In retrospect, O’Leary regrets the tension that developed between him and Tony. Echoing Bonderman, he says:
We were fighting like cats and dogs, and, to be fair to him, I would say I was an odious little jerk, because I wanted to get rich. Tony was older—more mature—and wanted to give me my head a lot of the time, because I was delivering the goods. But he wished I would tone it down a bit, and he was probably right in that respect too.
O’Leary also understands something of the personal cost for Tony at about this time.
It was tough for him, because he deserved a lot of the credit for Ryanair. It wouldn’t have been there if he had followed my advice and shut it down. But he wasn’t going to get any of the credit for it—the great success, the comeback and the rest. He had to bite his lip. As it turned out, he was happy to take the money.
The first part of that process of ‘taking the money’ came in August 1996, when a complex deal was signed with Bonderman, bringing in his colleagues Rick Schifter and Jeff Shaw. It saw their Irish Air LP consortium take a 20 per cent holding in Ryanair. The sale valued the privately owned airline at £56 million. The Ryan family were left with 62 per cent ownership and more than £50 million in cash. O’Leary had an 18 per cent holding.
Informal talks with bankers in London, New York, Los Angeles and Dublin drew a ‘positive’ response to Tony’s decision to divest himself of 20 per cent of his shareholding. That mood was further enhanced when, at a board meeting three months later, Tony enacted the deal he had struck with Bonderman. ‘In light of the decision to proceed with the IPO,’ the minutes recorded, Tony felt ‘the timing was now appropriate for him to resign his position as Chairman.’ He also indicated that he intended ‘to continue as a director of Ryanair and would continue to contribute to the development of Ryanair.’ To emphasise the sense of an elegant handover, Declan Ryan formally proposed Bonderman as the new non-executive chairman of Ryanair.
‘I have made my contribution,’ Tony told the press afterwards, ‘and I think it right, at the age of sixty, to draw a line beneath it and hand over to another generation.’
From the moment Bonderman and TPG joined the board, the strategic focus shifted to bringing Ryanair successfully to the market. A significant aspect of that process, as papers presented to the board freely conceded, was to determine ‘what is to be our public stance on the extent of the Ryan family involvement in the airline.’ Certainly it was true that a difficult legacy remained, particularly in London, from Tony’s part in the GPA debacle.
In talks with potential investors, Bonderman was quite open about the negative factors surrounding Tony’s previous failure with a share offering, noting the ‘hangover’ from GPA. However, the remedy was not as simple as locking Tony away. As the ‘Preparation for Flotation’ briefing note for the board pointed out, ‘it is important that the Ryan family remain closely associated with the project. At present, it is clear that the family is giving substantial support and it would be highly desirable that this profile be maintained up to and post the initial launch.’ The reasoning for this approach was straightforward: ‘There could be suggestions that the public launch is to provide an exit mechanism for the exiting shareholders in the short term. In summary, the Ryan family should remain identified with the project for the foreseeable future.’
Such was the delicacy of the ‘Tony question’ for the flotation that an entire PR brief was drawn up to deal with the inevitable questions from the press. The emphasis would be put on how the family had a ‘strong commitment to remain private and low key’. With a ‘new strong independent management team now in place … the family’s position is predominantly that of shareholders.’ In that function they remained ‘dedicated and supportive’. There would also be an emphasis on the fact that ‘the family has invested up to £20m from 1985 into the group.’
Perhaps the most significant piece of information in the ‘strictly confidential’ brief was that the family’s shareholding in Ryanair ‘will be reduced to under 50% and may continue to decrease over time.’ Tony was now on the brink of giving up ownership of the airline he had founded just over a decade earlier.
In the end, too, it was Tony who gave Ryanair the answer to overcoming any negatives surrounding his own public image. To stop potential investors and the media thinking about Tony, he advised the board, they had to focus on someone else. ‘Going into the IPO, the company needs a “Mr Ryanair”,’ he said, going on to identify O’Leary as the man for the task. Bonderman agreed. Thus it was that the hitherto publicity-shy chief executive of Ryanair was thrust out in front of the cameras. It was, says O’Leary, the start of ‘all the cheap PR stunts’.
