Telesat Canada estimates that its Anik F1 satellite, one of six first-generation Boeing 702-model spacecraft with a defective solar-array design, will continue operating until 2013, or just three years short of its expected service life, Telesat owner Loral Space and Communications said.


The condition and future health of Anik F1, launched in November 2000, is the subject of an ongoing legal dispute between Ottawa-based Telesat Canada, its insurers and the satellite’s prime contractor, Boeing Satellite Systems International of El Segundo, Calif.


The insurers of another of the defective first-generation Boeing 702 models, the Thuraya D1, are seeking reimbursement from Boeing for
some $199 million in
claims paid to Thuraya Satellite Communications Co. of the United Arab Emirates.


The Thuraya dispute is being resolved in the International Chamber of Commerce, which
is expected to make
a ruling this year, Chicago-based Boeing Co. said in an April 23 filing to the U.S. Securities and Exchange Commission (SEC).


Telesat, in association with its insurers, is seeking more than $395 million in damages, including $10 million in lost profit, from Boeing and has alleged that Boeing committed “gross negligence and willful misconduct” in the way it handled the 702 issue, according to estimates Boeing made in its
SEC filing. Boeing has denied the charges.


In an April 29 SEC filing, New York-based Loral said Telesat
estimates that Anik F1 will continue in operation until 2013.
The satellite was designed to operate until 2016.


Telesat received a $136.2 million payment from insurers in 2004 based on what Boeing and insurance industry officials
conceded was a rough estimate of the loss of capacity that Anik F1 will suffer. The solar panel defect results in a gradual degradation of the hardware’s
ability to provide electrical power to the satellite’s payload.


Solar-array power output declines over time
on all satellites. Boeing officials originally estimated that the additional power decline caused by the design defect would be constant year by year, but they said they could not be sure that each year’s percentage loss would be the same.


Because of this uncertainty, insurance underwriters withheld a final $49.1 million payment to Telesat in 2004, subject to a review of the satellite’s status in late 2007. They agreed to pay Telesat the final sum, or some lesser amount, depending on the status of Anik F1. They also reserved the right to reclaim from Telesat up to $36.1 million if the satellite was performing much better than expected.


In its SEC filing, Loral – which has a 64 percent economic ownership stake in
Telesat – said Telesat’s final claim
has been rejected by some insurance underwriters. These insurers, saying Anik F1 power levels are higher than expected, have proposed a final payment to Telesat of $2.7 million.


Loral said Telesat “fully intends to pursue arbitration” if it cannot otherwise resolve its dispute with the insurers.


Loral purchased its majority economic stake – but just 33.3 percent voting rights – in Telesat in October. As part of the transaction, Loral contributed its Skynet fleet of telecommunications satellites.


Telesat agreed to pay Loral a management fee of $5 million per year as part of the two companies’ new relationship. Loral said Skynet had been paying Loral a fee of $10 million per year.


Loral has retained its 56 percent ownership of Xtar LLC of Rockville, Md., operator of the
telecommunications satellite, which since March 2005 has been in operation at a Spanish-licensed slot at 29 degrees east longitude. Xtar’s
remaining 44 percent is owned by Hisdesat Servicios Estrategicos of Spain.


Xtar is
obligated to lease eight high-power transponders aboard the Hisdesat-owned Spainsat satellite, which provides telecommunications services to the Spanish military from its orbital slot at
30 degrees west longitude

Xtar’s business depends
on selling Xtar-
and Spainsat X-band capacity to
U.S. and allied military forces and government agencies, but the business has not developed as planned. Xtar reported a net loss of $18.4 million on sales of $19.4 million in 2007 and has been struggling to meet its commitments to lease the Spainsat capacity, according to Loral’s April 29 SEC filing.

Xtar had committed to pay $13.2 million in Spainsat leases in 2007, and $23 million in 2008, with payments subsequently climbing to $28 million per year. Xtar’s
total financial obligation to Spainsat’s owners is
estimated at $356 million over the life of the satellite, which was launched in March 2006.