January and February 2020 showed great promise for Gogo. New aircraft installations continued, particularly of the company’s 2Ku offering for commercial aircraft. And then the bottom fell out. As the COVID19 crisis grew the company saw its growing fleet of installed aircraft suddenly grounded. Revenue dried up and new installations ground to a halt.
The ultimate result: a net loss of $84.8 million on consolidated revenue of $184.5 million. A major portion of the loss – charges of $46.4 million related to the impairment of certain long-lived assets and $6.8 million in additional credit loss reserves taken during the quarter – should be nonrecurring, but the numbers are not great and Q2 will almost certainly be much worse.
Inflight connectivity is not going away due to the corona crisis. If anything we think demand will increase as consumers are online more now and will want to remain online when they fly in the future.– Gogo CEO Oakleigh Thorne
Business Aviation beat up in April
On the service revenue side the Business Aviation (BA) segment saw a modest boost while Commercial Aviation (CA) took a hit both in North America and globally. For the BA segment Gogo says that new activations are down and service suspensions are up. The ability for aircraft owners to quickly change their service plans to add new features boosted revenues in prior quarters; that same capability makes it easier for those same owners to reduce their expense during periods where they know the planes will be grounded. That hit hard in April, though will ease through May and further into June.
CEO Oakleigh Thorne notes that some 940 accounts suspended and 750 downgraded service levels in April. Of these, some 218 accounts are already reactivated, with Gogo expecting its BizAv revenue segment to rebound faster than CA. Business travelers are not necessarily returning to commercial flights quickly, but those with their own planes are moving relatively quickly to get back out on the road in the United States.
Commercial comeback eventually
The service revenue impact on Commercial Aviation is much more tightly tied to the grounding of the majority of the company’s equipped aircraft worldwide. The 2Ku planes represent the company’s prime revenue growth path. Some 1,511 planes are installed today, but 1,124 are grounded. How quickly those return to service will define the CA segment’s revenue return. Gogo currently expects new installs for the balance of 2020 to be minimal. This is a cost savings as many of these installs would involve hardware cost subsidies from the company. But it also means lower future revenues, depending on the recovery speed. Gogo is also monitoring its installed aircraft to determine which may not return to service at all.
The company believes that 12 April 2020 was the low point for its operations, with flight and usage numbers improving since for both its commercial and business markets.
More significant than the quarterly numbers, however, is the open discussion Gogo is having about mergers or acquisitions for its products. While the concept is not new, Thorne talked about this potential at length during the call. He focused on the potential for such a transaction to be mutually beneficial to the parties involved while clearly trying to boost the valuation of Gogo’s assets in any such deal.
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