Icelandic airline WOW Air is running out of options. The carrier announced this week that US-based Indigo Partners walked away from negotiations on an infusion of cash. That was previously considered the last chance the company had to remain alive.
The proposed investment of Indigo Partners LLC (“Indigo Partners”) in WOW air has been cancelled by Indigo Partners. Therefore, all negotiations between WOW air and Indigo Partners have been cancelled.
With Indigo Partners gone the pressure to find some way out of the financial mess enters the final stage. WOW indicated that it resumed conversations with Icelandair, intending to complete the negotiations over the weekend.
Subsequently WOW air has started discussions with Icelandair Group. The parties aim to conclude the negotiations by Monday March 25, 2019.
Read more: Icelandair gobbles up WOW
The increased uncertainty around the airline’s operations is not good for passengers nor for the ability to sell tickets far into the future. That increases the financial burden for the airline, creating something of a vicious circle around the business.
Icelandair previously offered to buy the WOW assets for roughly $20mm, a massive devaluation of the operation. That deal fell apart based on several factors, including timing (it couldn’t happen quickly enough to satisfy other Icelandair financial requirements). This time around the largest sticking point – disposition of certain recently issued bonds – is resolved. Those investors already cleared out of the way back when the Indigo option was still in play.
It is unclear if Icelandair will decrease its offer price this time around. WOW lacks much in the way of negotiating leverage at this time.
The future plans of a combined WOW/Icelandair operation also remain unclear. Cutting capacity to help prop up pricing is certainly a goal for Icelandair. But the other, typical benefits of a merger are less clear. Fleet commonality and complimentary route networks are typically where strong value is realized. Neither of those apply in this case. The aircraft are different and the route maps significantly overlapping. Then again, the WOW route map is much smaller than it was the first time the two talked.
Similar to last time around the opportunity remains for Icelandair to use the WOW fleet in other, creative flight opportunities. The Icelandair parent company had been in negotiations to take over Cabo Verde Airlines. The goal there was to replicate the Keflavik connecting model further south, providing connections between the US and Africa as well as between Europe and South America. It now has secured that stake and could move the WOW fleet in to ramp up those operations without eroding the North Atlantic market position.
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