Icleandair will make a public share offering next week in an attempt to raise $200 million (ISK 27.5 billion/€168 million). The initiative, a key facet of the struggling airline’s financial restructuring, was approved unanimously yesterday by its key shareholders, RÚV reports. Icelandair’s largest shareholders are Icelandic pension funds, and the airline has been meeting with them since spring to encourage their participation in the offering.
Icelandair is a privately-owned airline, though it has received government support in various forms since the COVID-19 pandemic began. If next week’s stock offering is successful, the government will also provide a state guarantee of 90% for a line of credit to the airline for up to $120 million (about ISK 16.5 billion). While some politicians and economists welcome these measures, considering Icelandair a critical part of the country’s infrastructure, others say there is no reason another airline couldn’t take its place.
Pension Funds Had Mixed Results with Icelandair
Of Icelandair’s ten largest shareholders, six are Icelandic pension funds. Lífeyrissjóður verzlunarmanna (VR Union’s pension fund) is the largest shareholder at just under 12%. Pension funds Gilti and Birta each hold just over 7% of the airline’s shares. Other, smaller Icelandic pension funds also hold shares in the company.
Icelandair’s CEO Bogi Nils Bogason stated the airline had been meeting with pension fund representatives since this spring, calling them “an important party” in the investment environment in Iceland. He expressed his hope that the pension funds would invest through the offering next week. “On the whole there has been a positive attitude toward this project,” Bogi stated. “And everyone realises the opportunities in this company and the importance of the company for the economy. Icelandair is simply an important part of the country’s infrastructure.”
Kjarninn reported last month that Icelandic pension funds have for the most part failed to profit from previous investment in Icelandair. Asked whether next week’s offering posed any risk for potential investors, Bogi responded that buying shares always involved risk, “not least in times like these, there is uncertainty in the world.” He added, however, that Icelandair had “been trying to set this up in such a way as to minimise” risk.
State Support for Layoffs
Throughout the COVID-19 pandemic, Icelandair has received direct and indirect state support to continue its operations. In March, the Icelandic government subsidised Icelandair flights on selected routes to Europe and the US in order to keep minimal passenger routes open to and from the country. Those subsidies amounted to ISK 272 million ($2 million/€1.7 million).
As part of COVID-19 response measures, the Icelandic government granted funding to businesses for severance pay for laid-off employees. Icelandair received the largest share of these grants, over ISK 3.4 billion ($24.7m/€20.8m) of the total ISK 8 billion ($58.1m/€48.9m) granted. The amount went toward severance pay for 1,889 employees of the airline, as well as to laid-off employees in Iceland Travel, wholly owned by Icelandair Group, and to Icelandair Hotels, of which Icelandair Group holds 25% ownership. Icelandair also took advantage of the government’s partial employment benefits initiative, and its employees received a total of ISK 1.1 billion in payments from the Directorate of Labour in March and April through the scheme. The company also used the scheme in May, though the amount granted to its employees is unknown.
State Guarantee on Loans
In support of Icelandair’s refinancing plan, the Icelandic government has decided to guarantee a line of credit for the company to the amount of ISK 16.5 billion ($121 million/€101 million). Parliament has passed legislation required for the initiative. The state guarantee will cover 90% of the loan and is dependent on next week’s share offering being successful. The share offering will begin on Wednesday morning next week and end on Thursday afternoon. The results should be made public on Friday.
The government’s support of the airline has received criticism from politicians and businessmen. CEO of the Icelandic Federation of Trade Ólafur Stephensen has stated: “It is a completely wrong premise to assume that if Icelandair ceases operations, there will be no operational airline that uses Keflavík Airport as a connection point between Europe and the United States. The experience of recent years shows that parties other than Icelandair can build up such activities in a surprisingly short time – with considerably lower costs.”
