Electronics Firms Look to Join the Miles High Club

A business traveler without access to email can be like an infant without a blanket.  Each provides a type of security that can lead to crankiness if taken away. While cranky babies can ruin a flight, cranky business travellers can ruin an airline.  Airline industry suits see In-Flight wireless access and services as a way to keep their business clients happy while creating a new revenue stream.

Just this week, Lufthansa unveiled a marketing and PR blitz for its new Internet service, FlyNet, that will allow passengers to connect to the Web using a Wi-Fi-enabled laptop or smart phone via a satellite-based technology provided by Panasonic. The final price has not been announced, but an earlier attempt at a similar service charged passengers $10/hour and $27 for the entire flight.  http://www.nytimes.com/2009/10/13/business/global/13air.html?_r=1

Even though airlines are cutting back on capacity and labor to account for the still cloudy economic climate, spending for IFE&C, In-Flight Entertainment and Communication, is expected to grow. Charging a la carte for movies on demand, conference calls, email, etc. was identified as a key revenue growth driver by nearly two-thirds of airline executives surveyed by IdeaWorks.  A survey by airline IT giant SITA showed that 70 percent of the 116 global aircraft carriers it surveyed plan to introduce Wi‐Fi and GSM/GPRS connectivity for short‐haul flights by 2012, and around 65 percent for long flights. Frost and Sullivan estimates World In-flight Entertainment and Connectivity Market will grow to $2.72 Billion in 2012 from $1.68 Billion in 2007. This figure represents revenues earned from the largest 20 participants, which includes giants Rockwell Collins (NYSE: COL) and L-3 Communications (NYSE: LLL).

In-Flight-Wi-Fi

But smallcap names have designs on the expanding IFE&C market as well. Eatontown, NJ-based Emrise (NYSE Arca: ERI), which operates in the United States, England and France, creates electronic devices for a variety of applications including IFE&C systems for commercial aviation customers enabling them to product such revenue-generating services as Internet, email, text messaging, mobile phone and satellite TV.

 EMS Technologies (Nasdaq: ELMG) of Norcross, GA provides hardware and software for the aerospace, defense and transportation industries. Its Aero Connectivity division designs and manufactures satellite-based broadband communication systems that enable worldwide high-speed Internet, voice and video capabilities. EMS Technologies provides the network and application servers and wireless access points for Gogo, the leading flight Internet service that has already been selected by airlines representing more than half of the North American mainline market.

The IFE&C market may help breathe life into one of the most famously ill-conceived business ventures of all time – Iridium’s satellite phone. (Nasdaq: IRDM)  The Bethesda, MD-based company launched at the height of the Internet boom of the late 90’s (of course) to provide satellite phones for globe-trotting executives. The business folded, a combination of obsolescence (the wireless connectivity improved faster than expected) and poor timing (the dot com bomb.)  But the spare satellite capacity is available for IFE&C developers to use. Rather than position itself as an alternative to conventional wireless calling, the company wants to provide communication in parts of the world not reached by mobile networks. Iridium CEO Matthew Desch affirms that less than 10% of the earth’s surface has wireless coverage after 25 years and it’s never going to get much more than that. That includes airspace, the sea, and mountaintops. http://www.businessweek.com/technology/content/oct2009/tc2009106_078908.htm?campaign_id=yhoo

East Aurora –based Astronics (Nasdaq: ATRO) provides high-performance lighting, electrical power and automated test systems for the global aerospace and defense industries. The Company’s patented EmPower® in-seat power system allows airline passengers to power their laptop, MP3, or personal DVD player directly from a power outlet built into the airline seat. It is also a leading supplier of products used to provide the power for In-flight entertainment systems built into the seat-backs of passenger airlines. This past summer, the Company announced EmPower contracts with two Asian airline carriers worth $7.4 M. The Company reduced  2009 earnings guidance in part due to continued weakness in the commercial transport and business jet markets. However, much of the purchases for sophisticated IFE&C markets will take place over the next several years.

Air travel is the last vestige of cell phone-free public space, valued as either an oasis worth preserving or a frontier in need of development. For those who can not even stomach the idea of a transconetinental flight stuck between two yacketty yackers, well that’s ‘progress.”  On the bright side – maybe they can uncover a breakout smallcap that sells specialty in-flight ear plugs.

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