The tragic and mysterious loss of Malaysia Airlines MH370 over the South China Sea on March 7 with 239 people onboard highlights an oft-unappreciated shortcoming of the current global air traffic control system. Namely, most of the aircraft plying the skies on a daily basis lack a globally-persistent and reliable means to self-report their position to air traffic controllers.

 Malaysia Airlines MH370 technology

Malaysia Airlines
Malaysia Airlines

For the past 60+ years, radar systems and line-of-sight VHF radios have served as the primary means to track the movement of aircraft over land (although radar coverage is by no means comprehensive in all regions of the world). Over the next decade, many of these radar systems will be replaced by a “satellite-based” system (known as NextGen in the U.S.) comprised of: (1) a terrestrial tower network that listens for automated radio transmissions from aircraft flying above, and (2) aircraft outfitted with a GPS receiver and radio transmitter (known as ADS-B) that broadcasts the aircraft’s precise location and other pertinent data (e.g., altitude, airspeed, bearing, etc.).

 Malaysia Airlines MH370 technology issues

Both technologies, however, suffer from the same fundamental flaw – they only work in geographies where ground infrastructure (i.e., radar stations or towers) can been deployed. Consequently, even following the planned $40 billion investment in NextGen, aircraft will remain invisible over the world’s oceans and many remote regions.

 Malaysia Airlines MH370 and Aireon

Enter Aireon. First announced in June 2012, Aireon is a global air traffic control system that will be hosted on Iridium’s second-generation “NEXT” constellation that will begin launching in early-2015. Comprised of 66 low Earth orbit satellites that are interconnected via a mesh network in space, Iridium’s satellite constellation is the world’s only communications network with 100% global coverage.

 

Once on orbit, these Aireon-enabled satellites will be able to “listen” for aircraft ADS-B transmissions (Iridium’s satellites fly at an altitude of 485 miles) and then relay this information to Air Navigation Service Providers (ANSPs). Consequently, future aircraft crashes could be located almost immediately based on the real-time breadcrumb trail generated by the aircraft’s ADS-B transmitter.

 Iridium, Malaysia Airlines and the future

Iridium Communications Inc. (NASDAQ:IRDM) has publicly identified more than $600 million of revenue commitments coming from its Aireon subsidiary, a revenue stream that equates to an NPV of ~$5.00 per share to Iridium shareholders .

With shares of IRDM trading a hair below $7.00, we would argue that Aireon is not being fairly valued in Iridium’s stock, but this value should be more fairly realized in the coming weeks and months as investors come to more fully-appreciate the unique opportunity afforded by Aireon, and the FAA stops dragging its feet and joins six other ANSPs that have already signed long-term contracts with Aireon.