Recession and layoffs1979
The merger process was for the most part finished by the start of the 1980s and the battle was over. But an economic recession brought a steep drop in passenger numbers; oil prices rose sharply, and competition became fierce. Icelandair needed to take preventive action; schedules were drastically cut and a large number of staff were laid off. But that was not enough.
The company asked the governments of Luxembourg and Iceland to subsidise its operation. Assistance was granted, but the Icelandic government imposed a range of requirements. Among them was the stipulation that the Treasury would acquire a 20% share in Icelandair and two seats on the company's Board of Directors. The financial scene calmed down a few years later and Icelandair repurchased the share from the State in 1985.