Friday, 6 December 2013

My review of the new biography of Tony Ryan, founder: GPA, and Ryanair.

This was first published in Business Plus magazine.

There is no disputing the lasting legacies of Tony Ryan. The enormous Irish aircraft leasing sector is one. Ryanair is another. But a reading of Richard Aldous’ new biography begs the question: was he really such a good businessman?

Truth is, not everything Tony Ryan touched to turn to gold. An example was one of his earliest non-GPA investments, the now defunct Sunday Tribune newspaper. In 1983, Ryan agreed to fund the weekly’s relaunch with Vincent Browne as editor. Ryan assumed that he and his lieutenants could contribute their commercial wisdom towards the paper’s eventual success. But little common ground emerged between Ryan and Browne, who resented any interference in the conduct of the newspaper’s affairs, causing Ryan to abruptly abandon his investment.

Ryan also took a disastrous punt at the Bank of Ireland, which he reckoned could be hauled out of the eighteenth century and into the late twentieth. This venture came close to permanently clipping Ryan’s wings as he staked everything he had to raise $80m from Merril Lynch to acquire a 5% shareholding in the bank. He demanded and received a seat on the board, but in retrospect one has to ask, what on earth was he smoking? As a buyer, lessor, and seller of aircraft, Ryan understood many of the subtler aspects of worldwide capital funding like few others. But did that make him an expert on retail banking?

There’s no question that Ryan fondly imagined that his Midas touch, which saw him transform aircraft leasing from a cottage industry to becoming a key part of the repertoire of running airlines worldwide, could be applied to almost any industry. But, as we see later, it didn’t apply to running an airline, and even his final stewardship of GPA leaves his management talents open to serious question.

Ryan’s hope of transforming Bank of Ireland into a more foot-sure and profitable outfit from his perch on the board was soon dashed, because he had (or was allowed) little influence. The value of his shares nosedived and he dumped them for little more than half what he originally paid, leaving him in debt to Merrill to the tune of $35m. There is more than a hint in Aldous’ biography that the overhang of this debt may have warped Ryan’s thinking and led to the mayhem which preceded, and indeed followed, GPA’s failed IPO.

Tony Ryan’s outstanding business achievement was GPA, the aircraft leasing company he established as a joint venture between Aer Lingus, his former employer, and London merchant bank Guinness Peat. Ryan took it from an initial investment of £50,000 to a putative value of around $3 billion in 1991. He grew GPA from a simple brokerage operation to being one of the largest non-airline owners of aircraft in the world, with a significant share of the international aircraft leasing market.

Despite having a bank as a major shareholder, Ryan largely blazed an independent financing trail, and raised most of GPA’s working capital in the form of debt, bonds or preference shares, augmented ingeniously by the securitisation of lease packages. Despite being a constant item on the GPA agenda and increasingly demanded by lenders, the raising of additional equity finance was continuously put on the long finger, an omission for which Ryan alone must shoulder the blame.

In 1991 Ryan finally agreed that GPA must go public, though the timing was unfortunate. In the aftermath of the first Gulf War, global economies were slumping and aviation was tanking. What would have been a sell-out proposition a year or two earlier now looked like a bad idea. For a raft of reasons, the IPO, even at $10 a share (Ryan had wanted more), was greatly undersubscribed and was pulled by Ryan.

Buried within the small print of several major financing deals for some of the $12 billion worth of new aircraft GPA had ordered were covenants that required the raising of fresh equity. Without the IPO, these were triggered and lenders headed for the exits. Before long GPA was circling the wagons as cash dried up. GPA’s days as an independent aircraft leasing company were numbered and it was snapped up by GE’s leasing arm.

Ryan had been depending on the IPO to make him a rich man and without it he couldn’t pay back his debt to Merrill Lynch. Fortunately some clever bargaining by Ryan, astutely aided by his new sidekick Michael O’Leary, saw Ryan’s remaining major asset, shares in Ryanair, put beyond Merril Lynch’s reach, and the debt was bargained down to a mere $4.5m.

At the time, Ryanair wasn’t worth much anyway. The startup airline that was set up to compete with Aer Lingus on the Dublin-London route been lossmaking throughout the 1980s, requiring upwards of £20m of Ryan’s cash to keep it afloat. Successive chief executives were wheeled in to stem the losses, and it wasn’t until Michael O’Leary took the helm that Ryanair turned into a money-spinner.

With the benefit of hindsight, it is clear that Tony Ryan didn’t have a strategic vision for Ryanair, except to keep ploughing in cash in the hope that something would turn up. O’Leary, Ryan’s onetime PA, devised a clear and highly successful vision for Ryanair. According to Aldous, Ryan seems to have taken some convincing about the airline’s new flight path of cheap and not cheerful. Relations between the two were often soured as Ryan took trenchant issue with some of O’Leary’s policies. For his part, O’Leary was determined that Ryan was not going to cramp his style.

When Ryan became chairman in 1995, O’Leary informed him that Ryanair would be low cost “at the expense of style, charm and elegance”. Ryan was also warned there should be “no distractions, no coups.” When Ryan announced his ambition for Ryanair to move to a military airfield in west Dublin, O’Leary publicly shot down the idea. Ahead of Ryanair going public, Tony Ryan was replaced as chairman by American tycoon David Bonderman. Although Ryan remained on the board during the IPO and afterwards, he no longer played any significant role in the airline’s affairs.

In the end of course, the smartest thing Tony Ryan ever did was trusting Michael O’Leary to lead Ryanair. As a result Ryan became enormously wealthy and lived the high life until his death from pancreatic cancer in 2007, at the age of 71.

Richard Aldous paints an intimate warts-and-all portrait of a very combative man who, from very humble beginnings, achieved greatness but not without enduring severe setbacks along the way. The way Aldous tells it – and his authorised biographer status gave him access to papers not available to other writers - the stoic manner in which he endured and survived those setbacks is as much a measure of the man as the aggressively innovative way in which he carved out his aircraft leasing empire.

No comments:

Post a Comment