Arbitration Scheduled for Globalstar, Thales Alenia Pricing Dispute

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PARIS — A three-judge panel assembled by the American Arbitration Association has scheduled a Jan. 24 hearing to resolve a satellite contract dispute between mobile satellite services operator Globalstar and its satellite prime contractor, Thales Alenia Space.

The dispute concerns pricing terms for a second batch of 24 second-generation Globalstar satellites that Cannes, France-based Thales Alenia Space had agreed to build under a contract that has since been amended.

In a filing with the U.S. Securities and Exchange Commission (SEC), Covington, La.-based Globalstar said it wants the arbitration panel to oblige Thales Alenia Space to pursue work on the 24-satellite batch under terms of the amended contract.

Globalstar said Thales Alenia Space is alleging that Globalstar itself terminated the contract for convenience, and that Thales Alenia Space is demanding 60.5 million euros ($88 million) in compensation from Globalstar.

Globalstar said Thales Alenia Space has agreed not to let the dispute disrupt delivery of the last 12 satellites in the initial 24-satellite batch. These 12 spacecraft are scheduled to be launched late this year on two Russian Soyuz rockets from the Baikonur Cosmodrome in Kazakhstan.

Assuming these two launches are successful, Globalstar does not have an immediate need for the second and final 24-satellite batch to operate its low-orbit constellation. With the 24 second-generation satellites in orbit, plus six first-generation satellites that were launched in 2007 — years after the other first-generation spacecraft entered operations — the company has enough in-orbit capacity to return to its business of providing two-way voice and data communications.

That business has been eroded since 2007, when the older first-generation satellites began developing an anomaly, which Globalstar believes is due to radiation exposure, that has all but shut down Globalstar’s ability to provide customers with two-way communications.

The company has since built a business of one-way data communications, notably with portable tracking devices. But its long-term viability depends on returning full two-way service, Globalstar has said.

The dispute with Thales Alenia Space has taken on a slightly greater importance following word that six second-generation satellites launched in October 2010 have potentially defective reaction wheels. Each satellite can suffer the loss of one wheel without a problem. But one of the six spacecraft was taken out of service July 20 when a second wheel showed signs of the same problem as a first. A reaction wheel on a second satellite has manifested the same problem, forcing a switch to the spare wheel.

The dispute with Thales Alenia Space has taken on a slightly greater importance following word that six second-generation satellites launched in October 2010 have potentially defective reaction wheels. Each satellite can suffer the loss of one wheel without a problem. But one of the six spacecraft was taken out of service July 20 when a second wheel showed signs of the same problem as a first. A reaction wheel on a second satellite has manifested the same problem, forcing a switch to the spare wheel.

Globalstar said it is working with Thales Alenia Space on a software upload that could resolve the problem.

Meanwhile, Globalstar wants its satellite builder to make progress on the remaining second-generation satellites, even though Globalstar has yet to secure the necessary financing.

Under the original contract, the final batch of 24 satellites was to be built for $318.8 million. In its Aug. 5 SEC filing, Globalstar said it has already paid 12 million euros for long-lead components for six satellites, and prepaid 53 million euros more for the spacecraft.

Globalstar denied that it has terminated a part of the construction contract, and said further that even if it had done so, it would owe Thales Alenia Space no termination fees because “no work had been performed” on the contract in question.

Thales Alenia Space officials could not be reached for comment on the arbitration.

“We requested and have received formal assurance from Thales that this arbitration will not affect any work being performed pursuant to the Contract regarding manufacturing and delivery of the remaining first 24 satellites,” Globalstar said in the SEC filing.

 

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