Shares in Gogo (NASDAQ:GOGO) dropped by 43% on Tuesday after its client American Airlines (NASDAQ:AAL) said it had filed a suit to break its inflight internet service contract because it had landed a better one from ViaSat (NASDAQ:VSAT).
"After carefully evaluating the new technology and services in the marketplace, American has decided to exercise its rights under the Agreement and recently notified Gogo that ViaSat offers an in-flight connectivity system that materially improves on Gogo's air-to-ground system," the suit in a Texas court says.
The lawsuit does not infer that American is unhappy with the reliability of the service it has received from Gogo other than that others offer a faster and more competitve offer for the future.
Reportedly, Gogo maintains that the technology which American wants to remove is found on only 200 of the more than 1,000 mainline and regional aircraft in the American fleet.
According to US press reports, the suit filing claims that American's contract with Gogo allows the airline to terminate or renegotiate the agreement if the airline is able to find better internet service with another provider.
American is seeking a declaratory judgment from a judge to uphold that provision.
But American has also offered an olive branch to Gogo, saying that should Gogo respond with a counter proposal, that would be evaluated by the airline.
Gogo shares were last seen down 31% at US$9.61, while those of ViaSat were up 12.4% at US$70.21.
ViaSat already provides internet service to other airlines such as United Airlines, JetBlue, and Virgin America.