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Why Gogo Inc. Shares Got Crushed Today

By Evan Niu, CFA - Feb 16, 2016 at 12:15PM

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

What: Shares of Gogo (GOGO 2.29%) have gotten crushed on Tuesday, down by 36% as of 11:38 a.m. EST, after partner American Airlines (AAL 4.11%) filed a declaratory judgment action against the in-flight Wi-Fi provider last week.

So what: American Airlines is considering switching to rival ViaSat (VSAT 2.52%) 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.

Evan Niu, CFA 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.
VSAT
$38.24 (2.52%) $0.94
Gogo Inc. Stock Quote
Gogo Inc.
GOGO
$16.56 (2.29%) $0.37
American Airlines Group Inc. Stock Quote
American Airlines Group Inc.
AAL
$15.22 (4.11%) $0.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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