Michael O'Leary (55 page)

Within days of Walsh's request Irish newspapers were reporting conflict between government and management. Instead of urgent action, the government's public response was to create a cabinet subcommittee to consider the airline's future. It was an exercise in procrastination and delay, a tactic later confirmed by Ahern when he told the Dáil, ‘the day Willie Walsh and his colleagues proposed the management buyout, I shot it down'.

Ahern's anger at being pushed towards a decision he did not want to make prompted a concerted public relations campaign against Walsh. His request to develop a proposal was swiftly transformed by government spin doctors into a request to lead a buyout that would personally enrich senior management. Walsh's plan may indeed have developed into a management buyout, but it may also have led to the sale of Aer Lingus to another airline. It was unformed. ‘Willie just wanted to get things moving,' says one former colleague.

The government formally requested Walsh not to advance his plans until the cabinet had made a decision on the ownership of the airline and Brennan said, ‘They [Aer Lingus management] would have to get in the queue and make their bids like anybody else. You could not do a deal or make an arrangement with management on their own. One of the things the cabinet subcommittee will have to consider is the appropriateness of senior management remaining inside were they to be involved in such a process.'

Walsh had succeeded in placing Aer Lingus's future firmly on the government's agenda, but his approach had alienated him from Ahern and had seriously undermined his standing with the rest of the government. Ahern was still smarting from Fianna Fáil's poor showing in local and European elections that summer and he was in
no mood for further trouble. In September he announced a reshuffle of his cabinet. Out went Charles McCreevy, the controversial finance minister, who was sent to Europe, and Seamus Brennan was shifted from transport to social welfare. The electoral setbacks had prompted Ahern to try and reposition his party as caring and left of centre. McCreevy was perceived as right wing, and had to go.

In such a climate management buyouts of prized state assets were beyond the pale. Walsh's timing may have been dictated by frustration and commercial necessity, but it was inopportune. His head buried in the task of transforming Aer Lingus, he had missed the political nuances and lacked the guidance that Mulcahy could have provided. His call for action was, to Ahern, a slap in the face. Bad enough that Michael O'Leary should rail against his dithering and lampoon his indecisiveness, but it was unacceptable for a state employee to join the fray. Though Ahern's style favours consensus and negotiation, when angered he can be a vicious opponent. Walsh would discover just how vicious Ahern could be.

For two months Walsh's proposal faded from view, but in October it returned to the front pages with a vengeance. When Ahern was questioned about it in the Dáil his reply was emphatic. He did not believe that a management buyout would be ‘appropriate in the situation of Aer Lingus. I do not believe it is compatible with the mandate of Aer Lingus to have a management buyout.'

Ahern's timing and choice of words were remarkably inflammatory because, two days earlier, Walsh had formally withdrawn his request to prepare an investment proposal for the company. As Walsh explained, ‘We did not seek permission to develop an MBO. We sought the consent of the government to prepare an investment proposal for Aer Lingus. Nothing was done with regard to that…I repeat that there was never a question of a management buyout.' But the issue would not go away. Ahern's hostility to Walsh meant that relations between government and Aer Lingus management had reached a nadir.

The row should have been defused by a report commissioned for the government by Goldman Sachs, the US investment bank,
which recommended partial privatization as the best route forward for Aer Lingus, but it was timing, not the already conceded principle, that concerned Walsh. ‘Any number of reports could say that Aer Lingus needed to be privatized,' says one former government adviser. ‘That was blindingly obvious, given that government was not prepared to invest. What mattered to Walsh was when. His business plan required funding and flexibility, not indecision. That was the nub of the problem, and Ahern was not prepared to give a commitment on timing while he was going through his public conversion to socialism.'

