Branson: Behind the Mask (8 page)

The party served another serious purpose. Over the previous months, Branson had been under pressure to prove Virgin Galactic’s financial benefits and that it would be environmentally neutral. Virgin’s publicists categorised the six millionaire passengers on each trip as ‘eco-tourists’, but a
Washington
Post
writer had described the venture as an example of when ‘narcissism trumps common sense and pollutes the fragile atmosphere the rest of us must breathe’. The comment, the publicists realised, attacked Branson’s repositioning as a campaigning environmentalist who used his airline’s profits to save mankind. Branson’s reply to his guests was reassuring: ‘James Lovelock has told me that he thinks that what we’re doing is one of the most important industrial projects of the twenty-first century. I consider space to be the final frontier that is so essential to the future of civilisation on this planet.’ The future of industry, communications, energy and even food, continued Branson, depended on man conquering space. The world’s 9 billion population – ‘three times more than when I was born’ – could be sustained only by developments in space. ‘With the end of the oil era and climate change progressing faster than most models predict,’ he emphasised, ‘the utilisation of space is essential to the logistics of our survival.’ Space, he repeated, was the only remedy to the world’s overpopulation and the rapid depletion of oil and minerals. Virgin Galactic would save mankind from starvation.

Branson’s speech ended in a mumbled anticlimax. Despite his popularity as a speaker, his set-piece public addresses usually lacked fluency or flourish. Hovering behind him was Princess Beatrice, the Queen’s granddaughter. Her presence was assumed to be connected to Branson’s friendship with Sarah Ferguson, the Duchess of York, but it was also linked to Beatrice’s association with Dave Clark, a salesman for Virgin Galactic. Just as Burt Rutan was about to speak, Beatrice and Clark were spotted arguing and then disappearing.

Branson often feared what Rutan might say, but even he could not have foreseen his partner’s warning. ‘Our goal’, Rutan told his audience, ‘is making spaceships at least as safe as the early commercial airliners which were introduced in the late 1920s … Don’t believe anybody who tells you the entry level of the new spacecraft will be as safe as the modern airliner.’ The warning could have alarmed the audience, but looking around Rutan could see that no one took his pessimism seriously. The only handicap was the timetable. Every deadline Branson had mentioned since 2004 had been missed. In future, to give the impression that Virgin Galactic’s safe launch was on course, he planned to stage regular ‘unveilings’.

One year after the explosion, on 24 July 2008, a memorial service was held outside the Voyager diner in Mojave for the three dead engineers. In a sheltered space near a model of SpaceShipOne, a motley plaque was unveiled for an event which remained unexplained to the public. Branson’s absence guaranteed the deaths would remain forgotten outside the space community. Four days later, he landed in Mojave in his personal Falcon 900EX jet, called
Galactic
Girl,
with his eighty-four-year-old mother, Eve. The Falcon’s tail fin was decorated with Virgin Galactic’s livery. With a top speed of 662 mph, the private jet carrying fourteen passengers appeared to contradict Branson’s environmental credentials. ‘Richard lives a certain lifestyle,’ explained his aide, ambiguously.

Virgin Galactic was emerging as a godsend in Branson’s campaign to elevate the Virgin brand in America. Virgin America’s flights between San Francisco and New York had started. To create publicity, Branson arranged for 150 journalists to be flown from San Francisco and Los Angeles to Mojave on the new airline. They would witness the roll-out of WhiteKnightTwo, the specially built plane which would carry the Virgin Galactic
rocket to 50,000 feet. Attracting such a remarkable number of journalists guaranteed global attention.

Burt Rutan led the visitors along the tarmac to Scaled’s hangar, where he revealed a large shape draped with a white sheet. ‘SpaceShipTwo,’ confided Virgin’s publicists, playing the first of several favourite lines. ‘The rocket will be ready for testing and flying next year.’ Their assertion proved to be untrue, but since, according to the same publicists, 100 people had paid the full $200,000 for a ride and 175 had paid a $20,000 deposit, the promise needed to be kept alive. ‘We’ve already had a number of inquiries’, Will Whitehorn told journalists, ‘from people about whether they could be the first to have sex in space. But we haven’t accepted their bookings.’

Accompanied by music and melodrama, WhiteKnightTwo was unveiled on the tarmac. ‘One of the most beautiful and extraordinary aviation vehicles ever developed,’ Branson told his guests, all gazing at the twin-fuselaged plane with a 140-foot single wing, powered by four Pratt &
Whitney engines. No one doubted the grandeur of the moment. Rutan’s catamaran was three times bigger than WhiteKnightOne, the plane used for the original flight.

