Journal For three decades, Loral Corp. Chairman Bernard Schwartz captivated investors and outmaneuvered rivals to create an aerospace dynamo. His flair and creative financing made him a fearsome deal maker as he built up a defence-electronics empire and then sold it at a hefty profit. Renowned for snapping up targets while others still studied them, he also gained a reputation for clockwork earnings gains.

Bermuda-registered Globalstar Telecommunications LP was expected to cap this career. The $4.3 billion venture, using four dozen satellites and 30-plus ground stations, would connect calls anywhere in the world with a new generation of powerful mobile phones. Mr. Schwartz confidently predicted Globalstar would succeed in a way no-one else had, easily drawing 2 million or more users and helping pull the developing world into the wireless age.

Instead, it is a financial debacle. Up and running since March, it has fewer than 35,000 subscribers, and last week Globalstar defaulted on $3 billion of debt. Growing doubts about it have wounded Loral, which owns 39 percent of the publicly held company and has sunk $1.3 billion into it. For the 75-year-old Mr. Schwartz, who also serves as Globalstar's chairman and leading cheerleader, the result is a crisis that has prompted concern, disbelief and even ridicule from some who considered him an icon of the space and defense industries.

Mr. Schwartz "somehow has to perform the equivalent of pulling a rabbit out of the hat, or he may have no choice except to sell parts of his empire,'' says Armand Musey, a satellite analyst at BancAmerica Securities.

Rather than Mr. Schwartz's proudest achievement, Globalstar may be remembered as his worst setback, akin to the big Iridium satellite-phone project that collapsed in mid-1999 and now, out of bankruptcy, operates in sharply scaled-back form.

"For 30 years of my life I walked on water'' in some investors' eyes, Mr.

Schwartz says, surrounded in his New York high-rise office by photos taken inside the White House and other memorabilia from happier times. Over those decades, Mr. Schwartz built Loral from a defence-electronics bit player into one of the world's top three satellite makers and a leading provider of space-based communications.

Loral built a borderless business. Globalstar itself marries United States and European manufacturing and service companies on an unusual scale, while Loral's many higher-orbit satellites underpin such international networks as the Intelsat system that provides the backbone of nation-to-nation phone connections. Loral is also a big player in other satellite businesses, from direct-to-home video broadcasting and TV newsgathering to nascent markets like "telemedicine'' and distance learning.

Now, with his credibility under fire, Globalstar's stock down more than 90 percent from a year ago and Loral shares off almost that much, Mr. Schwartz is bent on confounding his detractors one more time. Globalstar is "surviving on the kindness of others'' because bondholders could push it into bankruptcy proceedings at any time, he notes. "Everyone is underestimating the value of Globalstar. I take it very personally.'' In 1999, investors had high hopes for Globalstar even as Iridium, led by Motorola Inc., ran into severe headwinds. Globalstar was simpler, with far fewer satellites (because it didn't attempt switching in the sky, as Iridium does). It could transmit data, unlike Iridium. It was promoted as more flexible and less reliant on use by jet-setting executives. Its handsets were closer in size to regular cell phones than Iridium's clunky units.

Mr. Schwartz's dream was the enticing idea of a single phone that would work anywhere on the globe. Political borders and transmission-tower locations wouldn't constrain callers, as they can in cellular networks. Globalstar would be the wholesaler and system manager, teaming up with regional phone companies that marketed the service, did the billing and took care of all other interactions with customers. Globalstar would be paid by its regional partners, which in turn would make a profit by marking up retail prices.

Appealing on paper, the concept ended up a cumbersome way to do business.

Success depended heavily on decisions made by huge foreign companies that often gave higher priority to other initiatives.

Delays and rapid advances in ground-based phone technologies combined to derail the plans. The Globalstar system cost nearly twice as much to put in place as the $1.6 billion anticipated, and it didn't begin operation in the US until last March, more than a year behind schedule. By then, many cell-phone users could make calls across international boundaries as easily as between United States states. That left only the most rugged and isolated areas without cellular coverage, often "places where people don't have any money'' to buy such a service, says Mike Cook, who is in charge of developing a next-generation satellite-communication system for Hughes Electronics Corp., a unit of General Motors Corp.

With ground-based cellular already successful, the result was almost like offering "a Model T in a Ferrari market,'' says a senior executive of Lockheed Martin Corp.

One delay stemmed from the 1998 launch failure of a rocket that destroyed 12 satellites. And the overall project's ambitious scope -- requiring ground-station construction, licenses and regulatory approvals in dozens of countries -- made it both time-consuming and costly. In addition, in midstream the partners insisted on adding expensive new features to all the phones.

