In the days immediately before Ansett’s first receivers padlocked the terminals on the morning of 14 September 2001, even before the last midnight horror from Perth to Sydney could unload its passengers, it became clear to everyone, even those who were in denial, that the airline was in severe crisis.
Ansett was 100% owned by Air New Zealand, which was 25% owned by Singapore Airlines, which had in preceding months, seen its plans to lift its equity in the Air New Zealand/Ansett entity to 49% torpedoed by Qantas orchestration of government disapproval in both Canberra and Wellington on the ground that this would create an encircling ‘behemoth’.
The efforts to head off Singapore Airlines’ grand designs on Australia and New Zealand was the biggest airline story since jet engines, or more recently, the Qantas purchase of Impulse Airlines which was to morph into Jetstar in 2004.
Virgin Blue v Singapore girl
At Virgin Blue’s first birthday parties in Brisbane and Melbourne at the start of September 2001 Branson was privately in two minds about the airline’s future.
He needed cash for other ventures in the Virgin Group, including Virgin Mobile in Australia, and his seed capital in Virgin Blue had taken root and multiplied more richly than he had expected in such a short period.
But he was reluctant to sell out. In one interview he said, “Qantas lost hundreds of millions of dollars getting rid of Impulse. But they can’t get rid of us. Whether its easyJet, or Ryanair, or Southwest, or us, this is how the vast majority of the people want to fly, which is as cheaply and cheerfully as possible.
“I’ve told our people that we are building up small armies of support all over Australia. In Adelaide we made the traffic to Queensland more than double, and the same between Townsville and Brisbane. And we are doing it in Tasmania and … lots of other places as we bring in our new jets.
“How come we charge a quarter of some of the other’s fares but fly in brand new Boeings compared to their tired old aircraft?”
As the pressure increased from Air New Zealand CEO Gary Toomey for a deal to sell the airline Virgin Blue began reviewing the numbers.
It decided that even if Ansett was loosing only $1 million a day (which proved far less than the true amount) the complete elimination of Virgin Blue and its then fleet of 9 jets would only lower its losses by $200,000 a day, which meant that more drastic measures had to be planned for the ailing airline.
Godfrey thought Branson would be offered a price of around $ 250 million for the airline, and began to urge his ‘war cabinet’ comprising senior management to close ranks on the need to persuade him not to sell.
It was a difficult argument. Rob Sherrard (the chief operating officer who ‘conspired’ with Godfrey on the original business plan that was sold to Branson) pointed out that this could be his only shot at getting a reward out of Virgin Blue at his age, where Godfrey was young enough to come back later and try to launch another new carrier.
But Sherrard also sensed that however attractive the September 2001 price might have been, it would become much higher because the business model had started to perform far better than expected.
2 September 2001 was the start of three crucial days for Virgin Blue.
That day Branson took a phone call from Dr Cheong Choong Kong, the CEO of Singapore Airlines, in Godfrey’s presence. It was the hard sell. Branson said that CK had reminded him they had been good friends for a long time, but that “I was going to do this deal, and that if I didn’t, he would destroy me and destroy Virgin Blue.
“If I didn’t take this money Singapore would throw everything they could into Ansett and drive us from the market place.
“A lot of these things are like a game of poker but to be perfectly frank, we could have done with the money they were offering elsewhere, while Virgin Blue to me is like a child with a terrific future, and the welfare of your children is everything.”
Godfrey says he saw Branson put down the phone and say ‘He said he’d destroy me.’ And the deal was $250 million.
It was agreed that Dr Cheong would get an answer within 24 hours, meaning the evening of 3 September.
On the night of 3 September Branson was hosting a Virgin Mobile party in Sydney.
While Godfrey had another function to attend his communications strategist David Huttner and his wife dined at Beppi’s Restaurant.
“I told my wife Beppi’s was clearly the place to go if you were going to sell out your airline like Gerry McGowan, and the food was said to be good. (Impulse owner Gerry McGowan sealed the deal to sell to Qantas at Beppi’s in April that year).
“At that stage I don’t think any of us knew what decision Richard would make.”
“I decided, what the hell, if Richard didn’t take our advice and sells, then we’ll all be cashed out and unemployed and need a holiday in any case.”
But it was an early dinner. At 10 pm when Branson returned to the Potts Point Holiday Inn, the Kings Cross hotel used by Virgin Blue crew, and Branson when he was in town, he was joined for drinks by Godfrey, Sherrard, Huttner, Amanda Bolger (Virgin Blue’s original media officer) and a surprise appearance from the forceful media personality Derryn Hinch.
Several hours earlier Godfrey had rung Hinch, expecting he’d be in Melbourne, to see if there was any way he could help dissuade Branson from selling to the Singaporeans.
But Hinch answered from Sydney’s fabulously grand Est restaurant where he was having dinner with another legend of the air waves, Bob Rogers, only a few kilometres from Potts Point.
The worried Virgin Blue cadre, joined by Hinch, sat in one of the booths in a corner closest to the lifts at the Holiday Inn Kings Cross.
“At that point we all knew the deal smelled,” Huttner said.
“We knew we could do better. We didn’t have to do the deal that day. But we had no idea that better meant a $2.5 billion airline.
“Our view was simple. If we killed the deal Singapore will come at Ansett with a big knife, like why are you flying to five places in Tasmania, why are you flying 10 different kinds of aircraft, and why are you doing this or that…
“We figured that they would force Toomey to lay off 6000, 7000 even 8,000 people. They would cut back the routes, and do one of those massive US style restructurings.
