British Airways’ interest in buying Ryanair had whetted Tony Ryan’s appetite for a sale. He knew that the airline he had founded was now a remarkably valuable property, and he also knew that if it were to expand even further it would have to broaden its shareholder base. Ryanair would need more planes and more people if it were to take its successful business model out of Ireland’s skies and into Europe, and that would require deep pockets. The search for a partner or, failing that, the pursuit of a stock market flotation that could release cash for the family, was on in earnest.
In April 1996, shortly after the talks with BA had broken down, Ryan received a call from Paddy Blaney, a former vice president at GPA. Blaney had met David Bonderman, an American corporate lawyer and investor with a track record of successful investments in the US airline industry. Ryan had met Bonderman years earlier during the negotiations to salvage the US airline America West, which had leased planes from GPA. He knew Bonderman was a serious player.
Bonderman was not a typical American businessman. A former civil rights lawyer, lover of rock music, eclectic dresser and canny investor, he was far more suited to O’Leary’s informal but obsessive style than to the grey corporate world. Bonderman’s personal interests were as varied as those of Texas Pacific Group, his investment vehicle, which looked for value investments in companies as diverse as Del Monte foods, Beringer wine estates, Ducati the Italian motorcycle manufacturer, America West and Continental Airlines, and retailer J. Crew.
Blaney told Ryan that Bonderman was in Europe looking for investment opportunities, and that he was toying with the idea of investing in Virgin Express, Richard Branson’s new European low-cost carrier. Blaney had mentioned Ryanair to Bonderman, and he had shown interest. Perhaps, he suggested, Ryan could do worse than set up a meeting.
Declan Ryan was dispatched to make contact in early March and Bonderman, intrigued by what he heard, travelled to Dublin with a team of advisers. For a week they pored over Ryanair’s operations, probing its business model and examining its management team. Very quickly Bonderman recognized that the Irish airline had developed a model that had the robustness to take on Europe and exploit the opportunities that deregulation would bring.
‘Bonderman understood what had happened in the US market after it had deregulated in 1978, and he knew what was necessary for an airline to survive and prosper,’ says a Ryanair executive who was involved in the negotiations. ‘Fundamentally that came down to cost control. Bonderman knew that the lowest-cost operator would always have the competitive edge, and he could see from O’Leary’s operation, and from the books, that Ryanair was ideally positioned. Its attention to cost was phenomenal and, just as importantly, he warmed instantly to O’Leary.’
Securing Bonderman’s investment was top of Ryanair’s agenda, but the company was still focused on extracting extra revenue from its business wherever it could, with no opportunity deemed too small or too bizarre to merit its attention. In June 1996 it became the first European airline to sell advertising on the exterior of its planes.
The idea had been hatched by Tony Ryan over a dinner with Nick Sheele, the chairman and chief executive of Jaguar. Sheele agreed to pay £120,000 to get the Jaguar livery on a Ryanair 737. Once Ryanair had agreed the price with Jaguar, the aircraft was sent to Birmingham to be painted.
‘The Jaguar guys were so precise about it, they had to make sure the leaping Jaguar was exactly 331/3 per cent off the horizon to make sure of the perfect jaw,’ Charlie Clifton recalls. ‘Then the big day came and we said we’d have the launch in Birmingham. The idea was the aircraft would be towed out of the hangar, there would be two sports cars, photos, Tony, Nick Sheele, lots of pretty girls draped over the cars, and the aircraft in the background. Fantastic’
But there was one major hitch – the final part of the painting had to be carried out in the south of England, and the plane became stranded down there.
‘I arrived in to work, got a call to say the aircraft is broken down in the south of England. Tony arrived and I said the aircraft is tech [broken down],’ says Clifton. ‘Tony said, “Relax, don’t be a pessimist. It’ll work out fine; the aircraft will be there.” I said, “It won’t be, I bet you it won’t be.” And he said, “It will, I’ll bet you. What do you want to bet?” And I said, “A pound?” and he said, “Okay, I’ll bet you a pound.”’
When Clifton and Ryan arrived in Birmingham, there was no aircraft so they carried on with the photo shoot and digitally added the plane afterwards. But two months later, while Tony Ryan was in the middle of negotiations to secure Bonderman’s investment in the company, Charlie Clifton got a note through his letter box: ‘Dear Charlie, please find one pound for my indebtedness in relation to our bet. Regards, Tony Ryan.’
After a slow start, exterior advertising went on to provide a solid revenue stream for Ryanair, with companies such as Kilkenny beer, Hertz and Vodafone following Jaguar.
