bloom Karen Delton Shweta Hire Eric Johnson David Mahzonni Greg Roy April 12, 2012

  2. 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

  3. 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

  4. 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

  5. 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&feature=related

  6. Thank you! Team 2: Yusuf Akkoca Tom Bloom Karen Delton Shweta Hire Eric Johnson David Mahzonni

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