Unfortunately, following the news that WOW Air had returned aircraft to lessors yesterday, Icelandair has now abandoned its bid to purchase low-cost rival WOW Air. The news comes at a particularly worrying time for WOW, as CEO Skuli Mogensen sent out a letter to the airline’s bondholders regarding the financial status of the airline. Mogensen told of the recent challenges that have faced the airline. The cancellation of the purchase agreement has followed WOW failing to meet certain conditions but was agreed by both parties. However, should WOW collapse, the Icelandic economy could take a serious hit.
Was WOW Air to collapse, the Icelandic economy could see serious consequences. Currently, Iceland’s main source of income is tourism. While Icelandair’s stopover massively helps this, so does WOW Air. In fact, at the start of July this year Icelandair and WOW Air made up a 77% share of the Icelandic aviation market. Traders are clearly worried about the future of WOW Air, as the value of the Icelandic Krona vs the Euro dropped 0.9 per cent at today’s news. Additionally, WOW Air currently employs 1,500. Iceland’s entire population is 355,620 according to an estimate on the 6th November. As such, WOW’s workforce is equivalent to 0.4% of the Icelandic population.
Why Did Icelandair Pull Out?
The decision not to go through with the purchase is reportedly due to WOW not being able to fulfil certain conditions of the purchase. However, despite the cancellation of the purchase, Icelandair may still help. According to WOW: “An authorisation proposal for the Board to increase the share capital of Icelandair Group is on the agenda of the shareholders’ meeting.”
Bogi Nils Bogason, Interim President & CEO of Icelandair Group said: “The planned acquisition of Icelandair Group of WOW air will not go through. The Board of Directors and management of both companies have worked on this project in earnest. All our best wishes go out to the owners and staff of the WOW air.”
Additionally, Skúli Mogensen, CEO and Founder of WOW air commented: “It was clear at the outset that it was an ambitious task to complete all the conditions of the share purchase agreement in this short period. We thank the Icelandair Group’s management team for this challenging project, and also wish the management and staff of Icelandair Group all the best.”
Can WOW Collapse?
Put simply, the answer is unfortunately potentially. Yesterday the airline’s CEO stated how external factors have been challenging the airline. These include:
- Bad publicity of WOW’s financial state;
- The collapse of Primera Air;
- Lessors and Creditors imposing stricter terms;
- Surging Oil Prices.
Mr Mogensen also told that the airline is currently taking every step possible to ensure its continuous operation. This includes a €5.5mn cash injection from Mr Mogensen’s personal accounts. Recently the airline has also been cutting the number of routes offered and returning aircraft as part of “necessary restructuring”. Hopefully, this current situation will just be a blip in WOW’s history.