David M. Davis Credit: Global Eagle Entertainment
PARIS — The Feb. 21 announcement by aero- and maritime-connectivity provider Global Eagle Entertainment that its CEO and CFO would be leaving the company, effective immediately, caused GEE’s stock to plummet by 26%. What happened?
GEE has given no explanation for the departure of CEO David M. Davis, leaving investors to infer what they could from the fact that he company agreed to a $1.09 million cash payment to him, plus his full 2016 bonus and a three-month consulting contract with GEE valued at $150,000.
GEE later said it would be late in filing its annual financial statement because of financial-control weaknesses. The stock has not recovered, igniting speculation that the weakened company could become a takeover target.
Five weeks later, Davis says he is working full-time on business development issues for GEE and that his departure, and the naming of GEE board member Jeffrey A. Leddy as his successor, had been planned well in advance.
Davis refused to discuss the company’s handling of the announcement.
Why did you leave GEE?
I have a consulting contract and I am working actively with the company. I have every desire to see the company be successful.
The reality is this: I was at GEE from the beginning and we did a number of acquisitions — I think there were 10 total acquisitions over a four-year period. The company is at a phase where it needs to do some digestion work. It needs to take some time and finalize the integration [with maritime connectivity provider EMC], particularly with some of the back-office functions.
Both the board and I felt that Jeff, from an interest perspective and from other perspectives, was probably the best guy to do that.
So you are still working for GEE. Have you met with shareholders and the big institutional investors?
No. I am working full time with Global Eagle but I am not in any way focused on the shareholder side of the business. I have a discreet list of projects that I am working through.
Your EMC deal has not been followed by similar deals. Is consolidation is needed among the service providers?
If you look across the satellite-based mobile communications space, there are too many players on the aviation side and on the maritime side. All have fairly similar networks and not drastically different technologies as well.
Consolidation makes eminent sense across the aero and maritime spaces. You’ve seen some of it — Panasonic and ITC, Global Eagle and EMC, SpeedCast and CapRock — and a few others. That trend needs to continue and I think it will. Global Eagle closed on the EMC transaction in July 2016. The SpeedCast-CapRock transaction is newer than that, so things are moving — just not at lightning speed.
People have touted the logic of consolidation in the satellite sector for some time now, but not much has occurred.
I spent a lot of my career in commercial aviation and consolidation that should have happened 25 years ago happened 10 years ago. Sometimes things take longer than they should. But I think that on the satellite service providers’ side, it’s probably quicker than that. It needs to be quicker than that. I don’t think it’s a 10-year proposition. It’s more a near-term proposition.
The CEO of Inmarsat sees a day when in-flight connectivity will grow enough to get its own, tailor-made satellites. Do you agree?
I am not sure that’s completely logical. Designing satellites specifically for IFC may make sense in certain very, very high density regions of the world. Let’s say over North America.
If you have satellites capable of delivering very significant bandwidth to major hub cities — an HTS satellite with capacity focused on, say, Chicago, Dallas, Atlanta, where you have a super-high density of aircraft at any given time of the day — that makes some sense.
But for the majority of the world, having satellites that are capable of delivering bandwidth to a more diversified mix of customers makes more sense to me.
New flight safety rules have stirred the issue of whether seat-back screens will will cede ground to a bring-your-own-device policy on commercial flights.
The durability of seat-back systems is significantly longer term than some are predicting. 90-plus percent of the wide-body aircraft rolling off the production lines in the next few years have setback systems in them.
These aircraft are going to be flying for 20 years, so the tail on seat-back systems is far longer than some people predict.
And the global availability of enough bandwidth, economically delivered, to stream movie content to an Airbus A380 is a long way down the road. Getting these high volumes of content delivered to airline passengers is going to be on-board, stored and embedded systems for a long time to come.
So the IFE world will adapt to IFC my improving its offer to account for both?
Yes, these things are highly complementary, at least in my planning horizon. What happens with an aircraft ordered 10 years from now, and say the OneWeb network is up and bandwidth is incredibly cheap and available? I don’t know. But over the next 5-10 years I don’t see a slowdown in the seat-back business.
Recent security concerns about passengers’ devices have barred laptops from certain flights at certain airports. Tomorrow it could be tablets or smartphones.
It’s too premature to see how this develops. It would drive such fundamental change beyond in-flight connectivity. Let’s say you’re a passenger with an iPhone and an iPad who’s traveling without luggage: What are you supposed to do? Is everybody going to check their luggage in the future?
The implications, if this thing went broad, are so huge that I can’t see it. Airline operations would have to change fundamentally if suddenly the number of checked bags tripled. I don’t know how that practically could happen.
Does IFC need to be free or nearly so — an invisible cost to the passenger, like in-cabin movies and refreshments — to get a big take-up rate?
Over time you are going to see airlines offer more and more a free service, the same as the hotel business with free WiFi. Passengers are going to expect it, particularly in certain regions of the world. The monetization model for the airlines will have to evolve into something more sophisticated. Whether it’s a cost that the airlines decide they need to bear, like having a comfortable seat, some will decide that’s the case.
There are a lot of possible monetization models — sponsorships, advertising. Whatever it is, it’s coming. But it’s a slow march and it will happen faster in some areas than in others.
GEE purchased the payload of SES’s 19-year-old AMC-3 satellite, which was nearing retirement and is operating in an inclined orbit. Will this become a trend in the industry?
Whether this will be a common thing, or remains rare, I can’t predict. But it’s a very logical thing that likely will make it more common. The economics are straightforward.
Look at SES. They have an inclined-orbit satellite, which for most of their customers will be worthless over time. The mobility market provides a whole new life for these satellites. So the marriage of a fully amortized asset that the FSS guys can’t sell to most of their customers and the whole mobility market where the inclination makes a minimal difference — you have a perfect transfer of the asset.
You can calculate that the satellite is going to last this long and so this is what we are paying per MHz and it’s a great deal for the seller and for the service provider.
But bandwidth prices are going down and this locks you into a price.
It depends what you paid for it. You need to make some prediction about what’s happening to prices. If you get the asset cheaply enough — if you paid the market price of for years from now — there is a lot of advantage in having done the deal.
OneWeb said it plans a maritime offer by using gateway Earth stations on islands to capture the signal from mid-ocean ships. As the owner of EMC does that ring right to you?
Without some kind of inter satellite links, which could solve that problem, then this is a hard problem. There’s not a ton of islands that close together.
Are you a believer in the LEO satellite constellations? A bunch have been proposed to regulatory bodies.
Anything that brings the cost of bandwidth down would be hugely favorable to the service provider world and to the take-up of these systems for airlines and ships.
But there are several issues. When someone says they’re building a satellite network for 2020, that means 2025. Second, fundamental changes are needed in antenna technology. You have these moving satellites and a lot of signal handoffs. Getting the antenna technology to a reasonable cost on board the aircraft, given certification times and everything else, pushes this out. It’s beyond 2020 before this starts to have an impact on things.
But potentially it’s really exciting and anything that provides more bandwidth at a lower cost is generally good. But significant changes in antenna technology have to take place for that to bear fruit.
Some of these constellations are targeting the home user/home office market, with user terminals at $250 including the antenna.
It’s hard to see that. For this space overall, mobile satellite services on aircraft particularly, one of the biggest problems and the economic hurdles is the cost of the antenna.
Multi-hundred-thousand-dollar-per-aircraft terminals are a huge capital investment for an airline, or whoever is making the investment. If you can get that cost down significantly, say one-third of wha it is today, the market opportunities just explode. But that initial capital investment to get these terminals on these aircraft is a huge impediment to the growth of the business.