EasyJet chairman responds to Stelios

In an open letter published on easyJet’s website, the airline’s chairman Sir Michael Rake, has responded in detail to the statement of Stelios Haji-Ioannou on the airline’s strategy.

michael-rake_resized.jpgI give it to you in full here. It makes fascinating reading. Go to the easyJet website for the extra appendix info.


18 May 2010

Dear Shareholder

On the afternoon of Friday 14 May 2010 I was made aware of Sir Stelios Haji-Ioannou’s resignation from the Board of easyJet plc. Subsequently Sir Stelios issued a statement setting out concerns about the current strategy that the Board of easyJet is pursuing.

In the light of this statement and the resulting press comment I felt it important to write to you to draw together the facts of the various matters now under public scrutiny as I and the remaining Board see them.

The Board is both surprised and disappointed to find itself in a public debate over strategy as Sir Stelios and I had agreed principles of engagement in May 2009 specifically to avoid such situations. In the view of the Board there are simply no grounds for a dispute.

Business performance

As you can see from the chart attached as Appendix A, since IPO the easyJet share price has increased by 34%, a superior performance to its European airline peers.

This year the underlying performance of easyJet (before ash cloud disruption) has been better than that anticipated by the Board a year ago. At that point the estimated profit before tax for the financial year ended 30 September 2010 was expected to be £160 million. However in our interim results statement on 11 May 2010 we stated that that “full year pre-tax profit would have been in the range of £175 million to £200 million at current exchange rates and fuel price1, prior to the recent volcanic ash related disruption. This disruption has caused additional cost and lost contribution estimated at between £50 million and £75 million. Therefore, the Company has revised its profit expectations for the year to a range of £100 million to £150 million at current exchange rates and fuel price1.”

Note 1: Rates as at noon on 10 May 2010: US$1.50/£, E1.15/£ and US$738 per metric tonne.


The Board of easyJet is fully aware of Sir Stelios’ wish for a cash return from his investment in easyJet and as I commented at the company Annual General Meeting held on 18 February 2010, the Board keeps the issue of returns to shareholders under review. Given the strong underlying performance of the Company this year, I believe the Board could well be in a position to consider the matter of some sort of return within a reasonable time frame.

Size of fleet

easyJet’s Airbus aircraft orders were the subject of Class 1 circulars in 2002 and 2006. The arrangements described in those circulars included a recommendation from the entire Board and received shareholder approval. In 2005 and 2007 the Board approved the conversion of purchase rights granted under the Airbus contract to the status of firm orders. Further

details are set out in Appendix B. These decisions were made with the agreement of the entire Board including Sir Stelios. No aircraft have been ordered from Airbus since June 2007. 

At the request of Sir Stelios, in spring 2009 the Board took extensive legal advice which allowed it to evaluate the possibility of renegotiating our arrangements with Airbus. Subsequently, the Board was able to gain some additional flexibility in our fleet planning arrangements.

easyJet’s stated medium term growth rate of 7.5% in seats flown per annum was approved by the Board in June 2009. The Board minutes from that meeting show unanimous agreement. This agreed plan was subsequently communicated to the market on 29 July 2009 as part of a normal Interim Management Statement, the contents of which were unanimously agreed and an extract of which is attached in Appendix C.

The Board of easyJet is committed to ensuring that the Company achieves an appropriate financial return on its capital and therefore has set a target of 15% Return on Equity which we continue to believe is achievable. Naturally, the Board reviews capital expenditure plans and fleet planning decisions on a regular basis in the light of economic conditions, the market opportunities available and the financial strength of the business. As you would expect no further orders will be placed with Airbus until Carolyn McCall and Chris Kennedy join the company on 1 July 2010 as Chief Executive and Finance Director respectively, and have had a chance to review the plans alongside the rest of the Board and executive management team. This point was noted in the minutes of the 5 May 2010 Board meeting, which occurred before Sir Stelios resigned.

Brand licence litigation

The legal action with easyGroup over the interpretation of the brand licence agreement continues. The Board has been proactive in trying to achieve a commercial settlement of the dispute within the limits of what we believe would be reasonable to our institutional shareholders. As you will be aware the view of our professional advisers Herbert Smith is that the Company’s interpretation of the brand licence is well-founded and therefore the Board does not feel it is right, in the interest of all shareholders, to offer material concessions to easyGroup. The court hearing is scheduled for early June 2010 although a decision from the court might not be given until Autumn 2010.

I will be in contact with you again should there be further material developments. I and the Board of easyJet remain committed to the interests of all shareholders. I believe the resolution of the brand licence dispute and settlement of Sir Stelios’ Board rights will help achieve a sensible way forward.

Yours faithfully,

Sir Michael Rake 

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