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EasyJet's Airbus order sparks new Stelios row

06/18/2013 | Reuters

LONDON (Reuters) - EasyJet's multi-billion dollar (EZJ.L) deal to buy 135 jets from Airbus (EAD.PA) has sparked a new battle with the budget airline's founder and biggest shareholder Stelios Haji-Ioannou, who has voiced his opposition to the deal.

EasyJet agreed to buy 35 current-generation A320 aircraft and 100 new A320neo jets, with options for a further 100, the airline announced on Tuesday, day two of the Paris Airshow.

Haji-Ioannou, better known as Stelios, who founded the airline in 1995 and has a 37 percent stake, believes buying new jets will destroy shareholder value and that the money would be better spent on improving returns to investors.

EasyJet did not reveal the value of the deal, which is worth around $11.9 billion at list prices, but said it had negotiated a "very substantial" discount that was greater than its last deal with Airbus, which was struck amid a downturn in the aerospace industry in 2002.

"This is yet another huge capital expenditure deal with the same supplier at 'secret' prices," Stelios said in a statement sent to Reuters. "It raises more questions than answers."

Reuters reported last week that a $10 billion plus deal was imminent after easyJet entered exclusive talks with Airbus, dealing a blow to its U.S. rival Boeing (BA.N) which had hoped to undo the airline's defection to Airbus over a decade ago.

The deal is subject to a shareholder vote, where it must be approved by investors representing more than 50 percent of the company's shares.

Sources close to easyJet CEO Carolyn McCall said she is confident of winning approval for the deal from shareholders despite opposition from Stelios, who is expected to vote against it at a shareholder meeting due to take place next month.

EasyJet is sending a detailed circular to shareholders this afternoon and airline executives will meet its top institutional investors to discuss the order in the coming weeks, sources close to the airline said.

"We will ask all our questions when we have seen the full shareholder circular which must include the actual price to be paid for each aircraft and the incremental profit each of these aircraft will actually deliver," Stelios added.

Stelios quit the airline's board in 2010 after a row over strategy. Since then he has been critical of many of the airline's plans, including fleet expansion, executive pay and dividend policy.

McCall is popular among the majority of shareholders given the annual dividend and profits have doubled since she took the helm in July 2010.

"Stelios has previously voiced strong opposition but despite this, the order is likely to be approved in our view," said Espirito Santo analyst Gerald Khoo.

Shares in easyJet, which have risen 64 percent this year, were up 2.6 percent at 1,285 pence by 9:15 a.m. ET, valuing the company at around 5 billion pounds.

Airbus and Boeing have been pitching commercial terms to Europe's second-largest budget carrier in recent weeks after easyJet completed the technical evaluation of its favored jets, the re-engined Airbus A320neo and Boeing 737 MAX.

EasyJet began operations in 1995 with Boeing aircraft but shifted to Airbus in 2002 with a deal for 120 A319s, plus options for a further 120, after a bitter competition.

The current generation A320 aircraft will be delivered between 2015 and 2017 under an existing agreement, easyJet said, with the new 'neo' variant due to be delivered between 2017 and 2022 under a new deal.

(Additional reporting by Paul Sandle and Rosalba O'Brien in London and Tim Hepher in Paris; Editing by David Goodman and Mark Potter)

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