Q&A: Dave Davis, former Global Eagle CEO, on why he left and the future of in-flight connectivity
WASHINGTON — Dave Davis, Global Eagle Entertainment’s chief executive from July 2014 until February this year, left the company at the same time as Chief Financial Officer Tom Severson. Their departure also coincided with the company’s announcement that it would be late filing its annual financial report.
Davis, who has a three-month consulting agreement with Global Eagle for $50,000 a month, left the company with a $1.1 million golden parachute.
His departure left an air of mystery, which he declined to address. Global Eagle has yet to file its financial report, and received a warning from the Nasdaq stock exchange three weeks ago that it must submit it soon, provide a compliance plan, or otherwise risk being delisted.
Since February, Global Eagle promoted board member Jeff Leddy as CEO, and hired Paul Rainey, formerly of Harris CapRock, as its CFO, filling the gaps on its executive team.
Davis foresees continuing executive work in his future beyond Global Eagle, where he rose through the ranks after joining through the company’s acquisition of satellite in-flight connectivity provider Row 44 in 2012. While at Global Eagle, Davis facilitated the $550 million acquisition of EMC, a connectivity provider to maritime and remote locations, transforming Global Eagle from an in-flight entertainment and connectivity company to an all-around connectivity service provider for mobility markets.
Davis spoke to SpaceNews about his departure and industry trends.
Why did you leave Global Eagle?
What transpired was the board and I decided it was time to focus more on the integration and the build out of some of the back office functions at this stage in the company’s development. Those are the skills that Jeff Leddy is better suited for from an interest level and from a background level than I was, so we decided to make the change. Another factor that played into me stepping down was the fact that by the end of 2016, I had wrapped up several key initiatives including completion of the Southwest contract extension, signing of the HNA Group deal in China, refinancing of the company’s bank agreement and settling outstanding music litigation. Completion of these key milestones made it an easier time for me to transition out.
Global Eagle’s CFO left at the same time, and Global Eagle’s 10-K is overdue. Why did all those things coincide?
You have a contract to work with Global Eagle for three months past your departure date. What is your role now?
I’m not focused on anything to do with investors or anything external-facing. I’m working on a number of different discrete projects that I had been working on before, and then really trying to drive to completion for the company.
After that’s done is consulting what you plan on doing?
After that is done I don’t really see myself as a full-time advisor, so I’ll probably get back into executive management or board work in someway.
Before you left, Global Eagle purchased the remaining lifetime of an SES inclined-orbit satellite. You hinted it wouldn’t be far-fetched for similar deals to happen in the future. Newer satellites are also being designed specifically for in-flight connectivity. Which type do you see as more important?
I think there are applications for both. It really comes down to throughput and cost. For a company like Global Eagle, or anybody in the mobile connectivity space today, there are a few factors. One is density of traffic. In certain areas of the world, like North America for Global Eagle, where there is a lot of traffic, the economics make the most sense to own an asset, particularly if you can get something along the lines of the cost of an inclined satellite.
In other cases it makes more sense to lease capacity given that there is not sufficient density to justify an entire satellite.
I think some of the satellites being designed now with mobility in mind, where you can dynamically steer throughput from one beam to another to follow traffic flows, or concentrate capacity around big hub airports, or the Caribbean for the cruise market, I think that represents a very interesting option for companies once those get launched. But right now the economics of these inclined satellites are really compelling. You’ve got an asset of less and less value to the big satellite operators because all of their fixed ground-based customers can’t really use them, but for a mobility company it doesn’t matter. You have an antenna on an aircraft that’s moving, so if the satellite moves a little bit that’s not much of an additional challenge.
SmartSky recently closed a $170 million Series B financing round for an air-to-ground (ATG) network. Is that an asset everyone will have to have too?
I think the applications for these air-to-ground networks are relatively limited geographically. You need to be flying over contiguous areas with enough landmass and enough density to justify the capital build out. North America is an obvious location.
It comes down to economics. You look at the capital costs of an ATG network, and compare it to the ever dropping costs of satellite bandwidth services, and some of the advantages — like coverage over water and that you can use it gate to gate — those still lobby for continued use of satellite and for that to be the dominant method of mobile communications going forward.
I don’t think this is something where everyone needs to adopt an ATG network.
Inmarsat chose ATG and they are a satellite operator. Gogo is also reinvesting in ATG after previously talking up satellite.
I think part of the calculus here is that there is an ever-increasing appetite for bandwidth. People on airplanes wanted to open their email, now they want to watch Netflix. The bandwidth demand continues to grow massively, so how do you quickly get capacity to an aircraft?
I think there is a hybrid ATG-satellite approach here around the world, with satellite dominating over time.
How important are flat panel antennas for in-flight connectivity?
I would say it’s exceedingly important. One of the biggest barriers, let’s say the biggest barrier to adoption of in-flight connectivity, is cost, and a big chunk of that is capital costs. Antennas today are very expensive — you’ve got radomes that add weight and drag. I was in commercial aviation for most of my carrier. Fuel is the biggest cost component for an airline, so when you are adding hundreds of pounds of weight and then significant drag, it’s a real number when you are looking at the profit and loss statement of a flight. If you can put an antenna system onboard an aircraft that’s much lower weight and much lower profile, and then add a lower cost dimension to that, that’s a huge home run.
Pretty much all LEO systems are talking mobility. Do you think they will have a role in in-flight connectivity?
I think they could, but how long it’s going to take to build out those constellations is a real question. Airlines are adopting inflight connectivity at a relatively rapid rate around the world, and it’s GEO focused. Once that equipment is onboard, the cost to switch is relatively high. There may be a significant portion of the worldwide aircraft fleet already equipped with antenna systems that are predominantly designed for GEO satellites by the time these LEO networks get built.
Looking past that at new-build aircraft or when there are retrofits to new systems, the LEO systems from the numbers I’ve seen could offer such dramatically lower costs and dramatically improved throughput that it could be a game-changer for mobile communications. We need new antenna systems, flat panel systems that can track satellites that are moving very rapidly in orbit, but anything that brings down costs and improves throughput is a big deal for mobile communications.
EMC was Global Eagle’s biggest acquisition. What was the thought process behind that?
The biggest reason was the tremendous benefits associated with having one satellite network operating across all mobility sectors, be they in maritime or aviation. We looked at the networks of the two companies, and there was a lot of overlap.
If you look across the industry, more and more consolidation like that is going to take place, which I think is going to be a big theme among service providers.
The other rationale was the significant content business at Global Eagle. The company was already the dominant player in providing media content to the aero market. The company also has a business selling content to cruise lines. The idea was we could cross sell a lot more content into the maritime space and really grow that market as well.
You don’t see connectivity cannibalizing content?
I really don’t. These are going to be complementary products for a long time to come, and there are several reasons for that. A significant reason is that the availability of bandwidth to stream media content like movies to a 777 worth of passengers flying over the Pacific is many years down the road, and the economics of that are very unclear. Why have dozens of passengers streaming movies that you can store onboard much more cheaply?
Another thing to keep in mind is a lot of the content Global Eagle sells and that is viewable on seatback screens is new movies, things that you can’t get through streaming services. Studios are very reluctant to allow brand-new content to be displayed on a handheld device where it could potentially be copied.
And if you look at Boeing or Airbus, the order book for the next five years, 90+ percent of those aircraft have seat-back screens in them. Those things deliver over the next five to seven years and fly for the next 15 to 20 years. I think the future of seatback screens and entertainment have a very long tail.