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Loral Settles China Satellite Allegations

January 10, 2002|JONATHAN BERR | BLOOMBERG NEWS

NEW YORK — Loral Space & Communications Ltd. reached a settlement Wednesday to pay the U.S. government a civil fine of $14million over allegations it may have violated rules in 1996 that govern the transfer of satellite technology to China.

Hughes Electronics Corp., which also is under investigation, also expects to settle with the State Department, said company spokesman Richard Dore. The Justice Department ended its investigation of both Hughes and Loral, the companies said.

"The cloud has been lifted," said Loral Chief Executive Bernard Schwartz. Loral, the second-biggest U.S. satellite-communications company, neither admitted nor denied the government's charges as part of the settlement. "We are very happy that we have been able to resolve this."

Regulators were reviewing whether Loral and Hughes knowingly sold sensitive satellite and missile technology to China, damaging national security. Loral has said one of its engineers, a member of a committee reviewing a failed satellite launch, accidentally faxed a copy of its findings to the Chinese.

"The U.S. government feels there is not much difference of intent between a launch vehicle that is used for satellites and nuclear ballistic missiles," said William Kidd, satellite analyst at Lehman Bros. Inc., who has a "strong buy" rating on shares of Loral. "But it wasn't a malicious plot by the company."

A committee headed by Rep. Christopher Cox (R-Newport Beach) released a 700-page report in 1999 that included the charges.

The report alleged that China engaged in a 20-year spy campaign to obtain U.S. nuclear weapons technology, high-performance computers, aircraft and guidance systems and rocket launch know-how.

"The Cox report is irrelevant to what happened here today," Schwartz said. Officials in Cox's Washington office couldn't immediately be reached for comment.

"At the time it came out, it was tied with some heavy Clinton politics," said Jimmy Schaeffler, chief executive of the Carmel Group, a Carmel, Calif.-based satellite researcher. "It caused some major changes within the way the government reviewed exchanges of technology."

Hughes Electronics, the satellite-television broadcaster that agreed to be bought by EchoStar Communications Corp., sold its satellite making business to Boeing Co. Hughes is currently owned by General Motors Corp.

The cost of Loral's fine, about 4 cents a share, will be reflected in the company's fourth-quarter results. Under the terms of the agreement the fine is to be paid over seven years, without interest, resulting in a cash impact annually of about $2 million.

"It helps them somewhat," said Robert Friedman, an analyst at Standard & Poor's Equity Service, who covers the aerospace and defense industries. "I think investors are more interested in the financial health of the company as well as the health of Loral's primary markets."

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