Stelios Haji-Ioannou, the straightforward founder of easyJet, has spent years battling successive airline managers for wages, dividends and fleet expansion.
But this week, relations between the main shareholder of the carrier and the board of directors reached, in his own words, a “historic low”; the question, a disagreement on an order for planes of several billion pounds with Airbus.
Sir Stelios, who founded the airline in 1995, warned that he would personally prosecute “villains” if money was paid to Airbus and that the company did not repay a £ 600m government loan against the coronavirus next March.
He was also furious at the airline’s decision to reject his request to convene a general meeting of shareholders for technical reasons. It was a “dirty trick,” he said, and then called for a second investor vote request to remove two directors from the board.
Sir Stelios said on Thursday that he would write to the Financial Conduct Authority soon to force the company to disclose “exactly what’s going on” with the payments to Airbus, adding that he believed the board of directors had breached the UK market abuse regulation.
The founder of EasyJet has long opposed the group’s growth strategy, which has helped it become Europe’s second low-budget carrier with a fleet of 344 aircraft. He described past aircraft purchases as “long-term value destroyers”, arguing that since the airline’s maximum profitability was in 2015 with a fleet of 250 aircraft, each new aircraft loses money.
But while he may have struggled to gain allies among investors for this cause in the past, there are signs that his argument is more valid this time in light of the crisis the industry is facing. following the coronavirus pandemic when international travel grounded it to a virtual stop. Some analysts warn that it could take the industry up to three years to return to 2019 traffic levels.
A top 20 shareholder told the Financial Times that Sir Stelios is “watching new aircraft orders at the moment.”
Another said, “I have sympathy for Stelios. . . and his questions about the Airbus negotiations. We are going through an unprecedented era and companies, particularly in the air transport sector, must review everything.
“This relationship is resolutely in the spotlight for management and shareholders, so I expect management to give us more details when it is updated in mid-April. This will help reassure shareholders and is crucial for the value of the shares. “
Andrew Charlton, an aviation consultant based in Switzerland, noted that Sir Stelios’ argument “is more valid now than, say, a few months ago”. He added, “What an airline needs now is no longer planes.”
Thursday afternoon, EasyJet tried to allay its concerns by announcing that it had agreed with Airbus to postpone the purchase of 24 aircraft for the next three years, which will increase its cash flow and reduce its investment program short term. It also has the option of postponing five additional deliveries in 2022.
This means that the airline will not accept any aircraft deliveries in 2021. It also has 24 leases to renew in the next 16 months, which it has the option to defer or cancel.
The low-cost carrier has confirmed that it will hold a shareholders ‘meeting in response to Sir Stelios’ latest request.
But Sir Stelios immediately criticized the plan, saying he was only talking about postponements of 24 of the 107 new orders.
“Carry-over is like kicking the box on the road. In addition, they are not telling investors how many Airbus EasyJet planes will go ahead and pay Airbus and how many will fly by plane over the next six months using British taxpayers’ money, “he said.
Some aviation analysts fear that the schedule for its new campaign may prove inconvenient for management at a critical time for the budget carrier.
“It’s an absolutely difficult environment for easyJet. Every airline would really like every ounce of their management team to focus on managing the crisis, ”said aviation consultant John Strickland. “To have an internal crisis on top of that. . . is a huge pressure. ”
EasyJet said board is managing “unprecedented challenges” facing the aviation industry to secure “the long-term future of the airline”, and said holding a meeting general would be “unnecessary distraction”.
A large UK fund manager and former easyJet shareholder said Sir Stelios’ campaign “is an unnecessary distraction at the moment”, adding that “it dissuades me from buying stocks at levels where otherwise I would be strongly tempted. “
If past experience has to happen, the damage to the airline could be significant. Sir Stelios’ last major fight with the carrier in the aftermath of the 2008 financial crisis, still over growth plans, played a role in the later departure of the airline’s president, chief executive officer and chief financial officer.
A certain calm was restored in 2010 after Sir Stelios won his campaign for the payment of a dividend as well as the obtaining of a new royalty agreement which pays the holding company of easyGroup 0.25% of income.
Andrew Lobbenberg, aeronautical analyst at HSBC, noted that the royalty agreement between easyGroup and easyJet has a termination clause in October 2020, which could potentially further reduce the cash flow that the founder receives from the company.
He added that, like almost all public companies, easyJet should re-evaluate its future dividend policy, which was paid in March with Sir Stelios and his family receiving £ 60 million.
EasyJet did not wish to comment on the royalty agreement or its dividend policy.
“We believe that the debate over the easyJet fleet currently has obvious similarities to the 2010 dispute. While the heat of the debate is focused on aircraft orders, the founder’s goal is to optimize flows cash, “said Lobbenberg.
In 2012, Sir Stelios admitted that he knew that institutional investors did not like his activist shareholder approach.
However, he added that “in the 10 years since I resigned as president, I believe I have accomplished more in the past 24 months by holding management to account publicly” .