Flying by the seat of his pants

This week's settlement between BA and Virgin involved a typical display of Branson bravado, says Tim Jackson
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The Independent Online
It is hard to tell whether Richard Branson is winning or losing. On Thursday, he issued a triumphant press release announcing that his Virgin Atlantic had accepted £265,000 from British Airways to settle a High Court action over the "dirty tricks" carried out by BA employees against the airline. The same night, British Airways insisted that settlement terms, net of costs, meant it would actually receive money from Virgin. Since then, the PR men for the two companies have been scrapping like angry terriers. What is really going on?

The background to the story is that Virgin sued British Airways for breach of copyright linked to a number of episodes in which BA staff illicitly read information on Virgin flights and passengers stored on a computerised reservation system. Only the extent of these dirty tricks and the level within the company at which they were known about was in dispute: BA admitted what happened when it settled a libel action in 1993 which Branson brought after the airline said his allegations were trumped up.

After the success of that libel action, Branson lodged his claim for breach of copyright, demanding £29m, to include loss of business from poached customers. Fourteen months ago, BA's response was to pay £265,000 into court. Under High Court rules, that gave Virgin a dilemma. Once a defendant pays money into court, the plaintiff risks having to cover both sides' costs if the court eventually awards less than the sum paid in.

Branson's press release this week said his firm had settled the case in order to concentrate its efforts on a related but much bigger forthcoming anti-trust case against BA in America. But the hard fact was that the copyright dispute was rumbling towards court, and was due to be heard next month. Faced with the prospect of proving that the damage it had suffered from BA was more than £265,000, Virgin decided against ploughing on.

By then, both sides had run up substantial legal bills. BA offered to pay its own bill, estimated at £750,000 - if Branson would drop the claim. Branson preferred to extract a moral victory, receiving the £265,000. Under this arrangement, however, he would also pick up BA's legal bill, while Virgin's costs, to be paid by BA, are likely to be a more modest £100,000. The lawyers are still squabbling over the details.

The outcome makes better sense than it sounds. BA's activities were certainly sneaky and underhand, and far below the standards expected of a large public company. Yet it was less clear how serious was the actual damage caused to Virgin. The figure of £29m was a typical piece of Branson chutzpah.

The Virgin chairman's instincts throughout the saga so far have been right. He realises that every twist in the plot elicits a further round of media coverage that is damaging to BA and reinforces the public image of Virgin and its 44-year-old chairman as plucky and adventurous.

In some ways, that image is correct. By revenues, Virgin is comparable in size to British Midland, the short-haul carrier that flies between Britain and a number of European cities. But Virgin has fewer take-off slots at airports, since BM jets hop across the Channel several times a day, while its own long-haul aircraft ply the Atlantic and Pacific routes for six hours or more at a stretch. Branson has always realised that publicity - preferable the free sort - is the best way of raising Virgin's profile.

In 1991, when the dirty tricks controversy first took off, the Virgin group was going through a rocky patch. The recession had not yet lifted, and the group was labouring under the burden of heavy debts incurred to remove itself from the stock market three years earlier. The news that BA staff were poaching its passengers and PR men were smearing its name made those problems seem more daunting still. That is why Branson took the dispute so personally, and why relations between the two firms remain so vituperative.

The commercial background now is very different. Virgin Atlantic will probably make money this year; and it will certainly be better managed. Last summer Branson came to the conclusion that there was too much red tape at Virgin - and cleared out a handful of his airline's top directors.

Virgin is now one of the 10 largest private business empires in the country; and the group's interests continue to spread. After repeatedly complaining to the authorities that its medium-wave frequency was commercially unattractive, the group's Virgin 1215 national pop radio station won a licence earlier this year to broadcast in the London area on FM. The group is bidding to run the Eurostar continental train service. And it is now in the fizzy drinks business. Virgin Cola, launched last winter, has captured a profitable share of around 10 per cent of a market dominated by Pepsi and Coke.

Most important of all is Virgin's move into financial services. The company has set up a joint venture with Norwich Union, selling financial products by telephone from a modest building in suburban Norwich. Its first product, a simple Personal Equity Plan tied to the FT-SE all-share index, has brought in £42m in investment in its first month. As more products are introduced later this year, the firm is likely to pass its break- even point of £100m a year in money under investment.

So it is from a position of strength rather than weakness that Branson continues his fight against BA in the American courts. Many analysts consider that the US anti-trust case - with its astonishing demand for $325m in damages - is a long shot. But if Richard Branson can settle, at substantial cost to himself, a case like this, and portray it as a victory, there is no knowing what tricks he might not pull out of the hat in the States.

Tim Jackson's `Virgin King' (HarperCollins, £6.99) is published in paperback next month.

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