Icelandair To Complete On The Sale Of Its Hotel Chain

Icelandic airline Icelandair is in the final stages of the sale process of its hotels. The airline is selling 75% of the hotel business to a Malaysian company, in exchange for approximately $84m in financing.

Icelandair 737 MAX
The sale of the hotel arm will bring a windfall for Icelandair in the wake of the 737 MAX grounding. Photo: Getty Images

Icelandair’s hotel business

The Icelandair Group owns 13 hotels under its brands, which include Icelandair Hotels and Hotel Edda. Altogether, Icelandair operates a sum total of 1,811 hotel rooms all over Iceland, with more still to be added. Most recently the Group announced an addition of a 145-room hotel at Austurvöllur Square in Reykjavik’s Parliament district. This is in association with Hilton Hotels and is due to open in 2021.

However, despite annual revenues of $12m from all its operations, the Icelandair Group decided some time ago that it was to divest the ownership of its hotel business for the good of the airline. In May 2018, the airline announced it would divide the company structure into flight operations and tourism operations.

Icelandair hotels
Icelandair Hotels own 13 properties across Iceland. Photo: Icelandair Hotels

At the time, Group President and CEO Björgólfur Jóhannsson commented,

“We are now taking the next steps, with a decision to initiate a process designed to sell majority share in Icelandair Hotels. We are looking in the same way at the properties relating to these business activities.”

As such, the hotel business was put on sale. It didn’t take long to find a buyer, with a deal finally signed just over a year later with Berjaya Land Berhad, a Malaysian-based corporation involved in a huge variety of sectors, from resorts to retail.

Sale nears completion

Now, six months later, the completion of the sale to Berjaya is entering its final stages. Berjaya has already paid some $15m towards the purchase of the business, some 30% of the overall purchase price.

Icelandair Hotel Vik
The deal is worth $84m to the Icelandair Group. Photo: Icelandair Hotels

Also complete is the refinancing of Icelandair Hotels, which has apparently freed up some $29m to be paid to Icelandair Group. The final payment will be made upon completion of the deal, which has been agreed to take place on the 28th of February 2020. At this time, the remaining balance of $40m will be released to the Icelandair Group.

The February date is further away than previously agreed. Originally, the deal was due to complete by the end of 2019, but due to ‘capital controls in Malaysia’ the buyer has requested an extension.

Good news for Icelandair’s aviation arm?

While $84m is nothing to be sniffed at, for the Icelandair Group it could mark a welcome cushion for its aviation business. The airline has been struggling with fleet issues since the grounding of the 737 MAX, forcing it to persist flying its aging 757s for much longer than it had anticipated. Now, it plans to operate the 757s until May 2020, as it doesn’t believe any of its 737 MAX will be ready before then.

The grounding has cost the airline dearly, with Icelandair reporting an 11% drop in capacity due to the loss of the aircraft. Following the demise of WOW air earlier this year, Icelandair should have been able to capitalize on this and expand, but the loss of the MAX left it unable to do so as effectively as it would have liked.

The Icelandic carrier is also struggling to make its transatlantic routes work, at least not with the more expensive to operate 757s on those routes. Hopefully, this cash injection will help it to ease its way through the winter season, and return in 2020 with MAX in its fleet, cash in the bank and a compensation payout from Boeing in the wings.