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easyJet could shrink its fleet by 56 aircraft by 2023 – but Stelios still isn’t happy

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Whilst Sir Stelios Haji-Ioannou continues to threaten easyJet’s non-executive directors with the sack, the board is quietly pursuing alternate arrangements to secure the company’s future.

On Thursday easyJet released its H1 Trading Update, which included some information on how the company will manage its outstanding $4.5 billion order for 107 Airbus A320-family aircraft.

Whilst Stelios wants to cancel the order entirely on the basis of ‘force majeure,’ the easyJet board argues that it doesn’t actually have the ability to do so.

(Stelios does not necessarily disagree with this, but counters with the fact that ‘trying it on’ would, given the inevitable lawsuit and appeal, give easyJet a five year breathing space even if it loses.)

It also said the company would be on the hook for “significant” compensation based on the volume discount it received on the original 135-aircraft order. With 45 of the planes already delivered it would have to pay a penalty for not taking the remainder and forfeit the negotiated discount on those it is already operating.

easyJet’s new fleet plan

With outright cancellation seemingly off the table, the board’s plan is to defer the arrival of 24 (potentially 29) aircraft between now and April 2023.  Airbus has already agreed to this as it struggles with its own corona-related production delays.

That means that easyJet will not receive any new planes in 2021, although it is still set to take six aircraft this year.

Furthermore, easyJet has some flexibility with another 24 aircraft which are coming to the end of their leases in the next 16 months. Depending on how the airline industry recovers it may choose to drop these aircraft too.

This would potentially take the minimum number of aircraft the airline expects to operate by September 2023 down to 281.  The current number is 337.  This is not all that far off from the Stelios target fleet of 250 aircraft.

easyJet has also secured additional funding, on top of its £600m Government loan, that should provide it with enough cash to ride out a nine-month grounding of its fleet.

Stelios still isn’t happy

Stelios is still unsatisfied.  In response to the new fleet proposals he has called for the removal of “scoundrel” easyJet CEO Johan Lundgren and board chairman John Barton. Whilst the company has deferred some of its deliveries, Stelios still claims the company is paying Airbus “at least” £2.5bn over the next two years which is money it can ill afford.

With Stelios and his family controlling 34% of the shares, Lundgren and Barton would need 76% of the remaining potential votes if they were to survive.

Category

General

Comments (49)

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  • Kev 85 says:
    20 Apr20 April 06:13

    “ Stelios does not necessarily disagree with this, but counters with the fact that ‘trying it on’ would, given the inevitable lawsuit and appeal, give easyJet a five year breathing space even if it loses”

    That sounds similar them not giving customers their cash back for cancelled flights, despite the law and being asked to by the customer.

    • Steve says:
      20 Apr20 April 09:26

      I was going to make the exact same comment.

      • Lady London says:
        20 Apr20 April 11:13

        It’s just business.
        Luckily there are consumer protections in Europe and US.
        There are some business protections but basically there:s many reasons the Airbus thing would be negotiated and not fought.

        From what I can see also as a customer easyJet is being exceptionally well managed in the circumstances.

        Stelios has got a point though. easyJet was on the cusp of its leaders going the well trodden airline leader path of ‘bigger is better’, delusions of grandeur and ‘airline serves my ego’ way. Stelios kicked them to lose or delay some of those personal dreams and contain the asset base so easyJet will come through this able to make a profit.

        From the outside though I never saw the point of putting a package holiday man at the top, Johann Lundgren, who seems to be spending money to develop a package holiday business that so far did not seem to be adding anything new to a package holiday market with good long established providers failing in that market over many years now. But I’ve been wrong before. And their new COO from Ryanair seems to have brought some customer-unfriendly policies.

        • Rob says:
          20 Apr20 April 11:47

          If you at Flybe, for example, it was arguably going to be fine before it started spending money on jet aircraft (which it ended up desperately trying to get rid of) and starting ludicrous wars with Loganair in Scotland. This was all done because the stock market has no interest in a business which is happy doing its stuff and not pushing all avenues for growth.

          However, it is also fair to say that if the Flybe CEO had said these were stupid ideas and that they were happy with their current network, they would have been fired by the shareholders.

          If you look back to banking pre-Lehman, bank execs who wanted to be cautious in their lending were fired and replaced by those who were not. Bonuses were based on money lent irrespective of likelihood of repayment. Even our private equity firm, where you would assume everyone was firmly focused on only doing sensible deals, had to stop paying bonuses on new investment completions – rather than exits – after it became clear that certain members of staff had not been wholly upfront about the risks involved in certain deals that were done.

          • Lady London says:
            20 Apr20 April 12:16

            don’t get me started on the ‘private equity’ business and their crimes, Rob.

