EasyJet settles dispute with Stelios
By John O’Doherty
Published: October 11 2010 09:00 | Last updated: October 11 2010 11:13
easyJet has resolved a long-standing licence dispute with Sir Stelios Haji-Ioannou in a deal that will see its founder and largest shareholder receive millions of pounds but relinquish his rights of representation on the airline’s board.
The agreement, which has a minimum length of 10 years, will allow the low-cost airline to expand its presence in fields such as hotels, insurance and car hire.
The resolution of the dispute brings to a close a long-running battle that had centred on the terms of a licence agreement signed 10 years ago, when the European low-cost airline model was still in its infancy.
Under the terms of the original agreement, Sir Stelios had licensed the use of the EasyJet brand name to the airline, but retained use of the “easy” trademark for his own EasyGroup conglomerate that now spans car hire, hotels, office rental and bus services.
In addition, the agreement limited the percentage of revenues that EasyJet could receive from so-called ancillary services – those not related to sales of flight tickets – to 25 per cent of total revenues.
Under the terms of the new licence agreement, announced on Monday, EasyJet will receive the right to enter into co-branding agreements with other companies that offer products or services sold on board a flight or in an airport.
Critically, this includes services that are in competition with EasyGroup businesses such as car-hire or hotels. EasyJet already operates co-branding agreements for both of these services with Europcar and laterooms.com. The precise status of these co-branding deals, and whether they were permitted under the original deal 10 years ago, was the subject of dispute between EasyJet and EasyGroup.
The new agreement, however, expressly prohibits EasyJet from operating in the office rental, cruises or bus transport sectors, in all three of which EasyGroup already has businesses.
EasyJet will pay EasyGroup 0.25 per cent of its annual revenues, with a minimum of £3.9m and £4.95m to be paid in the first and second years respectively. Analyst are forecasting annual revenues for EasyJet of almost £4bn from 2013 on, meaning EasyGroup could receive more than £80m for the ten year period of the agreement.
Shares in EasyJet rose 3.7 per cent or 16.8p to 468.4p in early trading on Monday.
“EasyJet has grown and developed since the brand licence was signed and the licence agreement needed to be clarified to allow the company to move forward,” said Mike Rake, chairman of EasyJet.
“I am content this is a fair deal for both sides,” said Sir Stelios.
“The agreed amendments will result in increased competition from the airline for the other EasyGroup licensees [such as EasyHotel, EasyCar and EasyBus]. However, the agreed royalty payable provides appropriate remuneration for EasyGroup, thereby aligning the interests of both parties.”
As part of the deal, Sir Stelios will also relinquish both his right to appoint himself chairman of EasyJet, and EasyGroup’s rights of representation on the airline’s board.
Sir Stelios has been in a lengthy dispute with EasyJet since 2008 over the separate issue of the pace of the airline’s expansion. As the global economy soured, he believed the group should not have maintained its aggressive expansion strategy by increasing the size of its fleet, and should instead have paid a dividend.
The boardroom clashes ultimately led to the departure of the group’s chairman, chief executive and finance director.
However, Carolyn McCall, chief executive of EasyJet, cautioned that Monday’s agreement did not resolve this issue of the group’s expansion, fleet size or payment of a dividend, all of which are being examined in a strategic review.
“These are two separate issues,” she said.
“One is about Stelios as a brandholder, and one is about Stelios as a shareholder ... We’re midway through doing a review of all the assumptions in our plans including the fleet. We will be presenting that [review] at the full-year results in November [the 16th]. We have not had any discussions with Stelios as part of this brand licence about the size of the fleet, or growth or the dividend.”
Copyright The Financial Times Limited 2010
By John O’Doherty
Published: October 11 2010 09:00 | Last updated: October 11 2010 11:13
easyJet has resolved a long-standing licence dispute with Sir Stelios Haji-Ioannou in a deal that will see its founder and largest shareholder receive millions of pounds but relinquish his rights of representation on the airline’s board.
The agreement, which has a minimum length of 10 years, will allow the low-cost airline to expand its presence in fields such as hotels, insurance and car hire.
The resolution of the dispute brings to a close a long-running battle that had centred on the terms of a licence agreement signed 10 years ago, when the European low-cost airline model was still in its infancy.
Under the terms of the original agreement, Sir Stelios had licensed the use of the EasyJet brand name to the airline, but retained use of the “easy” trademark for his own EasyGroup conglomerate that now spans car hire, hotels, office rental and bus services.
In addition, the agreement limited the percentage of revenues that EasyJet could receive from so-called ancillary services – those not related to sales of flight tickets – to 25 per cent of total revenues.
Under the terms of the new licence agreement, announced on Monday, EasyJet will receive the right to enter into co-branding agreements with other companies that offer products or services sold on board a flight or in an airport.
Critically, this includes services that are in competition with EasyGroup businesses such as car-hire or hotels. EasyJet already operates co-branding agreements for both of these services with Europcar and laterooms.com. The precise status of these co-branding deals, and whether they were permitted under the original deal 10 years ago, was the subject of dispute between EasyJet and EasyGroup.
The new agreement, however, expressly prohibits EasyJet from operating in the office rental, cruises or bus transport sectors, in all three of which EasyGroup already has businesses.
EasyJet will pay EasyGroup 0.25 per cent of its annual revenues, with a minimum of £3.9m and £4.95m to be paid in the first and second years respectively. Analyst are forecasting annual revenues for EasyJet of almost £4bn from 2013 on, meaning EasyGroup could receive more than £80m for the ten year period of the agreement.
Shares in EasyJet rose 3.7 per cent or 16.8p to 468.4p in early trading on Monday.
“EasyJet has grown and developed since the brand licence was signed and the licence agreement needed to be clarified to allow the company to move forward,” said Mike Rake, chairman of EasyJet.
“I am content this is a fair deal for both sides,” said Sir Stelios.
“The agreed amendments will result in increased competition from the airline for the other EasyGroup licensees [such as EasyHotel, EasyCar and EasyBus]. However, the agreed royalty payable provides appropriate remuneration for EasyGroup, thereby aligning the interests of both parties.”
As part of the deal, Sir Stelios will also relinquish both his right to appoint himself chairman of EasyJet, and EasyGroup’s rights of representation on the airline’s board.
Sir Stelios has been in a lengthy dispute with EasyJet since 2008 over the separate issue of the pace of the airline’s expansion. As the global economy soured, he believed the group should not have maintained its aggressive expansion strategy by increasing the size of its fleet, and should instead have paid a dividend.
The boardroom clashes ultimately led to the departure of the group’s chairman, chief executive and finance director.
However, Carolyn McCall, chief executive of EasyJet, cautioned that Monday’s agreement did not resolve this issue of the group’s expansion, fleet size or payment of a dividend, all of which are being examined in a strategic review.
“These are two separate issues,” she said.
“One is about Stelios as a brandholder, and one is about Stelios as a shareholder ... We’re midway through doing a review of all the assumptions in our plans including the fleet. We will be presenting that [review] at the full-year results in November [the 16th]. We have not had any discussions with Stelios as part of this brand licence about the size of the fleet, or growth or the dividend.”
Copyright The Financial Times Limited 2010