In a statement issued last night, easyJet PLC's director Stelios Haji-Ioannou explains his disagreement with other management over the takeover of GB Airways and the valuation of aircraft and slots at Gatwick airport gained with the deal.
"After extensive discussions with the easyJet Board and having taken appropriate professional advice at my own expense, I regret to inform you that I as a director of easyJet PLC I am unable to approve the annual accounts for the following reasons. I am concerned about the application of certain of the accounting policies adopted by the board in a way that I believe is at odds with current commercial realities and the macro-economic climate. Their implications only became obvious to me this year because of the acquisition of GB Airways:
1) I believe it is more prudent for the company to reverse the judgment that its entire business
represents a 'single cash generating unit' (CGU) for the purpose of testing goodwill and
intangible assets for impairment. Unlike a network airline such as BA that has many
passengers connecting between four flights and paying one fare, I believe a 'point-to-point low cost' airline like ours must monitor profitability by one-way flight, by route and by aircraft. This would result in the division of the business into 'multiple CGUs' in the same way as Ryanair monitors its intangible assets for impairment. That way we can also monitor the profitability of corporate acquisitions such as GB Airways.
2) I believe the methodology by which easyJet ascribed value on its own balance sheet to the
Gatwick landing slots that came for free with GB Airways is based on optimistic assumptions
about future revenues, particularly in the current economic climate. Given the fact that many
airlines have already ceased operating from Gatwick I believe that slots will be freely available
and hence it will be more prudent not to create Gatwick slots as an 'intangible asset' on our
own balance sheet this year.
3) In our accounts we state the following: 'the fair value of Gatwick landing slots of £72.4
million and goodwill arising of £50.2 million from the GB Airways acquisition'. Assuming the
GB Airways Gatwick slots are not worth carrying as assets on our balance sheet that
increases the goodwill from the GB acquisition to approximately £122.6m. I believe this
amount should be tested for impairment annually as a separate CGU using the same NPV
used for the slots.
4) I believe that the aircraft owned by GB Airways (seven Airbus A321/one future delivery) which are treated as assets held for sale in the balance sheet should be written down to their
estimated market value. I have produced evidence found in the Ryanair published accounts
that their market value has probably fallen since we first placed them for sale in February,
Given the four points above, I am left without any other options but to abstain from voting on the accounts as a director of easyJet PLC. I am doing so reluctantly but I believe it is in the
interest of all shareholders to be more prudent at the present time.
On a separate matter I believe the dividend policy of the company should be changed. We
must pass a board resolution to plan to pay a dividend by say 2011 if the markets and the
liquidity of the company allow. Dividends must be planned several years ahead as they
compete for cash with capital expenditure. It just makes good business sense for every
properly run, mature company to plan to pay a dividend to its loyal shareholders one day.
This statement would not be complete if I didn't comment on the record, in an RNS so all
shareholders and potential shareholders have an equal opportunity to read my views, about
the recent speculation in the media about my motivations for seeking to appoint two more
non-executive directors on the board of easyJet. In fact I will simply quote again part of the
letter which I sent to the board last Thursday 13 November 2008:
We as the Controlling Shareholders, continue to consider Sir Colin Chandler to be a suitable
Chairman for the Company. In fact we have been impressed with the way he has been
managing this difficult situation on behalf of all shareholders. We are also aware of the
provisions of the Combined Code on Corporate Governance concerning the independence of
Chairmen and given our publicly stated commitment to adhere to the highest standards of
corporate governance, we do not wish to insist on the Chairman of the Company being
someone who is clearly not independent. Accordingly, rather than exercise the right for
Stelios to act as Chairman pursuant to Article 87.1, the Controlling Shareholders request that,
in addition to Stelios continuing to be a non-executive director of the Company, Andrew
Cooper and Anthony Robb-John, both easyGroup employees, initially be appointed as nonexecutive directors. The particulars necessary for inclusion in the register of directors of the Company for the proposed directors are set out in the schedule to this letter. We are however happy to agree to seek to find in due course alternative nominated directors to Andrew and Anthony following their appointment who are more independent of easyGroup.
Last, but not least, I would like to place on record that I believe that with careful cash
management and in particular more prudent capital expenditure easyJet PLC and its
shareholders will be THE winners in European short haul aviation. We must focus on cash
flows forecasts and not on carrying more passengers. I am happy that the board of easyJet
PLC works as it should do. In fact, during the board meeting to approve the accounts we have
reached agreement that we will use the time between now and the company's AGM to seek
to agree whether I shall appoint one or two additional non-executive directors and who these
would be. As to the details of our future strategy, these are best discussed in our boardroom
in Luton and not in the newspapers".