Military Space Quarterly | Boeing Dispute with U.S. Air Force over Rocket Prices Nears Resolution
PARIS — Boeing and the U.S. Air Force appear to be nearing a forced conclusion of their multiyear dispute on prices for three Delta 4 rocket missions following late-December hearings before a U.S. government arbitration body, the company said.
Chicago-based Boeing said a decision by the Armed Services Board of Contract Appeals (ASBCA) of Falls Church, Va., is expected by May on whether Boeing and its customer,( ) of Denver, will be reimbursed for what they say were three U.S. Air Force missions whose rockets were badly underpriced. Boeing said the final hearing on the issue at ASBCA occurred Dec. 20.
In a Feb. 14 filing to the U.S. Securities and Exchange Commission (SEC), Chicago-based Boeing repeated its earlier assessments of a potential liability of $278 million in pretax losses in the event of a negative ruling by the ASBCA. Most of the liability would be in the form of Boeing payments to indemnify ULA for the unrecovered cost of the three launches.
The Air Force contracted for the launches in question prior to December 2006, when Boeing and Lockheed Martin merged their respective Delta and Atlas rocket businesses to create ULA. Boeing in 2006 agreed to indemnify ULA in the event that the newly created company could not get certain prices for those launches.
In an unrelated dispute, Boeing and ULA are battling the Air Force at the U.S. Court of Federal Claims over whether certain deferred support and production costs related to ULA Delta operations should be reimbursed by the government customer.
Boeing and ULA filed suit at the court in June 2012 following a negative ruling by the Defense Contract Management Agency. It has been more than a year since the U.S. government filed a counterclaim, but Boeing said no trial date has been set. Boeing said its potential liability is $317 million.
Boeing and Bethesda, Md.-based Lockheed Martin each hold a 50 percent share of ULA.
Boeing reported $171 million in equity earnings in 2013 from its ULA joint venture share, with a small portion of that coming from United Space Alliance of Titusville, Fla., which managed launches of the U.S. space shuttle until that vehicle’s retirement in 2011.
Almost all of Boeing’s space business is inside the company’s Network & Space Systems division, which reported a 7.6 percent increase in revenue, to $8.51 billion, and improved operating profit for 2013. Boeing said the division’s operating profit margin of 8.4 percent was up from 7.1 percent in 2012 and nearly matched the 8.5 percent reported in 2011.
The revenue boost was due to a large contract from NASA for the Space Launch System heavy-lift rocket now in development, for which Boeing reported $364 million more in revenue in 2013 than in 2012.
Boeing’s recent success in the commercial telecommunications satellite market also helped increase revenue. Commercial satellite revenue rose by $329 million in 2013 compared to 2012, Boeing said.
The company is midway through multisatellite orders from satellite fleet operatorsof London (four satellites), of Luxembourg and Washington (four) the Mexican government (two) and a combined four-satellite order from commercial operators Asia Broadcast Satellite of Hong Kong and Satmex of Mexico.
Boeing’s Electronic and Information Solutions business, which is also located in the Network & Space Systems division, reported a drop in revenue of $196 million in 2013.
The Network and Space Systems division reported a backlog of $15.9 billion as of Dec. 31, down 7 percent from a year earlier.
Boeing continues to wait for the final disposition ofLLC, which has been in Chapter 11 bankruptcy proceedings for nearly two years following the collapse of its plans for a hybrid satellite-terrestrial mobile broadband network in the United States. Boeing built two satellites for LightSquared — one in orbit, a second in storage at Boeing. LightSquared owes Boeing $112 million for the work, a sum Boeing thinks is recoverable if, as is expected, LightSquared’s business is picked up by new owners.
Boeing said it remains determined to recover $356 million it says it is owed by its Russian and Ukrainian partners in the Sea Launch commercial launch business, which has since been purchased by new owners. The partners contest Boeing’s claims.
After the Stockholm Chamber of Commerce refused a request to arbitrate the dispute, Boeing filed suit in early 2013 at the U.S. District Court for the Central District of California.
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