This might be of interest, in that LOR probably also has licensing issues coming up.
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Hughes Electronics Faces 'Substantial' Loss on Satellite Job
Washington, July 30, 1998 (Bloomberg) -- Hughes Electronics Corp. faces a contract cancellation and ''substantial'' financial loss if it doesn't soon receive a U.S. government export license for a $500 million Pacific Rim commercial satellite program, according to company documents.
''If this contract were to be terminated at this point, Hughes would be exposed to substantial financial risk, including having to absorb approximately $100 million in expended production costs and contractual penalties,'' wrote Steven Dorfman, vice chairman of Hughes Electronics Corp. July 17 to the State Department.
''As time passes, the amount of potential loss continues to increase,'' Dorfman wrote John Holum, acting undersecretary of State for international policy. ''Hughes believes it is imperative that there be some resolution of the licensing issues by no later than August 15, if it is to proceed any further with the contract,'' Dorfman wrote. About 1,000 southern California jobs are at risk, he wrote.
The Hughes situation is an example of the financial repercussions a major U.S. corporation faces because it is caught in the Washington policy debate over whether the process for licensing commercial satellite technology is harming national security. Congress is especially concerned about satellite sales to China.
The contract was highlighted in a June 16 New York Times story that said the U.S. government was rethinking the deal over concerns the Chinese partner companies had close ties to the Chinese military.
''The license application is still undergoing the regulation interagency technical review,'' said State Department spokesman Lee McClenney.
Earnings standpoint
Loss of the Pacific Rim contract, while not good news for the company, wouldn't harm the stock price of Hughes Electronics, a company with $5 billion in 1997 revenue, analysts said.
''For the Hughes satellite division, from an earnings and future sales standpoint, it's a big project,'' said Marc Crossman, a communications analyst with CIBC Oppenheimer. ''But from a stock valuation standpoint, the real driver of Hughes Electronics is Direct TV and PamAmSat.'' PamAmSat is the nation's second largest non-military satellite system after Intelstat, of which Hughes owes 80 percent.
''People aren't buying the stock because of what they can earn in the next quarter or two,'' Crossman said. ''People are buying it because they think it will earn tons of money by 2000.''
The satellite is being built by Hughes Space & Communications of El Segundo, California, and Hughes Network Systems, of Germantown, Maryland. Hughes Electronics, a unit of General Motors Co. and parent of Hughes Communications Co., is the nation's largest maker of commercial telecommunications satellites, ahead of Loral Space & Communications Inc. and Orbital Sciences Corp. GM H shares rose 1/16 to 44 in trading today.
If Hughes doesn't get the necessary permission ''very shortly, we are in serious trouble from a business standpoint,'' Dorfman told the Senate Governmental Affairs international subcommittee yesterday. ''That means jobs, it means damage to Hughes shareholders and it likely mean jobs for Europeans,'' Dorfman said.
The subcommittee was hearing testimony from Dorfman and former Hughes Electronics Chairman C. Michael Armstrong about their views of the process for licensing commercial satellites.
Pacific Rim Partnership
The satellite program in question is with a partnership of affiliates of the Chinese government and private companies in Singapore called the A.P.M.T, or Asia-Pacific Mobile Telecommunications. Hughes says the partnership may include Japanese and Thai companies and could be listed on the New York of Nasdaq exchanges.
Hughes on May 15 signed a $500 million contract to sell the partnership two communications satellites to provide mobile telephone services. They are identical to one Hughes is building for a Middle East group, Hughes says. The U.S. departments of Commerce, State, and Defense must grant between eight and 10 licenses before the sale to the Chinese partnership can proceed.
The contract is subject to termination for default if it doesn't obtain all the required licenses by February 1999, Dorfman told Holum. Hughes thought this deadline seemed a reasonable risk because the State and Commerce departments had previously granted licenses for an earlier version of the satellite, Dorfman said.
Under the terms of the contract, the first satellite must be launched on a Chinese Long March missile in June 2000.
The contract also has certain deadlines Hughes must meet or risk losing the contract. The most current deadline is an October 15 preliminary design review.
To meet this milestone, Hughes needs the State Department license for a small number of satellite components controlled by State's Munitions List of military sensitive technologies.
19:40:28 07/30/1998
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