Introduction to the in-flight connectivity & Business Aviation industries
GOGO operates in the in-flight connectivity industry – this means being able to connect to the internet during flights to browse, make video calls, watch Netflix,.. – which has been experiencing a huge growth in the recent years – while penetration rate is still very low – as well as genuine revolution with the arrival of new technologies.
There are several technologies that provide connectivity to aircraft, which we can group into two categories:
From Land
Planes equipped with land-based antennas receive signals as they fly over terrestrial areas. As the plane moves, the antennas switch from one tower to another, much like a mobile phone does during a car journey.
ATG (Air-to-Ground): ATG technology enables onboard connectivity by using ground-based towers, similar to cell towers, to transmit signals to the aircraft. This system provides connectivity as long as the plane is within range of ground towers, but it does not work in areas without terrestrial infrastructure, such as over oceans or remote deserts.
5G: 5G connectivity on aircraft is an evolution of ATG technology. By directly connecting aircraft antennas to 5G towers on the ground, this system can provide much higher data speeds and lower latency than traditional ATG, allowing for data-intensive applications such as video calls and HD video streaming. GOGO is expected to be the first company to launch this technology for the Business Aviation industry in 2025
From Satellite
In contrast to land-based towers, satellites enable connectivity over wide areas, including remote regions and oceans. This is generally a significant advantage, though it’s important to consider the high percentage of private jets that are not used for oceanic travel when calculating market figures.
GEO: Geostationary Earth Orbit technology uses satellites positioned at a high altitude of approximately 35,786 kilometers above the Earth’s equator. These satellites orbit at the same rotational speed as the Earth, allowing them to remain fixed over a single point on the Earth’s surface. The high altitude results in greater latency, which can cause noticeable communication delays. While GEO is suitable for providing consistent coverage over large areas, the latency and lower data speed compared to LEO make it less ideal for applications requiring real-time responsiveness, such as video calls or online gaming.
LEO: Low Earth Orbit satellite technology uses satellites orbiting at a lower altitude (between 500 and 2,000 km above Earth) to provide continuous in-flight connectivity. Unlike geostationary satellites, which orbit much farther away, LEO satellites are closer to Earth, reducing latency and improving data transmission speeds.
There is also MEO (Medium Earth Orbit), but we will not go into detail as we merely talk about it later in the thesis.
For an aircraft to connect to one of these networks, generally (specific requirements depend on each company), a connectivity system and an antenna are needed (both are one-off costs)—what Gogo refers to as Equipment revenues. Then, a monthly or annual subscription is contracted depending on the chosen data plan (service revenues).
We are simplifying the industry economics quite a bit, but it can be deduced that switching costs are high (resulting in a low churn rate), and forecasting revenues, while not straightforward due to the emergence of new technologies & competitors, is easier than in other industries.
Now, there is a company (Starlink) that is shaking the industry with its aggressive entry (it offers high speed via LEO satellites) with a main focus on commercial airlines due to the larger size of its antennas and difficult installation in private (smaller) planes, although it is already working on more compact equipment. However, the cost of Starlink (compared to GOGO Galileo) is considerably higher.
The Business Aviation Industry
GOGO operates in the market of Business aviation (not commercial planes), which is why, before starting the analysis of GOGO, we think it is relevant to provide a brief introduction to the private aviation industry and share its main numbers, so we can then delve into more detail.
The Business Aviation industry is primarily located in the United States, where 63% of the fleet of 23,000 aircraft resides. This number has grown at a practically constant rate (with the exception of the years leading up to the 2008 crisis) with the addition of about 700 new units to the market.
Similarly, among manufacturers, Textron, Bombardier, GulfStream, and Embraer stand out, holding 80% of the market share between them over the last 10 years.
The best-selling aircraft (families) during these years have been (in order):
Gulfstream Gulfstream 450 / 500 / 550 / 600 / 650 / 650
Bombardier Challenger 350 / 650
Cirrus SF50
Bombardier Global 5000 / 5500 / 6000 / 6500 / 7500
Textron CE-680A Citation Latitude
Another important point is that these aircraft are divided into Heavy, Mid, and Light (varying their connectivity needs and the dimensions of the antennas they can integrate).
Heavy Jets: Heavy jets are large aircraft designed for long-distance flights and capable of transporting more passengers and cargo. Generally, these jets can carry between 10 and 19 passengers, with a range that allows them to fly distances of up to 11,100 kilometers without stopping. Notable examples of heavy jets include the Gulfstream G650, Bombardier Global 7500, and Dassault Falcon 8X.
Mid-Size Jets: Mid-size jets are smaller than heavy jets but still offer a good combination of range and capacity. They are ideal for regional and transcontinental business travel. These jets usually accommodate between 6 and 10 passengers, with a range typically between 5,500 to 8,300 kilometers. Examples of mid-size jets include the Cessna Citation XLS+, Bombardier Learjet 75, and Embraer Praetor 600.
Light Jets: Light jets are smaller and more economical aircraft, perfect for short trips and regional flights. They tend to have lower operating costs and are more efficient over shorter distances. Light jets can generally transport between 4 and 6 passengers and have a range of approximately 2,800 to 4,600 kilometers. Examples of light jets include the Cessna Citation Mustang, Embraer Phenom 100, and HondaJet.
A point we think is important to highlight is that only about 35% of the industry has onboard connectivity, so in the coming years, this market is expected to continue expanding.
GOGO – Investment Thesis
We have analyzed GOGO several times in the past, and at the end of 2023, we concluded that it was not attractive at the moment since we did not see catalysts in 2024 for the stock, but that we would analyze it in detail again in 4Q24 since really everything good should happen from then on. In fact, we included GOGO as one of the 8 special situations we reviewed this summer and reiterated that we are still waiting and that we should stick to the plan to analyze it in detail in 4Q24.
Not only is it now 4Q24 and the launch of both 5G and LEO has not been delayed, but on September 30, they announced the acquisition of Satcom Direct – a company larger than GOGO itself – and since the acquisition, we have been very active discussing GOGO in the Portfolio Management section.
Today we want to recap the situation and the new economics (Post M&A and Pre-launch of 5G and LEO (Galileo HDX)) to assess the potential of the existing opportunity and the risks that could undermine the thesis.
As always, we share the financial model of it and explain in detail both the valuation and our strategy to try to maximise the returns from the opportunity.