          • Lady London says:
            20 Apr20 April 12:24

            apart from their crimes, when private equity does buy into something sensible there’s things like the ‘carry’ that don’t get extensive exterior coverage…

            And you’d be amazed how many people owning companies that finally fail after they’re asset stripped and pension schemes ripped off, turn out to be not UK domiciled, but them and their interests are based in places like Cyprus, the Bahamas, little island places around the world and even, I believe, Yemen…and these people are household name ‘industrialists’.

  • DaveF says:
    20 Apr20 April 06:28

    Interesting article. I think you mean 66% in the final paragraph!

    • Mike P says:
      20 Apr20 April 06:34

      No, what Rob has written is correct. To survive, the directors would need 76% of the remaining shares voted in their favour (66 x. 76) = 50.16

  • Adam says:
    20 Apr20 April 07:11

    Stelios is stuck in the nineties. EasyJet is a very different airline now and he is no longer best placed to have any voice in its future.

    • Kip says:
      20 Apr20 April 09:20

      Stelios is the man who created EasyJet from nothing. His stance is that post-coronavirus the airline should be treated as if it were starting up again. Johan Lundgren is a ‘professional manager’ with various managerial qualifications but without the experience of creating anything from scratch. If EasyJet goes bust Lundgren will simply move on to the next executive role.
      Stelios may be right or wrong about the future but he certainly has the right to get involved if he believes the thing he created is in danger of being destroyed by current management.

      • Andy says:
        20 Apr20 April 09:57

        His Dad gave him £30million to start a shipping line which he then sold, so while he may be a successful businessman he didn’t start with nothing

        He also probably a good number of connections, and goodwill through his Dad’s contacts too

        • Rob says:
          20 Apr20 April 10:19

          It’s not as if easyJet launched with 50 planes. It was literally a handful. I’m not saying that you or I could get enough cash together to do it, but leasing 3-4 short haul aircraft does not require you to be a billionaire. The success was down to the pricing, branding and good PR, with an element of ‘right place, right time’.

          Remember (if you’re old enough) that easyJet launched pre-widespread internet. The original aircraft had the telephone number of their call centre painted on the side!

        • Chrisasaurus says:
          20 Apr20 April 15:33

          The point was that he started Easyjet as a startup rather than coming in as a CEO into an established airline.

          The pressures of a startup are significantly different to those as a mature business, that was the distinction being made

    • AJA says:
      20 Apr20 April 09:26

      I disagree. He is protecting the value of his shareholding. He has every right to challenge the board of directors, who have a fiduciary duty towards the owners I.e. shareholders, if he feels they are making decisions that are not in their best interests.

      • AJA says:
        20 Apr20 April 09:27

        That post was directed @ Adam

      • Simon says:
        20 Apr20 April 11:00

        The board’s duty is to do what they think is most likely to make the company successful for the benefit of all shareholders together (not to act in the interests of their loudest shareholder).

        Intentionally breaching a multi-billion dollar contract against all legal advice is an interesting way to go about discharging that duty, even if one of your largest shareholders thinks that’s a good idea.

        • Lady London says:
          20 Apr20 April 11:22

          Renegotiating a contract for aircraft when it suits is par for the course. Nothing unusual or immoral, partners in the industry all know each other and renegotiate when necessary.

          Whatever the contract says, its terms are rarely called on. That would be my a failure. The players have extremely long term relationships and things get renegotiated for the greater good.

          Seen it in the oil industry from the inside and certain it’s even more the case with aircraft.

          • Simon says:
            20 Apr20 April 16:14

            @Lady London – Entirely sensible to renegotiate the contract, if both sides can agree a solution. And that is exactly what the easyJet board is trying to achieve with Airbus based on Rob’s article.

            Unilaterally cancelling a US$4.5bn order in full based on ‘force majure’ because a vocal shareholder wants you to bin the contract and fight it out in the courts would be madness. Clearly Airbus would (successfully) enforce the terms of the contract, if easyJet were to behave in that way.

        • AJA says:
          20 Apr20 April 12:02

          Simon I agree the idea of breaching a contract is a perverse approach but there is equally little point in just pursuing the previously stated path of spending billions on unwanted aircraft if that leads to bankruptcy of the business. How is that in anyone’s interests let alone that of the owners? I think what Stelios is trying to do is to focus the board’s attention to the fact that post Covid19 airlines will need fewer rather than more aircraft especially at a price point that in his estimation is over the top.

          • Simon says:
            20 Apr20 April 16:27

            @AJA – I agree, and I am sure that is broadly the conversation that easyJet is having with Airbus to try to renegotiate the terms of its order. I assume that is what the board thinks will be in the best interests of their shareholders.

            If their financial position is so bad that these Airbus orders will send them into administration unless they cancel the entire order book, then the company is arguably in restructuring territory (in which case, the board will have fiduciary duties to easyJet’s creditors, and so acting in the shareholders’ best interests becomes less relevant).

