Gogo Falls as American Holds Right to Pull Service on Jets

Updated on
  • Airline splits order with ViaSat for satellite-based Wi-Fi
  • Gogo sinks as much as 15%, biggest intraday drop since Feb. 16

Gogo Inc. tumbled the most in more than three months after American Airlines split an order between the company and ViaSat Inc. for in-flight internet service -- and left unsettled the question of who will provide upgrades for 400 aircraft.

The carrier selected ViaSat for satellite-based connections on its future Boeing Co. 737 Max fleet of about 100 jets, while choosing Gogo’s new 2Ku service for 134 Airbus Group SE A319s and A320s, said Casey Norton, a spokesman for American Airlines Group Inc.

The airline also has the right to drop Gogo from 550 planes, including 150 that are nearing retirement and won’t be upgraded. American hasn’t decided which provider it will choose when it switches the remaining 400 planes to faster satellite systems from the current ground-based offerings.

Speedy internet in the air is quickly becoming a standard amenity for airlines. Passengers want to stream video and music, and chat through social media, without the frustrating malfunctions common to constrained, ground-based systems. The race by carriers has sharpened the rivalry among in-flight Wi-Fi providers.

“Basically American is telling Gogo, ‘You are going to have to compete with ViaSat,”’ said Tim Farrar, founder of Telecom Media Finance Association in Menlo Park, California.

Gogo fell 15 percent to $9.38 at 3:00 p.m. in New York, after earlier dropping 16 percent for the biggest intraday decline since Feb. 16. ViaSat climbed 4.3 percent to $72.90.

‘Fighting Chance’

Friday’s announcement was less negative for Gogo than the decline in its shares would suggest, said Jonathan Schildkraut, an analyst at Evercore ISI. The Chicago-based internet provider still has an opportunity to compete for additional business with American, he said.

While the airline can terminate Gogo service on the 550 planes at any time, “with American agreeing to install 2Ku on at least some of its planes, we believe the company has a fighting chance to maintain those aircraft,” Schildkraut said.

“At the end of the day, worst-case scenarios are off the table, the downside is bracketed” to 550 planes at most and putting Gogo’s 2Ku on 140 planes will allow it to compete head-to-head with ViaSat, he said.

‘Multiple Suppliers’

American, the world’s largest airline, is keen to have “multiple suppliers” for broadband Wi-Fi as a way to equip planes as quickly as possible, Norton said. The airline’s two-class regional jets now using Gogo service will remain with that provider and not be upgraded to satellite-based systems for now, he said.

“American really made a statement that they want to improve, they want to have the best Wi-Fi in the sky, and we think this is a really good start toward that,” ViaSat Chief Executive Officer Mark Dankberg said in an interview with Bloomberg Radio.

American’s selection of the 2Ku technology for some planes is important for Gogo, which was at risk of losing the airline as a customer. Gogo has been slow to roll out the new platform as it awaits regulatory certification for the systems on various aircraft.

The agreement announced Friday between the companies contains the provision allowing American to pull Gogo’s ground-based system from the group of 550 planes, including the 400 that aren’t nearing retirement. Gogo said American is likely to remove the service from “a significant portion, or potentially all” of those aircraft over the next several years.

Satellite Expansion

ViaSat has installed its system on about 500 commercial airplanes, including most of United Continental Holdings Inc.’s Boeing 737 fleet and all of JetBlue Airways Corp.’s planes. ViaSat announced a deal in February to provide Wi-Fi service aboard the domestic fleet of Qantas Airways.

The communications company is preparing to launch two new satellites to increase its coverage areas, including one later this year. ViaSat’s fifth satellite is scheduled to launch in 2019.

Separately, Delta Air Lines Inc. said Friday it would provide in-flight entertainment programming free on its two-class aircraft by July 1. That covers about 90 percent of the fleet, Delta said in a release. Passengers will have access through seat-back screens and personal electronic devices to premium channels, including HBO and Showtime, and newly released TV shows and movies, a company spokeswoman said.