Branson: Behind the Mask (15 page)

During the morning of 17 February 2008, while Virgin’s representatives were still negotiating with Treasury officials, Darling composed an announcement nationalising the bank. Branson cursed that Brown had ‘bottled out’. His hopes of owning a major bank and earning £1.5 billion had been stymied.

One month later, the financial crash in New York began. First Bear Stearns imploded, and in September Lehman Brothers was declared insolvent. The world’s financial system was tipping into the abyss. Despite the havoc, at the end of October Branson stuck to his plan to relaunch Virgin Money in America. As usual, his campaign was contrived to get free publicity – on that occasion by breaking the transatlantic sailing record. Branson would be aboard
Virgin
Money,
a yacht with twenty-four crew moored in Manhattan. His timing was odd: not only was Wall Street
in crisis but meteorologists were forecasting an imminent storm in the Atlantic. Nonetheless, unwilling to abandon the voyage, Branson ordered
Virgin
Money
to sail. Two days later, a huge wave damaged the yacht and the crippled craft crept back to harbour.

Branson began reconsidering his investment in CircleLending. The banking crisis had wrecked the housing and mortgage businesses and many peer-to-peer lenders were insolvent. CircleLending had survived, but Branson and Jayne-Anne Gadhia had lost confidence in Asheesh Advani. The company’s founder had bought Lendia, the biggest wholesale mortgage lender in north-east America, but the software of the combined organisation was malfunctioning. The losses were mounting. Branson’s hopes of using CircleLending as a foundation of a Virgin bank had foundered, and New York’s bankers were ignoring a man they labelled as a music producer. Abruptly, Gadhia changed strategy. Banking was draining Virgin’s financial resources. Virgin Money, she recommended, should abandon mortgages and transform itself into a pure bank complying with the regulations which CircleLending had avoided. Branson’s promise to Advani to expand the business was forgotten, and in 2008 he merged CircleLending with Graystone Solutions Inc., sold out and made a swift exit from banking in America.

The costly disappointment was once again compensated for by a stroke of luck.

On 27 March 2008, British Airways’ operations at Heathrow collapsed in chaos. Hours after Terminal 5, the airline’s £4.3 billion showcase opened, twenty years of planning were wrecked. Computers malfunctioned and untrained staff shunned desperate passengers. Dozens of flights were cancelled and thousands of suitcases lost. In the terminal, BA’s passengers were close to rioting. Incompetent managers offered apologies and shredded BA’s reputation. Branson did not conceal his delight. The airline’s highly paid cabin staff, he knew, were also planning to strike.

BA was ‘doomed’, Branson announced in the midst of a party he was hosting to celebrate Virgin Atlantic’s launch twenty-five years earlier. As he reminisced about the arrival of Virgin’s first flight at JFK, when the doors of the second-hand Boeing 707 were opened to reveal the debris of a wild champagne-soaked party, his abuse escalated. BA’s share price, he chortled, had tanked. ‘I thought of buying it,’ Branson sniffed to admiring journalists, ‘but it’s not worth much any more.’ BA, he scoffed, would soon collapse, ‘but it’s not worth the government bailing it out’. He added, unsmilingly, ‘We’re ready to take over British Airways’ routes and slots.’

Carping about the vulnerable was Branson’s speciality. During the same brief visit to New York, he also mentioned that a major American airline was sinking: ‘I don’t think I’ll get into naming names, but I will be surprised if one, in particular, of the US carriers is around in eighteen months’ time.’ The demise of rivals evoked no sympathy. ‘Let inefficient airlines die peacefully,’ he
said. Alitalia, he added, should also be allowed to go bankrupt and possibly be taken over by Virgin. Branson’s bravado reflected his relief at overcoming a succession of problems.

