Frustrated by concerns within Aer Lingus and the Guinness Peat Group about their financial exposure, Tony began looking around for other ways to get more investment into the company. One way to achieve this was through collaboration with another airline. Tony had already had some dealings with Air Canada through leasing negotiations with Air Jamaica, which was part-owned by the Canadian airline. Air Canada’s president, Claude Taylor, had praised the professionalism and dedication of the Irish company during those negotiations. When Tony suggested that there might be an opportunity to join forces, Taylor sent a vice-president to the west coast of Ireland to discuss the matter over lunch and a round of golf. This began a long period of complicated negotiations over several years. There were no lengths that Tony would not go to in order to achieve a deal, including, Graham Boyd recalls, leg-wrestling on the floor of a Montréal restaurant with the wife of an Air Canada VP.
Tony’s initial plan was to establish a separate relationship with Air Canada, although it soon became apparent that a joint venture with a non-Canadian company would cause ‘political embarrassment’ in Montréal for the state carrier. Not wanting to lose the deal, Tony went to the GPA board to argue that Air Canada should be allowed to buy into the company. It was an easy suggestion for Tony to make, as his own 10 per cent share would remain undiluted in the process.
Having previously been infuriated by the timidity of the GPA board, Tony now turned those same concerns back on them. Why not spread the risk, he argued, by bringing in greater investment? GPA was now exposed to the tune of $2 million. That figure ‘would be eliminated by Air Canada taking a significant stake in the company.’ Moreover, the sixty aircraft the Canadians were planning to lease through GPA promised profits ‘of at least $20 million’.
When Tony presented his plan to the board, the Aer Lingus representatives were incensed. To some extent their reaction stemmed from a wariness about sharing an Aer Lingus spin-off with another airline. But the real anger came because they felt that Tony had acted outside his authority. The non-executive director, Maurice Foley, expressed fury that Tony had presented the board with a ‘fait accompli’. What followed, noted the chairman of the board, Geoffrey Knight, was ‘very abrasive’.
Over the course of several meetings Tony persistently clashed with Foley about the project. He demanded that the board recognise what a deal with Air Canada might mean for the future of GPA. ‘The fact that one of the world’s leading airlines is willing to consider such an offer shows remarkable faith in the business and management of GPA and is our most exciting development to date,’ he told them. GPA could only win from such a ‘liaison with one of the world’s major scheduled airlines.’ There was now ‘the very real possibility of Air Canada going it alone’ if it was pushed out of the GPA deal. Instead of a new investor, GPA would end up with a new and powerful competitor.
In the end, Aer Lingus backed down, recognising that GPA had to get capital from somewhere. ‘GPA had grown successfully and needed more equity capital,’ the airline’s chief executive, David Kennedy, recalls. ‘Aer Lingus was reluctant to invest more equity but wished to continue its support.’ Although the Aer Lingus board members continued to express severe reservations, summed up by Foley as ‘the worry of GPA becoming dominated by Air Canada’, they grudgingly nodded through a recommendation to invite the North American airline to join GPA.
To seal the deal, Kennedy held personal talks with his Air Canada opposite number at an International Air Transport Association conference in Manila. Kennedy says he was
very friendly with Claude Taylor, and he and I got together at the airline meeting. I told him that Aer Lingus was very supportive; we believed the company was well run and that it was likely to continue to grow successfully. Air Canada then came in as equal partners.
In May 1980 Air Canada took a 29.3 per cent share in GPA for an investment of $7.3 million.
Whatever Kennedy told Taylor, the process of bringing Air Canada into GPA had revealed the extent of distrust towards Tony that existed on the GPA board and within Aer Lingus. There was a feeling that he had got too big for his boots, was too sharp and had too little respect for the Aer Lingus tradition. Kennedy suggests that there was
a very strong sense of loyalty throughout the company. The concept of public service was actually very strong and meant something to us. Tony Ryan’s was a different approach—a different business culture. And it would have made some people uncomfortable, to say the least.
This clash of cultures came spectacularly to the fore immediately after the partnership with Air Canada had been forged. In the summer of 1980 Tony stunned Aer Lingus with plans for his own airline to compete on routes with the national carrier. It was the beginning of the road that would eventually lead to Ryanair.
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Competition had become the name of the airline game by 1980, with the United States taking the lead. In 1976 Senator Edward Kennedy had begun congressional hearings on the government’s regulation of the airlines, primarily trying to flush out why prices were so high. The following year a new president, Jimmy Carter, made deregulation a central plank of his administration. To lead the Civil Aeronautics Board he appointed Alfred Kahn, an Ivy League professor who had made his reputation with a pioneering study, The Economics of Regulation. ‘Wherever competition seems feasible’, Kahn declared, ‘my disposition is to put trust in it much the same way as I do in democracy—as a manifestly inefficient system that is better than any of the alternatives.’
Kahn quickly began to dismantle fare and route controls, working to ‘remove the meddling, protective and obstructionist hand of government, and to restore this industry, insofar as the law permits, to the rule of the market.’ Indeed, where the law did not permit, he changed it. In 1978 the US Congress passed the Airline Deregulation Act, which liberalised the airline market by allowing for new carriers and cheaper fares. As if to lead by example, Kahn also made his own federal agency redundant, declaring that CAB would close for business on 1 January 1985.
