UPDATE 2-Inmarsat to buy $1.2 bln fleet; Q2 beats view

* Confirms $1.2 bln investment in new fleet

* Q2 core earnings $168.6 mln (I/B/E/S poll $153.75 mln)

* Says expects solid revenue growth for year

* CEO says will mainly fund investment from cashflow

* Shares up 3.3 percent

(Adds CEO comments, analyst reaction, shares)

By Paul Sandle

LONDON, Aug 6 (Reuters) - Britain's Inmarsat (ISA.L) said on Friday it had made a $1.2 billion order for a new fleet of satellites to deliver high-speed broadband on a global scale after its second-quarter earnings beat market expectations. Inmarsat, whose satellites provide voice, data and broadband services to shipping, aircraft and remote locations, chose Boeing (BA.N) to make the three high-frequency Ka-Band satellites. Thales Alenia Space of France (TCFP.PA) lost out.

The service, to be launched in 2014, will deliver faster broadband speeds at lower cost than its existing constellation of L-Band satellites, and will tap a new market of government and commercial customers, Chief Executive Andrew Sukawaty said.

"Broadband growth is a world phenomena, and we are simply delivering that where other networks don't go, on land, sea and air," he told reporters on Friday. "We have been in these remote areas for 31 years and it's natural for us to deliver this next-generation satellite system."

The announcement comes after a person close to the deal told Reuters on Wednesday that Inmarsat had made an order for advanced satellites worth about $1 billion.[ID:nLDE67320C]

Data services have been the fastest growing part of Inmarsat's business, offsetting a decline in voice services.

Inmarsat will target $1.4 billion in contracts from the U.S. military, cruise ships and oil and gas producers in remote locations, Sukawaty said.

Inmarsat expects $500 million of annual revenue five years from launch. Boeing has agreed to be a distribution partner and will buy at least 10 percent of the new capacity, it said.

INVESTMENT PLAN, GROWTH REASSURES

Shares in Inmarsat have been under pressure since rumours of the major upgrade, and have lost 13 percent in the last seven weeks as investors worried about higher capital expenditure wiping out their returns. [ID:nLDE67320C]

They reversed early losses on Friday and were 3.3 percent higher by 0930 GMT, outperforming a 0.4 percent stronger FTSE 100 index .FTSE, as investors were reassured by the details of the investment and revenue opportunity.

"There is execution risk, but in our view the recent share price weakness could reverse if investors start to pencil in EBITDA margins similar to existing levels (60 pct) on new investment," said analyst Mark James at Liberum Capital.

Credit Suisse said the tie-up with Boeing would boost Inmarsat's credentials with the U.S. government.

"The contract with Boeing is a positive move for Inmarsat in that it secures a strong distribution partner with very strong links to the U.S. government and military," they said.

Inmarsat's CFO Rick Medlock ruled out a rights issue to pay for the investment in an interview with Reuters Insider.

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To view Medlock's interview with Reuters Insider, click on:

link.reuters.com/hem53n

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Sukawty said the company would delay $500 million of spending on its existing fleet, and could meet most of the additional costs of the new fleet through cashflow.

"We can fund it with own internal cashflows, certainly in the medium term, and if we were to take on additional debt it would represent no more than half a turn of debt, which would take us to a modest two and half times EBITDA," he said.

Inmarsat reported on Friday a 13.8 percent rise in second-quarter core earnings to $168.6 million. Revenues rose 12.6 percent to $289.2 million, helped by improving demand for data services from shipping.

Analysts expected core earnings of $153.75 million, according to a Thomson Reuters I/B/E/S poll of four brokers.

Inmarsat said it would grow revenue by 5-7 percent a year for the next four years, and it also increased its interim dividend by 10 percent.

"We remain on track to deliver solid revenue growth in 2010," the group said.

(Editing by Kate Holton and Lin Noueihed)