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Iceland’s overseas push

Icelandair's parent company has branched into aircraft leasing as part of a new investment strategy, while the wider Icelandic aviation community is beginning an acquisition drive.

FL Group, the newly rebranded parent of Icelandair and 12 other travel-related subsidiaries, is close to sealing its first new-aircraft lease deal after ordering 10 Boeing 737-800s and exercising five options for the type.

Named Icelease, the new division is expected to be profitable from next year and boast 100 aircraft within the next five years. FL Group has also cooled on its search for an equity partner due to Icelease's perceived potential.

Cash-rich FL Group, which reached record profitability in 2004, recently placed an order for two Boeing 787s, snapped up a 10.1% shareholding in UK budget carrier easyJet and is acquiring Icelandic freight operator Bluebird Cargo. "We have a lot of funds at the moment and we are looking for something new," says newly appointed chief executive Ragnhildur Geirsdottir.

Opportunities in cargo and leasing top FL Group's agenda at present and are expected to rival Icelandair as a revenue stream within five years, she says.

Fellow Icelandic aviation giant Avion Group is also scanning for acquisitions after fashioning itself as a holistic aviation service provider. Avion brought together Icelandic aircraft wet-lease specialists Air Atlanta Icelandic and Islandsflug. It has a maintenance presence through Avia Technical Services and is parent to UK carriers Air Atlanta Europe and Excel Airways.

This portfolio is set to be boosted by an imminent acquisition, says Avion, which is hoping to secure a foothold in the USA. "The US market is very tempting for us," says Avion vice-president of business development and communications Magnus Stephensen. "We have good relations with several entities in the USA and we are trying to build up more strategic relationships to access that market."

Avion is planning a fourth-quarter flotation and is expecting to generate $1.3 billion in turnover this year. Avion chairman Magnus Thorsteinsson says: "The company overall is very nicely profitable…the profits have been rising." External growth is likely in the maintenance sector, while internally Avion is hoping to branch into third-party pilot training.

But beyond the majors, Icelandic investors are also creeping into the mainland European aviation scene. Investment group Burdaras has acquired a 6.2% stake in Finnair, becoming the second-largest shareholder behind the Finnish government.

Separately Icelandic investor Fons Eignarhaldsfelag, which is backed by former Icelandair shareholders, has taken an 89% stake in budget carrier Iceland Express and acquired Copenhagen-based budget carrier Sterling. Together the carrier's operate a fleet of 12 737s.

Former Iceland Express managing director Almar Orn Hilmarsson, who is now Sterling chief executive, says that the new investors "never stop – it's never enough". He adds: "They are always looking out for new opportunities…they are a very aggressive company and I wouldn't be surprised if they buy some more this year."

An entrepreneurial and dynamic approach is essential for survival in a harsh climate, agree executives from Icelandic companies. Einar Sigurdsson, FL Group senior vice-president, resource management and business development says: "Economics dictate that Iceland is in a spoke position. It's like the law of aerodynamics says that a bumblebee can't fly, but no-one told the bumblebee. We can't do it with a home market of 300,000 – but they failed to mention this to us."


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