EU airline ownership review could complicate easyJet takeover

The European Union is preparing a review of airline ownership rules to prevent foreign investors from gaining effective control of carriers, an EU official said, a move that could complicate U.S. bids for low-cost airline easyJet. The possible result of the EU review, previously unreported, would “protect strategic autonomy” to ensure control of regional carriers remains within the bloc, the official said. It comes amid a bidding war between two U.S. investment firms for the control of major European budget airline easyJet, which is likely to test the limits of EU rules that demand majority local ownership and control. EasyJet shares, which have soared in recent months on rising hopes of a deal, fell as much as 15% after the Reuters report and were on track for their worst day since late 2021. “This is to ensure that foreign investors don’t have full control,” the official told Reuters, asking not to be named due to the sensitivity of the matter. “We need to make sure we have sufficient headroom when it comes to control.” Related Articles • Sir Stelios keeps his seat in £5.7bn easyJet takeover • EasyJet agrees $7.7 billion takeover by Apollo as Castlelake walks away EasyJet earlier this month backed a £5.7 billion ($7.65 billion) offer by Apollo Global Management, which trumped an earlier £5.5 billion bid by Castlelake, but did not explain how it plans to meet EU majority ownership requirements, a key hurdle for any non-EU acquisition of a European airline. If the deal went through, it could set an important precedent for European airlines, opening the door to private equity buyouts in a closely regulated industry where takeovers usually involve another carrier, often with government backing. KEEPING CONTROL WITHIN EUROPE The official said that the review, likely in the autumn, would look to clarify which kinds of corporate structures were allowed, especially around control and ownership. The official said Apollo, Castlelake and easyJet had not spoken to the European regulators about the details of their proposed deals. EasyJet, Castlelake and Apollo declined to comment. “The concern is that the industry is on the wrong foot, thinking that we no longer enforce the rules strictly. People will go down the wrong alley because there’s a wrong perception,” the official added. Goodbody Stockbrokers analyst Dudley Shanley said the share drop shows investors are concerned the review may delay or block the potential easyJet takeover deal, though the latter is unlikely. “The issue seems to be that while the two bidders seem willing to allow 51% of the voting rights to remain with European investors, the EU is concerned that the effective control of the company would be outside of the EU,” he said. EASYJET’S LEAD SUITOR YET TO LAY OUT PLAN TO COMPLY WITH EU RULES Airline ownership restrictions are common worldwide because governments see them as strategic assets, although that has prevented consolidation and made some airlines more vulnerable to shocks such as the Iran war. EasyJet is headquartered in Britain but it relies on EU licences to operate bases and routes across the bloc. It has capped non-EU ownership at 49.5% to comply with EU rules post-Brexit. Industry insiders have said its U.S. suitors could gain full economic control of the company, while using EU proxies to satisfy current regulations, while a partnership with a European airline group would face antitrust scrutiny. “We believe the structure is not dissimilar to others out there, such as IAG, with ‘nationality clauses’ to maintain ownership and control/traffic rights,” said Stephen Furlong, an analyst at Davy. IAG, the owner of British Airways, Spain’s Iberia and Vueling, and Ireland’s Aer Lingus, uses separate national ownership structures at its airlines, keeping economic control while assigning majority voting rights to local partners such as Spanish department store chain El Corte Inglés. Apollo has until August 7 to formalise a deal and has not yet disclosed how it plans to comply with the regulations. Castlelake’s offer would hand 51% ownership to a vehicle comprising former Malaysia Airlines CEO Peter Bellew and senior industry executive Mark Breen, both EU nationals, and potentially other undisclosed investors. New regulations to prevent these trust structures would leave open questions about ownership structures in other airlines such as Wizz and Ryanair, and would likely take years to be approved, said aviation analyst James Halstead. “It might even be that Apollo achieves its target of exiting and relisting easyJet by 2034 with a 20%+ return before the EU has worked out its review,” he added.