Hely Hutchinson ventures that Tony, as a director,
was fairly unprepared. I have the impression that he did not really read the papers he was sent. When you have somebody around the table and they’re asking questions that have actually already been answered in the papers they were sent—you don’t form a terribly positive impression of how well they read the papers. Maybe he only read the ones he wanted to read. He may have taken the view that we sent him too much paper and he would only read the bits that really interested him. But I would have the impression that he did not read them terribly well.
He was right: Tony was often under-prepared for meetings and hadn’t read his papers properly, although not for the reason Hely Hutchinson imagined. In fact nothing captured Tony’s continuing frustration at what he perceived as the bank’s sloppy style more than its persistent failure to send him the paperwork in good time before the meeting. Time and again he complained about the matter to Louden Ryan. ‘This late delivery is unacceptable,’ he wrote when yet again his papers arrived only the night before a meeting of the Court of Directors. He wasn’t expecting this kind of inefficiency and discourtesy, though board members from the early days of GPA might have reminded him that it was a trick he had pulled often enough himself.
The issue that brought matters to a head between Tony and Bank of Ireland was the disastrous purchase, agreed in April 1988, of First New Hampshire Bank in the United States for $370 million. It soon became apparent that it had been a calamitous investment. ‘The revelations at the Court meeting on FNH were appalling,’ a shocked Tony wrote on 14 July 1990. Projections had dropped from a planned profit of $10 million to a loss of $65 million. ‘I have sat through too many Court meetings as a major shareholder being fobbed off with incorrect and protective answers,’ Tony complained, letting the frustration of two years spill out of him. ‘My commercial instincts warned me but I was frustrated by the traditional Court laissez-faire attitude. I intend to protect my major investment in Bank of Ireland. I need to see urgent radical change.’
It soon became clear what the radical change he envisaged was. At a meeting of the court in November, Tony called for the chief executive to be sacked. Hely Hutchinson didn’t see the bullet coming.
I was told that I needn’t come back in to the meeting, and then half an hour later Louden came and told me, ‘You can have a choice: you can resign, or we’ll fire you.’ We had a short discussion, and I said, ‘Okay, let’s not make a fuss about this. I will resign.’ What Louden told me was that there were members of the court who no longer had confidence in my competence.
With good grace, Hely Hutchinson now says that, ‘given the results, I couldn’t fault the decision of the court to fire the chief executive.’
The dismissal of Hely Hutchinson gave Tony a ‘head on a plate’, but it didn’t address the immediate problem that confronted him, namely ‘a personal loss in excess of £23 million’, by his own estimation. That figure represented the hard reality, ‘soon realised, that the “club” atmosphere and traditional approach’ in Bank of Ireland ‘would not produce the rewards’ he had expected. The realisation was a bitter disappointment for an investment he had taken on with ‘potentially the most profitable company in Ireland’.
The following summer, in a decision that rocked the Irish financial world, Tony dumped his entire 5 per cent holding. ‘Markets flabbergasted by Ryan’s decision to sell’ was the headline in the Irish Times on 11 July 1991.
To say that the announcement of the sale of his entire Bank of Ireland shareholding by Dr Tony Ryan came as a bombshell to the market yesterday is no understatement. Brokers and analysts on both sides of the Irish Sea openly confessed to being flabbergasted, not just to the timing of the sale of the Ryan stake, but also the fact that Dr Ryan has apparently chosen to cut his losses on his untimely investment in Bank of Ireland.
The editorial in the same newspaper even went so far as to suggest that the sale ‘cast doubt on the future of financial services in this State.’
In the weeks that followed, commentators and analysts speculated and hypothesised about the reasons for Tony’s decision to divest from Bank of Ireland. In the end, however, the answer to that question was a simple one: he could afford it. As with the Sunday Tribune, Tony had tried applying his entrepreneurial brilliance in an alien business environment and soon tired of the frustrations involved. The initial decision had been as much about influence as about money. Michael O’Leary suggests that
Tony was brave, but he was also an egomaniac. He had lots of money coming in, and he couldn’t help it. It wasn’t enough to run a successful company and make it bigger and better, like McDonald’s. It was all about having political clout in Ireland when he shouldn’t have given a shite.
