March 28, 2019

Wow Air: another carrier goes bust

Iceland-based low-cost carrier Wow Air has ceased operations, effective on 28 March.

The carrier unsuccessfully had searched for a financial backer for months.

Wow Air creditors agreed on 25 March to convert debt into equity in return for a 49% stake in the company.

Wow Air, however, was unable to find an investor for the other 51% to avoid bankruptcy and raise the estimated ISK5 billion ($41 million) to keep the carrier aloft.

US private equity firm Indigo Partners in late March withdrew an offer to buy a stake in the loss-making carrier.

Indigo Partners, which holds stakes in several low-cost carriers, including Frontier Airlines in the US, reported reaching a preliminary deal to acquire 49% of Wow Air.

Wow Air, however, posted a pre-tax loss of $42 million for the first nine months of 2018. Indigo’s planned investment of $75 million was recently raised to $90 million, suggesting there were gaping holes in Wow’s finances and more debt than previously thought.

Flag carrier Icelandair previously agreed to buy privately owned Wow Air in an all-share deal but ditched those plans in late November 2018.

Wow Air, founded in 2011, operated long-haul service between Europe and North America, and also transported more than a third of passengers travelling to Iceland.

Wow Air had undergone major restructuring in a bid to ensure survival, reducing its fleet from 20 to 11 aircraft, eliminating several destinations, including some in the US.

A report by an Icelandic government working group said that a Wow Air bankruptcy would lead to a drop in Iceland’s gross domestic product, a drop in the value of the krona and lead to a rise in inflation.