Branson: Behind the Mask (21 page)

The first hint of an unusual course of events was the disclosure by Herbert Smith during the first week of the trial of eleven significant, previously unseen documents. Each document had been requested two years earlier. ‘This is deeply disquieting,’ said the judge, after hearing that the paper documents had been ‘on the top of the pile’, not ‘in the back of the filing cabinet’. Just before the lawyers ended that day’s arguments, the prosecution announced that a new batch of emails had been disclosed to the defence that afternoon. Everyone assumed the following day would be difficult because this correspondence referred to the foundation of the prosecution’s case.

Richard Latham had focused on the conversation between Moore and Burns on 21 March 2005 about another surcharge increase. According to Moore’s statement and Virgin’s version of events, Virgin had been discussing an increase of its own surcharge by £3 or £5. Ridgway had told Moore to telephone Burns. Moore obeyed and opened with the words, ‘This is one of those conversations we’re not going have.’ Moore described how he revealed to Burns that Virgin intended to raise the surcharge by £5. According to Moore’s evidence, Burns instantly replied, ‘You might well want to think about going up by £6.’ His swift answer reflected BA’s own intentions.

‘That sounds good to me,’ said Moore. ‘I’ll expect we’ll do that then.’

Critically, the prosecution emphasised to the jury that the public had paid £6 rather than the £5 originally proposed by Virgin because Burns had influenced Moore. In other words, the conspiracy between the airlines had cost the public real money. An email disclosed at a late stage appeared to confirm the prosecution’s case.

Timed at 1.46 p.m. on 21 March – after Ridgway had spoken to Moore, but before Moore spoke to Burns – Moore had emailed his team that Ridgway had decided to impose an additional surcharge. The message included his proposed press statement: ‘Virgin Atlantic has reluctantly decided to increase its fuel surcharge by £5 … from Tuesday 22 March.’ As the prosecution emphasised, just twenty-nine minutes later, at 2.15 p.m., Moore telephoned Burns to seek agreement for a joint announcement.

But a newly disclosed email emanating from Moore’s department contradicted the prosecutor’s version. The new correspondence showed that Virgin Atlantic had decided to increase the surcharge by £6
before
Moore telephoned Burns. At exactly 1.56 p.m., ten minutes after Moore sent his internal email, Anna Knowles, a member of his team, sent an email disclosing that
Virgin had decided to fix the surcharge at £6
– in other words, the same amount as BA, and that email was sent before the conversation, which the prosecution argued amounted to collusion. Nineteen minutes later, Moore spoke to Burns. To the judge’s evident surprise, the defence alleged that the prosecution and Virgin had discovered the new email in 2008 but had not revealed it to the defence for two years – after the trial started. In its defence, Virgin claimed that Knowles’ message was discovered only by accident and her original email was missing. According to Virgin, Knowles’ message was a copy which had been forwarded to others in the airline’s headquarters by Polly Hardiman, another member of Moore’s staff. Therefore, it could not be verified as genuine. That explanation was dismissed by the defence. Nevertheless, the disclosure of the new email dispatched a torpedo towards the OFT’s case. Other conduct by Virgin and its lawyers now took on a more colourful meaning so far as the defence was concerned.

The defence had been denied access to documents used by the US Department of Justice during their interviews with Moore on the grounds that they ‘were not material’. Virgin was now accused by the defence of a ‘close-fisted approach to disclosure’ by withholding ‘potentially highly relevant material going to the heart of the case’. Herbert Smith found themselves criticised for choosing which documents to release to suit Virgin. ‘My feelings are of grave disquiet,’ said the judge. His mood was further aggravated after being told that on the eve of the trial, Moore had been professionally coached on how to give evidence. Training witnesses in a criminal trial is controversial and was compounded by the defence’s allegation that a key email ‘may have been modified’ by some unknown person prior to the trial. ‘That is an extraordinary state of affairs,’ said a lawyer.

Other inconsistencies now assumed greater importance. The prosecution’s case was based on Burns making the first call to
Moore in August 2004. Moore emphatically insisted that Burns’s call had ‘come of the blue’. The BA man’s initiative, the prosecution alleged, took Moore by surprise. In that conversation, said the prosecutor, Burns had started by saying to Moore, ‘This is a conversation we’re not having.’ Burns had always denied that suggestion, insisting that Moore had called
him
first. After they had examined the new emails, the defence confidently asserted that Burns’s version seemed to have been endorsed.

The defence lawyers found a message sent by Moore to his staff, ‘Anna and Polly’, before his first conversation with Burns in August 2004. In it he described to his two assistants how Virgin intended to raise the surcharge by £5. Importantly, he explained how he had heard from a
Financial
Times
journalist that BA intended to increase its surcharge by £6
to £8 and suggested that Virgin wait for BA’s announcement. Moore added, ‘I might ring Iain Burns at British Airways in the meantime and agree a joint date.’ Pertinently, Moore did not write ‘a joint price’.

