Wednesday, 19 August 2020

Icelandair gets its government lifeline

A Government Guarantee for a Credit Facility for Icelandair Approved by the Icelandic Government

Icelandair Group has been in discussions with the Icelandic Government, along with Íslandsbanki and Landsbankinn, regarding a government-guaranteed credit facility for quite some time.  Indeed the troubled airline's very future survivial hung in the balance of those negotiations. 

The Icelandic Government has now approved to provide such a guarantee to the Company for a credit facility amounting to up to USD 120 million. The guarantee will be subject to terms for the guarantee and the credit facility being agreed upon between the parties, the approval of the Icelandic Parliament and a successful offering of shares in Icelandair Group.

Although Icelandair Group entered the Covid-19 pandemic with a strong financial position, the Company will need to strengthen its liquidity position for the upcoming period where flight operations are expected to be at a minimum level. As previously announced, Icelandair Group intends to raise ISK 20 billion through sale of new shares which will provide vital liquidity for the Company. 
For the last few months, the Company has been working on various mitigating measures which will strengthen Icelandair Group’s liquidity and competitiveness for the short-term and long-term such as the following:

Long-term collective bargaining agreements have been completed with pilots, cabin crew and aircraft mechanics which will increase the Company’s flexibility and utilization of resources.
Agreements have been made with key creditors and vendors regarding concessions for the Company which will be vital in minimizing cash outflow in the upcoming period where the flight schedule is expected to be at a minimum level.
Despite the COVID-19 pandemic, the Company has managed to operate a limited but a profitable flight schedule during the summer period. Furthermore, the cargo and leasing operations have been successful during this period by ensuring profitable projects.
Icelandair has completed an agreement with Boeing on additional compensation due to the grounding of the MAX aircraft and Icelandair’s MAX purchase commitment has been reduced by four aircraft. The compensation will strengthen the liquidity position of the Company and the reduced purchase commitment will result in lower capital expenditure in the upcoming years.

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