Ahern did not understand Walsh's sense of urgency, or if he did, he could not accommodate it. Walsh's views were straightforward. ‘The short-haul model of European flag carriers is broken and the companies concerned are inherently loss-making. A price war is anticipated which my good colleague in Ryanair, Michael O'Leary, expects to be a bloodbath. Ryanair and Aer Lingus are among only a handful of airlines which make a profit on short-haul operations in Europe.'

Walsh needed planes, he needed money and he needed operational independence from the government. There was an inherent conflict between what Walsh saw as his commercial mandate and what the unions and many politicians saw as Aer Lingus's social mandate. Where Walsh wanted a stand-alone airline that could compete with the rest of the market, they wanted an airline that could continue to meet different needs – whether by subsidizing services into airports within their constituencies or maintaining staffing levels and wage rates more appropriate to an old-style airline. Where Walsh wanted permanent change, a new culture and a new airline, they wanted to believe that compromise was possible: that Aer Lingus could achieve a comfortable level of profitability, but not too much; that change could be agreed, but not too much; that there was a halfway house between success and failure.

Above all, though, Walsh wanted clarity. That clarity was not forthcoming and by 16 November Walsh believed that it would not come soon enough to allow him to build on his early successes and secure Aer Lingus's future. And so Walsh, Brian Dunne and Seamus
Kearney considered their options. If they stayed, they believed, they would be stymied. Ahern's dismissal of their request to prepare an investment proposal was disappointing in itself, but it had also tilted the balance of power in the airline away from management and back towards the unions. Further progress on costs, staffing and flexibility was now dubious despite the success of Walsh's autumn redundancy programme, which had elicited 1,500 volunteers.

What, Walsh wondered, was the point? What was he trying to create if he could not be certain that money would soon be available to complete the transformation? Would he start going backwards rather than forwards, and would his strategy – and hard work – simply unravel in the face of relentless Ryanair competition? Was he now an obstacle to progress at the company he had served for a quarter of a century?

The answers came with the joint resignation of Walsh, Dunne and Kearney. Ahern's response was an all-out assault on Walsh.

The workers and the unions are concerned that the very people they were dealing with as management wanted to sell out to make themselves extremely rich. That was the underlying position of the trade union movement to which I have been listening all year. The level of trust between management and unions is non-existent. There is huge resentment that the management team has claimed virtually all the credit for the rescue of Aer Lingus after the events of 11 September 2001, ignoring the huge effort by union leaders and staff to make the changes work. That is what I have been dealing with…[The unions and staff] are also determined not to yield up savings which they perceive are intended to enrich a management team concerned with its own position rather than the company's future.

Not content with impugning Walsh's motives, Ahern also launched an attack on his business plan. ‘There is much evidence of some unease in the business community about the reduction in both the nature and quality [of Aer Lingus's service],' he said, without providing any evidence. ‘The government is trying, based on last month's Goldman Sachs report, to make the necessary and
right decision – it is a big decision for the staff, management, the board and the country – on the national airline. I will not just click my fingers because some right-wing economists believe we should privatize it.' And in a direct attack on Walsh's contribution to the airline's transformation, Ahern continued:

No player is indispensable. A new management team will be appointed and the government will proceed to take the necessary decisions as shareholder. Aviation policy and, by extension, the future of Aer Lingus are major strategic questions for an island nation that is heavily dependent on trade, investment and tourism. Policy decisions will be taken with an eye to the long-term future. We will not be stampeded by anyone.

Walsh responded calmly and stuck to the fundamentals. ‘Given the brutally competitive nature of the industry, we need to move faster not slower. It was clear the government [does] not share our sense of urgency,' he said.

Seamus Brennan confirms that in Walsh's original request, he did not raise a management buyout. ‘They didn't even use the word MBO. So we knew where we stood from day one.'

Brennan believes that Walsh, Dunne and Kearney were right to resign. ‘My [government] colleagues would not agree with this, but I thought they behaved very honourably. It became clear the government was not going to make an early decision on any equity sale, and the guys thought that if there is no early decision then maybe it won't happen at all and maybe we can't take the airline any further so we can go our separate ways.'