Above all, Mr. Schwartz misjudged the appetite for the product. Instead of a rush by hundreds of thousands to sign up, subscription growth is measured in thousands and revenue is negligible. Globalstar takes in barely one percent of the more than $130 million it needs each quarter to cover minimum operating and interest costs.

A stream of revised marketing strategies has failed to spur growth much. Now, further cash infusions appear doubtful, in view of the debt default and other developments. These include an exodus of some top Loral executives, the launch of two competing satellite-telephone systems outside the US, and the scaled-back Iridium's success in getting contracts to handle classified Pentagon communications.

At European Aeronautic Defense & Space Co., Europe's premier aerospace supplier and another Loral rival, Executive Vice President Francois Auque says that "my vision for Globalstar is gloomy'' because "the time left (for a rescue) is very short''.

Stephane Chenard, chief space analyst for the Euroconsult satellite consulting firm in Paris, figures that "shareholders, banks and partners all have been tapped dry; the only sources of financing left are the chairman and his family.'' In the face of such gloom, Mr. Schwartz says Globalstar is shepherding cash and "buying time'' to sign up corporate users primarily interested in data transmissions. Late last year he said Loral wouldn't put more money into Globalstar until it generated enough growth momentum to remain viable.

Explaining why he didn't cut the umbilical cord to Loral earlier, he is blunt: "Loral (stock) would be higher, but Globalstar would be dead.'' Loral expected Globalstar's cash flow to boost its own capital-intensive projects to provide broadband data and Internet access via satellite to business customers. Under some scenarios, Globalstar's revenue would have equaled almost two-thirds of Loral's roughly $1.5 billion annual bookings.

Loral was highly leveraged even before taking on the bulk of Globalstar's debt, and some Loral insiders now worry that some of the parent company's projects may be suffocated.

The unabashedly autocratic Mr. Schwartz dismisses talk of retirement and declines to pick a successor at Loral. But Loral faces pressure to find a strategic partner in the midst of sweeping industry consolidation. He also is considering selling a big equity stake in Loral to an outsider and, if necessary, perhaps agreeing to an outright acquisition.

He isn't used to being on the defensive. Born in Brooklyn and trained as an accountant, Mr. Schwartz worked for financier Saul Steinberg, who made millions through headline-grabbing runs at a number of large companies. In 1972, Loral, then a struggling defense contractor, hired Mr. Schwartz as chairman. After assembling the foundation of Loral's satellite and missile lines, in 1993 he went on an acquisition binge.

Loral bought the air-traffic-control business of International Business Machines Corp., then managed to dissuade the Federal Aviation Administration from canceling some troubled contracts. He soon bought more naval and satellite programs from various sellers. Then in 1996, Mr. Schwartz capped this drive by selling all of Loral's defence assets to Lockheed Martin for $10 billion. With typical swagger, he boasted about the $18 million bonus he pocketed from the transaction. "I wish it was more,'' he said at the time, calling the payment "in line with what capitalism is all about''.

Lockheed Martin gave Mr. Schwartz a seat on its board, but his brash entrepreneurial style clashed with its culture and he stepped down. He poured his energies into running a slimmed-down Loral focused on his passion: communications satellites.

Mr. Schwartz honed his reputation by hobnobbing with presidents even while outlasting high-profile criminal investigations. In 1989, Loral pleaded guilty to conspiracy and other fraud-related charges involving an influence-peddling ring that tried to steer Pentagon contracts to the company and other contractors. A consultant Loral had hired, William Galvin, admitted making illegal payments to at least one high-ranking military official. Mr. Galvin testified to a federal grand jury that Mr. Schwartz "understood the commitments, knew that I was taking care of'' Pentagon figures. Mr. Schwartz termed the testimony "categorically not true'', denied wrongdoing and was never charged.

More recently, Congress and a Justice Department criminal investigation have been looking into whether Loral improperly passed to China classified missile-design technology, following the explosion of a Chinese rocket carrying a Loral-made satellite. Loral, which has denied violating any laws, declines comment on the status of the case. Mr. Schwartz's own actions aren't a target of that investigation.

Mr. Schwartz has long demonstrated a contrarian streak. Arriving at Loral without engineering training, he hired a Columbia doctoral student to tutor him in physics and defence concepts. He also stood out in the defence industry for publicly opposing the Vietnam War and later as a big contributor to Democrats. During the 2000 election cycle, Mr. Schwartz personally gave $1.2 million to Democratic candidates and causes, making him the second largest individual Democratic donor.

