The write-offs for Global Eagle in 2017 are significant. The company reported its year-end financials this week and included a non-cash impairment charge of $184 million in the connectivity segment. That represented more than half of the full year net loss of $357.1 million for the company on revenue of $619 million. Those numbers are rough to stomach, but the company also used its earnings call to announce significant order wins heading into 2018, suggesting that it might be through the worst of the troubles and moving towards stability and success.
Connectivity wins around the globe
Earlier this year Global Eagle teased a connectivity contract with a new carrier in a deal expected to be larger than the Norwegian implementation today. In this week’s call that carrier was narrowed to the European region, though still no specific airline named. New CEO Joshua Marks suggested in the call that the service would be active in Q3 2018 and that orders and contracts are progressing towards that goal. A leading candidate for that deal is Air France, having previously trialed the Global Eagle kit in partnership with French telecom carrier Orange. Air France chose Gogo’s 2Ku solution for its long-haul fleet and indicated that a solution for the short-haul aircraft would be forthcoming; that announcement remains pending.
Beyond Europe Marks announced two additional deals during the call. In India Jet Airways signed a MoU to add connectivity to the 70 737s it has currently flying with entertainment from Global Eagle. Moreover, an additional 81 aircraft will be added to the deal for both content and connectivity. This work depends on the Indian government approving inflight connectivity on the regulatory side but that work is progressing and is expected later this year. Marks notes that this approval is in the final stages and is expected to be issued this year, with installations beginning shortly thereafter.
Global Eagle has a third win in the books, with a Letter of Intent signed in Southeast Asia. Again, the company declined to name the carrier, typical in allowing the airlines to manage the publicity around such announcements. Marks did note that the deal would cover 737 and A330 aircraft, leaving Garuda and Malaysia Airlines as two potential carriers involved in the deal. They represent approximately 100 or 70 aircraft of those types, respectively. Of note, installing on the A330 aircraft would be a small shift from prior company guidance that it was acutely focused on the single-aisle market.
— Seth Miller (@WandrMe) April 2, 2018
In the Americas Marks also highlighted the relationship with Southwest Airlines, noting install growth on both the 737NG and 737MAX fleets. He also points out that technology is helping deliver a better and more consistent passenger experience on board without necessarily requiring massive spending on capacity (though additional bandwidth is also coming online), “We have also used our proprietary technology that materially reduces our bandwidth requirement, avoiding millions of dollars in cost. With HTS coming online, we are rolling out another step change in Southwest performance by midyear.”
But not everyone…
In February’s earnings call Marks was clear that not every airline was a good fit for Global Eagle’s connectivity solution:
We’re not trying to chase every plane in the world. We want to be the provider of choice for short-haul single aisle aircraft that are operating dense, operation inside of a specific region. We take capacity from different operators and different orbits and different networks. We bring them together to provide a scalable user experience over that that specific area.
In this week’s call he expanded on that idea, suggesting that other connectivity providers are pursuing business that is not profitable and that Global Eagle would not be drawn into that behavior:
We plan to accelerate [connectivity revenue] growth, but we aren’t going to do so by following our competitors who entice customers of giveaways that don’t result in a robust business model. Rather, our recent wins demonstrate the value from our comprehensive and proven Connectivity solutions and from our integrated portfolio of Media services…
Our gross margins in Connectivity are respectable, but they’re not where we expect them to be.
In sum these announcements reflect significant potential for growth in Global Eagle’s connectivity portfolio. The airline fleets identified above represent approximately 300-350 potential aircraft to be fitted, a number that Marks corroborated in the Q&A portion of the call. The company must balance the desire for what Marks describes as profitable growth with the overall industry scramble to sign up as many aircraft as possible.
The oft-discussed consolidation of vendors remains a hot topic of conversation in the industry. Presumably holding more long-term contracts is better than not in such negotiations, though if they’re all money-losing deals perhaps not so much.