Stelios and easyJet reach deal in branding dispute

The budget airline easyJet has settled a long-running dispute over branding with its founder, Sir Stelios Haji-Ioannou, but the high-profile spat over strategy remains unresolved. Under an amended licence agreement, the airline is set to pay out tens of millions of pounds to Sir Stelios's easyGroup in return for greater operational freedom and more flexibility in how the company can generate revenues.

EasyJet will pay easyGroup 0.25 per cent of annual revenues as a licence fee for use of the "easy" brand, with a minimum of £3.9m and £4.95m in the first and second years. Over its 10-year minimum lifespan, the deal could be worth £80m, according to analysts.

The new arrangements also allow easyJet to lease out its planes without permission from easyGroup, and to expand its co-branding activities. Under the old deal, easyJet was only allowed to make 25 per cent of its revenues from so-called "ancillary" services – such as insurance or car hire – that could take it into competition with other easyGroup brands.

The new terms regularise easyJet's arrangements with Laterooms.com and Europcar, which were the subject of the original dispute with Sir Stelios, and also allow the carrier to expand its activities in all areas. EasyJet is now free from stipulations about where its revenues come from, although it is prohibited from involvement in the office rental, cruise or bus sectors.

The agreement also removes Sir Stelios's right to appoint himself as chairman of easyJet and to select two board directors.

"I am content this is a fair deal for both sides," Sir Stelios said. "This amendment allows the airline to now grow its business even further by removing some of the restrictions imposed by the original agreement."

Carolyn McCall, the chief executive of easyJet, said: "The amended agreement means all parties' interests are more aligned. The more money that easyJet makes, the more money Sir Stelios makes as the brand licensor."

Ms McCall, who took over the budget airline's top job in July, said the resolution of the dispute is unlikely to have a "material" impact on the group's business activities in the short term, but that it brings a welcome clarity. "The new rules are very clear that we get more freedom to operate and generate revenues and Sir Stelios gets a royalty," Ms McCall said. "That brings a clarity that the previous agreement never had, not least because it was signed 10 years ago when easyGroup was just a germ in Sir Stelios's head."

But the rapprochement does not extend to the other area of dispute between Sir Stelios and the company in which he still controls a 36 per cent stake. In a spat of sufficient venom to precipitate the departure of Ms McCall's predecessor as chief executive, Andy Harrison, Sir Stelios has publicly questioned the management strategy of the company. In the wake of the financial crisis, he has called repeatedly for cash to be paid out in dividends rather than spent on expanding the aircraft fleet.

The issue was not discussed as part of the talks over the branding agreement, and the next move is for the board's recommendations to be published with the company's full-year results in November. "In his capacity as a shareholder, we will deal with Sir Stelios in the same way as with any other major investor," Ms McCall said.