In-flight connectivity pioneer Gogo is selling its Commercial Aviation (CA) business to Intelsat for $400 million in cash.
Intelsat, which filed for Chapter 11 restructuring in May, plans to fund the transaction using cash on hand and borrowings under its $1 billion debtor-in-possession credit facility. The U.S. Bankruptcy Court for the Eastern District of Virginia approved the transaction on August 31.
Gogo is still going to remain a public company and focus on growth in areas that include Gogo 5G. The company said the new Gogo will be better positioned to enhance the scale and profitability of its Business Aviation (BA) segment.
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The sale isn’t completely out of the blue. Reports surfaced last week that Intelsat was in talks with Gogo.
During last month’s second-quarter earnings conference call, Gogo President and CEO Oakleigh Thorne said that Covid had accelerated consolidation discussions in the industry and that the company had launched a formal process over the summer to evaluate its strategic options for the Commercial Aviation business.
At the time, he acknowledged “extensive discussions” with multiple parties and was optimistic that a deal would happen, according to a Seeking Alpha transcript.
Tough times
He also summed up the quarter by saying if you sell internet on airplanes and no one’s on the plane, it’s tough to make a living. In pre-Covid times, the company was averaging 37 million passengers a month on Gogo equipped aircraft. In April, that plummeted to 1.9 million passengers, down 95%.
On the upside, the Commercial Aviation North American segment saw steady growth in passenger traffic since April. Before Covid, it was averaging a little more than 10,000 flights a day. When it hit bottom in April, it saw days with just 2,300 flights per day. In August, that number had risen to an average of a little more than 6,000 flights a day.
Transaction details
As part of the transaction with Intelsat, Gogo will enter into a 10-year network services agreement under which Intelsat will have exclusive access to Gogo ATG services for the CA market in North America, subject to minimum revenue guarantees of $177.5 million.
Intelsat plans to operate the Commercial Aviation business as an independent business unit, led by current CA President John Wade. The CA business will remain based in Chicago.
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According to Intelsat, the transaction will combine Intelsat’s next-generation high throughput space assets with Gogo’s best-in-class 2Ku antenna to “uniquely position Intelsat to deliver more cost-effective and advanced commercial aviation broadband connectivity services.”
“Consumer demand for in-flight connectivity is expected to grow at a double-digit rate over the next decade, notwithstanding the impact of COVID-19. The addition of Gogo’s commercial aviation business provides compelling strategic value for our stakeholders and makes strong commercial sense,” said Intelsat’s CEO Stephen Spengler in a statement. “Gogo’s business is a perfect fit with Intelsat’s expansive satellite network and infrastructure due to the breadth of Gogo’s technological solutions, global reach and operational excellence.”