Printed headline: Fading Signals
Although inflight connectivity is highly sought by airlines and their passengers, at least one of its biggest providers is struggling to turn demand into dollars.
Gogo Inc. recently admitted it is facing “major challenges” in its commercial aviation business and is considering investment opportunities that could involve splitting up and selling off its business and commercial aviation divisions.
“Gogo has received a number of strategic inquiries from financial and strategic acquirers in the last few weeks, and our board has considered those inquiries and asked management to assess them,” Gogo Chief Executive Oakleigh Thorne told analysts in mid-July.
The company says “a number of parties” have contacted it to suggest various relationships and transactions, “some of which would involve splitting the company into BA and CA [business aviation and commercial aviation].”
Gogo’s commercial aviation unit has taken a battering with American Airlines’ decision to remove the provider’s air-to-ground inflight connectivity system from hundreds of single-aisle aircraft, replacing it with competitor Via-Sat’s Ka-band satellite-based product.
This is one of a series of headaches that prompted the company to draw up a new business model, Gogo 2020, to address the challenges it faces.
In addition to considering consolidation opportunities, Gogo has reduced the headcount in its commercial aviation division by 5%, or 55 employees. It will also stop offering subsidies to future airline customers, and it will start charging airlines for engineering services that up until now had been free.
For airlines, Gogo’s decision to eliminate subsidies and charge for maintenance will make inflight connectivity a more expensive investment. But Gogo is betting it is a price carriers will be willing to pay to satisfy strong passenger demand for internet access.
Gogo is not the only IFC provider dealing with financial problems. Global Eagle Entertainment installed a new management team after a delayed filing of its 2016 annual earnings report and embarked on a revamp of its own.
Thorne describes the challenges Gogo faces as “manageable,” noting: “We believe that this significant pivot in our model, the increased focus on quality and the substantial reduction of both [operational and capital expenditures], which have the tacit endorsement of several of our key airline customers, will allow us to achieve our goals.”