23/10-2005 20:50:00: (FLGR.ICEX) Strong investment company based on solid ground

Equity of ISK 65 billion
Equity of ISK 65 billion

*         It is to be proposed to a shareholders' meeting to raise
  share capital in FL Group by ISK 44 billion (market value), so
  bringing the company's equity to about ISK 65 billion.
*         FL Group has been restructured and Hannes Smárason has
  become its CEO.
*         Contracts have been signed on the acquisition of Sterling
  Airways, Europe's fourth largest low-fare airline. The company will
  focus on the leisure and charter market.
*         Following the acquisition, total turnover of the FL Group's
  businesses will be c. ISK 100 billion.
*         FL Group and Kaupthing Bank have signed a letter of intent
  on collaboration on an aircraft leasing project.  If final
  agreements are reached in line with the letter of intent, FL Group
  will ensure itself a profit of ISK 3.5-4.5 billion. An agreement
  has been signed on the lease of four aircraft to Hainan Airlines in
*         Increased emphasis on international cargo services - The
  company is leasing two Boeing 747 cargo aircraft, to be delivered
  in 2007 and 2008. This marks the beginning of the company's cargo
  operations into the Asian market.
*         FL Group reports pre-tax profit of more than ISK 8 billion
  for the first nine months of this year, according to provisional
  figures - the best performance in the company's history.

The Board  of FL  Group  has decided  to  submit to  a  shareholders'
meeting proposals to make  fundamental changes to  the company.   The
main change, subject to the  approval of the board's proposals,  will
be the  raising of  the company's  share capital  by ISK  44  billion
(market value), bringing its  equity to about ISK  65 billion.   This
increase  has  already  been  underwritten  by  Kaupthing  Bank   and
Landsbanki Íslands.    In  addition,  changes will  be  made  to  the
structure of the company by  which its present airline operation  and
tourist  service  operations   is  divided   between  three   holding
companies,  Icelandair  Group, FL  Travel Group  and Bluebird  Cargo,
under the parent company, FL Group. Hannes Smárason has been  engaged
as CEO of FL Group, which, following the share capital increase, will
be one of the largest investment companies in Iceland.  Sterling will
become the fourth operation within the FL Group. Contracts have  been
signed for the acquisition by FL Group of Sterling Airways for  about
DKK 1.500  million  which  will increase  or  decrease  according  to
results in 2006.  The FL Group's  pre-tax profit for  the first  nine
months of this year, over  ISK 8 billion, is by  far the best in  the
history of the company.

Share capital increase
*         ISK 44 billion share capital increase
*         Pledges for participation in the offer received for ISK 39
*         An additional ISK 5 billion to be sold in a stock offer,
  underwritten by Kaupthing Bank and Landsbanki Íslands
*         Equity to reach c.a. ISK 65 billion after the increase

The board  of FL  Group has  decided to  propose to  a  shareholders'
meeting an increase of the company's share capital by ISK 44  billion
(market value).    The aim  of this increase  is to strengthen  still
further the investment side of  its operations.  The proposal  states
the price of the new shares will  be ISK13.6  It is proposed that  it
will be possible to  pay for the  new shares either  in cash or  with
shares in companies in the ten largest companies on the ICEX-15 list;
these are Kaupthing  Bank, Landsbanki,  Íslandsbanki, Actavis  Group,
Straumur-Burđarás Investment  Bank, Bakkavör,  Össur, SÍF,  HB-Grandi
and Marel.  The price  of these shares will  be in accordance to  the
closing price  on the  Iceland  Stock Exchange  on  the last  day  of
trading before the subscription  period. If there  is an increase  or
decrease in the prices of these companies, by more than 5%, from  the
shareholders' meeting, the FL Group's board of directors is permitted
to decline the subscription.  After the increase, the Group's  equity
will stand at about ISK 65  billion.  The largest shareholders in  FL
Group have already undertaken to buy shares for ISK 28 billion in the
proposed offer. Furthermore, Kaupthing Bank has decided to invest ISK
5 billion in the company and Landsbanki ISK 3 billion, paid in  cash,
in addition to which  it is intended that  key employees of FL  Group
will invest a total of ISK 3 billion.  Kaupthing Bank and  Landsbanki
Íslands will supervise the proposed stock offer which will be offered
to institutional investors.  The aim will be to raise a further ISK 5
billion, which the  banks will  underwrite.   If the  stock offer  is
significantly oversubscribed the  banks will reduce  their share.  FL
Group's market capitalisation following the stock offer will be about
ISK 80 billion, based on current share prices.

