If Indigo Partners isn't willing to invest, we're betting that things don't look pretty at Wow Air. Will the struggling carrier survive?
Wow Air has been forced to rekindle talks with rival Icelandair about a potential acquisition after Indigo Partners walked out on discussions.
The low-cost carrier is struggling financially and has had to scale back its operations in recent months.
In a short statement late Thursday, Wow Air said that Indigo Partners had canceled its proposed investment and that negotiations were over. It has subsequently started talking to Icelandair with the aim of concluding discussions by Monday.
Icelandair said the discussions would be based on the “failing firm defense,” a term used in mergers that might not clear the usual competition hurdle. The argument is that at least one of the companies would go under if the merger failed to progress. Talks will take place in cooperation with Icelandic authorities.
The three-day window given by both sides indicates that Wow’s financial situation is precarious.
Indigo Partners, which has invested in several airlines over the years, had not responded to Skift’s request for comment by early Friday afternoon. The private equity firm controls U.S. carrier Frontier Airlines and has stakes in Mexico’s Volaris and European low-cost carrier Wizz Air. It was looking to invest around $90 million into Wow Air.
“Indigo has a long history of picking winners, or making its investments into winners,” said Madhu Unnikrishnan, editor of Skift Airline Weekly. “That Indigo decided to walk away suggests Wow’s model is not sustainable.”
Wow Air was one of a host of smaller European airlines that hoped to bring long-haul travel to the masses. It routed flights through its hub in Reykjavik, connecting cities in the United States with destinations in Europe.
But its grand plans collapsed last year when it revealed severe financial problems, leading to a fleet restructure and talks with potential investors.
What’s worrying for the Icelandic aviation industry is that Icelandair itself is struggling. It revealed a post-tax annual loss of $55.6 million in 2018.
“Consolidation in the Icelandic market could be a positive thing given that both airlines compete heavily in the Europe-North America transfer markets, albeit in somewhat different customer segments,” said aviation consultant John Strickland. “Icelandair could benefit from Wow’s leading edge approach to innovation and technology, whilst Wow could benefit from greater financial security within the Icelandair group. The challenge is to conclude a deal, given that Icelandair itself lost money heavily in 2018.”
However, if Icelandair does not step in, Wow might not make it as an independent airline, Unnikrishnan said. The discount carrier is a shell of its former self, having dropped routes, laid off staff, and returned aircraft to lessors in recent months as it sought to streamline operations.
With so few aircraft — it said late last year it planned to reduced its fleet from 20 aircraft to 11 — Wow would have trouble competing with more established airlines.
“Wow’s survival without a strategic investor is highly questionable,” Unnikrishnan said.
Senior Aviation Business Editor Brian Sumers contributed to this story.
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Photo Credit: A Wow Air Airbus A321. The airline is talking to Icelandair about a potential deal. Oliver Holzbauer / Flickr