icelandair group hf

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ICELANDAIR GROUP HF.Shareholders‘ Meeting | 30. NOVEMBER 2018

Úlfar Steindórsson, Chairman of the Board

Icelandair Group Shareholders‘ Meeting

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Election of a Moderator and Secretary

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Agenda

1. That the shareholders’ meeting approves the Company’s acquisition of 100% of

the share capital in WOW air hf.

2. Proposal for the Board of Directors to be authorised to increase the Company’s

share capital for the purposes of making a payment under a purchase

agreement.

3. Proposal for the Board of Directors to be authorised to increase share capital.

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agreement.


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Agenda

Bogi Nils BogasonINTERIM PRESIDENT AND CEO ICELANDAIR GROUP

WOW air Acquisition Overview

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On 5 November 2018 Icelandair Group

entered into a Share Purchase Agreement

(SPA) with the intent of acquiring all shares in

WOW air

The transaction was subject to certain

conditions that were to be met or satisfactorily

resolved before closing

The final purchase price, payable in two

separate payments, was to be adjusted in line

with WOW air’s financial standing and

estimated cash-flow needs

The Transaction Purchase Price Structure

Total issued shares in Icelandair Group

(pre-money)

Payment 1 (floating): Base case

178,066,520 shares in the Seller

Purchase price adjustment principle (max price 240,630,432 shares)

Base estimate of WOW’s cash flow deficit

until end of May 2019

In case the due diligence findings estimate

the cash flow deficit to be greater

In case the due diligence findings estimate

the cash flow deficit to be less

Payment 2 (fixed): 94,275,347 new shares

in the Seller

5,000,000,000

3.5%

(0-4.8%)

Confidential

Fewer shares

More shares

1.8% of total shares

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Status

Mutual decision to abandon the SPA

N/A

Negotiation were not concluded



Key Conditions of the Sales and Purchase

Agreement

Approval by Icelandair Group’s shareholders’ meeting

Approval by the Competition Authority

A satisfactory result in WOW air fleet negotiations relating

to lease terms and overtaken aircraft

A confirmation that the priority clause of Icelandair pilots

collective wage agreements would not apply to WOW air pilots

A satisfactory agreement being reached with WOW air

bondholders

A satisfactory financial, tax and legal due diligence results

Initial findings showed a larger cash flow

deficit than previously assumed and

other issues

Key Conditions of the Agreement

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Synergy Potential was the Key Rationale for the Transaction

Route network

optimisation

1Fleet Network 2 Flight operations 3 General Administration

and Sales & Marketing

Aircraft handling

Ground services

Aircraft maintenance

Head office cost

Sales & marketing

Certain financial criteria was set for the transaction

1. Investment needed to turn WOW air cash positive

2. Estimated cash flow to WOW air’s operations

3. Estimated one-off costs to realise synergies

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Business plan

created for the

combined company

Deal negotiated with

WOW air based on

the business plan

Íslandsbanki

conducted a cash

flow analysis

based on the

business plan

Seabury, a

specialist aviation

consulting firm,

developed a

business strategy

Kunde & Co

performed a brand

analysis

The Due Diligence and Vetting Process

Initial Deal

AnalysisDue Diligence

Business & Brand

Analysis

Cash Flow

Analysis

Deloitte and Logos

conducted

pre-acquisition

due diligence of

WOW air

Icelandair

Analysis

Icelandair

conducted analysis

of a possible fleet

and route network

optimisation and

synergy potential

Following the analysis it was clear that the main assumptions of the transaction were not in line with what

was initially assumed when the SPA was signed





agreement.


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Agenda

Organic Growth Opportunities

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Route Network

Increase flights to key

destinations

Improve load factor on

existing routes

Expand network to new

destinations

Icelandair Plans to Increase Flights to Key Destinations and

Expand Network in 2019

| Targeting new destinations

| Considering additional leisure

focused destinations

| Up to 10 locations under

consideration

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3 3

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| Fleet plan assumes 3 new aircraft in 2019

| Room for significant internal near term growth while

maintaining a uniform Boeing aircraft fleet

| The introduction of the two bank system in 2019

creates flexibility to increase the utilisation of the

fleet significantly

| Creates equivalent to 4-5 new aircraft capacity

| Further capacity growth can be achieved by sourcing

aircraft on a relatively short notice from lessors

| Opportunity to utilise differently configured aircraft to

add low cost flights under a side letter to the pilot

collective labour agreement

| Assuming a similar passenger mix as in 2018

Icelandair could increase number of tourists by

approximately 350 thousand

Achievable Growth in Capacity 2019

Potential to Increase Capacity by 35% from 20181)

