WOW Air Gets Another Lifeline (Bonds Converted Into Equity)

Filed Under: WOW Air

Update: WOW Air has ceased operations, and all flights have been canceled. Icelandair is offering discounted tickets to passengers stranded by WOW.

WOW Air is fighting to stay alive, though I’m not exactly sure to what end.

On Sunday night we learned that WOW Air seemed to basically be out of options:

The airline has a lot of debt, limited cash, and it was reported yesterday that one of their planes was even being repossessed.

As I explained, with no potential investors and limited cash, WOW Air would need to find an investor very quickly if they had any chance of survival. Well, the airline now has an update:

Reference is made to a market announcement of WOW air (“WOW“), dated March 24 2019, regarding WOW air’s advanced discussions with bondholders about voluntary restructuring including an agreement of converting current debt into equity.

Bondholders have formally approved to convert their bonds into equity and formal discussions with investors have commenced to fund the company. This is an important milestone in financially restructuring the company and secure the long-term sustainability of WOW air.

So it would appear that WOW Air bondholders have approved a plan to convert bonds into equity, and supposedly formal discussions with investors have commenced to fund the company.

While this is most definitely a step in the right direction, I still don’t see a viable direction forward for the airline. Indigo Partners has worked with some desperate airlines, and Icelandair wanted to take over WOW Air but said they were in too bad of a situation.

Even with this lifeline, I still don’t see WOW Air’s path forward.

We’ll have to see how this unfolds…

  1. All this likely does is buy them a bit more time by not having any more bondholder covenants that they are likely already in breach of. Doesn’t solve the underlying problem of lack of cash. My guess is at this point they are well into a negative valuation, with the liquidation value much less than their outstanding obligations.

  2. OK, I’m thinking it’s time for Lucky to get on a plane and for Tiffany to post some Vietnam trip reports. 🙂

  3. Wonder what Indiego saw that made them not want to invest? They were in conversations for quite a while

  4. They could perhaps approach Blizzard about putting World of Warcraft livery on their planes like Asian does with Hello Kitty. They have the perfect name already.

  5. i’d hardly call a conversion from debt to equity a lifeline…WOW is selling itself off just to stay alive. I’ve been through a move like this at a previous tech company and it’s only downhill from here. I’d say the shareholders just want an out, they’ll peddle to whomever calls at this point.

  6. @Memento
    One of the best comments so far. But WoW is probably 15 years too late for such PR stunt.

    I agree with most that converting doesn’t solve cashflow problem. I see no reason why bond holders would do that either. In bankruptcy bonds hold more value than equity. You mostly convert when company is doing very good, equity is high.

    Unless, the new voting rights of the bond holders can save WOW.

  7. @Eskimo – bondholders come before shareholders, but secured debtors come before bondholders. WOW has already had an aircraft repossessed, and there’s a limit to how much farther Keflavik will let them skate on landing fees.

    Reducing cash demands for interest on the converted bonds (if they were making those payments) will help, but I doubt it’s enough to stop the flow of cash out the door.

    You’re right in that you normally convert when the company is prospering, but the other time you convert is when if you don’t, the company is going to fold anyway and your bonds are about to become pretty much worthless, so it’s your only option to get something back out of the investment.

  8. Hey! What happened to the Eternal Optimist? I LOVE WOW and have flown them 1-2 times
    a year and think they are great! And I speak from experience with other low-cost airlines
    around the world. Give them a chance!

  9. Doesn’t really mean much. Bond holders know they aren’t getting any of that money back. So they probably agreed to convert to equity in the hope that they can get something if WOW finds an investor.

  10. @SEAguy At least we get the occasional trip report here (View from the Wing doesn’t seem to have done any in ages).

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