By Barbara Cockburn
Boeing has ditched its in-flight Internet access service, Connexion, because “adoption of the Connexion service was slower than anticipated.”
Boeing confirmed last month that it will discontinue its six-year-old Connexion arm of the business because it hadn't attracted much interest from airlines, despite investments in resources and technology.
A spokesman for the US-based manufacturer, explained that the market for the service has not developed as expected. Adoption of the Connexion service was slower than anticipated, compounded by usage of passengers being far below what was expected to create critical mass for the business.
He said: “We made our decision after conducting a thorough review of the business. This decision best balances the long-term interests of all parties with a stake in Connexion.”
He added: “This was not a technology issue. It was a market issue. We're seeing penetration numbers in the low single digits after two-plus years of commercial service, which isn't in line with our expectations for the business.”
Boeing’s 2nd quarter earnings reported that terminating Connexion could result in pre-tax charges of up to US$350 million, but it will take a pre-tax charge of up to $320 million (or $0.26 per share) in the second half of 2006, of which approximately $290 million will be taken in the third quarter with the balance in the fourth quarter.
The company also expects a benefit to earnings of approximately $0.15 per share starting in 2007 without further investment in Connexion.
The $320 million pre-tax charge to exit the Connexion business comprises writing down certain assets, payments of early termination fees and other costs related to shutting down the service.
Connexion by Boeing has been installed on 156 commercial aircraft with 12 airlines: ANA, Asiana Airlines, China Airlines, El Al, Etihad Airways, JAL, Korean Air, Lufthansa, SAS, and Singapore Airlines.
Connexion also is used for executive transport aircraft operated by the U.S. government, by maritime commercial shipping customers, and by other executive aircraft operators.
The spokesman said: “We expect to see the service end soon, with other commercial customers phasing out service by the end of the year.”
Passengers travelling on Internet-equipped flights will be able to use the service until it is phased out at the end of the year.