The most costly burden was Virgin America, his newest airline. Ever since a launch party was disrupted by torrential rain at Kennedy airport in July 2007, Branson’s confidence about his challenge to Southwest and JetBlue, the grubby budget airlines, had been shaken. Virgin America’s unusual comfort – including leather seats, wireless internet, touch-screen entertainment and attentive service – attracted praise, but Branson’s confident forecasts of profits within two years had not materialised. Buffeted by high fuel prices and the financial crash, his entrenched rivals had counter-attacked, cutting their fares by up to 50 per cent. As a last gasp, Alaska Airlines complained that Virgin America was ‘operating illegally’ after the two original investors sold out. Virgin, the airline complained, was no longer genuinely American. The complaint was rejected, but the dream had been dented. Just ten months after the inaugural flight, Virgin America reduced its capacity by 10 per cent and sought permission to conceal its $227 million losses. Continued survival depended on Branson guaranteeing funding for the airline. Virgin America had been sustained by A$158 million of profits earned by the launch of Virgin Blue in Australia, but in 2008 the battle for survival in America was being mirrored Down Under.

In Branson’s topsy-turvy world, he had initially been lukewarm about a cut-price Australian airline. The idea was Brett Godfrey’s, whose involvement at Virgin Express, an indebted cut-price European airline, had ended without glory. Ignoring Branson’s indifference, Godfrey had established an office in Sydney, and with four others targeted Ansett, Australia’s second airline, which operated 40 per cent of the internal flights in Australia. Bad management and trade-union restrictions were wrecking Ansett’s finances. ‘I don’t think it’s going to
work,’ Branson told Godfrey on the telephone. ‘I’m not coming to Australia.’ Eventually, he invested about A$15 million in exchange for 95 per cent of the company. Godfrey could expect to receive a comparative pittance for his work.

Branson’s lure undoubtedly brought opportunities, and occasionally he was blessed. On that occasion, his timing was astonishing. The 9/11 terrorist attacks toppled Ansett. Virgin Blue’s planes had just started flying, and the airline was the only bidder for Ansett’s check-in desks, equipment and slots at Australia’s airports. Branson’s low offer, replied the Macquarie bank administering the insolvency, was unacceptable. ‘The bank’s demands’, Branson retorted, ‘are extortionate. The public will suffer because fares will be pushed up.’ He cut a deal, and one year later his bluster was rewarded when, in March 2002, he sold a 45.5 per cent stake in Virgin Blue for A$500 million (£221 million) to Chris Corrigan, the quietly spoken chief executive of Patrick Corporation, an Australian investment company. In December 2003, a further 25 per cent was sold for US$158.3 million (A$240 million) in a flotation. As usual, to avoid paying tax, he directed that his profits should be transferred to Virgin Holdings and Cricket, a personal trust, both based in Switzerland. He was stopped by the Australian government’s insistence that he should first pay capital-gains taxes. His litigation against the government would fail.

In 2005, Virgin Blue carried about a third of the passengers on Australia’s internal flights but was losing money battling against Qantas and Jetstar. The value of its shares collapsed. Open warfare broke out between Branson and Corrigan. ‘Branson doesn’t listen,’ said Corrigan, complaining about Branson’s obstruction. ‘He’s an ageing Bee Gee with a beard. You never want to assume he’s your friend.’ Corrigan became the majority shareholder and referred their argument to arbitration. Testifying under oath, Branson was uncertain about key facts and lost. Later, the two
men met for a drink on Bondi Beach and agreed to stop their war. To Corrigan’s surprise, Branson withdrew from their truce the moment he heard that Corrigan’s company had been targeted for a hostile takeover bid by Paul Little of the Toll Corporation. Branson negotiated with Little that he would buy Corrigan’s 62.4 per cent stake in Virgin Blue if Toll was victorious. Little did defeat Corrigan but went back on the agreement. Two years later, Virgin Blue was booming, earning profits of $98 million. Branson’s stake was again valuable.

By summer 2008, the fate of all Branson’s airlines appeared to be positive: his original A$15 million investment in Virgin Blue had created an airline that at one stage was worth A$2.5 billion (US$1.9 billion); Virgin America was haemorrhaging money but could become profitable; and, thanks to BA’s chaos, Virgin Atlantic’s profits would double that year to £68.4 million. By contrast, BA’s losses were £401 million. Then, suddenly, his good fortune soured.

