Gogo needs to replace the Chinese-sourced hardware in its cellular network across North America. That’s a pricey proposition. Fortunately for the company and its investors, the US government is chipping in a sizable share.
Getting a 5G air-to-ground network into service in the USA is a tough task, with schedules continuing to slip and questions about the hardware involved. But in China the new services are expected to launch soon, and expand quickly. Powered by Chinese manufacturer ZTE, a new network could be online in a matter of months.
Gogo faces new challenges to some of its government contracts as the Feds look to push out any companies using technology from a handful of Chinese suppliers.
The on again, off again progress on an upgraded terrestrial network for inflight connectivity provider Gogo appear to be back in motion. In the company's most recent earnings call CEO Oakleigh Thorne indicated that the company is "particularly excited by some of the plans we’re developing for our next-gen network," though he stopped short of delivering too much in the way of additional details. Hardware supplier ZTE is out, thanks to questions about the long-term viability of growing the network with a Chinese vendor in the mix. But the program is very much alive, despite skepticism sown in Thorne's early days at the helm.
Gogo appears to have solved its most significant short-term challenge, with a $900mm debt offering lined up to provide five years of breathing room as the company inches towards a positive free cash flow.
The on again, off again drama of Chinese telecom manufacturer ZTE flared up again this week. Reports from the White House suggest that Huawei and ZTE could be the target of a new Executive Order banning the sale of systems from those companies in the United States. It would be invoked under the International Emergency Economic Powers Act, allowing the president to regulate commerce in response to a national emergency. And it could significantly impact the future of Gogo's Air-to-Ground data network, especially the ATG-NG development.
Gogo posted better than anticipated numbers for Q2 '18 this morning, giving the company's share price a nice boost in early morning trading, though it has since given back some of the gains. The business aviation segment continues to lead the company's fortunes but some glimmers of success in the commercial segments are showing, too. So long as American Airlines is excluded from all considerations.
Sticky 2Ku antennae will cost Gogo north of $25mm to repair or replace, and that's not the only challenge new CEO Oak Thorne faced as he presented his first quarterly earnings call for the inflight connectivity provider.