Branson: Behind the Mask (20 page)

‘The Virgin Group have the skills to get the jigsaw together in the right order,’ Lowdon reassured Wirth.

Many potential sponsors did listen to Tai’s pitch, but none committed themselves to what they considered was an inevitable loser.

‘There’s been a huge search for money,’ Wirth reported, ‘but we’ve got none.’ He was paying suppliers out of his own pocket, hoping that Virgin would at least lend $3 million. Tai refused: ‘I’ve got a pipeline of opportunities but it’s just taking longer than I hoped to convert.’

‘We’ll be at the back from the outset,’ Wirth told Tai. ‘You’re fucked. You’ll be there for ever.’

‘We’ll be racing with one hand tied behind our back and hopping on one leg,’ Lowdon warned Tai. With ‘Virgin’ emblazoned
on the car, he imagined that Branson would spend some money to protect his brand.

On the eve of the season’s final race in Abu Dhabi, Branson jetted in to celebrate Brawn’s triumph in the 2009 championship, host a party and enjoy the last benefits of the publicity. Formula One sponsorship normally cost about £125 million. Branson had paid just £6 million. Among the visitors to his hotel suite was Darryl Eales. LDC was about to invest another £6 million in Virgin Racing, and Eales wanted to test Branson’s commitment. To his relief, Branson was reassuring.

‘I’m in,’ said Branson.

‘We need more money, and I wondered if you would mind if we found another investor?’ asked Eales.

‘I’m flexible,’ replied Branson. ‘Get someone else if you can.’

‘And can you get Virgin companies to sponsor the team?’ asked Eales.

Branson became coy. Stutteringly, he explained that while he personally would want Virgin companies to sponsor the team, he was having difficulty persuading members of his board. In particular, Stephen Murphy, said Branson, was proving to be an obstacle. In spite of Branson’s mumbles, discomfiting body language and failure to look him in the eye, Eales accepted Branson’s explanation without considering that, as the sole proprietor, Branson could do what he liked. With hindsight, Eales regretted falling for a Hollywood performance.

The formal unveiling of Virgin Racing was promoted by the FIA as a feature of the 2010 season, and Virgin’s publicists became unusually motivated. An all-night rock ’n’ roll party in Notting Hill Gate, hosted by Branson, was arranged for 15 December. The theme was ‘Virgin the Challenger’, and everyone wore leather bomber jackets adorned with the Virgin logo. As the champagne sprayed over the guests, Lowdon momentarily dreamt that Virgin’s billions would come to the rescue. Wirth
was more realistic. Spotting that the alcohol, food and even the jackets were all provided free by sponsors, the engineer looked at Branson. ‘He’s not tight,’ he realised. ‘Just poor.’

In public, the story was different. ‘Richard Branson’, John Booth, the joint manager of the racing team, told journalists on the eve of presenting Virgin’s car, ‘will bring credibility to Formula One. To have somebody like Sir Richard and Virgin on board is a dream come true for us. He’s a global media figure and one of the most recognised faces on the planet. Sponsors want to be with him, and he brings a real buzz to the whole operation.’ Converted to Branson’s credo, Booth exaggerated Virgin Racing’s prospects, predicting that as the most advanced of the new teams, it was certain to have success in the opening race of the new season in Bahrain. ‘It’s great to have someone whose name is on the team, who is interested and passionate about it,’ agreed Wirth.

Privately, Branson understood the problem. Underdogs did not win motor races. He grappled for excuses. Formula One, he complained, should ‘reduce its embarrassing costs. You don’t need to spend hundreds of millions to have fun.’ Virgin, he promised, would ‘make Formula One sexier’. Without spending the same as Ferrari, he pledged to make the sport ‘even more of a sexy beast. The Virgin team will prove that you can have a really good racing team, running very fast, within a very tight budget.’ Then he slipped up: ‘There is no need to do massively expensive wind-tunnel testing or all the other things that they do to get an extra second or two.’ He had revealed his ignorance of the sport.

Formula One races are decided by fractions of a second. Each season, every leading team employs around fifty PhD graduates and spends upwards of $300 million to shave a fraction of a second off their best times. Virgin Racing was ignoring the sport’s fundamentals, but Branson demanded to be heard as an equal.
He wanted Virgin Racing to get the same publicity as Ferrari, for no money. As the master of so many arts, he persuaded himself that teams who had been racing for forty years would welcome, as he put it, ‘Virgin as a valuable marketing tool for our partners.’

