Challenged by a chip design snag in its 5G program, Gogo Business Aviation now expects to start shipping its faster 5G air-to-ground (ATG) cell tower-supported inflight connectivity system to North American clients in the third quarter of 2024, pending resolution of the problem.

“As I am sure you are aware, we have had two significant delays to this program because of issues in bringing the 5G chip up and completing fabrication at the chip foundry,” chairman and GEO Oakleigh Thorne told investors on a 7 November earnings conference call during which Gogo reported a 7% year-over-year decline in total revenue for the third quarter, and a reduced revenue outlook for the year.

“Since July, we’ve been working with our 5G network and chipset suppliers on a remedy to the bring-up problem. Sadly, that remedy involves a full re-spin, which establishes our ship date in the third quarter, at the outside perimeter of our earlier guidance,” Thorne divulged, whilst stressing that the chip issue “was not in the 5G block but was in the peripheral sub-block”.

The 5G program has faced a string of delays. Chip production problems pushed back Gogo’s planned 2021 launch of 5G. In mid-2022, Gogo flagged a new issue in late-stage testing but said it anticipated full production volume would be reached in mid-2023. In July of this year, it predicted it would launch 5G in approximately mid-2024.

Noting that “every aspect” of the airborne equipment has been completed except for the 5G chip, Thorne expressed confidence that Gogo will hit the 3Q 2024 target given that its chipset supplier has “fully identified the root cause of this issue and is currently implementing a complete remedy” and has brought a new design house into the project that “has a very solid record of getting it right the first time”.

Gogo will also attempt to crash the schedule on testing, with Thorne noting that “new higher-speed 50 megahertz field programmable gate array technology, better known as FPGAs” will test many aspects of the chip before Gogo has the natural 5G chip itself. In the meantime, operators can pre-provision for 5G by installing antennas and harnesses today, he said.

It remains to be seen, however, if the MRO constraints cited by Thorne elsewhere on the call will slow pre-provisoning of 5G on in-service aircraft, and if program delays will see operators take a wait and see approach.

The Gogo CEO pointed to “frantically busy maintenance schedules at the OEMs and dealers” plus supply chain constraints as largely driving Gogo’s 3Q revenue decline. Even as the firm saw record service revenue of $79.5 million during the three-month period, representing a 6% increase year-over-year, its equipment revenue decreased 39% compared to the year-earlier quarter. Gogo shipped 192 units of its current-generation Avance equipment in the third quarter, a 51% decrease year-over-year.

Adding colour, Thorne noted that parts shortages in industry have caused OEMs to push out deliveries and dealers to hold aircraft for extended maintenance times as they wait for critical parts, which in turn is pushing out IFC orders.

[L]abor shortages, combined with heavy demand for critical maintenance has forced dealers to prioritize ‘needed to fly’ maintenance over discretionary spending like IFC, which has dampened equipment revenue and by extension, you guessed it, growth in aircraft online and service revenue.

Given that Gogo aims to launch both 5G in North America and its Galileo-branded Low Earth Orbit (LEO) satellite-based broadband IFC solution globally, the latter of which is on track, and given “potential new offerings from others”, Thorne also suggested that “customers have extra impetus to wait and see what gets delivered and avoid discretionary spending in IFC in the short run”. (Potential new offerings ostensibly include SpaceX’s LEO-based Starlink Aviation service, which is presently available on Gulfstream G650, G650ER and Embraer ERJ-135/145 airframes. Supplemental type certifications (STCs) for other aircraft types are in the works, according to SpaceX.)

On the discretionary spending front, Thorne recalled that Gogo, the incumbent ATG provider, saw something similar in the Q1 2015-Q1 2017 timeframe in the two years before it launched Avance and when SmartSky Networks was “making its first big marketing splash”.

For its part, rival SmartSky is gratified to see growing demand for its ATG offering in CONUS “as the viable and currently available next-gen solution” for business aviation, said company president Ryan Stone, adding that management wouldn’t be surprise to see even further delays to Gogo 5G given Gogo’s need for a full chip re-spin and its attempt to crash the schedule on testing.

“We are seeing more adoption and more customers talking about our game changing and ready now service driving that demand which will continue to escalate,” said Stone. “It can also be a somewhat confusing time for customers as the expectation of reliable IFC as ‘table stakes’ continues to grow and some customers are trying to decide whether to wait for a ‘5G’ solution from the incumbent provider with a launch date that continues to slip — or others with unknown delivery dates.”

Despite the various market headwinds, Gogo claims that, based on extensive interviews with customers, it’s not losing planes to competitors. “We’re just losing time due to the parts and labor shortage,” said Thorne. But SmartSky rejects this characterization, noting that in addition to wins with the likes of flyExclusive and Volato, some of its non-fleet customers involve a legacy Gogo system that was removed for an upgrade to SmartSky.

“We also have customers we are working with that are planning to remove a newer Gogo system and replace it with SmartSky given the performance enhancement we represent,” said Stone, adding:

[W]e have some customers with new deliveries scheduled where the operator either de-selected the Gogo factory-option or chose to decline the factory-offered Gogo option and will install SmartSky as a retrofit after delivery.

At 30 September, the number of aircraft online with Gogo’s current-gen Avance kit grew to 3,784. But, as previously reported by RGN, thousands of Gogo’s legacy ATG installations on business aircraft are poised to lose access to inflight connectivity if their owners do not upgrade to Avance — or indeed to another IFC solution — by early 2026. That’s because Gogo is working to permanently remove, replace, and dispose of hardware from China’s ZTE that is subject to various government prohibitions related to national security concerns.

Some 3,300 tails are presently flying with Gogo’s Classic product, Thorne said on the 3Q earnings call, and the goal is to convert all of these business aircraft to new LRUs with LTE air cards over the next two years, as part of Gogo’s rip and replace program for the Federal Communications Commission.

But SmartSky is working to snatch up those tails as well, with Stone telling RGN: “[W]e think we’ll see plenty of demand from that alone, not to mention all the unserved and underserved aircraft that are now in the market for the must-have IFC. Further, given that we’re delivering SmartSky LITE, the first streaming option for small aircraft, we are also ‘expanding the market’ by attracting those customers who already deferred getting Gogo because it did not provide the right level of value.”

Interestingly, Stone said SmartSky has observed customers combining critical maintenance with IFC installs. “We’ve also had some customers tell us they liked what we’re doing, have heard good buzz about us from our customers, and are now adding an IFC install into their corporate budget inputs for 2024.”

Thorne, meanwhile, noted that Gogo is in a two-year investment cycle launching Gogo 5G and Galileo. “We expect these investments to drive significant growth starting in 2025 and to drive substantial returns for shareholders.”

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