Gogo And Airbus Strike A Deal

| About: Gogo (GOGO)

Summary

eEnablement is driving connectivity.

Satellite connectivity is the best solution for eEnablement.

Airlines are going to have to deploy connectivity for flight operations.

The deal announced, is really good news for Gogo (NASDAQ:GOGO) and Airbus (OTCPK:EADSY).

Aircraft connectivity is typically thought about in terms of passengers being able to access the Internet. While this is the biggest user of bandwidth today, that is going to change. As we see more e-Enabled aircraft deployed, we will see data delivery from and to aircraft spike.

The e-Enabled generation aircraft include the first generation 787 (NYSE:BA) and A380. Next, will be the A350, CSeries, A320neo, 737MAX and Embraer E-Jets E2 (NYSE:ERJ). These aircraft can be described as "nodes on a network." Their upgraded avionics allow for data traffic to and from the aircraft.

Currently, the data exchanges are taking place at the gate when the aircraft logs into airline corporate networks. Pilots using electronic flight bags (EFB) also log into these networks when they are on the ground. But airlines such as Lufthansa, an early connectivity pioneer, use satellite connectivity to feed pilots EFBs. Pilots, therefore, have access to weather updates in real-time. This helps them optimize routings and altitudes to lower fuel burn and ensure better on-time flights. Norwegian also exploits its connectivity similarly.

It's a short hop from allowing passengers to use the aircraft's connectivity to exploiting it for airline flight operations. Today most airlines utilize ACARS (NYSE:COL) for communications between flight deck and the ground. But ACARS is slow and expensive. Wi-Fi is much lower cost, as it uses off the shelf technologies and ensures traffic flows to airline networks and therefore directly to the person who needs to see the information, and if necessary, react.

Therefore, the move by Gogo to deploy its 2Ku system on the A350 is important. Once an airline selects a connectivity partner, they tend to stick with that vendor. Gogo is first mover here and should benefit as more airlines acquire e-Enabled A350s. Delta's (NYSE:DAL) decision to exploit this feature is telling. Gogo is the biggest connectivity provider now. United (NYSE:UAL) and American (NASDAQ:AAL) also have A350s on order. It would be no surprise to see these aircraft come equipped the same way as Delta's.

A rough guide to connectivity value we have heard within the industry is that the economics works best when airlines derive value from it and they use about half of the bandwidth. Bear in mind it's not just the flight deck - cabin crew also benefit. From in-flight sales to updating CRM systems. Using data like this actually improves the customer experience at low cost. An example is providing passengers updated connection information if their connecting flight might be missed due to their flight being delayed.

In conclusion, Gogo's deal with Airbus is valuable and provides a viable technology path for their service. Airlines are all going to end up needing connectivity and being ready as original equipment is a real benefit for Gogo.

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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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