Icelandair said today it had ditched plans to buy Icelandic low-cost rival WOW Air, triggering a sharp fall in its share price.
Icelandair stock was down more than 10% on the Reykjavik stock exchange.
The airline had earlier this month announced it would buy WOW Air in a deal local media estimated to be worth two billion kronur (around €16m).
"The planned acquisition by Icelandair Group of WOW Air will not go through," Icelandair interim chief executive Bogi Nils Bogason said in a statement.
"This conclusion is certainly disappointing."
No explanation was provided for the change of heart, but WOW Air, which has been in financial difficulty, is believed to be in even worse condition than previously thought.
The low-cost carrier posted a pre-tax loss of almost $60m in the first half of the year.
On Monday, Icelandair acknowledged that it was "unlikely that all of the conditions will be fulfilled" by the shareholders' meeting scheduled for Friday to approve the acquisition.
"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," WOW Air founder and chief executive Skuli Mogensen said.
Rhe future of the company, founded in 2011 and which flies to 36 destinations in Europe, North America and Asia, now looks uncertain.
According to Icelandic media, Mogensen has informed employees that "several players" have expressed interest in the carrier.
Meanwhile, a government working group has predicted that a WOW Air bankruptcy would cause the Icelandic currency, the krona, to fall by 13%, the loss of 1,400 jobs and rising inflation.