The satellite-phone project that now beleaguers his company was a pioneering endeavour, relying on partners and suppliers around the globe. Among pasta plants in the suburbs of Rome, Globalstar built a high-tech satellite factory with Italy's Alenia Spazio SpA. It assembled parts and subsystems from a host of foreign suppliers. Qualcomm Inc., France's Alcatel SA and the aerospace unit of DaimlerChrysler AG provided technology and took equity stakes in Globalstar. Phone companies from France Telecom to China Telecom signed on to sell Globalstar in their markets and operate "gateways''. From these, signals from every far-flung hamlet could be sent to satellites racing 16,000 miles an hour 800 miles above the earth.

Schwartz tries to save dream Executives scoured the globe seeking to tie up relationships ahead of Iridium.

During a foray into a South American jungle to check ground-transmission sites, a team of engineers and technicians was arrested for trespassing, recalls Globalstar president Anthony Navarra. Paraded in handcuffs through a village main street, they finally won their freedom after showing the mayor their phones and papers.

There were gastronomic challenges, too. To honour Mr. Schwartz's travelling party or other Globalstar contingents, potential customers served up everything from marinated monkey brains to fried scorpions, Mr. Navarra recalls. Chatting up a local sheik during one swing, Mr. Navarra winced his way through dinner on a tent-floor carpet, surrounded by dozens of long-eared cats permitted to pick at the leftovers.

By the fall of 1999, things seemed to be falling into place. Qualcomm's novel signal-compression design for the phones made possible clear calls from anywhere. Mr. Schwartz glimpsed success on the horizon, despite some associates' worries about rising debt and a threat to subscriber growth from Russian and Asian economic troubles.

In September 1999, escorting visitors around Globalstar's control and tracking centre at its San Jose, California, headquarters, Mr. Schwartz mused that "the world looks pretty good from here''. Next to rows of big-screen computers was a huge wall-mounted "melon map.'' Eliptical yellow lines traced each satellite's orbit, turning turquoise when it passed close enough to allow communication with one of the receiving antennas.

Surveying the futuristic layout, he expressed something of a letdown. "This is old hat. Today there are no challenges'' left, he said, since Globalstar had lined up all the needed licences and agreements world-wide to sell capacity to individual users. "There's nothing more we can do,'' he summed up. "If you're problem-oriented, you begin to look at other projects.'' With that, Mr. Schwartz sat down at a picnic table outside and reeled off why he felt sure Globalstar was headed for success. Unlike other pioneering technologies such as railroads and the telegraph, "there has never been a telephone company that has gone bust'', he said. Then the clincher: "We can find 3 million subscribers,'' he said. "It's just not a question in my mind.'' The only unresolved issue, he added, was "how fast you make it available to them''.

Sixteen months later, he sees things quite differently. Proud that no partner has abandoned the project, and contending his ideas will work out in the long run, he muses that "I've spent my whole life underestimating'' challenges and then overcoming them. Trying to pinpoint what has gone wrong and how he could get the project back on track, Mr. Schwartz acknowledges that the delays hurt badly. But he assigns most of the blame to telecom companies for failing to hold up their end of the bargain.

Loral's expertise was never in retail sales, he says: "I didn't know my nose from my elbow'' in that arena. The project always depended on in-country expertise. But the "local telecoms didn't realise until very late in the game'' that they needed more-sophisticated marketing to sell Globalstar, and "we were unable to convince them to change their method of operation and emphasis''. Now the partners must follow a new script, Mr. Schwartz says, and "we're going to have to do everything exactly right.'' Through last spring and summer, Mr. Schwartz maintained that revenue was bound to pick up and said there was no imminent funding crisis. After the end of the third quarter, when results were dismal, Globalstar announced it was taking over much of the marketing effort and intended to begin emphasising corporate and government customers for data transmission. By December, Mr. Schwartz recognised that the revamped strategy would take longer and be more expensive to carry out than he had hoped. He approached all the major partners and told them he intended to conserve cash by halting all debt repayments indefinitely.

Mr. Schwartz strives to be optimistic. Talking about his four grandchildren, ranging from toddlers to teenagers, he recalls watching them play with computers "before they learned to roller skate.'' That provides the broader perspective of what Globalstar still may accomplish, he says. His vision encompasses a system that one day will make it easy for American kids, communicating via satellites, to share jokes and play computer games with unseen friends in isolated villages in India and elsewhere who otherwise would be mired "at the bottom of the social order.'' The old weapons maker pauses briefly to savour the image. "It's a heck of a lot better than buildin bombs,'' he says.