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Global Eagle Entertainment reports record aircraft-connectivity installations

Dave Davis edited

PARIS – Aeronautical and maritime satellite connectivity provider Global Eagle Entertainment (GEE) on Aug. 8 reported record installations of its Airconnect gear during the three months ending June 30 and said its newly acquired Emerging Markets Communications (EMC) was key to an order from Avianca Airlines affiliate Avianca Brasil.

Los Angeles-based GEE said its $550 million purchase of EMC, which specializes in maritime connectivity, closed on July 27. The company reiterated that the enlarged company would be able to reduce the satellite bandwidth and ground infrastructure it purchases by ending overlapping contracts, resulting in $40 million in annual savings starting in 2018.

GEE did not say whether it would cancel satellite bandwidth commitments before the contracts’ expire, incurring cash penalties, or wait for them to terminate. GEE and EMC have multiple contracts with satellite fleet operators SES and Intelsat, among others.

In a conference call with investors, GEE Chief Executive Dave Davis said the airline connectivity market is growing at 20 percent a year. The business of delivering media content to airlines, he said, is growing at half that rate.

Maritime connectivity is growing at 15-20 percent annually, he said.

Davis said GEE and EMC together would generate pro forma 2016 revenue of more than $660 million, with connectivity accounting for half of that figure. Connectivity revenue will be 40 percent aviation, 40 percent maritime and 20 percent land-based operations, he said.

A South American contract thanks to EMC

GEE recently won an order to install its Airconnect satellite-connectivity gear on at least 40 Avianca Brasil aircraft. Given that airline’s flight routes, Davis said the company was required to add more satellite capacity than would have been necessary for non-equatorial routes.

He said EMC’s existing satellite contracts over South America were instrumental in securing the business.

“Operating near the equator, there are going to be [satellite beam] skew issues which we believe we have overcome by having enough coverage on satellites that we need to have in place, with EMC,” Davis said. The company is using its current-generation aircraft antennas for the Avianca Brasil contract, he said.

GEE added 30 aircraft to its installed fleet in the three months ending June 30, a record for the company, bringing its total to 736 planes. Davis said the installation rate should increase further during the rest of 2016.

For the three months ending June 30, GEE’s connectivity revenue grew 17 percent, to $33.6 million, with the larger number of WiFi-connected planes and increased passenger-use rates only partially offset by a decline in sponsorship revenue.

Media companies including Amazon and Netflix are testing the airline connectivity market by offering free WiFi to passengers for limited periods. The entire airline-connectivity business model – the division of hardware manufacturing, installation and operations costs among the service providers, the airlines, the passengers and online sponsors – remains in flux.

GEE said its connectivity division’s profit margin dropped to 34 percent from 37 percent but that it was likely a temporary dip as the company invests in satellite bandwidth in advance of generating the revenue.

The company said its capital investment would be up to $45 million in 2016 given the need to spend on connectivity equipment.

Adding Ka-band in 2017

GEE is hedging its bets with respect to whether Ku-band or Ka-band will be the preferred bandwidth for airline and maritime customers. It has invested in Ku-band from several satellite fleet operators, but also has contracted with Hughes Network Systems of Germantown, Maryland, a unit of EchoStar Corp., for Ka-band capacity on the EchoStar 19/Jupiter-2 satellite, scheduled for launch in November over North America.

Davis said GEE has begun adding Ka-band its antenna-development program and expects to certify the antenna with air-traffic regulators by early 2017. The company has already embedded the Ka-band antenna in its bids for airline contracts, he said.

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