EasyJet Founder Threatens to Oust Board Over Airbus Order

(Bloomberg) --

The coronavirus threat has handed EasyJet Plc’s founder, top shareholder and biggest critic a new weapon in his longstanding campaign to put the brakes on growth at the discount airline.

Stelios Haji-Ioannou, who quit the board in protest over its expansion in 2010, has renewed his demand the U.K. carrier cancel an order for more than 100 Airbus SE narrow-body aircraft, arguing that the 4.5 billion-pound ($5.6 billion) cost threatens to drag the company down as the coronavirus pandemic cripples industry growth.

The entrepreneur, who controls 34% of the stock, threatened to call one shareholder meeting a week to remove directors if he doesn’t get his way.

“Even with a resumption of air traffic, any income from passengers is likely to be too low to keep up with outgoings and would most likely render EasyJet insolvent if it continues to pay Airbus for more aircraft,” Haji-Ioannou said in a letter to the board dated March 29.

The outburst by a longtime detractor gives EasyJet another headache as it tries to manage through a crisis that forced it to ground its fleet Monday and put staff on leave to conserve cash.

The airline, based near London in Luton, said it’s “working with suppliers to defer and reduce payments where possible, including on aircraft expenditure.” The company said it has a strong balance sheet and no maturities until 2022, though it’s looking for ways to increase its access to cash to see it through the gap in business.

“We are in ongoing discussions with liquidity providers who recognize our strength of balance sheet and business model,” EasyJet said.

EasyJet shares fell as much as 10% and were down 7.7% as of 12:36 p.m. in London. Airbus sank 9.3% in Paris.

Airlines across the globe have been shocked into survival mode by the coronavirus, which forced an abrupt halt in travel as countries cut off access to fight the disease. The International Air Transport Association last week warned of a liquidity crunch and said carriers could lose $252 billion in revenue this year.

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Governments have started to pitch in. While the U.K. has ruled out a broad bailout for aviation, it has created a 330 billion-pound program for state-guaranteed loans that’s open to companies with investment-grade credit ratings.

EasyJet, whose debt is rated at BBB by S&P, has about 1.6 billion pounds of cash and $500 million of an undrawn and committed credit facility, which expires in 2021, S&P Global said in a report March 20. The carrier has annual lease commitments of about 250 million pounds to 300 million pounds, S&P said.

EasyJet could raise cash through a sale-and-leaseback transaction of its fleet of Airbus SE A320-family jets, a person familiar with the matter said, who declined to be identified because the plans were confidential. S&P estimates the fleet is worth more than 4 billion pounds. A spokesperson for Easyjet declined to comment on specific fund raising plans.

Founder’s Letter

In his letter, Haji-Ioannou said he opposed any government aid, preferring new equity through a rights issue to existing shareholders. In a separate statement, he called for the company to raise 600 million pounds by issuing 25% more shares. He said he would consider participating in an equity infusion, provided the carrier canceled its Airbus order. He also reiterated that the airline’s board should conduct an investigation into how Airbus won orders from EasyJet.

The 53-year-old entrepreneur said he would challenge a board member each week with a proxy campaign calling for their removal, unless the company gives notice of cancellation to Toulouse, France-based Airbus.

“We’re in close contact with all of our customers and are reaching out to understand their situation,” Airbus said through a spokesman. “EasyJet is an appreciated customer and we’re working with them to find a practical solution which honors our commitments.”

EasyJet is contractually obligated to accept the 114 planes it has on order, notwithstanding the coronavirus crisis, according to people familiar with the matter. It’s in discussions with Airbus to defer part of the order and change some delivery slots, said the people, who asked not to be identified because the talks are confidential. Aircraft orders are usually agreed years in advance and cancellations carry stiff penalties.

Analysts said EasyJet is one of the carriers best-positioned for the downturn because it has financial resources many of its competitors don’t, and can gain market share as the crisis forces some capacity reductions in Europe.

“Whilst he can agitate on the sidelines, it’s unlikely he’ll get his way,” said Mark Simpson, an analyst at Goodbody. “We believe that EasyJet has a strong balance sheet, and along with IAG, is best positioned to backfill capacity that is lost as other carriers struggle, and so they need the order for the new aircraft.”

EasyJet, which had been operating a handful of repatriation flights, said Monday it had parked all of its planes. Cabin crew will get 80% of their pay under a government program. Irish rival Ryanair Holdings Plc said last week it planned to ground over 90% of its fleet in coming weeks.

The restart of scheduled flights will depend on government restrictions as well as demand, EasyJet said in a statement.

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