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To: Maurice Winn who wrote (25777)	1/17/2005 11:44:44 PM
From: Jon Koplik	Read Replies (1) \| Respond to of 29987

WSJ -- Lockheed Faces Quality Concerns After Failure of Intelsat Satellite ........................... January 18, 2005 Lockheed Faces Quality Concerns After Failure of Intelsat Satellite By ANDY PASZTOR Staff Reporter of THE WALL STREET JOURNAL The sudden loss of a satellite operated by Intelsat Ltd. raises reliability concerns about spacecraft manufactured by Lockheed Martin Corp., which until now managed to avoid the negative publicity over failures that has bedeviled its leading U.S. rivals. The abrupt shutdown last weekend of Intelsat 804, an eight-year-old Lockheed Martin-built satellite serving the South Pacific, also is likely to prompt greater industrywide efforts to enhance outside insurance coverage or set aside larger in-house reserves to cope with significant malfunctions in orbit. With the commercial satellite-services industry transitioning to control by various private-equity groups, the financial implications of technical problems are coming under increased scrutiny. "Potential failures clearly are going to be highlighted in the minds" of the new breed of investors, according to Armand Musey, a former Wall Street analyst who helps run Near Earth LLC, a boutique investment bank specializing in space. Buying additional insurance -- or revising self-insurance plans to minimize the impact of further catastrophic equipment malfunctions -- are bound to be "at the top of the list of fixes," Mr. Musey said. During the 1990s, U.S. commercial and military space projects costing more than $11 billion either failed to reach appropriate orbits because of rocket failures or didn't operate properly once they got to the correct orbit. More recently, Boeing Co. and Loral Space & Communications Ltd., the other big U.S. satellite makers, have seen their reputations tarnished by a spate of commercial-spacecraft malfunctions. The causes of those problems range from improperly assembled solar arrays to electrical-power glitches to substandard propulsion systems installed on commercial-communications satellites, some of which carry price tags as high as $150 million. Launch and insurance costs can boost the final price to $250 million or more. For Intelsat, the No. 2 global commercial-satellite operator, it is the second time since mid-December that a major satellite problem has held up its pending $3 billion takeover by a group of private-equity firms. Instead of anticipating final approval of the transaction this month, Intelsat executives now are being forced back to the negotiating table to hammer out new terms, according to company and industry officials. Intelsat, which is incorporated in Bermuda but has its headquarters in Washington, is expected to need months to negotiate a revised agreement and then submit the terms for shareholder approval. If the negotiations turn contentious, some industry officials say that could prompt rival bidders to place their own offers. The satellite that went dead wasn't insured, and Intelsat said it is working with its own fleet and other operators to restore service to customers. Many small Pacific islands relied on the Intelsat satellite for phone and data services. Lockheed Martin, based in Bethesda, Md., has said only that it is working with Intelsat to determine the cause of the shutdown. Most satellites are manufactured to last for about 15 years. For the broader satellite industry, the latest malfunction is likely to accelerate the trend toward smaller, less expensive spacecraft intended to be easier to replace. Jean-Yves LeGall, the chief executive of Europe's Ariane rocket program, has said that "the users of satellites are starting to rethink their strategy" and the industry "has seen the peak of [relying] on big spacecraft." Write to Andy Pasztor at andy.pasztor@wsj.com Copyright © 2005 Dow Jones & Company, Inc. All Rights Reserved.