Hard Landing (71 page)

Wolf had only to hear Plaskett say “Heathrow” to grasp the significance of the overture. Wolf had just begun attempting to pick his way into Europe on the usual tedious, route-by-route basis. If he
came to terms with Plaskett, in just this one transaction United would win the right to land at Heathrow from five US. gateways (New York, Washington, Los Angeles, San Francisco, and Seattle). Overnight United would control 15 percent of the entire transatlantic airline passenger market, three times the share that Bob Crandall had established for American after nearly a decade of painstaking effort.

The deal would also give United the rare and in some cases valuable authorities that Pan Am in the Trippe era had won beyond Heathrow to Europe—to Amsterdam, Berlin, Brussels, Hamburg, Helsinki, and Munich. And quite apart from London, Plaskett was willing to toss in a route from Washington to Wolf’s beloved Paris. It would be the same kind of bold stroke by which Wolf’s predecessor, Dick Ferris, had propelled United into the Pacific five years earlier, in 1985 (also by cleaving routes from Pan Am). It was the kind of breakthrough that could get United moving again.

The message was by no means wasted on Wolf when Plaskett said he wanted to consider any deal for Heathrow only the first step toward a possible takeover of the whole enchilada—or more aptly the whole Blue Meatball, as Pan Am, with its big blue logo, had long been known. “
That’s interesting,” Wolf answered. “I’ll get back to you.”

As urgently as he wanted to buy Heathrow, Wolf from the git-go had
absolutely no interest in eating the entire Blue Meatball. Wolf knew Pan Am well; he had served there a decade earlier, under Ed Acker, and he knew that Pan Am’s problems had only worsened. When companies cut back, Wolf thought, they lose both their youth and their best, most seasoned people. Everyone left behind had been through a decade of hell with the company. There was no way Wolf was going to put United through that kind of merger, particularly after all that United had been through. Wolf would prod Plaskett into closure on the Heathrow deal and that alone.

The companies came to terms at $400 million. Plaskett, almost everyone in the industry thought, had given Heathrow away. The U.S. government’s pension watchdogs, who had an interest in any large movements of cash or assets out of Pan Am, even argued that the U.S. taxpayer had an interest in a higher price. Plaskett was undeterred. The world failed to appreciate the hidden value in the
deal—an implicit promise that Stephen Wolf would at least attempt to come to terms on the purchase of Pan Am in its entirety and the rescue of all its jobs. Plaskett remained unaware that Wolf had already made up his mind to the contrary.

Crandall was apoplectic that Wolf had stolen the march into Heathrow, but he made a quick recovery. There was a second American company with precious landing rights at Heathrow. It was TWA, and TWA was in nearly as sorry a condition as Pan Am.

In the rarefied atmosphere of the race to London, Carl Icahn of TWA could force Crandall to pay top dollar. For six routes to Heathrow Crandall forked over $445 million; Wolf had paid less for more from Pan Am. Icahn, for additional millions, agreed to throw in 40 slots at O’Hare. With this purchase Crandall scored a double, because many of those slots had been on lease from TWA to United.

In the megacarrier race United was the runaway leader over the Pacific, although American certainly had designs there. American was the leader in Latin America, although United likewise was moving to follow. Over the Atlantic they were in a close heat—so long as their respective purchases closed as planned. But the lineup at Heathrow was about to change in another way, and the politics were huge.

Nearly seven years earlier, at the height of the clamor to reserve seats on People Express, one of the frustrated people at the other end of the
busy signal was Richard Branson, calling from his houseboat in London. Branson was a recording industry executive who made frequent trips to the United States. After Pan Am had put his fellow Briton Freddie Laker out of business, Branson was eager to see how People Express was performing on the same route, from Newark to Gatwick.

