As usual.... did a search.... did not see this posted yet, so here goes....

Several Nordic media are reporting on this after Icelandair has published an official notice to the stock markets.

"Icelandair Group initiates discussions with bondholders"

Here's their message: https://globenewswire.com/news-release/2018/10/03/1600528/0/en/Icelandair-Group-initiates-discussions-with-bondholders.html?print=1

Another one about to bite the dust? Many were the last weeks commenting on WOW having issues.... Iceland now doing with Airlines as they did with banks prior to the 2007 financial crisis?

What you think?

integrator wrote:

Another one about to bite the dust? Many were the last weeks commenting on WOW having issues.... Iceland now doing with Airlines as they did with banks prior to the 2007 financial crisis?

What you think?

Primera was also Icelandic...

We need to get some posts going about how AA, DL, and UA are in trouble. By some huge coincidence, all LCCs and competitors to the Big 3 (or 4 with WN) price oligopoly are apparently on the verge of death.

Norweigan will be dead tomorrow posts are years old at this point. More of the same.

I think part of the problem is the fact that fuel prices are spiking and these low fare carries are less equipped to handle a sustained rise in fuel prices.

integrator wrote:

As usual.... did a search.... did not see this posted yet, so here goes....

Several Nordic media are reporting on this after Icelandair has published an official notice to the stock markets.

"Icelandair Group initiates discussions with bondholders"

Here's their message: https://globenewswire.com/news-release/2018/10/03/1600528/0/en/Icelandair-Group-initiates-discussions-with-bondholders.html?print=1

Another one about to bite the dust? Many were the last weeks commenting on WOW having issues.... Iceland now doing with Airlines as they did with banks prior to the 2007 financial crisis?

What you think?

While these are certainly not positive news, FI is very far from biting the dust. Their equity situation is healthy, this is just a minor setback.

slcdeltarumd11 wrote:

Norweigan will be dead tomorrow posts are years old at this point. More of the same.

JetBlue which is very profitable is apparently desperate to merge according to a.net threads and the media. These articles are fed to the media and thus a.net fanboys by P.R. agencies with ties to the Big 3 you can be sure. What better way to hurt competitor bookings than spreading rumors of their impending death?

BTW, there was very little on Primera's financial situation until they were gone. Why? They hadn't gotten to a point of being a threat to the Big 3.

Rubbish!

Please translate this in English

http://www.visir.is/g/2018181009582/-er ... -fjarmagn-

A lot of the fundamentals are good, but quite a substantial loss in terms of their turnover if the report is correct.

The likely outcome is a downgraded financial rating, which will up their financing costs.

...and I would venture to guess that a lot of the issue is that the surge in to new markets was a bit riskier than anticipated. I believe it was CLE where both carriers started service this year and only one will come back next year? Now that they have some physical data to rely on, they can redirect the resources more appropriately. Also, as they lease out the equipment over the winter, that will provide a stable revenue stream allowing them to take a deep breath.

According to many, WW will go under. Now FI will go under as well. Before we know it, Iceland will no longer have any national carrier.

TWFlyGuy wrote:

...and I would venture to guess that a lot of the issue is that the surge in to new markets was a bit riskier than anticipated. I believe it was CLE where both carriers started service this year and only one will come back next year? Now that they have some physical data to rely on, they can redirect the resources more appropriately. Also, as they lease out the equipment over the winter, that will provide a stable revenue stream allowing them to take a deep breath.

Both FI and WW are returning to CLE next year last time I saw.

Responding to #2, I thought Primera was Scandinavian - Danish AOC? Certainly not Icelandic.

integrator wrote:

As usual.... did a search.... did not see this posted yet, so here goes....

Several Nordic media are reporting on this after Icelandair has published an official notice to the stock markets.

"Icelandair Group initiates discussions with bondholders"

Here's their message: https://globenewswire.com/news-release/2018/10/03/1600528/0/en/Icelandair-Group-initiates-discussions-with-bondholders.html?print=1

Another one about to bite the dust? Many were the last weeks commenting on WOW having issues.... Iceland now doing with Airlines as they did with banks prior to the 2007 financial crisis?

What you think?

Icelandair has an equity ratio of over 30%. That's way more than most airlines. Further, it is highly liquid. This means that it is quite healthy financially. However, there is a clause in one of the company's bonds that means that if profitability goes below a certain level, that the bond becomes more expensive to service. They are simply negotiating to change that clause. Because of the laws of publicly held companies, they had to disclose even that they were in discussions about this.

Nothing major to see here.