Base Fleet

2019

Fleet 2018 MAX 9MAX 8 B757-

200

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1) In Available Seats

9%

35%

14%

12%

Additional

source-able

capacity

Base fleet

growth

Better fleet

utilisation

Achievable

growth

Fleet StrategyPassenger Fleet Composition 2019

1.262

1.768

2.195 2.350

650

700

2015 2016 2017 2018E 2018EBreakdown

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Number of Tourists Through KEF: 2015-2018 | Thousands

Other airlines 31%

27%

42%

1) Icelandair estimation

Icelandair

WOW Air

Other Airlines

Breakdown by airline in 2018 1)

1.000

Number of Tourists to Iceland

1)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

| l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l | l |

North America Europe North America

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24


North America Europe North America

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24


North America Long Europe Short North America Long

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Better Fleet Utilisation with Long North American Flights

Connecting to Second Bank

Bank 1

06:00 15:30 17:0007:30

09:00

09:00

10:30

10:30 17:00

20:0018:30

16:00

Bank 2

Connectivity

between

banks

Passengers

from long

N-American

flights connect to

second bank

Passenger

from European

flights connect

from

first bank

Organic Growth Opportunities In Summary

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Substantial growth can be achieved in current operations without considerable

investment

Making changes to current network, extending existing aircraft lifecycle and

new aircraft provide scope for growth

Additional opportunity in changing the mix of To/From Iceland versus via traffic

on existing network

New Share Offering

Private PlacementNew shares in

the nominal value

of up to

499 million

Public OfferingNew shares in

the nominal value

of at least

126 million

| Shares will be sold at a fixed price determined by the Board of Directors at least 3 days

prior to the offering

| The offering is made to existing shareholders at the end of trading on the day the price

is set

| Minimum subscription in the amount equaling EUR 100,000

| The offering to take place 14 December 2018- December 2018 -

- March 2019 -

| Shareholders will have priority rights to subscribe to new shares in the Offering,

excluding shareholders that were allocated shares in the Private Placement

| Price not to exceed the price set in the Private Placement

| The total number of shares being offered will be at minimum 126 million but can

increase in case demand in the Private Placement is less than the allotted 499 million

| The offering to take place in March 2019

| Íslandsbanki and Landsbankinn have been co-mandated to manage the offerings

A Two-fold Share Increase of up to 625 million Shares

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Key Dates

Timeline of Share Offerings

December March

Investor presentation

Meetings with shareholders

Share offering

Private Placement

10.

10-13.

14.

-

-

Week 10-11

Route network and aircraft fleet planning

for 2019 is close to be completed

Key figures will be made available in the

investor presentation before the share

offering in December

Share offer price to be determined at least

3 days before the private placement

Public Offering

The share offerings are planned on the above listed dates, however the final timeline could be subject to change

1) Based on current market price. USD/ISK 125

2) Book value of equity

30.09.2018Before Share

Capital Increase

30.09.2018Pro Forma for

Capital Increase

Assets

Operating Assets 674 674

Other non-current assets 276 276

Total non-current assets 950 950

Other current-assets 473 473

Cash and cash equivalents 175 230

Total current assets 649 704

Total assets 1,598 1,653

Equity and liabilities

Share capital 39 44

Share premium 134 184

Other equity 403 403

Stockholders equity 575 630

Equity ratio 36% 38%

Bonds 214 214

Other liabilities 809 809

Total liabilities 1,023 1,023

Total equity and liabilities 1,598 1,653

Balance Sheet | USD million Icelandair Possible Cash Flow Sources | USD million

Cash and cash equivalents at end of Q3 2018

Icelandair Hotels currently held for sale and signing

anticipated by end of Q1 2019

Discussions with USD unsecured bondholders ongoing

| A written procedure will be submitted on 30 November 2018

Strong Balance Sheet

Aircraft financing and off balance sheet financing of predelivery

payments for new aircraft estimated in December 2018

Share capital increase in December 2018 and March 2019

175

762)

200

501)

