Saturday, April 20, 2024

The $250 million bet on SmartSky mobile service

Making minute corrections on their yokes, the pilots watch their attitude indicators, Kindle-sized screens on the instrument panel in front of them. On them, icons show the $11 million Cessna Citation Excel flying straight and level toward what pilots call an artificial horizon, brown for the earth below, blue above. Central Florida lies below in a gray haze.

Normally, Tomas Bueno, certified to pilot more than a half-dozen kinds of corporate jets, would be up here in the cockpit. But today the chief executive officer of SkyBlue Jet Aviation sinks in a leather seat in the cabin. On laptops and smartphones, he chats with staff members on the ground near Port St. Lucie as if in the office next door. Bueno’s company trains corporate pilots and helps companies manage their fleets.

“We make a joke that corporate aviation is a time machine,” Bueno says. “Now, if you can put that time to work like this with a viable, quick, usable internet connection up here in the plane, it’s tremendous. It’s the real deal.”

The jet cruises at more than 400 miles per hour, and its modest markings — the words SmartSky Networks and a blue globe — give no indication of the stakes for the Charlotte-based company.

With a bankroll that exceeds $250 million, SmartSky by the middle of 2018 plans to blanket the nation with ground-to-air connectivity that will bring 4G — fourth-generation — wireless internet and phone links to executives and the flight centers and pilots that whisk them around. Big money signals a big market, namely the nation’s 12,000 corporate-plane operators. By the end of 2018, the technology Bueno is testing also will be available to airlines that fly more than 800 million passengers in the U.S. annually, says SmartSky President Ryan Stone.

“It’s a game-changer,” says Stone, a Navy submariner who left the service in 2001, just as the dot-com sector crashed. Laid off by a Hickory communications-cable maker, he worked at Duke Energy Corp. and obtained an MBA from Chapel Hill’s Kenan-Flagler Business School. Since then, he has founded or helped start several aviation-related companies, including SmartSky in 2011. Its goal is to provide all of the “connectivity you expect all the time on the ground.”

Sounds simple, perhaps, but it’s a big deal, says John Croft, a former NASA engineer, pilot and now a Washington, D.C.-based senior editor of Aviation Week magazine. “SmartSky attacks a fundamental issue,” he says. “The connectivity people experience in their everyday lives — smartphones and so forth — typically, when you get in an airplane, that all goes away.”

“You can do this now, but it’s so slow, it’s like being on dial-up,” Croft says, referencing outdated internet connections. He says SmartSky, using unlicensed broadband spectrum and proprietary equipment and technology, can transmit huge amounts of data in real time. It helps create what SmartSky Chairman and CEO Haynes Griffin calls “offices in the sky,” including videoconferencing.

SmartSky faces a high-altitude dogfight to lead the industry. While Griffin says his technology is superior, SmartSky is well behind in marketing and finances compared with Gogo Inc., a Chicago-based in-flight connectivity company founded in 1991 that began trading publicly in 2013. The company has contracts with 17 major airlines and says it provides Wi-Fi service to more than 6,000 business planes. It expects to debut next-generation air-to-ground technology similar to SmartSky’s next year. Gogo will be the go-to in-flight internet service provider for aviation executives, spokeswoman Meredith Payette says.

“We know what it takes to create a network, and it takes a lot more than [SmartSky has] raised to date,” she says. “And, we view our technology as better … We don’t see how SmartSky’s patents apply even remotely to what we’re doing with our next-generation [air-to-ground] network.”

SmartSky’s role, however, isn’t just hawking airborne office suites. Transmitting huge amounts of data in real time to flight crews will increasingly improve operating efficiency and safety, pilots say. Aided by constant updates from ground destinations, SmartSky wants to help pilots alter routes to save fuel and time, learn about delays caused by airport congestion, schedule maintenance appointments, and avoid dangerous weather.

The hope is the improvements could reduce incidents such as on the fall day in 2004, when a Beechcraft Super King Air lifted off from Concord Regional Airport for Martinsville, Va., and a NASCAR race there. Impenetrable fog socked in the Virginia airport. Ricky Hendrick, the son of Hendrick Motorsports owner Rick Hendrick, along with several executives on the corporate jet, was among 10 killed when the plane smashed into nearby Bull Mountain.

About that time in the early 2000s, Griffin and Stone were independently laying the foundations of today’s SmartSky. With backing from Greensboro’s Richardson family of Vicks VapoRub fame, Griffin co-founded Vanguard Cellular Systems Inc. in 1984. It became one of the nation’s largest independent mobile-phone service providers before selling in 1999 to AT&T for $1.5 billion, including debt. Griffin, now 70, controlled shares valued at more than $30 million. Since then, he’s been involved in various entrepreneurial ventures, including Greensboro-based Insect Shield LLC, which makes clothing that repels mosquitoes and other pests. The Princeton University graduate is a former board chairman of Woodberry Forest School in Virginia.

While in business school, Stone created a plan that “basically called for carpooling with jets,” he says. “We called the company Jetpool and launched it out of the class.” Jetpool evolved into Davinci Jets LLC, a Charlotte-based charter and aircraft-management company with 45 employees and annual revenue topping $10 million. But customers groused about poor internet links to the ground.

One of Stone’s business partners discovered a dormant patent application related to airborne cell service that had been filed in 2005. Their group bought it, began research and development, and spun out SmartSky Networks in 2011. “It was for uninterrupted, seamless handovers between cell towers. If you’re in an airplane traveling overhead and have your high-speed signal connected and wanted to transfer to another tower, it was to do that seamlessly.”

