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Boeing Sues Space Partners for $355 Million

LOS ANGELES (CN) - Boeing sued two Russian and Ukrainian aerospace companies, claiming they owe it $355 million for backing out of a commercial satellite deal.

Boeing and Boeing Commercial Space Company (BCSC) sued Russia's Energia and Ukraine's KB Yuzhnoye, in Federal Court.

Boeing claims that Norwegian company (nonparty) Kvaerner, along with Energia and Yuzhnoye, promised to help it fund a commercial satellite company in Long Beach, to be called Sea Launch.

"The business of Sea Launch is to launch commercial satellites into space from a floating modified oil drilling platform anchored in the Pacific Ocean," according to the 27-page complaint, which contains 523 pages of attachments.

The complaint continues: "When Sea Launch was founded in 1995, the Sea Launch partners, including Yuzhnoye and Energia, chose to establish Sea Launch's home port in Long Beach, California ('the home port'). The Sea Launch partners, including Yuzhnoye and Energia, specifically chose Long Beach because of its port facilities, its proximity to the major commercial satellite manufacturers in California and to certain Boeing facilities located in California, and its proximity to the location in the Pacific Ocean from which Sea Launch completes its launch missions.

"Sea Launch's home port facilities are located on a 16-acre site in the Port of Long Beach previously used by the United States Navy. The Sea Launch partners decided to convert this site into a headquarters for Sea Launch, including a state-of-the-art payload processing facility and storage facilities for flight hardware (including for Yuzhnoye's Zenit-2S rockets and Energia's Block DM-SL rockets), among other structures.

"Sea Launch's Long Beach location also serves as home port for the two seagoing vessels that Sea Launch uses to carry out its marine-based launch operations, including the assembly and command ship named the 'Sea Launch Commander' (the 'ACS') and the self-propelled, semi-submersible launch platform named the 'Odyssey' (the 'launch platform').

"Sea Launch, with the active participation of each of the defendants, provides fully integrated launch services out of its home port in Long Beach. After a satellite is received at home port, it is fueled and encapsulated in the payload processing facility. The encapsulated satellite is then transferred to the ACS while docked at the home port, for integration with the rocket components that form the integrated launch vehicle ('ILV'). While still at the home port, the ILV is transferred to the launch platform, where it is stored in an environmentally controlled hanger during the transit to the launch site. Both the ACS and the launch platform then sail from the home port to the launch site at the Pacific Ocean equator.

"Sea Launch completed its first mission in 1999. Since then, Sea Launch has launched or attempted to launch more than 30 satellites; its last attempt to launch took place on January 31, 2013. Sea Launch's location in Long Beach, and the defendants' active participation in the litany of business activities taking place in Long Beach, are all crucial to providing this service." (Parentheses in complaint.)

Boeing claims that it took millions of dollars to "create, build, and operate" Sea Launch.

It claims that it loaned $180 million to Sea Launch, and guaranteed "almost $450 million in third-party loans" for the venture.

"Each of the partners agreed that if the venture failed, they would reimburse BCSC and Boeing for their fair share of the funding, in an amount reflecting their percentage ownership in the venture," the complaint states.


Boeing describes KB Yuzhnoye as an "Ukrainian aerospace design company" wholly owned by the Ukrainian government.

It describes Energia as "a Russian joint-stock company which manufactures spacecraft and space station components."

With 38 percent ownership, "the overwhelming majority of Energia is directly or indirectly owned by the Russian Federation," the complaint states.

Energia subsidiaries EOL and EL are Delaware corporations operating out of California. "EL currently holds the license to operate Sea Launch," the complaint states.

Boeing claims that as Sea Launch partners, Energia and Yuzhnoye "played a direct and substantial role in making the decisions that shaped nearly all aspects of Sea Launch's business, including its operations in Long Beach."

The complaint adds: "Since 1995, Yuzhnoye and Energia have each received over $300 million for supplying rocket components and PIMA services to Sea Launch at its home port in Long Beach. Yuzhnoye considers Sea Launch its most important customer, and Yuzhnoye provides all of its goods and services to Sea Launch in California. Energia ranks Sea Launch among its top two customers worldwide, and also provides all of its goods and services to Sea Launch in California."

But then the business crashed, hurt by many factors, including a failed launch that cost it $53 million in arbitration.

"Sea Launch was unable to attain profitability due to a variety of factors, including weakness in the demand for commercial satellite launches, unexpected cost increases, operational losses, mounting debt, increased competition among commercial satellite launch providers, and a launch failure which led to a $53.2 million arbitration award against Sea Launch," the complaint states.

Sea Launch filed for Chapter 11 bankruptcy on June 22, 2009, which was completed on Oct. 27, 2010, according to the complaint.

Boeing says it lost "hundreds of millions of dollars" on Sea Launch, and had to repay bank guarantees of $449,082,462.84.

Boeing claims it sent out an invoice asking its partners "to live up to their contractual promises by reimbursing Boeing and BCSC, as they were required to do by unambiguous written agreements, for their respective shares of the risk."

Boeing says Kvaerner and its successor Aker paid up, but that Yuzhnoye and Energia refused to pay even after Boeing sent them each another invoice.

Boeing claims it started arbitration proceedings in Sweden to force Yuzhnoye and Energia to pay the invoice, but the defendants claimed Sweden lacked jurisdiction.

The arbitration tribunal agreed and dismissed the case in October 2011, "without ruling on and expressly preserving plaintiffs' claims on the merits," the complaint states.

Boeing says it appealed the tribunal's decision, but claims Yuzhnoye and Energia "have gone to great lengths to prevent the Swedish appeal from going forward. For example, for over a year, Energia purposefully evaded service of the appeal documents necessary for the Swedish Court of Appeal to obtain jurisdiction over the appeal. The Swedish appeal has been pending for fifteen months and currently remains unresolved."

Boeing claims the two companies "are contractually and legally obligated" to cough up more than $350 million, plus interest.

"Instead of paying claims to which they have no defense on the merits, Yuzhnoye and Energia have decided to stall and evade, forcing plaintiffs to chase them around the world to secure payment of debts clearly owed. Worse still, Energia created EOL and EL (the 'Energia subsidiaries'), and other affiliates in Russia-all of which are alter egos of Energia-with the specific intent of continuing to run Sea Launch in Long Beach, California, while attempting to avoid paying the plaintiffs. This must end," the complaint states.

Boeing seeks $355 million in damages for breach of contract and breach of guarantee.

It is represented by Sasha K. Danna with Kirkland & Ellis.

Here are the defendants: KB Yuzhnoye, Po Yuzhnoye Mashinostroitelny Zavod, S.P. Korolev Rocket and Space Corp. Energia, dba Rocket and Space Corporation Energia After S.P. Korolev, Energia Overseas LLC, and Energia Logistics Ltd.

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