Boeing Was Going to Build Satellites for a China-Funded Firm. Why It Just Backed Out of the Deal

December 7, 2018, 12:03 PM UTC

Boeing has canceled a deal to build a communications satellite — which it has almost completed — on the basis that the startup that ordered it has defaulted on payments.

The sudden cancellation, however, comes on the heels of a report that detailed how the project was actually financed by a firm owned by the Chinese government.

The Wall Street Journal exposed the situation earlier this week. The startup that ordered the satellite is called Global IP, and it wanted to use it for African Internet access. However, the deal was financed by an outfit called China Orient Asset Management, which is owned by the Chinese finance ministry and bankrolls military technology suppliers in the country.

According to that report, some national security officials suspected Boeing was trying to bypass a ban on selling satellites directly to China. The ban is in place because of fears over the Chinese military gaining access to sensitive technology.

The Global IP founders clashed with their funders and ended up suing a China Orient subsidiary with a claim that it had violated U.S. law by taking control of the project.

On Thursday, the Journal reported that Boeing had scrapped the deal, as Global IP was behind on its payments and didn’t have enough cash to settle the bill. A “person familiar with Boeing’s thinking” told the publication that the aerospace giant would probably now try to sell the satellite to someone else.

Boeing claimed it had an export license for the satellite, but the Journal noted that it did not say whether it had told the Commerce Department about the satellite’s Chinese funding when applying for the license.

Fortune has repeated this question to Boeing, while also asking when it became aware that Global IP would not be able to complete its payments for the satellite, and will update this story as and when a reply comes through.