"With this share capital increase, we are making a fundamental change
in the company," says Hannes Smárason, CEO of FL Group. "It will
strengthen the Group's equity base and financial position, putting it
in a position to tackle large and interesting investment projects
both in Iceland and abroad.  Our aim is to become a leading
significant influence investor, with focus on Europe.  The confidence
the banks have shown us by participating in this project is a great
encouragement to us. FL Group will be looking for investment
opportunities both independently and in collaboration with other
major investors."

A shareholders' meeting in the company will be called in the next few
days, at  which the  changes in  emphasis will  be presented  to  the
shareholders and  the board's  proposal regarding  the share  capital
increase and the election of board directors will be discussed.

New structure
*         Airline and tourist service operations separated from the
  investment activity
*         Current airline and tourist service operations to be
  divided into three holding companies, Icelandair Group, FL  Travel
  Group and Bluebird Cargo
*         Hannes Smárason has been engaged as CEO of the investment

The board of FL Group, has decided to make fundamental changes to the
structure of the company, making investing its main objective. Hannes
Smárason has been engaged as CEO. The company's investment activities
will be split into three  divisions: Private Equity, specialising  in
management, acquisition  and restructuring  projects, headed  by  Jón
Sigurđsson, Asset  Management and  Portfolio Investments,  headed  by
Albert Jónsson, and Icelease, a division dealing with purchase,  sale
and leasing on the international aircraft market; this will be headed
by Halldór Vilhjálmsson, current managing director of Icelease.

As has  already been  described, it  has been  decided to  divide  FL
Group's airline  and tourist  service operations  into three  holding
companies. Under Icelandair  Group, international airline  operations
will    be    handled,    i.e.    Icelandair,    Icelandair    Cargo,
Loftleiđir-Icelandic, Icelandair  Technical Services  and  Icelandair
Ground Services.  These  companies have a  combined turnover of  c.a.
ISK 33 billion and employ about 2000 people.  Jón Karl Ólafsson,  CEO
of Icelandair, has been engaged as CEO of Icelandair Group.  "This is
an enormously exciting and interesting challenge," he says, "and I am
looking forward to tackling it and  working with the superb staff  of
these companies.  They are strong companies, and growing."

The operation  of  Bluebird Cargo  and  Flugflutningar will  also  be
turned into a separate company owned by FL Group. Bluebird has marked
an ambitious strategy  of growth in  the international cargo  market.
Ţórarinn Kjartansson has been appointed CEO of the company and  Einar
Ólafsson will be its chairman. "The international growth strategy  is
very exciting and I look forward to use this opportunity to work with
my old colleagues from Bluebird  within the FL Group", says  Ţórarinn

 The companies  involved  in  domestic  tourist  services,  i.e.  Air
Iceland, Iceland Tour, Icelandair  Hotels, Iceland Travel,  Reykjavik
Excursions and Icelandair-Hertz Car Rental, will come under FL Travel
Group; Ţorsteinn Örn Guđmundsson, a SVP at FL Group, has been engaged
as its CEO.  These  companies have a combined  turnover of c. ISK  11
billion and employ about  500 people. "What we  are doing," he  says,
"is to pull  together a  number of  independent units  that share  an
involvement in tourist services in Iceland.  The idea is not to merge
them in terms of  management, but to strengthen  and develop each  of
them individually, and I am looking  forward to working at this  with
their managers and staff."

Sterling will then be the fourth company.

"These changes are made to clarify  the operational focus in each  of
these companies," says Hannes Smárason,  CEO of FL Group. "This  will
result in strong  holding companies,  each in their  own field,  with
clear targets regarding growth and profitability, under the direction
of excellent  managers.   In  addition, a  clearer division  is  made
between operations and investing."

