Indigo Partners Reconsiders WOW Purchase

WOW air

WOW has restarted formal negotiations with Indigo Partners and other potential buyers, Vísir reports. The airline announced yesterday that its creditors had agreed to convert the company’s debt into share capital and issue new priority shares, giving WOW a shot at continuing operations and avoiding bankruptcy.

Low-cost airline company Indigo Partners had made a temporary agreement to invest in WOW air last November. The two parties were in negotiations for some two months before Indigo pulled out. Brief negotiations with Icelandair last weekend proved unsuccessful for WOW, and Vísir’s sources report that Indigo Partners is again considering an investment in the airline.

If WOW’s representatives achieve their reorganisation plan for the airline, its liquidity is expected to be positive by more than ISK 1.1 billion ($9m/€8m) by the middle of next year. It is currently at a deficit of USD 11 million and is expected to worsen to a deficit of USD 45 million by the second quarter of 2019.

Indigo Partners Call Off WOW air Negotiations – Icelandair Renews Interest

WOW - Icelandair - Keflavík Airport

Indigo Partners has cancelled negotiations to invest in WOW air. Subsequently, the board of Icelandair Group has agreed to reenter negotiations with WOW, according to a statement released by WOW air last night. In an announcement to the stock exchange, Icelandair Group stated that the negotiations will be in consultation with the government and that they should be concluded this Monday, March 25.

Government hopes for successful resolution

This is the second time Icelandair Group enters negotiations to buy WOW air but talks had previously been suspended November of last year, shortly before Skúli Mogensen, owner and CEO of WOW announced that he had begun negotiations with Indigo Partners. In their statement to the stock exchange, Icelandair notes that “If [Icelandair Group] will be involved in the operation of WOW, it will be based on how competition laws regard failing firms.” This would allow the companies to merge without intervention from the government, despite their competitive status.

In their statement, Icelandair Group has claimed the talks are conducted in consultation with the government. The government also released a statement, stating that they have been following difficulties in international airline operations and the competitive position of Icelandic airlines. They will continue to monitor the progress of the negotiations closely and hopes that they will be successfully resolved.

Altered circumstances

The projected three-day negotiations will be short, especially in light of the fact that the Indigo Partners negotiations have taken three and a half months. The secretive talks with Indigo were supposed to be resolved before Feb 28 but once it was clear that would not be sufficient time, the deadline was extended to March 29. In early March, it was reported that Indigo was prepared to invest up to 90 million USD in WOW.

In an interview on the Channel Two morning radio, Steinn Logi Björnsson, former Icelandair CEO claimed the negotiations are a last-ditch effort to rescue WOW. According to him, the situation of both parties has changed since the last negotiations were inconclusive. He claims Wow is in a worse position than they were before Christmas but Icelandair’s position has also changed due to the Boeing 737 MAX planes they grounded. Icelandair had three of the 737 MAX planes but was expecting six more to join their operations.

Doubts About WOW Negotiations Arise

Despite a drawn-out negotiation period with Indigo Partners, WOW air has yet to close the deal with the company. One news source cast doubt on whether negotiations between the two were in fact still ongoing. WOW representatives are sharing very little about the company’s current situation, leading many to speculate once again how a potential bankruptcy of the airline could impact the Icelandic economy.

Svanhvít Friðriksdóttir, WOW’s Public Relations Officer, said she was unable to comment on the state of negotiations with Indigo Partners. Vísir reports that WOW air’s creditors have postponed a decision on whether or not to forgive a large portion of WOW’s debt until Monday. Unconfirmed sources report that the airline has proposed obtaining state-backed loans from Arionbanki bank to support their operations in the short term.

Government watches closely

Prime Minister Katrín Jakobsdóttir stated she could not comment on whether WOW had requested a state-guaranteed loan. She added that the government has been following the airline’s situation closely and has considered all options. “Of course, WOW is a big company, and of course it matters how they finish up their business. That’s of course the reason that we’ve been monitoring the developments closely. But we hope for the best, of course,” she stated.

Indigo Partners Considers Investing Further in WOW air

Indigo Partners will invest up to ISK 10.9 billion ($90 million, €80.1 million) into WOW air, an increase of the amount of ISK 5.6 billion ($46 million, €40.9 million) which was first proposed. WOW air shed light on this development in a statement on their website earlier today. The investment will take place given that certain conditions are in place.

