Turbulence subsides at easyJet

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With the finalisation of easyJet’s fleet plan through until 2012, it appears that board relations are now returning to normal in the wake of the well-publicised spat between founder Stelios Haji-Ioannou and his fellow board members.

Last November easyJet admitted that a “far-reaching debate” had broken out over its strategy. Stelios urged the board to rein in its expansion plans, refused to approve the airline’s accounts and called for a reversal its non-dividend policy by 2011. At the same time he stepped up his shareholding and threatened to appoint himself as chairman.

EasyJet chairman Sir Colin Chandler promptly rebuffed the claims, saying the board had adopted a cautious fleet strategy and taken steps to conserve cash, reduce its growth plans and dispose of surplus aircraft.

 

But with the release of easyJet’s third quarter interim management statement this week, it appears that all is well again in the easyJet camp. The board says it has agreed a fleet plan which will deliver 7.5% average annual growth in seats flown over the medium term. It adds that this “prudent growth” will enable the airline to take advantage “substantial opportunities” in the short-haul market, while at the same time maximising margins.

“One of easyJet’s strengths is the flexibility of its fleet planning arrangements and the board will continue to regularly review fleet planning decisions in the light of economic conditions, the market opportunities available and the financial strength of the business,” notes the board.

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An easyJet spokeswoman declines to comment on the dispute between Stelios and the board, simply saying “it’s all sorted now”.

Stelios’ spokesman says the easyJet founder is “comfortable with the current growth strategy and fleet plan”, but he stresses that the plan remains “fluid”, depending on the macro environment.

He adds: “The recession hasn’t affected passenger demand as much as Stelios and some other commentators had feared after the collapse of Lehmans last autumn, but consumer confidence is a fragile thing at the best of times.”

The spokesman goes on to say that EasyJet’s organisational revamp (with the appointment of Bob Rothenberg and Keith Hamill as a non-executive directors, Sir Mike Rake as deputy chairman and Sir David Michels as chairman) has “strengthened the board considerably over the past six months, so Stelios is now more relaxed generally about the company’s strategy and its risk-reward equation”.

It seems that analysts tracking easyJet’s progress are pretty comfortable with the feud resolution. NCB Stockbrokers equity analyst Neil Glynn says: “The issue looks to have been resolved for now. However the dividend question may recur in less challenging times.”

Glynn believes easyJet has no plans to issue a dividend, given current demand pressures, but he adds: “In the medium term, when easyJet’s bottom line and balance sheet look healthier, it (or a share buy-back) will likely come back to the table.”

Andrew Fitchie from Collins Stewart says: “My understanding is the new chairman-elect has worked closely with Stelios. Management has toned down medium-term growth plans, which could accommodate some form of capital return post 2011. That de-risks the business and aligns everyone’s interests. Job done!”

Fitchie also hints that the recruitment process for easyJet’s new commercial and finance directors are “well advanced”.

Regarding the dividend issue, he says this may come back on the table from 2011 onward: “They’ve said they’ll be cash positive post 2011. Which means they either (a.) pay down debt, or (b.) pay a dividend and pay down debt. I’ll bet they do (b.).”

 

EasyJet’s fleet plan, taken from its third quarter interim management statement: 

 

Fleet plan

Total aircraft

At 30 September 2008

165

At 30 June 2009 1

177

At 30 September 20092

181

At 30 September 2010

187

At 30 September 2011

196

At 30 September 2012

207

1 Includes 10 aircraft held for sale (5 A319 and 5 A321)

2 Includes 9 aircraft held for sale, (5 A319 and 4 A321) which are expected to be sold by 30.09.10.

 

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