Directors of Easyjet, Europe’s fourth-largest airline, had mixed feelings as they made the journey to its Luton headquarters for a board meeting on Thursday.

Walking through the doors at Hangar 89, a garish orange office block that squats on the outskirts of Luton airport, they looked forward to the happy task of approving a strong set of annual results before Tuesday’s announcement. Easyjet’s management is expected to tell the City it has hit its profit targets, a creditable achievement in a year in which several airlines have gone bust.

There was a cloud on the horizon, however. A long-simmering boardroom dispute was about to burst into the open. On one side was Sir Stelios Haji-Ioannou, the gregarous Greek Cypriot who founded the airline and is still its biggest shareholder. On the other side were the rest of the directors.

At issue was how fast Easyjet should grow. Its management, led by chief executive Andrew Harrison, planned to rein back next year, cutting the normal 15%-a-year expansion to “low single digits”. Harrison, with the backing of all the directors except Stelios, also wanted the freedom to review progress every three months.

The cutback wasn’t enough for Stelios. He said the downturn would be much worse than the others thought, and insisted on a more cautious approach. What was more — according to a company statement released the following day — he wanted Easyjet to curtail its purchase of aircraft and instead pay a dividend to its shareholders, something it had ruled out during its eight-year life as a quoted company.

The negotiations dragged on. Eventually the meeting broke up with, according to two of those present, Stelios and the others close to a compromise.

Or so it seemed. A few hours later, Stelios dropped a bomb, telling the company he would invoke the terms of an agreement he struck when it floated in 2000.

He said he had taken on the voting rights of shares owned by his sister Clelia, taking his stake in the company to 26.9% — enough to push through the appointment to the Easyjet board of two new directors from his holding company, Easygroup. If Easyjet didn’t agree to that, he would excercise his other right under the agreement, and make himself chairman, pushing out the incumbent, Sir Colin Chandler.

It was a shock for the company, which put out an unusually detailed statement outlining the background of the dispute. “In all the circumstances, I would like to make it clear up front that the other non-executive directors and I fully support the executive management of the company,” Chandler said.

Stelios, meanwhile, would not be drawn on the detailed reasons for his decision to strengthen his presence on the board. “I am merely applying my rights under the articles of incorporation of the company to protect my investment in Easyjet,” he told The Sunday Times. His move has left professional investors nonplussed.

“This looks like a spectacular vote of no confidence in Easyjet’s strategy of expanding into the recession. The trouble is, the aircraft orders on which that strategy rests have already been placed, and it isn’t clear what Stelios can do to alter that fact,” said Douglas McNeill, transport analyst at Blue Oar Securities.

While board members tried to gloss over the row yesterday, executives at the airline are quietly seething. “The debate over expansion next year is legitimate — and Stelios’s views on the airline business have to be respected — but the dividend idea is left-field,” said one. Other insiders are irritated at the timing of Stelios’s intervention, saying it will overshadow this week’s results announcement.

Stelios, who comes from a family of Greek shipping entrepreneurs, set up Easyjet in 1995. Although he started small, with one route from Luton to Glasgow, he believed the airline could mirror the runaway success that budget carriers like Southwest Airlines had enjoyed in America. His only opposition was a maverick Irish airline called Ryanair, which was making money out of the no-frills model and flying across the Irish Sea.

Industry commentators and rival airline executives wrote off Easyjet and Stelios on day one, saying Europe wasn’t suitable for budget airlines. They were wrong. Easyjet grew like Topsy and staged a successful float on the London stock market in 2000.

The seeds of the present dispute were sown in the legal manoeuvrings before the float. Even after the offering of shares, Stelios would remain the biggest shareholder, so an agreement between him and the company was thrashed out, stipulating each side’s rights.

The “Relationship Agreement” states that the company should have its own management, and that it should “make decisions for the benefit of shareholders as a whole and independently of the controlling shareholders at all times”.

It goes on to say, however, that as long as Stelios holds more than 25% of the shares, he will have the right to appoint two non-executive directors. So long as he holds more than 10%, he has the right to make himself chairman.

This agreement cannot be changed “unless approved by a resolution of the board, at which an independent non-executive is in the majority”.

Stelios stood down as chairman of Easyjet in 2002 but returned to the board as a director two years later. He has in the meantime devoted himself to an eclectic range of other businesses, from Easycar, a car-hire group, to Easycruise, a cruise line. None has yet had the spectacular success of Easyjet.

Since he rejoined the airline’s board, the relationship between him and the company has been unremarkable, except for the occasional spat. In 2005, The Sunday Times revealed that Colin Day, one of the airline’s non-executive directors, had been about to become the new chief executive, only to be rejected at the last minute. Airline insiders believe that Stelios’s opposition was partly to blame.

This year Stelios sought clarification from the High Court on an agreement that governs how Easyjet can use the “Easy” name. It is understood that he thinks the airline is breaking the spirit of the deal in its expansion into branded credit cards. A ruling is not expected for several months.

The Sunday Times Rich List valued Stelios and his family at £812m this year, with much of that wealth tied up in the airline. He has not sold shares since 2004, and in recent months their value has slumped, along with the airline sector. They closed on Friday at 266p, having underperformed the FTSE All Share index by 35% over the past three months. The shares traded at close to 700p last year.

“Dividends would give Stelios a chance to earn some money from the company for the first time in a while,” said an analyst. “But it would be a huge break with practice — low-cost airlines don’t pay dividends; they are growth stocks.”

It was unclear last night how or when the row would be resolved. While the company spoke of continued negotiations with Stelios, the dispute cannot help but dominate Tuesday’s results announcement.

“Easyjet needs all hands on deck to cope with an industry downturn. Instead, it is having to deal with a boardroom squabble,” said another airline analyst.

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