Boeing Gains Ground in Longstanding Telesat Dispute

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PARIS — Boeing’s once-formidable battle with satellite operator Telesat of Canada over Telesat’s allegations of gross negligence and breach of contract has shrunk to a fifth of its former size with Telesat’s progressive reduction of its claims, Boeing said July 25.

In a filing with the U.S. Securities and Exchange Commission (SEC), Chicago-based Boeing said the damages Ottawa, Ontario-based Telesat is seeking in compensation for the problems aboard the Anik F1 satellite now total just $71 million, compared with $395 million when the arbitration filing was first made in 2006.

The SEC filing also updates Boeing’s issues with several satellite customers and launch vehicle partners, including mobile broadband provider LightSquared, which filed for bankruptcy in May; a dispute with the U.S. Air Force over pricing of three Delta rocket launches; and Boeing’s attempts to get repayment from its former Russian and Ukrainian partners in the Sea Launch commercial launch company.

Telesat’s shrinking arbitration demand has come even as the Canadian operator has revised upward the amount of service it believes it will get from Anik F1, which was launched in November 2000. Anik F1 is one of six first-generation Boeing 702 model satellites that featured a defective solar-array design.

Telesat, which received an insurance claim for Anik F1, initially thought the satellite would be taken out of service in 2011, five years before its planned retirement date, and that even before then its ability to serve customers would decline as the solar-array problem progressively reduced power available to the payload.

Telesat more recently has said Anik F1 is likely to continue operations until 2022, although the company may begin switching off transponders before then depending on how the solar arrays perform.

Telesat has alleged that Boeing knew of the solar-array issue before Anik F1 was launched but did not inform Telesat. Boeing has denied this, and has countersued Telesat — going so far as to demand that the Canadian operator pay annual performance incentive fees given the satellite’s continued operability.

An arbitration panel is scheduled to rule on the issue in November.

In its SEC filing, Boeing said it is confident that LightSquared LLC of Reston, Va., a wireless broadband startup company that has ordered two large Boeing satellites, eventually will pay Boeing $116 million owed for completion of the second satellite and related ground infrastructure.

LightSquared’s first Boeing satellite is in orbit. The second “is substantially complete but remains in Boeing’s possession,” the company said, adding: “We believe that our rights in the second satellite and related ground-segment assets are sufficient to protect the value of our receivables in the event that LightSquared fails to make payments as contractually required, or rejects its contract with us” as part of its Chapter 11 bankruptcy proceedings. “As a result, we do not expect to incur any losses” related to the LightSquared satellite payments.

Boeing and United Launch Alliance (ULA) of Denver have petitioned the Armed Services Board of Contract Appeals (ASBCA) to order the U.S. Air Force to increase payment on three Delta rockets the Air Force contracted for at prices that turned out to be far lower than what Boeing and ULA need to reach financial break-even, much less a profit.

The dispute has dragged on for nearly four years. Boeing and ULA — in which Boeing and Lockheed Martin Corp. each holds a 50 percent equity stake — have said the dispute is centered on the fact that the Air Force, in exercising its three contract options, arrived with satellites that are far bigger than what was planned when the launch contract was signed.

Boeing said in the SEC filing that if its ASBCA appeal is unsuccessful, it will face a pretax loss of $280 million for the three launches — an indication of just how far below cost the Air Force contracts were negotiated.

Boeing said an ASBCA hearing is set for next May.

Boeing’s role as general contractor in the Sea Launch commercial launch venture before Sea Launch was reorganized under Chapter 11 bankruptcy proceedings in 2009 left it with $356 million in Boeing-backed Sea Launch bank guarantees and loans that Boeing alleges are the responsibility of its Sea Launch partners, RSC Energia of Russia and companies associated with Ukraine’s Yuzhnoye.

The Stockholm Chamber of Commerce has said it lacks jurisdiction to rule on the matter. Boeing has appealed this, and both Energia and Yuzhnoye have recently submitted their responses to the chamber. No arbitration date has been set.

Boeing’s long-litigated dispute with ICO Global Communications, now owned by Pendrell Corp. of Kirkland, Wash., ended in June with Boeing’s agreement to pay ICO/Pendrell a $10 million settlement. In exchange, ICO/Pendrell agreed not to appeal a California Appeals Court decision in favor of Boeing that struck down a lower court award of more than $700 million to ICO/Pendrell.