On Friday, American Airlines Group, Inc. (NASDAQ:AAL) filed a lawsuit asking a judge in a Texas court to permit the company to yield from its current contract with Gogo, Inc. (NASDAQ:GOGO), an inflight WiFi provider.
Gogo’s stock dropped 27% on Tuesday following the news, closing the session at $10.08.
The two companies may work things out outside the courtroom. If American Airlines and Gogo fail to come to an agreement regarding the matter, a judge will decide on the matter.
Gogo vs. ViaSat, Inc. (NASDAQ:VSAT)
The contract includes a clause that allows the airline company to switch inflight WiFi providers provided that they find one that “materially improves” on the current services offered by Gogo. As a result, American Airlines exercised its rights bound by the agreement, informing Gogo that the inflight WiFi system provided by ViaSat, Inc. (NASDAQ:VSAT) actually “materially improves” that of Gogo’s.
ViaSat is one of today’s leading inflight connectivity system providers, servicing airline giants such as JetBlue Airways Corporation (NASDAQ:JBLU), United Airlines, Inc., and Virgin America, Inc. (NASDAQ:VA). It boasts with a satellite-based WiFi service that is said to be eight to 10 times faster than any inflight WiFi systems.
Being considered for American Airlines, ViaSat shares jumped about 12% on Tuesday.
Gogo, on the other hand, offers American Airlines a ground-based connectivity solution that produces a total bandwidth capacity of not more than 10 MBps for the entire aircraft.
The provider may have developed a satellite-based connectivity system that provides an entire plane with a bandwidth capacity up to 70 MBps, the 2Ku, but it has not yet been made available to American planes.
Gogo declined to comment on the recent filing. However, the company expressed that American Airlines is one of its most valuable clients. Accordingly, losing American Airlines will result Gogo with a revenue loss of nearly 15%. Gogo and its executives “look forward to resolving the disagreement”.
Moreover, the inflight WiFi provider said that it is planning to submit a proposal regarding the installation of 2Ku in American Airlines’ aircrafts.
American Airlines avails Gogo’s connectivity solutions for its domestic flights and regional aircrafts, specifically the Boeing 737 units.