WOW Air Buys Time With a Deal to Stay Afloat

Mar 26, 2019

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Low-fare trans-Atlantic carrier WOW Air was teetering on the edge of collapse Monday after takeover talks with Icelandair and Indigo Partners both collapsed last week. Also on Monday, it was reported that a WOW Airbus A321 was repossessed, likely due to missed leasing payments, just before a flight from Montreal to Reykjavik, but the airline appears to have found another way to keep itself afloat a bit longer. [Update, 3/28/2019: WOW Air has ceased operations. Find our ongoing coverage of WOW Air’s collapse, and what affected passengers can do about it, here.]

WOW announced Tuesday that it struck a deal with its bondholders, converting WOW’s debt into equity in the airline. “Bondholders have formally approved to convert their bonds into equity and formal discussions with investors have commenced to fund the company,” the airline said in a statement.

“A conversion of debt to equity does not create cash, it simply reduces future loan payables,” airline analyst and consultant Robert W. Mann said in an email. The agreement does buy WOW time, allowing it to search for investors so it can turn its operation around and financially restructure.

The airline began cutting routes and selling aircraft in 2018 after low demand and high fuel prices led to serious financial issues. WOW had rapidly expanded over the few years before that, banking that oil prices would stay low and passengers would flock to the ultra-low-cost carrier for its dirt-cheap fares to Iceland and mainland Europe — with consistent sales below $200 round-trip.

Concerns remain regarding WOW’s cash flow. Mann said that when questions exist around a carrier’s viability, that can affect seasonal cash build since customers shy away from booking with an airline that may not end up actually flying them. That’s especially concerning as summer peak travel approaches. A carrier’s credit card-clearing firm may also demand significant cash up front, since in some jurisdictions it must fund consumers’ demands for refunds if the airline does not provide the flights booked on a credit card, Mann said.

While WOW continues to sell flights between the US and Europe, it’s still quite possible the airline could go under in the coming months. If you do want to purchase a flight with WOW, make sure to use a credit card that comes with trip cancellation insurance, and consider other third party trip insurance.

If you’ve already purchased a WOW Air ticket and the carrier ceases operations, you can initiate a chargeback or dispute with the issuer, as TPG’s Ethan Steinberg recently advised one of our readers. “I spoke to representatives from both Chase and American Express on the phone,” Ethan wrote, “and while they couldn’t confirm the outcome of any such dispute, they said that paying for a service and not receiving it would give you a very strong case and good odds of getting your money back.”

You could also be entitled to compensation of up to 600 Euros (~$680) per person under EU 261, the European Union’s bill of air-passenger rights. The rule requires airlines flying to destinations within the EU to get you to your final destination, or refund you the cost of your ticket.

Featured photo by Alberto Riva/TPG

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