Gogo Pops 21% On $400M Intelsat Deal For Commercial Aviation Biz

In-flight internet company Gogo Inc (GOGO) has entered into a definitive agreement to sell its Commercial Aviation (CA) business to Intelsat S.A. for $400 million in cash. Shares popped 21% on the news in after-hours trading.

The Gogo Board of Directors has approved the transaction. Intelsat (INTEQ) expects to finance the deal using cash on hand and borrowings under its $1 billion debtor-in-possession credit facility and has obtained support from key economic stakeholders, as well as approval from the U.S. Bankruptcy Court.

The transaction, which is expected to close before the end of the first quarter 2021, remains subject to customary closing conditions and regulatory approvals.

Gogo will use the proceeds from the transaction to improve its net debt position and continue to invest in growth opportunities such as Gogo 5G.

With greater financial flexibility, GOGO says it will be better positioned to enhance the scale and profitability of its Business Aviation (BA) segment.

“This transaction creates a stronger and more focused Gogo, with the singular strategic imperative of serving the business aviation market with the best inflight connectivity and entertainment products in the world,” commented Oakleigh Thorne, Gogo’s CEO.

“The BA market continues its sharp recovery and strong demand growth trajectory, and our BA segment is exceptionally well-positioned to drive long-term value creation in that industry.”

As part of the transaction, Gogo will enter into a 10-year network services agreement under which Intelsat will have exclusive access to Gogo ATG services for the CA market in North America, subject to minimum revenue guarantees of $177.5 million.

Shares of GOGO are down 20% year-to-date, and the stock scores a cautiously optimistic Moderate Buy Street consensus. That’s with an average analyst price target of $6 (17% upside potential).

“Due to the impact the pandemic is having on Gogo’s business, we believe that the company has reached a point where selling this business has nearly become a necessity, given the limited visibility on when airline travel will return to normalcy” commented Northland Securities analyst Greg Gibas.

He has a hold rating on GOGO with a $4 price target. Although there are clear indications of a gradual month-to-month recovery in air travel, Gibas says he is remaining cautious due to the lack of visibility on when Gogo’s GPO (gross passenger opportunity) returns to normal. (See Gogo stock analysis on TipRanks)