What happened
Gogo (GOGO 3.25%), one of the pioneers in in-flight internet service, has completed its deal to sell its commercial aviation unit to Intelsat (INTE.Q). Investors are pleased to see the deal done, sending shares of Gogo up as much as 13% in early trading Tuesday.
So what
Gogo is selling its best-known business, but not its most promising one, according to management. In early September, the company said it would shed the commercial aviation business for $400 million in cash and focus its resources on providing data and services to business jets.
The business to be sold serves about 20 commercial airlines, including nine of the global top 20, and has antennae installed on more than 3,000 aircraft.
Image source: Getty Images.
Gogo will use the proceeds to pay down some of its debt and to invest in its 5G network and other technologies. With the deal's close, Gogo will have about $460 million in cash on hand and net debt of about $770 million.
Now what
The deal in theory takes Gogo out of a commoditized business where it was under pressure from its airline customers to improve streaming quality and share revenue. And with the pandemic disrupting commercial aviation the unit has been under pressure, leading Gogo to announce the elimination of 143 positions due to the impact of the pandemic.
"The completion of the sale of our CA business to Intelsat marks the beginning of a new chapter for Gogo; we are a leader in business aviation and now turn our singular focus toward serving that attractive market," CEO Oakleigh Thorne said in a statement. "Our business aviation division has proven resilient in the face of the COVID-19 pandemic, as the number of business aircraft online today has nearly returned to January levels."
That said, this is still a highly indebted business with significant capital needs. Gogo shares gave up their initial gains but were still up more than 4% as of 11 a.m. EST. The more cautious optimism seems an appropriate stance for investors to take right now.
