Gogo Pursues Sale of Commercial Aviation Business
Share
Reporting its quarterly results this morning, Gogo revealed losses of $86 million. The in-flight connectivity provider sees a recovery on the horizon, though the company expects to look very different by the time that arrives.
Gogo is aggressively pursuing options to sell its commercial aviation operations. During a conference call to report its second quarter earnings today, the company confirmed that it “launched a formal process this summer to evaluate the strategic options” for this division of its business. According to Oakleigh Thorne, Gogo’s president and CEO, the company received multiple inbound requests and talks are advancing.
“It was an extraordinary quarter for all the wrong reasons. If you sell internet on airplanes and no one’s on the plane it is tough to make a living,” Thorne said. He also pointed out that over the past two years, several internal structural changes were implemented to ease the split when the right deal is struck. There is no firm timeline for a deal and this is not the first time such conversations have progressed, but it looks far more likely to come to fruition this time around.
Revenue was down 55% overall at the company in the second quarter of this year, compared to Q2 2019. The split between the company’s commercial (~-70%) and business (~-20%) sectors shows just how different the recovery pace will be for each. Business aviation saw a 90% drop in connected flights by mid-April but recovered to down just 15% by the end of June. Thorne noted that roughly 40% of business aviation customers either suspended or reduced service levels earlier this year. Now 90% of those have returned, choosing either their original or a higher priced plan.
For commercial airlines, the recovery process is much slower and the return of revenues will match that pace. The bulk of Gogo’s revenue in the commercial aviation segment comes from in-air purchases but there aren’t enough people flying today to make the numbers work out in Gogo’s favor.
The company reported that the North American portion of its commercial aviation segment is producing roughly 30% of its historical daily revenue, similar to TSA’s passenger count numbers, which are tracking at around 25% of 2019 numbers. Internationally the focus is also on domestic markets, with Brazil (GOL Linhas Aéreas Inteligentes), Japan (Japan Airlines), and Australia (Virgin Australia) driving the recovery as long-haul operations remain largely absent.
Looking to the future, Gogo’s 5G network remains on track, even though the company is trimming some spending today. The bulk of the current investment is going toward the development of the technology and working with partners to test the necessary hardware. Those efforts are mostly continuing unabated. The major capital expense – roughly $50 million – will hit in 2021 as new hardware must be deployed to the towers. This expense can be further delayed if necessary, but Thorne expects that it will happen as expected, with the upgraded system online to support the business aviation segment as previously announced.