One of the most prominent new entrants into the market was Freddie Laker’s Skytrain, which from 1977 offered a low-price, no-frills transatlantic service. Pan Am, the American market leader on the route, made its contempt clear, with one executive noting that everyone would now ‘have the pleasure of losing money together’. To see off the Laker challenge, Pan Am and other leading International Air Transport Association airlines soon launched a price war with Skytrain that would put Laker out of business by 1982. It was an early indication that, in a deregulated market, plucky newcomers would have to fight hard not to be eviscerated by the big beasts of the industry.
Deregulation in Ireland would have to wait until 1984, when a parliamentary revolt over an ‘anti-competitive’ Air Transport Bill led to an upheaval in the Irish airline industry. Sean Barrett notes in Deregulation and the Airline Business in Europe that in the last year of regulation the protected Aer Lingus had 2.2 million passengers; by 2008/9 four Irish airlines in the deregulated market carried 72 million passengers, of which Ryanair had some 68 million. However, at the beginning of the decade, according to Barrett, himself a key figure in the process of deregulation, ‘Ireland was an unlikely source of contestability in European aviation.’ Despite high fares, there was huge public affection for the national airline, with many seeing it as the projection abroad of Irish nationhood and céad míle fáilte. That sense of it as a national ambassador had been illustrated in September 1979, when an Aer Lingus Boeing 747 jet, St Patrick, brought Pope John Paul II to Ireland. It was the first time a pope had flown any airliner other than Alitalia (offering in its own way a pontifical boost for airline deregulation).
Politically, too, Aer Lingus remained tightly bound to the instruments of the state. Crucially, the airline kept an unyielding grip on the regulatory functions of the Department of Transport, which meant that any attempts to bring down prices were ruthlessly crushed.
Yet if ever a country was in need of airline deregulation it was Ireland.
At that time, remembers GPA’s Graham Boyd,
Ireland and Portugal were about the only countries in Europe that had only a single, state-run airline. Aer Lingus and TAP Portugal were two of the most inefficient airlines in the world, with the worst passenger miles per employee. Monopoly state airlines were the worst. The passenger statistics on the London–Dublin route had not changed in twenty years because most people couldn’t afford to fly.
Tony Ryan saw an opportunity to shake up the market in this context of international deregulation and contrasting Irish stagnation. In the summer of 1980 he called Boyd over to Kilboy to discuss putting a proposal to the Government for a new licence on the Shannon–JFK transatlantic route. Joining them was the marketing and PR consultant Jim King. He would quickly become one of Tony’s most trusted lieutenants, known in GPA circles as ‘His Master’s Voice’ for his total loyalty and discretion. King’s initial doubts on his arrival from Dublin that weekend in June were not about the airline plan: he was horrified at how Tony was renovating Kilboy in a fashion more akin to a Californian ranch than to an estate of Georgian origins. King laughs that when they first met Tony was
visually ignorant, had no appreciation of painting, sculpture or anything like that. He had affection for craftsmanship, things like stone walls, but it’s an example of how he pursued what interested him.
Once King had put his aesthetic concerns to one side, he quickly recognised the radical nature of Tony’s idea.
He had already seen something in the leasing world and exploited it. Now it was the airline. He sensed there was change coming. He had no confidence that Aer Lingus would lead that change and knew he would be in conflict with them if he did it. But he simply went ahead anyway. He was a greedy man in the best sense: if this change was going to happen, he wanted to be in there with as large a position as he could get.
Tony’s initial proposal was a radical pitch to private investors and the Government for a new airline, Irelandia, to transform ‘the least-developed aviation nation in Europe’. Ireland needed another airline, Tony argued, not just to increase the efficiency of Aer Lingus but also to prevent foreign airlines filling an obvious gap in the market. The first phase of the operation would see Irelandia running flights out of Shannon to New York, Boston and London. Over time it would become a hub for flights to European, American and worldwide destinations. Fares on the initial transatlantic routes would start at the bargain price of £160 return.
By August, Tony had refined his pitch in a new draft.
The keystone of Irelandia’s operations will be low overheads, efficient operations and forceful marketing … Irelandia will respond to the deregulation philosophy currently implicit in American aviation policy and now gaining ground in Europe. Deregulation is a word that appears offensive to most national airlines; nevertheless, in the long term deregulation combined with competition is the only method by which the travelling public will enjoy low fares.
Tony kept working on his proposal for Irelandia throughout 1980, bolstering the conceptual language of the paper with hard data on potential directors, shareholdings, capital structure, plans and forecasts. Peter Ledbetter quietly met executives from the Shannon Free Airport Development Company, who told him they would ‘support the project in principle’ and advised on who might be sympathetic in the newly established Department of Industry, Commerce and Tourism, as well as in Bord Fáilte. ‘The way to succeed’, Ledbetter reported back, ‘was to have a strong local champion supporting the application and [they] mentioned the Minister for Industry and Commerce, or alternatively to have such a strong case that internal pressure within the civil service pushed the scheme to a valid conclusion.’
