EasyJet engulfed in power struggle

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Evidence is emerging of a strategic rift between EasyJet's board and the budget carrier's founder, Sir Stelios Haji-Ioannou, over fleet expansion at the airline.

Haji-Ioannou's company EasyGroup has increased its shareholding in EasyJet and he is threatening to appoint himself as chairman.

Current chairman Sir Colin Chandler admits in a statement today that a "far-reaching debate" has broken out over the airline's strategy, involving Haji-Ioannou. Chandler says the board has adopted a cautious fleet strategy and taken steps to conserve cash, reduce its growth plans and dispose of surplus aircraft.

But he adds: "Despite the board's already cautious approach, [Haji-Ioannou] has indicated that he wishes the company further to restrict future aircraft orders, to make future dividend payments in conjunction with a cessation or slowing of growth."

stelios haji-ioannou easygroup
 © EasyGroup

This goes against the airline's stated policy on dividends, which is outlined on its website: "easyJet has never declared or paid any cash dividends on Ordinary Shares and does not anticipate paying cash dividends in the foreseeable future. Currently it is the Directors' intention to retain earnings for use in easyJet's business for the foreseeable future."

The differences between Stelios and the board have led to discussions over EasyJet's strategic direction, says Chandler, prompting the remainder of the airline's board to seek external advice.

It is believed that the dispute between Stelios and the board has been rumbling for some time, but only become public following Chandler's statement.

Chandler says: "The ongoing dialogue with [Haji-Ioannou] continued during the scheduled meeting of the board [yesterday], following which it appeared as though a resolution of these matters was within reach."

But EasyJet's management has, overnight, received a letter from Haji-Ioannou, advising the airline that his company, EasyGroup Holding, has increased its EasyJet share from 15.6% to 26.9%. The shares were formerly held by Clelia Holdings, which belongs to Haji-Ioannou's sister.

This transfer gives Haji-Ioannou and EasyGroup sufficient shares to appoint two new non-executive directors, which will be EasyGroup employees. EasyJet says Haji-Ioannou also stated in his letter that he reserved the right to appoint himself as chairman if the directors were not accepted.

In a statement released through EasyGroup, Haji-Ioannou says: “I am merely applying my rights under the articles of association of the company to protect my investment in EasyJet.”

Chandler says: "In the circumstances, despite what we expect to be a continuing dialogue with [Haji-Ioannou] in anticipation of resolving the strategic debate, the remainder of the board believe that some context is required to accompany the announcements of the share transfer to EasyGroup and the related request for the appointment of new nominee directors."

He adds: "In all the circumstances I would like to make it clear up front that the other non-executive directors and I fully support the executive management of the company."

EasyJet is due to announce its preliminary results for the year ended 30 September 2008 on 18 November. The airline says its pre-tax profits are expected to be "in line with the market consensus". It adds that interim forward bookings and unit revenues are currently slightly up on the prior year.