Icelandair: Fault Zone

Iceland is living up to its reputation as a land of fire and ice. Burnt fingers and cold shouldering are risks for bondholders in Icelandair. The ratio of debt to earnings has risen, and with it the risk of default on more than $200m of borrowings. With the flow of tourists that powered the airline’s growth slowing down, it is time for Iceland’s oldest airline to scale back its ambitions, the Financial Times reported. What apter way to commemorate the tenth anniversary of the financial crisis than with debt restructuring talks? Three Icelandic banks collapsed back then. Ironically, Icelandair helped this small Nordic nation recover, flying in tourists whose spending replaced lost banking revenues. Tourism’s share of output has doubled to 12 per cent. Less than half a million people visited Iceland in 2008. Nearly five times as many will visit this year. While tourists complain about the price of their Ulfur beer, they agree the flights are cheap. Icelandair would love to raise prices to cover higher fuel costs — up 21 per cent in the third quarter on a year earlier. But tougher competition makes that hard. Almost 30 airlines now operate out of Keflavik airport. Read more

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