Gogo’s proposed revamp isn’t selling too well on Wall Street

Bloomberg

It took a mere decade for airborne web surfing to shift from novelty offering to essential airline service. Yet for Gogo Inc., the largest provider in the field, selling an amenity that almost everyone wants has oddly become a business that stinks.
The company operates two units, one focussed on business aviation and the other on commercial airlines. The latter has brought Gogo a slew of fiscal and operational headaches. Its stock has plunged more than 50 percent this year, hitting a then-record low July 9 after Guggenheim Partners cut its estimates for the company—which in May tossed out earlier assessments pending a comprehensive review of its business strategy.
Even worse, Gogo is shadowed by about $1 billion in debt and has become a favourite of short sellers, who hold 60 percent of its share float, according to financial analytics firm S3 Partners.
A much anticipated announcement of a planned company revamp failed to sway markets as Gogo plummeted 16 percent to $4.04—a new all-time low.
In many respects, the product that airlines and millions of their customers want—web access that’s as fast and simple as a desktop at home—was built on a business model that no longer works. For years, carriers managed to pay almost nothing when they agreed to equip aircraft with Wi-Fi, as Gogo and others raced to sign up as many customers as possible. It was the classic “spend-money-to-make-money” proposition, but the money-making has typically fallen short, especially for Gogo.
“Most of the competition has the same problems we do in that they’re running losses on this business,” CEO Oakleigh “Oak” Thorne said.
“And in our conversations with airlines, they are very focused now on their inflight connectivity and they realise that that business model is not sustainable. And if they want to still have quality inflight connectivity providers, then the business model has to change.”
Thorne, a private equity investor, is Gogo’s largest shareholder, with an almost 30 percent stake now worth $104.7 million.
He took over in March when Gogo’s board jettisoned former CEO Michael Small.
Gogo’s future hangs very much on the success of its 2Ku satellite broadband service, an upgrade from the far slower ground-based system that has bedeviled millions of air travelers. But the initial installations at Delta Air Lines Inc., the largest customer to date, and other carriers came with glitches when de-icing fluid sprayed onto aircraft in the winter seeped into the Gogo domes, marring its service.
Gogo announced it’s considering splitting into two companies, although Thorne said
he views the airline and business aviation units as highly
complementary. The company wants to explore whether shareholders might benefit if it pursued “any of the suggested relationships or transactions or others suggested by third parties or conceived by management and its advisers.”