CityJet founder back at the controls and aiming high with €1bn order for planes
Almost 25 years after founding CityJet, Pat Byrne is back in the hot seat and aiming high for the airline that was near collapse in 2014, writes John Mulligan
Published 24/03/2016 | 02:30
Pat Byrne's office used to be the stationery room. It's sparse - a pile of correspondence shifts like a tectonic plate over the desk; business cards are stacked up like gambling chips; his laptop hums; and a forlorn, aging umbrella languishes unfolded in a corner coat stand. He doesn't even have a window. Michael O'Leary's office up the road in Ryanair's new HQ is positively palatial in comparison.
But like a monk in self-imposed purgatory at CityJet's north Dublin headquarters in Swords, Byrne says he has vowed to keep using this cell until he has completed the airline's resurrection.
The stationery room could then, be home then for a little while longer, but it looks like many of Byrne's prayers are already being answered.
Less than two years after it bought CityJet from Air France-KLM, German owners Intro Aviation have just sold out to Byrne and unnamed individuals "with significant experience in the aviation finance sector", he says, shrouding their exact identity in a haze.
Intro - which bills itself as a turnaround specialist - paid effectively nothing to Air France-KLM in 2014 for CityJet, which was heavily loss-making. And while Intro has got something for selling it now, it's not going to be enough to retire on. But Byrne won't say how much Intro got. Intro Aviation is headed by Peter Oncken, and it's part of the Intro Group that was founded by his father-in-law, Hans Rudolf Woehrl.
The deal was signed last week in Byrne's office, with just a few key CityJet executives in the small room.
"We didn't go out on the p**s after or anything," says Byrne, who founded CityJet in 1992 while still not quite 40, after making a mint from the sale of the Savings and Investment firm he co-founded. Among the early, and now former, CityJet investors was Paul Coulson - now the executive chairman of packaging giant Ardagh.
"It felt great, really fantastic," adds Byrne. He had stepped down as CityJet chief executive in 2000, admitting that he was "exhausted" then after six years of struggling to keep the airline in the air.
He'd served for years as a non-executive chairman at CityJet after that, but had never expected to be in the real hot seat again.
He'd also found that non-executive role frustrating, a part of him wanting to be able to drive strategy, but unable to do more than chip in his tuppenceworth. He concedes that while there was often robust debate at CityJet board meetings, it was Air France-KLM that really called the shots.
"I never thought I'd be back in it," he admits. His family, including two adult sons and two adult daughters, expressed "disbelief" when he told them he was putting back on a flight suit (Byrne's phone rings mid-interview and one of his daughters is on the line, probably wondering why he's still in the office).
"There was a lot of disbelief, even in myself," he says. "But coming back into it has been incredible. It's almost as if I haven't left and yet it was a 15-year gap (in an executive role)."
And it's not liked he needed the money. Byrne turns 63 later this year and he could be sitting on a warm beach somewhere. Was he tempted not to get involved again?
"I was. But I just found it very compelling," he explains.
"I always thought there was a huge, latent talent in CityJet and I just felt that if I could provide the leadership for that there would be a lot of possibilities."
He says he wasn't bored before he re-engaged with CityJet, but was "maybe not fulfilled as much as I feel now".
"I'm completely challenged now and I'm stretched to within an inch my life, but I'm not tired. I'm enjoying it. It's immensely challenging. We're on a mission and everyone is very motivated."
He says there were "no fireworks" when the acquisition from Intro was sealed last week.
"We know how hard this is going to be. In theory, what we're doing is impossible, but we're doing it."
He concedes that when - after nearly two years of a process by Air France-KLM to flog CityJet - the sale was virtually completed, he began having notions that maybe he should have done something about it himself. At that stage - in early 2014 - with the sale to Intro all but done, it was too late, however.
"Once I knew the deal was going to be done with Intro, and even though it took the guts of a year to close it (it was finalised in April, 2014), I knew that was the end of my involvement in CityJet," recalls Byrne, who was still non-executive chairman at the airline at the time.
"I didn't get involved then, but I did start to think about it around the time the deal was going through. I didn't think the sale (to Intro) was going to be very successful. There was a requirement for a serious strategy."
CityJet, whose main operational base is London City Airport and whose network extends to cities including Dublin, Paris, Amsterdam, Rotterdam and Florence, had been haemorrhaging cash. It was being shored up by Air France-KLM, which seemed by then unsure exactly why it owned CityJet and what it intended to do with it.
