Boeing Seeks To Reduce Losses from Sea Launch Bankruptcy

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KOUROU, French Guiana — Seeking to reduce its losses from the Chapter 11 bankruptcy filing of launch-services provider Sea Launch Co., Boeing Co. has filed a demand for arbitration in Sweden to force Sea Launch’s Russian and Ukrainian owners to repay $147 million in loan guarantees Boeing made to the struggling firm.

In an unrelated development, Boeing said it may be obliged to record $386 million in pre-tax losses if the U.S. Air Force maintains its refusal to pay higher prices for four United Launch Alliance (ULA) launches. Boeing has agreed to indemnify ULA against potential losses on these four missions if the Air Force refuses to raise the agreed-to contract price.

Denver-based ULA in December requested price increases for two of the four contracts, a request that the Air Force refused in March. ULA appealed the decision in June.

In an Oct. 22 filing with the U.S. Securities and Exchange Commission (SEC), Boeing said it “may be responsible for a portion of the shortfall” in the event of an Air Force refusal to pay more for the launches. Boeing’s potential liability for the four ULA missions is $386 million, the company said.

Long Beach, Calif.-based Sea Launch filed for Chapter 11 bankruptcy reorganization in June and is expected to file a plan of reorganization before the end of the year.

Boeing is a 40-percent owner of Sea Launch, and in addition to its equity stake it issued guarantees to the launch-services provider to facilitate its operations. As a result, the bankruptcy filing and resulting Sea Launch default on its loans has hit Boeing much harder than the other Sea Launch shareholders — RSC Energia of Russia, with a 25 percent equity stake; Aker ASA of Norway, 20 percent; and Ukrainian hardware builders Yuzhnoye and Yuzhmash, with a combined 15 percent ownership.
In July, Boeing paid $448 million to Sea Launch creditors. Boeing said that under the terms of the loan guarantee, it should be reimbursed by Sea Launch’s other owners so that Boeing’s liability does not exceed 40 percent of the total, or $179.2 million.

Oslo-based Aker said in reporting its second-quarter financial results that it had agreed to pay $122 million as its share of the loan guarantees, to be made in installments in 2009 and 2010. Aker also said it has filed a claim against the Russian and Ukrainian Sea Launch owners that may reduce Aker’s total payment.

From Boeing’s view, the Aker payment leaves $146.8 million that it is owed from Sea Launch’s Russian and Ukrainian shareholders. On Oct. 19, Boeing filed a request for arbitration of the matter in the Stockholm Chamber of Commerce. “We intend to pursue vigorously all of our rights” in seeking payment from these shareholders and from Sea Launch, Boeing said in the SEC filing.

The $448 million payment Boeing made in July is not the end of Boeing’s Sea Launch pains. Boeing Commercial Space Co. had loaned Sea Launch $523 million, which came due when Sea Launch filed for Chapter 11 protection.

“Certain other Sea Launch partners have guaranteed this loan, and we believe we can recover the proportionate amounts due from such partners of $209 [million],” Boeing said. The company said that if it cannot secure reimbursement, it may take an additional pre-tax charge of $478 million to cover Boeing’s credit and loan-guarantee payments related to Sea Launch.

Boeing did not outline its strategy of collecting these sums from the Russian and Ukrainian companies.

Boeing’s Sea Launch problems were a main cause of the 13 percent decline in operating profit that the company’s Network and Space Systems division reported for nine months ending Sept. 30, to $672 million, compared to the same period in 2008. The division’s revenue for the period, at $6.05 billion, was flat compared to the previous year.

As it has in past SEC filings, Boeing said it may not fully insure satellite launches that are done under delivery-on-orbit contracts, where the manufacturer is also responsible for launch and early in-orbit testing of the spacecraft.

Two satellite systems fall into this category, and Boeing said that for each satellite the potential uninsured liability for Boeing could be $360 million.
Boeing did not name the satellites, but Boeing officials have said they have full in-orbit delivery responsibility for the U.S. government’s GOES environmental satellites.

The Boeing-built Geostationary Operational Environmental Satellite-14 (GOES-14) satellite, formerly known as GOES-O, was launched in June, and was handed over to NASA in July for a planned five months of testing. The GOES-P satellite is scheduled for launch in 2010.