However, several things to clarify:

First, it is not fed from US3. It's from DNB Markets, which is a Norweigian Investment Bank that is advising Icelandair, so most likely it is released by the bank with agreement by its client, i.e. Icelandair Group

Second, the news article is neutral, just stating the fact of what has happened and what it is about. No analysis. No information more than needed. It looks like a standard post of financial news to satisfy the requirement for listed companies (or companies with publicly traded bonds)

Third, what it says is quite common. Basically, Icelandair has issued a specific bond some time ago (specifically, ISIN NO0010776982, as stated in the article). Apparently, the bond has a "condition" that if the amount of cash (or cash equivalent) falls below certain level in Icelandair Group's bank account, the bondholders can ask for immediate termination of the bond. This condition is what is known as the "covenant". Issuing unsecured bond with condition is very common, since unsecured bond is more risky, so naturally, buyers of such bonds want some additional protections. Icelandair Group would be able to issue a bond with covenant at lower interest rate, compare to an unsecured bond with no condition. What happened here is that Icelandair's cash reserve is forecast to fall below the limit, hence the company wants to talk to the bondholders to pre-emt them from initiating "call-back" of the loan prematurely. These happen more often than you think to many companies. Unless the bondholders feel absolutely that Icelandair Group will fail before the maturity of the bond, it won't decline this request. Of course, they will demand something in return, may be increased interest rate, or may be a one-time payment, etc., for them to agree to not enforce the terms for a period of time. Icelandair Group will probably make an initial offer of something like that, to cut the possible complications and any back-and-forth discussions. At the end, money will talk and the issue would be closed. The market will move on.

raylee67 wrote:

Third, what it says is quite common. Basically, Icelandair has issued a specific bond some time ago (specifically, ISIN NO0010776982, as stated in the article). Apparently, the bond has a "condition" that if the amount of cash (or cash equivalent) falls below certain level in Icelandair Group's bank account, the bondholders can ask for immediate termination of the bond. This condition is what is known as the "covenant". Issuing unsecured bond with condition is very common, since unsecured bond is more risky, so naturally, buyers of such bonds want some additional protections. Icelandair Group would be able to issue a bond with covenant at lower interest rate, compare to an unsecured bond with no condition. What happened here is that Icelandair's cash reserve is forecast to fall below the limit, hence the company wants to talk to the bondholders to pre-emt them from initiating "call-back" of the loan prematurely.

Violating a debt covenant is not trivial. FI may not have the cash & financing mechanisms in place to cover a call-back should it come. Almost surely, financing costs will go up.

MIflyer12 wrote:

raylee67 wrote:

Third, what it says is quite common. Basically, Icelandair has issued a specific bond some time ago (specifically, ISIN NO0010776982, as stated in the article). Apparently, the bond has a "condition" that if the amount of cash (or cash equivalent) falls below certain level in Icelandair Group's bank account, the bondholders can ask for immediate termination of the bond. This condition is what is known as the "covenant". Issuing unsecured bond with condition is very common, since unsecured bond is more risky, so naturally, buyers of such bonds want some additional protections. Icelandair Group would be able to issue a bond with covenant at lower interest rate, compare to an unsecured bond with no condition. What happened here is that Icelandair's cash reserve is forecast to fall below the limit, hence the company wants to talk to the bondholders to pre-emt them from initiating "call-back" of the loan prematurely.

Violating a debt covenant is not trivial. FI may not have the cash & financing mechanisms in place to cover a call-back should it come. Almost surely, financing costs will go up.

No it's not trivial. But it's not uncommon. A distinct possibility of such violation is that the issuer designed such covenant too tightly initially, so now it gets dinged. Financing costs will definitely go up, may be 10bp or something like that. And like I said, the bondholder will demand some blood (i.e. $) for such violation. Some of them may actually be happy that this happens, because it pushes up the overall yield, considering that they most likely bought the bond way back when the yield was depressed. And no, they are not going to issue a call-back.

superjeff wrote:

Responding to #2, I thought Primera was Scandinavian - Danish AOC? Certainly not Icelandic.

The AOCs were Danish and Latvian, but they were owned and run from Iceland by Icelandic people. They just kept moving the companies around to more favorable places.

This is really a ridiculous proposition. National carrier that promote tourism in Iceland is not in any trouble of going under.

Runway28L wrote:

According to many, WW will go under. Now FI will go under as well. Before we know it, Iceland will no longer have any national carrier.

TWFlyGuy wrote:

...and I would venture to guess that a lot of the issue is that the surge in to new markets was a bit riskier than anticipated. I believe it was CLE where both carriers started service this year and only one will come back next year? Now that they have some physical data to rely on, they can redirect the resources more appropriately. Also, as they lease out the equipment over the winter, that will provide a stable revenue stream allowing them to take a deep breath.