In many ways O’Leary was the perfect fit for Bonderman’s strategy for taking Ryanair public in the spring of 1997. His idea, critical for the roadshows, was to promote Ryanair as the Southwest Airlines of Europe: a low-cost, no-frills carrier on the verge of doing for European aviation what Herb Kelleher’s outfit had done in the United States. ‘Come and join the party while it’s still so cheap,’ was Bonderman’s basic message to investors. Given that O’Leary was a ‘true believer’ in the Southwest gospel, he conveyed utter sincerity in his appearances in front of the media and investors at roadshows throughout Britain, Europe and the United States.
Tony understood that he had to remain in the background throughout the flotation process for Ryanair. Yet, however hard he and those around him tried to keep him off stage, he inevitably found his name and reputation thrust back into the limelight.
On at least one level this attention was the result of jaw-droppingly bad timing. In February 1997, as news emerged that Ryanair had appointed the giant American investment bank Morgan Stanley to lead the Ryanair flotation, the Ryan family found themselves engulfed by public scandal. Michelle Rocca, the mother of Cathal’s daughter Claudia, took Cathal to court over an alleged assault. Tony was visibly distressed by the circumstances of the case, which Rocca won, not least because he had always been so tenacious in guarding the privacy of his family.
Yet he had been no less determined when it came to keeping prying eyes away from the Ryan family’s airline. As a private company, there had been very little obligation to make much more than basic information available to the public; but as a company about to float, a bright light was now shone into every corner of Ryanair. The result was a commotion that, in its own way, was every bit as intense as the Rocca scandal.
When the company’s pathfinder prospectus was launched in May 1997, media attention instantly honed in on pay and bonuses. Tony had stuck to the deal he had negotiated when O’Leary became chief executive. The prospectus revealed that the Executive Directors Performance Incentive Bonus Programme had paid O’Leary, for example, approximately £17 million in the previous three years.
Reaction even among business correspondents was one of astonishment. ‘O’Leary is living proof that nothing motivates the human spirit more than naked greed,’ judged the Sunday Times. ‘The greed that permeates the Ryanair boardroom is in danger of giving capitalism a bad name.’
To many the prospectus seemed to point to exactly the kind of excess that had been at the heart of the GPA collapse five years earlier. Furthermore, the revelation of profits showed that the company had been far better off than it had told its staff, whose salaries had been cut by an average of about 25 per cent since 1993. That new information brought with it the threat of industrial action. ‘There will be a feeling that Ryanair’s best days are behind it,’ the Sunday Times gloomily predicted. This seemed exactly ‘the type of negative publicity that punctured Tony Ryan’s attempted £1 billion flotation of GPA in 1992. Investors who decide to catch this flight should keep their seat belts tightened.’
To make matters even worse, that May also saw investors spooked by the rattling of a skeleton in the Ryanair cupboard. The former chief executive Eugene O’Neill had already settled his claim for wrongful dismissal in 1993. His case was that Tony had used his influence to prevent Ryanair filing a c
omplaint with the European Commission against Aer Lingus for abusing its dominant position in the Irish aviation market. The failure to file the complaint, O’Neill said, had cost Ryanair and its shareholders £23 million. O’Neill believed he had been made a scapegoat for the financial difficulties that followed for Ryanair. Now he chose the eve of the flotation to reopen his claim, in which he tried to institute proceedings against Ryanair and Tony personally. In the end the claim would go nowhere, but at the time, as one correspondent noted, it meant that ‘potential investors were further unnerved’.
The inopportune coming together of scandal, past resentments and claims of greed had all the hallmarks of a looming disaster of the kind that had taken GPA down in 1992—a point the press were only too happy to repeat time and again. That hostile environment more than confirmed the wisdom of Tony’s decision to step back from the flotation by handing the chairmanship to David Bonderman. Tony would have found it almost impossible to present a case that separated Ryanair from GPA. Bonderman had no such trouble. Indeed, from the olympian position he held among investors on Wall Street, his simple pitch to them was, in effect, ‘Trust me.’
