Home News Business GeoEye sees no delay in sat launch despite funding woes

GeoEye sees no delay in sat launch despite funding woes

US: GeoEye announced that, despite new funding problems with the National Geospatial-Intelligence Agency (NGA), the company has enough money to operate through 2013 and is unlikely to delay the launch of its newest satellite, GeoEye-2.

GeoEye provides satellite images for national-security needs, as well as planning information for state and local governments and mapping for Google Inc., real estate, transportation and others.

Last week, GeoEye said it was told by the NGA that because of funding shortfalls, the federal agency won’t fully renew a year-long contract worth about USD 159 million and declined to pledge additional funding for GeoEye’s new high-resolution satellite, GeoEye-2. Shares tumbled to fresh seven-year lows, dropping as much as 30 percent.

However, the stock reversed some of those losses later in the day after GeoEye executives held a conference call with analysts, which appeared to mitigate some of Wall Street’s concerns. Shares closed down 22 percent at USD 14.24, and edged down 1 cent after hours.

Moody’s Investors Service cut its junk-level rating on GeoEye by one notch, to B2 from B1, and kept the rating on review for further potential downgrades. The rating firm cited “possible material cutbacks to the contractual relationship between GeoEye and NGA.” It said GeoEye receives 65 percent of its revenues from the US government and replacing that revenue stream with other customers may stress its finances in the near term.

The NGA, which provides information to support US security needs, offered to break up its full-year Enhanced View contract with GeoEye into two options: one lasting three months from September 1 to November 30, worth USD 39.75 million, and another lasting nine months until August 31, 2013, worth USD 119.25 million.

GeoEye said the NGA intends to not only exercise the three-month option, but is also seen as having a strong interest in exercising the nine-month option.

“We’ve received a lot of positive signals that Congress wants to restore the funding for the program, and it is unlikely our contract will be significantly affected,” said Chief Executive Matthew O’Connell.

Although the NGA doesn’t plan to contribute additional funds to the GeoEye-2 satellite, company executives said they have enough money on hand and pledged to launch the satellite on time. The executives said they have a strong belief the NGA will pay to use the new device.

The NGA has already pledged USD 181 million for the project. It is expected to pay USD 111 million of that money within a month, and it proposed to make some earlier-than-expected milestone payments for the remaining USD 70 million.

Company leaders strongly asserted their beliefs that a delay in the satellite launch wouldn’t happen.

“We’re a pretty short putt from the cup right now,” O’Connell said, “and the thing is mostly paid for delaying it doesn’t seem like a good economic proposition.”

The company described GeoEye-2 as the “highest-resolution commercial satellite in the world,” adding that the device would give GeoEye a competitive advantage for several years.

Earlier this year, GeoEye attempted to take over one of its main competitors, DigitalGlobe in a USD 805 million cash-and-stock deal. DigitalGlobe rejected the offer. Its Enhanced View contract with the NGA will be fully funded for the next year.

Source: The Wall Street Journal