March 22, 2019

Wow Air stake back in play

US private equity firm Indigo Partners has withdrawn an offer to buy a stake in Iceland’s loss-making carrier Wow Air; Icelandair is now back in talks to buy the no-frills airline.

Wow Air, founded in 2011, offers low-cost service between Europe and North America.

The carrier also transports more than a third of passengers travelling to Iceland.

Flag carrier Icelandair had previously agreed to buy privately owned Wow Air but ditched those plans on 29 November 2018.

A day later, private equity firm 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 almost $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.

The collapsed negotiations represent the latest setback for Wow Air, after months of searching for an investor.

Icelandair said renewed discussions with Wow Air would be “based on the doctrine of competition law regarding the failing firm defence,” which means that potential buyers attempt to convince regulators that a deal wouldn’t have a considerable impact on market competition as the purchased firm would likely go out of business without a deal.

The Icelandic government indicated in a statement that authorities were “supportive of these discussions and are willing and prepared to use all reasonable efforts to facilitate a positive outcome.”

Wow Air has undergone major restructuring in a bid to ensure its survival, reducing its fleet from 20 to 11 aircraft, eliminating several destinations, including those to the US, and cutting 111 full-time jobs.

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