The defence investigators produced Virgin’s telephone records and a log book compiled by Burns’s personal assistant. The records suggested that Moore had called Burns first and, finding that he was out, left a message. Moore then called again and heard that BA had already decided to increase its own surcharge by £6. Virgin then decided to match BA.

The defence lawyers seized on the new evidence to allege that Moore’s statements were unreliable. If there was a conspiracy, suggested the defence, it might have been initiated by Virgin. The contradictions would be tested during Moore’s cross-examination. But then the trial was shaken by another surprise.

The prosecutor revealed to the judge that the computer program that had scanned the Virgin documents for the trial had not copied some material dated after 10 February 2005. Accordingly, some emails around the critical date of 21 March were probably missing, as were those referring to Branson’s cricket match and
much more. Apparently, no one at the OFT, Herbert Smith or Virgin had noticed that omission. That revelation was followed by another surprise. For over a year, Herbert Smith and Virgin had insisted that some computer files had been corrupted and were beyond retrieval. Now, the prosecutor revealed, those ‘few’ files had been almost miraculously rescued by technicians over the previous days. Suddenly, 70,000 new emails were available, and 12,000 of them were Moore’s.

‘Somewhere there’s a smoking gun,’ griped a defence insider, uncertain as to whether the prosecution had been sabotaged or whether the OFT was simply incompetent. The defence demanded that the trial be delayed while all 70,000 emails were scrutinised. The judge refused. Instead, at the end of a weekend’s frenzied work, the prosecutor announced that the OFT had withdrawn the case. The four BA executives walked out of the court as innocent men. The collapse of the trial was a relief for Virgin, as their executives would avoid being exposed as self-confessed criminals offering contested evidence. BA would successfully negotiate a reduction of its fines in London and Washington.

After his client’s acquittal, Ben Emmerson QC, one of the defence lawyers, criticised the OFT’s lawyers for being ‘ludicrous’, ‘disgraceful’, ‘shabby’, ‘cynical’, ‘not fit for purpose’ and ‘guilty of incompetence on a monumental scale’. ‘Ali Nikpay’, he said, ‘must shoulder the personal responsibility for this fiasco.’ The newly released emails, Emmerson asserted to the judge, showed that the Virgin witnesses ‘seemed to have changed their accounts, from the accounts entirely consistent with innocence that they first gave to their lawyers to what seems to be more manipulated accounts in the final witness statements’. He blamed the OFT for ‘delegating disclosure [of the emails] to lawyers whose job it was to protect and advance the interests of Virgin Atlantic’. That, he claimed, was ‘a disgraceful situation’.

In reply, Ali Nikpay focused on ‘the role played by Virgin to
provide the OFT with continuous and complete co-operation. This may have potential consequences for Virgin’s immunity.’ The OFT’s mismanagement of the case would prompt the new Conservative-led government to close the agency.

The OFT’s last gasp was an announcement soon after the trial’s collapse. Cathay Pacific, stated the agency, had sought immunity from prosecution for fixing passenger fares between London and Hong Kong with Virgin Atlantic. ‘The parties’, Nikpay said, ‘will now have an opportunity to respond to our proposed findings before we decide whether competition law has in fact been infringed.’ Virgin Atlantic set aside £35.4 million as ‘administrative expenses’ in the event of a conviction for the offence. Two years later, in 2012, the OFT’s officials admitted they were confused by the conflicting evidence. Virgin Atlantic, the OFT announced, would not be prosecuted. Branson’s good relations with the media limited any negative comments. His airline’s fate, however, remained precarious.

‘Business is way down,’ said Steve Ridgway in 2010. ‘I think we are probably at the bottom and there is no sign of the green shoots. Business travellers have not come back.’ He dismissed a further 600 employees and cut more routes. Branson predicted that Virgin America would lose another $48 million in 2010. The continued independence of his airline depended on President Obama vetoing BA’s proposed alliance with American Airlines. Branson’s usual reliance on Virgin’s self-professed decency was vulnerable.

‘I wouldn’t forgive anybody for what they did there,’ said Willie Walsh, still outraged by Branson’s dash to the American prosecutors. The payback was delivered in a few sentences. Washington’s officials were reminded by BA’s representatives that Branson was not the disinterested champion of consumers. Contrary to his self-portrayal as ‘the cool David taking on the world’s corporate Goliaths’, Virgin had confessed to a serious
crime. The masquerade of the underdog, argued BA’s lawyers, should end henceforth.

