Collision course: Ryanair executives at loggerheads in court battle

Contract terms and conditions and a share option snub are at the heart of the courtroom clashes between Michael O’Leary and Peter Bellew

When Peter Bellew arrived back at Ryanair as chief operating officer in December 2017, industry figures began speculating that he could ultimately succeed Michael O'Leary at the helm of Europe's biggest airline. British carrier Easyjet put paid to that in July when it announced that he was joining the company as its chief operating officer in January 2020.

The move took many by surprise, not least Ryanair, which said it would take legal action against Bellew to block his move to Easyjet in January. The Irish airline says he signed an agreement when he accepted 100,000 share options in the company in 2018, barring him from joining any of its competitors for a year after leaving.

Bellew says this non-compete clause is null and void and denies he has breached any agreement. He is also pledging to honour any duty of confidentiality that he owes Ryanair when he joins his new employer next month.

After a few false starts, the pair clashed in the High Court this week, where Mr Justice Senan Allen has spent four days hearing a case that looks set to run for several more.

Ryanair chief executive Michael O'Leary, who spent more than 10 hours giving evidence, much of it criticising how Bellew did his job, actually began the pursuit of his colleague to return from Malaysia Air, where he had been promoted to chief executive, in September 2017.

As O’Leary told it in court, he spotted Bellew in the Ryanair head office canteen, where the latter had been meeting former workmates as he was due to give evidence on the Irish carrier’s behalf in a court case in Germany. O’Leary asked Bellew if he was interested in returning to his old job, where he was responsible for recruiting, training and rostering pilots.

Ryanair was in the throes of a pilot rostering crisis that had forced it to cancel thousands of flights. This provoked unrest amongst pilots who began agitating for the company to reverse its 30-year-old policy of not recognising trade unions.

In evidence, O’Leary described Bellew as an avuncular character, who was the “acceptable face” of Ryanair to pilots. As the mood was darkening, he acknowledged that he felt the airline needed someone with these qualities to dissuade them from seeking union recognition. “Here was the nice guy back again,” he said. “I specifically wanted him back because he was well known amongst pilots. I wanted him to try to head off unionisation.”

So keen was O'Leary to entice him to return, he called him several times that September. However, according to O'Leary, Bellew did not want to report to the then chief operating officer, Michael Hickey. As it turned out, Hickey resigned in early October. Talks then began in earnest.

O’Leary offered Bellew €550,000 a year, the maximum earned by senior managers ranked immediately below the chief executive. There was also a bonus of up to €500,000, half of which O’Leary determined according to performance, and half tied to the airline’s profit after tax.

Then there was an added sweetener. Bellew had left Ryanair in 2015 after nine years. In doing so, he had missed out on a share option scheme begun in 2014. This would have allowed him benefit from the increase in the company's stock market value by getting shares at a low price and cashing them in at a higher price.

The airline’s stock had risen from between €6 and €9.50 during 2014 to the high teens by 2017 and was worth €17.55 when Bellew rejoined the group, so it appeared that he had lost out on a lucrative pay day.

O’Leary promised to find some way of compensating him for this, even saying that he offered to give Bellew some of his own options. However, the board’s remuneration committee, which awards this bonus in the first place, advised against this. In the end the company agreed to pay him the cash that he would have made had he taken the options and sold them at €17.55. This came to €1.13 million. Ryanair paid it in June.

Bellew and Eddie Wilson, then the chief people officer, and now chief executive of Ryanair Designated Activity Company, spent much of the first half of December at town hall gatherings of pilots at the airline's bigger bases around Europe. Midway through December, the airline summoned them back to attend a management meeting. Demands for unionisation had grown to the point where members of the Irish Airline Pilots' Association and the German equivalent VC were threatening to strike over the issue in the run up to Christmas.

To avoid disruption, management decided to bite the bullet and recognise unions. John Rogers, Bellew's senior counsel, pointed out that the chief operating officer dissented from this during the meeting, but accepted the decision and supported it when management put it to the board.

Bellew met representatives of the Irish and German unions alongside Wilson in the days following the decision. O’Leary indicated in court that was removed from dealing with the pilot groups as he “gave into all their demands”. The defence has queried that position.

Airworthiness Review Certificates

In early 2018, Bellew had to tackle other issues that fell under his charge. In February, it emerged that Airworthiness Review Certificates – documents confirming that planes have passed necessary safety checks – had not been completed for 162 aircraft, a third of Ryanair’s fleet.