Contract signed on the acquisition of the Danish low cost airline
Sterling Airways
*         Purchase Price DKK 1.500 million if EBITDA for 2006 is DKK
  345 million - EV/EBITDA 3,8x in accordance to estimated EBITDA for
*         If the results which the agreement is based upon are not
  reached, the purchase price can be reduced by up to DKK 500 million
  -  it can also be increased if results are better
*         The purchase price is to be paid with cash and new shares -
  sales of shares are restricted until 31 March 2007
*         Sterling will be operated as an independent company
*         Sterling will focus on charter and tourism markets with an
  emphasis on Southern Europe
*         30 Aircraft, 46 destinations and 5.2 million passengers
  anticipated next year
*         Strong position on the European low-fare market
*         FL Group will take over the operation of Sterling 1 January
  2006 based on the approval of competition authorities and the
  turnaround of the company goes according to plan

A contract has  been signed for  the acquisition by  FL Group of  the
Danish airline Sterling Airways. This  represents a large step by  FL
Group for  its  continuing  approach  into  the  low-fare  market  in
Europe.  Maersk Air was recently merged with Sterling, making it  the
fourth  largest  low-fare   airline  in  Europe   with  about   1,800
employees.  It operates 30 Boeing  737 aircraft, and it is  estimated
that it will carry  about 5.2 million  passengers to 46  destinations
across the Continent next  year.  It flies  mainly between cities  in
Scandinavia and Continental Europe.

The main reasons for this acquisition are:

  * An opportunity to invest in the fourth largest low-fare airline
    in Europe, with the low-fare market the fastest growing airline
  * Reaching 5 million passengers opens opportunities for the
    Icelandic tourism industry
  * Expectations of a substantial increase in value
  * It will double the FL Group's turnover in 2006
  * It will yield considerable synergetic effects in connection with
    the Group's current airline operations
  * It represents a major expansion within the Group's network
  * Improved distribution canals in Scandinavia

Sterling's business plan allows for  a significant turnaround in  the
company's operations. This is mainly due to the merging of two former
rival concerns,  Sterling  and  Maersk,  which  has  transformed  the
operating environment for the resulting company.  Also, further yield
management and the addition  of new destinations  has made the  route
system  more  efficient,  which  has  opened  the  way  for  improved
utilisation and greater earnings.  At the same time, operations  have
been simplified, resulting in  decreased number of  staff.  A  larger
aircraft fleet and a broader scale of operations will lead to greater
efficiency in its  airline services, and  decrease in crew,  training
and marketing cost.

This turnaround will have the following consequences:

  * Clear focus on the Scandinavian leisure market - focusing on
    Southern Europe through the charter and leisure markets
  * Simplifying service in line with other low fare carriers, with no
    interlining, only point to point service
  * Sterling will cancel code share agreements in line with other
    low-fare carriers
  * Reduce distribution cost

The purchase price is DKK 1.500  million, of which DKK 1.100  million
is to be paid in cash and DKK 400 million in the form of shares in FL
Group, based on  the price in  the stock offer  outlined above.  This
increase in share  capital will  be in  addition to  the stock  offer
which will then result in total of ISK 48 billions issue. The  seller
undertakes not to sell the shares  it receives in FL Group before  31
March 2007. The purchase price may rise or fall by as much as DKK 500
million, according  to the  company's  performance during  2006;  the
purchase price given above is based on the company's achieving EBITDA
of DKK 345 million in 2006.  The adjustment to the purchase price  is
based on 3.5x  the difference  in the EBITDA  of the  year 2006.  For
example if the EBITDA  of 2006 will be  DKK 245 million the  purchase
price decrease to DKK  1.150 million or  by DKK 350  million.  It  is
also assumed that the company will have DKK 300 million in cash,  and
liabilities of DKK 110  million in aircraft debt  is taken over.  The
acquisition is subject to  i.e. the approval  of the competition  and
aviation authorities.   FL  Group  will take  over the  operation  of
Sterling on 1 January 2006,  assuming that the provisos listed  above
no longer apply. Pálmi  Haraldsson will continue  as Chairman of  the
board and Almar Örn Hilmarsson will continue as CEO.

Hannes Smárason says the acquisition of Sterling is an important part
of the company's strategy aimed  at growing on the international  air
travel market.  "We aim to take part in the rapidly-growing  low-fare
market in Northern Europe," he says.  "We see a lot of  opportunities
there as a result of the changes that have been made to Sterling  and
not least the likely  developments that lie ahead.   The aim is  that
Sterling will focus on the  leisure and charter markets, focusing  on
Southern Europe.  The acquisition agreement contains provisions  that
ensure the continuing high-level engagement of the former owners  and
key staff in the transformation that Sterling is undergoing."

