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.
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