GeoEye, a provider of high-resolution optical imagery to the intelligence community, is building an $800 million satellite scheduled to be lofted next year for a U.S. government customer that may not be able to use it.

In June the National Geospatial-Intelligence Agency (NGA) notified GeoEye it would be unable to co-finance construction and launch of the GeoEye-2 commercial remote-sensing spacecraft beyond $181 million already appropriated by Congress. Although NGA paid out $111 million of that money June 28, the move leaves GeoEye short about $156 million expected under the terms of its $3.8 billion EnhancedView contract signed with NGA in 2010.

The bigger blow came when the NGA signaled an inability to pay GeoEye $150 million agreed to for the purchase of submeter imagery in the fiscal year that begins Oct. 1. Instead, the agency proposes to restructure the 2013 Service Level Agreement (SLA), reducing payments to slightly less than $40 million between Sept. 1 and Nov. 30 and offering to pay $13.25 million per month for the balance of the fiscal year “in the event funding becomes available in FY13.”

These monthly payments—which were to ramp up considerably once GeoEye-2 joins the company's constellation of two high-resolution imaging spacecraft orbiting at 681 km (422 mi.)—are contingent on GeoEye's ability to put encrypted web-hosting platforms in place by mid-August to support the government's classified network requirements.

GeoEye Chief Executive Matt O'Connell admits the news from NGA was somewhat surprising, given that the agency recently notified the company's chief competitor, DigitalGlobe, of plans to uphold the terms of a separate EnhancedView agreement, valued at $3.5 billion, with the Longmont, Colo.-based company.

NGA's 10-year EnhancedView contracts with DigitalGlobe and GeoEye are valued at a combined $7.3 billion. The program started in September 2010 with a one-year commitment from NGA followed by nine optional annual renewals.

In a June 25 conference call with investors, O'Connell attributed NGA's continued support for DigitalGlobe to the possibility that the company is charging less for imagery collected by its constellation of three high-resolution satellites, including QuickBird, Worldview-1 and Worldview-2. Together, they collect 1 billion sq. km (386 million sq. mi.) of imagery each year.

“DigitalGlobe says they provide more quantity at lower cost,” O'Connell says. “We have higher-end imagery. I guess in a budget environment like this, NGA is more focused on the quantity.”

GeoEye's stock plunged almost 23% following the investor call. But O'Connell says GeoEye has enough money to complete GeoEye-2 and loft it next year, and that he is optimistic NGA will not renege on its 2013 SLA.

“They're paying us $180 million, so we think they're going to want it,” says O'Connell, referring to the 0.34-meter-resolution panchromatic imagery that GeoEye-2 is expected to deliver. “I'm not sure that what's happening in 2013 is indicative of what could happen in 2014,” he says, suggesting that whatever funding disaster awaits in 2013 could be partially reversed if NGA exercises a subsequent SLA option the following year.

In the interim, O'Connell says, the goal is to start cultivating commercial and international customers in the market for high-resolution optical data. In the first half of this year, the company expanded its presence in the U.S. and Europe. In June, GeoEye announced an expansion of its facilities in Tampa, Fla., home to the U.S. Special Operations and U.S. Central commands, in an effort to keep pace with what the company says is growing demand for its services across the military.

Globally, GeoEye says its sales network comprises a dozen strategic business partners, both government and commercial, and more than 100 resellers. In January, GeoEye expanded that presence to Europe, where it had relied on a single Italian distributor, Telespazio. GeoEye also has set up offices in Amsterdam, staffing it with five people working to develop a European reseller network through which to market and sell GeoEye-2 imagery. The company says it now has sales resources on the ground in more than 12 of the top EU countries accounting for roughly 90% of Europe's GDP.

Without U.S.-government waivers issued on a case-by-case basis, however, GeoEye is restricted from selling anything better than 50-cm-resolution imagery to commercial or international customers. O'Connell says the company already “fuzzes” its high-resolution optical data products to distort resolution for commercial and international sales. Another option is to raise the orbit of a satellite, which affords more imagery at diminished resolution. But it could also lower NGA's interest in GeoEye's products, O'Connell says.

“The more likely scenario is we negotiate a waiver for some of our biggest military customers and allow them to engage in contracts similar to what the NGA had for certain hotspot areas,” O'Connell says.

But the competitive landscape for GeoEye is more challenging now that its long-term competitor, Astrium GEO-Information Services, is taking delivery of two high-resolution Pleiades Satellites. With a ground sampling resolution of 70 cm, Pleiades will put Astrium on better footing to compete globally. Astrium also plans to loft its Spot 6 and 7 satellites in the coming year to provide imagery at 2.5-5-meter resolution.

In the meantime, at least two of the six congressional panels that oversee the NGA have expressed support for funding both EnhancedView contracts. O'Connell points out that both the Senate Armed Services Committee and the House Permanent Select Committee on Intelligence recently supported continued funding of EnhancedView, recommending that cuts proposed in the Obama administration's fiscal 2013 spending plan be restored in whole or in part in the forthcoming fiscal year.

“In his 2013 budget request, the president cut a certain amount of money, and we are restoring some of that for the 2013 budget,” a House intelligence subcommittee aide says.

But until House and Senate appropriators weigh in later this summer, neither the companies nor the NGA will have a clear idea of what the future holds for EnhancedView. The funding outlook could become murkier if lawmakers are unable to approve a budget by Sept. 30, leaving NGA and other federal agencies to spend money on a monthly basis at prior-year levels until an annual appropriation is approved. But that could pose a problem for both companies, given that the president's current budget blueprint proposes to spend less in 2013 than in 2012.

“That might make it more difficult, because [NGA's] not sure that they're going to have that this year,” O'Connell says.