Not that it seemed to matter to Tony at the time. There was some personal embarrassment in being seen to lose so much money, but he could live with that temporary dent to his reputation and wallet. And why not? Tony, after all, was still the man who had created a billion-dollar business in GPA. No-one doubted that Tony Ryan was still flying high; only in retrospect did it become obvious that he had got too close to the sun.
Chapter 10
ICARUS MELTING
Looking back, it is clear that by the early 1990s Tony Ryan was in serious danger of losing the run of himself. He may have been Ireland’s most successful entrepreneur, having built GPA from nothing into a $4 billion company, but behind everything there now lurked a dangerous recklessness to match the brilliance.
By March 1992 GPA would have contracted commitments for new aircraft amounting to a staggering $9.4 billion—in effect a massive one-way bet on the continuing expansion of the commercial airline business in general and leasing in particular.
Over at Ryanair, Tony continued to pay out millions from his own pocket to finance an airline that even Declan Ryan and Michael O’Leary thought he should close down. The investment in Bank of Ireland had been a humiliation, bringing out all the be-grudgers, who were glad to see Tony humbled. ‘One of our richest men’, judged the financial journalist Shane Ross, ‘has been exposed as frighteningly fallible in his strongest suit—making money.’ Ross believed it was ‘injured pride’ that would cause Tony the most pain, because the lost investment would ‘only hurt him a little’. In fact Ross was wrong: it was the money that would end up costing Tony more than anyone imagined.
While pumping millions into Ryanair, Tony had gone to Merrill Lynch to raise the necessary capital to invest in Bank of Ireland. In 1988 he had signed an initial facility agreement for $64.5 million, which was increased to $80 million the following year, with shares in GPA held as security. When Tony disposed of his investment in Bank of Ireland in 1991, realising $43.5 million, he was able to pay down some of the loan, reducing it to $35 million. Tony expected that the balance would be paid off by the conversion of his A ordinary shares in GPA, which were estimated to be worth $36.4 million. It was another gamble on the benevolence of the markets—one that would bring Tony close to personal destruction.
The risk involved in all these ventures illustrated the restlessness that many observed in Tony’s character. He had made a vast fortune, enjoying success in the business world that his boyhood self had never imagined. His lifestyle was one of grand houses, elegant paintings, fine wines, domestic staff and fawning sycophants laughing at his every joke or enduring each brutal put-down. But it never seemed enough. There always existed a dissatisfaction—a desire to jump the next fence, do a bigger deal, conquer another sector. ‘Where does that come from?’ his friend Fergus Armstrong of McCann FitzGerald once asked him. ‘I know where it comes from,’ Tony replied enigmatically, ‘but I’m not going to tell you.’
In truth, Tony probably didn’t know. The restlessness was a trait that could generate unbelievable positive energy through an absolute refusal to allow himself or others to rest on their laurels. Playing the odds was essential to his character; conservative though Tony may have been in his private tastes, it was his res
tive nature that made him a risk-taker and even a chancer in business. He was a genuine radical in the sense of the eighteenth century he so adored: ‘What is, must change.’ But that inquietude also gave Tony a destructive quality that could lead him to put in danger the things that mattered most to him.
That was as true in his private life as in business. The year 1991 had seen Tony playing with fire with his personal debt and that of his businesses, but the first immolation came even closer to home. For close to seven years Tony had been in a relationship with Miranda Guinness—‘the love of his life’, judges Denis O’Brien. She had seemed to offer everything that Tony needed in terms of affection, status and private passions. Yet the inner agitation that had him always looking for change in business had a catastrophic effect on their relationship. ‘It was a great weakness,’ says Michael O’Leary, ‘because after Mairéad, his wife, who I didn’t know, Miranda Guinness was the only woman he ever really loved.’
