EasyJet Plc investors are set to decide the future of the airline in a vote to back management in steering a path through the coronavirus crisis or discard them to join forces with top shareholder Stelios Haji-Ioannou.
EasyJet’s founder and former chairman has turned activist investor, spending more than 15 years opposing the plans of successive leaders on the grounds that they’ve been too investment-intensive and offered insufficient returns.
The clash centers on an order for more than 100 Airbus SE A320neo jets that make up the bulk of 4.6 billion pounds ($5.6 billion) in capital spending planned through fiscal 2023. Haji-Ioannou says the purchase will drain cash at a time when the air-transport industry faces years of subdued demand in the aftermath of the coronavirus crisis. EasyJet says it’s revised the order and that the debate creates an unnecessary distraction at a difficult time.
“It’s a really important moment for the airline,” said Luke Hickmore, a fund manager with Aberdeen Standard Investments who manages around $3 billion for his firm. “He wins and the board becomes his to control and leads to a slashing of aircraft orders. At the moment that’s no bad thing, but how do you grow back any time soon?”
CEO Lundgren has deferred the delivery of 24 planes to an undetermined date. He says EasyJet must be ready to renew its fleet when traffic finally rebounds and that the terms of the Airbus deal are uniquely flexible. The airline says it’s reduced its near-term capital expenditures by more than 1 billion pounds.
Haji-Ioannou, 53, wants EasyJet’s existing fleet cut to 250 aircraft from 318. He has generally failed to attract broad shareholder support in his previous battles with management, including clashes over pay and rights to the Easy name.
Attritional Attacks
Yet the attritional nature of his attacks has borne fruit. Barton’s predecessor as chairman, Mike Rake, announced his departure in 2013 less than six months after surviving a dismissal vote. EasyJet also pays out a higher-than-average 95% of its free cash flow, according to Citigroup analyst Mark Manduca.
What’s different this time around is that rather than riding the crest of a decades-long surge in air travel, Haji-Ioannou’s call for a clampdown on spending comes with the industry mired in the deepest crisis in its history—something that could turn more shareholders to his way of thinking. A decline of two-thirds in EasyJet’s share price will also focus minds, Manduca said.
A defeat for Lundgren, a Swede who took over in December 2017 and is the same age as Haji-Ioannou, would still come as a surprise.
The founder and his family collectively own about 34% of EasyJet, whereas the Luton, England-based company reckons it could have the backing of shareholders controlling 45% of votes, the Sunday Telegraph reported, citing an interview with Lundgren.
A spokesman for Haji-Ioannou said they believe the vote will be very close and that many small shareholders have pledged support for their position. The vote is not a distraction but “a reaffirmation of shareholder democracy” that puts the interest of those risking their capital above “here today gone tomorrow” management, the spokesman said.
Invesco, Ninety One U.K. and Phoenix Asset Management, the three biggest investors after the founder with a holding totaling of about 15%, have publicly pledged their support to management.
Shareholder advisory firms Institutional Shareholder Services, Glass Lewis and Pensions & Investment Research Consultants have also recommended that people vote against Haji-Ioannou’s resolutions.
‘Scoundrels’ Jibe
In the last few weeks, the Greek-Cypriot entrepreneur has stepped up his campaign by questioning the nature of EasyJet’s relationship with Airbus in light of the manufacturer’s settlement earlier this year of a corruption case concerning aircraft sales. Haji-Ioannou has referred to the board and management as “scoundrels.”
He’s also condemned other investors for failing to call EasyJet to account, said Britain’s Financial Conduct Authority should face a judicial review over a lack of action, and offered a 5 million-pound reward for evidence of wrongdoing that leads to the cancellation of the Airbus order.
Should Haji-Ioannou win the vote, EasyJet will be plunged into turmoil at the toughest moment in its 25-year history, with the entrepreneur planning to call on Chief Operating Officer Peter Bellew to scrap the plane deal before the appointment of a new chief.
The International Air Transport Association estimates European carriers face a revenue loss of $89 billion in 2020 because of the pandemic. EasyJet has announced it plans to resume flights from 22 European airports on June 15, becoming one of the first airlines in the region to begin building up services as the coronavirus lockdown eases.
Even if the motions fail, it’s hard to see Haji-Ioannou giving management much respite given heightened concerns about costs and cash flow in the post-virus era.
“It will be helpful if it’s nice and clear cut,” said Andrew Lobbenberg, an analyst at HSBC. “He’s clearly on a mission here.