By August 1996 Bonderman and the Ryans had finally consummated a deal, and at a price which reflected Ryanair’s real profitability and not the carefully constructed numbers published for the previous three years which had helped conceal Ryanair’s real profitability from Merrill Lynch during its negotiations with Ryan over his debts. Bonderman, through a specially created subsidiary, would acquire 20 per cent of Ryanair for £26 million, a price that valued the airline at £130 million.
Bonderman used just £1 million of his own money to buy the stake, and funded the rest of the deal with debt – an astute move that would see the value of his equity stake rise from £1 million to £250 million in the years to come. It was, Bonderman said later, his ‘best ever investment’, but for Ryanair his involvement was just part of a package that would transform the airline over the next two years.
Tony Ryan was ecstatic with the Bonderman deal, which valued his family’s stake at almost £80 million. At long last he could smell the money. Eleven long years of struggle and near-bankruptcy were about to pay off in spectacular style, as long as he did not manage to repeat the mistakes that had destroyed GPA. O’Leary, for one, was determined not to let him, but Ryan did not yet know quite how determined. His days as chairman were numbered, but he was oblivious to the threat.
As a stock market flotation grew ever closer, O’Leary was a man on a mission and Ryanair was his obsession. He still arrived early, often starting work at six in the morning, and left late. He lived for the company, working weekends and bank holidays, surviving on coffee and cigarettes and snatched meals from the Ryanair canteen. Those who knew O’Leary at the time recall him as being singularly focused on Ryanair, to the exclusion of almost everything else. He did have a long-term girlfriend, but the relationship was not thought to be serious.
O’Leary’s obsession meant that by the end of 1996, just three years after he had taken the reins as chief executive, the airline was indisputably his. He was not yet an owner in the real sense – he shared in the profits, but had no shareholding – but the company reflected his character and ran to his beat. ‘He was in control of pretty much everything that went on,’ says Conor McCarthy, who joined Ryanair as operations manager in October 1996 after a successful career in Aer Lingus. ‘There was a team of us who backed up Michael, [but] we carried out mainly Michael’s bidding. If you wanted to do something and Michael didn’t want to do it, you could be pretty sure it was never going to happen.’
McCarthy, accustomed to the slow, bureaucratic world of Ireland’s state-owned airline, was immediately struck by the informality of Ryanair, and also by its sense of purpose.
On my first morning I went into Michael’s office [and he was] dressed in his characteristic jeans and shirt. He took me round the office, introducing me to the different people. All pretty informal, but as he was showing me round he was also asking them about particular issues he wanted to chase up. So he’d say, ‘This is Conor, he’s just joined us as director of group operations. Oh, by the way, how did you get on with that crowd yesterday? I saw you meeting them. Did you get a good deal out of them?’ He used it, not just to introduce me, but to catch up on what was going on. I got an immediate feeling that it was a no-nonsense organization with no fat.
O’Leary’s growing dominance created a conundrum for the Ryans. The arrival of David Bonderman as a 20 per cent shareholder meant that a stock market flotation for Ryanair was now inevitable. The airline needed cash to buy more planes, and Bonderman would be looking for a swift return on his investment; a flotation would be the simplest solution to both needs. O’Leary was crucial to the airline’s future, but as an employee he stood to gain nothing from the flotation. It was an issue which would have to be resolved, and not in the normal way by offering stock options to the management team.
There was also a second problem to be overcome: O’Leary’s lucrative profit-share deal had become unworkable. ‘The profit share had become an embarrassment and it had to be unravelled,’ says O’Leary. He knew that the scale of his reward would become public knowledge during a flotation process, when all relevant financial information on Ryanair would be revealed to potential investors and, more significantly, to his fellow executives and the rest of the Ryanair workforce. His price for walking away from an annual bonus that had netted him £20 million by the end of 1996 was a 25 per cent share of the company, with Bonderman on 20 per cent and the Ryan family taking 55 per cent. Eventually O’Leary settled for 22 per cent.
As Bonderman signed off on his investment that August, O’Leary had begun preparations for the riches that were about to come his way. He created Garnham, an off-the-shelf company, with himself as a director alongside Howard Millar, who had joined Ryanair in 1992 as a financial controller. Two months later, in October 1996, O’Leary’s mother Gerarda replaced Millar as a director and the following July Garnham acquired just over twenty-two million shares in Ryanair – representing his stake in the airline – for a token consideration of less than £1 million. In a reversal of the normal entrepreneurial model, O’Leary had won his share of the company after leading it to triumph, rather than by gambling everything on a dream. His wealth and shareholding had required no risk other than his time; not once had O’Leary had to put his own money into the company or mortgage his house to keep the company afloat.
