U.S. Markets closed

Verizon To Buy Gogo? 'Not So Fast,' Macquarie Says

John Seward

Gogo (NASDAQ: GOGO) is an unlikely acquisition target because of technological, regulatory and practical hurdles, one analyst said Wednesday.

Gogo, which provides Wi-Fi to commercial airline passengers, hit a year-high earlier this month on speculation it would be taken over by Verizon (NYSE: VZ). But Macquarie's Andrew DeGasperi said the likelihood is "tenuous at best."

Separately, DeGasperi cut 15 percent from his 2015 estimate for Gogo's earnings before interest, taxes and depreciation, citing a slowing rate of aircraft installations and expectations of continued high engineering and development costs. DeGasperi maintained a Neutral rating and $21 target.

As for a buyout, the analyst said Verizon's entry into the market would mean using its cell tower network for air-to-ground service, while most international flights and the industry's future requires satellite-based operations.

Apart from providing Wi-Fi access over water, satellites can deliver more than four times the speed of cell-phone towers.

Gogo announced a deal Tuesday to offer satellite-based Wi-Fi on 58 aircraft operated by Grupo Aeromexico starting next year. Gogo signed a similar deal recently with Japan Airlines.

Moreover, converting Verizon's wireless standard called 4G LTE for air-to-ground service "would be a long and arduous process," DeGasperi said.

Gogo speculation was driven by AT&T's (NYSE: T) recent plan to enter the market. But DeGasperi said AT&T made the move out of desperation.

The company found that two blocks of its valuable wireless communications spectrum were interfering with Sirius XM Holdings (NASDAQ: SIRI) operations and couldn't be used for terrestrial wireless service.

Going into Wi-Fi for air travelers "was their only option for using that part of the spectrum," DeGasperi said.

In early trading Wednesday, Gogo gained one percent to $17.69 a share.

View more ratings on GOGO

See more from Benzinga

© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.