Gogo and Intelsat CEOs reveal why their $400 million deal could soon make in-flight WiFi free — and good

• Satellite service provider Intelsat is buying Gogo Commercial Aviation for $400 million in a deal announced Monday.
• Intelsat plans to use the new division to improve in-flight WiFi speeds and capabilities at a lower cost than current offerings today, and soon offer a gate-to-gate experience.
• Gogo will stay in the in-flight connectivity business but focus on business aviation and its new 5G network.

Spotty in-flight WiFi has long been the bane of a business traveler's existence, with anything from minor turbulence to bad weather causing service outages. The nature of the system most airlines use – where antennas on the ground beam signals up to aircraft – is largely to blame. Those signals often can't penetrate bad weather, and service is limited outside of North America or when flying over water.

But now, Gogo Commercial Aviation — the arm of the company that provides that so often frustrating experience to commercial travelers — is being acquired in a $400 million deal by satellite service provider Intelsat. And the result could be that in-flight WiFi sees a major boost in quality and reliability, offering a "living room" experience. And you just might get it for free.

The key here is shifting from the ground-based system to one that uses satellites. Gogo was already working with airlines to retrofit aircraft with high-speed 2kU antennas. Thanks to the acquisition, that system — once complete — will have the direct backing of Intelsat's vast satellite network.

The current system involves Gogo buying bulk and often unused capacity from service providers. Now Intelsat, as the provider, will be able to direct capacity to where it's needed and boost in-flight connectivity while keeping costs down by cutting out the middleman.

"Intelsat is the largest satellite company in the world," Gogo CEO Oakleigh Thorne told Business Insider. "I can't imagine a better partner for our CA [commercial aviation] business than somebody who has all that capacity."

The $400 million deal comes amid a financial restructuring for Intelsat that required the approval of its creditors and the use of debtor-in-possession financing. A Richmond, Virginia bankruptcy court approved the transaction on Monday with no opposition, allowing the deal to move forward with a proposed closing time frame of early 2021.

Expanding coverage and potentially making in-flight WiFi free

The end game for Intelsat is offering gate-to-gate, satellite-based WiFi so that passengers don't experience a gap in service at any point during a trip. Satellite-based WiFi systems have fewer outages than ground systems since antennas are always pointing up toward the satellites, regardless of where the aircraft is, whether on the ground or in the air.

Nearly every major airline offers in-flight WiFi, but passengers have never been willing to pay up in serious numbers. By cutting Gogo out of the process, CEO Stephen Spengler told Business Insider, Intelsat can offer the service at a lower cost to airlines which could result in lower prices for passengers looking to browse the web while cruising along at 35,000 feet.

"We have the ability within our company to leverage the owner economics and scale, and the flexibility we can provide," Spengler told Business Insider.

And the cost-savings that vertical integration will bring might even mean free WiFi for passengers. Airlines have not hidden their desperation to get flyers back in the air, with the big three US carriers also permanently eliminating change fees. A complimentary in-flight WiFi offering may be another selling point to help flyers get back in the air and speed up aviation's recovery.

Today, JetBlue is the only US carrier offering in-flight WiFi for free. Gogo currently partners with T-Mobile to offer complimentary in-flight WiFi to the cellular carrier's customers on airlines like American and Delta but the service is often limited to an hour of use.

Gogo sticks to private aircraft

The pandemic has crippled Gogo's in-flight WiFi business, as airlines suffer record low passenger numbers. But the company had begun thinking about parting with its commercial aviation division even before the pandemic hit.

"We were actually thinking about this process prior to March," Thorne said, noting that the pandemic put the sale on hold until the summer, when the company could stabilize its cost structure.

Gogo will keep its business aviation sector and use the proceeds of the sale to reduce its $1.2 billion debt and expand a 5G system that will boost the ability of current air-to-ground networks on which business and smaller commercial aircraft depend, Thorne said. The smaller aircraft frequently used by the private aviation sector often can't accommodate satellite antennas.

Private aviation is a smaller market than the commercial side, but it is growing as more wealthy travelers eschew commercial flights and operators take on more planes to keep up with demand. Many customers are first-time private flyers, who expect in-flight connectivity for the price they're paying to charter an entire aircraft.

The deal also gives Intelsat exclusive access to Gogo's air to ground system for 10 years to serve smaller commercial aircraft, subject to Intelsat meeting revenue guarantees, while Gogo gets favored status when buying satellite capacity for its business aircraft that can handle a satellite antenna, Thorne said.

Flyers won't immediately notice a difference, as Intelsat will be able to use the Gogo name for up to two years, according to Thorne, with no lapse in service as the changeover occurs. But if all goes well, it may not be too long before you never have to worry about missing your midair connection.