Between about 2008 and 2014, CityJet had racked up hundreds of millions of euros in losses (a chunk of it due to non-cash write-offs linked to the Air France-KLM acquisition of Belgian carrier VLM in 2007 - which had then been dumped on CityJet's balance sheet).
CityJet was the lame duck that everyone was expecting to crash land.
But Byrne's faith was unshaken. Despite the sale to Intro being done, a few months later he started to poke around to see if there might be a way back in. He had left the CityJet board once the sale to Intro was inked, reducing his visibility on what was happening behind closed doors.
His first port of call was UK aircraft leasing firm Falko, which is owned by funds controlled by US-based investment giant Fortress. Falko was the lessor of half of CityJet's fleet of 18 jets, so it too had a keen interest in the airline's strategy and progress.
"I'd known the guys in Falko for a long time. We were concerned about CityJet's future. There was a requirement for capital and a strategy. Falko told Intro that they would be prepared to help in a restructuring, if it was required."
In December 2014 - eight months after Intro bought CityJet - Byrne says a formal offer of help was made. That involved doing a sale and lease back on seven CityJet aircraft airframes (the engines aren't included), which gave CityJet a much needed $14m cash injection in January last year.
Byrne says the airline had been at "five to midnight" prior to that, and would have found it difficult, if not impossible, to survive the following three months without an immediate solution.
"It needed urgent cash," he says.
But Falko wanted more than just the aircraft in return for the cash it was handing over. A stipulation of the deal was that Byrne would be appointed executive chairman at CityJet. Intro, and Peter Oncken, who at the time held the role, agreed.
Intro Aviation was still the de facto owner, but Byrne says he still remained "unconvinced" that the German firm could turn it around.
"I was worried. There wasn't a solid plan."
And that was despite a backdrop where Intro had actually got a good deal from Air France-KLM, including a contract to keep flying services for the group, and indemnities against what could ultimately be a hugely expensive French court case against CityJet related to payroll claims.
But Byrne insists that Intro was eventually "out of options".
"Intro was working on a strategy, but it was aspirational," he claims. "A lot of it made an awful lot of sense, but there are people who talk about what they want to do, and there are people who actually go and do what they say they're going to do. At the risk of being an arrogant f**ker, I'm of the latter variety."
Byrne devised a strategy with Falko, which in turn worked with CityJet as a corporate financial adviser on a major fleet renewal programme.
CityJet has ordered up to 31 Sukhoi Superjets worth over €1bn (three will be delivered this year), and up to 14 CRJ900 aircraft from Canada's Bombardier for its new wet lease contract with Scandinavian airline SAS (that contract is worth €55m of revenue in a full year to CityJet).
CityJet is buying the Bombardier aircraft directly. It will lease the Superjets directly from a subsidiary of the Russian manufacturer.
CityJet will take delivery of the first Superjet within weeks, and will be the first European operator of the aircraft.
And CityJet has also had to put skin in the game. To fund the first eight Bombardier aircraft, it secured loans totalling $48m (€43m) and its CityJet's biggest lender is now Export Development Canada, the county's State-owned export credit agency. The first of those CRJ900s was delivered to CityJet this week.
CityJet bought the Finland-based SAS subsidiary Blue1 last year and will fly all of SAS's short-haul services in Scandinavia under a so-called wet lease agreement, where CityJet provides the aircraft and crew for the operation.
Those wet leasing operations are more profitable by a factor of four to the airline than its own scheduled services, according to Byrne, who adds he heard of the SAS contract in July last year and had won it by September, beating 10 other bidders.
"I know we've a lot of detractors out there, but by Jesus can we move fast," he says.
Eventually, Byrne wants about 60pc of CityJet's activity to be based around wet leasing (and accounting for about half its profits), with the newly ordered jets playing a pivotal role in being able to develop that business.
He's talking to Air France-KLM about providing a service there, and also engaged with other carriers over possible deals. But CityJet's own scheduled activities will continue, he points out, serving as a "shop window" for the airline and potential clients.
Byrne thinks there's a significant opportunity to exploit wet leasing opportunities he says will emerge as carriers such as Alitalia and Lufthansa ponder the future of their short-haul services.
Byrne expects CityJet to be generating annual revenue of about €300m within two years (compared to €177m in 2014), and to probably turn a "modest" profit this year.
He confesses that when he was first running CityJet 20 years ago, he was a bit of a control freak.
"I was. I'm surprising myself that I'm far better at delegating than I ever thought I was before. We've got a great team."
The new chapter being written from the stationery room still has a way to run, and Byrne isn't short on self-belief.
"It's the best business story I know and I'm still kind of numb from it."