Leading in-flight connectivity provider Global Eagle has announced an upsizing of its Senior Secured Term Loan, which is due to mature in 2023. As such, it has upsized by $40m which, net of fees and expenses, will lead to approximately $61m of liquidity over the next year and a half.
Josh Marks, Chief Executive of Global Eagle, said in their announcement that,
“We are pleased to announce this Amendment, which strengthens our liquidity and positions us to deliver significant long-term shareholder value as we continue our transition to sustainable, positive free cash flow generation. We are grateful for our strong collaborative partnership with our lenders. We see significant opportunities as we continue to serve our customers well and innovate in our markets.”
According to the announcement, the company plans to use this money to “repay principal balance on its revolving credit facility and anticipates using the remaining proceeds for growth, cost initiatives and other general corporate purposes”.
Tough times for Global Eagle
Back in 2014, Global Eagle was the first to bring Beats Music (now Apple Music) to passengers on Southwest Airlines flights. Passengers could stream selected music directly to their devices, in a move that heralded the transition to on-demand entertainment in flight. More recently, the company has introduced Apple Pay on Southwest aircraft, bringing biometric payments to the skies.
Global Eagle remains a leading provider of satellite-based connectivity for smaller airlines, as well as a broadcaster of live TV for both aviation and maritime marketplaces. In their fourth-quarter results for 2018, the company noted that they had had several wins in both of these industries.
As well as renewing contracts with two large cruise customers, they accelerated the installation of Air France and launched a new next-gen Network Resource Management software platform. Air France is a major customer of Global Eagle, and in the last quarter of 2018 launched its inflight connectivity services to passengers using Global Eagle’s Ku-band HTS network.
Global Eagle says that their HTS network is the first to span all of Europe, Russia, the Nordics and Scandinavia and that it is capable of delivering speeds of up to 500Mpbs to every aircraft cabin. Despite this, the company posted a loss for the quarter, totaling a not-insignificant $109.2m.
However, fortunes at the company have been somewhat turning around, with the first quarter of 2019 seeing a much smaller loss of just $37.6m. In particular, their connectivity segment enjoyed a boost in revenue, increasing by 6.2% year on year. They also secured a contract for a major new connectivity program, which they noted was their largest award in recent years.
Not free from the impact of the MAX
Even the inflight connectivity industry is not free from negative impacts as a result of the grounding of the 737 MAX. At the end of the first quarter of 2019, Global Eagle had added 26 Boeing 737 MAX aircraft to its fleet of connected planes. However, this was scheduled to balloon with an additional 40 installations slated for 2019. But with the aircraft still grounded, Global Eagle is awaiting the all-clear from the regulators in order to continue with these projects.
In total, Global Eagle has forecast that the grounding of the 737 MAX will cost the company between $3m and $4m during the second and third quarters. Should the grounding continue beyond the end of 2019, the impact could be even more significant.
While the announcement of increased liquidity at Global Eagle is certainly good news overall, it serves to draw attention to some of the challenges being faced by the company too.