Easyjet’s founder and largest shareholder Stelios Haji-Ioannou has again called for the carrier’s £4.5 billion contract with Airbus to be cancelled.
The entrepreneur said if the order is maintained “I regret to report, Easyjet will run out of money around August 2020, perhaps even earlier”.
Easyjet grounded its entire fleet at the end of March, stating that “At this stage there can be no certainty of the date for restarting commercial flights”.
A statement released by Stelios today (April 6) said:
“My main objective is to terminate the £4.5bn contract between Easyjet and Airbus for 107 additional useless aircraft. That is the only way to preserve the value for all shareholders and all the bondholders too.
“Easyjet’s market capitalisation (value of all the shares) nowadays is hovering around £2 billion. The Haji-Ioannou family owns about 34 per cent of the shares but the other 66 per cent is widely held amongst many individual shareholders and various pension funds paying out pensions tomorrow – and years to come. I will now seek to enlist support of these other shareholders in terminating the Airbus contract.
“The net book value of the assets of Easyjet (net of liabilities) was £3 billion as at 30 September 2019. Even allowing for trading losses during the current grounding there are still many good assets inside Easyjet and we must not allow the current directors to squander our assets by paying Airbus for these unwanted new planes.
“Easyjet has also borrowed c£1.3 billion from bondholders (pension fund money again) that will need to be repaid in full over the next 2-5 years. Today these bonds are trading at 20-30 per cent discount to their original value which means the market feels that Easyjet may become insolvent in that timeframe all the time whilst paying Airbus c £1.35 billion for new aircraft in the next few months (the same value as all the bonds outstanding today).”
Stelios said that the prediction for running out of money around August “is based on the optimistic forecast published by the house stockbroker of easyJet (Neil Glynn at Credit Suisse on April 2, 2020) showing a cash short fall (negative balance) of £164m by September 2020”.
He added that the forecast was based on “wildly optimistic assumptions that the Easyjet fleet will return to the skies in June, bringing in profitable revenues of £1.5bn in the summer months” – something which Stelios referred to as “pure fantasy”.
“It must be noted that almost every country in Europe has now closed its borders to foreigners,” said Stelios. “Nobody really knows when they will open again. And even then, nobody believes that people will be willing to undertake foreign travel in such large number by June 20”.
“Fear has now taken over human behaviour when it comes to any form of foreign travel. Each country will want to keep others out for much longer than the date that their own local national lockdown ends. I think that Easyjet at the end of national lockdowns will feel more like a start-up trying to find a few profitable routes for a few aircraft at a time. How many Brits will want to fly to northern Italy or Spain on holiday this June? Not many I think.”
Stelios said he was calling for two directors to be removed from the Easyjet board, including CFO Andrew Findlay.
“If Easyjet terminates the Airbus contract, then it does not need loans from the UK taxpayer and it has the best chance to survive and thrive in the future with some injection of additional equity provided for by the markets (pari passu to the existing shareholders),” said Stelios.
“But if Easyjet stumbles along whilst taking UK taxpayers money as loans only to pass it on to Airbus, it will have to raise fresh equity anyway in the next 3-6 months – reducing the value of our current shareholdings to close to zero.
“In any event no rational investor would be buying new shares in Easyjet if the money will be used by easyJet to pay £4.5bn to Airbus for new planes it simply does not need. I will certainly not be throwing good money after bad. For the avoidance of doubt, I will not inject any fresh equity in Easyjet whilst the Airbus liability is in place.”
Business Traveller has contacted Easyjet regarding today’ statement, and will post any response here.