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Inmarsat ‘rescued’ by Emirates order

November 20, 2017

November is proving to be a challenging month for London-based satellite giant Inmarsat. On October 20th its share price stood at £6.23.  Go back a little to August 21st and a share was worth £7.31. By November 17th that value had plummeted to £4.94 – a 5-year “low”. The collapse was down to a general malaise across the whole satellite industry, and in Inmarsat’s case concerns over Inmarsat’s core maritime connectivity division.

But a rescue could be in sight, in the shape of some of the world’s airline operators which are increasingly converting their aircraft for In Flight Entertainment and broadband connectivity (IFEC)

Of course, today’s airline business is modest and previous guidance that aircraft deals from the likes of Lufthansa would be generating profit margins of around 48 per cent were cut by Rupert Pearce, Inmarsat’s CEO, with him telling analysts that actual margins would be nearer 40 per cent, and thus trimming 3 per cent from its 2018 profit forecasts.

However, a note to clients on November 17th from market analysts at investment bank Jefferies put a more upbeat overview on Inmarsat’s prospects. Giles Thorne from the bank said: “Massive Aviation margin compression is quietly yielding commercial results in the meantime.”

Thorne added: “It was on October 25th last year that Emirates made its first announcement around the in-flight entertainment and connectivity (IFEC) line-fit suppliers for its fleet of 150 brand new Boeing 777Xs, announcing that Thales would be installing its AVANT system for IFE. At the time, a decision around IFEC was left hanging, with only the tease that ‘We will be looking for the gold standard in connectivity’ (source: Patrick Brannelly, Emirates’ VP of Customer Experience, during a press event to announce the Thales deal). At the time, we’d suggested that Inmarsat’s coverage, focus on reliability, incumbency (SwiftBroadband is installed on 80 Emirates A380s) and long-standing relationship with Thales positioned it well for the IFEC contract.”

That news emerged last week. “On Wednesday, Thales announced that it had contracted with Inmarsat to install GX Aviation on the B777X fleet. The release stated that this is ‘part of Emirates and Thales’ plans to develop state-of-the-art IFEC’,” said Jefferies.  “We understand this is a wholesale deal for Inmarsat with zero success-based capex. This was the second IFC contract announcement in the past two weeks (in addition to 10 Air Azerbaijan 737 MAXs on November 13th) and takes Inmarsat’s contracted backlog up to 1,607 aircraft. Its ex-US share of all IFC announcements since the beginning of 2013 is over 40 per cent. On an Average Revenue Per Aircraft (ARPA) of $200k, this is now a $320 million book of business.”

Jefferies’ bottom line statement was that this was a “material win” for Inmarsat.  “Indeed, such is the quality of the contract, we’d expect everyone to have been bidding (Inmarsat, ViaSat / Eutelsat, Global Eagle, Gogo and Panasonic); in our view take-up rates for in-flight WiFi are higher on long-haul aircraft (like B777s), translating to higher ARPA’s.”

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