While the checks had been done as required and there was no question about the crafts' airworthiness, the paperwork had not been done. The Irish Aviation Authority, which regulates safety, could have grounded the planes. Bellew helped avoid this by giving his word that the checks had been done. Ryanair subsequently provided the certificates within a six-week deadline set by the authority.

Bellew’s handling of this crisis and a restructuring of the engineering department earned credit from O’Leary at the chief operating officer’s review in March 2018. As part of his reward, he was given 100,000 share options in the company, one fifth of a 500,000 tranche, which he could have ultimately cashed in five years later.

It was on accepting this that Ryanair maintains he signed the non-compete clause on which the case turns. Those options were priced at €14.40 but, as the actual share price subsequently fell below this after a profit warning, the remuneration committee approved new share options this year priced at €11.20. To benefit, managers had to surrender their 2018 options.

The committee approved Bellew for this year’s scheme in February. Nevertheless, at his review last March, O’Leary instead told Bellew that he would not be offered the 2019 options unless the chief operating officer improved his performance over the coming six months.

O’Leary told the court that, while the remuneration committee awarded the options, he could withhold them where he had concerns about an individual’s performance. “I can and I will,” he said. He did not tell the committee about his decision to do this in March, but told the court that its members endorsed this when he informed them in July.

He also maintained that the committee only approved Bellew for the 2019 share options in February as it had to provide for all potential beneficiaries at that time so they could acquire the stock at the low price. “They cannot be added to it retrospectively,” he argued.

While Bellew’s lawyers will contest this, Ryanair says the 2018 share options are still valid, and thus the non-compete clause attached to them continues to apply. “A number of executives still have them,” Mr O’Leary told the court.

Julie O'Neill, a non-executive director of the airline and a member of the remuneration committee, along with former Ryanair finance chief, Howard Millar and non-executive director Stan McCarthy, raised this with O'Leary in July. She pointed out that managers were asked to surrender their 2018 options in February this year and asked if this meant the non-compete no longer applied to Bellew.

O’Leary said in court that managers were not asked to surrender the options in February, but were merely told that they would have to do this to take up the 2019 offer.

He also maintained that he withheld the offer from another senior figure as well. In Bellew’s case, O’Leary told the court, he was unhappy with the chief operating officer’s performance in several areas that he regarded as priorities for the executive, including the airline’s punctuality, pilot recruitment and training, and cost control.

Monday morning meetings

The chief executive runs Ryanair via Monday morning meetings to which each senior manager, or Zs as the airline dubs them, must report and at which decisions are taken about what action each needs to take. It was at these gatherings, O’Leary claimed in court, that problems began to emerge.

He said Bellew was not taking decisions on key issues and the problem reached a point where those reporting directly to the chief operating officer went over his head to approach O’Leary directly. This came to a head on November 5th when O’Leary wrote to Bellew, calling his performance at that Monday’s meeting “unacceptable”.

Several times in court, O'Leary has argued that he was "paying Mr Bellew €2.5 million" and expected a performance that was at least commensurate with that in return. He compared it to hiring Sergio Aguero, striker with Manchester City, O'Leary's "favourite football team" but then discovering that he had to tell him where in the goal he was meant to score.

For Bellew, Rogers argued that O’Leary’s “abrasive” and “ad hoc” management style, along with his insistence on micromanaging areas for which Bellew was responsible, made him an impossible taskmaster. The lawyer pointed out several times that, through this period of alleged poor performance, the airline continued to trust the chief operations officer with critical problems.

The defence indicated early on that part of its case would be that O’Leary’s behaviour “pushed Bellew out”.

One of the reasons that Ryanair wants to prevent Bellew joining Easyjet is that his position, along with his participation in the Monday meetings, means he has “volumes” of confidential information on its business. O’Leary argued that this was why the British company was so keen to “trumpet” his appointment last July.

O’Leary is less concerned about Easyjet getting details of supplier contracts than he is about it learning Ryanair’s plans to deal with a delay in the delivery of the new Boeing 737 Max aircraft. Regulators have temporarily grounded this model, but are expected to allow it fly in coming months. Ryanair is coping with the delay by slowing growth plans and closing some bases.

O’Leary said he feared that, if Easyjet learned which bases it would close, the British carrier could move in there, potentially taking limited slots in some of the airports and blocking Ryanair from returning there when the new aircraft become available. Bellew has promised not to share confidential information, but Ryanair clearly thinks that the risks involved in him joining its rival are too great.

It is clear that there will be a few more twists and turns in the case as it runs into next week.