EasyJet founder Stelios Haji-Ioannou is threatening formal steps to block the low-cost carrier's planned fleet expansion, having resigned from his position on the airline's board.
Haji-Ioannou has been strongly opposed to the carrier's rapid expansion and a management strategy row, which had been smouldering since late 2008, flared up a year ago.
The dispute, centred on the rate at which EasyJet planned to introduce aircraft from its outstanding Airbus order, appeared to cool around June after the airline agreed to keep its growth rate at about 7.5% per year.
But Haji-Ioannou has today re-ignited the row by resigning his place on the board - where he represented shareholder EasyGroup - and positioning himself to block the fleet expansion.
EasyGroup states that Haji-Ioannou is to "focus on a campaign as a shareholder activist against the increase of the size of the aircraft fleet" beyond its current size.
He is considering requisitioning a shareholders' meeting to put the expansion plan to a formal vote, and will recommend that shareholders reject the management's strategy.
Haji-Ioannou's move coincides with a senior management transition, following EasyJet's selection of a new chief executive, Carolyn McCall, to succeed Andrew Harrison.
EasyJet was operating 189 Airbus A320-family and Boeing 737 aircraft at the end of March, and its fleet plan will take this total to 208 by September 2012.
Haji-Ioannou believes the airline is embarking on "relentless" growth at the expense of profit margins.
"For some time I have firmly believed that the EasyJet management was pursuing the wrong strategy for the expansion of the business," he says.
"A mere look at the share price graph over the last 10 years, practically a 'flatline', and zero dividends are proof of that. How can you buy 200 aircraft with shareholders' money and create no wealth for shareholders?
"The management has been determined to continue to buy new aircraft from Airbus despite the fact that this huge expenditure is demonstrably failing to produce higher profits and therefore has created zero value for shareholders."
EasyJet is committed to take 57 more Airbus aircraft over the next four years: another 12 this year, 25 in 2011, 18 in 2012 and two in 2013. It also lists a commitment to two more Airbus jets linked to GB Airways, which EasyJet acquired in early 2008.
Haji-Ioannou says the airline needs to keep its fleet at around 190 for the next three or four years. He intends to pressure the board to renegotiate EasyJet's fleet deal with Airbus and find ways of selling excess aircraft.
"I have been arguing for some time that a much higher priority should be given to restoring profit margins from the current 1-3% to the more than 10% level of 10 years ago and delivering value to all shareholders," says Haji-Ioannou.
"But the board has refused to take into account my recommendations, using the pretext that the rest of the shareholders want something different, and instead remains resolved to go on squandering shareholders' funds on more expensive aircraft that will probably destroy shareholder value."
Haji-Ioannou believes the airline is not balancing the capital cost of new aircraft against the profitability of the route network.
"The inescapable fact is that this airline used to make a bigger absolute profit using far fewer aircraft," he says. Haji-Ioannou says last year's agreement on more modest growth, which defused his conflict with the board, is "already too optimistic", adding: "The low-cost airline model is maturing, and management needs to now adopt different priorities to take the business forward."
EasyJet defends its strategy, pointing out that all decisions have been made by the full board with agreement, where necessary, from shareholders.
It says the agreement to keep growth at 7.5% will enable EasyJet to increase its share of the European short-haul market from the current 7% to around 10%.
"The board of EasyJet is also committed to ensuring that the company achieves a proper financial return on its capital and therefore has set a target of 15% return on equity," it adds.
EasyJet chairman Sir Mike Rake says he is "surprised" at Haji-Ioannou's resignation and "regrets" his decision. He adds that the board believes EasyJet has been "one of the best-performing airlines" in the poor economic climate. "Importantly, EasyJet is well-financed and has maintained a strong balance sheet," he says.
Source: Air Transport Intelligence news
