A number of Icelandair investors were given the surprise nobody who buys airline bonds wants to hear yesterday: we can’t pay you back when we said we would.
The airline raised a substantial amount of money in late 2016 and early 2017, totalling $190 million.
The bonds were due to be repaid in 2021-22 with the agreed fixed interest.
Yesterday Icelandair said it’s profits have dropped so severely that it cannot pay the bonds back when they come due and there’s likely to be no interest payment when they do get repaid, which is being negotiated. Holders of the bonds may not see the money back in full until as late as 2029.
For any company that expects to be able to maintain rolling investment, this is a bad omen. Nobody is going to buy bonds in future with this level of risk and it must surely damage any hope of Icelandair maintaining its planned expansion and purchase of new aircraft.
It’s a blow to the airline and its investors and severely undermines the company’s credibility. It’s seems the party really is over for Icelandair.
Meanwhile the airlines main competitor, WOW, is looking at an IPO – selling shares on the open market. Without it it can’t raise enough money to fund its own expansion.
With Icelandair damaging the financial stability of the countries airline market, that IPO may be in danger and with it WOW’s ability to stay ahead. It needs growth to finance the cash it needs to grow – a similar scenario to Norwegian.