Bloomberg News

Satellites to China Fuel Dispute Between Thales, U.S.

April 13, 2012

A technician works on the assembly line of satellites at the Thales Alenia Space offices in Rome. Photo: Vincenzo Pinto/AFP/Getty Images

A technician works on the assembly line of satellites at the Thales Alenia Space offices in Rome. Photo: Vincenzo Pinto/AFP/Getty Images

A four-year dispute between the State Department and a unit of Thales SA (HO) over the export of American technology to China risks delaying the launch of new commercial communications satellites in the U.S.

The State Department is pursuing “all available options,” including administrative penalties, to compel Thales Alenia Space to disclose any U.S.-made parts in eight communications satellites it sold to China, Assistant Secretary for Legislative Affairs David Adams told Congress.

The department’s options include withholding licenses the company needs as prime contractor on a $3 billion program to build 81 satellites for Iridium Communications Inc. (IRDM:US), according to Marco Caceres, a military and civilian space analyst. He said that could postpone Iridium’s plans to launch the first of the new satellites in 36 months and possibly force the company to find a U.S. contractor to take over the program.

“If they delay it by six months, Iridium needs to do it sooner rather than later,” Caceres of the Fairfax, Virginia- based Teal Group, said in an interview.

A denial of licenses would be likely to affect satellite construction because “Iridium would be barred from providing technical information regarding the constellation to Thales Alenia,” said John Ordway, an export licensing attorney with Berliner, Corcoran & Rowe LLP in Washington.

The State Department hasn’t elaborated on the options referred to by Adams in his letter to lawmakers on March 15. Thales, owned 67 percent by Thales SA of Neuilly-Sur-Seine, France, and 33 percent by Finmeccanica SpA (FNC) of Rome, indicated it doesn’t expect troubles for its Iridium contract.

Thales Response

Thales Alenia has declined to provide the information demanded by the State Department and has said it used no U.S. technology that is restricted for export in the Spacebus 4000- series communications satellites it provided to China.

The company “is continuing its efforts to assure the State Department it is compliant with” the regulations “to ensure all license applications will continue to be treated normally,” Edgar Buckley, a senior adviser to Thales Alenia, said in an e- mail.

The State Department inquiry is “unrelated to Iridium,” Liz DeCastro, a spokeswoman for the McLean, Virginia-based satellite operator, said in an e-mail.

Iridium is “working to ensure Iridium NEXT is not impacted, as there would be serious safety-of-life issues in emergencies and availability of our system in national emergencies,” she said of the satellites. “I believe this is understood, and our specific issues are trying to be addressed,” she said. “We’re confident they will be.”

Mobile Phones, Tablets

The new satellites will provide higher speed and expanded capabilities for satellite voice and data communications equipment as well as mobile phones, tablets and laptops with Wi- Fi capability, she said.

The State Department has probed Thales Alenia’s Chinese satellites since at least May 2008, according to a 2011 “information paper” the department provided to the Senate and House foreign affairs panels. The department has sought information to assess whether the company violated the U.S. International Traffic In Arms Regulations, which govern the export of sensitive U.S. technology that may have military uses.

The department approved about 60 Thales Alenia Space licenses valued at $42 million for hardware and technology used in the Spacebus 3000 and 4000 satellite series from 1999 to 2008, according to the department document.

Refusal the Issue

The dispute appears to turn on Thales Alenia’s refusal to provide the requested data rather than State Department concerns that the company may have given China access to U.S. technology posing a security risk, Caceres said.

“That’s the big issue,” he said. “They’ve had four years to come up with a list. What are they hiding?”

Gregory Schulte, deputy assistant secretary of defense for space policy, told a House Armed Services Committee panel on March 9, “We know that the State Department is investigating that case.”

In declining to provide a list of U.S. parts, Thales has cited a 1980 French law prohibiting the release of any information that “would cause prejudice to the essential economic interests of France,” Adams wrote in a March 15 letter to lawmakers.

The State Department doesn’t agree with the company’s interpretation, and “French officials have noted they do not believe the provision of such a list will violate the statute,” Adams said.

Contacts With France

Thales Alenia “is aware there have been contacts between” the U.S. and French governments and “hopes these will help resolve any outstanding concerns,” Buckley said.

Adams was responding to inquiries about Thales Alenia by three Republican lawmakers in a Dec. 20 letter to Secretary of State Hillary Clinton.

“When does the department expect to take a final action, which may include a denial of any licenses for the export of technology?” House Foreign Affairs Committee Chairman Ileana Ros-Lehtinen, House Armed Services Committee member Michael Turner of Ohio and House Appropriations member Frank Wolf of Virginia wrote.

Turner said this week he remains dissatisfied because the State Department “has not taken swift action to enforce these laws.”

“The Thales case has been going on for at least four years, involving the transfer of U.S. space technology to a French company that the State Department suspects was illegally transferred to China,” Turner said in an e-mailed statement on April 10. “If not for Congress shining the spotlight on this case, it’s possible it would never have been pursued.”

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net


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Companies Mentioned

  • IRDM
    (Iridium Communications Inc)
    • $9.02 USD
    • -0.08
    • -0.89%
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