LONDON – Icelandic low-cost carrier WOW Air has reduced its fleet by four aircraft amid projections of weak financial performance for the next quarter of 2018. The carrier has placed two Airbus A320s in storage at Tarbes (TF-BRO, TF-SIS) as well as two Airbus A330s (TF-LUV, TF-WOW).
The carrier stated that this was “part of necessary restructuring of the airline and to ensure maximum utility of its remaining fleet.”
WOW Air also mentioned in that statement that services to India will not be affected as a result of its four planes being grounded, as it has recently opened up for business in New Delhi.
This weaker financial performance has resulted in WOW issuing senior secured floating rate bonds on the market in amounts of €60 million, with a total framework of €100 million. Interest rates are at 9% per annum and are to mature by September 2021.
This bond issue, as well as a number of internal and external events, have worsened the finances of the carrier, meaning it is now looking on securing long-term funding from the banks.
Bad publicity about its finances has had more of a negative impact on the airline, meaning that “Q4 results are materially worse than originally anticipated”.
On top of this, leaseback agreements fell through with the airline on some aircraft it wanted, which resulted in a $25 million less inflow than originally planned, thus wiping more money off the table.
WOW’s lessors, creditors, and authorities are demanding stricter payment terms than before as a result of this weak performance, which is putting even more pressure on the company’s inflows to generate a profit.
The Icelandair Question
With WOW Air downsizing, it does put into question whether the deal with Icelandair is going to go through or not.
The past month saw Icelandair agree a full-blown acquisition deal with WOW Air, which would see the low-cost airline either merged into Icelandair or operated under two separate brands.
This has earmarked questions regarding competition laws and whether any are broken.
Local media are stating that the trading suspension of WOW Air is due to last until Friday (Nov 30), where the Icelandair Group is to meet to reach an agreement of purchasing the carrier.
That being said, the group noted on November 26 that it is unlikely that the terms of the deal will be fulfilled by the November 30 meeting date.
It begs the question because Icelandair has also been struggling to cope with its finances for the last several quarters.
It is also understood that this November 30 meeting will also be used to discuss new measures to strengthen the group’s finances over the long term.
One of Icelandair’s subsidiaries, Loftleiðir Icelandic, recently submitted a binding offer for 51% of Cabo Verde Airlines. The airline agreed and the Cape Verdean government handed its airline over to the Icelandic company.
Could focusing on Africa be more of a priority for Icelandair than taking over WOW Air, a carrier that is also losing money? With Africa becoming an emerging market, it seems Icelandair’s focus is in a different ballgame.
Whether it will take WOW with them and expand into Africa using the low-cost model is also unclear. All we can do is watch.