GeoEye Affiliates Will Not Have Direct Access to New Satellite

PARIS — GeoEye Inc. is overhauling its commercial business model as it prepares to launch a satellite whose sharpest imagery is beyond the reach of the company’s non-U.S. government customers and regional affiliates.

The shift will include giving GeoEye ownership of almost all the imagery produced by the GeoEye-1 satellite, now scheduled for launch in April aboard a Boeing Delta 2 rocket. For the company’s current Ikonos high-resolution spacecraft, regional affiliates in Germany, the United Arab Emirates and Japan have direct access to the satellite and can download imagery and sell it, paying a fee to GeoEye Inc.

Under current U.S. regulations, GeoEye-1’s highest-precision imagery – at resolutions of 41 centimeters in black-and-white mode and 1.64 meters in color – cannot be distributed to anyone except the U.S. government.

U.S. regulations say imagery at resolutions sharper than 50 centimeters in black and white, or 2 meters in color, are reserved for U.S. government customers.

GeoEye spokesman Mark Brender said U.S. regulatory authorities in June dropped a rule that required a 24-hour delay in delivery to non-U.S. government customers of images sharper than 82 centimeters in black and white and 3.2 meters in color.

To compensate for the fact that its regional affiliates will be unable to send orders to the GeoEye-1 satellite and receive imagery directly, GeoEye will own or lease new ground stations to be located in northern Alaska, Norway and Antarctica, Brender said. The ground stations in Norway and Antarctica will be leased through Kongsberg Satellite Services AS of Norway.

These facilities will send the raw GeoEye-1 imagery to GeoEye Inc. for processing – meaning degrading the imagery to within U.S. regulatory limits when the customer is not the U.S. government. GeoEye will then forward the imagery to its regional affiliates via land line.

Brender said GeoEye-1 will send data directly to a few international receiving stations owned by allied governments once those governments have been cleared by U.S. authorities. But in these cases, the image-reception station will be equipped with gear that will automatically degrade the imagery to within the 50-centimeter regulatory limit.

GeoEye Chief Executive Matthew M. O’Connell, meanwhile, said the company remains undecided over whether its future GeoEye-2 satellite, now in the early design phase, should be given a very high-resolution capability given the additional costs and shorter on-orbit lifetime associated with that feature.

In a Nov. 6 conference call with investors, O’Connell said GeoEye-2’s specifications will be finalized in 2008 with the selection of a prime contractor. He said it may be a twin of the GeoEye-1. Alternatively, he said it could be given a capacity to detect objects as small as 25 centimeters across.

GeoEye recently ordered the camera for GeoEye-2 from ITT Space Systems of Rochester, N.Y.

Brender said Nov. 8 that providing the higher resolution would mean placing GeoEye-2 in a lower orbit than GeoEye-1 – 450 kilometers instead of 680 kilometers. At the lower orbit, the satellite faces greater atmospheric drag and would need to carry bigger fuel tanks or face a shorter service life than GeoEye-1.

The U.S. government remains Dulles, Va.-based GeoEye’s principal customer, accounting for 56 percent of the company’s revenue in the nine months ending Sept. 30, GeoEye said in a Nov. 6 filing with the U.S. Securities and Exchange Commission (SEC). That compares with a 47 percent share of the company’s revenue in 2006.

But O’Connell said commercial sales were increasing worldwide, stimulated in part by the success of online mapping services from Google, Microsoft and Yahoo. In 2006, international sales accounted for 46 percent of the company’s revenue.

Total GeoEye Inc. revenue for the nine months ending Sept. 30 was up 27 percent, to $138.8 million, compared to a year earlier. Net profit more than tripled, to $51.9 million, helped by a one-time $3 million gain from an insurance claim following the loss of the OrbView-3 satellite earlier this year. That gain was arrived at by subtracting the writeoff from the loss of the satellite from the $40 million insurance payment.

The three months ending Sept. 30 were particularly strong, with more sales booked from the company’s Ikonos satellite than in any other three-month period since the satellite was launched nearly eight years ago.

Ikonos’ continued in-orbit health has been crucial for GeoEye, especially since the loss of OrbView-3 and the delays in the launch of the GeoEye-1 satellite.

GeoEye’s principal customer, the U.S. National Geospatial-Intelligence Agency (NGA), has agreed to purchase $197 million in GeoEye imagery under a contract that went into effect in February and is scheduled to continue through the first 18 months of in-orbit service of the GeoEye-1 satellite.

The NGA has agreed to take deliveries in the form of less-sharp Ikonos images while waiting for GeoEye-1. Ikonos’ camera can detect objects of about 1 meter in diameter. The agency paid GeoEye $54 million for images to be delivered in 2007 as part of a contract that O’Connell said GeoEye was able to fill by Sept. 30 – earlier than expected.

The NGA and GeoEye have negotiated another order, valued at $60 million, within the broader contract that will begin in November. Here again, early deliveries under this contract will be from Ikonos.

GeoEye-1, under construction by General Dynamics/Advanced Information Systems of Gilbert, Ariz., is assembled and is undergoing tests in preparation for a launch aboard a Boeing Delta 2 rocket in mid April, GeoEye Chief Operating Officer William Schuster said during the conference call.

The NGA is paying $237 million of the estimated $502 million cost of GeoEye-1, a figure that includes the satellite’s construction, launch, insurance and funds set aside in the event of a launch delay.

GeoEye Chief Financial Officer Henry E. Dubois said the company’s GeoEye-1 insurance policy is composed of two tranches: a $220 million tranche that covers the launch of the satellite plus its first year in orbit, and a $50 million tranche that covers the launch and the first three years in orbit.

Dubois said GeoEye is paying a total of $44.1 million for the coverage – a 15.3 percent premium that the company said is lower than it expected to pay. Depending on market conditions, GeoEye may seek additional insurance for the satellite, the company said in its SEC filing.