Kaupthing Bank and FL Group sign letter of intent on aircraft leasing
to third parties
*         If final agreements are reached in line with the letter of
  intent, FL Group will ensure itself a profit of ISK 3.5-4.5
*         An agreement has been signed on the lease of four Boeing
  737-800 to Hainan Airlines, one of the largest airlines in China

FL Group and  Kaupthing Bank have  signed a letter  of intent on  the
foundation of a  company to  handle fifteen  Boeing 737-800  aircraft
that FL Group contracted to buy from Boeing at the beginning of  this
year. FL Group's share in the company  will be 49%. It is clear  that
FL Group will  ensure a profit  from sale of  assets between ISK  3.5
billion and ISK 4.5 billion if the final agreements are in line  with
the letter of intent.   This is in line  with FL Group intentions  to
own these aircraft in cooperation  with other investors, take a  part
of the hidden value  upfront and participate  in the project  through
49% ownership in the above mentioned  company.  Half of this will  be
posted as  income  in  the  company's books  when  the  aircraft  are
delivered, the remainder during  the lifetime of  the aircraft.   The
aircraft will be  delivered by Boeing  over the next  two years,  the
first in February 2006. The aim  is to finalise the agreement by  the
end of this year.

Lease agreements have already  been signed for  nine of the  aircraft
and five of these were leased to Air China, as previously announced.
Agreements have been finalised between  FL Group and Hainan  Airlines
in China  for the  lease  of another  four Boeing  737-800  passenger
aircraft for a eight years lease.   They will be delivered to  Hainan
Airlines in  August-December  next year  as  they come  off  Boeing's
production line in Seattle.  Icelease, a subsidiary  of FL Group  was
the arranger for the contract.  Hainan Airlines is one of the largest
passenger airlines in China.  Major shareholders include the investor
George Soros and the Chinese government institutions.

It was announced last week that a company owned by FL Group and a
subsidiary of Kaupthing Bank, had concluded contract with Singapore
Airlines Cargo for the purchase and lease of a Boeing747 cargo

Increased emphasis on international freighting, with expansion into
new markets
*         Two new Boeing 747-400 ERF cargo aircraft leased in for
  Bluebird Cargo operation
*         Expanding cargo services into the Asian market

The FL Group subsidiary Bluebird Cargo has signed a letter of  intent
for a ten-year  lease of two  new Boeing 747-400  ERF cargo  aircraft
from Guggenheim in the USA.  These  are to come out of production  in
June 2007  and  March 2008,  and  will  go into  the  Bluebird  Cargo
operation.  This is a milestone for FL Group, as it is the first time
that a company  within the Group  has undertaken the  operation of  a
Boeing 747.

Hannes Smárason  says the  agreement is  in line  with the  company's
objective of rapid  growth on  the international  cargo market.  "The
purchase of  Bluebird Cargo  by FL  Group earlier  this year  was  an
indication of the company's policy  too seek growth opportunities  in
cargo and charter operations all over  the world," he says, "and  the
management of Bluebird aim at taking part in the huge growth that  is
currently taking place in cargo carriage."

Ţórarinn Kjartansson, CEO of Bluebird Cargo, says the agreement  will
be the basis of a radical  transformation of its operations.  "Up  to
now, Bluebird has had Boeing  737-300 cargo aircraft on its  projects
in Europe," he  says. "This  move therefore signals  a new  expansion
into international markets with the longest-ranged, fastest and  most
sophisticated cargo planes currently available anywhere.  The arrival
of Boeing 747-400 ERF's in our fleet enables us to start services for
international forwarders and airlines all over the world. So this  is
a real milestone, marking the  beginning of more ambitious  long-term
development of the company."

FL Group's total turnover in cargo services is the equivalent of
about ISK 7 billion on an annualised basis, spread between the three
companies, Icelandair Cargo, Bluebird Cargo and Flugflutningar.

FL Group's performance in first nine months the best in its history

Preliminary figures  for the  first  nine months  of 2005  have  been
released. They show pre-tax profit of over ISK 8 billion at FL Group;
for comparison, pre-tax  profit for  the whole  of 2004  was ISK  4.1

Statements for Q3 of this year will be released in week 46.

For further information, please contact:
Hannes Smárason
Guđjón Arngrímsson
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