With O’Leary firmly installed for the long haul as a significant shareholder, Ryanair became fixated on growth where only recently it had been concerned with nothing more than survival. Its short-term priority was to prove that the low-cost model, which was now demonstrably successful on routes between Ireland and the UK, could shift to a far bigger stage: continental Europe.
For the international investors who would be wooed ahead of a stock market flotation, European expansion was critical. All the work done in the previous decade to secure Ryanair’s position as a profitable player on the Ireland to UK routes would count for little if O’Leary could not prove that his model could be transferred profitably to mainland Europe – a continent with a population larger than that of the United States; with a host of traditional, and expensive, national airlines; with virtually no experience of low fares; and, perhaps most significantly of all, with an increasing number of countries falling into the embrace of the European Union. A single European market would need a mobile labour force if it were to prosper. Cheap and frequent flights would be an important part of that.
European consumers knew nothing about cheap air travel. Unlike the American consumer, who had benefited from low fares for almost twenty years – and even longer in some states – Europeans had been fed a diet of expensive, restricted air fares on a small number of airlines which tended to be owned by their governments. Travellers in Ireland and Britain understood what low fares and competition meant because they had enjoyed the benefits of competition for a decade. But if continental Europeans wanted to fly, they could choose between an often prohibitively expensive scheduled flight or, during the holiday seasons, an inflexible charter flight – a package holiday that required them to buy accommodation as well as an air ticket.
O’Leary, alongside a small number of new, similarly inclined operators like easyJet, had to re-educate a continent if they wanted to create a market. Time was not on their side; re-education had to be swift, the message simple and easily understood. O’Leary needed shock tactics, not subtle brand building, and his weapons of choice were publicity stunts and advertising campaigns designed in the heat of the moment but which followed a basic pattern.
The early battles with Aer Lingus had instilled in Ryanair a sense of being the underdog. O’Leary might be a fan of Manchester City football club, the perennial underachiever in a city dominated by the success of its more famous rival Manchester United, but his motto was drawn more from the terraces of Millwall FC, a relatively small London club known in the 1980s for the violence of its supporters and their chant: ‘Nobody likes us but we don’t care.’
O’Leary did not care who liked him as long as his messages got through: Ryanair is cheaper than the competition; traditional airlines rip you off. He did not want to be loved, he did not want to win awards for best airline advertising and he was certainly not trying to win any popularity contests. All he wanted was instant brand recognition. He had to create a mass market for a product that few in Europe understood and that his competitors – with their political clout, massive advertising budgets and, critically, their grip on the major airports – would be determined to undermine as soon as they recognized the threat.
Unfortunately for them – for Lufthansa in Germany, Sabena in Belgium, British Airways, Air France and Alitalia in Italy – they underestimated O’Leary and, despite the evidence from the United States, they underestimated the business model he was creating. One after another they fell for his stunts, allowing themselves to be sucked into skirmishes that only O’Leary could win, dismissing him and his airline with an arrogance that was as breathtaking as it was self-destructive.
O’Leary’s tactics mirrored the man: irreverent, effective, often outrageous but never expensive. In September 1996, shortly after a Sudan Airways plane was hijacked and flown to Stansted, O’Leary rushed out an advertisement showing a picture of the hijacked jet with the catchline, ‘It’s amazing what lengths people will go to, to fly cheaper than Ryanair.’ The ad sparked a flurry of complaints and was dropped, but not before it had the required impact. Outrage, as O’Leary was discovering, always translated into media coverage, and that coverage translated into sales. One cheap advertisement could generate far more interest and consumer response than any expensively conceived and executed marketing campaign.
The tactics, honed in Ireland and Britain over the previous years, would now be turned on Europe – as soon as O’Leary could establish some routes. The pressure was on; the clock was ticking down on a stock market flotation and Ryanair needed to be a European, not an Irish, airline by the time the roadshow to sell the shares got under way in the New Year.
At the end of November Ryanair bought six second-hand Boeing 737s from Lufthansa, increasing its fleet to seventeen. The $60 million price tag, financed by loans from a consortium of Irish banks, was a big commitment for the airline, but it laid down its marker for expansion. By then, too, O’Leary had a strong base on which to build – the airline had just reported pre-tax profits of almost £5 million for the fifteen-month period to March 1995, on a turnover of £99 million. This was a one-off adjustment to the traditional annual accounting period so that Ryanair could change its year end to the end of March from the end of December – a convention for many stock market companies.
The new planes were to be used to launch O’Leary’s assault on the mainland European market. He told journalists that Europe would be ‘a big part’ of the airline’s future, but refused to be more specific than confirming plans to fly to two unnamed ‘non primary’ airports in mainland Europe: ‘We don’t want to forewarn our opposition.’ In fact, O’Leary would have found it difficult to be more specific even if he had wanted to reveal his hand, as he had yet to finalize any deals with airports on the continent.