At just 34 years old Branson in 1984 was one of Britain’s
most successful entrepreneurs ever, undoubtedly the most successful of his time. In the midst of the ferocious student insurgencies that swept the public schools of England in the 1960s, Branson published a magazine called
Student
, which he built with articles from leading leftists and promoted to advertisers with an irresistible sales pitch: “
I’m Richard Branson, I’m eighteen, and I run a magazine that’s
doing something really useful for young people.” In an early display of a lifelong tendency, he
sued Beatle John Lennon, claiming that Lennon’s agent had reneged on a promise to provide an exclusive recording that Branson had intended to publish as a “flexidisc” in the magazine.

Student
was financially overextended, and when it fell on hard times, Branson generated cash by launching a mail-order record business he called Virgin Music, a name meant to convey his utter unfamiliarity with the field. Among other mischief, he was fined and spent a
night in jail for smuggling records into the country to evade import duties.

The profits were scant in the mail-order business, but Branson quickly realized that producing his own records might improve the equation. He bought a 16-track recording machine and a few microphones and installed them in a 17th-century castle near Oxford that he purchased cheap. He was 20 years old. A musician named Mike Oldfield moved in and labored for nine months on an album titled
Tubular Bells
, a runaway hit that became the soundtrack for
The Exorcist
. Branson was an instant millionaire.

Branson then signed the Sex Pistols, a group of spike-haired, vaguely sadomasochistic adolescents who played nihilistic, screeching ballads, one day to be dubbed punk music. Though the Sex Pistols were founded as a novelty act, the joblessness and economic stagnation gripping Britain in the 1970s made the times ripe for such a band to be taken seriously. Their breakout song was a “commemorative” number for the approaching silver anniversary of the coronation of Queen Elizabeth II.

God save the queen
She ain’t no human being
There ain’t no future in
England’s dreaming
.

The BBC banned the song and permitted it to appear in the pop charts only as a blank entry. Outlawed from every concert hall in England, the band began to tour the United States, where it soon fell apart. Band member Sid Vicious was arrested for the murder of his girlfriend and then died of a drug overdose.

Richard Branson, however, became a factor to be reckoned with in music publishing. He took the unusual step of signing a rock-and-roll drummer named Phil Collins, from the rock group Genesis, to a solo vocal album; he made Collins one of the biggest-selling artists of the 1980s. He signed up a songwriter named Gordon Sumner, who had adopted the stage name Sting and whose band, the Police, had become yet another of the decade’s great rock acts. He signed a cross-dressing singer named Boy George, who was briefly the biggest pop star in the world.

And then he started an airline.

Freddie Laker had been out of business nearly two years when an American lawyer living in London came to Branson in 1984 with a plan to resurrect Laker’s operating authority between Gatwick and Newark. Branson quickly bought into the idea, sticking the Virgin label on it, too. The two days he had spent trying to get through by telephone to People Express was the entire extent of Branson’s market research. The failure of anyone to answer the phone at People Express told him that either there remained
unrequited demand for cheap flights over the Atlantic or the service being provided was incompetent. Either way there was an opening.

Branson scheduled a
lunch with Sir Freddie. The failed entrepreneur reeled off a litany of rules he said Branson must follow if he hoped to survive against the major carriers, especially British Airways: Compete on good service as well as low prices, because the major airlines can outlast you on price. Do not launch any more than two or three routes in a given year. Do whatever is necessary to break through the barriers around Heathrow. Use yourself to promote the airline. When they come after you, shout hard and shout long.

And finally, of particular importance, Laker said, when British Airways moves to crush Virgin, make Sure you sue the bastards while you’re still alive.

Branson acquired a single 747 for $28 million, a plane that had barely been used by its original owner, Aerolineas Argentinas. He intended to christen it
The Spirit of Sir Freddie
, but
Laker talked him out of it, as if urging him to avoid a hex. Branson won his operating rights from the Civil Aviation Authority in London after a hearing at which he was scolded for showing up
without a necktie.

In June 1984, seven years after he had cashed in on the Queen’s jubilee,
Virgin Atlantic was aloft. British Airways struck back with fares so low that the authorities in the United Kingdom
deemed them injurious to Virgin. British Airways was pressured to restore its fares, giving Virgin a fighting chance to build a passenger base. Branson made a point of hiring flight attendants with arresting looks and figures and outfitted them as candy canes. Virgin had begun life as the Southwest Airlines of the North Atlantic.