Both FI and WW are returning to CLE next year last time I saw.

You're right, no discontinuation has been announced. FI has extended their originally scheduled seasonal service to year round while WW has not announced when they will resume in the spring. I have to imagine that some cities will not see a resumption by FI or WW. It's only natural with the aggressiveness of the expansion into North America by the carriers plus Norwegian, plus traditional carriers.

integrator wrote:

As usual.... did a search.... did not see this posted yet, so here goes....

Several Nordic media are reporting on this after Icelandair has published an official notice to the stock markets.

"Icelandair Group initiates discussions with bondholders"

Here's their message: https://globenewswire.com/news-release/2018/10/03/1600528/0/en/Icelandair-Group-initiates-discussions-with-bondholders.html?print=1

Another one about to bite the dust? Many were the last weeks commenting on WOW having issues.... Iceland now doing with Airlines as they did with banks prior to the 2007 financial crisis?

What you think?

Breaching covenants is a serious issue but it’s very far away from them being close to collapse. Drawing the conclusion that they’re in trouble from the announcement they made is way off the mark.

superjeff wrote:

Responding to #2, I thought Primera was Scandinavian - Danish AOC? Certainly not Icelandic.

It is Icelandic owned. It started out with an Icelandic AOC, moved 2009 to a Danish AOC and operated also from 2014 under a Latvian AOC.

Nae wurries, they fly the 757 with holds full of fish !

CEO quit at end of August taking responsibility poor strategic decisions (significant growth to the US) under his watch that is causing financial trouble

Icelandair CEO resigns as crisis deepens
https://standbynordic.com/icelandair-ce ... s-deepens/

raylee67 wrote:

Nothing major to see here.

However, several things to clarify:

First, it is not fed from US3. It's from DNB Markets, which is a Norweigian Investment Bank that is advising Icelandair, so most likely it is released by the bank with agreement by its client, i.e. Icelandair Group

Second, the news article is neutral, just stating the fact of what has happened and what it is about. No analysis. No information more than needed. It looks like a standard post of financial news to satisfy the requirement for listed companies (or companies with publicly traded bonds)

Third, what it says is quite common. Basically, Icelandair has issued a specific bond some time ago (specifically, ISIN NO0010776982, as stated in the article). Apparently, the bond has a "condition" that if the amount of cash (or cash equivalent) falls below certain level in Icelandair Group's bank account, the bondholders can ask for immediate termination of the bond. This condition is what is known as the "covenant". Issuing unsecured bond with condition is very common, since unsecured bond is more risky, so naturally, buyers of such bonds want some additional protections. Icelandair Group would be able to issue a bond with covenant at lower interest rate, compare to an unsecured bond with no condition. What happened here is that Icelandair's cash reserve is forecast to fall below the limit, hence the company wants to talk to the bondholders to pre-emt them from initiating "call-back" of the loan prematurely. These happen more often than you think to many companies. Unless the bondholders feel absolutely that Icelandair Group will fail before the maturity of the bond, it won't decline this request. Of course, they will demand something in return, may be increased interest rate, or may be a one-time payment, etc., for them to agree to not enforce the terms for a period of time. Icelandair Group will probably make an initial offer of something like that, to cut the possible complications and any back-and-forth discussions. At the end, money will talk and the issue would be closed. The market will move on.

The post above is 100% spot on. FI's lenders wont' foreclose on the company, they will demand some money and an increase to the rate on the bonds. And yes, FI's financing costs will go up a bit which might impact the lease rates associated with new aircraft (they are taking 737's, yes?).

I never quite understood how a country with 350'000 inhabitants can have two airlines with so many flights to irrelevant US destinations (by irrelevant I mean, that I don't see an economic or cultural link between Iceland an the connected US cities). As far as I understand tourism to Iceland and the concept of Keflavik being some kind of transatlantic hub are the main drivers behind Icelandairs and WOWs expansion. However the lack of any real premium traffic and the associated low yields seriously make me wonder if the strategy of Icelandair and WOW is sustainable. Probably best to wait and see till fuel prices rise and the next economic slowdown arrives?

If we look at QANTAS five years ago, it was a very liquid airline and produced cash on a year to year basis, but was still very close to contravening it's debt covenants.

In their instance the problem wasn't it's profitability, but the conditions that it agreed to debt and when that debt was due.

If we fast forward 5 years they have cleaned up the complexity associated with their debt, simplified their business and restructured the airline so it produces more cash.