Officials at the US Department of Transportation approved BA’s alliance with AA in February 2010, on condition that four pairs of daily slots at Heathrow be sold. ‘The preliminary decision beggars belief,’ exclaimed Branson. ‘Four slots is a complete joke and those responsible should hang their heads in shame.’ Over the following weeks, he fumed that the alliance provided ‘no evidence of consumer benefits’. BA and AA would enjoy ‘a massive frequency advantage’ over Virgin Atlantic, he complained, an obvious consequence of the two airlines operating more planes than Virgin. A few weeks later, BA and Iberia, the Spanish airline, merged. BA–AA–Iberia offered 5,200 daily departures from over 400 cities. Branson’s protests were again ignored, not least because his complaints coincided with his own bid for alliances.

On 13 September 2010, Branson protested that Australia’s regulator had refused to allow Virgin Blue to code-share with Air New Zealand across the Tasman Sea. ‘We’re losing money,’ Branson retorted, ‘and if we don’t get the code share we’ll pull out of the flights.’ At the same time, he applied to code-share Virgin Atlantic’s flights to Australia with Etihad, the Gulf airline; and also Virgin’s flights from Australia to Los Angeles with Delta.

Virgin justified that hypocrisy as necessary for survival. But in September 2010, Branson’s poise was disrupted. Scrabbling for solutions, he spoke about integrating the three Virgin airlines and Virgin Galactic into a ‘quality alliance’. His scheme bore a hint of desperation. ‘Don’t underestimate the halo effect the new alliance will have on the brand,’ Branson told the single journalist invited to witness him walking through a Dallas convention centre accompanied by two blonde Virgin America stewardesses. He was handing out free tickets for the airline’s new service between Dallas and San Francisco. ‘I’ve long argued with my wife, size isn’t everything.’

Amusing quips and his description of himself as ‘the rebel mogul’ shaking up markets could not compensate for the erosion of his commercial strength. Branson’s airline, he finally conceded, needed a lifeline. Asked, ‘Is Virgin Atlantic going to be around in fifty years’ time?’ he replied, ‘I think we realise that we need a big brother or we need a partnership.’ The obstacle was his past. He was not everyone’s favourite business partner.

Cheong Choong Kong, the former chief executive of Singapore Airlines, cursed his purchase of 49 per cent of Virgin Atlantic for £630 million in December 1999. The anticipated profits had not materialised, and Branson had aggravated his partner by expanding Virgin Blue’s network across Asia in direct competition with Singapore Airlines. ‘God help us,’ said Cheong. ‘He’s unreliable,’ declared one of those close to Cheong. ‘He’s never there. He’s not interested in day-to-day results. He’s a lightweight.’ Cheong often lamented an exchange with one British businessman. ‘You should have called me,’ said the industrialist. ‘I would have told you not to touch it.’ Cheong and his successors rejected Branson’s plea for money to expand the airline. ‘He’s got so many inter-company loans’, observed a Singaporean executive on Virgin Atlantic’s board, ‘that one should run for the hills.’ Since 2006, the Singaporeans had sought a buyer for their devalued stake. ‘Anyone can make an offer and we will evaluate it,’ confirmed Goh Choon Phong, the airline’s new chief executive. There was no apparent interest.

The Singaporeans’ irritation with Branson was shared by the directors of Lufthansa. In late 2009, the Germans decided to cut their losses and sell BMI. Although the airline, which had 11 per cent of Heathrow’s slots (fifty-six pairs), was worth around £200 million, Branson offered just £50 million. The Germans were unsure whether he should be taken seriously. He presented himself as a committed environmentalist, yet he supported a third runway at Heathrow and criticised the decision not to open one
as ‘purely political and incredibly damaging’. The Germans were equally bewildered by a capitalist who frequently advocated the benevolent treatment of employees but condemned Virgin pilots for voting overwhelmingly to strike over their working conditions. Finally, they were baffled as to why Branson offered to pay only a quarter of BMI’s true value. Their discussions struggled until the Germans concluded that Virgin Atlantic could not raise the required bank loan. Branson was offering a pittance in the hope that there would be no other offer. At the end of 2010, the negotiations collapsed, but to Branson’s distress Willie Walsh appeared with an offer of £172.5 million. Combined with BMI, BA would own 53 per cent of Heathrow’s slots. Since Lufthansa controlled 66
per cent of the slots at Frankfurt, and Air France owned 59 per cent of those in Paris, the regulators had no reason to oppose a buyout just because Virgin owned only 3 per cent. ‘It is vital’, Branson protested immediately, ‘that the regulatory authorities in the UK as well as Europe give this merger the fullest possible scrutiny and ensure it is stopped.’