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Once he knew that Branson was prepared to invest, Fields reported the good news to Gardner and Tait. Neither was enthusiastic. Gardner saw Fields’s approach to such an unconventional figure as proof of his lack of understanding of the airline industry. Tait, who had been living in the United States for some time, had never heard of Branson; but he knew that Virgin Atlantic was a crazy name.
As the public hearing approached, Fields became worried that Branson’s lawyers, Harbottle & Lewis, were proving slow to produce a draft contract. He wanted the affair settled; Branson’s signature would be accompanied by a cash influx into the business that would help to restore his dwindling pot of savings. Each successive letter from Fields’s own lawyers about the agreement seemed to include a demand for money more urgent than the last.
On 29 February the two men appeared at a press conference at Maxim’s Restaurant to announce the launch of the new Virgin Atlantic Airways. It was Branson’s name that appeared in the following day’s newspapers, promising to undercut People Express, and declaring his conviction that at least 250,000 British citizens would fly to New York if only the ticket price were low enough. What the assembled journalists did not know, however, was that Branson was not a director of the company. Nor did he hold any of its shares; while his handshake with Fields a fortnight earlier had yet to be formalized, he in fact held no legal interest in the venture at all.
As the toughness of Virgin’s demands was spelled out in detail, Fields’s lawyers became suspicious. They were concerned when Branson demanded that Fields himself should give personal guarantees for the debts of the airline – thus risking being made bankrupt and losing everything he owned if it failed. (There was no suggestion that Branson should do the same.) They also warned Fields in writing that Virgin would ‘be able to control an important function of the company,’ and expressed ‘very grave doubts about the wisdom of the press conference held today.’
Undaunted by these cautions, Fields went off to the Civil Aviation Authority on 1 March to argue his case. The public hearing started inauspiciously. The three-man CAA panel, familiar with his style from earlier appearances, was irritated to discover that Fields had decided to make an impassioned speech himself instead of allowing the lawyer employed by his company to present the case in more measured terms. ‘A man who acts as his own advocate has a fool for a client,’ recalled one of the panel members later. It was not only the panel who were unimpressed: after hearing a report on the first day of the hearing from Colin Howes, his lawyer from Harbottle & Lewis, Branson also decided to come and speak on the second day. His presence soothed the panellists: although none of them had ever heard of Branson before – and were at first bewildered to find this unfamiliar presence from the music business invading their world of dark suits – the Virgin chairman’s answers were convincing, and refreshingly to the point.
The question at issue was straightforward. British Caledonian Airways, which had been forced to wait a dozen years to acquire its own first transatlantic route, was determined to prevent an upstart like the new Virgin Atlantic from winning one in as many months. Specifically, BCal pointed out that it already had permission to fly passengers between Gatwick and JFK from 1985 onwards, and complained that if Virgin Atlantic were allowed a head start in operating the Newark route, the profitability of its own forthcoming flights would be put at risk. Since BCal had shown no great enthusiasm for the competitive North Atlantic run in the 1970s when it had the chance, this argument did not impress the panel. The CAA therefore seized on a detail of Virgin Atlantic’s proposal – that it would run a scheduled daily service in summer, but might fly less frequently in winter if there were not enough passengers – and decided that the new airline counted as a sort of honorary charter airline. Since BCal had said that it would not oppose a charter service, concluded the CAA’s written response triumphantly, Virgin Atlantic’s application should therefore be granted. There was one condition: the airline was given a month to satisfy the bureaucrats that it was ‘financially fit’ to fly.
Until Virgin had a shareholding in the airline, it would not be in a position to make any formal promises to the Authority about underwriting the new venture. Fields had hoped that the contracts would be wrapped up within a matter of hours or days of the 29 February press conference. But, as the end of March approached, the draft agreement did not appear. The night before the two men were due to visit Clifford Paice, the CAA official in charge of financial vetting, Harbottle & Lewis had still not produced the paperwork. It was only by having the papers rushed round for signature at 10 AM on the day of the meeting that the two men were able to answer the CAA’s financial inquiries as formal partners. In accordance with the deal they had shaken hands on, the two partners would have 45 per cent of the equity each, with the airline’s founding employees holding the balance. Each side would have the right to appoint two directors to the company’s board, though Branson would not at first be one. Day-to-day control of the business would stay in the hands of Randolph Fields, who would receive the title of chairman. His employment contract gave him thirty working days’ holiday each year, a car ‘of suitable standard for his business and private use’, but no salary. Instead, Fields was to be paid £25,000 out of the first £1m that the airline made in profits, and five per cent of whatever profits it made after that.