In essence the airline is still the same airline.

For LCC's and especially emerging LCC's their businesses are very adverse to competition. If we consider Air Icelandic and Wow are both targeting the same customer in markets where neither airline has brand loyalty, the differentiator will often be nothing more than the price of the ticket. If we throw in rising fuel costs, it's no wonder these two airlines are having financial difficulties.

DGVT wrote:

I never quite understood how a country with 350'000 inhabitants can have two airlines with so many flights to irrelevant US destinations (by irrelevant I mean, that I don't see an economic or cultural link between Iceland an the connected US cities). As far as I understand tourism to Iceland and the concept of Keflavik being some kind of transatlantic hub are the main drivers behind Icelandairs and WOWs expansion. However the lack of any real premium traffic and the associated low yields seriously make me wonder if the strategy of Icelandair and WOW is sustainable. Probably best to wait and see till fuel prices rise and the next economic slowdown arrives?

You could say the same about all of the Middle Eastern airlines. The connectivity of those airlines greatly outstrips the local demand and economic ties with countries they are connected to. The Icelandic carriers are leveraging Iceland's unique location (as well as a huge surge in demand for Icelandic tourism) to create an alternative to the traditional European hubs.

Icelandair has been around for a LONG time. There are destinations in the US that have had Icelandair flights for decades. They are a known commodity that have been through several downturns in the economy and aviation. They've been through rises and falls of fuel prices.

WOW Air on the other hand is the great unknown. So your point is fair for WOW but I think Icelandair deserves the benefit of doubt for now.

DGVT wrote:

I never quite understood how a country with 350'000 inhabitants can have two airlines with so many flights to irrelevant US destinations (by irrelevant I mean, that I don't see an economic or cultural link between Iceland an the connected US cities). As far as I understand tourism to Iceland and the concept of Keflavik being some kind of transatlantic hub are the main drivers behind Icelandairs and WOWs expansion. However the lack of any real premium traffic and the associated low yields seriously make me wonder if the strategy of Icelandair and WOW is sustainable. Probably best to wait and see till fuel prices rise and the next economic slowdown arrives?

That's part of the point of a hub. If you create enough O&D markets, you create demand. Sure the premium traffic will likely take nonstops but there is a lot of mid-tier traffic willing to take a connection. Add to that the fact that both are in most instances flying narrowbody 757's & 737s or A320's & A321s. Pretty efficient aircraft for these stages that help minimize seats. If you keep the costs relatively low and the airport costs in KEF low, you could make it work pretty well. Not to dissimilar to how AA makes CLT work. How does a city of 2.5 million make 700 flights a day work...manage capacity, keep costs low.

travelhound wrote:

If we look at QANTAS five years ago, it was a very liquid airline and produced cash on a year to year basis, but was still very close to contravening it's debt covenants.

Splitting hairs, but covenants are funder specific (though they are often the same), unless a company has only one source of finance, but...

A breach of covenant with one funder, triggers a general clause (not a covenant) that makes all funding repayable on demand.

travelhound wrote:

For LCC's and especially emerging LCC's their businesses are very adverse to competition. If we consider Air Icelandic and Wow are both targeting the same customer in markets where neither airline has brand loyalty, the differentiator will often be nothing more than the price of the ticket.

Very good summation.

Which is why when an LCC acquires an LCC, a premium is paid. And why legacies will pay a premium to acquire, even if the brand is discontinued. And why where multiple affected legacies, to avoid paying a premium (or difficulty obtaining agreement on who will take the hit, as in the case of Laker), will take another route.

janders wrote:

CEO quit at end of August taking responsibility poor strategic decisions (significant growth to the US) under his watch that is causing financial trouble

Icelandair CEO resigns as crisis deepens
https://standbynordic.com/icelandair-ce ... s-deepens/

Which is a good thing that he stepped down. If Iceland Air was a US Airline, the CEO would have licked the honey jar clean. A new CEO will come in, and hopefully tighten the belt a little, and do what it takes to shed some pounds. I don't see this airline going under anytime soon. They have really done some amazing things with the route map, and really changed the way Iceland Air does business. I would suspect a slowdown in growth, and some trimming here and there. I would love to see Iceland Air position itself to operate profitably, and survive.

Icelandair is having a rough year, this may come as surprise to some as they see it as an ever expanding success story challenging the traditional legacies across the Atlantic but clearly the story behind the scenes is somewhat different. I doubt Icelandair is going anywhere fast, they're struggling this year and questions should be asked but I'm sure they're future is quite secure in the medium term.

sk736 wrote:

integrator wrote:

As usual.... did a search.... did not see this posted yet, so here goes....

