State support of Icelandair should be limited to the operation of scheduled flights to and from the country, according to a statement from the Competition Authority of Iceland. The government should also evaluate how financial support of Icelandair would affect the airline’s competitors as well as determine whether wider support within the industry could help achieve their objectives.
Icelandair is a subsidiary of Icelandair Group, a company based in Iceland. The airline is not state-owned, but it did receive government support earlier this year to keep flight routes open between Iceland and a handful of destinations. Like airlines around the world, it has faced massive operational challenges due to the COVID-19 pandemic.
Government to Guarantee 90% of Loan
In August, the Icelandic government decided to provide Icelandair a line of credit with a state guarantee. The line of credit would be provided by state-owned banks Íslandsbanki and Landsbankinn and amount to up to $120 million (about ISK 16.5 billion), and the state guarantee would apply to 90% of the amount loaned. The initiative is subject to the two parties reaching an agreement on the terms, the approval of Iceland’s Parliament, and the success of Icelandair’s planned refinancing initiative.
The initiative requires amendments to existing legislation on state guarantees and financial support and state spending. The government must also ensure it conforms to EU regulation on government support to corporations. The initative has already been approved by the European Transport Authority, whose President stated: “It is important for Iceland’s economy and to the free movement of citizens that air transport can continue to and from Iceland.”
The terms of the guarantee require the Icelandic government to determine the actual financial impact of COVID-19 on Icelandair next year. If the impact turned out to be less than the amount loaned, the airline would be required to pay back the difference.