Virgin Atlantic’s fate had always been precarious but it survived by attracting passengers thrilled by the promise of non-stop parties that started in the airport lounge. Branson’s cheeky disregard for the truth still won admirers. ‘I always travel with a bar of Cadbury’s Whole Nut,’ he told an interviewer, who then asked, ‘Do you fly upper class?’ ‘No,’ replied Branson, ‘I always book economy.’ By then, Branson regularly flew in his Falcon and had virtually abandoned his popular habit of greeting Virgin Atlantic’s passengers with a notebook to record their comments as they crossed the Atlantic. His growing detachment from the day-to-day business was reflected in a complaint posted on the internet by a passenger about the food served on a Virgin flight from Mumbai to Heathrow.

‘I love the Virgin brand,’ the passenger emailed Branson, ‘I really do which is why I continue to use it despite a series of unfortunate incidents over the last few years. This latest incident
takes the biscuit. Ironically, by the end of the flight I would have gladly paid over a thousand rupees for a single biscuit following the culinary journey of hell I was subjected to at the hands of your corporation.’ The passenger attached photographs of a sponge dessert served with tomato and peas, and a heap of yellow liquid which he assumed was custard but was in fact mustard – ‘More mustard than any man could consume in a month.’ Starving and distraught, the passenger reached for the cookie on his tray, which came, he wrote, in a ‘baffling presentation’. The photograph, he told Branson, suggested that the cookie was an ‘evidence bag from the scene of a crime. A crime against bloody cooking. Either that or some sort of back-street underground cookie, purchased off a gun-toting maniac high on his own supply of yeast … Imagine biting into a piece of brass, Richard. That would be softer on the teeth than the specimen above.’ Exhausted, the man tried to enjoy ‘your world-famous onboard entertainment’. He attached a photograph of the image: ‘It’s just incredibly hard to capture Boris Johnson’s face through the flickering white lines running up and down the screen … I was the hungriest I’d been in my adult life and I had a splitting headache from squinting at a crackling screen.’ He ended his letter: ‘My only question is: How can you live like this? I can’t imagine what dinner round your house is like. It must be like something out of a nature documentary.’ The apology from Virgin’s customer-relations department was perfunctory: an employee expressed surprise that the passenger had disliked Virgin’s ‘award-winning food which is very popular on our Indian routes’.

The complaint was an omen, and in autumn 2008 Branson’s
Schadenfreude
over BA’s crisis at Heathrow was replaced by a calamity of his own. In common with those of many other carriers, the finances of Virgin’s airlines had been wrecked by that summer’s financial crash. Virgin Atlantic’s profits, earned at BA’s expense, would turn into losses of £158 million in 2009. The
company’s flights to Mumbai were among those cut, stopped after just three years. Branson’s expansion into Africa had also imploded, and in Nigeria he was struck by what he called ‘Mafioso-style tactics’.

The potential for lucrative profits had lured Branson into launching a new airline in a notoriously corrupt country. Oil-rich Nigerians were paying fortunes to BA for transporting washing machines and other heavy packages as excess luggage from Heathrow to Lagos. Although Branson would say that Kofi Annan had urged him in 2004 to introduce safe planes into a country cursed by fatal crashes, he was also attracted by the potential profits. He planned to start Virgin Nigeria, an airline flying across Africa that would feed passengers on to Virgin Atlantic’s flights from Lagos’s MMIA airport to London and onwards to New York.

Branson had personally struck the deal to create Virgin Nigeria with President Olusegun Obasanjo in 2005. The president offered Branson concessions in oil and other commodities as an incentive to invest £24 million in return for a 49 per cent stake in the airline. Branson agreed that Nigerian businessmen would own the majority stake. Virgin Atlantic leased six Boeing 737s and transferred them to the new Nigerian airline. However, soon after, Branson and his partners argued: the Nigerians wanted Virgin Nigeria to fly to London and New York, while Branson rejected establishing a competitor to his own airline. After some pressure, he agreed that Virgin Nigeria could fly between Lagos and Gatwick in an old Airbus 340. ‘You want our airline to fail,’ Branson was told by a partner.