Fortuitously for Tony, the minister in question was Des O’Malley, to whom he gave regular briefings on Irelandia and the possibilities for deregulation. Less fortuitously for those plans, Fianna Fáil lost office in June 1981. It was reported by the news magazine Magill that O’Malley had been poised with ‘a proposal to “Lakerise” the North Atlantic operation … [and] that Tony Ryan of Guinness Peat should be allowed to run a service to New York from Shannon.’
Support from O’Malley would have helped Tony jump the difficult first hurdle for Irelandia: the opposition of Aer Lingus. Nevertheless, Ireland’s national carrier continued to be its own worst advocate during this time of international revival in the airline industry. In 1981 the company would lose £15 million on the North Atlantic route. ‘Aer Lingus has a total staff of 6,800, of whom 1,500 work on the North Atlantic operation alone,’ noted Magill. ‘They employ more people than they fly passengers per day.’ No wonder there were calls, fiercely resisted by Aer Lingus, for ‘Lakerisation’.
Deregulation may have been a dirty word in Aer Lingus, but when, in early 1981, executives at the company finally got wind of the full extent of Tony’s plans for Irelandia, the name Ryan became an even dirtier one.
‘It came to our attention in Aer Lingus that Tony was trying to set up another airline, Irelandia,’ David Kennedy recalls, ‘and at that time he was actually precluded contractually from starting an airline.’ Trust was even further eroded when Tony requested permission to buy an equity stake in the freight airline Aer Turas. Board members were instructed to administer a dressing down. Dick White, who had been the founding chairman of GPA, protested to Tony about ‘philosophical differences in the conduct of business’. Maurice O’Kelly of Guinness Mahon was even more forthright. ‘Tony, this is outrageous,’ he thundered. ‘You cannot, you should not be doing this, trying to set up an airline in competition to the airline that set you up. This is the wrong way of going about things.’
Tensions now quickly increased. When details of Tony’s plans leaked he threatened to issue the GPA board with an injunction. ‘Frankly, I was very concerned at the possible irreparable damage that such loose talk could cause,’ he submitted.
Fearing an unpleasant legal battle, Geoffrey Knight, chairman of GPA, telephoned O’Kelly in an attempt to mediate. Instead he only fanned the flames. The call, ‘the purpose of which’, said O’Kelly, ‘was to send to me a mild rebuke from Tony for discussing this matter, and my views thereon,’ became the final straw for him.
O’Kelly resigned from the board on 13 May 1981, offering as a departing gift a scything blow against Tony and his style of management. ‘My reason for resigning’, he wrote formally to Knight, ‘is that I no longer have the necessary degree of confidence in the judgement, ability, intelligence and integrity of the Chief Executive.’ A year earlier, when expressing doubts about the Air Canada investment, O’Kelly had warned that GPA, ‘despite its fantastic profit record’, was becoming dangerously ‘dependent on one or two people for its ongoing success’. Now he believed that the man who more than any other was GPA had run out of control.
‘Maurice O’Kelly was incensed’, says Kennedy, ‘and regarded it as unethical for Tony to compete with one of his major shareholders and the company which had initially set him up in business.’ Kennedy himself was more sanguine. ‘Personally I didn’t particularly like what was happening, but I recognised that these things happened in business.’
Relations between Tony and Aer Lingus remained tense throughout 1981. Kennedy remembers that ‘we had some conversations in Aer Lingus’ about replacing him, although these were always ‘fairly inconclusive’. Those plans only firmed up when Tony overplayed his hand.
The rumpus over Irelandia fed a growing and undisguised contempt within Tony’s circle for the GPA board and the public-sector mentality within Aer Lingus. In contrast, they considered themselves a breed apart. They were pioneers operating without constraint at the frontier of international aviation. There were no subsidised lunches and gold-plated pensions for them. They had different rules. GPA and Irelandia were ventures for the brave. ‘Tony certainly didn’t behave like the gentlemen of the board,’ Jim King says. ‘David Kennedy never would have behaved liked that. But then David Kennedy never would have set up an airline.’
That sense of invin
cibility mixed with frustration led Tony towards a risky strategy. On 13 November 1981 he wrote to Geoffrey Knight saying he wished to resign as chief executive. He cited the ‘considerable strain’ of his role and the ‘almost constant travelling’. He followed up with a more formal letter on 7 December making the same point. No doubt Tony expected Knight to throw his hands up in horror. Instead the chairman calmly put the matter to members of the board, who, he informed Tony on 28 January 1982, approved the idea.
A tense game of cat and mouse followed in the next months. Knight was a phlegmatic character; based in London, he had an inevitable detachment from the politics of the Irish aviation world. Above all he was a practical man, who now took Tony at his word and began searching for a new chief executive. He suggested that Tony might like to ‘continue your association with the company’ in a non-executive role, perhaps as deputy chairman. Tony replied nonchalantly that the position ‘would be of considerable interest’. In reality he never believed he would be leaving his executive post.
Everyone at GPA, including Tony himself, thought he was irreplaceable. ‘It was theatre for the Aer Lingus board,’ King recalls, ‘because what would they do without Tony Ryan?’
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