With tremendous advancements in low-power embedded computing devices and remote sensing instruments, the traditional satellite image processing pipeline which includes an expensive data transfer step prior to processing data on the ground is being replaced by on- board processing of captured data. This paradigm shift enables critical and time-sensitive intelligence to be acquired in a timely manner on- board the satellite itself. However, at present, the on- board processing of multispectral satellite images is limited to classification and segmentation tasks. Extending this processing to the next logical level, we take the first step toward on- board panoptic segmentation of multispectral satellite images and evaluate the applicability of state-of-the-art panoptic segmentation models to an on- board setting. Panoptic segmentation offers major economic and environmental insights, ranging from yield estimation from agricultural lands to intelligence for complex military applications. Nevertheless, the on- board intelligence extraction poses several challenges due to the loss of temporal observations and the need to generate predictions from a single sample. To address this challenge, we propose a multimodal teacher network with a cross modality attention-based fusion strategy to improve segmentation accuracy by exploiting data from multiple modes. We also propose an online knowledge distillation framework to transfer the knowledge learned by this multimodal teacher network to a unimodal student, which receives only a single frame input, and is more appropriate for an on- board environment. We benchmark our approach against existing state-of-the-art panoptic segmentation models using the PASTIS multispectral panoptic segmentation dataset considering an on- board processing setting. Our evaluations demonstrate a substantial 10.7%, 11.9%, and 10.6% increase in segmentation quality (SQ), recognition quality (RQ), and panoptic quality (PQ) metrics compared to the existing state-of-the-art model when it is evaluated in an on- board processing setting.