In March 1940, the company moved to Reykjavík and changed its name to Flugfélag Íslands. Two earlier companies had operated with this name for short periods in 1919-20 and 1928-31.
The Chairman of the new company was Bergur G. Gíslason, and a newly qualified pilot, Örn Ó. Johnson, was appointed Managing Director. Johnson would later control Icelandic air transportation for many years. The new company struggled during its first years.
TF-ÖRN was badly damaged in 1941. With parts being hard to come by they had to use parts from the old aircraft to build a new plane, but it crashed a year later, just a few days after its maiden flight. The company bought another aircraft in 1940 and named it Haförninn, but it was damaged in December 1943.