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EasyJet Defends Airbus Jet Deal Under Attack From Top Shareholder

EasyJet Defends Airbus Jet Deal Under Attack From Top Shareholder

(Bloomberg) -- EasyJet Plc defended a multi-billion dollar jetliner contract under assault by its top shareholder, arguing that walking away from the deal with Airbus SE would drive up other expenses and limit its competitiveness in the long run.

The airline has no right to unilaterally terminate the contract, and severing its relationship with Airbus would spark higher costs in multiple areas including maintenance, avionics and warranty provisions, EasyJet said Monday in a stock exchange filing.

Britain’s biggest discount airline has been in a pitched battle with founder Stelios Haji-Ioannou, who has argued the Airbus contract should be canceled in light of the coronavirus crisis and will drive EasyJet into bankruptcy. He’s called for the ouster of Chairman John Barton, Chief Executive Officer Johan Lundgren, Chief Financial Officer Andrew Findlay and another director, in an effort to force a reversal.

EasyJet’s filing on Monday marks its response. The removal of the four directors, including board member Andreas Bierwirth, would be “extremely damaging at this time and places the company at grave risk,” EasyJet said.

The carrier has negotiated postponements of aircraft deliveries with Airbus, aimed at slowing cash outlays while preserving the ability to expand once the crisis around the virus breaks.

Discarding the entire order for more than 100 A320neo-series planes, about 20% more efficient than the aircraft to be replaced, would leave EasyJet a step behind competitors when the airline market comes back, the company said. EasyJet competes with discount carriers such as Ryanair Holdings Plc and Wizz Air Holdings Plc.

Capital commitments over the next 17 months now total about 950 million pounds ($1.2 billion), EasyJet said. That’s well below the 1.5 billion pounds over nine months calculated by Haji-Ioannou, who owns about 34% of the stock.

Airbus declined to comment.

In a response Monday, Haji-Ioannou said he was seeking to oust the directors as a means of compelling the rest of the board to cancel the Airbus order, saying that the carrier’s shares “will be worthless” if the order wasn’t ended.

“If the Airbus contract is terminated, even at a cost, we have much longer to survive and reach cash flow breakeven operations with a much smaller fleet,” Haji-Ioannou said in a statement. “If the directors think it is possible to maintain solvency whilst paying Airbus this gigantic sum they should officially publish a supporting cash flow forecast, removing marketplace uncertainty, as is their obligation.”

Airlines in Europe are facing a revenue loss of $89 billion in 2020, according to the International Air Transport Association, after the coronavirus pandemic ground travel to a near-halt. IATA’s estimate is based on travel restrictions lasting for three months, before a gradual lifting of curbs.

EasyJet has increased its cash reserves to some 3.3 billion pounds to contend with the crisis, including by tapping a U.K. loan-guarantee program.

©2020 Bloomberg L.P.