The COVID-19 pandemic has plunged Icelandair into a severe financial crisis – 90% of staff have been laid off and the airline’s CEO claims bankruptcy is imminent. But Bjarni Benediktsson, the Minster for Finance and Economic Affairs has revealed in a Vísir interview that the state does not intend to step in to save Iceland’s biggest airline.
Icelandair is undergoing urgent financial restructuring and streamlining that has already resulted in around 3,000 layoffs. If these measures succeed, the government is prepared to provide the airline state-guaranteed lines of credit according to Bjarni. But in the highly likely scenario that Icelandair’s troubles continue, the government will not prevent it from declaring bankruptcy. Bjarni flatly rejects suggestions of nationalisation and CEO Bogi Nils Bogason’s calls for a state bailout.
“The state is not going to take on a business that is not internationally competitive and investors would not invest money in,” he states. Bjarni believes that the company’s current business model is untenable and that state support will smother much needed innovation.
“This is a company that needs to become internationally competitive and we want private capital to be behind it. With private capital comes more audacity, better ideas. This is not at all a business or operation that is suitable for government operations,” says Bjarni.
Future Austerity
Bjarni’s conservative stance on Icelandair is part of a bigger plan to limit government spending on “the inefficient”. He intends to scale back government spending once the COVID-19 outbreak has fully subsided and the government determines that the emergency economic policies are no longer needed. Though he stresses that this will not entail cuts to the welfare system.
“We may need to make some sacrifices,” Bjarni warns. “Losing companies that are inefficient and not working will reduce state intervention.” It is his belief that private enterprise will “stimulate” the economy and “create new jobs” if left to its own devices.
It’s worth noting that Bjarni’s clarification on the government’s position on Icelandair does not affect the recently renewed repatriation flight deal. The government will continue to provide Icelandair loans in order to ensure a bare minimum of air traffic flows in and out of the country. The state is still committed to ensuring that Icelanders and foreign citizens in Iceland can return home during the pandemic. The deal will be reviewed on May 16th.
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