With the helpful publicity generated by the newspapers, it had been a relatively easy matter to argue in the public hearings that a new carrier between Gatwick and Newark would help bring low-cost transatlantic travel to the masses, and would give a British business a chance to compete on a route dominated by People Express of the United States. But the financial experts at the CAA proved harder to please. Refusing to accept Fields’s most pessimistic scenario, they started from the assumption that the airline would lose money heavily for most of its first year of operation, and demanded that £3m be injected into the company, either as share capital or as a loan from another Virgin company, to cover that eventuality. Under protests from both Branson and Fields, it relented. The airline need not come up with cash, said Paice; instead, the Authority would be happy to accept Richard Branson’s offer for Virgin to guarantee whatever losses the airline might sustain.
This was not surprising to Fields, for he knew how conservative a view the Authority was apt to take of airline financing. What shocked him was Branson’s reaction to the CAA meeting when they met back on his houseboat that afternoon. Without preliminaries, Branson told Fields that the contract they had signed that morning would have to be torn up.
‘My bankers won’t let me do it,’ said Branson. ‘Unless we control the company, we’ll have to walk away from this deal.’
Fields was crushed. He had come so close to realizing his dream; it would be cruel indeed if the prize were to elude him at the last minute. Recovering his dignity, he told Branson that he refused to be squeezed, and immediately left the boat with his lawyer to return to his chambers at Gray’s Inn.
‘Don’t worry,’ said the lawyer on the way back. ‘He’ll call you within twenty minutes of our return.’ When the two arrived, Branson had already left three messages. He was more malleable when Fields returned his call.
‘All right, Randolph,’ he said. ‘You win.’ But he was concerned that his attempt to renegotiate their earlier agreement should not sour the relationship. ‘It wasn’t me,’ he explained. ‘It was the bankers. I didn’t want to do this to you. I was forced into it.’
Fields slept more soundly that night than he had done for months. The next morning, however, Branson was back on the telephone, harking back to the issue that Fields thought had now at last been settled. Once again he was demanding a greater share of the equity, and pleading that his advisers would not allow him to continue to support the CAA application on the terms they had agreed.
‘Dear Randolph,’ he wrote in a letter on 26 March.
Please put yourself in my position. We have now been asked to give both unlimited guarantees to the CAA and to commit ourselves to Boeing for $13m [for the 747 whose lease they were negotiating] at a risk to us of $3,241,000. Furthermore – tomorrow – we have to outlay a considerable nonreturnable deposit. Unless we go with Boeing tomorrow, I don’t see this venture getting off the ground in time for the summer.
I genuinely didn’t want to reopen negotiations. But – with the massive extra risk that we are having to incur – it would be irresponsible for me not to … If you want us to work together and for us to give this venture the 100% support it needs, it has to be on terms we feel comparatively comfortable with. At the moment, we feel very uncomfortable.
Fields retorted that Branson’s demands were quite unreasonable, since he had known at the outset the risks that would have to be taken on. Yet still the pressure did not let up. On 2 April, just before the final meeting with the CAA at which the capital requirements were to be formally settled, Branson wrote to him once again – this time a rambling letter composed in the early hours of the morning.
Dear Randolph
Since I am having difficulty sleeping, I need to put my thoughts down on paper since tomorrow morning will be make or break day for the airline. I desperately need you to understand before everything is lost … Neither of us are [sic] holding a gun to the other’s head. Either one of us could throw everything away tomorrow. And I believe that if either of us applied to the CAA later, the chance of success another time (after what will be seen as something of a fiasco) will be nil.
Two days later, Fields gave in. He signed away majority control of the airline to Virgin, in return for a £200,000 cash payment to cover the investment he had already put in. The employees who owned what might have been a controlling 10 per cent stake were faced with a fait accompli. They might not have succeeded in blocking the new deal even if they had wanted to; and had they tried, Branson’s withdrawal from the CAA application would have reduced the value of their shares almost to nil in any case. Roy Gardner, who had served Laker for years without receiving a single share, allowed his two per cent stake in Virgin Atlantic to be bought out without a murmur of protest. ‘I thought it over for about five minutes, and then decided to stay with the company,’ he later recalled.
