White-knuckle trip for Ryan's crew: A debt deadline is looming as the GPA boss and his star-studded board battle to keep the huge aircraft leasing company aloft. Michael Harrison tests the wind

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The Independent Online
For a man facing financial meltdown, Tony Ryan looked the very model of composure as he sipped champagne last Saturday on the manicured lawns of the Chateau de la Roqc, some 15 kilometres south-west of Brussels. The chairman of GPA had flown in the previous day from New York to attend the wedding of an Irish banker and his Belgian bride, and a magnificent setting it proved.

True to his reputation in Dublin society, he proceeded to dance into the small hours of Sunday morning, seemingly without a care in the world. But this, as Mr Ryan and half the world's banking community knew, was the quiet before the storm. Earlier that weekend he had said, with admirable understatement, that GPA was facing 'a tense few weeks'. Some believe it may prove a terminal few weeks.

On Friday, GPA's bankers gave it a final stay of execution - but only until a week tomorrow, by which time the company must have secured the agreement of its banks and bondholders for the restructuring of its dollars 5.5bn ( pounds 3.5bn) debt or face the ignominy of examinership, the Irish equivalent of administration.

The crunch meeting to decide whether GPA survives will come this Thursday, when Mr Ryan meets GPA bondholders in New York to request a moratorium on all debt repayments, starting with dollars 200m of medium-term loan notes that fall due for repayment on 17 May and in the third week of June. Without their support, the Tipperary train driver's son and the Shannon-based aircraft leasing company he founded nearly 20 years ago will probably be pushed over the edge.

If GPA can be pulled back from the brink, it will be testament not just to the wiles and tenacity of Mr Ryan and his star-studded board, but to the understanding and extraordinary patience of GPA's banks and bondholders.

If it does not, the casualties will be fearful. Mr Ryan's paper wealth, once put at dollars 280m, has already suffered a terrible battering as GPA has stumbled from one disappointment to another, its share price dropping from a high of dollars 30 to just dollars 1. Next in line will be his professional reputation and those of the high-powered non-executives brought on board because of their supposed business acumen, political nous and international contacts - men such as Lord Lawson, the former Chancellor, Sir John Harvey-Jones of ICI fame, Dr Garret Fitzgerald, the former Irish Taoiseach, and Shinroko Morohashi, president of Japan's mighty Mitsubishi Corporation. GPA's failure would be their failure.

It is just possible that Mr Ryan will pull GPA out of the fire. But with every hour that passes, the prospect of a financial restructuring that will satisfy the conflicting interests of banks, bondholders, investors and aircraft suppliers becomes more remote.

A mountain remains to be climbed. Supposing the bondholders can be placated, GPA still needs to find sufficient new equity from outside investors to trigger the rescheduling of dollars 3.6bn of bank debt and dollars 9bn worth of aircraft orders from Boeing, Airbus, Fokker and McDonnell Douglas.

Its own long-suffering shareholders, having turned their backs on GPA, and its advisers, are pinning their hopes on an injection of fresh equity from two overseas sources. One remains shrouded in secrecy, the other is GE Capital, the finance arm of General Electric, the giant American electronics and defence combine run by 'Neutron' Jack Welch - a man with a reputation to match any of those who assemble in Shannon once a month for GPA board meetings.

But even if GPA does stave off the Irish examiner and survive for now, it is far from clear whether its founder and his executive directors will still be in charge. The price GE Capital and the other unnamed investor may levy for coming to the rescue is effective control. There is also the vexed question of what to do in the long term with the bondholders - a smallish band of large American institutions that may decide they have little to lose by a adopting a 'scorched earth' approach, as their debt is unsecured.

The dollars 2bn of debt issued into the capital markets by GPA over the years is now reckoned to have a market value of only dollars 400m. GE would certainly not want to be saddled with the liability for redeeming these bonds at full value. That means one option may be to persuade the bondholders to share some of the pain by converting their debt into quasi-equity. Another alternative discussed at last Monday's board meeting was to declare a moratorium on all debt repayments and face down the bondholders.

Looking at GPA's plight now, it seems hard to believe that barely 12 months ago the group was riding the crest of a wave. Founded in 1975 when Mr Ryan walked into the Dublin offices of Aer Lingus and Guinness Peat with pounds 5,000 in his back pocket and persuaded them to stump up another pounds 45,000 for a new business venture he had in mind, the story of GPA was one of mind-boggling expansion. It grew to become the world's largest aircraft leasor, with dollars 7.5bn of assets under management and more than 350 aircraft on lease to 100 customers in 50 countries. When Mr Ryan threw parties, he threw them for ambassadors and kings. After all, he could afford to - between 1988 and 1992 GPA's pre- tax profits rose from dollars 107m to dollars 279m.

It seemed only fair to share some of this success and at the same time to raise badly needed working capital - hence GPA's ill-fated, dollars 1bn international share offer, which flopped in spectacular fashion on the morning of 18 June last year.

The company had come to the market against a backdrop of an unparalleled decline in air traffic, falling aircraft orders and a credit squeeze. Investors were looking for an excuse not to invest and in GPA they found it. The company, though, had hardly been helped by rows with its advisers over the offer price, rows with its existing shareholders - who reluctantly agreed to a 12-month 'lock-in' - and rows with the investment community, which questioned some of GPA's accounting practices, notably the way it handled aircraft depreciation.

GPA, already financially over-extended and facing a dollars 12bn bill for the aircraft it had yet to take delivery of, was now trapped in a financial pincer movement. Not only did it not have the much-needed proceeds from the share offer - the company would have raised up to dollars 700m - but its credit rating started to plunge and interest on its existing debt mountain began to rise.

The irony is that over the past 12 months GPA has performed admirably in the business it knows best - aircraft leasing. It may have sustained heavy losses in the last financial year because of the enormous costs of the restructuring, but it also leased a record 203 aircraft worth more than dollars 4bn.

As one of GPA's financial advisers remarked earlier this year after yet another refinancing deadline came and went: 'The company may have its problems, but at dollars 1 a share it may also turn out to be the best punt of all time.' Mr Ryan and the rest of us will not have to wait long to find out.

(Photograph omitted)

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