Amid the emotion, the visiting journalists did not notice a small hangar adjacent to Scaled’s rented by XCOR, a rival space-flight developer managed by Andrew Nelson. Unlike Virgin Galactic, XCOR’s Lynx rocket motor had been successfully tested thousands of times. And unlike Rutan’s hybrid engine, which needed to be dismantled and refitted to the spaceship after each flight, XCOR used a fill-up-and-go rocket powered by kerosene ignited by liquid oxygen which could be reused hundreds of times, saving money and time. While Virgin Galactic would be launched from WhiteKnightTwo after an hour’s flight and would take about an hour to return to a runway, XCOR’s cheaper rocket would, according to its designers, reach space from Mojave in
just thirty minutes. Unlike Branson’s fascination for space tourism, XCOR aimed to deliver payloads into space and carry a single passenger for $100,000. Some of Virgin Galactic’s customers had also reserved places on XCOR’s rocket. Branson was not unaware of XCOR’s advantages. As he openly confessed, he was wholly uneducated about space technology, so he was equally unaware that Virgin had rejected the offer of a stake in Reaction Engines, a more advanced British rocket venture based in Oxfordshire. ‘We don’t finance the development of new ideas,’ Virgin had explained.

On the same day as Branson’s party in Mojave, XCOR’s executives had headed to the annual aviation exhibition in Oshkosh, Wisconsin. Alongside their Lynx spacecraft was the Dragon, made by SpaceX, Virgin Galactic’s biggest competitor. The brainchild of Elon Musk, the billionaire inventor of PayPal, SpaceX was negotiating substantial contracts with the American government for delivering payloads to the space shuttle.

Branson and Rutan appeared oblivious to their competitors when they belatedly arrived in Oshkosh. Amid laughter and applause, they pushed through the crowds in Pavilion 7 describing the previous day’s excitement. ‘The signal that we wanted to get across’, said Branson, ‘is that we are getting ready for business.’ To his audience of believers, he described a new industry and a new way of life – something nearly beyond the imagination. ‘You’ll soon be flying with Virgin around the moon and to a Virgin resort hotel in space,’ said Rutan. ‘Today, I think that can happen in my lifetime.’ Take-off, added Branson, could be the following year – 2009. No one mentioned that Virgin Galactic still lacked a viable rocket motor. And even when it was fully developed, it might never be capable of flying in space.

Branson had arrived in Oshkosh in
Galactic
Girl.
For a few, the sight of an environmental crusader jetting around in a Falcon promoting his space business was jarring. But the majority
applauded the unconventional maverick. Unlike the attitude of American billionaires, his rejection of the vulgar excesses normally associated with vast wealth encouraged confidence. His appearance – modest and genial – during his planned exposure in America would mask the reality of a tough British businessman intent on sealing profitable deals.

Since 1967, when he was seventeen, Branson had concealed his single-minded pursuit of money behind successive charades. Using seduction and salesmanship, he had charmed countless talented musicians, journalists, engineers, inventors, financiers, businessmen and women of all backgrounds. From student publisher to shopkeeper to music producer to airline owner and then simultaneously to investor in dozens of different ventures, his unthreatening manner rarely ceased to win his admirers’ trust and their sacrifice. Few remained unimpressed by his successful sale of Virgin Music and the launch of Virgin Atlantic, combined with his dazzling feats in speedboats and hot-air balloons. His victories and glory attracted universal worship – except from his victims. Many former friends, partners and advisers resented the small reward for their contribution to Branson’s ventures, especially those in the music business. Few properly understood his instinct to spot their personal weaknesses and his skill at concealing his own. None had grasped that the embrace of the Virgin family implied ownership by the proprietor. Enthusiastically, each offered unqualified loyalty to Virgin executives acting as creative catalysts. Then, the relationships soured. Collaboration meant subservience, not equality. Occasionally, their joint businesses crashed. The consequence of their misjudgement was debilitating. Talented men complained that their trust had been abused. They had flocked to team up with a famous hero only to be disappointed. Betrayal left a sour taste. While telling their stories, grown men became tearful. They slunk silently away, bruised and defeated. Scattered across the world, they blamed
misplaced faith in Branson for signing contracts tilted in his favour. They were bewildered by their misjudgement, and their self-esteem had plummeted. In public, nothing was said; confessions of failure were not a good advertisement for future business projects. Any reservations they dared to utter about the global hero were invariably swept aside by a man who, even when defeated, elicited sympathy rather than rebuke.