Darryl Eales spotted the looming calamity. Ever since Mosley’s removal, his disillusion had grown. ‘It’s become a tough deal,’ he said, admitting his mistake. Lloyds had agreed to increase its loan to Virgin Racing from £12 million to £30 million. Eales’s attempt to persuade Branson that Virgin should contribute some money had left him with doubts. In one-to-one conversations, he noted, Branson was ‘enigmatic and not so sure-footed’. Eales’s faith in Alex Tai’s assurance of the Virgin Group’s support had also been mistaken. Other than a solitary advertisement in Australia, no Virgin company would agree to sponsor any race. Outsiders could not imagine the stubborn rivalry among Virgin’s executives. Eales was unaware of a recent admission uttered by David Baxby, a senior Virgin executive based in Geneva: ‘We don’t have a grand vision joined up where everything has to work at the group level.’ Every Virgin company, Baxby explained, was expected to swim or sink on its own by making itself ‘relevant’.

‘Tai is a good self-salesman,’ Eales decided, ‘but over-optimistic. He’s not a hard-nosed racing man. We need a professional CEO. He’s inappropriate.’ Before delivering the news, he consulted Gordon McCallum over a cup of tea. ‘You must do what’s right for the business,’ said Branson’s chief executive.

In a brief, emotional meeting, Tai was removed and replaced by John Booth. ‘We now need to find an investor with deep pockets,’ said Eales.

In the test runs during the weeks before the first race of the championship, Ferrari’s managers watched their rivals. ‘Virgin cars will limp to the starting line,’ they agreed.

‘Ferrari is sad,’ countered Branson, stung by the criticism. ‘Ultimately, I think the new teams will give Ferrari a run for their
money. I didn’t want to write a very large cheque for an established team,’ he added. ‘Virgin is Formula One’s last 100-per-cent-owned British team.’ McCallum was more realistic. ‘We shouldn’t risk the brand unless we know the team can complete a season,’ he told Tai, asking a member of the team, ‘Can you guarantee that no Virgin car will stop in the middle of a race?’ The question dangled, unanswered.

The Virgin team arrived in Bahrain in early March 2010 for the season’s first race to discover that Ecclestone had turned against Branson. Slow cars, in Ecclestone’s opinion, cluttered the track. Branson was dismissed as a whinging loser. Branson understood Ecclestone’s message when he was led to Virgin’s motor home in the paddock. Every team was assigned a minimum fifteen-metre plot for their mobile headquarters and hospitality suite. Red Bull’s and Ferrari’s were thirty-five metres long. On Ecclestone’s orders, Virgin’s frontage was reduced to five metres and located at the very end of the parade. Branson had been exiled.

The reality of Virgin’s disarray dawned on Carl Wormald and Darryl Eales as they looked down on to Bahrain’s track awaiting the first practice session. Suddenly, two Virgin cars roared out of their pit. ‘Fuck me,’ exclaimed Wormald. ‘I didn’t realise we had two cars.’

To celebrate the beginning of the season, the team owners were invited to dinner by Bahrain’s crown prince. Branson was placed at the far end of a long table. After an abrupt end to a desultory meal, the prince’s favoured confidants were invited to a glamorous party at a palace on the beach. Branson looked forlorn. The following day, after bantering in the pit with the mechanics, he took a pair of headphones and gazed over the wall for the start of the two-hour race. As usual, Ecclestone watched the contest on television in his hospitality tent. After forty minutes, he saw Virgin’s cars pull out. ‘A nickel-and-dime operation,’ Ecclestone jeered.

‘It’s the rigid budget,’ said Wirth.

‘Shit or get off the pot,’ Ecclestone told Branson as they passed in the paddock. The ringmaster disliked men who lacked conviction. Branson lurked around his cramped headquarters, pondering his future in the sport. Formula One was everything he loved: speed, risk, glamour, beautiful women, parties – an extraordinary business enriching many people. He wanted to share the cake. How he hated raw competition. There was no place for the underdog punching above his weight. ‘One day hopefully Virgin will overtake Red Bull,’ he told an aficionado. Formula One, he added, could only prosper if the teams’ budgets were forcibly reduced to $40 million.