The consequences for Aer Lingus were catastrophic. It had lost the management team that had guided it from the brink of bankruptcy to sustainable profitability, and had lost it at a time when it needed it most. With Aer Lingus in turmoil, O'Leary was ready to pounce.

Two months after Willie Walsh tendered his resignation, Michael Cawley, Ryanair's deputy chief executive, hosted a low-key morning press conference at Dublin airport. Ryanair, he said, would be launching six new routes out of Dublin. The new services were hardly dramatic – two of them, Doncaster and Eindhoven, were not likely to set the travelling public's pulses racing – but the decision to expand from Dublin was the first signal that a new front was being opened in Ryanair's fight for European domination. It was also a signal that Michael O'Leary's pragmatism continued to win out over principle. He had consistently and very publicly maintained that he would not develop Dublin airport as a base until the Irish government had made a decision about building a new, independently owned terminal there.

O'Leary's boycott of new services from Dublin would have been effective if it had brought a halt to the airport's growth, but it had not. Aer Lingus's aggressive expansion had swollen Dublin's passenger numbers, and foreign airlines continued to open routes to Ireland's capital city. O'Leary liked to claim that government dithering on the building of a second terminal had cost the Irish economy thousands of jobs and millions of euros in tourist revenue, but growth had continued without him.

His neglect of Dublin had not troubled Ryanair's own expansion, because the growth opportunities within Europe remained apparently bottomless. New bases in Italy and Germany soaked up the new planes arriving from Boeing and Ryanair's passenger numbers continued to climb month on month. The Irish market was but one growth possibility in a sea of opportunity. Ireland's continued economic success and the rising levels of disposable income which that generated for its citizens made it an attractive market, but for O'Leary the poor economic performance of Italy,
France and Germany made those countries even more attractive for a low-fare airline. As Cawley said on the morning of the route launches, ‘If anybody thinks that Ryanair needs Dublin, think again. The half-million passengers through Dublin is neither here nor there. Dublin, with all due respect to Dubliners, is a fairly insignificant city.'

O'Leary, though, had miscalculated. He had allowed himself to believe that Ryanair was critical to Dublin's growth as an airport, and that he had the power to dictate the pace of that growth. He had underestimated the stubbornness of the Irish government, the resolve of the trade union movement and, more fundamentally, the airport's ability to grow without Ryanair's involvement.

A former Aer Rianta executive says that negotiations between O'Leary and the airport's owners over the previous five years had been characterized by O'Leary's unflappable belief that he created the market. ‘We said you can either participate in the growth in this market, or you can go to less attractive markets, we don't mind. Nobody creates the market, the economy creates the market. As an economy grows, the demand for travel grows with it and that's one of the most robust statistics in international economics. The question is, who's going to service it. If Michael doesn't service it, somebody else will.'

Tim Jeans agrees. ‘Michael thought that because Ryanair wouldn't expand from Dublin, effectively Dublin airport wouldn't expand. And that was wrong. The fact was, other airlines, including Aer Lingus, did fill the void. And Dublin airport continued to grow despite Ryanair.'

Publicly, O'Leary did not waver from his position that Ryanair would not expand from Dublin until there was regime change, but Jeans says that his private views were far more considered. ‘He did listen to opposing points of view and he would frequently come into my office or Michael Cawley's office, particularly of an evening, and we would debate these things rationally.'

Ryanair's position as Europe's dominant low-fare airline had not, however, changed O'Leary's passion for his home country. Growth
in Europe produced the results that satisfied his shareholders, but O'Leary's patriotism fuelled his frustration at the failure to develop Dublin to its full potential. His battles with Bertie Ahern and the Irish government, with Aer Rianta and with Irish trade unions stemmed from his deep belief that Ireland could be so much better if its leaders only had the courage to strip away the obstacles that held it back from even more dramatic growth.