The task of finding the new routes fell to the new operations manager Conor McCarthy, Tim Jeans and O’Leary himself, who went on a three-day whirlwind tour of Paris, Brussels, Stockholm and Copenhagen. McCarthy and O’Leary had no real interest in talking to the major airports in these cities – they knew that they would find it impossible to strike a deal – and focused instead on small airports that few people had ever heard of. ‘There was no question that we would go into major gateways,’ says Tim Jeans. ‘One major issue was price, and the other was timing. You cannot get an aeroplane in and out of Charles de Gaulle airport in Paris in under an hour, and we needed turnaround times of twenty-five minutes or less.’
For Ryanair’s early European routes O’Leary had decided that capital cities, with their large populations, were important, yet access had to be cheap and turnaround times fast. Paris – continental Europe’s most visited city and near Disneyland’s European theme park – was an obvious first choice; Brussels, the home of the European bureaucrat, was equally attractive; Scandinavia, however, would be a shot in the dark.
‘We spoke to Orly [Paris’s second main airport] and they treated us with considerable disdain,’ says Jeans. ‘I remember the little Peu-geot 106 they sent out to meet us, with the office junior aboard, and that was about as far as we got. We didn’t darken Orly’s door again.’ Instead O’Leary chose Beauvais, a tiny airport forty miles west of Paris, close to the horse-racing centre of Chantilly. There were no rail links – air travellers would have to continue their journey by bus, taxi or hired car – and virtually no facilities. Beauvais was a runway with a shed, but for O’Leary it would be Paris.
In Belgium Ryanair had similar problems. The options were Ostend and Antwerp. Ostend was operationally unsuitable because the runway was too short, and Antwerp was too far from Brussels. The solution was Charleroi, thirty miles south of the Belgian capital and very like Beauvais: a runway where sheep grazed alongside with a terminal building served by sporadic charter flights. It, too, could only be reached by road. Skavsta, in Sweden but sixty miles away from Stockholm, completed the trio of international destinations that O’Leary would use as his guinea pigs for low-cost travel in Europe.
McCarthy remembers the pace of the deal-making. ‘We covered the airports in three days and managed to do a deal with three of them. We didn’t even really try to do a deal with the big airports because we knew they just didn’t have the psychology or mentality to do that sort ofbusiness.’ In May 1997 Ryanair would launch routes from Dublin to Paris-Beauvais and Dublin to Brussels-Charleroi; the following month it would launch Stansted to Stockholm-Skavsta. The routes would be sold as capital-to-capital services even though the airports were up to two hours drive from the capital cities they were serving and the prices would be rock bottom.
In the autumn of 1996 O’Leary had begun talks with Kerry airport about the possibility of starting a service from there. Ryanair had previously withdrawn from Kerry in September 1992, along with Galway and Waterford, because of ‘lack of demand’, but four years later the climate and the airline had changed. Ireland was emerging from years of recession into a period of remarkable economic growth, low fares had proved to be as much of a market stimulant in Ireland as they had in the United States, and airports were beginning to realize that the only way to encourage traffic was to strike deals that made low fares possible.
Kerry is in a far-flung corner of Ireland’s south-west, but it also lies at the heart of the Irish tourist market. That seasonal business provided a useful basis for an air route, but it was the growing prosperity of the region that provided the second, more important ingredient: locals keen to travel throughout the year. Kerry airport wanted part of the Ryanair action, and a tour operators’ conference in Killarney provided the chance.
‘As part of trying to get Ryanair to start a service we chartered a plane off of them to fly the people free of charge from Dublin down to Kerry,’ says a former executive at the small airport. ‘A lot of their senior people flew down on it. A lot of them hadn’t been in Kerry before and on the day they just said, “Jesus, we should be flying down here.”’
After that Kerry talked to Ryanair ‘on and off’, and in November 1996 Ryanair decided that it was ready to push ahead with the route.
‘It all happened very fast, as it does with Ryanair,’ says the executive. He says that Peter Bellew, the airport’s marketing manager, received the call from Ryanair and was tasked with tracking down Denis Brosnan, the airport’s chairman, who was in Chile that day. Bellew told Brosnan that Ryanair was ‘hot to move’ and Brosnan agreed to meet them just two days later in Dublin. ‘Brosnan cut his journey and came straight off the transcontinental flight. He got off the plane and walked down in the rain with Bellew into Ryanair. It was very interesting because Denis wasn’t going to leave the building until they had agreed to do it. Not in a hectoring way, he just kept talking and talking and talking.’
