PARIS – In-flight broadband provider Gogo Inc. on Aug. 4 said early results from its 2Ku satellite broadband service suggest it is outperforming expectations and will pay for itself within two or three years of installation on a commercial jet.
Gogo Chief Executive Michael J. Small said 2Ku’s ability to provide more than 100 megabits per second to a commercial aircraft by 2017 “has taken the [bandwidth] issue off the table,” and that higher throughput will not be a key driver of airline connectivity decisions.
In a conference call with investors and a filing with the U.S. Securities and Exchange Commission (SEC), Gogo did not address whether it could extrapolate future 2Ku performance, with hundreds of planes drawing on limited satellite bandwidth around airports, from the early service reports coming in now.
As of June 30, 10 commercial jets had been fitted with 2Ku systems, on planes operated by Aeromexico, Delta and Virgin Atlantic. Chicago-based Gogo said that figure should rise to 75-100 planes by the end of 2016, and to 350-450 aircraft by the end of 2017.
The company’s backlog of commercial jets awaiting 2Ku installations stood at more than 1,200 from IAG, Delta and American Airlines, as of June 30.
Bond issue adds $200 million for 2Ku installations
Gogo in June completed a $525 million bond issue that will provide more than $200 million in cash to be invested in 2Ku installations. Purchasing 2Ku hardware from Gogo’s suppliers and installing the hardware on planes is consuming an increasing percentage of Gogo’s cash — $47.6 million in capital spending in the three months ending June 30, up 27 percent from the same period a year ago.
“We see a revenue lift every time we bring more bandwidth to the plane,” Small said in an conference call with investors. Reviewing the limited data on per-plane 2Ku revenue for the three months ending June 30, he said “we achieved a two- to three-year gross-margin payback on our 2Ku installs.”
Some airlines purchase Gogo hardware, others lease it.
It is devoting substantial cash resources to the effort and rushing to put large-fleet airlines under contract and install 2Ku on planes — not only to begin generating revenue, but also to cut off growth avenues to competitors Inmarsat, Panasonic Avionics, Global Eagle Entertainment and ViaSat.
The company in June closed a $525 million bond issue that will provide it with more than $200 million in cash to invest in the 2Ku installation program, which Gogo said should allow Gogo to complete 750 2Ku installations per year.
Small said Gogo secured 2Ku supplemental type certificates (STCs) from regulators for six additional commercial aircraft frames in the three months ending June 30, with 15 more expected by the end of the year and 15 more in 2017. That will mean 2Ku will have been approved for installation on virtually all the commercial narrow- and wide-body commercial aircraft.
Chicago-based Gogo, whose air-to-ground airline connectivity service is reaching saturation and is limited to the North American landmass, is using 2Ku to provide more bandwidth to its continental North American customers and as its ticket to the trans-oceanic and global market.
It will take at least several months of in-flight service to assess 2Ku’s success in attracting more in-cabin users and keeping users on-line longer. But Gogo Chief Executive Michael J. Small said 2Ku is already surpassing expectations of performance, with more to come.
In a conference call with investors, Small said a software upgrade to 2Ku recently “more than doubled throughput to the seats, without touching the plane.” By late 2017, he said, 2Ku will provide more than 100 megabits per second to an aircraft.
Is 100 Mbps per plane sufficient?
Satellite fleet operator SES of Luxembourg, one of Gogo’s principal satellite-bandwidth providers, has indications are that some airlines already want delivery rates of more than 200 megabits per second.
Gogo customer American Airlines is weighing whether to select ViaSat’s promised higher-throughput service for 400 aircraft. That contract has not been decided. Gogo has said it is confident of its chances with American Airlines based on 2Ku performance.
Small said 100 megabits per plane is the key performance indicator of importance for airlines.
“I don’t think we’re seeing that a lot,” Small of bid requests stipulating at least 200 megabits per second. “I can’t say it hasn’t shown up somewhere. But with our clear visibility to go north of 100 megabits per second per plane, we’ve taken the issue off the table. You can talk about higher numbers. I don’t think it’s going to matter to anybody for any practical purpose. We’ve hit the bogey that is going to matter.”
As of June 30, Gogo had made satellite bandwidth and teleport commitments totaling $214.2 million between July 2016 and the end of 2020: $21.7 million for the last six months of 2016, $44.7 million in 2017, $41.2 million in 2018, $46.6 million in 2019 and $60.1 million in 2020.
It has $341.4 million in satellite and teleport contract obligations after 2020, the company said an SEC filing.