In-flight Internet services provider Gogo said it plans to sell the commercial half of its business. The company said it would retain its "Business Aviation" (BA) division, which sells Internet services to private aircraft operators.
The company also said that its previously announced plan to upgrade its network to 5G technology remains on track, and that it spent roughly $5 million on the effort during the second quarter. The company said it ultimately expects to spend around $100 million – with two thirds in capital expenditures and the remaining third in operating expenditures – on a 5G upgrade with vendors Cisco, Airspan and First RF to launch the service next year.
The company – an early player in the business of providing Internet connections on airplanes – said it has already held discussions with "several parties" on the sale of its commercial business.
Gogo CEO Oakleigh Thorne said he feels "optimistic that a deal may happen. However, we cannot be sure that we will be able to consummate a transaction. We do not want to impact our negotiations by saying too much publicly. So, we will not answer questions or comment further at this time."
"Gogo commercial aviation brings an attractive and unique set of assets" to potential buyers, he continued, according to a Seeking Alpha transcript. "We are really proud of the commercial aviation team and the tremendous capabilities they've built, and think it will have a bright future as part of a larger, more fully integrated entity."
Thorne said he believes that Gogo's BA division would be sufficient to support the company's continued investment in a 5G upgrade.
"People's expectations for the performance of implied connectivity are going to grow as they get better performance in their home or office environments," he explained. "And so, if you get there's too great a disparity between what they get in flight and what they get out there, you're making yourself vulnerable to new competitors coming in or new technology. So, yeah, we think it's important to go through these kind of generational upgrades of the system in performance improvements."
However, the company's CFO warned that Gogo could decide to slow its 5G work next year, depending on conditions.
"The major part of the capital spend starts in 2021, as we deploy the towers and that was about $50 million that was projected in 2021. So, we can defer that if as required. You know, it's largely discretionary," Barry Rowan said.
Gogo's business is split almost evenly between its commercial and business operations. As The Verge noted, the company provides in-flight connectivity to airlines, including Delta, United and Alaska.
In the second quarter, revenues in the company's business division fell 23% year-over-year as travel ground to a halt due to the COVID-19 pandemic. But revenues in its commercial division, which includes both domestic and international operations, fell roughly 70% during that same period. "Devastating," according to Gogo's Rowan.
To cut costs, the company in April furloughed roughly 60% of its workforce, and more recently announced it would lay off another 143. As The Verge noted, Gogo applied for but did not receive around $230 million in funding from the government's Coronavirus Aid, Relief, and Economic Security (CARES) Act.