Not that such a development took place at the expense of Tony’s business ambition. It is a common enough trait for entrepreneurs to lose their edge as new-found wealth brings comforts and pleasures to distract from the hardcore business of making money. That was not the case with Tony Ryan. He may have had occasional thoughts of mortality, but for all the pleasures on offer as a modern Medici, collecting objets d’art and dispensing patronage, Tony in the mid-1980s remained as committed as ever to the global expansion of his principal business interest, GPA. For Tony’s ambition, far from diminishing, now seemed unbounded.
At an American Chamber of Commerce in Ireland luncheon on 1 May 1985, Tony made it clear just how all-encompassing those aspirations had become. The previous five years, he declared, had been a ‘coming of age’ for GPA. The company had expanded to a fleet of eighty-seven jet aircraft and 109 employees, and enjoyed a compounded annual growth rate of 35 per cent. Yet, Tony suggested, it was just a beginning. After all, ‘although GPA may have the industry’s largest pool of operating lease aircraft, we never lose sight of the fact that it is currently less than 1 per cent of the world fleet.’
Now the company needed to be ‘suitably ambitious’ in order to move to the next stage. He declared:
I believe we have arrived at a staging-point from which we can grow GPA from a small company into a medium-sized one. My objective for my next appearance here, on 1 May 1990, is to be able to confirm to you that GPA will by then have achieved a billion-dollar asset balance sheet. It is quite within our capability. To attain it we need improve only marginally on our rate of growth until now.
It was a bold claim, not least because it came as a major investor, General Electric Credit Corporation, was pulling out of GPA. In order to fill the gap left behind by GECC, and to match the ambitious plans for future growth, Tony needed capital—and he needed it fast. That money might have come from a public flotation, but there were concerns about whether the markets, potentially spooked by the coming withdrawal of GECC, would fetch up a share price that matched the company’s valuation.
There was no question, Morgan Grenfell bank in London advised, that the GECC factor would have ‘a significant negative impact’. In a private offering, however, the GECC departure ‘could be minimised’. In all likelihood, it concluded, GPA should be able to raise as much privately as it could publicly. That was enough to convince Tony to look for private money. The strategy would be simple, he told his no. 2, Maurice Foley: ‘Raise one large chunk of money in the United States and another in Japan.’
Morgan Grenfell, working in conjunction with First Boston Bank in the United States, quickly identified a massive potential investor: the insurance giant Prudential. The withdrawal of GECC, rather than deterring Prudential, actually seemed to encourage it. Provided that another major investor could be found, it was ‘looking good for $30–40 million’ and was prepared to accept ‘a non-voting instrument with a stock purchase conversion option’.
Securing this investment in the United States kept Tony on familiar tracks. The road east, looking for money in Japan, however, was a new departure. In November 1985 Tony led a GPA team to Tokyo to introduce the company to Japanese trading firms and major banks, including some that were already small-scale investors. The culture shock was profound. Whereas the GPA business culture had often taken advantage of a certain Irish informality of style, it was not an approach that worked in the more stratified and formal Japanese business world.
Tony was prepared for this difference, having spent a great deal of time in the Far East, but, even so, the contrast was marked. At every meeting vast numbers of officials turned up (twenty-three at the first session with Mitsubishi), completely swamping the five-man GPA team. Each meeting involved elaborate courtesies of introduction and endless enquiries about the minutiae of hotels, timetables and transport. In addition, the hospitality schedule was brutal even for Tony, who could always hold his own, with its emphasis on after-hours drinking of Scotch.
By the end of five hectic days burning the candle at both ends, Tony was able to report back to the GPA board on a fund of good will established and, more importantly, offers of credit and investment. In particular, leading institutions, including Mitsubishi, Orient Leasing and the Long-Term Credit Bank of Japan, were ‘giving serious consideration to an investment’. Indeed it soon became apparent that, far from having to chase Japanese investment, Tony and GPA would be able to choose a partner.