In the end it became too much for Miranda, who broke off the relationship and threw herself into the restoration of Wilbury Park. Miranda’s departure removed an important emotional prop at exactly the moment when Tony would need it most. But in the end, Tony admitted afterwards to friends, he had only himself to blame, having treated their relationship too casually.
The split with Miranda and the financial decisions Tony was making at about the same time combined to create the impression that his judgement had gone off kilter by the early 1990s. Certainly many thought that this was the case with GPA. After years of dithering and hesitation the company was finally preparing to go public with the launch of an IPO. Yet while GPA had been considering such a move for years, in many ways the early 90s seemed the worst possible time to go public.
The global economy, which had improved every year since 1982, had finally started to go into sharp recession by 1990. Bad economic news dominated the headlines in 1991 and 1992, led by the United States, where unemployment jumped to 7.8 per cent by 1991—its highest rate in ten years. That had a direct impact in the airline business, where Pan Am and Eastern Airlines both went bust, putting 48,000 people out of work. Moreover, the so-called ‘white-collar recession’, with fewer business trips and family vacations taken, together with the war in the Persian Gulf, put further pressure on an already beleaguered industry.
The economic downturn led to some apocalyptic predictions, most notoriously an aviation-industry report by the Warburg Group that predicted an imminent ‘airburst’, with growth contracting to 1½ per cent from the previous pattern of between 5 and 9 per cent annually. Tony was enraged when he read the report, writing angrily in March 1991 to the chairman, Sir David Scholey, to protest about ‘its strident tone (which sits uncomfortably with Warburg’s reputation for objectivity).’ Tony lambasted Scholey for ‘conclusions which are significantly at odds with our own and those of the manufacturers and many airline managements.’ He claimed that the report suffered from ‘the shortcomings of desk study analysis removed from the field of action’, contained ‘basic flaws’ and was ‘unreasonably pessimistic’. Tony’s conclusion was stark: ‘Frankly, such treatment is dangerous as it contains the seeds of a self-fulfilling prophecy that unnecessarily damages the industry.’
Sir John Harvey-Jones, one of GPA’s high-profile non-executive directors, later told Tony that Scholey admitted that ‘they went OTT and is feeling the need to build bridges.’ Yet the worry for GPA was that the Warburg analysis reflected nervousness in the City about the state of the industry in general. And of GPA in particular.
That spring Jim King interviewed specialist financial communications consultancies in London, asking their advice about a potential IPO. His report to Tony made bleak reading. ‘There is a deep-seated suspicion, bordering on prejudice, towards GPA among British financial institutions and certain media.’ It was based on a number of industry factors, including ‘insular ignorance of the nature and global scale of aviation’ and the ‘perception that leasing is second class and a demonstrably dodgy activity’. But there was also ‘a “Paddy” factor’ based on ‘scepticism about the combination of Irishness and success’, which became ‘disbelief when hundreds of aircraft, big money and a global operation were added to the proposition.’ His unhappy conclusion was that ‘GPA would be a difficult sell.’
Throughout 1991 the factors that made GPA an unattractive proposition increased dramatically. Underpinning the company’s strategy for a global IPO was the assumption that the Japanese market would help mop up any excess supply arising in other markets. That ‘swing factor’ was the primary reason for Nomura Bank being appointed global co-ordinator for the IPO, a decision that caused irritation in the City of London and on Wall Street.
Yet a series of financial scandals in Japan that year seriously undermined the credibility and standing of the country’s leading security houses, including Nomura. Commentators everywhere were predicting a further deterioration in Japanese financial markets in 1992, taking with it the safety net for the IPO. That gloomy prognosis was compounded by continuing pessimism about the global recession, which had been more entrenched than many had forecast. In particular, the American economy stalled again in the fourth quarter of 1991, with no growth predicted until at least the third quarter of the following year.