Two weeks later in Melbourne, Branson’s embarrassment grew. During the practice sessions, Virgin revealed that Wirth’s computer design had produced a car with fuel tanks which were too small to complete the distance at full speed. ‘Fuck me,’ exclaimed Branson, visualising the effect on Virgin’s image as a spluttering car was pushed off the track. Pulling out of Formula One was not an option. Delivering a positive message while drowning was, however, Branson’s accomplished art. ‘We’re still hoping to be the best of the new teams,’ he told sceptical journalists at the track. ‘We know we have a fast car.’

The next humiliation was in Monaco, the scene of the previous year’s Brawn triumph. The wheels of one of the Virgin cars came off – literally fell on to the tarmac. A mechanic had failed to properly tighten the wheel nuts. ‘We can’t even finish the fucking race,’ a Virgin executive told Wirth. Ecclestone dismissed Branson as a nonentity.

In their dreams, the Singapore race in September should have been a climax for Virgin. As usual, Asia’s richest power brokers had arrived on the island for a weekend of business and partying. For ten years, Branson had tried to build an airline and telephone business among those inscrutable billionaires, with mixed
results. If Virgin’s car could be successful, his status would rise. Instead, he was mired in embarrassment. ‘It’s been a fun season,’ he said, watching the practice sessions. ‘We knew we were the underdogs again and we went into it with our eyes open, and it is fun building a team from scratch.’ At that moment, a computer glitch was disrupting Virgin Blue’s flights in Australia, and thousands of passengers were stranded. Branson always delighted in his rivals’ misery, but he could not understand it when others shared that sentiment about him. Before leaving, he was asked whether he was fully committed to Virgin Racing for next season. ‘Yep, for sure,’ he replied.

Branson cut an isolated figure as he walked through the paddock before the last race of the season in Abu Dhabi. Ignored by journalists and TV cameras, he had no excuses for the Virgin cars being ranked at the bottom of the table. The team’s debts had risen to over £60 million, with LDC owed £44 million. Eales decided to sell Lloyds’ shares to Andrei Cheglakov, a Russian electronics millionaire whose ambition for Marussia, his motor company, was for it to compete at Sochi in 2014, in the first Formula One race ever to be held in Russia. Branson agreed that the new team would be called Marussia Virgin; naturally, Virgin would not pay anything. Through Cheglakov, he hoped Virgin might finally develop a presence in Russia. ‘This cements our place on the Formula One grid,’ said Branson, before heading to a party with King Juan Carlos of Spain and Niki Lauda, whom he had persuaded to buy a ticket for Virgin Galactic.

Nick Wirth did not party. A bitter row was brewing between himself and Lowdon over Wirth’s claim that he was owed over £15 million. ‘Graeme Lowdon’, claimed Wirth angrily, ‘is one of the nastiest men I have ever met. It took every molecule of my life to avoid the train wreck they tried to bestow on me.’ Although Wirth received some money, Lowdon strenuously denied any wrongdoing.

At the end of 2011, contrary to Branson’s statements, Virgin abandoned Formula One. Branson extricated himself, leaving a legacy of resentment. ‘I got in at the right time and then got out,’ he told his executives. ‘We didn’t risk or lose any money.’ Like all Virgin’s casualties, Lowdon did not want to be identified as the loser. ‘We didn’t get more from Virgin than we expected or was promised,’ he said.

Soon after this latest setback, Branson posted a message on his blog: ‘After reflecting across forty years and thinking about what characterises so many successful Virgin ventures, I have come up with five secrets to business success: enjoy what you’re doing; create something that stands out; create something that everybody who works for you is really proud of; be a good leader; and be visible.’ Joining Formula One had breached several of his own rules, but there was always an antidote. Days after leaving Abu Dhabi, Media Control, a German data corporation, awarded him a prize previously won by Bill Clinton, Nelson Mandela and the Dalai Lama. ‘The jury’, read the citation, ‘is honouring a globally active businessman whose creativity and innovation has become a force for good in international co-operation, human development and preservation of the environment.’

