The US government’s decision to alter GeoEye’s Earth observation contract could have significant consequences for the satellite imagery firm.
The National Geospatial-Intelligence Agency (NGA) notified GeoEye on 22 June that it had decided not to…
The US government’s decision to alter GeoEye’s Earth observation contract could have significant consequences for the satellite imagery firm.
The National Geospatial-Intelligence Agency (NGA) notified GeoEye on 22 June that it had decided not to automatically renew its EnhancedView programme in September, because of “funding shortfalls”.
Instead, it proposed exercising a three-month option that would provide service revenue to the imagery firm for 1 September to 30 November of US$39.75m. It then proposes exercising a further nine-month option for the rest of the contract year to 31 August 2013 to provide US$119.25m. This, however, will all be dependent upon the availability of funding.
GeoEye stated: “Assuming the company agrees to this proposal and NGA exercises both options, total service revenue to the company for the full contract year would be US$159m. There can be no assurances, however, that funding will be available to NGA to exercise both options as proposed.”
The company’s US$3.8bn ten-year EnhancedView contract began in September 2010, but it is subject to annual renewals. This contract also included US$336.9m towards the accelerated deployment of GeoEye-2, its next high resolution satellite that is set to cost US$835m in total.
However, NGA also notified GeoEye on 22 June that it had decided not to provide the entirety of its share of the funding for the bird.
GeoEye said the NGA is currently obligated to pay US$181m towards this cost, of which it has invoiced the government unit US$111m. But “NGA is proposing new milestones for payment of the remaining US$70m, three of which would occur before the launch of GeoEye-2, and no additional cost share funding would be provided”, explained the company.
The indication that NGA could be planning to move away from its commitments to GeoEye could ultimately dictate consolidation in the US satellite imagery sector.
In February, GeoEye made a US$17 per share unsolicited takeover for its main rival DigitalGlobe, which was strongly rejected.
DigitalGlobe, which had its EnhancedView contract renewed this year without amendments, described GeoEye’s offer as desperate. After rejecting the offer, DigitalGlobe said it had then sought to acquire GeoEye, which was also quickly rejected.
Notably, DigitalGlobe has said it could consider reviving a takeover offer for GeoEye after the NGA’s EnhancedView decision, which has now come to pass.
Both DigitalGlobe and GeoEye were unable to comment.
