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Boeing expected to end stake in rocket firm Sea Launch

Long Beach-based Sea Launch says it expects the aerospace giant's ownership role to end after the smaller company emerges from bankruptcy.

November 12, 2009|W.J. Hennigan

After struggling for nearly 15 years to prop up an unusual way to launch satellites into space, Boeing Co. is expected to throw in the towel and walk away from its stake in Long Beach-based Sea Launch Co.

Kjell Karlsen, Sea Launch president, said Wednesday that Boeing was likely to have little or no ownership position in the rocket launch company after it emerges from Chapter 11 Bankruptcy Court reorganization early next year.

"Based on what Boeing has said to us, I don't expect them to commit any more capital to this venture," Karlsen said. "I would like to see Boeing being part of the new Sea Launch, but it's more likely they will work in a supplier capacity and not in an ownership role."

Boeing's pullback could jeopardize the venture if Sea Launch is unable to come up with new investors to fill the void, analysts said.

A Boeing spokesman declined to comment on the firm's future role in the rocket company, but he said it "supported Sea Launch's effort to explore restructuring alternatives through an orderly bankruptcy process."

Boeing, the world's largest aerospace company, co-founded the ocean-based launch service with a consortium of foreign companies in 1995 as a way to more cheaply launch commercial satellites, many of them built at its nearby El Segundo plant.

From its base in Long Beach, Sea Launch transports commercial satellites on a specially built ship and then launches them on rockets from a seagoing platform near the equator so they can reach orbit faster.

Boeing owns 40% of Sea Launch. RSC-Energia, a Russian rocket engine company; Aker ASA, a Norwegian shipbuilder; and two Ukrainian hardware builders own smaller shares. The consortium initially poured about $1 billion into Sea Launch.

But the company was forced into bankruptcy in June after it could not pay a $52-million judgment against it in connection with a terminated contract. The bankruptcy filing came after a platform explosion in early 2007 destroyed a commercial satellite and set operations back by about a year.

"The accident came right in the up-cycle of the market," said Marco Caceres, senior space analyst for Teal Group Corp. "The platform was inoperable for quite some time, setting them back about a year. It was a missed opportunity."

According to filings with the Securities and Exchange Commission, Boeing has been in a nasty battle with its partners. In July, Boeing paid $448 million to Sea Launch creditors. The company later filed a complaint to recoup some of the money from its partners.

Aker agreed to pay $122 million in installments in 2009 and 2010, leaving $146.8 million outstanding, Boeing said.

"Boeing has a right to reimbursement from Sea Launch as well as rights to reimbursement from all of the other Sea Launch partners, who are each obligated to reimburse Boeing," the company said in a separate SEC filing. "Boeing intends to pursue vigorously all of its rights and remedies against Sea Launch and the other Sea Launch partners."

Sea Launch, which counts DirecTV Group Inc. and satellite services provider Intelsat Ltd. as customers, has a backlog of eight launches, three of them at sea. Four of the launches do not yet have a launch site. The last remaining rocket is scheduled to launch from the Baikonur space center in Kazakhstan.

Karlsen said the company would need four ocean launches a year to turn a profit. But next year, it has only one launch on its manifest. The company had three launches this year, with one more set to go later this month.

Since the platform explosion, the company has "hit a rough patch," Caceres said. Though the accident came at the height of the market for launches, the commercial satellite business is falling back to Earth, he said.

Many of the satellites needed for broadband Internet and satellite television during the boom years have been launched.

"You might be able to squeeze another year out, but it looks like the market is slowing," Caceres said.

On Wednesday, Space Launch Services LLC, a group of unidentified investors, agreed to provide the company with $12 million, enough money for the company to continue operating until February, Sea Launch said.


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