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EasyJet founder lays out objection to A320 deal

EasyJet's founder, Stelios Haji-Iaonnou, is formally to oppose the low-cost carrier's fleet renewal plan, although he does not expect his protest will prevent the deal being approved.

The carrier is intending to exercise outstanding options on 33 Airbus A320s, as well as purchase rights on two more, and order 100 A320neo twinjets.

Its A320s will arrive over 2015-17 and the A320neos from 2017-22.

Haji-Ioannou, who has long criticised the airline's expansion strategy, has questioned the agreement, claiming a lack of transparency on the costs.

"It is my firm opinion that this is a good deal for Airbus and a bad deal for EasyJet shareholders," he says.

He is urging shareholders to join him in voting against the deal, but concedes: "I do not expect that the vote will go any other way than the way the directors want it to."

The transaction price has not been disclosed but the shareholder document gives a list price of $76.2 million for the A320s and $92.3 million for the A320neos.

Haji-Ioannou says, however, that these prices are "meaningless", given that the discount is undisclosed, and points out that even the A320 list price differs from Airbus's figure of $88.3 million.

EasyJet says 85 of the aircraft will be used for replacement over the next nine years. It adds that it has the flexibility to reduce its current fleet of 211 jets to 165, or raise it to 298, by 2022 depending on the market environment.

Reduction of the fleet to 165 would still commit the carrier to take another 23 aircraft by August 2024.

But Haji-Ioannou is concerned that an increasing cost base will inevitably render some routes unprofitable and that acquiring so many new aircraft is "simply unnecessary".

"We fear that the new order will lead, once again, to a hunt for 'new' routes - better described as 'unprofitable routes' - discarded by other airlines," he says.

EasyJet chief Carolyn McCall says that 56 routes were, in 2012, delivering less than 40% of the average network return, but that this had fallen to 20% by the end of the first half of the current year.

Haji-Ioannou dismisses the A320neo as a "shiny new toy" - more expensive than the basic A320 - and that the fuel savings are not yet proven.

EasyJet says the overall cost saving, per seat, from moving from an A320 to an A320neo will be around 4-5%. It adds that the A320neo is not an all-new aircraft and that the technical risk is lower.

"We're around number 400 in the delivery schedule of the [A320neo]," says chief financial officer Chris Kennedy. "So a lot of the early teething problems, if there are any, should be well out of the way."

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