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This paper is concerned with the use of commercial security algorithms like the Advanced Encryption Standard (AES) in Earth observation small satellites. The demand to protect the sensitive and valuable data transmitted from satellites to ground has increased and hence the need to use encryption on board. AES, which is a very popular choice in terrestrial communications, is slowly emerging as the preferred option in the aerospace industry including satellites. This paper first addresses the encryption of satellite imaging data using five AES modes - ECB, CBC, CFB, OFB and CTR. A detailed analysis of the effect of single even upsets (SEUs) on imaging data during on-board encryption using different modes of AES is carried out. The impact of faults in the data occurring during transmission to ground due to noisy channels is also discussed and compared for all the five modes of AES. In order to avoid data corruption due to SEUs, a novel fault-tolerant model of AES is presented, which is based on the Hamming error correction code. A field programmable gate array (FPGA) implementation of the proposed model is carried out and measurements of the power and throughput overhead are presented.