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Icelandair announced today that it has abandoned plans to buy its Icelandic low cost competitor WOW Air, dropping its share price.
Icelandair shares fell by more than 10% on the Reykjavik Stock Exchange.
The airline had announced earlier this month that it would buy WOW Air under an agreement with a local media estimated at two billion kronur (about 16 million euros).
"Icelandair Group's proposed acquisition of WOW Air will not be successful," said Bogi Nils Bogason, acting executive director of Icelandair, in a statement.
"This conclusion is certainly disappointing."
No explanation has been provided to explain the change of heart, but it is believed that WOW Air, which has been in financial difficulty, is in a worse state than previously thought.
The low-cost company recorded a pre-tax loss of nearly $ 60 million in the first half.
On Monday, Icelandair acknowledged that it was "unlikely that all conditions will be fulfilled" at the shareholders' meeting scheduled for Friday to approve the acquisition.
"It was clear from the outset that it was ambitious to fulfill all the terms of the stock purchase agreement over this short period," said Skuli Mogensen, founder and general manager from WOW Air.
The company's future, founded in 2011 and serving 36 destinations in Europe, North America and Asia, now seems uncertain.
According to the Icelandic media, Mogensen informed employees that "several players" had expressed interest in the carrier.
At the same time, a government task force predicted that a bankruptcy of WOW Air would result in a 13% drop in Icelandic currency, the Icelandic krona, as well as the loss of 1,400 jobs and a rise in 39; inflation.
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