UK budget carrier EasyJet is arguing that it cannot terminate its contentious Airbus order by falling back on the argument that the coronavirus outbreak is a situation beyond its control.
The airline has been under fire from its founder, and key shareholder, Stelios Haji-Ioannou over the cost of retaining the order and has been coercing the management team – with threats to remove board members – to cancel the Airbus agreement by claiming ‘force majeure’.
EasyJet insists it has “no ability” to terminate the contract this way. “This is standard in aircraft purchase contracts,” it says.
But it adds that there would be ramifications if it pursued such a cancellation.
EasyJet argues that it would become liable for “significant” compensation linked to discounts on aircraft already delivered under the same contract as those which are outstanding.
The airline ordered 135 Airbus jets in 2013 and says 45 aircraft from the contract have since been received.
It adds that it would also be liable for any future losses the airframer could prove resulted from cancellation, and that the cost of direct manufacturer support for the operation of EasyJet’s current fleet would also rise substantially.
This is because, it says, it would need to purchase training, software and other support directly from a single-source supplier while also losing access to long-term performance guarantees.
EasyJet has agreed to defer delivery of 24 aircraft – with the option of shifting another five – over the next three years including all 12 scheduled to arrive in its 2020-21 fiscal year.
“Exact dates of future deliveries of the deferred aircraft are to be agreed in response to the demand environment,” the airline states. It adds that it has additional fleet flexibility over the next 16 months arising from operating leases on another 24 jets which will fall due for renewal.
EasyJet’s fleet plan, taking into account the measures, will give the airline between 281 and 353 aircraft by September 2023, compared with the previous range of 304-383.
This appears unlikely to appease Haji-Ioannou who continues to accuse the airline’s management of making a “deliberate mistake” by affirming the Airbus agreement.
“Any attempt to operate a fleet of more than 250 aircraft – down from 337 now – is bound to just burn a shed-load of cash in 2021,” he argues.
He has stepped up his attack on the board, calling for the removal of chief executive Johan Lundgren as well as chairman John Barton, along with two other directors, and proposing that chief operating officer Peter Bellew – formerly of rival Ryanair – takes over.
