PARIS — The extraordinary settlement reached between satellite builder Maxar Technologies and EchoStar Corp.’s Hughes Network Systems for delays on the Jupiter-3 broadband satellite appears to show the limits of contractors’ force majeure defenses and suggests that the power balance between customer and supplier isn’t what it seemed.

That EchoStar could threaten — with at least some credibility judging form the settlement — to walk away from a contract that is crucial to its mid-term financial performance may be a lesson for other satellite builders who think their contracts are too important to be scrapped by their customers.

The Maxar-EchoStar settlement announced Nov. 22 will reduce Maxar’s projected 2022 adjusted EBITDA by $65 million and cut 2023 free cash flow by $50 million to $60 million.

In a filing with the U.S. Securities and Exchange Commission (SEC), Maxar said Jupiter 3, already two years late, is 96% complete, has completed thermal-vacuum testing and is now undergoing final performance tests.

The company said it has retired enough risks in the program to be confident that “the risk of delivery after June 2023… is low.”

The settlement will impose cash payments of $8 million per month on Maxar for every month Jupiter 3’s deliver is delayed beyond June 2023. Starting in October, the monthly payments rise to $10 million.

Should delivery be delayed beyond December 2023, EchoStar has the right to terminate the contract for default or insist on more concessions from Maxar.

The Nov. 8 notification that broke EchoStar’s patience

According to SEC filings by the two companies, the settlement played out this way:

Maxar notified EchoStar on Nov. 8 that the previous shipment date of March 26, 2023, could not be met. The new date was April 27.

After multiple delays amounting to more than two years — the original April 2017 contract, valued at $445 million, called for delivery in January 2021 — the Nov. 8 notification was one too many for EchoStar. The company threatened a termination for default.

Whether EchoStar, which needs Jupiter 3 about as badly as any satellite fleet operator has ever needed one, could follow through on a termination-for-default threat is open to question, especially given the fact that Maxar had said the Covid pandemic was a major cause of the delays.

But Maxar thought it was serious enough to agree to concessions over eight days of negotiations that ended Nov. 16.

The key points:

• Maxar waives the $14 million of remaining milestone construction payments due from EchoStar.
• EchoStar will no longer pay $44.5 million in orbital-incentive payments to Maxar that would have been due over the 15-year period after launch, with a 6% annual interest.
• EchoStar no longer pays $14 million in post-launch charges from Maxar during the satellite’s orbit-raising.
• Maxar has agreed to purchase at least $30 million in unspecified goods or services from EchoStar in 2023. Maxar expects the total value of these items to be between $30 million and $40 million. EchoStar said these purchases “will deliver a margin to [EchoStar] of at least $30 million.”
• Maxar will reimburse EchoStar an undisclosed portion of the premium paid to insure the launch and the first year’s operations of Jupiter 3, “to the extent EchoStar elects to procure insurance for launch plus initial in-orbit operations of the satellite of up to one year.”

It would be surprising if EchoStar did not purchase insurance cover for the launch, given the satellite’s importance to the company.

Jupiter 3 is a remarkable satellite, not so much for its advertised throughput — Eutelsat of France has recently launched a 500-Gbps satellite and Viasat is preparing the launch of three 1-Tbps satellites — as for its 9,200-kg mass and other features that EchoStar and Maxar have not detailed.

Maxar said Jupiter 3’s delays have been caused by “key subcontractor delays [and] challenges in development well beyond that of other geostationary commercial satellites made by the company, and Covid-19 effects on the work force and the supply chain.”

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