In 1999, Branson’s financial crisis and his failure the following year to land the national-lottery licence could have provoked carping. Instead, he was praised for selling a 49 per cent stake in Virgin Atlantic to Singapore Airlines in a turbulent market; and in 2002, he was admired for pocketing a huge profit from Virgin Blue, a new Australian airline. Overlooked was Virgin Atlantic’s weak management, lumbered by rising costs and falling revenue. After 2004, his airline’s finances were again threatened. Taking risks to survive was Branson’s gospel but, to save Virgin Atlantic, the corporation’s cure had been perfidious: Virgin executives broke the law. And the fuse of their criminality had been lit, the British government’s prosecutors would claim, with Branson’s knowledge.

Seven months before Branson stood on the podium in Manhattan with Bill Clinton to pledge $3 billion to the environment, senior executives employed by the world’s major airlines were enjoying a gala dinner in Hong Kong as guests of IATA, the industry’s global representative. Gradually, conversations on every table were interrupted as the executives – one by one – answered incoming calls or read messages on their mobile telephones. Dark-suited men paled, stood up and left the atrium with phones still clasped to their ears. Their reaction was replicated across the world.

At 6 a.m. New York time on St Valentine’s Day 2006, police in America, Europe and Asia had waved search warrants and entered airline offices, seizing records and computers. Shortly after, lawyers arrived to serve subpoenas demanding that the airlines’ executives answer questions regarding an illegal cartel. According to the subpoenas, since the late 1980s the airlines had secretly fixed the price of cargo shipped across the world. By removing competition, the airlines had profited at the public’s expense.

The tip-off about the crime had been passed to the Department of Justice in Washington DC by lawyers representing Lufthansa, the German airline. By confessing, the company hoped to avoid a massive fine. At the direction of the department’s lawyers, over one hundred FBI agents in New York had raided offices at Kennedy airport, including those of British Airways and Virgin Atlantic. Simultaneously, buildings were raided in other
countries, including BA’s offices at Heathrow. In every country, the police departed with files, computers and downloads of emails.

Sifting through the evidence, the US Department of Justice’s lawyers found proof implicating BA and Virgin Atlantic in the cargo cartel. With limited resources, the lawyers decided to focus on twenty airlines, including BA. By virtue of its size, Virgin was classified as a fringe participant and excluded from the investigation.

Unaware of their client’s escape, Virgin’s lawyers continued to scrutinise the information submitted by the department about the conspiracy. The potential penalty for each guilty airline was 10 per cent of their annual revenue: BA was facing a fine of £850 million; Virgin’s fine would be £180 million. For BA, buffeted by a pension-fund deficit, rising oil prices and industrial problems, the financial penalty was crippling. For Virgin, it could be fatal.

In June 2006, the department’s lawyers asked each airline: ‘Was the same price-fixing happening on the other side of the house – on the passengers’ side of the business?’ Unanimously, the airlines replied, ‘No.’ Cargo, the airlines including BA explained, was a self-contained village on the far side of airports staffed by different people. The Department of Justice accepted those denials, without specifically noting that the only airline failing to deny the suggestion was Virgin.

Virgin Atlantic’s lawyers in America had asked the company’s executives whether other types of price-fixing had been discussed with any rival airline. In reply, Willy Boulter, the director of sales, admitted a secret relationship with Alan Burnett, BA’s sales director. Starting in 2004, explained Boulter, directors at Virgin and BA had discussed the Passenger Fuel Surcharge – an additional fee each passenger paid to cover rising fuel prices. Both airlines, according to Boulter, had secretly agreed to avoid mutually damaging competition by imposing the identical surcharge
on passengers on the same date. The arrangement, said Boulter, had ended in early 2006. Virgin’s lawyers concluded that the discussions amounted to a criminal conspiracy to fix prices.

Considering the appalling relationship between the airlines since Virgin Atlantic’s creation in 1984, few would have imagined that the two corporations might have conspired together. But the information the lawyers received was unambiguous. Steve Ridgway, Virgin Atlantic’s chief executive since 2001, had approved the secret discussions with BA’s executives and, according to the prosecution in the subsequent trial, ‘Ridgway did reveal to Sir Richard Branson at some stage that he had some sort of contact at British Airways.’ That allegation would be repeated by a defence lawyer, who would tell the jury that while Branson’s ethos for his airline was ‘fierce competition’, Branson ‘knew about’ the secret discussions with BA about fixing the surcharge. As the prosecutor would tell the jury in 2010, ‘You may conclude as you look at the documents and you hear from the witnesses that he [Branson] certainly had an interest in the pricing policy of the airline, Virgin.’ Or, as another defence lawyer alleged, ‘Sir Richard Branson was kept informed of any information or discussion regarding the Passenger Fuel Surcharge. He knew about it.’

