WASHINGTON — Commercial satellite operator Intelsat, still operating under Chapter 11 bankruptcy protection, is purchasing a large chunk of inflight connectivity provider Gogo’s business for $400 million.
The acquisition, expected to close by the end of March, will make Intelsat about 50% larger by headcount, with around 550 Gogo Commercial Aviation employees joining Intelsat’s current workforce of roughly 1,200, Samer Halawi, Intelsat’s chief commercial officer, told SpaceNews Sept. 1.
Intelsat received approval from the U.S. Bankruptcy Court for the Eastern District of Virginia on Aug. 31 to proceed with buying Gogo’s Commercial Aviation business, which will be funded from the company’s $1 billion of debtor-in-possession financing. The acquisition will make the Virginia and Luxembourg-based satellite operator the direct provider of Wi-Fi to more than 3,000 commercial aircraft.
Chicago-based Gogo had sought for more than two years to sell the business unit, which struggled to make money because of intractable satellite capacity costs and expensive antenna installation subsidies Gogo gave to airlines.
Intelsat was seen as the “natural candidate” to buy Gogo’s Commercial Aviation business because Intelsat and Gogo both use Ku-band satellite capacity to serve aviation customers, Raymond James analyst Ric Prentiss wrote in an Aug. 31 note. Staying with the same spectrum avoids a “long and costly terminal conversion process” that would be required if an operator whose network runs on a different spectrum bought the business, he said.
Inmarsat and Viasat provide inflight connectivity mainly through their own fleets of Ka-band satellites.
Gogo’s Commercial Aviation business was starting to improve financially before the coronavirus pandemic triggered widespread travel bans and reduced air travel. The business unit reported a $37.3 million loss ($26.7 million internationally and $10.6 million domestically) for the months of April, May and June.
Halawi said Intelsat studied other crises that led to drops in airline activity and concluded that commercial aviation consistently rebounded, justifying an acquisition.
“When we did our analysis of Gogo [Commercial Aviation] we forecasted that basically the company would return to 2019 levels at around the 2023 timeframe,” Halawi said.
Gogo reported $135.5 million in revenue from its Commercial Aviation business in 2019. Intelsat is more interested in a return to growth after returning to that benchmark, Halawi said.
“We see that this sector is going to grow at double digits, over 10%, year on year,” he said. “That’s the growth that we are looking forward to.”
Intelsat will also benefit from ownership economics, Halawi said, since Intelsat can provide capacity directly to aircraft instead of leasing large amounts of capacity from other operators.
“Their efficiency in utilizing satellite bandwidth is on the low side,” Halawi said of Gogo Commercial Aviation.
Halawi said Intelsat uses an open architecture that will allow airline customers to stay connected on other satellite networks where Intelsat lacks coverage or sufficient capacity. He declined to say how much non-Intelsat capacity Gogo Commercial Aviation will use after the acquisition.
Intelsat told its bankruptcy court Aug. 24 it was seeking to make an acquisition, now known to be Gogo Commercial Aviation, that it believed would help offset declining satellite broadcast revenues. Halawi said the acquisition doesn’t change Intelsat’s expected exit from bankruptcy protection between mid-November and mid-May 2021.
Once Intelsat completes its purchase, Gogo will be solely focused on business aviation customers, such as private jet operators.
“The [business aviation] market continues its sharp recovery and strong demand growth trajectory, and our [business aviation] segment is exceptionally well-positioned to drive long-term value creation in that industry,” Gogo CEO Oakleigh Thorne said in an Aug. 31 news release.
Gogo said it will use proceeds from the sale to pay down debt and invest in growth opportunities such as 5G for aircraft.
Gogo relies mainly on its network of air-to-ground cellular towers to link business aviation customers flying over the United States and parts of Canada. Intelsat, through the acquisition, will obtain 10 years of exclusive access to that network of roughly 260 towers for commercial aviation customers.