It was a coolly executed play. Bonderman used his good working relationship with Morgan Stanley to have the bank underwrite the IPO, which in turn convinced the Investment Bank of Ireland to sign on. When it became clear that journalists and advisers in London had been unable to move past the GPA ‘hangover’, Bonderman simply bypassed them by not listing on the FTSE at all. The City of London, he said disdainfully, lacked sufficient understanding of the low-cost, no-frills philosophy of the airline. The IPO was instead listed in Dublin and New York.
‘Ryanair is right,’ judged the Observer. ‘London is clearly not prepared to take a leap of faith … What they really cannot get over, of course, is the fact that Ryanair is part-owned by Tony Ryan, whose planned flotation of his leasing business, Guinness Peat Aviation, was aborted so spectacularly.’
In the end Tony had no need to worry. There would be no repeat of history. On 30 May 1997 Ryanair was simultaneously launched on the Dublin Stock Exchange and the NASDAQ in New York. The result was a triumph. Shares in the airline were more than eighteen times oversubscribed at 195 p. Even before the IPO was launched, dealers were quoting a ‘grey market’ price of 300 p for shares. That latter price valued the company at IR£477 million. In the United States the New York Times reported that shares in Ryanair ‘soared in their first day of United States trading as investors clamored for a piece of the company, an Irish no-frills airline.’ By the end of business in New York, shares had closed at $25.50, sharply higher than the offering price of $14.734.
For Tony and his three sons it meant that they had made more than £40 million from the launch price while retaining a 35 per cent shareholding in a company now estimated to be worth £166 million—and that figure would turn out to be a conservative valuation.
Tony was exultant in the aftermath of the flotation. Before heading out to a party with the Ryanair staff at the Coachman’s Inn, near Dublin Airport, he faxed his congratulations to O’Leary. ‘A remarkable triumph!’ Tony proclaimed, with all lingering irritation now put to one side. ‘I send my congratulations and thanks.’ In response to a warm note of congratulation from Dermot Desmond, Tony said he was ‘chuffed with the market reaction’. To P. J. McGoldrick, the former Ryanair chief executive who had done so much to pull the company back from the brink, he reported that ‘as you will have guessed, all of us are overjoyed at the result.’
Yet even amid the triumph there were still lingering thoughts about the previous failure—what Tony described to Richard O’Toole, a former GPA company secretary, as his ‘dog hell days’. Despite having gained a new fortune, Tony believed that ‘Goldman Sachs treatment of GPA was criminal’, and he could neither forgive nor forget it.
Of all the correspondence that poured into Lyons following the flotation, none was more poignant than the fax of a handwritten note that Tony received from Christy Ryan. ‘Congratulations on the outstanding introduction of Ryan Air to the stock markets.’
Christy had been Tony’s oldest pal. Now Tony was on his way to vast riches once again, while Christy, beset with personal demons, was left with almost nothing, save the regular generosity of his friend. It was a brutal reminder, if one were needed, that in the Darwinian world of business the line between success and failure is a fine one—and that for every Tony Ryan there were Christy Ryans at ten a penny.
Chapter 15
A PLACE BETTER THAN LYONS
In the days after the successful flotation of Ryanair there was a palpable sense of redemption, not to mention schadenfreude, for Tony Ryan. ‘It isn’t often that you have to feel sorry for American investment banks,’ pointed out the Sunday Times, ‘but there must be a few Merrill Lynch bankers who are unable to read the newspapers just now without their blood boiling.’ Tony had never been shy in expressing his contempt for Wall Street. He blamed bankers for the failure of the GPA flotation that had almost ruined him. Merrill Lynch had attempted to grab Ryanair to recoup a $35 million debt. In the end it had given up, accepting a loss of more than $30 million. How must Merrill Lynch feel, asked the newspaper, now that it was ‘left with a written-off loan and Ryan’s family can keep their millions’?