Prizes naturally made Branson feel special.

Branson’s genius is to blur and bury jarring inconsistencies. To the public, he appeared as the billionaire sponsor of a Formula One team, the owner of exotic islands and the master of a global empire. His status was enhanced by Virgin publicists generating a stream of stories and photographs illustrating his relationship with celebrities. ‘Kate Middleton turns to Sir Richard Branson for advice,’ was a newspaper caption in August 2009 highlighting his intimacy with the future queen not long before the announcement of the royal engagement. A photo taken for former South African president Nelson Mandela’s ninetieth birthday showed Branson alongside Robert De Niro, Oprah Winfrey, Will and Jada Pinkett Smith, Naomi Campbell and Neil Diamond. ‘It’s a fantastic halo’ effect, he admitted.

That coup was followed by photos of Branson alongside Queen Noor of Jordan. Together, they had launched Global Zero, an organisation dedicated to eradicating the world’s nuclear weapons within the next twenty-five years. Shortly after, there were photos of Branson visiting Darfur in the Sudan with Jimmy Carter, the former American president and a leading Elder, a member of the global advisory group sponsored by Branson. The journey of an elderly politician, an ageing hippy and Mia Farrow was planned, said Branson, ‘in solidarity with people in Darfur’ to highlight the famine and civil war. The journey ended in disarray. The local government was irritated by the outsiders’ interference, and the ex-president was manhandled. In the years since the al-Qaeda attacks on New York and Washington, the
invasion of Iraq and the bombings on the London Underground, the antagonism between Muslims and Christians like Carter had grown. Angered that his group of self-appointed ‘civilisers’ were treated without respect, Branson committed himself to a three-day fast in sympathy with the suffering Sudanese. ‘The Elders’, he said, ‘are in a position of moral authority and respect and play a key role in world peace.’

Proud of his creation, Branson was blind to Carter’s eccentricity. The former president was proposing to end strife in ‘the Holy Land’. Israel, urged Carter, should negotiate with Hezbollah and Hamas, whom he called ‘peace-loving organisations’. Since the two groups regularly organise terrorist attacks against Jews and deny the Jewish state’s right to exist, Carter’s prejudice was unlikely to win sympathy among Israelis. The resentment towards him baffled Branson, who praised ‘the beauty of the Arab Spring as inspirational’.

Ignorant of the complexities of the Middle East’s torturous conflicts and the centuries-old religious wars between the Muslim sects, Branson had become dismayed by politicians. In his opinion, they were a transitory breed incapable of improving the world. He genuinely believed that sticking Virgin’s label on a discredited former president could influence international statesmen. Eric Bost, the American ambassador in Pretoria, reported to the State Department in 2007 that Branson was participating in discussions led by Nelson Mandela to offer Robert Mugabe, the president of Zimbabwe, £6.5 million if he retired immediately. Branson denied Bost’s report, but it was not inconsistent with his conviction that government should be entrusted to entrepreneurs blessed with decades of experience. He prided himself on his abilities but preferred to ignore the public’s expectation that politicians behave with transparency. He thrived on ambiguity.

Secrecy had always been Branson’s preference. Ever since
1969, when he had concealed Virgin Records’ true profits from some of his associates, he had guarded his finances in offshore companies. Over the years, he had also ensured that his cabal of executives, especially Gordon McCallum and Stephen Murphy, rarely emerged from the shadows, yet the contrast between his clandestine financial management and his political gestures passed unnoticed among the admiring public. Branson was accepted on his own terms. Even when his ventures faltered, his halo remained fixed. He was universally hailed as an outstanding businessman, even when cracks exposed his empire’s financial vulnerability. At this stage, Virgin Atlantic had soaring losses.

The recession was damaging all the major airlines. The number of lucrative business-class passengers had fallen. Virgin Atlantic was vulnerable in July 2010. Without the benefit of BA’s disasters at Terminal 5, the £36 million profits in 2008 turned in 2009 to a record loss of £132 million. To survive, Branson had to forget his homily about caring for Virgin’s employees. He cut flights, reduced his staff by 10 per cent, delayed the delivery of new aircraft and did not announce any further renewable-fuel experiments. His airline had shrunk by 20 per cent. Many blamed Steve Ridgway for missing too many opportunities. The revelation of the airline’s problems coincided with the start of the trial against the four BA executives for conspiring with Virgin Atlantic’s senior staff to fix the Passenger Fuel Surcharge. The trial was certain to dominate the media, and Ridgway was at the heart of the prosecution case, giving Branson good reason to be nervous.