Several Nordic media are reporting on this after Icelandair has published an official notice to the stock markets.

"Icelandair Group initiates discussions with bondholders"

Here's their message: https://globenewswire.com/news-release/2018/10/03/1600528/0/en/Icelandair-Group-initiates-discussions-with-bondholders.html?print=1

Another one about to bite the dust? Many were the last weeks commenting on WOW having issues.... Iceland now doing with Airlines as they did with banks prior to the 2007 financial crisis?

What you think?

Breaching covenants is a serious issue but it’s very far away from them being close to collapse. Drawing the conclusion that they’re in trouble from the announcement they made is way off the mark.

This. They also havent breached covenant. This is a proactive move as they could end up in a situation down the road where they would.

Obviously not happy news, but far from any form of panic.

smartplane wrote:

travelhound wrote:

If we look at QANTAS five years ago, it was a very liquid airline and produced cash on a year to year basis, but was still very close to contravening it's debt covenants.

Splitting hairs, but covenants are funder specific (though they are often the same), unless a company has only one source of finance, but...

A breach of covenant with one funder, triggers a general clause (not a covenant) that makes all funding repayable on demand.

QANTAS was very unique in that its debt funding was very much ad hoc in nature. I suspect a big part of the airlines restructure simply revolved around waiting for financing arrangements to expire or unraveling the complex financing web.

For reference in 2008/09 many of the 744's were refinanced through long-term syndicate loans. I am not sure what the covenants were, but I suspect they made it very difficult for QF to retire the 744 or adjust its business in a competitive market.

I thought it was nuts FI was sending 2 aircraft daily to so many US cities, all within 30-45 min of each other- SEA MSP BOS ORD EWR/JFK

crescent wrote:

I thought it was nuts FI was sending 2 aircraft daily to so many US cities, all within 30-45 min of each other- SEA MSP BOS ORD EWR/JFK

What is "nuts" about it? Should they rather have a small fleet of 747s to deal with the summer traffic and leave them parked for the rest of the year when they can't be filled with all associated costs?

Wingtip to wingtip flying over the short high season allows for a common fleet where capacity can be scaled up and down and redeployed depending on seasonal demands. This has been quite profitable in the last few years. This year, not so much. But it has nothing to do with doubling up on flights when you can sell more than one plane load of tickets.

Overbuying of aircraft in the first place. They knew WW was dropping big time capacity the whole time. They should have been more conservative with their fleet plans, 757 or not.

crescent wrote:

Overbuying of aircraft in the first place. They knew WW was dropping big time capacity the whole time. They should have been more conservative with their fleet plans, 757 or not.

So if you can sell tickets at a decent operational profit, as has been done for the last 8 years, one should not add 2-3 inexpensive aircraft a year that are paid for in cash at the time of a aqusition and can be parked with minimal pain (its never without pain) when demand slows or margins drop.

crescent wrote:

Overbuying of aircraft in the first place. They knew WW was dropping big time capacity the whole time. They should have been more conservative with their fleet plans, 757 or not.

Icelandair is one of the most conservative airlines in the world when it comes to fleet matters. It has very little debt and lots of cash and equity. It’s about as conservatively run as an airline can be. However, it appears to have a rather idiotic covenant in a bond.

crescent wrote:

I thought it was nuts FI was sending 2 aircraft daily to so many US cities, all within 30-45 min of each other- SEA MSP BOS ORD EWR/JFK

Glad I’m not the only one who thought that was bizarre. Hopefully this new 2nd bank will help with their issues next year

sk736 wrote:

integrator wrote:

As usual.... did a search.... did not see this posted yet, so here goes....

Several Nordic media are reporting on this after Icelandair has published an official notice to the stock markets.

"Icelandair Group initiates discussions with bondholders"

Here's their message: https://globenewswire.com/news-release/2018/10/03/1600528/0/en/Icelandair-Group-initiates-discussions-with-bondholders.html?print=1

Another one about to bite the dust? Many were the last weeks commenting on WOW having issues.... Iceland now doing with Airlines as they did with banks prior to the 2007 financial crisis?

What you think?

Breaching covenants is a serious issue but it’s very far away from them being close to collapse. Drawing the conclusion that they’re in trouble from the announcement they made is way off the mark.

Just to point out... I have not drawn any conclusions! I have asked the forum a number of questions only. Intentionally staying away from drawing conclusions prematurely. Now I am enjoying the feedback from the forum and its experts. This will allow me to possibly draw my own conclusion at some stage… Isn’t that what a public discussion forum is all about?