EnhancedView News Not so Rosy for GeoEye
The deal apparently is not yet done on the next year of funding under EnhancedView after all, at least for one of the two commercial satellite imagery companies that depend on that government contract as a major revenue source. GeoEye submitted two letters to the Securities and Exchange Commission (SEC) on Friday that spell out National Geospatial-Intelligence Agency (NGA) plans for funding existing contracts with GeoEye. The news is not as rosy as it could be, though it is not necessarily dire either.
GeoEye submitted two letters to the SEC that it received from NGA. Both are dated June 22, the same day GeoEye sent them to the SEC. The first informs GeoEye that the government may not exercise the full contract option for year 3 (September 1, 2012 - August 31, 2013) unless it gets additional funding, while the second notifies the company that the government will not fully fund a cost-share agreement for acquiring the next GeoEye satellite, GeoEye-2. Space News reported the existence of these letters in its on-line edition this morning.
Enhanced View is a 10-year NGA contract (one-year with nine one-year options) with GeoEye and DigitalGlobe to purchase imagery on a Service Level Agreement (SLA) basis. The contract was signed in 2010 as a follow-on to earlier contracts that date back to 2003. Constrained funding and reduced imagery requirements now that the Iraq war has ended and the Afghanistan conflict is winding down are leading NGA to reconsider the deal.
It was reported earlier this week that both DigitalGlobe and GeoEye were told by NGA on June 15 that their year 3 contracts would be renewed. DigitalGlobe issued a press release saying its contract was renewed for the entirety of year 3 under the terms of the EnhancedView contract. GeoEye was silent and still has not issued a press release on this topic. Instead it notified the SEC and thus stakeholders of its changed outlook for the future.
The first letter from NGA says that "due to funding shortfalls" it will not fully exercise the option for year 3 of the SLA. NGA instead proposes negotiating a new arrangement with GeoEye under which it would fund the SLA for three months (through November 30, 2012) with a separate option for the remaining nine months of year 3. NGA would exercise the three-month option only if GeoEye's SIPRNET and NIPRNET Web Hosting Service is operational and validated by August 15, 2012. The nine-month option would be exercised only if that service is operational and NGA receives additional funding.
"Assuming the company agrees to this proposal ... total service revenue would be $159.0 million. There can be no assurances, however, that funding will be available to NGA to exercise both options as proposed," GeoEye cautioned the SEC.
NGA's budget is classified, so the amount of funding it requested for FY2013 is not known publicly, but the Senate Armed Services Committee (SASC) wants to increase it by $125 million to ensure that both companies stay in business.
The second letter says that the government will not provide all of its share for building and launching GeoEye-2, currently scheduled for launch next year. NGA originally indicated it would pay up to $337 million of the approximately $835 million cost of the satellite (including launch and insurance), according to Space News.
GeoEye told the SEC that NGA has already obligated $181 million of the $337 million and NGA's letter confirms it will meet that obligation, but no further funds will be provided. GeoEye recently met a milestone that triggers payment of $111 million of the $181 million and GeoEye reported to the SEC that it expects those funds within 30 days. To get the remaining $70 million, GeoEye will have to meet additional new milestones levied by NGA that include proving it has the financial resources to complete the satellite. But the $181 million will be the end of government support for the satellite. GeoEye will have to find other sources to make up the $176 million shortfall between that and the $337 million it was expecting.
The NGA letters do not doom GeoEye -- in fact, it could still get all of its year 3 SLA money if Congress provides sufficient funding. The outlook for full government support of GeoEye-2 seems dim based on the letter, but Congress could change that, too. GeoEye told the SEC that it will negotiate with NGA as the agency requested. The answer to its financial future, however, will probably have to await final congressional action on the defense authorization and appropriation bills and there is no clear timetable for when that will occur.
SpacePolicyOnline.com has the right (but not the obligation) to monitor the comments and to remove any materials it deems inappropriate.