Throughout his career, Branson had concealed his methods of operating. He had lied about his purchase-tax fraud – in his version the fraud was perpetuated ‘only three times’, whereas it had continued for nearly a year. He had said, when victorious in the Camelot libel trial, ‘My mother always taught me to tell the truth,’ yet in his own books he advised aspiring disciples, ‘I
have always enjoyed breaking the rules.’ Ruthlessness camouflaged by smiles had been a good weapon against competitors. In
Screw
Business
as
Usual
he had written, ‘Do good, don’t do harm. Give back if you can’ – a homily that was no protection when Virgin’s executives confessed to a criminal conspiracy to fix the fuel surcharge. Their confession was matched by BA’s admission of guilt in America and agreement to pay a combined $300 million fine for the cargo and fuel-surcharge cartels.

With Virgin’s and BA’s admissions of criminality, the case for the prosecution in London appeared to be watertight. Steve Ridgway had signed a statement that read, ‘I apologise unreservedly for my involvement in this case.’ Although he denied having ‘direct contact’ with BA, he did admit encouraging Paul Moore, Virgin Atlantic’s public-relations officer, to arrange the announcement of the surcharge with BA’s executives. ‘I did not stop the discussions,’ Ridgway said. Despite his confession, Branson never suggested that his job was in jeopardy. Some assumed Branson’s benevolence was influenced by a degree of prudence. The prosecutors in Washington and London believed that the emails between Ridgway and Branson confirmed that the airline’s owner was aware of Virgin’s secret discussions with BA. Richard Latham QC, the British prosecutor, intended to name Branson as a participant in the conspiracy during the trial, as did lawyers for the defence. Virgin’s immunity agreement compelled the executives to give unequivocal support to the prosecution, but although Branson had been put firmly in the frame, his inability to recall receiving Ridgway’s emails and his professions of ignorance about the discussions with BA posed a problem for Ali Nikpay, the Office of Fair Trading’s legal director. Potentially, Branson’s testimony could confuse the jury, and hostile cross-examination could threaten his reputation, so in the end Nikpay decided that he should not be called as a witness. Branson had good reason to be grateful. At that moment
he was still hoping to buy Northern Rock, and Virgin had submitted an application for a banking licence. The preliminaries of the criminal trial due to start in April 2010 would jeopardise that breakthrough. However, beyond public view, the prosecution’s case was struggling.

The defence noticed that Nikpay had failed to commission a report on the pricing of airline tickets. Nor, the defence lawyers realised, had the prosecution commissioned an expert to explain to the jury the financial consequences of the alleged cartel. Without evidence of financial loss, submitted the defence, how could the prosecution establish a crime? ‘A staggering omission by the OFT,’ a defence lawyer told the judge, Mr Justice Owen.

By contrast, the defence had obtained expert evidence suggesting that the prosecution was misrepresenting how the surcharge had affected ticket prices. The surcharge, according to this evidence, was never simply added on to fares. Rather, it was another component churned by the computers as they endlessly recalculated a myriad of prices. The consequence of this evidence was critical: the prosecution would be pressed by the defence to prove that the surcharge had actually cost an individual passenger an identifiable amount of additional money.

There was another complication that the OFT ignored. BA had applied surcharges to many of its 219 routes, but the airline competed exclusively with Virgin Atlantic on only three routes to the Caribbean. The extent of the alleged cartel would have been minuscule. The OFT had apparently also failed to take into account the fact that all of BA’s bigger competitors were excluded from the alleged cartel, so how could price-fixing operate?

Most importantly, a crime would have been committed only if BA and Virgin had made a binding agreement to restrict their freedom to price tickets. Yet throughout that period, the two airlines were competing furiously against each other on prices. Every lawyer in the courtroom noted the judge’s displeasure at
the OFT’s misunderstanding of airline finances and competition laws. And then it got worse for the prosecution.