Four years later, President Obasanjo left office. His successor, President YarAdua, assumed that Branson and the ex-president had a close working relationship. Seeing that Branson’s bond with his Nigerian partners had crumbled, a member of the president’s entourage ended Virgin’s investment violently. ‘The
Nigerian government ignored our contract and sent in heavies to smash up our lounge in Lagos airport with sledgehammers,’ Branson complained. His appeal to President YarAdua for protection against the violent ‘dream killers’ was rejected. Branson accepted the thugs’ message, abandoning the airline and losing his money. ‘I think Branson needed to understand the local environment,’ observed Jimoh Ibrahim, a Nigerian businessman, after buying the debris.

Misfortune also disrupted Virgin Blue. At the end of 2008, the airline’s A$98 million profit had turned into a loss of A$160 million. The shares fell from $2.80 in February 2007 to 29 cents, making the airline worth just A$170 million. Amid fears of an influenza pandemic and ferocious competition, staff were fired and aircraft sold. Paul Little handed control of the airline back to Branson. ‘The economy is fucked,’ said Branson in 2009. He predicted ‘spectacular casualties’.

In a financial crisis, Branson’s characteristics were revealed. Virgin, he had often declared, took care not to fire any staff by arranging job shares, part-time work and voluntary unpaid leave. His employees, he repeated, were embraced as members of the Virgin family. ‘At least if you’ve got a job, you’ve got your dignity and you’ve got some money coming in,’ Branson had told a crowd in Los Angeles while unveiling a new Virgin Boeing 777. ‘But for those people who are out of work it can be very, very devastating.’ The benevolent self-portrait created by Branson was not quite accurate. To protect his own airlines from insolvency in 2009, he forgot his sermons about Virgin’s focus on the consumer’s interest and on caring for his workers, described by him as ‘the Virgin family’: that year, Virgin Atlantic fired 15 per cent of its staff. Those who remained were meant to be reassured by Branson’s family mantra, but that comfort had been rattled by his disdain for employees seeking trade-union protection. ‘Say “no” to the old way of flying,’ he had advised
Virgin America’s new staff when considering membership of the Transport Workers Union. ‘And say “no” to the TWU.’ The price of seeking trade-union protection, he said, was the loss of the Virgin family’s ‘uniqueness and independent spirit’. Momentarily, there was a stand-off.

Branson was similarly unamused when 4,800 Virgin Atlantic cabin staff threatened a four-day strike, protesting that their pay compared unfavourably to that of BA staff. ‘For some of you,’ Branson wrote in an open letter, ‘more pay than Virgin Atlantic can afford may be critical to your lifestyle; and if that is the case you should consider working elsewhere’. The paternalistic image was damaged. ‘What Branson did’, a union leader told Steve Ridgway, ‘isn’t sobering but shocking. He’s saying it’s his train set and he’ll do what he likes with it. But what about his employees? Where does that leave them?’

Virgin’s cabin staff eventually backed down. Branson had made no concessions, but a new strike was threatened by the company’s pilots. The income gap between those at Virgin Atlantic and those at BA had increased. Virgin’s pilots were convinced that Branson was concealing the airline’s profits in a myriad of offshore accounts. To offer reassurance, Ridgway had allowed accountants retained by BALPA, the pilots’ trade union, to scrutinise the airline’s financial records. To the accountants’ surprise, the airline appeared to be spending more than it was earning and lacked cash reserves. Baffled but not impotent, the union eventually negotiated a 13 per cent pay rise over three years and a share of future profits. The latter would not be forthcoming. Virgin Atlantic was struggling – not just for profits but also for survival. As his options narrowed, Branson’s invective became more strident, especially against BA, itself weakened by strikes and the financial crisis.