Boeing's Risky Win

Aerospace titan Boeing (NYSE: BA  ) kicked off 2006 with a bang, but what about 2008?

On Wednesday, the company announced its largest satellite contract since winning a two-unit deal back in 1997. In a transaction valued in excess of $500 million, Boeing will manufacture and launch three communications satellites designed to support a system of satellite-based mobile phones. A company called Mobile Satellite Ventures (MSV), backed by Pink Sheet (but not penny-stock) companies Motient and SkyTerra, as well as TMI Communications, Columbia Capital, and Spectrum Equity Investors, is hiring Boeing to manufacture the satellites and their associated ground stations in a project slated for completion by 2010.

The project aims to place all three satellites in orbits from which they can provide "reliable, advanced and widespread voice and data coverage throughout North and South America." The press release describing Boeing's contract award took pains to assure investors that this will not be another Iridium project -- the satellite phone venture backed by Motorola (NYSE: MOT  ) that famously failed in 1999 after being unable to attract enough customers willing to pay large amounts of money to talk on brick-sized handsets. MSV states that its handsets will be "virtually identical to cell phone handsets in terms of aesthetics, cost, and functionality."

Sounds good so far, right? But consider two points that a Jefferies (NYSE: JEF  ) analyst raised while discussing the deal. First, one factor in Boeing's winning this contract was its willingness to extend easy (and as-yet-unpublished) credit terms to MSV. Second, MSV only has enough cash on hand to fund its operations through 2007.

The first satellite, however, isn't due to launch until 2009; its two twins are scheduled to follow in 2010. The timeline of this project therefore raises several questions:

1. Just how easy were the credit terms that Boeing extended in its bid to win this contract?
2. How successful will MSV be in raising the additional capital needed to fund the satellites' and ground stations' manufacture?
3. Can MSV attract the customer base necessary to make this a viable venture?

The answers to these questions may determine whether, come early 2008, Boeing is stuck holding three orphaned satellites destined for a buyer that went bankrupt two years before the first unit was ever even put in orbit.

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Fool contributor Rich Smith does not own any of the companies mentioned in this article.