XM Satellite Radio announced Thursday that it plans to launch a third satellite into its fleet, in addition to a decision to order a fourth satellite to serve as a ground spare to be sent into orbit as needed.

XM initially launched two satellites in the spring of 2001, both using the Sea Launch consortium's Zenit 3SL rocket. Both craft were Boeing-built 702 models, the new-generation line of spacecraft models marketed by the company's satellite manufacturing division.

An artist's concept of XM spacecraft. Credit: Boeing

Sea Launch has once again been tapped to launch the third satellite for XM's fleet. The newest satellite was already contracted to be built by Boeing as a ground spare for launch as necessary. Launch of XM-3 is currently targeted for late 2004.

Boeing Satellite Systems also received a contract to begin work building an XM-4 satellite to replace XM-3 as the spare craft to remain on standby. Sea Launch -- fresh off its successful tenth launch Thursday night -- is also the launch provider for XM-4 should the need to launch arise.

XM reported that its current financial standing does have the funds to support the launch of XM-3, but that it will need to raise further funding to complete the construction of XM-4.

This additional funding could be in the form of an insurance reimbursement for a claim XM filed because of power degradation experienced by the two satellites currently on-orbit. Boeing 702 spacecraft have been afflicted by a problem on solar array concentrators that begin to lose their optical quality over time in space.

Boeing has since redesigned future 702-model spacecraft still on the ground, but for satellites like those in the XM fleet, there is a chance of reduced productivity and lifetime. XM filed an insurance claim, but a group of insurers denied it, saying the spacecraft are still performing above required levels and that the degradation rate is not definitive.

"The company will be responding to the insurers' position and will proceed to settlement discussions, arbitration or litigation (as needed) to recover the insured losses," XM said in a statement.

Four other spacecraft were also hit by the power degradation issue. Anik F1 for Telesat Canada will be replaced by a European-built satellite in 2005, while the Thuraya 1 broadcasting satellite was joined in space just two months ago by Thuraya 2 to serve as a backup. Two others also affected -- PanAmSat's Galaxy 11 and PAS-1R communications satellites -- have been the subject of insurance claims as well. Replacements for those are not expected to be ordered any time before the second half of 2004.

All of the craft with the design flaw on the solar arrays were launched between 1999 and 2001, before the discovery and announcement of the problem in September 2001.

The announcement of new satellite and launch orders came on the same day as the release of the company's second quarter earnings results, which reported a net loss of $164.3 million in the months of April, May, and June. This amounts to a loss of about $1.38 per share.

This year's second quarter loss has increased over that of last year's, which was tallied at $122.4 million. Revenue for the digital radio provider rose to $18.3 million, a $14.5 million increase over that a year ago.

XM continues to project it will surpass the sought-after one-million subscriber mark before the end of 2003. Currently, the company reports a total of 692,253 subscribers to XM radio programming -- a boost of 209,178 over the number in at the end of March.

That number represents a jump of 43 percent from the first quarter of 2003, and is five times the subscriber list that XM held on June 30 last year.

"XM continues to show significant progress in adding subscribers, controlling costs and achieving key operational milestones," XM President and CEO Hugh Panero said. "By the end of the third quarter, XM Radio will be rapidly approaching one million subscribers, a major milestone for satellite radio."

Meanwhile, the other digital radio provider in the market -- Sirius Satellite Radio -- reported a narrowing loss compared to that of last year's second quarter. This year's quarter posted a loss of $111.8 million, versus $124.6 million the same time in 2002.

Sirius reached a total subscriber number of 105,186 as of June 30, a rise of 55 percent during the three-month second quarter.

Both companies offer a wide selection of near commercial-free digital music, news, sports, and other entertainment channels without interruption across the United States.