Eventually the choice fell on the Long-Term Credit Bank. The negotiations, complicated by a time difference of nine hours, were convoluted and hair-raising. In March 1986 Tony flew to Tokyo to push the deal through as the clock counted down to the deadline of 31 March. Matters were further complicated when the Financial Times picked up the story of a potential new investment. Finally the deal was signed with only two hours remaining to the deadline, with frantic out-of-hours phone calls to AIB Bank to make sure that the money could be moved between accounts in time.
On 3 April, at a press conference in London, Tony made the announcement that GPA’s private placement of $100 million of convertible preferred shares, led by the Long-Term Credit Bank and Prudential, had been oversubscribed at $115 million. This represented ‘the largest tranche of equity capital ever raised by an Irish company.’ The deal, Tony added, had secured GPA’s potential for growth over the next five years, during which time the company would ‘aim to control 3 per cent of the world’s jet aircraft and 20 per cent of the operating lease market.’
It was an astonishing story of success—not least for Tony himself. His own holding in GPA was now valued at $22½ million, in addition to the vast tax-free dividends he earned each year.
There was one other number that caught the eye at the press conference on 3 April. Aer Lingus had made a profit of $14 million in the deal by selling part of its stake in GPA. Tony Ryan, who within weeks, with Ryanair, would start to compete head-to-head with Aer Lingus on the Dublin–London route, had just made the national carrier the equivalent of its entire pre-tax profit for the previous year.
It had been a remarkable turnaround. Almost exactly a year after Gary Wendt’s announcement that GECC was pulling out, Tony and GPA emerged stronger and better capitalised, with a new frontier opening up in the Far East. Tony’s confidence had been momentarily shaken by the GECC failure. Now he roared back, with self-assurance at full throttle, and prepared to launch an audacious move to consolidate GPA’s position by taking over—and taking out—his principal opposition.
——
International Lease Finance Corporation was founded in California in 1973 by Steve Udvar-Házy, with the father-and-son partnership of Leslie and Louis L. Gonda. Their business focused primarily on North America, while GPA was largely based outside that region. Each had a different style and ethos. ILFC, despite going public in 1983, had maintained the tight family-centred ethos of its origins as a start-up by Hungarian emigrants to the United States. They had a much smaller staff than GPA, outsourcing financial operations and other tasks, and in general were less aggressive in the marketplace.
By the mid-1980s the two companies had become locked in a battle to become the pre-eminent specialist lessor within the aviation industry. On a certain level, travel seemed to be in only one direction. Early in the decade, ILFC’s total assets had been three times those of GPA, with bigger pre-tax profits. Now, by 1986, GPA had leapfrogged ILFC in assets and profits. Over the next two years, as GPA’s annual profits grew by 49 per cent, ILFC’s would actually drop slightly.
Yet despite this apparent position of strength, Tony understood that, in reality, ILFC had by 1986 got the jump on GPA. Two years earlier, armed with new investment achieved by going public, ILFC had shifted its strategy towards new, rather than used, aircraft. By the end of 1985 half their fleet comprised new aircraft. That year they placed a large order with Boeing for thirty-two new aircraft, extended to fifty-four in 1986. That was the year that GPA got its first new aircraft.
Over the
next few years GPA and ILFC, in order to knock each other out of the game, would compete for orders, culminating in a $3.2 billion order for GPA in 1988, immediately countered by a $5 billion order for ILFC, this amount being trumped eleven months afterwards by GPA announcing a $17 billion deal. The following year, 1990, ILFC cashed in its chips by selling out for $1.3 billion to the insurance giant AIG.
However, in 1986, as Tony announced new capital at his London press conference, GPA and ILFC were themselves engaged in uneasy talks about a possible takeover or a merger. GPA had initiated contact in late 1985 to ask about acquiring an interest in ILFC, which had responded cautiously by advising that any acquisition by GPA would have to be for the whole company, including buying out all shareholders. At a meeting to discuss a possible deal Udvar-Házy told Tony that ‘any bid would have to be at a premium or current market value (c. $275 m) to have any chance of success.’ Tony countered that he was thinking of a figure closer to $180 million. ‘If those are the figures we’re looking at,’ Udvar-Házy retorted, ‘why don’t we buy you?’