      • Simon says:
        20 Apr20 April 11:02

        Though I agree he has every right to shout as loudly as he wants (and to try to remove directors).

  • Big Dave says:
    20 Apr20 April 07:41

    still waiting for my refund a month now…..

  • Ollie Gark says:
    20 Apr20 April 08:56

    Stelios should sell his shares and leave Easyjet to run itself as an unfettered public company that might just make itself more amenable to receive UK or EU support

    • Lady London says:
      20 Apr20 April 11:38

      Many of the most successful and long lived companies have enlightened family interests with s significant level of control. Where there isn’t an active family interest the path to mediocrity and ultimate failure or transfer / absorption seems to be taken much quicker.

      Wholly publicly owned companies are subject to pure democracy and some of us would say that’s a bad thing. It is for my money.

      • ken says:
        20 Apr20 April 14:28

        I like Stelios but he has been in a battle with the board for 10 years.

        It’s really not healthy – and he was against their expansion for a decade, but went a little quiet when the shares were £16

        If it was such a terrible strategy then sell some shares (and not just a token amount).

    • The Savage Squirrel says:
      20 Apr20 April 12:11

      Not so sure about Stelios but I’d definitely agree with Lady London’s general point.
      Many companies that have a strong family holding that has no prospect of being sold (due to various legal/tax reasons and/or the holding defining the family identity) are well run precisely because the family take a view about what will most benefit their grandchildren rather than what will improve the figures next quarter.
      Many small independent firms that should be destroyed as they have no way of competing with global giants’ economies of scale or pricing power manage to survive and even flourish for the same reason.

      • Charlieface says:
        20 Apr20 April 17:01

        In my opinion, a lot of issues with current corporate governance would be fixed by the simple expedient of government publishing payscales for directors and board members, then asking companies to explain why they pay above that

  • RussellH says:
    20 Apr20 April 10:28

    Anyone else not had their Marriott points from their Marriott M?Card this month? Creation are usually very quick with this, but it is two weeks tomorrow, with no sign of the points yet.

  • J says:
    20 Apr20 April 10:29

    I don’t think Ryanair/Wizz Air are trying to cancel orders. And when competing directly easyJet usually struggle to beat either on price. I think Ryanair/Wizz are the future of LCC in Europe. Admitedly easyJet has a bit of a niche as there’s people who usually fly BA and would never use Ryanair who are quite happy with easyJet.

    • ChrisBCN says:
      20 Apr20 April 11:18

      They don’t need to beat either on price all of the time, as your last sentence explains. In fact, if you can charge more and fill your planes, that’s better.

      • J says:
        20 Apr20 April 11:35

        But that leaves a smaller scaled down easyJet getting squeezed by BA at one end and Ryanair at the other. BA hand luggage only fares are/were not much different to easyJet. In reality other than airports/destinations, I think the difference between any of these airlines short haul is pretty neglible.

        • Lady London says:
          20 Apr20 April 11:42

          If you look carefully BA has been a follower of easyJet. BA has a stranglehold on corporates. Plenty of independently wealthy people prefer easyJet (and for that matter, Ryanair).

          I expect it’s the same for Wizzair but I haven’t flown them and talked to people so I don’t know.

          • J says:
            20 Apr20 April 11:58

            True, even beyond the independently wealthy I once worked for a successful start up which had a policy that we had to use a LCC if possible. The money saved through this policy was used to fund nice perks and so on.

        • ken says:
          20 Apr20 April 14:38

          BA are useless outside of the South East and I know it’s a little lazy to say it, but Easyjet usually fly to more convenient airports than Ryanair if its a city break.

          Anyway, Easyjet have a great number of flights every day to Geneva for skiing from Manchester & Liverpool on their winter schedule, so I am quite fond of them.

          • J says:
            20 Apr20 April 16:11

            Depends where you want to go really. Ryanair fly to lots of places I want to go to and main airports, think it’s a bit outdated to think they only fly to secondary airports miles away from the actual city (Frankfurt was a famous example of this but they have now been flying to both for years). Some Italian cities they’re also the main option.

    • Josh says:
      20 Apr20 April 11:19

      Ryanair is definitely a rung below easyJet.

  • Tim M says:
    20 Apr20 April 12:50

    BA economy short haul is indeed shadowing easyJet. They are not as lean nor efficient. Those who think the fares are similar should pay more attention – easyJet release fares at a fraction of BA’s and end well over double – their yield management software is far more eccentric.

    EasyJet’s buy on board service is an order of magnitude faster and better than BA’s and they have no limit on hand luggage weight (same volume as BA’s).

    Then BA is a London airline while easyJet have many bases and many more routes.

    There really is little comparison. EasyJet wins hands down.

    BA survives on its name and legacy long-haul customer base in and out of London. I can’t see it lasting in its current form.

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