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Hughes Lands Major Contract for Satellite Venture

Aerospace: Contract for up to $750 million is step in plan to revive and broaden failed Irridium system.


In another major boost for its satellite-making business, Hughes Space & Communications Co. said Wednesday it will build three more satellites for New ICO, a revamped communications company led by cellular telephone pioneer Craig McCaw.

The contract, estimated to be worth $700 million to $750 million, also revives plans to build a satellite-based global communications network a year after the high-profile collapse of New ICO's predecessor company and its competitor, Irridium.

ICO Global Communications Ltd. filed for Chapter 11 bankruptcy protection less than two weeks after Irridium collapsed as few customers were willing to pay for the high-cost satellite-based mobile phone service.

This time, New ICO, led by McCaw, said it hopes to succeed by providing a broader range of services including wireless Internet as well as mobile telephone.

"He [McCaw] took over and he's changing the market that they are going after," said George Torres, a Hughes spokesman.

Hughes said the new contract includes modifying 11 satellites that were ordered but grounded after former ICO company filed for bankruptcy. The modifications include upgrading the satellite equipment to add Internet and other data services that operate at faster speeds and with greater capacity.

Marshall Kaplan, a Potomac, Md.-based aerospace consultant, said satellite communication companies are in a "trial and error" period as the industry looks to broaden the market for satellite-based services.

"It's a crazy situation because of recent failures," Kaplan said. "Nobody knows if they will succeed or not. It's a hit and miss."

In any case, the El Segundo-based maker of satellites has been anxiously watching ICO's developments since it won what was then a $2.4-billion contract to make 12 satellites. The first satellite for the program was destroyed last March when its launch rocket exploded.

With the latest contract, Hughes will be able to continue to develop the 11 original satellites and build three more as well, reviving the revenue stream that had been temporarily derailed with ICO Global's bankruptcy.

The contract is also the latest of several large orders Hughes has been able to garner in an industry that has seen relatively flat growth.

In the past year, Hughes has landed key partnerships with rivals to collaborate on projects for the defense industry and watched a big commercial deal be resurrected.

Last May, Hughes became a major subcontractor on Boeing's $5-billion project to build the next generation of military spy satellites for the Defense Department's National Reconnaissance Office.

In all, Hughes, the world's largest commercial satellite manufacturer, has a backlog of 40 satellites worth $5 billion, Torres said. The 601 satellite being built for New ICO is one of the more popular commercial satellites. The complex equipment takes 18 to 24 months to make.

The increased order is having other effects as well. In June, Hughes said it would need to expand its work force in El Segundo by 10% by hiring nearly 800 engineers. So far, it has hired about 600 employees, Torres said, adding, "We're definitely on a roll."

Shares of Hughes Electronics--which reflect the company's performance but don't provide ownership to investors--fell 6 cents to close at $34.63 in NYSE trading.

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