Washington, US: The Senate Armed Services Committee, US, voted to authorise USD 125 million in continued funding for commercial imagery purchases in fiscal year 2013, which begins in October, restoring funds cut by the Pentagon in its proposed budget.
Share prices of DigitalGlobe and GeoEye shot up sharply after the announcement. Shares of DigitalGlobe rose as much as 10 pc while those of GeoEye jumped 9 pc in response to the first positive news for the sector in quite a while.
The move would maintain funding at fiscal year 2012 levels and mandates a study by the Joint Staff and the Congressional Budget Office on the requirements for commercial imagery. A full report is due to be released in early June.
Both DigitalGlobe and GeoEye provide digital imagery services to US military and intelligence agencies and are working on next-generation satellites to double their capacity.
But their shares have been hammered in recent months amid news that the US National Geospatial-Intelligence Agency plans to sharply reduce and possibly halve its purchases of those products over the next years.
The prospect of sharply lower US government orders has prompted an unusual flurry of takeover negotiations between DigitalGlobe, which had a market capitalization of USD 731.26 million, and GeoEye, with a market capitalisation of USD 426.87 million. The situation is at an impasse at the moment, but industry analysts do not believe the lower level of orders will be great enough over the longer term to sustain both companies.
However, the funding still has a long way to go before becoming law. It must still be approved by the full Senate and the House of Representatives, and will need action by both House and Senate appropriations committees before it can take effect.
US defence officials said cutting funds for commercial imagery was a difficult, but necessary choice given Pentagon plans to cut funding by USD 487 billion over the next decade.
Many US military commanders like using commercial imagery because it is easier to share with allies, but defence officials said they are trying to find ways to improve their ability to share even classified data with allies. They also say they expect to double the production of digital satellite imagery with their own new government-owned satellites.
DigitalGlobe, which says it is better positioned to weather the cuts than GeoEye since it provides more imagery to the government at lower cost, said the committee’s decision underscored the value of commercial imagery.
“DigitalGlobe is committed to continuing our legacy of providing superior value and performance to the US government and taxpayers in support of our customer and national defence,” the company said in a statement.
GeoEye also welcomed the news and said it continued to work on its new satellite, GeoEye-2, which it said would be the world’s highest resolution and most accurate commercial satellite in orbit, when it is launched next year.
“While these are challenging fiscal times, the Senate Armed Services Committee and other defence and intelligence committees continue to express concerns with the risk reflected in the proposed budget,” said Steve Wallach, GeoEye senior vice president for national security strategy.
Dougherty & Company analyst Andrea James said shares were clearly buoyed by the Senate committee’s move.
“The Senate is showing public support for commercial satellite imagery programmes, which save taxpayer money. This is the first concrete positive development that investors have seen in a while,” she said via email.