GeoEye: Order for Next Satellite Contingent on Customer Guarantee

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  Space News Business

GeoEye: Order for Next Satellite Contingent on Customer Guarantee

By PETER B. de SELDING
Space News Staff Writer
posted: 21 April 2009
02:32 pm ET





PARIS — GeoEye Inc. said it will not commit to a contract for full development of its next high-resolution optical satellite until the U.S. government or some other anchor customer guarantees to purchase data from it, GeoEye officials said April 3.

The Dulles, Va.-based satellite and aerial Earth observation data provider, whose biggest single customer is the U.S. National Geospatial-Intelligence Agency (NGA), spent $21.2 million in 2008 on developing the primary optical camera for a GeoEye-2 under a contract with ITT Space Systems of Rochester, N.Y.

But while GeoEye has said it expects to order GeoEye-2 in 2009, with a possible 2012 launch, company Chief Executive Matthew O’Connell said there are too many uncertainties about the U.S. government’s commercial-imagery policy to permit such a decision.

“GeoEye-2 is on track,” O’Connell said in a conference call with investors. “But before we pull the trigger on any [major spending], we’ll want a clear indication of a commitment from a customer. That could be the U.S. government or it could be another customer.”

On April 5, U.S. Director of National Intelligence Dennis Blair announced plans to expand purchases of commercial imagery in addition to procuring government-owned imaging satellites to meet the nation’s military and intelligence needs in the future. Blair said the plan was endorsed by his office and the Pentagon.

The U.S. government accounted for 39 percent of GeoEye’s 2008 revenue of $146.7 million. International customers were 48 percent of revenue, with the remaining 13 percent of revenue coming from commercial customers in North America.

Revenue for 2008 was down nearly 20 percent from 2007, a performance O’Connell conceded “wasn’t as good as we planned” mainly because of the delays in the completion, launch and in-orbit checkout of GeoEye-1. Operating income for the year was down 79 percent, to $22.8 million, while net profit, at $26.6 million, was down 6.5 percent from 2007.

The GeoEye-1 delays resulted in lower NGA sales. The government agency limited its purchases of data from GeoEye’s existing Ikonos satellite, preferring to withhold purchase orders and cash payment until GeoEye-1 was available.

O’Connell said the company expects to be back on track with the NGA contract in 2009. GeoEye-1 has been operational since February, and NGA on Feb. 20 put its stamp of approval on the image quality, a certification that cleared the way for a regular flow of revenue from the government agency.

NGA, O’Connell said, has indicated it would extend the current data-purchase contract, set to expire in November, through June 2010, but the terms and conditions of the extension are unknown. Under the current contract, called a Service Level Agreement, GeoEye receives $12.5 million per month from NGA.

The delays in GeoEye-1 cost company managers their bonuses in 2008. “No GeoEye officers – meaning vice president or above – received any bonus in any form for their 2008 performance,” O’Connell said. “We only pay bonuses when we meet our goals.”

GeoEye’s
other high-resolution satellite, Ikonos, in operation since late 1999, is already beyond its contracted service life but is expected to continue operating through 2010 if not longer, GeoEye officials said in an April 2 filing with the U.S. Securities and Exchange Commission (SEC).

In addition to GeoEye-1’s higher resolution – 41 centimeters in black and white, 1.65 meters in color, compared to 82 centimeters and 3.2 meters for Ikonos – the newer satellite is able to collect and store a greater volume of data per orbit.

GeoEye
has also changed the way it deals with its international ground station partners to give the company greater flexibility in gathering imagery for NGA even as the satellite passes over the territory of an international ground station partner. For Ikonos, the company ceded exclusive ownership of imagery in a regional partner’s territory. The policy meant that GeoEye on several occasions could not provide NGA with Ikonos data in late 2008 because the satellite was already booked by the international partner.

U.S. government regulations set limits on the sharpness of satellite imagery sold to non-U.S. government customers to a maximum of 50 centimeters in black-and-white mode, and 2 meters in color. In addition, images of Israeli territory may be no sharper than 2 meters.

GeoEye
Chief Operating Officer William Schuster said the company is keeping its options open as to GeoEye-2 performance despite having begun work on the camera with ITT. GeoEye has said in the past that it could decide to launch GeoEye-2 into a similar orbit as GeoEye-1, or apply modifications to the spacecraft to operate in a lower orbit, thereby increasing image resolution with the same camera.

GeoEye-2’s early specifications are to provide imagery with a ground resolution of 25 centimeters for black-and-white imagery, with the same seven-year contracted in-orbit life as for GeoEye-1.

While NGA purchases in 2008 were held back because of GeoEye-1 delays, O’Connell said the U.S. federal government has become a major purchaser of aerial imagery produced by GeoEye’s subsidiary, M.J. Harden of Mission, Kan. That company’s business is performing well enough that it has ordered a third aircraft to be equipped with a high-resolution digital camera.

GeoEye
is also expanding its image-processing facilities and hiring additional staff.

GeoEye’s
principal competitor for NGA business, DigitalGlobe of Longmont, Colo., plans to launch its WorldView-2 satellite later this year, offering 46-centimeter resolution in black and white, and 1.8 meters in color. WorldView-1, in orbit since September 2007, has a 50-centimeter-diameter resolution but operates only in black-and-white mode.