In April, armed with new finance, GPA came back with a more serious proposal outlining what would be in the deal for both sides. Tony and Udvar-Házy met in London for a ‘very constructive conversation’. George Magan, the director at Morgan Grenfell who handled GPA’s affairs, wrote to the ILFC founder Leslie Gonda with a proposal to initiate formal negotiations ‘under the strictest confidentiality’, in the expectation of creating the ‘strongest and most effective operator in the industry’ and ‘significant increased value for the existing shareholders’.
The timing of the move was not coincidental. Certainly Tony wanted to make a play for ILFC in an attempt to neutralise a competitor. However, what concerned him more was the potential threat if ILFC was taken over by a major investor. Indeed his greatest fear was that GECC, having failed in its efforts with GPA, might now turn its attentions to ILFC. ‘There is the possibility—and the danger’, Juan O’Callahan later wrote to Tony, ‘that GE could now acquire ILFC with its fine portfolio, order book and clients … GPA must not be dwarfed—in fact, GPA must become significant or dominant.’
The problem for GPA was that ILFC, while happy to flirt, consistently went coy when it came to making any kind of commitment. ‘Our position’, Leslie Gonda wrote on 5 May 1986, ‘is, very simply, that we don’t see any advantage or benefit to ILFC by joining with GPA.’
When Tony went back in 1987 the answer was the same. ‘ILFC has concluded that the proposed structure by GPA has no merit for ILFC or its stockholders,’ Udvar-Házy bluntly informed Tony. The two men had planned to talk in Ireland a few days later. Now Udvar-Házy cancelled the meeting.
In many ways Tony’s reply got to the heart of the problem. ‘I am disappointed that it was necessary to cancel the meeting last weekend,’ he wrote to Udvar-Házy, ‘as I believe it would have given us time to tease out some of the issues we discussed and the apparent differences of philosophies between our companies.’
What he might have added was ‘and ourselves’. For in many ways the differences between the two men, together with their apparent lack of personal empathy, symbolised and exacerbated the culture clash between GPA and ILFC. Tony and Udvar-Házy, both outsiders in their different ways, had set up their companies through their own entrepreneurial initiative, effectively creating the new industry of airline leasing. Neither was inclined to cede that ground, or their company, to the other. In the end, when the question boiled down to whether GPA would buy ILFC or vice versa, the inevitable answer by 1987 was simply to call the whole thing off.
Chapter 9
CRYING ALL THE WAY TO THE BANK
The late 1980s would be a period of extraordinary success for Tony Ryan and GPA. In 1983 the company had made net profits of $9 million. By 1987 that annual profit had risen to $68 million. The following year, profits were up again, to $101 million. In 1989 the figure would rise to $152 million. By the beginning of the new decade GPA profits would hit $242 million.
All told, it was an unprecedented tale of success for an Irish company, and one that made Tony rich. In 1990 his bonus alone was $86 million. That wealth brought increasing influence and public visibility. Yet any resentment at Tony’s great wealth seemed dissipated by his other role as the man behind Ryanair. Here he was cast as the Robin Hood of Irish aviation, robbing rich Aer Lingus to bring low-cost air travel to the lives of thousands of ordinary people who might not otherwise have been able to afford it.
‘We were seen as the darlings of aviation in the early days,’ the commercial director, Derek O’Brien, remembers. ‘People always seemed to be saying to me, “Ryanair? Yes, you’re fantastic!” wherever I went.’
Tony may not originally have wanted the airline to bear his name, but now Ryanair was making him a household name—and a popular one at that.
Much of the credit for that popularity was due to the dynamic young team that Tony had put in place to run Ryanair. Cathal and Declan Ryan were both major shareholders. Eugene O’Neill, Tony’s former PA, had gone in as chief executive. O’Neill was a brilliant showman, an all-singing, all-dancing representation of what Ryanair was about. Where Aer Lingus seemed staid, comfortable, establishment—the kind of airline chosen by your snooty aunt from Howth—Ryanair was younger, hipper, less class-conscious. O’Neill, dubbed ‘Mr Armani’, after his designer of choice, was the embodiment of the demographic that Ryanair passengers aspired to be and, indeed, often were. And whether you were a labourer on your way to a building site in Britain or a couple flying out on a mini-break, as you looked around at your fellow-passengers of various classes and ages there was a shared assumption among almost everyone: Ryanair had made life easier and more fun.
