Iceland Implements Stricter Aircraft Deregistration Rules Amid Airline Bankruptcies

New Regulations Take Effect

Iceland has enacted new, stricter regulations governing the deregistration of aircraft, a measure introduced by Minister of Infrastructure Eyjólfur Ármannsson. The new rule mandates that aircraft cannot be removed from the Icelandic aircraft register unless all outstanding payments owed to Isavia, the state-owned airport operator, are fully settled. This change also requires operators to provide proof that all airport and air traffic control fees have been cleared, and it grants airport authorities the power to ground planes until these payments are made. The regulation applies to both future cases and aircraft currently undergoing deregistration.

Response to Recent Airline Failures

The decision to tighten these rules comes in the wake of significant financial difficulties and bankruptcies experienced by several Icelandic air carriers. Notably, the collapse of WOW air in 2019 and more recently, PLAY in autumn 2025, left hundreds of millions of krónur in unpaid airport charges. Previously, air travel law only required airlines to resolve such financial matters with the Icelandic Transport Authority, not directly with Isavia. This legal loophole often left Isavia with limited recourse to recover debts when airlines ceased operations.

Empowering Airport Operators

The new framework aims to provide Isavia with greater leverage to recover unpaid fees before aircraft can be deregistered and potentially moved abroad. This was a critical issue highlighted by the recent departure of PLAY's last aircraft from Keflavík International Airport, despite an estimated ISK 500 million debt to Isavia. At that time, existing aviation law did not permit the seizure or detention of property owned by a third-party lessor without specific legal conditions being met. A 2019 Supreme Court ruling, following WOW air's bankruptcy, had also deemed it unlawful to seize third-party property as collateral without clear statutory authority.

Industry Concerns and Future Outlook

While the new rules are designed to protect airport operators, industry observers have voiced concerns that they could complicate aircraft financing for airlines based in Iceland. Lenders typically prefer the flexibility to reclaim their leased aircraft in the event of an airline's financial failure. The Ministry of Infrastructure has not yet indicated whether further reforms are planned to address these creditor protection issues or to mitigate risks for airlines operating within Iceland.