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Why Gogo, Inc. Stock Plunged Today

By Steve Symington – Jun 3, 2016 at 3:01PM

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The in-flight entertainment company fell after a competitor won an enviable contract.

Image source: Gogo, Inc.

What: Shares of Gogo, Inc. (GOGO 3.92%) were down 14.7% as of 2:30 p.m. ET Friday after rival in-flight entertainment specialist ViaSat (VSAT 27.06%) announced it has been selected to provide in-flight Wi-Fi service on American Airlines' 737 MAX fleet. ViaSat stock is up around 4% as of this writing.

So what: ViaSat's press release notes its in-flight Internet service, which taps into its advanced Ka-band satellite system, "has been recognized with multiple industry awards for delivering the best performing, highest-quality and fastest in-flight Internet experience," enabling customers to not only perform low-bandwidth tasks like surfing the web and email, but also to stream movies, videos, TV and music.

"We believe we are now approaching the end of an era where passengers have paid very high prices for very slow connections," added ViaSat CEO Mark Dankberg. "Our agreement highlights a significant step for American to deliver an onboard Wi-Fi experience every passenger will want to use."

Meanwhile, recall just last week, Gogo shares popped more than 16% after the company revealed in an SEC filing it had received a "proposal from a major airline customer" under which it "would provide connectivity service on a meaningful portion of the airline's domestic fleet that it currently serves."

Gogo confirmed today that proposal was from American, and resulted in an amended agreement between the two companies for Gogo to provide in-flight wireless Internet on roughly 560 aircraft in American's domestic fleet that are currently under contract per Gogo's existing agreements. 

Now what: For perspective, the first Boeing 737 MAX aircraft with ViaSat's inflight internet system are scheduled to go into service in September 2017.

By contrast, within Gogo's total 560 existing planes, American will purchase equipment and service to transition almost 140 mainline aircraft from Gogo's ATD/ATG-4 terchnology to its next-gen 2Ku technology. The roughly 430 remaining aircraft under the agreement are predominately regional jets and will continue to use Gogo's existing technology.

Furthermore, Gogo states 550 Gogo-installed mainline aircraft that are currently under contract are "subject to deinstallation at any time at American's option."

Gogo elaborated, "While we cannot predict with any certainty when and with respect to which aircraft American will exercise such option, we currently expect that the option will be exercised by American with respect to a significant portion, or potentially all, of such approximately 550 aircraft from time to time over the next several years."

In the end, while Gogo can take solace knowing it will still benefit from a signficant chunk of American's fleet, there's no denying this is a disappointing culmination of Gogo's seemingly promising announcement last week. It's never ideal to lose a coveted contract to a competitor, and it's no surprise to see the market bidding shares of Gogo down today.

Steve Symington has no position in any stocks mentioned. The Motley Fool has the following options: long January 2017 $35 calls on American Airlines Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

ViaSat, Inc. Stock Quote
ViaSat, Inc.
$38.41 (27.06%) $8.18
Gogo Inc. Stock Quote
Gogo Inc.
$12.60 (3.92%) $0.47

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