Brosnan was no hick from Ireland’s Wild West. Like O’Leary, he represented a new generation of successful international businessmen. He had created Kerry Foods, a multi-million-pound food ingredients empire which was spreading its reach into North America, and he was a match for O’Leary. ‘Jesus, would you not clean the place up and get yourself a suit, Michael,’ he said at one point during the negotiations.
The new route was signed off later that day, and the first planes took off the following June.
By the beginning of November 1996, just three months after Bonderman hadjoined the company as a director and major shareholder, the chairman was being eased out. ‘Tony was being sidelined, and we fought quite hard to maintain his chairmanship,’ says Brian Bell, one of Ryan’s media advisers, who had previously worked for Ryanair. ‘At one stage Michael wanted Tony completely off the board, and our advice for Tony at the time was to stay put.’
Ryan, O’Leary had decided, would be a liability for the company when the time came to sell it to the stock market. GPA’s collapse four years earlier was still fresh in his mind and, he thought, in the minds of the investment community. Ryan, no matter how much he had invested and how visionary he had been, was a symbol of hubris, arrogance and stock market failure.
‘Tony was quite dispassionate about it,’ says Bell. ‘He took soundings from various people. Michael was saying to him that the feedback from the UK was that if he stayed he would be a liability because of GPA. We did our own research on Tony and we found that was rubbish.’ O’Leary, though, was not for turning. He believed that Bonderman was the obvious choice to take over from Ryan as chairman. Bonderman had the respect of the market in the United States and his reputation for sound investments combined with his knowledge of the airline market would command respect in the UK.
The name Ryanair, O’Leary felt, was bad enough; having Ryans on the board was worse, but having Tony Ryan as chairman was just impossible. ‘You wouldn’t have been able to float it,’ he says. ‘Tony didn’t realize that. But Bonderman brought us huge credibility in the States, a lot more than we knew at the time. A lot of this is just luck, but the judgement call had to be made.’
Ryan was determined to stay on the board but prepared to concede the chairmanship. He had too much at stake to risk another market failure: this was his chance of financial redemption and an opportunity for his children to be secure for life. He had thought GPA would deliver that security, and now he had a second chance he was not going to let it slip. It was a blow to his ego, but his wallet was more important. In the end, says a fellow director, ‘It was all quite amicable. We were a small regional airline, so we needed someone bigger for when we floated. The board was fully supportive of putting Bonderman in as chairman, and it’s been proved right since.’
One of Ryanair’s investment bank advisers says that the banks did not apply pressure for Ryan’s removal, but were more than comfortable with the choice of successor. ‘It wasn’t an atypical decision by a company that was planning a flotation. Bonderman had written a fairly sizeable cheque to get involved, so it’s not unusual for the new financial investor to say, “I’m now going to control the business and control the board and be the chairman.” So part of it was related to the fact that Bonderman had arranged this capital,’ he says.
Ryan’s resignation and Bonderman’s appointment in his place were announced on 19 November 1996. Three days later O’Leary tried to play down rumours of a rift in the company by telling the Irish Times, ‘Dr Ryan indicated some time ago that he wanted to step down as chairman in the medium term.’
While he had been replaced as chairman, Ryan remained umbilically linked to the company, which still bore his name and which, through his nearly 60 per cent shareholding, he still controlled. ‘I don’t think it would have made much difference if Ryan had stayed,’ says the investment banker. ‘There’s not much difference in perception between chairman and majority shareholder. The flotation would still have been successful – GPA was in the past and the market has a short attention span.’
By the end of 1996 O’Leary had completed the transformation of the airline and of his own fortunes. Bonderman had been installed as chairman and his presence gave Ryanair instant credibility in the financial markets. Ryanair was progressing smoothly to a flotation: its profit performance was strong, its route network was growing, six more planes were joining the fleet and European destinations had been lined up for the following year.
O’Leary’s profit-share deal would earn him more than £8 million in 1996 – indicating the scale of the airline’s improvement – but this would now be transformed into a major shareholding in an airline that would soon be worth hundreds of millions. For the moment O’Leary appeared to have everything that he had ever wanted, but it was not, and never would be, enough. ‘Michael just has to go on and on, succeeding and accumulating,’ says one former colleague. ‘It’s just the way he is. It’s too simplistic to say that it’s all a game; it’s far more serious than that. He makes money, and he succeeds, because that is what he does. There is no endgame, no point at which he steps aside and smells the roses. He is perpetual motion, restless, insatiable, driven – but by what? Who knows? It’s just what he does, and it’s all he knows.’