Takeover of easyJet forecast to lead to cuts in its flying

EasyJet’s prospective takeover by US investment fund Apollo is likely to lead to cuts in the airline’s capacity to help pay for the acquisition.

That is according to Ryanair group chief executive Michael O’Leary, who said the easyJet board had “done a good job” in achieving the $5.7-billion valuation by Apollo.

But O’Leary insisted: “There will have to be capacity cuts with M&A [merger and acquisition] at those prices.”

More: Analysis: EasyJet takeover winner will seek a return

The easyJet board announced an “agreement in principle” on Apollo Global Management’s offer earlier this month, saying it would recommend the takeover to shareholders.

However, the airline received an earlier bid of $5.5 billion from rival US fund Castlelake which could yet be increased.

Castlelake has until August 3 to make an improved offer under London Stock Exchange (LSE) rules. Apollo faces a deadline of August 7 to make a higher offer if needed or to confirm its bid.

Speaking as Ryanair announced results for the three months to June this week, O’Leary said: “If VC [venture capital] money comes in at that level, they will want to do something to monetise the [new] aircraft coming in and to raise fares.

“If easyJet is bought by venture capital, it is likely to monetise the fleet by sale and leaseback. The financing costs of that M&A will be passed on to easyJet.”

He noted: “Both candidates have experience in the aircraft leasing market. EasyJet is an attractive asset, but that asset will get monetised.”

O’Leary argued that whichever fund acquires the carrier, “ultimately it will sell off easyJet to a legacy airline” which “will speed up consolidation in Europe to four groups – [British Airways parent] IAG, Lufthansa, Air France-KLM and us.”

Asked if Ryanair would be interested if any part of easyJet came up for sale, including easyJet holidays, O’Leary said: “No. We’re not interested in package holidays. We plan to grow organically, not by M&A.”

Ryanair chief financial officer Neil Sorahan said: “The gap on costs between ourselves and easyJet and everybody else is only getting wider.”

O’Leary reported a first quarter profit of €538 million for the three months to June, down by one third (34%) on the previous year, which he attributed “primarily to a large spike in oil prices on the 20% of unhedged fuel”.

He reported a 6% reduction in average fares year on year owing to “consumer hesitancy due to the war, fuel shortage concerns and economic uncertainty”.

But he said Ryanair had at the same time “materially widened our cost advantage over competitors” in the quarter.