Sir Colin Marshall’s answer was equally patronising. His letter flatly denied that British Airways was involved in a deliberate attempt to damage Virgin or sought ‘to compete other than through normal marketing and promotional efforts’. He suggested that our ‘allegations’ were made to gain publicity, and that I should devote my ‘undoubted energies to more constructive purposes’.
Given the time these two directors had taken to respond to my letter, they could not have begun to investigate any of its contents.
I replied to Sir Colin Marshall on 16 December 1991 and urged him to reconsider his dismissive attitude to my allegations. I did not accuse him of masterminding the dirty tricks or even condoning them, but merely asked him to look at the facts. I wanted to give him every chance to put a stop to what was going on. I wrote:
I had always hoped that you personally had no knowledge of the worst that had been going on at British Airways. However, having read your response to my letter I’m no longer sure, for your letter continues the lies that we at Virgin have had to contend with. The allegations are certainly not ‘unjustified’. In fact many of them are not our allegations but matters that first came to our attention from reports in the Sunday Times and the Guardian. I notice that you have written to neither paper refuting them. They also came to our attention from Virgin passengers who were shocked that BA could get their home phone numbers and offer them incentives to cancel their firm Virgin tickets and switch to BA… How can you dismiss them out of hand without any inquiry? I ask you to take the matters raised seriously and respond to my letter point by point. We can then get on to competing in a fair manner.
But Sir Colin Marshall wrote straight back as if he had barely bothered to read my letter: ‘I see nothing to be gained from further correspondence.’
For a time afterward it looked as if British Airways’ version of events was gaining ground. Sir Colin Marshall was quoted everywhere saying that my allegations were ‘utterly without foundation’ and, although he never said that Marcia Borne or Ronnie Thomas were figments of my imagination, people outside Virgin could have been forgiven for assuming that there was an element of truth in BA’s denial.
My allegations against British Airways had passed the point of no return. Unless British Airways apologised and put an end to their dirty tricks, I would have to follow up my open letter to the nonexecutive directors with some kind of legal action. The difficulty was finding the appropriate grounds upon which to sue.
The row between us had one immediate casualty that I should have foreseen: Virgin Atlantic was completely unable to raise any money. Salomons, our American investment bank, were trying to raise £20 million of capital by privately offering some of the equity for sale. But, in exactly the same way as it had been impossible to sell equity in British Airways while the Laker court case dragged on, so nobody would touch Virgin Atlantic while it looked as if we would go to court against BA. And we were still losing money. While we had been frantically busy trying to piece together what British Airways was up to, our consortium of lending banks had continued to watch the cash flow. And in the depths of winter the numbers looked much worse.
I realised that, to this extent, I’d played straight into British Airways’ hands. One of their objectives was to stop me expanding Virgin Atlantic, and the only way I could do that was by refinancing the airline. The louder I complained about their dirty tricks, the less any other airline, venture-capital house, or other investor wanted to invest in Virgin Atlantic. Outsiders probably thought that there was no smoke without fire. We lost both ways: nobody wanted to invest in a small airline if it was being squeezed out by a vast organisation like British Airways; and nobody wanted to invest in an airline that might embark on lengthy and expensive litigation against one of the world’s largest airlines.
Without funds forthcoming from the City, Virgin Atlantic continued to be starved of capital. By Christmas 1991 Virgin Atlantic was ploughing through the difficult winter months and losing money. Our six main lending banks continued to write to Trevor reminding us that our loans were due to be repaid next April, and Lloyds Bank, which was our clearing bank and so saw wide fluctuations as money came in and went out, grew increasingly anxious. Perhaps British Airways gambled that, even if we did announce a legal action, they could spin it out long enough so that we would go bust in the meantime. Even after my letter of 11 December, British Airways was brazen and laughed off my allegations.
For once I did not know what to do. I spent a lot of time thinking and became very quiet. Will went the opposite way and spent all day in a fury about British Airways, shouting and ranting in his frustration at not being able to land a proper punch on them.
