Shares of in-flight airplane internet broadband provider Gogo (GOGO -1.40%) are soaring today, up 27.6% through 12:25 p.m. EDT, after satellite communications company Intelsat (INTE.Q) announced its intention to acquire Gogo's commercial aviation business in a $400 million cash buyout.
For Intelsat, the acquisition delivers 21 new commercial airline customers, including nearly half of the world's top 10 global carriers, to which Intelsat can now sell broadband access through its constellation of high-flying communications satellites.
"Consumer demand for in-flight connectivity is expected to grow at a double-digit rate over the next decade, notwithstanding the impact of COVID-19," said Intelsat CEO Stephen Spengler in a statement, providing a ready-made avenue to sales growth for the company.
For Gogo, meanwhile, this delivers a huge cash windfall -- more than the entire company was worth before the acquisition was announced. And Gogo gets to keep both the cash and also the business aviation segment of its business, which at $309 million in annual revenue constitutes 37% of the company's total revenue, and is by far the more profitable part of the business (according to data from S&P Global Market Intelligence).
Going forward, Gogo will be primarily a provider of internet service to business aviation -- probably a healthier segment of the market right now, given the dearth of demand for commercial air travel and the relative attractiveness of flying in smaller planes with fewer passengers during the pandemic. The $400 million payout from Intelsat should suffice to cut Gogo's debt load by about a third, even as retaining the company's more profitable business aviation segment makes it easier to service that debt.
Intelsat, on the other hand, will have to dip deeply into its cash reserves (about $1.1 billion at last report) in order to make this acquisition happen -- and the bankrupt satcom company's financial situation just got a little bit direr.