Icelandair Group‘s operations have been significantly affected by the COVID-19 pandemic and the associated wide-ranging travel bans and decrease in travel demand. Preliminary results of the first quarter of 2020 indicate that revenues decreased by 16% between years to USD 209 million. The financial results of the first two months of the year were in line with expectations with considerable improvements between years but due to adverse COVID-19 impact, March was significantly below expectations.
Due to the foreseeable considerable adverse impact of the COVID-19 pandemic on near term operations, goodwill impairment amounted to approximately USD 115 million. Negative development in the value of fuel hedges amounting to approximately USD 51 million had further significant negative impact on the results in the first quarter. Taking all this into the account, preliminary results of first quarter 2020 indicate that EBIT amounted to negative USD 208 million. The Q1 2020 financial statements will be published on 4 May 2020.
Icelandair’s liquidity position is still above its internal policy of USD 200 million minimum level. Due to negative development of the value of fuel hedges, the Company has transferred USD 18 million to margin accounts with its counterparties. Assuming a continued period of minimum revenue, the Company expects its liquidity to fall below its above-mentioned USD 200 million minimum level in the next few weeks.
The Company is currently focusing on improving its liquidity and equity position as well as securing its long-term profitability. To achieve this, the Company is preparing to issue new shares as previously announced. As a part of that, successful negotiations with relevant unions are essential as well as the approval of a shareholders’ meeting. Discussions are currently ongoing, or being initiated, with other key stakeholders, such as lenders, lessors and suppliers to strengthen the long-term competitiveness of the Company even further. Yesterday, it was announced that the Government is willing to consider granting the Company a credit line or providing a guarantee for such credit line conditioned upon the completion of the share offering. The Company expects that further conditions from the Government regarding the credit line will be required.
Icelandair Group has, as previously announced, taken significant steps to minimize the impact on cash flow in the past few weeks. Furthermore, the Company has reduced the number of employees within the Company significantly, as announced on Tuesday 28 April. These actions are expected to reduce cash outflow by approximately USD 12 million per month in the next three months, taking into account general measures by the Icelandic Government regarding partial payment of salary cost during notice periods.
The Board of Directors of Icelandair Group has submitted a proposal to the Shareholder’s Meeting that, if approved, would enable the Board to increase the share capital of the Company by up to 30,000 million new shares. Subject to the approval of a Shareholder’s Meeting, the Board aims to offer new shares in the Company (the “Offering”), in June. The Board aims to publish a Prospectus and publicly announce the price of the new shares, along with the terms and conditions of the Offering, subsequent to the Shareholders’ Meeting.
The Board further proposes that current shareholders waive their pre-emptive rights to the new shares. The public, along with other investors, will thereby be given the opportunity to subscribe to new shares in the Company. Furthermore, the Board will have unilateral authority to determine the allocation of new shares, but efforts will made to provide full allotment to existing shareholders and employees. The objective of the Offering is to raise up to USD 200 million in equity for the Company. Additionally, the Company aims to explore the possibility of converting liabilities to equity.
The offering is an important part of the financial restructuring of Icelandair Group. The Company has announced changes in organizational structure and will continue to identify and implement actions and processes aimed towards strengthening the long-term competitiveness of all aspects of the Company. Icelandair Group has been in close contact with the Icelandic Government during the process. Today it was announced that the Government is willing to consider granting the Company a credit line or providing a guarantee for such credit line conditioned upon the completion of the share offering. The Company expects that further conditions from the Government regarding the credit line will be required.
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