That sense of enjoyment was something that O’Neill transferred to the Ryanair offices. Staff members greatly admired him for his style and the good humour he brought with him each day into work. He was a driven individual but one who managed to inspire loyalty and devotion among most who worked alongside him. Ryanair might have started out with just a couple of slow planes, a Government that was ambivalent about whether it wanted the airline even to exist, and a national carrier that was determined to crush it, but it behaved from the outset like a genuine contender.
For all O’Neill’s positive energy, in the end it was his business strategy that provided Aer Lingus with the opportunity to strike. To an extent, he was stuck in a dilemma. His plan was to present Ryanair as a genuine alternative to Aer Lingus. That meant talking big and making sure that actions followed words. There was no point running a softly spoken niche airline. The example of Aer Turas, swallowed up a few years earlier by Aer Lingus, showed the defects of such an approach. Ryanair had to pitch itself as a genuine competitor to Aer Lingus—the plucky underdog tweaking the nose of its bigger rival.
But O’Neill chose to fight the wrong battle with Aer Lingus. Instead of following the original Dublin–Luton model (a low-cost, no-frills service to an unfashionable airport) in order to compete in parallel with Aer Lingus, he decided to face them head-on. In 1988, emboldened by further EU deregulation, he embarked on an ambitious dash for growth, establishing routes to airports to which Aer Lingus already offered services.
The most audacious of these routes was to Manchester, which Aer Lingus saw as the hub for its European operations. Their response was brutal. Aer Lingus upped the number of its flights, taking advantage of an existing relationship with Aer Rianta in Dublin Airport to schedule earlier departure times than Ryanair. Aer Lingus also launched a price war, undercutting whatever fares Ryanair offered. ‘This was insane behaviour,’ says Derek O’Brien, ‘because Aer Lingus were getting into financial trouble by this stage and was losing money hand over fist.’
It may have been insane, but it worked: within months Ryanair ceased its service to Manchester. Taken together with similar competitive failures on routes to Liverpool and Glasgow, this meant that no sooner had the ‘dash for growth’ begun than it juddered to an embarrassing, costly stand-stil
l.
O’Neill, chastised and humiliated, now began to carp about the rules of the game. It wasn’t fair that Aer Lingus should engage in what he saw as anti-competitive practices. Take them to the EU Competition Authority, he demanded of Tony, and sue for damages.
That request was the moment Tony woke up. Since the foundation of Ryanair in November 1984 he had looked on the airline as a labour of love. It had satisfied his instinct to advance the cause of deregulation in the airline market and had allowed him to take the fight to Aer Lingus in the most direct way possible. It had also provided a neat way to work with his boys in Ireland. Tony had kept a keen eye on the project as it came together and had enjoyed the high-profile successes that Ryanair had scored. But he was less enamoured at getting shafted so comprehensively by Aer Lingus, not least because the failure attached to his own name, with ‘Ryanair’ emblazoned on every aircraft. Now his chief executive was asking, through the instrument of the national carrier, to sue the Government, upon whose good will the very existence of Ryanair rested. It would be an act of suicide, Tony concluded.
Once Tony began to lose faith in O’Neill he started to take a closer look at what was going on inside Ryanair. To accomplish that task, in May 1988 he sent in his new PA, Michael O’Leary, to interrogate the books.
Tony had first run across O’Leary when the latter was a tax trainee in Stokes Kennedy Crowley (later KMPG). O’Leary had worked under Gerry McEvoy, whose accounts included advising both GPA and Tony personally. ‘Michael was very ambitious and probably could have been a partner in KMPG,’ says McEvoy of his young apprentice, ‘but he was impatient to do his own thing. I imagine that he would probably say he would never have been interested in being a partner—that he had more lofty ambitions!’
Tony Ryan Page 15
