Spacehab Inc. [SPAB] asked for a formal dismissal with prejudice of all litigation against NASA relating to losses incurred by the company as a result of the 2003 Space Shuttle Columbia accident.

Columbia was damaged after launch by a chunk of foam insulation tumbling free from the external fuel tank. That punched a hole in the leading edge of an orbiter wing, causing the orbiter to disintegrate during reentry. The ship and crew of seven were lost.

In January 2004 Spacehab sued NASA, seeking $87.7 million in damages for loss of its Research Double Module (RDM) as a result of the accident.

In October 2004, NASA responded that its liability was $8.2 million, including interest, and paid that to Spacehab.

Spacehab subsequently filed an appeal with the Armed Services Board of Contract Appeals and over the past two years, the two parties have proceeded with preparations for a court hearing planned for July 2008.

The company also filed a tort claim in November 2004, seeking damages of $79.7 million for the loss of the RDM, to which the court granted a motion in June 2006 to stay the case until resolution of the Spacehab contract claim appeal.

Based on information available to the company, Spacehab believes potential benefits that may be achieved by dismissing the claim against NASA, the largest Spacehab customer, outweigh any potential benefits that may be achieved by continuing litigation of claims against the agency.

The company intends to focus its limited resources on current market opportunities and new business initiatives.

As a result of the claim dismissal, Spacehab will pay Lloyd’s of London, insurer of the RDM, $500,000.