Icelandair Group has announced plans to assume full control of local rival WOW air (Reykjavik Keflavik) via a share buyout.
According to Icelandic newspaper Morgunblaðið, WOW air's founder and CEO Skuli Mogensen told staff in Reykjavik that the decision to sell the airline had come about as a result of its increasingly "difficult position" that has only worsened since 2017. The situation came to a head in September when a bid to raise EUR60 million euro (USD70.6 million) through the issuance of new bonds failed with no takers thus leaving the carrier with few options.
For its part, Icelandair has also struggled this year and on the back of a weak Summer 2018 season, and was recently forced to open negotiations with bondholders regarding a temporary waiver of covenants throughout November 2018.
Against this backdrop, an ICEX disclosure on Monday, November 5 said Icelandair Group will acquire all shares in WOW Air whose owners will, in turn, gain a 5.4% stake in the group, valuing the transaction at just over ISK2 billion krona (USD16.5 million).
Of the shareholding, 178,066,520 shares (or 3.5%) will go towards the actual purchase although this may either increase to 4.8% or decrease to 0.0% according to certain conditions set forth in the share purchase agreement. A subordinated loan will also be converted into 94,275,347 shares (1.8%).
The transaction is subject to the approval of the Icelandic competition authorities and a due diligence. However, if and when it goes through, WOW Air will operate as a standalone subsidiary within the group alongside Icelandair (FI, Reykjavik Keflavik). Together, the two will have a combined transatlantic market share of around 3.8%.
"The acquisition creates opportunity for both companies to become even better prepared to provide international carriers with strong competition in the international airline market," the group said.
A longhaul low-cost carrier, WOW air currently operates an all-Airbus fleet of two A320ceo, one A320neo, twelve A321ceo, two A321neo, and three A330-300s on flights connecting its Reykjavik Keflavik hub with destinations across North America, Europe, and the Middle East. It is also expecting four A330-900s of which two will deliver later this quarter with the remaining pair due in 4Q2019.
In contrast, Icelandair operates an all-Boeing fleet consisting of three B737-8s, twenty-five B757-200s, two B757-200 freighters, two B757-300s, and four B767-300(ER)s which also cater to transatlantic traffic.