Possible partial prepayment of USD unsecured bonds~

Expected negative cash flow in Q4 2018~

Capex in 2019 – 6 Boeing 737 MAX, market value over USD 300m~

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The Board proposes a share increase authorisation to prepare for organic growth opportunities

and strengthening the Company’s financial standing

| Icelandair’s strategy is to be well capitalised with ample liquidity to be prepared for changing market

conditions

| Organic growth plan entails a considerably lower risk than the acquisition

| Company resources focused on core operations opposed to a large scale restructuring and a complex

integration process

| Rationalisation within the region will lead to a more sustainable operating environment – more than 20

airlines have exited the European market since 2010

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The Board’s Proposal

Board of Directors Authorisation to Increase Share Capital

It is proposed that the following provision be adopted as Article 15.2 of the

Company’s Articles of Association:

“The Company’s Board of Directors is authorised to increase the Company’s share

capital by up to ISK 625,000,000 nominal value (ISK six hundred twenty-five

million). The Board of Directors shall decide on the share price and the subscription

terms of the new shares. The intention is that the share offering, in part or wholly,

be made towards Company shareholders registered at the end of trading on the

date on which the price is set for the offering. The shares shall be offered under the

following terms:

a) Shareholders, and as the case may be, others, shall be offered to subscribe for new shares of up to

ISK 499,000,000 (four hundred and ninety-nine million) nominal value through a private placement.

The minimum subscription amount of each individual subscriber shall be at least the equivalent of

EUR 100,000. The new shares shall be sold at a fixed rate to be determined by the Board of

Directors no later than three days prior to commencement of the offering and the purchase price

shall be paid in cash. The Board of Directors shall decide the commencement date of the

subscription period, which shall expire no later than 14 December 2018 and the subscription price

shall be paid no later than 31 December 2018. Participation in the share offer precludes

shareholders from participating in the public offering provided for in point (b) of this Article except to

the extent there will be insufficient subscriptions in the public offering. The priority rights of

shareholders to this part of the share capital increase pursuant to the Act on Public Limited

Companies and the Company’s Articles of Association shall not apply, as per Article 34 of Act No.

2/1995 on Public Limited Companies.


The Company’s Board of Directors shall be authorised to decide further terms and conditions, the

allocation of the new shares and the implementation of the private placement. Subscriptions that lead

to the payment of a purchase price that is an amount less than the equivalent of EUR 100,000 in ISK

shall be void. The costs incurred by the Company as a result of the share capital increase and its

registration is estimated at ISK 100.000.000. The cost of the private placement shall be paid in

accordance with invoice.


b) Shareholders shall be offered to subscribe to new shares of nominal value up to ISK 126,000,000

(one hundred and twenty-six million) in a public offering, taking into account the results of the

private placement pursuant to point (a), so that if insufficient subscriptions have been received in

the private placement, the authorisation of the Board of Directors according to point (b) shall

increase accordingly. Shareholders shall have a priority right to subscribe to new shares in this part

of the share capital increase, in accordance with Act No. 2/1995 on Public Limited Companies and

the Company’s Articles of Association, except that those shareholders who participated in the

private placement pursuant to point (a) shall be considered to have waived their priority rights to

subscribe to shares in the public offering. The new shares shall be sold at a price that does not

exceed the price set in the private placement pursuant to point (a) of this Article. Prior to the public

offering, a prospectus will be issued. The costs incurred by the Company as a result of the share

capital increase and its registration is estimated at ISK 50.000.000. The cost of the public offering

shall be paid in accordance with invoice.


The shares will belong to the same share class as other share capital in the Company. The new shares

shall remain subject to any restrictions and redemption obligations set out in the Company’s Articles of

Association and Icelandic law. The new shares provide rights in the Company from the date of

registration of the share capital increase. The Board of Directors may establish further rules on the sale

of the shares. The authorisation of the Board of Directors pursuant to this Article shall be valid until 1

December 2019, to the extent that it has not been utilised.”


This presentation is for information purposes only. The information in this presentation is based on material from Icelandair hf., and other

public statistics.

The material used in this presentation is based on sources that Icelandair hf., believes to be reliable. However, Icelandair hf., cannot

guarantee that the information contained in this presentation, or that the conclusion drawn from the information, is without fault or entirely

accurate and does not assume any responsibility or liability for any reliance on the information contained herein. Such guarantee is

hereby excluded. Information and opinions in this presentation may be subject to change, update, final release or reissue, which may

include changes from the information contained in this presentation.

All forecasts in this presentation are subject to uncertainties and risks, which include (among others) the risk of adverse or unanticipated

market, financial or political developments and, in international transactions, currency risk.

Icelandair hf., has not substantiated or evaluated the validity of this information by independent surveys.

This presentation does not include recommendation from Icelandair hf., to make any investments on the basis of it.

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Disclaimer

icelandair group hf

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