“It would be a painful major bloodletting. We assumed that we had two to three years to get our sh*t together before a leaner, meaner Ansett came back to whack us.
“We thought the Singaporeans would burn another $200 million or so getting the thing into shape because they knew in the end it would be a good investment. We did not know, in fact had no idea, that it was that close to the edge.”
Godfrey’s recollection of the same events included his early conviction that it would be the end of the road for his airline for certain.
“I remember going to one of the great party’s we threw at the time and I’ve got a tear in my eye,” he said.
“We are one year old, I’m surrounded by the most incredibly enthusiastic people you’d ever meet in your life, and I’m standing there thinking ‘Sh*t, they’ve all got jobs they wouldn’t have had, and they were going to pull us apart and rationalise and throw us to all the regional markets and f*ck us off the business markets because we were hurting them too badly’.
“But the Ansett team had already said they wanted me to stay on for at least six months, and I couldn’t, I could not have looked people in the eye knowing I had sold out. I had to stop speaking at the Melbourne shindig, and people thought it was because I was so passionate about our great future….
“There were two nights before Richard had to make a decision in Sydney and we worked and worked on him.
“We told him we are worth at least $400-500 million.
“Derryn Hinch had been fairly closely involved with us, and he is a fairly passionate guy. I needed his help, and it turned out he was literally minutes away.”
Hinch usually performs for audiences measured in hundreds of thousands.
That night all of his powers of persuasion were for one person, Richard Branson, when he returned to the Kings Cross hotel.
There is no audio or video tape of the moment.
Hinch recalls that a few minutes into the drinks Branson outlined his temptation to sell to the Singaporeans through Ansett.
“He turned to me and said ‘What do you think Australians will think if I sell?’
“I said ‘Richard they will think you are a lying pr*ck, that you are a remittance man, a Johnny come lately and a c*nt.
“They will see you as a main chancer. They will despise you’.
“Virgin Mobile and anything else you plan to do in Australia for the next 100 years will bring back the memories of the sell-out.”
As Branson and Godfrey were headed for the lifts a bit later Godfrey recalls that “He pulled me aside and said ‘You didn’t have to do that, I’ve decided all along I was going to tear up the f*cking cheque so don’t worry about it.’
And he meant ‘tear it up.’ Branson has a knack for PR stunts, and the words were to have real meaning the next morning in Melbourne.
Godfrey says that Branson, who is one of the most softly spoken of persons, had another word in his ear.
“It was very succinct. Basically I had to swear on my family’s blood that I would get him at least $50 million by Christmas.
“But I felt good about that. Impulse was gone, Ansett was paralysed, Qantas was distracted, and we were making damn good money.”
Amanda Bolger sent out a media advisory that Richard Branson would make a major announcement about Virgin Blue in the Domestic Express Terminal at Melbourne Airport on the morning of 4 September.
It was packed with media, because everyone had heard rumors that Branson was about to give into the pressure and sell out, and the media also knew or guessed that Branson had been in touch with CK.
Branson stood at the focus of the arc of television cameras and microphones, his natural environment.
Holding the cheque so that it was just visible he launched dead pan into his lines “…I have done well with Virgin Blue……I’ve made 25 times my investment in little more than a year, a very good result for the time and money that we have put into this….but it is a sad day for Australia, and for aviation….”
At that moment on the edge of his vision, Branson notices that one of his staff working at a check in counter is starting to cry.
A woman reporter for Bloomberg is talking loudly into her phone “….he’s selling, he’s selling, get it out….”
The ABC reporter is just as fast. The lead story on abc.net.au flicks over to the headline ‘Branson sell out’ and a few paragraphs saying that “Virgin Blue has become the latest new entrant to quit the Australian aviation market, with owner Sir Richard Branson this morning announcing acceptance of an offer of $250 million for his airline.
“Speaking in Melbourne Sir Richard said….”
In his Sydney hotel room Hinch is watching events on cable and says to himself “So much for my powers of persuasion…”
As the news was hurtling around the country Branson says he realises it is upsetting more than one member of his Melbourne terminal staff who were not in on the stunt.
“Oh f*ck it, I’m only joking,” he says and tears the cheque into pieces.
Ms Bloomberg is heard again “He’s not selling, he’s not selling, kill the story, its all a prank, oh…..(bother) pull the (inaudible) story.
“Oh you irresponsible man…..”
At this point the turmoil that Branson thrives on has spread through the terminal with bemused passengers pausing to take in the confusion.
One traveller tells another, “Oh he just sold Virgin Blue but then decided to rip up the cheque….” ‘Oh, that’s nice dear….’
Branson meanwhile has dropped to his knees, offering to kiss the feet of Ms Bloomberg, who is still scolding him about being “so irresponsible, …I put out a false report.”
The ABC website is rapidly updated with the real news. Newspaper chiefs of staff are getting calls from reporters saying that page one will not quite be the same as had been advised a few minutes earlier.
All through parts of Qantas and on the ASX punters, brokers and vitally interested persons are having a few hysterical, or hysterically funny moments as Australia gets its first large scale Richard Branson media performance.
A mobile goes at Richard’s side, ‘It’s the Premier’s office in Brisbane’ a voice says pushing the ‘phone toward him through the pandemonium.
That night in newspaper offices a number of graphics editors bring up the images of the torn cheque and notice that it appears to have the word ‘Qantas’ on it.
Amanda Bolger ends one her funniest and happiest days at the airline by admitting to the sharp eyed that the cheque was borrowed from the cheque book of the Melbourne Airport manager, who was ex Qantas and kept an account with the Qantas Staff credit Union.
Tomorrow: You will never guess who was on the ‘phone