easyJet announced (11-Oct-2010) it has resolved its dispute with founder and major shareholder, Sir Stelios Haji-Ioannou over the terms of the easyJet brand licence. The LCC stated the revised agreement ends the dispute and clarifies and confirms easyJet’s right to generate revenues from ancillary activities. The agreement removes the 25% restriction on ancillary revenue generation and provides easyJet with 50-year rights to continue using the "easy" brand, with a minimum commitment of 10 years in return for an annual royalty payment of 0.25% of easyJet’s revenues. The royalty payment is fixed at GBP3.9 million and GBP4.95 million for the first two years of the agreement. The revised agreement is conditional upon easyJet shareholder approval. Other key aspects of the agreement include easyJet's right to:
- offer any product or service that is sold or delivered in-flight or in an airport or its environs;
- carry on all activities carried out by easyJet in the year ending Sep-2010;
- provide any new product or service which is provided by at least one competitor airline, subject to a list of prohibited categories of business including financial services, telecoms, gaming, high street retailing, office accommodation, fitness clubs, food offerings, end-to-end courier services, entertainment and media, cruises and ferries, fashion & cosmetics, healthcare, recruitment, social networking, railways coaches & buses, construction, manufacturing and the automotive sector;
- co-brand with third parties operating in an agreed list of business areas, and with all reputable airports, airline alliances or partners, local government agency and tourism boards, car hire firms, hotel operators and travel insurance companies;
- adopt service level indices in relation to on time performance, delay, cancellations and lost bags;
- lease-out aircraft to other operators within annual limits;
- lease-in non easyJet-branded aircraft to meet operational requirements within annual limits;
- continuing using the easyJet brand for 9 months following a court judgment terminating the branding agreement.
Sir Stelios has also given up the right of easyGroup to appoint up to 2 non-executive directors of easyJet and the additional right of Sir Stelios to appoint himself Chairman of easyJet. In return for a net fee of GBP300,000 p/a, Sir Stelios has entered into a separate five-year agreement under he undertakes:
- to ensure easyGroup IP Licensing Limited (eGIP) does not license the "easy" brand to an ATOL holder on terms permitting the sale of airline seats for a period of 12 months;
- not to sell the shares in eGIP or the easyJet brand or any part of it for a period of 2 years and not to any airline licensed in the EEA or Switzerland for a period of 3 years;
- not to acquire an interest in any other airline licensed in any EEA country (nor Switzerland) for a period of 2 years;
- not to use his own name or a derivation of it to brand any other airline which flies to or from any country in Europe for a period of 5 years;
- to abide by the mutual brand respect provisions and certain public communication protocols agreed with easyJet.
easyJet: “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. I believe the revised agreement better aligns the interests of easyJet shareholders and the Licensor. I’d like to thank Sir Stelios for his constructive approach to our discussions over the past few weeks. Sir Stelios created easyJet and its success is a tribute to his vision and energy.” Sir Michael Rake, Chairman. Source: easyJet, 11-Oct-2010.
easyGroup: "As the largest single shareholder in the airline as well as the owner of it's brand, I hope that the new team, led by Mike, Carolyn and Chris, will use this expanded scope of the brand licence to create value for all shareholders ... The way low cost airlines make money has changed over the 10 years since the original licence was signed. This amendment allows the airline to now grow its business even further by removing some of the restrictions imposed by the original agreement ... I am content this is a fair deal for both sides. 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." Sir Stelios Haji-Ioannou, Chairman. Source: easyJet, 11-Oct-2010.
easyJet: “This is a sensible resolution of a difficult dispute that provides a fair, clear, workable outcome that is an improvement for both sides. It provides easyJet with operational flexibility and commercial freedom to grow our business and it provides both sides with clarity.” Carolyn McCall, CEO. Source: easyJet, 11-Oct-2010. [more] [more - comprehensive description of revised agreement]