Wow Air, an Icelandic budget airline, canceled all flights and ceased operations on March 28, 2019 with an FHR of 21, High Risk. This collapse left travelers stranded at the airports with no warning. Their bankruptcy followed a series of airline shutdowns in Europe as the aviation industry expanded too quickly. Wow Air faced numerous struggles over the past few years, such as, increasing oil costs, stricter payment terms, and failed sales and mergers from which they were expecting revenue.
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FHR at default: 21, High Risk |
What the ratings tell you.
Wow Air’s FHR dropped 59 points from 2016 -2017 and continued to decline in 2018, clearly signaling the need for risk mitigation. Their FHR is at the bottom of High Risk with an Estimated Probability of Default of 9.4%. With a poor Core Health Score (CHS) of 24 and FHR of 21, Wow Air is placed in Quadrant C. These companies are the riskiest as both their medium-term and short-term outlook are negative. The sector average is well positioned in Quadrant A.
Where our analysis tells the story.
Reviewing the performance scores can help you dig deeper into what caused the radical deterioration and show Wow Air was not performing a sustainable manner.
Our analysis showed significant deterioration in Operating Profitability and Net Profitability, which are fundamental factors supporting Core Health. As shown in the below figure, taken from the Peer Benchmark Report, the company’s operating and net margins deteriorated significantly over recent years. Operating profit is used to cover non-operating expenses, such as debt and interest.
Our Financial Dialogue prioritizes Wow Air’s inability to cover interest with operating profit as an area of concern.
This problem of poor interest coverage was amplified by the high level of debt, at 49% of total assets. All these factors contributed to their weak resiliency, demonstrating minimal capacity to meet current obligations.
Clients can download the full set of reports for Wow Air in our portal.