Reykjavík Grapevine - 24.08.2018, Síða 12

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WOW Air is a young, innovative
Icelandic airline with an impres-
sive growth record over its short life.
Though it was only founded in 2011,
WOWnow challenges the well-estab-
lished Icelandair for the distinction of
Iceland’s largest airline. Last month
the carrier announced losses for the
fiscal year of 2017 and a presentation
for potential investors was leaked,
showing even larger losses and finan-
cial woes. This gets a bit numerical,
but stick with it.
The airline lost US$45 million before
interest and taxes from July 2017 to
June 2018. The total for 2017 was
US$13.5 million and is expected to be
US$28 million in 2018. The presenta-
tion also included estimated earnings
before interest, taxes, depreciation,
and amortization (EBITDA) of posi-
tive US$4 million in 2017 and expects
a loss of US$6 million. EBITDA is an
accounting measure used by inves-
tors to gauge if companies will be able
to manage debt over the near term,
but it tends to portray companies in
too positive a light, ignoring poten-
tial cost. The leaked information also
shows that WOW’s owner’s equity has
fallen from $40 million to $14 million
over the first half of the year. Equity
is a measure of assets minus liabili-
ties. Many young companies have low
equity because they have not had time
to build capital and WOW’s has been
compared to Icelandair’s equity—
not a particularly useful comparison
because Icelandair is an decades-old
airline. Meanwhile, WOW’s owner has
personally invested significant sums
in his company.
There have been warning signs and
speculation about WOW for much
of the past year. In November 2017
the airline sold two of its aircrafts
and then leased them back. Skúli
hinted earlier this year that the
company needed funding, and the July
announcement had been long delayed,
spurring much speculation about the
company’s financial fitness.
Fast Cash
The use of accounting tools to woo
financiers suggests the company is
in even more financial trouble than
Words:
Colin Arnold
Dalrymple
Photo:
Wikimedia
Commons
The Woes of WOW
Careful Icarus, don't fly too high

WOW! This could be bad news.
12 The Reykjavík GrapevineIssue 15— 2018