The Icelandair Group has announced it is abandoning its agreement to acquire low-cost rival Wow Air.

Both parties agreed to call an end to the purchase agreement after Icelandair said it became clear that it would be unlikely for “all of the conditions in the share purchase agreement would be fulfilled”.

Icelandair Group says it is unlikely that its board of directors would recommend going ahead with the acquisition to shareholders, and even went so far as to say it would not propose postponing a decision on the deal.

The news is a blow to Wow Air, which announced on Wednesday that it had returned four aircraft – two A320s and two A330s – to lessors. The carrier claims the move is “part of necessary restructuring of the airline”, but in a statement to shareholders, CEO Skuli Mogensen said its lessors had “demanded stricter payment terms than before, further putting pressure on the company’s cash flow”.

The move cuts Wow Air’s fleet size by a fifth and its available seats by a quarter, according to the Independent.

Wow Air says the reduction in fleet will not affect its plans to fly to India starting next month.

Mogensen said the Icelandic airline’s financial situation has been negatively affected by “a number of external and internal events” as the carrier published weakened projections to its shareholders. He claimed the collapse of Primera Air had “escalated” the negativity and that the “bad publicity about the financial health of the company” had worsened the situation.

Wow Air was launched in 2011 and presented competition to Icelandair on many popular routes from Keflavik airport. However, the low-cost airline announced recently it would begin cutting some US flights.

Commenting on the failed purchase agreement, Icelandair Group interim president and CEO Bogi Nils Bogason said: “The planned acquisition… of Wow Air will not go through. The board of directors and management of both companies have worked on this project in earnest. This conclusion is certainly disappointing. We want to thank Wow Air’s management for a good cooperation in the project during recent weeks. All our best wishes go out to the owners and staff of Wow Air.”

Mogensen added: “It was clear at the outset that it was an ambitious task to complete all the conditions of the share purchase agreement in this short period. We thank the Icelandair Group’s management team for this challenging project, and also wish the management and staff of Icelandair Group all the best.”

Subscribe to the BBT Newsletter

Join the Buying Business Travel newsletter for the latest business travel news.

Thank you for signing up!