In a conference call with investors, Sloan said that the $430 million purchase represented six times projected 2014 earnings before interest, taxes, deprecation and amortization.

Farrar said Sloan’s projection was “extremely ambitious.”

Up in the air

Row 44 was co-founded in 2004 by John Guidon and Gregg Fialcowitz. Guidon, chief technology officer, was chief executive until earlier this year. Fialcowitz is no longer with the company.

Chief Executive John LaValle and other executives did not respond to requests for comment for this article.

The company made its first major deal to provide in-flight Wi-Fi and live-streaming television services in 2010 when it contracted with Dallas-based Southwest Airlines Corp. Since then, Row 44 has signed deals with Norwegian Air Shuttle; Icelandair; Moscow-based Transaero Airlines; and Mango Airlines, based in Gauteng, South Africa.

Under Row 44’s typical business model, the airline buys Row 44’s equipment to make planes Wi-Fi capable. Row 44 in turn pays its satellite service provider – Hughes Network Systems in Lombard, Ill. – to monitor, maintain and control the Wi-Fi and live-streaming services. Passengers who use the service pay the airline directly.

In addition, the airline pays Row 44 a small fixed fee for each passenger that boards a Row 44-outfitted plane, regardless of whether they buy the service. These service revenues are thought be 15 cents to 25 cents per passenger, although Row 44 has not verified that.

Row 44 makes most of its revenue by selling and installing its Wi-Fi equipment, but Farrar at TMF said those one-time sales aren’t enough to sustain the company.

“At some point, they’ll have completed that and have to rely on service revenues,” he said.

One reason the service revenue numbers aren’t adding up for Row 44 is because the in-flight Internet industry isn’t taking off as quickly as many people expected it would.

One of Row 44’s biggest competitors, Gogo Inc. in Itasca, Ill., has a different business model; it gets most of its revenues directly from passengers. But the percentage of passengers that actually use it is small. In the first half of 2012, Gogo reported that only about 5.4 percent of passengers on the planes it services used in-flight Internet. That number was inflated, too, due to sponsorships that subsidized passengers’ access during that time.

Farrar said Gogo’s low use rate doesn’t bode well for Row 44.

“What we’ve seen from Gogo is that the percentage of passengers paying for the service is not as high as many people hoped,” he said.

But Global Eagle’s acquisition of Row 44 could help.

Farrar said the money Global Eagle raised in its IPO could give Row 44 time to sign more airlines and make more money.

“They’ve constantly been in fundraising over the last couple of years,” he said. “By doing this deal, the most direct impact is they’ll get that $190 million from Global Eagle to help them develop the business. There won’t be as much pressure to keep raising money to keep everything going in the short term.”

And in the long term?

“The long-term benefit is that the people behind Global Eagle are Hollywood executives who will be able to use their relationships in the industry to get access to more compelling content,” he said.


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