easyJet grounds fleet as Stelios threatens over Airbus order

Budget airline easyJet grounded its entire fleet in response to the coronavirus pandemic as founder and major shareholder Stelios Haji-Ioannou threatened to pick off board directors one by one unless the company cancelled a large aircraft order to save cash.

The company said it had responded to lockdowns and travel bans around Europe by cutting costs and delaying non-critical expenditure "at every level" in order to help mitigate the impact from the coronavirus. "The grounding of aircraft removes significant cost," it said on Monday.

EasyJet raised eyebrows in the market on Friday when it paid out £174mln of its cash as dividends to shareholders and then asked for help via a taxpayer-funded stimulus package from the government. A slew of companies have either suspended or cancelled shareholder payouts to conserve cash.

Haji-Ioannou, who received £60m from his share of the dividend, wrote to the board on the weekend demanding the airline cancel an order for 107 Airbus single aisle aircraft, which he called the “elephant in the room and main risk to survival of the company" with £4.5bn of payments to Airbus between 2020 and 2023.

"That liability of paying Airbus...dwarfs today’s easyJet market capitalisation of £2.4bn," he added in the four page letter, saying the company could enforce a "force majeure" due to travel and public movement restrictions "not seen in Europe since the Second World War".

“Unless you accept to address my points above by 12 noon on Wednesday 1 April, 2020, I will instigate a rolling programme to remove one non-executive director every seven weeks by calling for general meetings.”

He also called for a rights issue to raise equity on the basis that a cancellation of the Airbus order would remove the need for state aid. "It would be an abuse of taxpayers’ money to obtain loans to pay Airbus for an unprofitable investment in 107 aircraft," he said.

Sources familiar with the matter said the company would need to raise around £600m of new equity, including a £200m contribution from Haji-Ioannou.

NON-EXECUTIVES TARGETED

“Easyjet has issued two... profit warnings in regard to the coronavirus crisis. In neither announcement was any reference made to the £4.5bn Airbus liability. Given its crucial importance, and stock market obligations, don’t you think it’s odd that such information of such magnitude is hidden away from shareholders and bondholders?”

Haji-Ioannou named non-executive director Andreas Bierwirth, a former Lufthansa director who has held senior roles at its Austrian Airlines and Germanwings subsidiaries, as his first target.

The airline's other non-executives include chairman John Barton, a former insurance broker, and Dame Moya Greene who was formerly chief executive of Royal Mail.

EMPLOYEES FURLOUGHED

The company on Monday said it had reached agreement with the Unite union on furlough arrangements for its cabin crew. The deal would be effective from April 1 for two months and meant that crew will be paid 80% of their average pay through the government's job retention scheme.

“We continue to take every action to remove cost and non-critical expenditure from the business at every level in order to help mitigate the impact from the coronavirus. The grounding of aircraft removes significant cost,” easyJet said in a statement.

It added that it was in ongoing discussions with lenders “who recognise our strength of balance sheet and business model”.

Hargreaves Lansdown analyst William Ryder said the grounding "removes a massive source of costs" and the government's wage bailout had lifted a weight from easyJet’s shoulders.

"EasyJet isn’t flying any planes and most of its staff have been furloughed, so management will have a reasonable idea of what costs will be each week from here on out," Ryder said.

"Unfortunately, investors don’t have this information so it’s impossible to accurately assess easyJet’s prospects. We think the group has enough liquidity to manage a short suspension of European air travel, but if the disruption proves prolonged or the recovery is sluggish easyJet could be in real trouble."