MDA Puts Sat Servicing on Hold; Core Businesses Doing Well

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PARIS — Canadian satellite hardware and services provider MDA Corp. said Oct. 28 its radar Earth observation and telecommunications satellite businesses are both performing well after recent hiccups but that its innovative satellite-servicing project remains suspended while waiting for a U.S. government contract.

Richmond, British Columbia-based MDA said the Canadian Space Agency has shown signs of moving forward on the next-generation Radarsat Constellation Mission, even if the number of satellites to be built remains uncertain.

On the communications satellite side, the company said its $254 million Ukrainian telecommunications satellite contract — the figure includes about $100 million for the satellite’s launch — appears back on track. The Ukrainian government has modified the satellite’s frequency specifications to avoid signal interference issues.

MDA’s order with the Russian Satellite Communications Co. (RSCC) of Moscow for two communications satellite payloads is also on track for the delivery of the first payload in mid-2012.

MDA remains confident that RSCC’s planned expansion, which was slowed by the August launch failure of the large Express AM4 spacecraft, is fertile ground for MDA.

“The Russians are bidding about four satellites as we speak and we plan to bid on all of them,” MDA Chief Executive Daniel E. Friedmann said in an conference call with investors.

Friedmann said the current contract for satellite payloads for RSCC’s Express AM5 and Express AM6 satellites, valued at more than 200 million Canadian dollars ($200 million), is about halfway completed.

MDA recently completed work on a communications satellite component production facility in Montreal, a plant that will expand the company’s manufacturing capacity. Russia and surrounding nations in Central and South Asia remain MDA’s focus.

In the United States, the company’s focus is serving the U.S. government with Radarsat 2 Earth observation imagery, a business Friedmann said appears to be expanding even as MDA’s unmanned aerial vehicle surveillance service may be winding down in Iraq and Afghanistan.

More broadly in the United States, MDA is performing needed legal and organizational work to permit its U.S.-based geospatial services division to win more U.S. classified business.

“The Company’s geospatial services operation in the U.S. operates under a Special Security Agreement (SSA) granted by the U.S. government, [which] enables foreign-owned entities to provide services to the U.S. Department of Defense and intelligence agencies on certain classified programs,” MDA said in an Oct. 27 document filed with the Toronto Stock Exchange. “The company is working with the U.S. government to replace the SSA (expiring in February 2012) with a Proxy Agreement, which will allow the U.S. geospatial services operation to gain better access to classified programs.”

The current SSA framework, Friedmann said, forces MDA customers for classified work “to go through all kinds of hoops” to get approval for MDA’s participation in the program. “By moving to the new structure, those hoops disappear.” The new structure should be in place by mid-2012, he said.

MDA reported increased business with the U.S. National Geospatial-Intelligence Agency for wide-area radar observation imagery. Friedmann said this may represent a trend as the U.S. government shifts from focusing on smaller areas in Iraq and Afghanistan that can be covered by unmanned aerial vehicles — a service MDA provides the Australian government in Afghanistan — to broad-area coverage best served by satellites.

The new legal structure of MDA’s U.S. division may not have any effect on MDA’s Space Infrastructure Servicing project to launch a robotic fuel tanker to refuel satellites in orbit. Satellite fleet operator Intelsat of Luxembourg and Washington has committed to paying MDA up to $280 million to refuel several Intelsat satellites. Intelsat also has agreed to lobby for the service with U.S. government agencies.

NASA and the U.S. Defense Advanced Research Projects Agency (DARPA) are expected to release requests for bids for a satellite servicing test project in the coming weeks. But whether MDA, as a Canadian company, will be permitted to bid on the work remains unclear. MDA has increased the U.S. content — and thus the development cost — of the system in an attempt to get U.S. regulatory approval.

Friedmann said MDA has all but put the project on hold while waiting to see how NASA and DARPA proceed.

“It is not prudent for us to proceed without getting clarity from the government and clarity on our participation in those programs,” Friedmann said. “We have an excellent customer, Intelsat. They do not have infinite patience, but they are patient.

“We have got to see [the NASA and DARPA bid requests], see what’s in them, whether we can bid as a Canadian company, or as a U.S. company. We can’t just go ahead. I know everybody says the government is not a competitor, and yes, literally they are not a competitor. But our whole business is about winning business from the government and then taking that dual-use technology into the commercial market.”

Friedmann said the Canadian government may be of some help if its involvement can transform at least some of the in-orbit serving work for one or both U.S. agencies into a government-to-government agreement.

For the nine months ending Sept. 30, MDA reported revenue of 582.9 million Canadian dollars, up 22 percent over the same period a year earlier. Operating profit, at 85.8 million Canadian dollars, was up 25.8 percent.

The company booked 201 million Canadian dollars in new orders in the three months ending Sept. 30, helping total backlog to increase to 856 million Canadian dollars.