Satellite imagery companies brace for cut in federal funding for contracts


This satellite image provided by GeoEye shows the path of a tornado, diagonal from bottom left to upper right, which struck Harrisburg, Ill., on Feb. 29. (AP Photo/GeoEye)

Herndon-based GeoEye and a competitor that also produces satellite images of Earth are bracing for a reduction in federal funding they had hoped would help sustain their businesses over the next decade.

The National Geospatial-Intelligence Agency turned to the two companies in 2010 to augment the aerial-based imagery that federal agencies already collect from spy satellites, awarding a $7.3 billion contract to GeoEye and Longmont, Colo.-based Digital­Globe to provide high-resolution images over 10 years.

But less than two years after the deal was inked, the program is one of several that industry observers say has been targeted for budget cuts as the federal government looks to curtail spending and tame the deficit.

“We expect the cuts to be significant,” said Karen Finn, an NGA spokeswoman. The government “always looks at the ‘total value’ of each contract to the contribution to our mission to determine how to allocate the reduction.”

The true extent of the cut, should one come to pass, is uncertain.

The president’s budget as proposed rarely matches the budget that Congress ultimately passes. Furthermore, funding for this particular program is housed in a portion of the defense budget deemed secret, making the depth of the proposed cut difficult to ascertain.

A report due soon from the federal government’s defense and intelligence agencies is supposed to convey the degree to which the government needs commercial satellite images and should offer some guidance on future budgets cuts.

Josephine Millward, a defense and homeland security research analyst at Benchmark, said some industry observers estimate the proposed reduction for next fiscal year could fall between 30 percent and 50 percent.

“How this will come out is very hard to predict . . . but it would be very hard to see this program coming out untouched,” Millward said.

That creates an unpleasant picture for GeoEye and DigitalGlobe going forward.

The government funding has helped the companies buy time to establish a commercial market for their imagery. The pictures are used by online sites such as Google Earth and by news organizations and others to capture bird’s-eye views of major world events, including the Arab Spring and the tsunami in Japan.

“Deep cuts would be really difficult to sustain for this company and for the industry at large,” said Matt O’Connell, GeoEye’s chief executive. “We are creative people and we’ve gotten out of tight situations, but it would be very tight and it would affect a lot of people.”

Also potentially at stake for GeoEye is a portion of the $337 million that the federal government has pledged for the construction and launch of a new satellite next year. Called GeoEye-2, the satellite is to be outfitted with higher-resolution cameras.

O’Connell said $111 million of that money was allocated in prior federal budgets and should still be delivered later this year. He added that the company should be able to launch the satellite into orbit even without the remainder of the money.

Meanwhile, J. Alison Alfers, the vice president for defense and intelligence at DigitalGlobe, said the company set aside other business prospects to compete for the NGA contract. Its satellite is scheduled to launch in 2014 without government financing.

“We can’t control what the U.S. government is doing on any given day, but what we can control is how we execute our business,” Alfers said.

Both GeoEye and DigitalGlobe have expanded their client base in recent years to include foreign governments, as well as commercial clients from industries such as energy, agriculture and real estate. Still, the government represents a majority of the firms’ business.

“Certainly they have other opportunities, and if their programs were to be reduced by the U.S. government it would free up capacity to do more international and commercial business,” Millward said. “But the government is a 10,000-pound gorilla in this industry.”

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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