This development suggests that the two parties are closing in on a final agreement, but there is no formal agreement in place as of now. A due diligence report is still to be performed.

The statement also states the Skúli Mogensen’s stake in WOW air will change. Skúli is the CEO, founder and sole owner of WOW air, and he might see his stake end up anywhere between 0% to 100%, depending on how WOW air fares financially in the next three years.

Furthermore, Skúli will most likely write off a subordinate loan which he gave to WOW air a while back. Skúli’s investment fund, Títan, gave a WOW a loan of ISK 730 million ($5.9 million, €5.3 million) to help cover running costs.

WOW air has found itself in financial doldrums in recent times. It was revealed that the company has postponed the complementary contribution to their employees’ pension funds. The company now owes employees that contribution for December, January, and February. In a recent move, WOW air also announced flight offers to European cities for low amounts.

WOW air shareholders, who bought shares in a bond offering in September of last year, will be asked to review and accept new terms of their stakes. The new terms state that their returns will be connected to WOW air’s financial performance in the next years. The returns on the stakes can be anywhere between 50% to 100% of the share’s worth. It has also been suggested that the rates of the shares are decreased from 9% to 7%. The shares will also be extended to repayment within five years, rather than the originally proposed three years.

WOW Air Takeover Might Come with Harsh Conditions

Bondholders of struggling Icelandic airline WOW air who invested in the company for 60 million euros just last fall, might have to accept large write-offs of their shares in order for the possible investment of equity firm Indigo Partners in the company to go through, Fréttablaðið reports.

Additionally, Indigo Partners have reportedly demanded that the share of WOW air’s current CEO, Skúli Mogensen, be drastically reduced from what was previously discussed.

These conditions were put forth by Indigo Partners at a meeting with Skúli last Thursday, the same day a deadline given by the company’s bondholders to reach an agreement with the company was reached. The deadline has now been extended until the end of March.

Indigo Partners demands reportedly came as a shock to Skúli. According to insiders, Skúli was expecting a much easier deal to go through. Last week, WOW air representatives secured a deal with the airline’s proprietors, paving the way for a deal with Indigo Partners, an equity firm that has a controlling interest in airlines such as American Frontier Airlines and JetSmart.

Representatives of the firm are reportedly well aware of their strong negotiating position against Skúli and and WOW air bondholders, who have little choice but to agree to Indigo Partners’ terms, considering their other option seems to be the bankruptcy of the company.

Indigo Partners have declared that the company is ready to invest for up to 75 million dollars in WOW air

WOW air Fulfills Conditions for Purchase

WOW air

WOW air has now fulfilled all conditions required for its purchase by Indigo Partners. Fréttablaðið reports that the two parties are now working to finalise the acquisition. The deadline for closing the deal, given to WOW air by its shareholders, is tomorrow: February 28.

In preparation for the deal, WOW air has downsized its operations significantly, cutting their fleet down from 20 jets to 11 and dropping several destinations from their itinerary. The airline expects to transport 2.1 million passengers this year, a marked drop from the 3.5 million it transported last year.

Among the biggest obstacles to concluding the purchase was a 12-year rental agreement WOW air had made with Irish aircraft rental company Avolon for four new Airbus A330 jets. Made in 2017, the agreement was meant to provide the airline with two jets at the end of last year and two more at the end of 2019. WOW was required to pay a hefty pentalty for backing out of the contract.

Indigo Partners will initially acquire 49% of WOW air, though according to the terms of the agreement, the investor could acquire a larger stake in future.

Over 150 Laid-Off Airport Services Employees Get Jobs Back

Airport Associates, the company which provides air terminal service at the Keflavík International airport, has reinstated the jobs of 156 of the 237 employees that it laid off at the end of November, Vísir reports.

Before the layoffs, around 500 people had worked for Airport Associates within a variety of departments: ramp service (loading and unloading luggage from aircraft), load control, passenger services, freight, cleaning, and security.