Fields signed because he knew that Branson had him in a stranglehold. Without the Virgin guarantee, the airline would have no chance of starting operations in 1984. If he wanted to run an airline, it must be on Virgin’s terms. After all, what hold had Fields himself over Branson? He had come up with the idea in the first place, and brought it to the houseboat; but now that Branson was aware of the opportunity, it was no longer of any value. Fields had done a great deal of work estimating traffic flows and had a detailed business plan – but Virgin had enough accountants to produce business plans of its own. He had identified a second-hand aircraft, and had thoughtfully sent Branson a model on which the Air Canada red stripe down the fuselage was left intact but the Virgin name was painted on the tail; but there were plenty of other 747s that would serve the purpose just as well. He had a team of good people, salvaged from the Laker wreck; but talented employees could easily be lured away. His only asset was a licence application that was nearing regulatory approval – in the name of Ritter PLC, Fields’s holding company.
What Fields did not know, though, was that Branson had already made a discreet approach to Clifford Paice at the CAA to find out what the Authority would think of an application that did not carry the name of Randolph Fields. Had the regulators been willing for Branson to proceed without his partner, Virgin might have been able to start an airline of which it owned 100 per cent, rather than just 75 per cent, and to run it exactly as it wished. But the message that came back to Branson was politely discouraging. Although he was as welcome to apply for permission to fly a route as anyone else – and would have a good chance of succeeding, given the assets that he was able to bring with him – he could expect no special treatment. The application would have to be officially published by the CAA; other airlines would have the right to object, as they had done to the Fields application, and there would have to be another public hearing, and another investigation into financial fitness. If Branson wanted to part company from Fields, he should give up hope of flying any passengers in 1984.
While there was still a chance that he might be allowed to ditch his business partner, Branson had an incentive to postpone the signature of the shareholders’ agreement. Once he understood that he and Fields were in it together, however, there was no point in further delay. The contracts could be signed, and it was up to Branson to secure as much of Ritter PLC for himself as he could. By increasing his shareholding from 45 to 75 per cent in less than a fortnight, he had certainly made a good start.
For his part, Fields was no more than dimly aware of these calculations. He believed himself still to be secure. He knew that Branson now had a controlling stake in the business, but his minority shareholding still gave him significant protection under British company law; and his position as chairman of the airline, with executive control of its daily management, seemed unassailable. Virgin Atlantic’s board, he had agreed with Branson, would be made up of four directors, two nominated by Fields himself and the other two by Virgin. Only if it had reason to be concerned about the firm’s management or its finances would Virgin have the right under the agreement to appoint a fifth director.
SEVEN
To Market, To Market
‘’ALLO,’ SAID ROD VICKERY.
The man in the suit looked up from his desk, and threw a critical glance at Vickery’s long hair. His eye took in the earring and moved down over the open-necked casual shirt, the jeans, and the highly polished cowboy boots.
‘Hello,’ he replied tentatively, ‘I’m Don Cruickshank, the new MD. And you are?’
Vickery explained quickly that he was in charge of the company’s car fleet, and dealt with its insurance and its property holdings. He had heard that this was Don’s first day, he said, and since their offices were next door to each other, thought he should come and introduce himself.
They made an odd pair, wandering around the cramped Virgin offices in Ladbroke Grove. Vickery was the cockney wide-boy, affectionately known inside the company as Virgin’s Arthur Daley, the man who used to tease the public schoolboys close to Richard Branson by pretending that he had graduated from Oxford University instead of Twickenham Art School. Cruickshank, his new neighbour, was fastidious, cerebral, and quietly spoken – and had ‘management consultant’ written all over him. Yet it was Cruickshank, not Vickery, who was the odd man out. Why, wondered the people Vickery introduced him to, had Richard brought in this man to run the Virgin Group?
Though only a handful knew it at the time, the reason was straightforward. Ten years after the foundation of the record label, nearly fifteen after the first discount LPs had been sold by mail-order, Branson had decided to take Virgin public. Knowing that the group would need some tidying up before it could be sold to investors on the stock market, he had resolved to bring in a manager from outside who could groom the company for its coming listing and who could reassure the City that someone who sympathized with its interests was inside.
Given the sensitivity of the appointment, and the special qualities that would be required of someone who could fit tolerably into the Virgin corporate culture while doing this job, Branson had been careful not just to accept the first recommendation of an outside firm of headhunters. In appointing Cruickshank, as with so many other people, the Virgin chairman relied on personal connections. David Puttnam, the film producer who made Chariots of Fire, had told Branson that he was talented and reliable. Robert Devereux, Branson’s brother-in-law, had a healthy respect for his negotiating abilities, having dealt with him at Goldcrest Pictures during one of Virgin’s sorties into the British film industry. Simon Draper had known nothing about him, but had met Cruickshank over lunch and come away with the conclusion that he was ‘serious’.
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