Last updated: June 2, 2011 12:14 pm

Greek chorus from Stelios does EasyJet a disservice

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The interventionist style of the airline’s founder and main shareholder complicates the job of chief executive Carolyn McCall

Sir Stelios Haji-Ioannou’s interventionist style of shareholding complicates the job of EasyJet chief executive Carolyn McCall. Her task is akin to cooking for an elderly relative in their own kitchen. Every now and then the airline’s main shareholder pops in to fiddle querulously with the gas burners and deliver personal criticisms.

That was what happened on Tuesday, when EasyJet unveiled a first-half loss of £153m ($250m). It is a token of the lousy trading conditions in the airline industry that this was judged a reasonable result in the City. Seasonality, high oil prices and low consumer demand were all to blame.

A statement from the founder of EasyJet followed soon after. It deconstructs as follows. First there was some told-you-so gloating over the airline’s decision to restrict its fleet to about 200 aircraft. Next there was a superfluous call for management “to sweat the business’s existing assets”. To finish, the personal criticism. This focused on a “lazy” balance sheet with a “cash pile” of £1.43bn. The familial equivalent would be the insinuation that Ms McCall could stand to lose some weight.

Might the Greek entrepreneur be annoying but right, as elderly relatives often are? Certainly, keeping a lid on aircraft numbers and on debt has proved to be sensible, given the weakness of the European market on which EasyJet depends. But maintaining a cash buffer against the misfortunes that can befall airlines (including ash clouds, blizzards and plagues of bedbugs) is industry best practice. Moreover, £1.43bn is a gross figure. When offset against loans and leases, it falls to an unspectacular £220m.

The airline dutifully said that Stelios’s statements forestalled harmful speculation. But no other big, long-term shareholder provides a running commentary on the management of an FTSE 250 company. The chairman is the proper conduit for such concerns. Stelios’s statements serve his personal and outside corporate interests more than those of EasyJet. Time for him to stay out of the kitchen.

Pace loses face

Welcome to the confusing world of Pace, purveyor of profits warnings and “set-top boxes”. These are boxes that would fall off the top of most TV sets if you balanced them there. Instead, they lurk underneath, attracting dust and directing TV signals. So let us call them “thingies”.

The thingies work pretty well. Unfortunately, chief executive Neil Gaydon is not very good at directing signals himself. Investors had expected that Pace’s operating margin (the latest in a kaleidoscopically shifting roster of key performance indicators) would be about 8 per cent in the six months to May 9. On Tuesday Mr Gaydon said the figure would be closer to 5.5 per cent. Analysts cut full-year earnings forecasts by 20 per cent. The shares nosedived.

When this happened in March it was because a big customer had delayed an order. This time, Pace laid out a smorgasbord of hard-luck stories, ranging from modish tsunami impacts to “insufficient demand for ... products” (a persistent problem for many businesses, according to experts).

Hard to know what investors should worry about most: the possibility that management is too reticent in passing on bad news or that it cannot see it coming. Worse, TV sets may in future have inbuilt thingies, making Pace redundant. Altogether, an unappealing investment proposition, even at a forward earnings multiple of 4.5 times.


Geek: Can you see me waving?

Tech Dunce: Sort of.

G: Your first Skype video call! Cool!

TD: Your face is blue.

G: It’s the light. Did you read on the TechSpasm blog that Microsoft is buying Skype for $8.5bn?

TD: It must be jolly profitable.

G: It’s semi-monetised.

TD: Is that the same as jolly profitable?

G: No. But Microsoft believes Skype will lever it into a hot technology space.

TD: Like when Time Warner merged with AOL or ITV bought Friends Reunited?

G: That was different.

TD: Now there’s a message on my screen. It says “Bandwidth insufficient for simultaneous video and voice traffic.”

G: I’ll call you on your mobile. That’ll make it easier to talk.

TD:: OK. So what did you say the point of Skype was again?

The original version of this aritcle was amended on June 2.


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