From the outset, the four accused had insisted that all of BA’s surcharges had been agreed internally before any of the conversations with Virgin’s executives had occurred. BA’s executives could not understand how innocuous conversations about the timing of public announcements could be construed by Branson and Virgin as an admission of a criminal cartel to fix prices. The explanation, BA hoped, would be found in Virgin’s internal emails. The disclosure of Virgin Atlantic’s emails and documents during the period of the alleged cartel was critical to the defence. Under British law, the defendants were entitled to read all of the airline’s relevant communications, but access to them depended upon the OFT, Virgin and Herbert Smith, the airline’s solicitors.

During the two years before the trial, the four accused claimed to have become exasperated by the reluctance of the OFT, Herbert Smith and Virgin to disclose critical emails and documents. According to the defence’s claims, Virgin was refusing to divulge what it called ‘core legal advice’, including the statements made by its executives to their lawyers. Among those statements, BA suspected, were protestations of innocence by Virgin’s executives.

In total, each of the three executives had made nine successive statements. In sharpening their memories, they had changed their vague testimony to precise admissions of guilt in a criminal conspiracy. Any inconsistencies in those statements would be dream material for a defence lawyer’s cross-examination. The most important was the one provided by Paul Moore, the cornerstone of the prosecution and due to appear as the first witness.

To Moore’s initial surprise, he had been told by lawyers representing the US Department of Justice and Virgin that his conduct had been illegal. He eventually accepted his lawyers’ advice that his conversations with his counterpart at BA, Iain Burns, had
materially influenced the price of airline tickets, which amounted to criminal price-fixing. That belief, he understood, was essential in supporting Virgin’s immunity agreement.

BA argued that the legal advice given to Moore was mistaken. Virgin’s executives, claimed a defence lawyer, ‘thought it was in their interests to make the case against British Airways stronger, and that’s why they were persuaded to say what they said’. Virgin’s bid to retain its immunity was, according to the defence, compounded by the OFT’s ‘extraordinary degree of deference to Virgin’s interests’. In other words, the OFT relied on Virgin’s own investigation to confirm that a crime had been committed.

By the closing stages of the pre-trial hearings, Ali Nikpay had yet to provide the defence with copies of the twenty-seven statements signed by Virgin’s three executives for the American Department of Justice apparently admitting their own dishonesty. The absence of those statements alienated the trial judge. He told the OFT and the prosecutor that the BA executives could not get a fair trial without reading the evidence. Access to the statements depended on the Virgin executives waiving their privilege of confidentiality. Herbert Smith’s letter to Moore asking for permission to hand his statements to the defence was posed in language which, the judge subsequently noted while approving a defence lawyer’s argument, had shown ‘cynical mis-compliance’ with the judge’s own rulings about the evidence.

Virgin was faced with a dilemma. Regardless of the trial’s outcome, the company’s reputation would be damaged. The harm could be minimised by ending the trial in one of two ways: first, by Virgin executives denying in their testimony that they had acted illegally; and second, by releasing their inconsistent statements. Taken together, the prosecution’s case would be weakened.

Just before the trial started, Virgin agreed to show the defence the twenty-seven statements. Herbert Smith, however, declined to disclose the documents they had used in their interviews with
Branson in March and April 2006. Branson’s own statement had been largely redacted. The defence’s quest for Virgin’s documents assumed even greater importance on the day the trial formally started – 27 April 2010.

On the first day, Branson was put firmly in the frame by the prosecutor, but once again the media’s generous treatment of Virgin Atlantic smothered the prosecutor’s allegations and the references to Branson were not highlighted in the following day’s newspapers. Until the end of the week, Latham’s address to the jury followed a predictable course, but then, after the prosecutor and the defence lawyers had completed their speeches to the jury, a series of revelations began to destabilise the trial. The judge was compelled to delay proceedings, exclude the jury from the courtroom and listen to the defence lawyers’ bitter accusations about reputations, motives and suspicious conduct.

During the two-year campaign by the defence lawyers for access to more of Virgin’s internal records, the airline and the OFT replied that software glitches had prevented the computer experts from retrieving ‘some corrupted’ messages. The OFT’s lawyers, after mentioning the huge harvest of data already disclosed, dismissed the few missing files as irrelevant. Surprisingly, no one precisely identified those absent files.