On 21 December a letter arrived from Lloyds Bank which heightened the sense that we were under siege. It reminded us that we had recently exceeded our £55 million overdraft facility, and spelt out that the bank had allowed the excess only because the money had been needed to pay salaries and because IATA had confirmed that £7.5 million was due into our account the following day. We were warned that the bank might not ‘respond favourably to another request to break the £55 million limit’. It finished by wishing us a happy Christmas and ‘a less stressful New Year’.
If that £7.5 million had been delayed by a week Lloyds might well have bounced our salary cheques. If Virgin Atlantic went bust, I couldn’t even be sure that Virgin Music would remain intact. I doubted that Janet Jackson or Phil Collins would be impressed by the airline’s collapse.
As we talked about where we could find sufficient funding to replace some of the bank debt, it became increasingly clear that we had to find some radical solution rather than always arguing with banks over small amounts of increased debt. Virgin Music was our only seriously profitable business, and it was our only chance to save the airline. With the weight of bad publicity caused by BA hanging over us, we couldn’t sell Virgin Atlantic as a going concern, but we could sell Virgin Music as one. Selling Virgin Music would save the airline and leave two strong companies. Closing down Virgin Atlantic would leave one strong company and one bust company, with 2,500 redundancies and the Virgin Group’s reputation as a company and a brand name in tatters.
I called up John Thornton, who was still talking to several companies that were interested in acquiring Virgin Music. I had watched his progress with a growing sense of foreboding, unable either to feel any enthusiasm for it or be able to stop it. John told me that Thorn EMI was now offering £425 million upfront with an earn-out starting from the second year. This was still below the level at which David Geffen had sold his record label to MCA. In March 1990 he had sold his record company for $520 million, which then represented 2.6 times annual sales. On a similar multiple, Virgin Music was worth 2.6 times our sales of £330 million – over £850 million.
Throughout January 1992, Lloyds increased their pressure on us to reduce our overdraft. John Hobley from Lloyds toughened his stance considerably. Since we had mentioned the possible sale of Virgin Music a year ago, that was all he wanted to hear about: Why wasn’t there more progress? Could they talk to Goldman Sachs themselves? From their point of view, if the sale didn’t happen then Virgin Music would remain a collection of music contracts – intangible assets. They couldn’t understand why there was such a long delay. Was there something wrong with Virgin Music? Had the bidders walked away? Was the company really worth the $1 billion we had airily mentioned? Their patience was wearing thin, and they wanted to see their loans to Virgin returned to their vaults as real cash. One of our problems was that a large amount of our debt was due to be repaid in April, and Trevor and I felt doubtful that we could persuade the bank to roll these loans over to a later date.
The bank’s correspondence reminded me of some of the letters I had received from Coutts when they were losing their nerve about their client with shoulder-length hair who had padded barefoot into their offices to discuss a loan to buy a manor in Oxfordshire. My hair was now shorter and Virgin was bigger, but the bank remained uneasy
. Although we had never failed to make a payment, they had other clients collapsing on them and they were concerned.
The investment atmosphere of early January is summed up by this stock-market report:
Attention is now focusing on Lonrho’s debt mountain and the attitude of its principal lenders, Lloyds, Standard Chartered, Barclays and Nat West. Lonrho’s director, Paul Spicer, insists Lonrho’s relationships with its bankers are ‘in good order’ and the group ‘is under no pressure from them’. But, after the debt debacles at Polly Peck, Brent Walker and Maxwell, there is hardly a banker in London who lives comfortably these days with large lines of credit to entrepreneurial companies driven by a powerful individual. Rightly or not, Rowland is being squeezed by ‘the tycoon factor’; and his position is made worse by the recession, which had slashed the value of Lonrho’s assets at a time when the company must sell businesses to raise cash. The old maestro has escaped from tight corners before, and nobody can say that he will not do so again. This time however the pressure is really on.
The ingredients of the story looked ominously similar to ours.
