U.S. private equity firm Indigo Partners plans to invest in financially struggling Icelandic low-cost carrier Wow Air, a move that, if completed, would expand Indigo’s global portfolio of shareholdings in LCCs and keep Wow in the air. The announcement came just hours after Icelandair Group called off the proposed acquisition of its competitor and a day after Wow characterized new long-term funding as a “necessity for the business.” 

“We have a strategic vision for the airline and look forward to working with its employees and agents to deliver that vision,” said Bill Franke, managing partner of Indigo Partners, who added that Wow CEO and founder Skuli Mogensen and the airline’s management and staff have done a “remarkable job in creating a well-regarded, successful ULCC [ultra low-cost carrier] brand.”

The two sides did not disclose details of the planned transaction and said that Mogensen would remain a “principal investor” if the deal closes. The companies would work to close the transaction “as soon as practicable” and after “successful completion of due diligence.”

Indigo Partners has invested in ultra-low-cost carriers across the world. A lead investor in Singapore-based Tiger Airways and Fort Lauderdale, Florida-based Spirit Airlines, it also maintains stakes in Wizz Air, which operates from Central and Eastern Europe, Denver-based Frontier Airlines, Volaris Airlines in Mexico City, and JetSmart in Chile.

Last year, Indigo Partners inked an agreement with Airbus for 430 additional A320neo family aircraft for operation by airlines in its investment portfolio. Wow Air could become a good fit given it operates Airbus aircraft. Wow Air on Thursday said it agreed with lessors to downsize its Airbus fleet by two A330s and two A320s.

Key conditions of the proposed sale and purchase agreement with Icelandair include successful renegotiation of lease terms for Wow’s fleet. Speaking to shareholders November 30, Wow Air interim CEO Bogi Nils Bogason acknowledged that Wow Air did not meet that condition by the set deadline. Other unfulfilled conditions include a confirmation that the priority clause of Icelandair pilots' collective wage agreements would not apply to Wow Air pilots and a satisfactory agreement with Wow bondholders. In addition, due diligence revealed that Wow had a larger cash flow deficit than previously assumed.

Bogason told shareholders that Icelandair has organic growth opportunities and the airline had identified 10 destinations where it could increase frequencies next year. The airline plans to introduce a two-bank system at its Keflavík hub next year to increase fleet utilization.