Apr 20, 2012

Pentagon "can manage" satellite imagery cuts

Estimated Article Reading Time: 3 min.

(Reuters) – Top U.S. military officials, grappling with proposed budget cuts for commercial satellite imagery, said new government-owned satellites, manned planes and other equipment can fill the gap.

“We believe we can manage that,” said Air Force General Robert Kehler, commander of U.S. Strategic Command, which is responsible for U.S. operations in space and cyberspace, referring to a decision to cut funding for orders for imagery from GeoEye Inc and DigitalGlobe Inc.

Kehler said the decision was budget-driven, but also reflected a sharp increase in the imagery provided by the government’s own satellites.

“A lot of that has to do with the increase in government-provided imagery which has gone up pretty dramatically with the recent launches,” Kehler told Reuters after a speech to industry executives at a conference hosted by the Space Foundation.

The U.S. government has not provided any details on expected funding levels for imagery, since both the commercial imagery contracts and government-owned imagery satellites are part of the Pentagon and intelligence community’s classified budgets.

However, industry sources said the Obama administration proposed cutting funding for the commercial imagery contacts to about $250 million from $540 million as part its budget proposal for fiscal 2013. The move is part of a broader plan to halve up to $7.3 billion in options included in the National Geospatial-Intelligence Agency’s (NGA) separate contracts with the firms, they noted.

The recommendation, which must still be approved by Congress, has raised concerns among some military commanders, who use the commercial imagery for daily military operations, and industry executives, who note the companies raised money to build new satellites on the basis of the expected orders.

A sharp drop in U.S. government orders also raises questions about the long-term health of both imagery providers, for whom the government is the biggest customer, they said.

Shares of GeoEye and DigitalGlobe have dropped sharply on news of the proposed budget cuts, sparking speculation that one of the firms could exit the market or be taken over by a larger firm.

DigitalGlobe edged up 0.08 percent to close at $12.19 on the New York Stock Exchange, far below the 52-week high of $29.38 from May. GeoEye rose 0.8 percent to $22.56 on Nasdaq, less than half the 52-week high of $42.31 reached in July.

Greg Schulte, deputy assistant secretary of defense for space policy, said the decision to cut the commercial imagery funding had been difficult to make, especially given constantly increasing demand from military commanders.

But he said the need to cut projected defense spending by $487 billion over the next decade left officials little choice.

Asked about reported pushback against the decision by military commanders, Schulte noted that the overall level of imagery available to commanders would still increase given data being supplied by new government-owned satellites.

“They’re still going to get more, despite the cut in commercial imagery,” Schulte told Reuters at the conference.

DigitalGlobe Chief Executive Jeffery Tarr said his company provided four to five times more imagery than its competitor, and was achieving double-digit growth in non-U.S.-government orders by aggressively going after sales to other governments and commercial customers.

“Our view is … that by delivering superior performance and value, we will over time be rewarded for delivering that value,” he told Reuters in an interview at the conference.

Tarr said his company continued to project strong growth, despite reports of funding cuts.

Steve Wallach, senior vice president for national security at GeoEye, said demand for digital imagery remains strong, and the company is on track to supporting the U.S. government with its current satellite, GeoEye-1.

The company plans to launch its next satellite, GeoEye-2, being built by Lockheed Martin Corp, next year, he said, noting that GeoEye had the “highest resolution and highest accuracy commercial imagery satellites on orbit.”

“Clearly the nation has to address its deficits, but it should do so in a way that addresses the needs of the warfighter and disaster relief workers, as well as the taxpayer,” he said.

(Reporting By Andrea Shalal-Esa; Editing by Richard Chang)