How do you pacify air passengers who in recent years have been forced to trade leg room and overhead storage space for additional fees for everything from checked bags to blankets? The airlines have decided that the best way to subdue their customers is with in-flight entertainment and Wi-Fi Internet connections. The demand for which is making some aerospace parts suppliers very attractive M&A targets.
Given the Federal Aviation Authority’s increasingly lenient stance on the in-flight use of personal electronic devices and plans by wireless communications providers to increase in-air access and broadband speeds, the global market for in-flight entertainment and connectivity is projected to soar to more than $3 billion by 2024, according to Grand View Research. That’s up from around $1.5 billion in 2016.
One company that is looking to capitalize on this growing niche is Astronics Corp. (Nasdaq: ATRO) of East Aurora, New York, which is acquiring Telefonix Inc., for approximately $104 million. Astronics makes airplane parts ranging from cockpit control panels to seat trays, while the Waukegan, Illinois-based target makes cord reels, handsets and media content loaders for in-flight entertainment equipment.
Commenting on the relatively virgin state of this segment of the market, Astronics’ CEO Peter Gunderman recently told the firm’s investors that “A lot of times I get this question put to me, in terms of where are we in the ballgame. And I guess I would say we’re somewhere in the second or third inning. There are a lot of airplanes that have nothing on them yet in terms of power or Wi-Fi or Internet access.”
ViaSat Inc. (Nasdaq: VSAT), a broadband service provider headquartered in Carlsbad, California, is also getting in on the act. Last year it purchased Arconics, a Dublin-based maker of in-flight entertainment systems, for an undisclosed amount. The target also provides software that allows flight crews to track passenger information and communicate with ground personnel.
One of ViaSat’s biggest customers is JetBlue Airways Corp. (Nasdaq: JBLU), which was one of the first airlines to offer free Wi-Fi across its entire fleet and allow passengers to browse and stream as much content as they want during flights.
With competition rising among airlines over who provides the best in-flight entertainment, it stands to reason that even more middle-market deals will get off the ground.