How success turned into disaster

IN THE END it was the only deal in town. Faced with a stark choice between losing control of the business he founded or witnessing its complete demise, Tony Ryan decided to salvage at least something from the wreckage.

The brave talk yesterday was about the 'powerful global alliance' that GPA and General Electric Capital Corporation will represent. But the reality is that the giant American group is already in the driving seat, even before it exercises its options to acquire a majority stake in GPA.

'It was not really such a big deal for GE but it was for us,' a GPA executive reflected yesterday morning after the long night of talks in New York that sealed the company's fate. GPA, once the largest aircraft leasing company in the world and the biggest success story to come out of Ireland for a decade, is now heading into the arms of a financial conglomerate that, with assets of dollars 92bn, is bigger than Royal Bank of Scotland.

When Ryan walked into the Dublin offices of Aer Lingus and Guinness Peat in 1975 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, he could hardly have imagined how his dream would end up.

Then again, he could hardly have foreseen the story of mind-boggling growth and financial success that GPA was to become before its shooting star fell to earth. GPA grew slowly and cautiously at first. Beginning life as a broker, leasing out surplus jets on behalf of one airline to another, it did not buy its first new aircraft until 1984.

From then on, however, the pace of expansion was dizzying. Between 1985 and 1992 its profits went from dollars 17.4m to dollars 279m and its fleet rose from 40 to 460 aircraft. GPA's appetite for growth was illustrated best in 1989 when it announced a dollars 16.8bn order for 308 aircraft - the biggest single batch of orders in aviation history - spread among the world's three leading manufacturers, Boeing, Airbus and McDonnell Douglas.

The profits record was remarkable for a business with fewer than 400 employees, but it helped to persuade a string of heavyweight figures from the worlds of politics, finance and industry to climb aboard as non- executive directors.

But with the growth came increased indebtedness. By the middle of 1992 its secured and unsecured debts stood at dollars 5.5bn - of which dollars 3.5bn was bank debt and dollars 2bn in the form of bonds. Although GPA had always denied that it would need to go to the equity markets for cash, it was clear that the company's balance sheet needed strengthening considerably. So in early 1992 it began planning its ill-fated attempt to raise dollars 1bn through a global share offer.

It is easy to find excuses for the flop of the issue last June. The company had come to the market against a backdrop of an unparalleled decline in air traffic, falling aircraft orders, a severe credit squeeze and a dip in residual aircraft values.

However, too many investors did not like what they saw in the GPA prospectus. GPA's remarkable profits growth had been achieved partly through the technique of taking profits on aircraft sales and leasebacks immediately rather than over the life of the lease. Analysts also queried GPA's practice of inflating its worth by depreciating its fleet over a significantly longer period than was common for most big airlines.

The failure of the flotation was a massive psychological blow to Ryan and his fellow directors, and set GPA on the slippery slope. Already financially over-extended and facing a dollars 12bn bill for aircraft yet to be delivered, it 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 it saw its credit rating plunge and interest on its existing debt mountain rising.

The most immediate casualties of GPA's fall from grace in the past 12 months have been its shareholders, who have seen the value of their holdings slither from dollars 30 a share to less than dollars 1. Many, such as Air Canada and Aer Lingus, were financially stretched already and have written off their investments.

Ryan himself has suffered badly - his paper fortune, once put at dollars 280m, has taken a battering and he has personal borrowings of dollars 35m with one bank secured against GPA shares worth dollars 8m at best.

The cost to the reputations of Ryan and his star-studded board has been high, as has the financial cost to shareholders and creditors. The one consolation is that it could have been a good deal higher.