As Lloyds saw their money at risk to an entrepreneurial company, John Hobley made one more effort to control our overdraft. In a letter dated 3 January, he pointed out that our overdraft had continued to rise and that Lloyds was ‘not in a position to fund this outflow’. It was clear that Lloyds expected us to sell Virgin Music within the month. John reminded us that our overdraft had to be paid off in full by the end of the month and that in the meantime we could not extend our overdraft facility again. He expressed surprise that we had even considered holding on to Virgin Music in the hope of a better offer than Thorn EMI’s.
This was as bad as the Coutts crisis in 1984. Even then we had time and were able to see some other banks to form a syndicate. But January 1992 was as bad a month for bankers and airlines as January 1991 had been, when Air Europe and Dan Air went under. All the bankers were in a tailspin and it was difficult to remain calm.
We owed £55 million to Lloyds. As we headed into February and March the airline would need cash funding of a further £30 million. The winter months are the most expensive since we have to pay for all the major aircraft maintenance at the same time as the number of passengers drops off. So much for the unsecured debt. Looking at the cash coming in, we knew that Virgin Music had sales of £330 million that year, making operating profits of £38 million; next year we were forecasting sales of £400 million with operating profits of £75 million. But Lloyds were not willing to wait. I could see that something had to give.
A second Thames Television programme about the battle between British Airways and Virgin Atlantic was due to be broadcast at the end of February. This time it was Thames Television’s flagship national current-affairs programme, This Week. Will and I had first met the producer, Martyn Gregory, at the beginning of January, when he had come to see us about the documentary. We had told him as much as we could about British Airways, and then left him to carry out his own independent research. Martyn had spoken to Peter Fleming, along with various other ex-British Airways staff whom we had not come across, and had managed to verify many of my accusations of BA’s dirty tricks. British Airways refused to participate in the programme and their legal director, Mervyn Walker, wrote to Martyn Gregory and accused him of falling ‘into the trap of being used as a vehicle for Richard Branson’s propaganda’. Nothing could have been guaranteed to infuriate an independent television producer more.
I was in two minds about the programme. I could see that by showing people all the dirty tricks we were up against they might have two responses. One possible response was that they would be able to see our vulnerability and thus might back away from Virgin Atlantic as a likely loser. Just the words ‘A plane will fall out of the sky’, even if they were spoken by Brian Basham, who was working for British Airways, might remain in people’s minds and worry them about flying Virgin Atlantic. But, equally, the public might rally round and support us as the underdog. This was my main hope. Gerrard also pointed out that, since the television audience is so wide, it might jolt some people’s memories and prompt them to telephone Virgin Atlantic and tell other stories that would help us as we compiled all our evidence against British Airways. I organised thirty salespeople to sit at the switchboard of our sales office in Crawley on Thursday 27 February in case anyone telephoned us.
The This Week film, ‘Violating Virgin?’, opened with a bird’s-eye view of all the mothballed planes lined up in the Mojave Desert, which is like an aeroplane morgue where the planes are parked in the dry air so that they will not rust. They are drained of their oil, stripped of some of their parts, and then their engines and valves are sealed with silver foil. Over this haunting picture came the narrator’s voice:
‘Virgin Airways is crying “Rape!” and Richard Branson claims that British Airways is putting him out of business.’
‘There’s fair competition and unfair competition,’ I said to the interviewer. ‘And I can’t believe that British Airways is resorting to these dirty tricks.’
The documentary interviewed Peter Fleming, with his face completely concealed and his voice distorted, as he described the special unit British Airways had set up to discredit me, and the mass document shredding which had taken place. A similarly concealed American witness described how BA had shredded documents relating to Virgin in the USA. In New York, Ronnie Thomas told the story of BA buttonholing Virgin passengers as they were dropped off by his limousines, and a Los Angeles travel agent described how passengers were switching to BA since they had heard that Virgin was about to go bust. Then, with subtitles to spell out what he was saying, we heard Brian Basham telling Chris Hutchins that Virgin was a ‘dicky business – just dicky’. Sir Freddie Laker repeated his advice to sue the bastards.
