As rumoured, Intelsat is to buy the Commercial Aviation division of In-Flight broadband business Gogo.
Intelsat will pay $400 million in cash for the asset. Gogo’s installed base has more than 3,000 commercial aircraft in use to redefine the connectivity experience. Gogo claims the world’s top spot in terms of in-flight connectivity. Major clients include Delta Airlines, United Airlines and Alaska Air.
Intelsat, currently in Chapter 11 bankruptcy, says it intends to fund the transaction using its existing debtor-in-possession (DIP) financing facility and cash on hand. Intelsat’s DIP lenders have agreed to amend the DIP credit agreement to facilitate the transaction, and Intelsat’s key economic stakeholders support the transaction. On August 31st, 2020, the US Bankruptcy Court for the Eastern District of Virginia, Richmond Division, approved Intelsat’s consummation of the transaction.
The transaction is expected to close before the end of the first quarter of 2021, subject to regulatory approvals and other customary closing conditions.
Gogo will hold on to its lucrative Business Aviation division which Gogo says has bounced back more speedily than Commercial Aviation. Gogo had announced it wanted to divest itself of the Commercial Aviation division on August 10th. At the time, Gogo’s CEO Oakleigh Thorne said on a conference call that the company has had “extensive discussions with multiple parties” and that he “feel[s] optimistic that a deal may happen.”
The Covid-19 problems have hurt Gogo badly. Its sessions per day in the North American market dropped 91 per cent, from 125,000 before the pandemic to just 11,000 in April, though the company says those crept back up to about 40,000 by mid-August. Intelsat is assuming that over time, those usage numbers will creep back up.
Gogo’s leading commercial aviation business provides Intelsat with key airline relationships and customer-facing capabilities, including a leading software platform, ISP and network management infrastructure. It currently serves 21 commercial airlines, including nine of the top 20 global carriers. It has also been hurt by airlines withdrawing IFE-equipped aircraft from service because of the pandemic.
The pair say that this transaction will combine Intelsat’s next-generation high throughput space assets with Gogo’s best-in-class 2Ku antenna to position Intelsat uniquely to deliver more cost-effective and advanced commercial aviation broadband connectivity services. Passengers will benefit from an enhanced in-flight connectivity experience that delivers fast and reliable video streaming, browsing and cloud-based applications from gate to gate. Airlines can expect a fully integrated platform offering high reliability, flexibility and passenger satisfaction.
“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. “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.”
Spengler continued: “A priority growth objective for Intelsat is to extend our reach closer to the millions of customers who use our satellite capabilities to stay connected around the world. The addition of Gogo’s commercial aviation business is a significant step toward this goal. We are growing beyond satellite connectivity to expand into consumer-optimized managed services.”
“Following a competitive strategic review process, we’re confident this transaction unlocks the full value of the CA business for shareholders,” said Oakleigh Thorne, Gogo’s President/CEO. “Combining CA, the leading inflight connectivity provider, with Intelsat, the world’s largest global satellite operator, will create the leading vertically-integrated IFC business in the world, with the additional resources and scale to support continued growth and innovation as demand for commercial air travel recovers.”
“With shared values and a clear commitment to working with the CA team to grow the business, we are confident Intelsat is the right partner. I am extremely grateful for the CA team’s efforts – particularly over the past few months. Today’s announcement is a testament to the strength of the business they have built,” Thorne added.