Icelandair Ends Government-Guaranteed Credit Facility

Icelandair has terminated its government-guaranteed credit facility, which has been in effect since September 2020. The airline stated Monday that it had “successfully navigated the turbulent two years since the onset of the pandemic” and that its financial position was strong.

Government guarantee

On September 15, 2020 – in the wake of pandemic-induced losses – Icelandair entered into an agreement with Íslandsbanki, Landsbanki, and the Icelandic government for a credit facility of up to $120 million, with a 90% government guarantee. The agreement stipulated a two-year drawdown period, in effect until September 15, 2022.

(A credit facility is a type of loan made in a business or corporate-finance context. It allows the borrowing company to take out money over an extended period instead of reapplying for a loan each time.)

The credit facility, Icelandair held, was “vital to complete the financial restructuring, enabling the company to maintain valuable know-how, and preserve the infrastructure necessary for an efficient ramp-up of its operations post-Covid.”

Successfully navigated the turbulent two years

On Monday, February 7 – seven months before the end of the drawdown period – Icelandair formally terminated its government-guaranteed credit facility. The termination is effective 15 days from Monday.

In a statement released Monday, Icelandair Group asserted that the airline had “successfully navigated the turbulent two years since the onset of the pandemic resulting in a strong financial position at year-end 2021.”

The airline hopes this solid financial position will support its 2022 flight schedule – with three new leisure destinations in Europe and resumed service to Montreal – and its continued recovery.

Hope to Remove RÚV from the Ad Market this Electoral Term

Lilja Alfreðsdóttir is one of the people nominated for Person of the Year.

Minister of Education, Science, and Culture, Lilja Dögg Alfreðsdóttir iterated her position yesterday that RÚV should be removed from the advertisement market. In an interview with Vísir, the leaders of the Independence Party and the Left-Green Movement concurred with the Minister’s conviction.

A bone of contention

The inclusion of RÚV (the Icelandic National Broadcasting Service) on the advertising market has long been contentious. RÚV has a legal commitment to promoting the Icelandic language and Iceland’s history. It is partly funded by a television license fee, with the rest of its income originating from ad sales.

Last year, for example, the government paid out 400 million ISK in grants to 19 privately-owned media outlets, 63% of which went to three major companies. In comparison, government payouts to RÚV increased by 430 million ISK ($3.5 million / €3 million), or from 4.6 billion ISK ($37 million / €32 million) to 5.1 billion ISK (($41 million / €36 million).

As reported by Vísir, RÚV’s income currently accounts for approximately a quarter of all earnings by Icelandic media outlets, a figure that hasn’t been higher since the last century.

Perseverance as opposed to empty promises

Yesterday, Lilja Dögg Alfreðsdóttir – Minister of Education, Science, and Culture – iterated her intentions of removing RÚV from the advertising market.

When asked by a Vísir reporter why the citizenry should take these remarks seriously, given that she had made such declarations in the past – Lilja Dögg announced ambitious plans to remove RÚV from the advertising market in 2019 – Lilja turned the journalist’s logic on its head:

“Such statements point to my perseverance, to how determined I am, as a politician; if I think something needs to be done, I don’t stop until it’s done. In those countries to whom we often compare ourselves, the state broadcaster is not on the advertising market.”

Referencing the government’s renewed mandate, Lilja stated that the government now had the requisite time on its hands to withdraw the state broadcaster from the ad market.

“Of course, this means that we need to bolster RÚV’s operations in some other way, which I’ve previously noted. But it’s clear that the operational environment of local media is unsustainable. We’ve seen a great many people leave the profession. This isn’t good for Icelandic democracy, for politics, for business.”

No consensus on cutbacks

Like Lilja, Minister of Finance and Economic Affairs, Bjarni Benediktsson, is confident that RÚV will be removed from the ad market this electoral term.

“I think it’s time that we take this step, and we need to find ways of doing it,” Bjarni stated, acknowledging that the government would need to find a way to ensure RÚV’s operations.

“We’re not saying that we need to make drastic cuts to its budget, for we seem to lack the political consensus to decrease RÚV’s scope. Personally, however, I think it’s something that we should be open to reviewing: whether we want RÚV to operate at such a scale for the foreseeable future, as opposed to cutting our coat according to the cloth.”

Bjarni added that he is opposed to raising the television licence fee, which he considers a tax and not a premium.

“I believe that we should review, during this electoral term, whether we shouldn’t abolish this tax – to relieve households and legal entities of the tax. We need to face the cost of operating a public broadcaster with an item in the budget that clearly states the price.”

A long-term, holistic vision

Prime Minister Katrín Jakobsdóttir agrees that RÚV should be removed from the ad market.

When asked by Vísir if she was comfortable with the fact that the state of the media had deteriorated during her tenure, Prime Minister Katrín cited government grants and her agreement with Lilja Dögg that the government needed to draw up a long-term, holistic policy for media outlets.

“It’s long been my opinion that we should aim toward removing RÚV from the ad market, with the caveat that we need to ensure its operations. We are all of the same opinion, in my party, that we want a vigorous public broadcaster,” Katrín stated, who believes that a strong public broadcaster is vital in a small society like Iceland.

Central Bank Raises Key Interest Rate by 0.75%

Central Bank

The Central Bank of Iceland has raised interest rates by 0.75 percentage points. The hike takes the Bank’s key interest rate to 2.75%.

Decade-high inflation rates

In the shadow of rising inflation, the Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank’s interest rates by 0.75 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will, therefore, be 2.75%.

The inflation rate in January was 5.7% – the highest since April of 2012 – and the Central Bank predicts an inflation rate of +5% in 2022 (+5.8% in the first quarter), which is double the Bank’s target.

As noted in an announcement this morning, the MPC will not only raise key interest rates but also employ all of its available instruments to ensure that inflation rates subside to target levels within an acceptable timeframe.

More jobs, less unemployment – but “considerable uncertainty”

The increase in interest rates coincides with the publication of the latest edition of the Monetary Bulletin (Peningamál). (The Monetary Bulletin, published on a quarterly basis, contains an “inflation and macroeconomic forecast along with comprehensive analysis of economic and monetary developments and prospects.”)

As noted in the Bulletin, GDP growth exceeded November forecasts by 1%; GDP growth in 2021 was 4.9%, and the Central Bank predicts similar growth in 2022.

“Jobs have continued to grow, unemployment has decreased, and the production slack that formed in the wake of the COVID-19 pandemic is expected to disappear. There is, however, considerable uncertainty.”

The MPC states that inflation outlooks have worsened considerably since the committee’s last meeting. The headline inflation rate has risen to an estimated 4%. Furthermore, inflationary expectations have increased according to several indicators, with the rise in housing prices having a considerable effect, in addition to increases in several items of domestic expenditure.

Non-indexed mortgages a worry

As reported by Kjarninn yesterday, Drífa Snædal, President of the Icelandic Confederation of Labour, wrote a letter to the MPC yesterday asking it to refrain from raising interest rates.

In her letter, Drífa stated that “sharp increases in interest rates have already put many households in a difficult spot. Many households have committed to non-indexed mortgages, owing both to favourable conditions and to indirect encouragement on behalf of the government and the Central Bank.”

The Central Bank will hold a live broadcast at 9.30 AM.