Icelandair Drops Wow Takeover, Stoking Jitters About Collapse
(Bloomberg) -- Icelandair Group Hf abandoned its plan to buy low-cost rival Wow Air Hf, sending the krona tumbling amid concern that the country’s tourism industry could be hit if the discounter collapses.
Conditions required for the deal to go through weren’t met, Icelandair Chief Executive Officer Bogi Nils Bogason said Thursday, adding that “this conclusion is certainly disappointing.” The krona fell about 0.9 percent against the euro as investors fretted that the failed merger is bad news for an economy increasingly dependent on tourism after the bank failures of a decade ago.
The deal’s collapse raises the specter of another airline bankruptcy in Europe following at least five already this year after overcapacity and high oil prices took a bite out of balance sheets. Wow on Tuesday said financial projections had worsened significantly since its bond issuance on Sept. 24 and that talks to secure long-term funds had become a necessity.
Still, Wow founder and CEO Skuli Mogensen said in a message to employees that his ambition has always been to ensure that the company remains a standalone carrier and that he anticipates “good news” on that front in the near future.
Icelandair may have walked away from the deal after examining Wow’s books, though it’s possible that Wow has had another offer, said Mar Wolfgang Mixa, assistant professor of business at Reykjavik University.
“This does not need to mean that Wow Air will go bankrupt, but it is impossible to tell at this moment,” he said.
Wow has already seen an aircraft sale and leaseback deal fall through and cautioned that it was seeing a worse-than-expected sales slowdown due to negative publicity. Lessors, creditors and government authorities are keeping tighter watch over the business and are demanding stricter payment terms.
Icelandair will hold a shareholders meeting Friday as planned, it said, adding that a proposal for the board to increase share capital remains on the agenda.
Belgium’s VLM announced its liquidation in August, when Switzerland’s Skywork Airlines AG also ceased flights, the German arm of Small Planet filed for insolvency in September, with Azur Air halting operations in the country, and Nordic leisure carrier Primera Air collapsed on Oct. 1. That’s after Air Berlin Plc and Monarch Airlines disappeared last year.
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