• Inflight Wi-Fi provider decides to cancel junk bond offering
  • Company has been embroiled in public spat with American

Gogo Inc. received a proposal from a “major” airline customer to provide much of that carrier’s domestic in-flight Wi-Fi service, and is canceling a $525 million junk bond offering.

Gogo would offer Wi-Fi to a “meaningful” portion of the unnamed airline’s domestic fleet “that it currently serves,” according to a regulatory filing Thursday. The Chicago-based company is still negotiating with the airline, and there’s no guarantee a deal will get done, it said. 

Shares of Gogo rose as much as 16 percent to $11.21 in New York, the most intraday since Feb. 22.

An order from a major airliner would give Gogo some financial breathing room and an opportunity to fine-tune its Wi-Fi technology. As more passengers demand an Internet experience aloft akin to those on the ground, Gogo finds itself trying to catch up rapidly. Its ground-based network doesn’t have the capacity to allow everyone on an average flight to connect, so it has to offer surge pricing when demand is high. It also has been hurt by the slow pace of federal auctions for new wireless spectrum, which could help reduce capacity bottlenecks for Gogo’s ground-based services.

The company planned to use proceeds from the bond sale to refinance debt and for general corporate purposes, including funding “the launch and commercial rollout of Gogo’s next-generation technology,” according to a May 18 statement. Gogo offered the bonds earlier this week at a 12 percent coupon. That’s as much as a 4.2 percentage-point premium to the average yield of similarly-rated debt, according to Bank of America Merrill Lynch Index data. The deal was scheduled to close Thursday.

Gogo has been embroiled in a public spat with American Airlines Group Inc., which wanted to exit its contract with the in-flight Internet company in favor of a rival that offered faster service. Gogo has touted its new satellite-based broadband service, called 2Ku, as the next-generation platform to compete against a slew of aggressive rivals, including ViaSat, Panasonic, and Global Eagle Entertainment, and has won more than 800 orders. The 2Ku service is what Gogo will offer American in its proposal to upgrade the jets, mostly older Boeing 737s that fly across the U.S.

Gogo says the dual-band Ku service is capable of delivering top speeds of 70 megabits per second, compared with the 9.8 megabits of its former speed leader, a ground-based technology called ATG4. Over time, as satellite-beaming techniques are perfected, Gogo believes speeds of 100 megabits a second will be possible.

Steve Nolan, a Gogo spokesman, declined to comment.

American “is still evaluating all of our options” for in-flight connectivity, said Casey Norton, a spokesman for the airline.

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