Following Laker’s advice, Branson applied for the authority to serve Heathrow but was told there was no room, not a single slot, available. He was stuck at Gatwick, just as Freddie Laker had been. Then in November 1990, Margaret Thatcher’s government fell. The new Conservative Party government of Prime Minister John Major was immediately confronted with Branson’s demand to get into Heathrow, and Major did not share the long-standing ties to British Airways that Thatcher had. At the same time United and American, in separate applications, were seeking the government’s approval of their plans to begin operating the slots held by Pan Am and TWA. Although this latter issue seemed perfunctory, the new government resolved that nothing would change until it had completed a review of the entire slots scheme.

Branson, having waited seven years, would have to continue waiting, and the Americans with him.

Tom Plaskett urgently needed to close his deal with Stephen Wolf. Pan Am had to have its $400 million from United. But there was a hitch in London snagging the Pan Am-United deal, Plaskett learned. Not only was the British government evaluating its entire landing and takeoff scheme at Heathrow, but Sir Colin
Marshall and his lawyers had been looking carefully at the Bermuda II amendments. Only Pan Am and TWA, the treaty said, could serve Heathrow—only they, that is, or their “corporate successors.”

Was United the corporate successor to Pan Am? Was American the corporate successor to TWA?
Absolutely not, said Sir Colin. Those companies were simply swapping assets. It was like trading ballplayers, selling a line of clothing, unloading a brand name in food, selling a factory; none of those exchanges altered the identity of any of the corporations involved. Sir Colin
expressed his view to government officials as strongly as possible. To have United and
American counted as corporate successors, Marshall argued, the United States should give up something in return.

Marshall had been on easy street for years competing against Pan Am and TWA. British Airways, after its makeover in the mid-1980s, had one of the industry’s most modern fleets and most skillful and dedicated workforces; the planes at Pan Am and TWA were wretched old money losers and the employees were as dispirited as any in commercial aviation. British Airways had developed the most sophisticated international marketing strategy in the world, designed to draw more passengers at premium prices; the marketing strategies at Pan Am and TWA involved selling at any price, meaning that their planes were jammed with low-fare passengers. In only five years, from 1985 to 1990, the U.S. carriers’ share of the traffic between the United States and Heathrow had
plunged to 47 percent from 57 percent—a free fall in an industry where battles were often won and lost on the east side of the decimal point.

The game would change drastically, Marshall knew, if United and American succeeded in replacing Pan Am and TWA. Wolf and Crandall were battle-hardened survivors of deregulation, the most cutthroat war in the history of commercial flying. They had the world’s greatest arsenals of data-processing capability. Crandall, in particular, was a mean person—“
Wretched Robert,” as the irascible Lord King was known to call him. As for United, Marshall’s valued code-sharing contract—assuring British Airways of many millions of dollars in additional passenger feed a year—was now clearly destined for the shredder with United planning to become a direct competitor in London.

In making his case to extract a price from the Americans, Marshall told his government that commercial aviation was a delicate, carefully balanced industry; that British Airways was one of the
leading success stories in Britain’s climb from economic oblivion; that severe, sudden change could risk British Air’s leading role on the stage of international commerce and send it along the well-trodden path toward British industrial mediocrity. Happily for Marshall the government was obliged to listen: British airlines were customarily invited to participate directly in bilateral aviation negotiations. In contrast the United States didn’t allow corporations in any industry such a voice in the diplomatic affairs of the nation. “When the
British government sits down to negotiate with the U.S. government, British Airways sits at the table,” Crandall would later complain. “
I’m not allowed in the room.”

The diplomats negotiated on and off for weeks. On the Friday before Christmas in 1990, they reached an impasse. The negotiators went home. The Heathrow deals could not come to closing—not in 1990, in any case.