The layoffs were in response to operational difficulties with WOW air, which itself laid off over 100 employees in December, as well as cancelling international routes, selling its flight times at Gatwick Airport, and reducing its fleet by almost 50%. In January, however, WOW air reached an agreement with investors regarding adjusted terms on the bonds that were bought at the airline’s auction last year. The agreement was a condition of Indigo Partner’s investment in the airline.

Airport Associates CEO Sigþór Kristinn Skúlason told Vísir that WOW air’s operations are now secure, and its flight schedules are in place. As such, it’s been possible for the company to recall a considerable proportion of the employees it laid off.

Airport Associates provides support service to around 20 airlines at Keflavík, including EasyJet, Wizz air, Delta, Norwegian, and American Airlines. The company is WOW air’s largest service provider.

WOW Discontinues Flights to Gatwick

WOW air has sold its flight times at Gatwick airport in the UK, RÚV reports. The purchase price of the flight times and their buyer remain confidential at this time.

The sale means that as of March 31, 2019, the discount airline’s UK destinations will be reduced to one – Stansted airport, also in the London area – as it recently also discontinued flights to Edinburgh in early October 2018. Around the same time, flights to four US destinations – San Francisco, St. Louis, Cleveland, and Cincinnati – were eliminated as well. The latter three destinations had only been in service for about five months at the time of their cancellation.

In its announcement, WOW simply chalked up the necessity of cancelling flights to Gatwick  to a streamlining of operations. The airline’s financial woes have been much-reported of late, and led the company to lay off 111 employees at the beginning of December. WOW air is also set to reduce their fleet by almost 50%, from 20 to 11 planes. The company will retain only Airbus A321 and A320 jets, suitable for short- and medium-range flights, and will cut New Delhi and Los Angeles from their itinerary on January 20 and January 14, respectively.

US-based firm Indigo Partners recently invested ISK 9.4 billion ($75.88m/€67.23m) in WOW air, and is set to acquire shares in the company as well. WOW air’s CEO and founder Skúli Mogensen recently explained that going forward, the company’s operational model will be adjusted so as to conform to that of the super-low-fare airlines that Indigo Partners normally works with.

Indigo Partners Invest in WOW air

The asset management company Indigo Partners have made a temporary agreement for an investment in Icelandic airline WOW air, Vísir reports. The plan is to finalise the agreement as soon as a due diligence inspection has been performed. Icelandair’s proposed purchase of WOW air had been canceled yesterday.

A statement posted on WOW air’s website states that founder and main shareholder Skúli Mogensen will remain the main owner of the company. The terms of the agreement between Indigo Partners and WOW air have not been released.

Indigo Partners headquarters are situated in Phoenix, USA. The company invests in the flight industry, and is the main investor in Tiger Airways from Singapore and Spirit Airlines from Florida, among others. Indigo is also one of the largest shareholders in Hungarian airline Wizz Air which flies to and from Iceland.

Ultra-low-cost airline

Indigo Partners specialise in transforming airlines into so-called ultra-low-cost airlines, where all service items are taken out of the flight ticket price. They have also been known to pay low wages, which is something that WOW air might have to adjust to, Vísir reports.

Svanhvít Friðriksdóttir, WOW air’s spokesperson has stated that the day is an important one in the airline’s history. “I’m over the moon to be able to share this with everybody! Thank you for having never stopped believing in this project of ours to build a world-class low-fare airline. There’s still a lot of work to be done but together we can continue working miracles. I thank you all,” Skúli Mogensen’s company-wide letter read.

Layoffs at WOW air and Airport Associates

WOW air has already announced that fifteen employees at Keflavík airport will be laid off. The company has stated that the sackings are part of a seasonal shift in the company’s operations, rather than being connected to Indigo Partners’ takeover. WOW air also recently cut four airplanes from its fleet, as they had not been sufficiently utilised in the company’s winter operations.

A total of 237 Airport Associates employees at Keflavík Airport have been laid off. Airport Associates is WOW air’s largest service contractor at Keflavík Airport. The layoffs have been reported to be connected to the projected problems with WOW air. Sigþór Kristinn Skúlason, Airport Associates CEO, has stated that these were necessary precautionary measures. He believes, however, that Airport Associates can rescind a large portion of the layoffs if Indigo Partners’ investment in WOW air goes through.