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Major Space Contract Lost ; Thornton Firm Falls Short in Bid for $500 Million Deal

Posted on: Wednesday, 6 October 2004, 06:00 CDT

Colorado's Space Imaging struck out big time, beaten by a smaller Virginia rival that emerged from bankruptcy less than a year ago.

Thornton-based Space Imaging failed - for the third time in a year - to win a $500 million Pentagon contact it concedes was "fundamental" to its long-term future.

The deal - handed to Dulles, Va.- based Orbimage - would have allowed Space Imaging to build and operate a next-generation commercial spy satellite.

A Space Imaging spokesman didn't rule out layoffs at the company, which employs roughly 270 and had been given slightly better odds to win.

"They're now facing a tremendous challenge for survival going forward," said Edward Jurkevics, founder of Chesapeake Analytics Corp. in Arlington, Va.

The loss also dealt a blow to Colorado's position as a central hub for the commercial spy satellite industry.

A win would have allowed Space Imaging to replace an aging high- resolution imaging satellite that's expected to orbit Earth until early 2008. "This is a tough position for Space Imaging," said Jurkevics.

Among the company's options, he said: gradually wind down the business while its existing Ikonos satellite operates; sell to a new owner; or revamp and adopt a slimmed-down business plan.

Space Imaging recently agreed to sell a business unit that employs 55.

The defeat left employees stunned. Without going into detail, spokesman Mark Brender said Space Imaging is exploring "all other alternatives available."

He did stress the company's Ikonos satellite will provide an existing revenue stream for the immediate future. Robert Dalal, Space Imaging's chief executive, told an employee-wide meeting late yesterday that revenues this year would be good. They exceeded $200 million in 2003.

"There's a future for the company. It's the long-term future that's problematic," said Brender.

Space Imaging executives had pulled out the stops to win the so- called NextView contract, awarded by the Pentagon's National Geospatial-Intelligence Agency.

Space Imaging reportedly had struck a deal to be sold to deep- pocketed defense contractor L-3 Communications if it won the award.

Lockheed Martin and Raytheon together own 77 percent of Space Imaging, but have refused to give it more money. The lack of added capital hurt Space Imaging's ability to nail down a NextView deal.

In March, the NGA broke off one- on-one talks with Space Imaging over the NextView contract after the two sides failed to iron out financial terms.

The spy agency then put the contract out for bid, attracting proposals from Space Imaging and Orbimage.

The award is a huge boost for the Virginia company, which emerged from bankruptcy protection in late 2003. "There was lots of cheering and a little champagne," said Orbimage spokeswoman Lisa Andrews. The company employs 115 and launched its first high-resolution satellite in June 2003.

Orbimage is now expected to emerge as the chief rival to DigitalGlobe of Longmont. Space Imaging and DigitalGlobe had been considered the leaders in the commercial spy satellite business, positioning Colorado as a central hub for the industry.

INFOBOX

Major loss

* What: Space Imaging failed to win a Pentagon spy agency contract worth about $500 million, a loss that could spell layoffs at the Thornton company.

* Significance: The deal was "fundamental" to the company's future. Space Imaging had banked on the contract to allow it to build and launch a next-generation commercial spy satellite that would have replaced an existing spacecraft with a limited life expectancy.

* Who won: Orbimage of Dulles, Va.

* Why did Space Imaging lose? Not yet known. The National Geospatial-Intelligence Agency, which awarded the deal, will hold a news conference on Friday.

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