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Boeing decides to shut down Connexion; No one offers to buy Internet unit

Fri, 08/18/2006 - 7:30am

Copyright 2006 Gannett Company, Inc.
All Rights Reserved
USA TODAY

Aerospace giant Boeing said Thursday that it can't find a buyer for its unit that sells high-speed broadband service to airlines and will shut it down by the end of the year.

The decision to close the unit, Connexion by Boeing, ends the only in-flight Internet service for commercial airline travelers.

The announcement disappoints, but doesn't completely surprise, customers such as German carrier Lufthansa. Chicago-based Boeing said in June that it would sell or shut down Connexion, which has been losing money since it was created in 2000.

"We are disappointed because it is something that our customers have enjoyed," says Jennifer Urbaniak, a spokeswoman for Lufthansa, which was Connexion's first customer in 2004. "We're hopeful that we will be able to find a way to continue the service in the future with another partner."

Singapore Airlines, another customer, is disappointed that the service wasn't given more time, says spokesman James Boyd.

Boeing CEO Jim McNerney said in a statement that his company has "invested substantial time, resources and technology" into the broadband service.

"Regrettably, the market for this service has not materialized as had been expected."

"I think Connexion may have been a product slightly of ahead of its times," says Henry Harteveldt, analyst at Forrester Research. "Boeing bears a lot of responsibility for its failure to make the equipment viable for single-aisle planes. It was too heavy and too expensive."

Boeing will maintain the satellite-based service until the end of the year for its 10 airline customers: Lufthansa, Singapore, SAS, El Al, All Nippon, Japan Airlines, Asiana, China Air, Etihad Airways and Korean Air. About 156 commercial planes are equipped for the service. No U.S. airline is a customer.

Connexion has succeeded in delivering fast Internet connections to productivity-conscious business travelers on long-haul flights. But it has failed to gain enough customers worldwide to be a viable business. About 20 to 30 customers use the service in a typical long-haul Lufthansa flight, Urbaniak says.

On average, only about six passengers on All Nippon's Washington, D.C.-to-Tokyo flights in April used it. The service costs $26.95 a day.

Guenter Stecker, an information technology director from Vienna, who has used the service on Lufthansa, says he'll miss it despite what he called its relatively high cost. "It was always convenient to have the opportunity to work without the stress of meetings, phone calls and office visits."

Connexion's system costs about $500,000 or more to install on an aircraft. Major U.S. airlines showed much interest in Connexion when it was launched but have been struggling financially since 2001 and can't afford the service. American, Delta and United, which initially wanted to invest in Connexion, pulled out in 2001 as potential partners.

U.S. airlines are looking for cheaper alternatives. Colorado-based AirCell says it will introduce a Wi-Fi system next year for domestic airlines. New York-based discounter JetBlue says it may introduce an in-flight text-messaging or e-mail service next year.

In June, AirCell and JetBlue won the government auction for a wireless spectrum being abandoned by Airfone, which used it for seat-back phones.

Because of Connexion's closure, Boeing expects to take a charge of up to $320 million, or 26 cents a share, in the final two quarters of 2006.

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