Boeing Backs Out of Global IP Satellite Order Financed by China -- Update
07 December 2018 - 2:00PM
Dow Jones News
By Brian Spegele and Kate O'Keeffe
Boeing Co. said Thursday it was canceling a controversial
satellite order that was financed by a Chinese government-owned
firm, citing default for nonpayment.
Boeing's decision follows a Wall Street Journal investigation
this week that highlighted China's opaque role in funneling around
$200 million to the project.
Under U.S. export-control laws, Boeing isn't allowed to sell
satellites to China directly. The company faced criticism from
national security officials that it attempted to sidestep U.S.
regulations on sensitive technology, which the U.S. military relies
on.
A person familiar with Boeing's thinking said canceling the
order was a business decision. The person said the company would
likely attempt to resell the satellite, which had been nearing
completion at a Boeing facility in Los Angeles.
On paper, a Los Angeles startup called Global IP was Boeing's
customer in the project. The company was behind on payments for the
satellite and needed to raise over $200 million more to complete
it.
Global IP didn't immediately respond to request for comment. Its
CEO Bahram Pourmand previously pledged to push ahead despite the
controversy over China's involvement.
The satellite was intended to provide better web access to
Africa. A concern among officials was that China might repurpose
the commercial technology for military use.
Details of the satellite deal began to emerge after tensions
boiled over last year between founders of the startup and a
state-owned Chinese company that had already provided about $200
million in financing through an intermediary.
Global IP's founders, Emil Youssefzadeh and Umar Javed, allege
in a lawsuit in federal court in California that the Los Angeles
startup was secretly controlled by China after it accepted
financing from a unit of state-owned China Orient Asset Management
Co. in a complex deal that involved offshore firms in the British
Virgin Islands. Global IP has denied it was controlled by
China.
Lawyers for the China Orient subsidiary didn't immediately
comment. Previously, they said the founders' allegations were false
and "inflammatory."
The Global IP controversy came at a difficult juncture for
U.S.-China relations, with rising tensions in particular over
China's alleged theft of U.S. technology. The Canadian authorities'
arrest of a prominent Chinese telecommunications executive on
Saturday at the request of U.S. officials marked the start of an
even more aggressive phase in the technology battle between
Washington and Beijing.
Obtaining such satellite technology would help China as it seeks
to secure its status as a superpower alongside the U.S. It would
bolster China's burgeoning space program, as well as initiatives to
dominate cutting-edge industries and expand its influence in the
developing world.
Boeing had said in an earlier written statement that it
"undertakes rigorous measures to comply with U.S. export
regulations and protect national interests."
The company, the second-largest federal contractor after
Lockheed Martin Corp., said it had obtained an export license from
the Commerce Department for the Global IP satellite and that it
would "continue to work closely with Commerce officials to ensure
appropriate protection of satellite technology."
Boeing declined to say what it told Commerce officials about the
deal or its financing when seeking the license, or to answer most
other specific questions from the Journal. The Commerce Department
said it couldn't comment on an individual application and again
declined to comment Thursday.
Convinced there was no way forward, the two Global IP founders
resigned, as did the general counsel. When they left, they
expressed concern to Boeing that the company was controlled by
China. Boeing agreed to push ahead with the project after a
compliance review, a decision the founders criticized.
"When we resigned over a year ago, we informed Boeing of the
reasons for our decision and hoped that all the parties involved
would see the need to put the company on the right course towards
compliance," said Mr. Youssefzadeh on Thursday. "It's unfortunate
that this did not happen at the time."
Global IP and its backers should have flagged the satellite
transaction to the Committee on Foreign Investment in the U.S., or
CFIUS, a panel that can recommend the president block transactions
on national-security grounds, said legal experts and former and
current U.S. officials who reviewed allegations in the lawsuit
about the transaction at the Journal's request.
After the Journal began looking into the project this past
summer, U.S. officials referred the transaction to CFIUS, according
to people familiar with the matter. A spokesman for the Treasury
Department, which leads the interagency CFIUS panel, earlier
declined to comment. Treasury wouldn't immediately comment
Thursday.
After reviewing the transaction, Adm. Dennis Blair, a former
U.S. director of national intelligence, told the Journal that he
was baffled Boeing would proceed with the project. Adm. Blair
chairs an advisory committee for Lockheed Martin Space Systems, a
Boeing competitor.
Write to Brian Spegele at brian.spegele@wsj.com and Kate
O'Keeffe at kathryn.okeeffe@wsj.com
(END) Dow Jones Newswires
December 06, 2018 21:45 ET (02:45 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Boeing (NYSE:BA)
Historical Stock Chart
From Apr 2024 to May 2024
Boeing (NYSE:BA)
Historical Stock Chart
From May 2023 to May 2024