Four years earlier, in 2006, Branson was told by his lawyers, who were still unaware that the airline had been excluded from the US Department of Justice’s investigation, that discovery of the discussions about the fuel surcharge with BA could trigger a second ruinous fine. Escape was possible, his lawyers advised. Under American law, the whistleblower of a crime received immunity from prosecution. If Virgin was the first to confess to the Department of Justice, the airline and its executives could avoid fines and imprisonment. The lawyers recorded interviews with three Virgin directors. All three admitted discussions with BA’s executives but denied knowing that their conversations and
agreements were criminal. Soon after, with Branson’s approval, Virgin’s lawyer approached the Department of Justice.

Scott Hammond, the department’s liaison officer, had not expected the lawyer’s telephone call. Until that moment, investigators were unaware of any conversations between Virgin and BA about the surcharge. Nor, they subsequently admitted, would they ever have found any trace of that secret. If Virgin’s executives, with Branson’s agreement, had not initiated the confession, their agreements with BA would not have been exposed.

‘Virgin wants to put down a marker about fixing the Passenger Fuel Surcharge with British Airways,’ said the Virgin lawyer. ‘Are we the first?’

‘Yes’, replied Hammond, disguising his surprise.

‘I want you to hold our place in the amnesty,’ said the lawyer.

‘You’re the first. You’ve got thirty days to perfect your marker and tell us if you’ve got something or not.’

Before the end of that period, Virgin Atlantic and its three senior executives formally confessed to the crime, and in exchange were granted immunity from prosecution and any punishment. The agreement was kept secret until, on 10 March 2007, Virgin’s lawyers approached the Office of Fair Trading (OFT) in London to admit the company’s involvement in a criminal cartel with BA and again ask for immunity from prosecution.

According to Virgin’s confession, the conspiracy with BA had started with a telephone call in August 2004 between Paul Moore, Virgin Atlantic’s director of communications, and Iain Burns, his counterpart at BA. Who initiated the call was disputed, but the content of the conversation was agreed. The two men discussed the time and date both airlines would announce the increase of a Passenger Fuel Surcharge to £6. After both referred their discussion to their superiors, the first of several secret agreements was implemented: both airlines would announce their own surcharge on the same day. The background
to that first conversation reflected Branson’s financial problems over the previous years.

The terrorist attacks on New York and Washington in September 2001 had cost Virgin Atlantic about £100 million over the following year. Despite Branson’s confident prediction that his airline would recover within three years, he had postponed the delivery of the new Airbus A380 double-deckers, saying some airports were not ready for the planes. The excuse was denied by Airbus’s spokesman, who added that no other airline had delayed delivery. To protect Branson from embarrassment, nothing more was said, but Virgin abruptly terminated publicity of Branson’s colourful promises about parties in the sky in the new plane’s bars and mile-high sex in its double beds. To conceal Virgin’s financial reality – and the airline is still not flying an A380 – Branson resorted to gimmicks to embarrass BA.

His first machination followed Concorde’s crash in Paris in 2000, which killed 113 people. In the aftermath, Air France and BA decided, on the manufacturer’s recommendation, to abandon the loss-making and unserviceable supersonic plane. Branson criticised that decision. Virgin Atlantic, he said, wanted to buy and fly Concorde. In 2003, he offered BA £1 for the aircraft, the price he said the airline had originally paid. When BA refused, Branson demanded that they should repay £600 million to the government in compensation for what Branson called the ‘hoodwink’ in the early 1980s. Next, he demanded that Tony Blair, the prime minister, save Concorde. Many were puzzled by his sustained attack. Concorde usually flew half full, lacked spare parts, cost a fortune in fuel and damaged the environment. Yet Branson, despite his financial problems, insisted that Virgin wanted to inherit the plane. The government refused. ‘Branson’s just looking for publicity,’ was BA’s comment.

His next wheeze occurred during Virgin Atlantic’s inaugural flight to Australia. Branson offered his passengers sick bags
decorated with the ill-fated ethnic designs which BA had painted on the tails of its aircraft. BA had discarded the designs amid ridicule.

The third ploy reflected Branson’s habit of enjoying a competitor’s discomfort. In the aftermath of 9/11, Branson pointedly mentioned BA’s financial difficulties, especially as a result of rising fuel prices. Most dismissed his jibes as irrelevant. Virgin Atlantic was a minnow, ranking tenth in terms of passengers carried on the transatlantic routes, and his airline was weakened by his refusal to join a code-sharing alliance with other airlines. But his biting comments did affect BA’s struggle to survive.