Much of SmartSky’s technology is proprietary and shrouded in the complexities of bandwidths, federal regulations and data rates, but Griffin walks through key numbers. “The existing air-to-ground system uses a small piece of licensed spectrum that’s 3 megahertz in size,” he says. A hertz is one cycle per second, and a megahertz is a million per second. “We’ve created a way to reuse spectrum in the air while not interfering with its use on the ground.” The bottom line, say SmartSky technicians, is two-way communications between airplanes and the ground at 10 times the speed and capacity of most current aerial Wi-Fi connections.

On the demonstration flight carrying Bueno, his smartphone conversations and data exchanges seem indistinguishable from those between terrestrial users. Griffin explains why.

Thousands of feet below is one of the 230 transmitters SmartSky is installing this year. Instead of sending up a broad curtain of signal, SmartSky targets only the speeding Cessna. On board, an antenna receives the signal and relays it to a router in the cockpit, which beams it to the pilots and laptops, phones and other devices in the cabin.

“It’s called beamforming, and by that method, we have a single beam communicating directly with each plane and not shared by others,” Griffin says. Stone offers this analogy: “If you remember the Super Bowl, you remember Peyton Manning shouting plays, ‘Omaha, Omaha!’ How did you hear him above all the fans screaming? If you looked on the sidelines, you saw a guy with a directional antenna pointed at him. It focused the energy from his mouth so you hear the quarterback, but not the fans.”

Another factor, Croft and other experts say, is that most current in-flight internet connectivity is satellite-based. That technology is subject to an inherent delay because the signal must bounce off a satellite thousands of miles in the air before reaching the passenger’s or pilot’s laptops or phones. SmartSky’s beamforming technology overcomes that issue.

With beamforming, a small antenna on the underside of the plane receives the signal. Instead of building its own network of ground towers, SmartSky leases space on existing cell towers. Each subscribing aircraft will be retrofitted with an antenna on the underside of the plane that links with a ground transmitter. Satellite-based in-plane Wi-Fi requires a large antenna, restricting use mostly to larger planes. SmartSky is initially targeting smaller business planes.

The cost of ground stations is proprietary, but Griffin and others estimate aircraft owners will pay about $130,000 for the antenna and other equipment per aircraft, including installation. “Each plane, whether a business jet or commercial jet, will have a radio that will ‘talk’ from the plane to our network on the ground,” Griffin says. “That radio will in turn be connected to a wireless router inside the plane that will make the signal available to all authorized users in the plane.” At that point, adds Stone, “it’s just like Wi-Fi in your home or office.”

Subscription fees will be based on how much data is used, with a 25-gigabyte plan costing $4,500 a month. Sounds pricey, but maybe not to corporate fleet users. It costs about $4,100 an hour to operate an eight-seat Cessna, according to Frederick, Md.-based Airline Owners and Pilots Association, which represents general-aviation fliers.

Stone confirms that SmartSky has approached manufacturers including Greensboro-based Honda Aircraft Co., which has sold more than 60 of its $4.5 million light corporate jets. “We are talking to all the major airframe manufacturers,” he says, which by definition includes Embraer, Bombardier, Cessna and Gulfstream Aerospace. The company also has talked with many large corporate-jet users. Retrofitting existing planes offers greater potential for sales, given that only about 400 new business jets are produced in the U.S. annually.

SmartSky is borrowing a page from the smartphone industry by opening its system to outsiders. It’s inviting them to develop applications that might arrange Uber, or Airbnb services at destinations, or, once SmartSky is available on airlines, rebook flight legs while in the air.

“Most companies don’t want to share,” Aviation Week’s Croft says. “But SmartSky is giving them the tools to develop their own applications and saying, ‘Here, go out and play and see what you can come up with.’”

In the Florida skies, the attitude indicators on the instrument panel of SmartSky’s Cessna tilt and dip as the plane begins its descent. Potential customers say they like what they’re seeing. Kevin Hufford, avionics manager of Chicago Jet Group, which provides aircraft management, says SmartSky is “exceeding our expectations.”

Whether the newcomer can steal Gogo’s thunder won’t be decided entirely in the sky. Its $250 million of capital has come from about 50 investors. The $170 million of financing closed in March will carry the network through liftoff, Griffin says. More debt and equity will be raised, “but for now, we have the capital we need to get the network built.”

Houston-based Platform Partners LLC tracked SmartSky for more than two years before investing in the company in 2016. Co-founder Fred Lummis is a former CEO of cell-tower giant American Tower Co. Platform concluded SmartSky “will pave the way for a faster, more cost-effective in-flight connectivity solution,” according to an emailed statement.

On a recent day, Griffin holes up in a hotel room in Melbourne, Fla. Overhead, potential customers test his brainchild’s reflexes. He exudes confidence. “We’ve developed an early-bird program expressly for corporate users, and we have a long waiting list that includes some of the best names of the Fortune 500.”

The early rounds of funding were mainly for research and development. The latest, raised with Goldman Sachs Group Inc.’s assistance, is for scaling. SmartSky plans to debut its network next year, but unlike its connectivity, Griffin says he’s impatient with the speed. After six years in the making, “it’s never as fast as you want.”

Featured photo of Haynes Griffin (left) and Ryan Stone (right) of SmartSky Networks by Peter Taylor

Related Articles