Tony had demurred at launching an IPO during a period of boom, so it seemed inconceivable that he would push ahead now when confronted with such a negative set of circumstances. Yet there was one compelling factor that took precedence over all others: GPA was desperate for money. By the end of 1991 it urgently needed to raise equity. Their debt-to-equity ratio was spiralling out of control because of a stalled profit performance in 1991—a shortfall of almost 10 per cent on the previous year—and a growing asset base, with further commitments to come. The $9.2 billion order for almost three hundred new aircraft was payable by March 1996, with staggered repayments of $2.2 billion in 1992, $2.6 billion in 1993 and $2.4 billion in 1994. That was already causing concern with the international rating agencies, which were expressing concern about GPA’s poor off-balance-sheet financing obligations. Standard and Poor’s had recently warned that GPA needed a sizeable equity injection soon and that unless this was achieved ‘within a reasonable time frame’ the company would be downgraded. Even the hint of further delays would likely see GPA put on ‘credit watch’—itself calamitous for an IPO or private placement.
In December 1991 GPA’s finance director, John Tierney, delivered a terrifying summary of the IPO storm ahead. ‘Circumstances are no longer ideal,’ he informed the GPA board. ‘Financial markets are weak, airlines continue to incur huge losses and business confidence is at its lowest point in almost 20 years,’ he wrote. ‘However we do not have the luxury of waiting—we simply must raise equity within the next six months.’ Failure to do so would send GPA ‘into a spiral from which it might be difficult to recover.’
The context of the IPO was difficult enough, but the situation was made worse by poor strategy and tactics. To begin with, GPA compounded the dangers already inherent in the launch by deciding against having the flotation underwritten, which would have guaranteed equity funding. This decision meant that GPA avoided the reality check that would have come from setting a fixed but inevitably lower initial share price.
Next there was how the IPO was being presented. The bankers on the IPO steering committee were vocal in expressing ‘dissatisfaction’ with the way in which Shandwick, the PR company chosen to front the IPO, had been performing, demanding that they be fired.
Finally there was the question of Nomura Bank taking the lead. It appeared a curious choice on every level. For a start, it seems not to have had much in the way of experience in leading a global IPO. Even the original rationale, which had been predicated on the Japanese market mopping up any excess shares, had disappeared. Nomura itself freely admitted this to GPA, advising that ‘the Japanese market is still struggling to find direction.’ At a meeting of the IPO steering committee in December 1991, John Howland-J
ackson of Nomura pointed out that it was ‘indicative of the difficulties being experienced’ that up to sixteen IPOs scheduled for that month had already been withdrawn. His frank conclusion was that, while ‘confidence would return to the market’, he couldn’t ‘predict when in 1992 that would occur.’
The decision to stick with Nomura seems equally unfathomable when put in the context of GPA successfully raising $500 million that same month in a bond issue on the New York Stock Exchange. Given that representatives of Goldman Sachs, which had been involved in the bond issue, were on the IPO steering committee, it is surprising that so little consideration was given to making it the lead manager on the global IPO and to designating New York as the primary market—not least because the Nomura representative himself already seemed to have opened the door to the switch.
The combination of a non-underwritten flotation and the fact of being led by an apparently inexperienced bank in the wrong market, and communicated in an unsatisfactory fashion, looked like a death wish in such a volatile market. Yet as 1991 rolled into 1992 Tony remained bullish about the prospects for the flotation. In February he was able to announce expected record third-quarter profits of about $73 million.
That was an astonishing performance in a year that had been among the worst in airline history, with worldwide traffic collapsing and international carriers reporting massive losses or even going bust. Amid a deepening recession, GPA had placed 165 aircraft with fifty-seven airlines in thirty-two countries. So while at the halfway stage of the financial year 1991/2 net profits had been down by about 12 per cent, the third-quarter figures put GPA on target to beat the previous year’s record profit of $262 million. ‘The third quarter results’, judged the Independent (London), ‘suggest that GPA’s financial performance is back to levels that existed before the onset of recession.’
Tony Ryan Page 17