At the age of sixty-one, Tony had regained a fortune and restored his reputation for having the Midas touch. Yet even amid the celebrations and congratulations, he experienced an odd sense of anti-climax. For the first time in almost a quarter of a century Tony was no longer the Top Man. From the mid-1970s onwards he had been the undisputed boss of GPA, and even when that company fell apart he still had Ryanair. He might have taken a back seat in the day-to-day running of that company, but its strategy and direction had been controlled from his office. Even in the year leading up to the flotation, when he had taken a tactical step back into the shadows, he remained the majority shareholder and owner of Ryanair. That changed in May 1997 when the company floated. Although the Ryan family was still the largest single shareholder, it no longer held a majority. The airline still bore Tony’s name; but he could no longer call Ryanair his own.
Playing second fiddle on a board was never a role that suited Tony, and there was no reason why Ryanair should be the exception, not least because he had been concertmaster for so long. In particular the sense of irritation that had been growing with his former protégé Michael O’Leary, the Ryanair chief executive, now threatened to spin out of control.
Just weeks after the flotation, Tony wrote to the Ryanair chairman, David Bonderman, attempting to insert himself in the policy and strategy-making process. He complained bitterly about the ‘dearth of Ryanair board meetings’ and suggested ‘a review of the company and discussion of the airline’s short term strategy game plan.’ He was particularly concerned about the fact that passengers were not being given enough respect.
‘Currently we are treating our customers poorly,’ Tony complained to Bonderman and O’Leary. ‘Fine in a good market but very dangerous as our competition strengthens. More importantly, a positive change of attitude to our passengers does not necessarily cost money. We are playing Russian roulette at times with our cavalier attitude with our image.’ Then, in an attack on O’Leary, he charged that the airline needed a public face, one able to ‘create a less aggressive and more caring image.’ It was the start of a rift with O’Leary that would last for the remainder of Tony’s involvement with Ryanair. ‘We would fight like cats and dogs,’ says O’Leary again, ‘because I kept pushing to be more aggressive—more PR stunts and all that. Tony wouldn’t like that.’
The sense of frustration that the Ryans felt about O’Leary’s ‘aggressive’ strategy for Ryanair was captured in a memorandum by Declan Ryan in 1998. He expressed himself ‘disappointed but not surprised’ that the most recent strategic document produced by O’Leary ‘did not cover the areas of customer service.’ He pointed to the bad press that Ryanair had been getting on the topic. This included a phone-in on ‘
The Last Word’ on Today FM, which, it was reported in the press, heard ‘a litany of complaints about the service provided by Ryanair and the attitude displayed by members of Ryanair towards customers.’ It was ‘indicative of how many people feel about Ryanair … being tough, uncompromising and unsympathetic, which is not that far from reality.’
‘Let’s try to avoid another heated debate on this issue,’ Declan pleaded with O’Leary. ‘As in previous discussion don’t dismiss this note as a proposal to increase costs. It is in fact stating that we have gone too far and too cheap.’
He may as well have been talking to a brick wall. ‘As is often the case,’ Tony complained, ‘Michael said yes and then did his own thing.’
Shortly afterwards the Ryans announced that they were reducing their holdings in Ryanair by a third, leaving them with a 17 per cent stake. It was the beginning of a gradual goodbye. Declan Ryan would eventually resign as a director of Ryanair in 2004. ‘His considered decision does not surprise me,’ Tony told Bonderman, ‘but the ramifications are disturbing.’ Later, Declan would simply say that ‘the buzz from Ryanair was gone.’
Declan Ryan’s resignation was the first of many steps that would lead to the Ryan family’s withdrawal from Ryanair. Throughout 2003 and into early 2004 Tony continued to express ‘concerns in relation to the airline’. He offered Lyons Demesne as a venue for a ‘tiny group of directors’ to thrash out the issues. In particular, Tony remained vexed by O’Leary. ‘I am becoming more and more convinced that Michael’s utterances are very negative for the company,’ he complained to Bonderman in the summer of 2004. The note was accompanied by ‘a recent expletive-full article on Michael in Ryanair (Sunday Times).’
Tony Ryan Page 25
