Gogo Signs Up with Boeing - Analyst Blog

In-flight connectivity provider, Gogo Inc. GOGO signed a technical services agreement with the aerospace behemoth The Boeing Co. BA in view of the prospect of installing Gogo in-flight connectivity technology in Boeing's aircraft. Shares of Gogo rallied more than 10% during the early trading hours yesterday on the news to end at a modest $19.56.

With this agreement, Boeing will initiate evaluating Gogo's suite of technology solutions on Boeing commercial aircraft. Gogo expects to wrap up its line-fit evaluations for its 9.8 Mbps ATG-4 in-flight Web access technology in 2015, and for its satellite offerings in 2016.

The industry leader of in-flight Wi-Fi, Gogo has developed an extensive business through agreements with airlines to retrofit in-service aircraft with in-flight Wi-Fi connectivity and wireless in-flight entertainment (IFE) technology. This in-flight Internet provider already holds contracts with Aeromexico, American Airlines, Air Canada, AirTran Airways, Alaska Airlines, Delta Air Lines, Japan Airlines, United Airlines, US Airways and Virgin America.

Recently, it announced plans to kit out the entire North American fleet of Air Canada with Wi-Fi connection. The agreement also covers future type-testing of Gogo satellite solutions for Wi-Fi on international flights. The trials are expected to take place in 2015.

Gogo also announced a partnership with Japan Airlines (JAL) to provide Gogo Vision service on the latter's domestic fleet. The new offering will allow JAL passengers to have free access to both Japanese as well as JAL's original content, including anime, sports and music.

With rapidly increasing air travel and fierce competition in the space, air carriers are providing sophisticated entertainment options to passengers on board. In-flight connectivity is becoming common thereby boosting the business of the likes of Gogo.

Apart from in-flight Wi-Fi where Gogo already has a dominant position, it is all set to launch texting and calling programs as well as on-demand entertainment systems. Again, the company is transitioning from its air-to-ground network to a satellite connectivity system that will boost Internet speed six times faster.

However, we are cautious of Gogo's high debt burden. Its long-term debt escalated to $235.6 million as of Dec 31, 2013, from $131.5 million in the year-ago period.

Gogo currently holds a Zacks Rank #3 (Hold). Stocks that have been performing well and are worth considering in the space include Inteliquent, Inc. IQNT and Meru Networks, Inc. MERU, both carrying a Zacks Rank #2 (Buy).