To compete against the two major alliances created by other European airlines with two American giants – Delta and United – BA wanted to forge an alliance with American Airlines. Branson deemed BA’s survival plan a threat to Virgin Atlantic’s independent existence, and in 1996 he had orchestrated a blockbuster campaign in London and Washington to persuade the two governments to prevent BA’s alliance with AA. In 2004, the circumstances changed, when the EU and the US government annulled all restrictions on transatlantic travel. Among the casualties was the Bermuda Agreement of 1976, which had limited access for flights from America to Heathrow to two American and two British airlines, one of which became Virgin. Overnight, Virgin’s lucrative protection at Heathrow disappeared. Branson, as the champion of competition, should have welcomed the benefits to travellers but, since his profits were threatened, he protested.

He railed against BA’s new bid for an alliance with AA, yet approached Sheikh Ahmed Al Maktoum of Dubai to discuss co-operation between Virgin Atlantic and Emirates airways. Branson’s good fortune was that the public ignored his contradictions. Few ever quite understood his undisguised fears about fuel prices. In public speeches, he often mentioned that ‘I am building bioethanol factories to get an alternative to oil and cut
Virgin Atlantic’s fuel bill.’ He would even repeat his mantra during a visit to Dubai while opening a Megastore.

In early August 2004, alarmed that Virgin Atlantic’s finances were being jeopardised by rising fuel prices, Branson began speculating with his executives about BA’s reaction to the increases. Would BA levy a higher fuel surcharge? For Branson, BA was the elephant threatening his survival, but his obsession was not reciprocated. BA regarded Virgin Atlantic as one of many small competitors, albeit an unreliable irritant. Considering the historic enmity between Virgin and BA, the likelihood of BA executives inviting Branson to join a conspiracy to fix the surcharge was low. But the evidence presented by the prosecutors in Washington and later London, based on the information supplied by Virgin, suggested the opposite.

In the first days of August, Virgin executives decided to increase the fuel surcharge by £5. Soon after the decision was taken, Branson asked Paul Moore to discover from journalists whether BA intended to levy a higher surcharge than Virgin. Moore reported to Branson that BA was briefing selected journalists that their surcharge would increase.

Soon after, Branson telephoned David Parsley, a sympathetic financial journalist employed by Express Newspapers. ‘British Airways’, said Branson, ‘are going to increase their surcharge.’ Branson was hoping that Parsley would discover the amount. After thanking Branson for the tip, Parsley called Iain Burns, who confirmed that BA’s surcharge would increase from £2.50 to £6, or possibly £8. The newspaper would publish Parsley’s discovery three days later. According to the defence lawyers in the subsequent trial, the timetable laid suspicion at Branson’s door. After speaking to Parsley, stated BA’s lawyers, Branson told Moore to call Burns. Branson, it was alleged, did not want Virgin to take the lead and make the announcement alone.

If that scenario was true, then Moore would appear to have
made the first call. However, supported by Virgin’s executives, Moore emphatically denied taking the initiative and starting the conspiracy. After all, that admission would have cast Virgin as the architect of the crime. The obfuscation benefited Virgin because, from the outset of the Department of Justice’s investigation, the American lawyers appeared not to have sought evidence to contradict Moore’s version of how the subsequent discussions between Virgin and BA about further increases in the fuel surcharge occurred.

‘This is a conversation we’re not having,’ were the undisputed opening words of the telephone conversation on 6 August 2004 between Moore and Iain Burns. To establish BA as the villain behind the alleged conspiracy, the prosecutors in America and Britain relied on statements signed by Moore alleging that Burns had called him first, thus casting Burns and BA as responsible for initiating the conspiracy. Burns would deny the accusation. His lawyers would say that Virgin’s attempt to incriminate BA was a distortion of the truth.

The two men did, however, agree about the content of the first telephone call: Burns revealed that BA was planning to impose a surcharge of £6, while Moore disclosed Virgin Atlantic’s agreement to impose a £5 surcharge on long-distance flights. Moore’s testimony about the events that followed was critical to the prosecution. He would say that after Burns called him ‘out of the blue’, he went immediately to see Steve Ridgway, who in turn summoned Willy Boulter, Virgin Atlantic’s commercial director. Moore told them, ‘You won’t believe the call I’ve just had from British Airways,’ and then read his recollection of the exchange from his notebook. Virgin’s two executives decided that the airline should agree with BA on the timing of the announcement and match the amount of the surcharge.