Why Gogo Inc. Shares Got Crushed Today

American Airlines wants to ditch Gogo for a competitor, unless Gogo can prove itself.

Evan Niu
Evan Niu, CFA
Feb 16, 2016 at 12:15PM
Technology and Telecom

What: Shares of Gogo (NASDAQ:GOGO) have gotten crushed on Tuesday, down by 36% as of 11:38 a.m. EST, after partner American Airlines (NASDAQ:AAL) filed a declaratory judgment action against the in-flight Wi-Fi provider last week.

So what: American Airlines is considering switching to rival ViaSat (NASDAQ:VSAT) for in-flight connectivity options, and the lawsuit is AA's attempt to terminate its agreement with Gogo. The original deal included provisions that would allow AA to switch providers if competing services offer faster and superior in-flight connectivity service compared to Gogo's air-to-ground service.

Now what: On Monday, Gogo responded and said it has no comments about the merits of the lawsuit, but reiterated that it continues to work with American to find a resolution. As Gogo points out, now that American has notified Gogo that a rival is offering superior service, Gogo has the opportunity to submit a competing proposal using any technology in its portfolio. Gogo's early generation technology is used in about 200 aircraft right now, and Gogo will submit a competing proposal to use its latest satellite technology.