Thames Television interviewed me standing next to one of the Tristars in the Mojave Desert. I was dwarfed by a line of over twenty PanAm planes spanning almost a mile. I stood underneath one of the seven marooned British Airways planes. It was odd to think that my entire fleet consisted of only eight aircraft.
‘I know a lot of these stories come from Brian Basham, who’s employed by British Airways, and Brian Basham reports to a man called David Burnside, who is the head PR person at British Airways, who then reports to Lord King,’ I said. ‘I’ve never sued anyone in court for anything. We’ve probably got a good case to say that someone’s tried to damage our business, but you know it takes hours of management time. I think our best bet is to get it out into the open and hopefully there’ll be people at BA who’ll realise it’s counterproductive, and that they should not carry on in the future behaving in this kind of way.’
British Airways staff were doorstepped by This Week. Dick Eberhart, one of BA’s vice presidents, was confronted in New York, and David Burnside outside his London home in Chelsea. Both men refused to answer any questions. The final shots of the documentary were aerial views of the dead aeroplanes stretching across the desert, gleaming impotently in the Californian sunshine, just where BA would like to see the Virgin fleet.
‘Perhaps it’s time for Richard Branson to put up or shut up,’ said the final voice-over, ‘or Virgin Atlantic’s planes could end up like Laker’s: in the desert sand.’
‘Violating Virgin?’ was seen by over 7 million viewers and that evening the Virgin switchboard received over 400 calls. Most of the callers just wished us well and said that they would never fly BA again, but among all the well-wishers were many people who said that they too had stories to tell of being approached by British Airways at the airport as they tried to check into Virgin. And then we hit the jackpot.
On 6 February Yvonne Parsons was at home when someone purporting to be from Virgin’s reservations department called her to say that her flight was overbooked. Since she hadn’t been issued with a ticket, would she mind changing to a British Airways flight? This was the last straw. Yvonne Parsons had flown to and from the States four times in the last eight months, and e
ach time there had been an alleged ‘booking error’ with Virgin. The previous October, Parsons had been called in her New York office by a ‘Virgin representative’ who gave her name as ‘Mary Ann’ and told her that her Virgin flight was overbooked and, to compensate for the inconvenience, she could fly – at no extra cost – the following day on Concorde. Parsons refused. She flew to and from New York and London regularly, and she preferred Virgin – once she got on to the plane. She was a valuable customer, and she was rather surprised that Virgin was being so casual about her. She asked to be wait-listed for her flight and asked Mary Ann to call her the next day to let her know whether she was on or not.
As with ‘Bonnie’ from Virgin in August, who had told her that the flight was delayed, and ‘Larry’ from Virgin in September, who said that all nonsmoking seats were full, Mary Ann failed to call Yvonne Parsons back. So Parsons called up Virgin reservations and asked to speak to Mary Ann.
‘There’s no Mary Ann here,’ she was told.
‘Then who called me yesterday and said that I was bounced off the 16th of October flight?’ Parsons asked.
‘The 16th of October? No, you’re confirmed on that flight, nonsmoking.’
Yvonne Parsons was baffled. She was also furious with Virgin and switched to American Airlines and United for her flights for the rest of the year. When she decided to give Virgin one last try in February, she couldn’t believe it when another member of the Virgin reservations staff called her to tell her that the flight was overbooked and would she mind flying British Airways.
Then she watched ‘Violating Virgin?’ The next day she called up Virgin and was put through to our lawyers. She told her story to Gerrard.
‘As I watched the programme,’ she told him, ‘it suddenly dawned on me that I must have been the victim of an elaborate and disgraceful deception by British Airways. I’d always been offered flights on British Airways, never on other airlines. I wondered whether these people were British Airways staff impersonating Virgin.’
Losing My Virginity: How I Survived, Had Fun, and Made a Fortune Doing Business My Way Page 33