Ownership Shakeup at easyJet?
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A quick note: easyJet does not technically operate any planes. easyJet is the parent company of easyJet UK, easyJet Switzerland, and easyJet Europe, who fly all of easyJet’s routes under one cohesive brand. easyJet holds the AOC, but their subsidiaries actually own the planes and fly them. For the purposes of this article, I’ll refer to the whole thing collectively as easyJet and call easyJet branded aircraft “easyJet planes” even if they aren’t technically easyJet’s.
About easyJet
easyJet has long been a dominant force in the European low-cost airline market. It’s the second largest budget carrier in Europe, only beaten by Ryanair. They fly almost 1,000 routes across over 100 destinations in 34 countries. As airlines go, they’re actually quite new. They were established in 1995 by Sir Stelios Haji-Ioannou, a Greek-Cypriot businessman who is worth billions from his father’s highly successful shipping company. easyJet was just one of many of Sir Haji-Ioannou’s ventures under the Easy Group branding - he had everything from EasyCar to EasyGym to EasyInternetcafé.
easyJet was initially a charter operator based out of London’s Luton Airport, running leased 737-200s to Glasgow and Edinburgh. They grew quickly, first with international flights to Amsterdam and then the purchase of Swiss charter carrier TEA Basle, which led to the establishment of easyJet Switzerland in Geneva. Through the 1990s and into the 2000s, their increase in traffic was explosive, and they bought out GB Airways and GoFly.
Today, easyJet is a publicly traded company on the London Stock Exchange. The Haji-Ioannou family owns 15%, while institutional investors and asset management companies (think: BlackRock and Vanguard) make up the rest.
The Castlelake Proposal
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That could be about to change in a major way. On June 1st, it was reported that Minneapolis, Minnesota -based investment firm Castlelake was preparing to make an offer to take a 49% stake in easyJet. Under European Union law, airlines headquartered in the EU (which parts of easyJet are) need to be majority-owned by an EU national. The remaining 51%, under the proposed deal, would go to two former airline executives, who Castlelake has surely made sure are onboard with whatever they’d like to do.
Castlelake is no stranger to airline investments. They currently have a 3% stake in easyJet and recently made headlines for attempting to save Spirit Airlines with a buyout. Castlelake played a huge part in bailing out SAS when they were on the brink, later selling their shares to Air France-KLM.
One of Castlelake’s biggest businesses is its aircraft leasing arm. They lease out both narrowbodies and widebodies to dozens of airlines, including American Airlines, Azul, IndiGo, Air India, Frontier, Condor, Wizz Air, and yes, easyJet.
If the deal goes through and Castlelake and its allies secure ownership, there’s really no telling what could change. It would likely be something to increase Castlelake’s revenue, though. Rather than relying on outside leasing companies or third-party debt to buy new Airbus aircraft like they have on order, easyJet would likely utilize Castlelake’s internal pools of aircraft for lease. This could allow them to grow the airline (AKA more profit) and simultaneously fund Castlelake.
Additionally, easyJet would not be beholden to shareholders like they are now. By going private, management would no longer have to answer to public shareholders on quarterly earnings calls. As a public company, easyJet’s stock is highly sensitive to short-term disruptions like high fuel costs. Privatization makes their finances more stable in that sense.
Castlelake, being a private equity firm, would try to maximize profits in any way possible. A takeover could mean them trimming low-margin routes and focusing efforts on growing the profitable sides of the business like its package vacation deals.
As of now, there’s been a big back and forth between easyJet and Castlelake. The initial offer was £4.2 Billion ($5.5 billion), which easyJet rejected as an attempt to buy the airline "on the cheap.” The latest offer is £4.93 Billion ($6.5 billion), which easyJet also rejected. But, it’s moving in the right direction for Castlelake. easyJet has given Castlelake some internal financial information which they believe will help them rightsize the bid. easyJet says this access will create a “more attractive proposal that better reflects the value of easyJet and its prospects.”
Both easyJet and Castlelake requested an extension of the bidding period, which the UK’s Panel on Takeovers and Mergers OK’d. Currently, the deadline for a final offer is July 5th, but if no deal has been reached and things are still moving in the right direction, another extension could be granted.
Sources