LONDON — In the last few weeks, easyJet (U2) has come into the spotlight considerably over a few issues, some more recent than others.
Internal politics, as well as external events, have brought into question whether U2 could be viable at all coming out of the COVID-19 pandemic, or even generally.
Let’s take a look at the in-fighting within the airline from the likes of major shareholder Sir Stelios Haji-Ioannou, aiming to oust those in executive positions in the carrier, as well as the recent data breach announcement.
Internal Conflicts Within the Carrier
The problems began when U2 founder Sir Stelios Haji-Ioannou put a vote forward to shareholders of the company to oust Chief Executive Officer Johan Lundgren, Chairman John Barton, the Chief Financial Officer Andrew Findlay as well as executive director Andreas Bierwirth.
This was over the board of director’s point-blank refusal to cancel a £4.5b aircraft order with Airbus placed back in 2013. Stelios’ view is that the airline needed to preserve its funds to get through the COVID-19 pandemic crisis.
Votes to remove John Barton failed, with 42% voting in favor and 57% against the motion. It was the same percentile points for Lundgren, Findlay & Bierwirth respectively.
Barton commented on the results, thanking the shareholders for not giving him the boot. “On behalf of the Board, I would like to thank shareholders for their support. The airline industry is facing unprecedented challenges and the Board’s immediate priority has been to take the necessary steps to successfully guide easyJet through this period of uncertainty.”.
“We are relentlessly focused on cash conservation and ensuring that easyJet emerges from the Covid-19 crisis in a strong competitive position. The Board seeks good relationships with all of the Company’s shareholders and hopes to be able to re-engage constructively with Sir Stelios.”
However, Sir Stelios claimed that the result was rigged on the grounds that shareholders were conflicted and that their votes should not have been counted for those reasons, which casts doubts on whether he will engage in the same level of cooperation as the board is willing to.
Speaking to The Guardian, Sir Stelios constituted the results as voter fraud.
“The results constitute voting fraud as at least 15% of the shares held by the three ‘straw men’ (Invesco, 91 and Phoenix) are controlled by Airbus and were, therefore ‘related parties’ in this vote.”
“If the circa 60m shares in easyJet that are controlled by Airbus that we know about, and there could be more, are excluded, my resolutions to remove the directors would have been approved by a margin of 133m shares to remove and 120m shares to retain. We will never stop in our quest to out these ‘straw men’ and prove that these shares should not have been counted.”
John Barton was keen to dismiss Sir Stelios’ claim, stating that “the board rejects any insinuation it was involved in any impropriety” as well as stating that shareholders who owned at least 1% of the company didn’t have the Airbus name on it.
Sir Stelios has also offered £5m for anyone who comes forward with information that could put the 107 aircraft order at risk.
easyJet had deferred delivery of 24 aircraft for more financial easing, with Barton standing by the order saying it is “integral to the company’s future success.”
As a caveat, the Airbus contract doesn’t allow any cancelation due to the COVID-19 pandemic, with adverse one-off costs to U2.
A Costly Data Breach
Besides the internal crisis, and the dispute over the Airbus order, U2 has faced a cyberattack that exposed the personal data of up to nine million customers, including around 2,200 credit card details.
Whilst the number of credit card details was low, it also makes such a cyber-attack the largest in the UK airline industry so far.
Back in July 2019, British Airways (BA) was fined by UK’s Information Commissioner’s Office (ICO), after hackers breached the data of around 500,000 customers.
With U2’s data breach being on a far larger scale, it could place the airline into more financial pressure, particularly in the current critical moment for the air travel industry.
Is U2 able to afford a £4.5b aircraft order as well as potential, major economic fallout from the data breach itself? The attitude of Sir Stelios towards the Airbus order seems to be telling in that regard.
Shortly after the data breach announcement, PGMBM, an international law firm, issued a class action lawsuit, going for a potential liability claim of up to £18b, equivalent to around £2,000 per easyJet customer affected.
Tom Goodhead, a Managing Partner for PGMBM, considers that U2’s data breach is a failure of responsibility with severe implications on its customers.
“This is personal information that we trust companies with, and customers rightly expect that every effort is made to protect their privacy. Unfortunately, easyJet has leaked sensitive personal information of nine million customers from all around the world.”
PGMBM will sue under Article 82 of the EU General Data Protection Regulation, which states that customers are entitled to compensation due to a loss of control over their personal data.
Airways got in touch with easyJet for a comment about the data breach.
“easyJet has been the target of an attack from a highly sophisticated source. As soon as we became aware of the attack, we took immediate steps to respond to and manage the incident and engaged leading forensic experts to investigate the issue. We also notified the National Cyber Security Centre and the Information Commissioner’s Office.” Kirsten De Haan, an easyJet spokesperson commented to Airways.
“There is no evidence that any personal information of any nature has been misused, however, on the recommendation of the ICO we are informing customers to be alert as there is a heightened risk of phishing following Covid-19,” De Haan concluded.
An additional issue that compromises U2’s path to profitability again will be the withdrawal of the United Kingdom from the European Union (BREXIT).
Once the transition period currently in place ends on December 31, 2020, the freedom of movement to other EU countries will be reduced, thus travel demand in the UK would falter, and therefore it could expose UK carriers to additional risks.
Also, a weaker Pound Sterling will exert extra pressure on operational costs, combined with the lack of confidence in travel due to COVID-19 and without freedom of movement between UK and the EU —UK’s prime air travel market—airlines and particularly tour operators such as TUI (BY) and Jet2 (LS), will face formidable challenges to survive.
Financial reports relating back to 2016 states that U2’s profits dropped by £88m and also by £82m in the first half of 2017, representing a 12-month period after the British electorate chose to leave the EU.
Increased competitiveness, cost pressures, and BREXIT uncertainties have caused the collapse of Monarch, Thomas Cook, Flybmi, and Flybe—the most recent victim of this toxic situation—further prompted by the COVID-19 pandemic.
Despite this apocalyptical scenario, U2 seems to be prepared to face the post-transition BREXIT turmoil. Back in 2017, the carrier applied for a European Air Operator Certificate (AOC) and Operating License in Austria, in a move that protects the carrier’s European route rights.
With larger legacy carriers such as Virgin Atlantic (VS) and BA forced to make major cuts, already necessary due to BREXIT, COVID-19 makes these extreme measures urgent.
easyJet’s Viability Going Forward?
With the current state of affairs, what is the viability of U2 going forward? Kirsten De Haan, relates us back to the trading updates made on April 16.
“As we have explained at our trading update on 16 April, 2020, we have sufficient cash reserves to manage through a prolonged fleet grounding of nine months and have further options beyond that.”
easyJet remains confident in its financial capability to handle the ongoing issues even in the worst crisis ever experienced by the air travel industry. Nevertheless, the threat of the data breach lawsuit is a worrying concern, as a £18b liability claim can not easily be financially downplayed.
easyJet seems to be committed to continuing with the Airbus order, now deferred in a move seen to ease the pressure that any liability claim could cause while minimizing the capital expenditure for a better short-to-medium term financial position until the air travel demand returns to pre-COVID-19 levels.
The turbulent state of affairs in U2 threatens the future of the airline. The biggest challenge lying ahead for the airline is not only regaining the confidence of its customers, lost by both the pandemic and the data breach, but also the trust of Sir Stelios Haji-Ioannou to a nearly ousted board, particularly during the Post-COVID-19 era of air travel, and in UK’s Brexit times.