Morning:
8°c
On Monday evening, I met Lawrence Hunt, the founder of broken business-class-only airline Silverjet, then went home and watched Dragons' Den. Hearing Hunt's account of the rise and fall of Silverjet and seeing the TV show inventors undergo a mauling at the hands of Peter Jones et al — the contrast couldn't be greater. Setting up a business to produce and sell boxes made from recycled cardboard is one thing, starting your own transatlantic luxury airline is quite another.
I can't think of anything in business that takes greater courage. There's the complexity and size of the kit required and the cost. There's the sheer detail involved in the enterprise, from the engineering and maintenance to marketing to the lounges to the on-board service. And then there's all the regulations.
In Silverjet's case, you have to add in the requirements of the Stock Exchange, since Hunt raised his cash with a public share offering. He also had analysts and investors to contend with.
That was just to get the business operating. Once airborne, there's the competition to face. Oh, and there's the permanent fear of a crash. I wouldn't do it for anything.
“You're right,” he says. “My biggest nightmare was always the chance of an accident. I used to receive text messages every two hours telling me where the planes were.” But in the end, it wasn't technical failure or pilot error that did for him but financial breakdown.
Silverjet began flying in January 2007, offering return business-class flights to New York from £999. London to Dubai followed, but then the company ran out of cash. In May this year, the administrators were called in, and a month later, Silverjet went into liquidation and all 420 staff were made redundant.
For someone who has been through such trauma, Hunt wears it well. How much did he lose? “About £2.5 million.” Is he bankrupt? “No, no way. Let's say I'm working with my creditors — my ex-wife mainly,” he replies.
He's 42 years old, grew up in Berkshire and the Middle East, the son of a litho-print entrepreneur and a member of the Foyle family, of Foyles bookshop fame. He went to Harrow School and, at 13, “was operating a bookmaking business at school and a publisher — and some other businesses I won't tell you about”.
Hunt didn't go to university. His “first proper job” was working in a pizza restaurant. He ended up running three of the restaurants.
Then he sold computers for IBM. “It was when they launched the PC. It was fantastic at first but then got lost in the IBM corporate fog. You'd do the job, then the IBM machine would move in — it would take longer to get a deal signed off internally than to conclude the first deal with the customer. I realised I wanted to do start-ups.”
He quit IBM and joined Novell, a software company based in Utah. He set up their European network. “They were hugely successful — a competitor to Microsoft. They floated on Nasdaq and got very big, very quickly. Then the same thing happened as at IBM — the bureaucrats moved in and stifled creativity.” With a couple of Deloitte partners, Hunt formed BMS, a technology consultancy they later sold to Cap Gemini. Then he was involved with Database Management Services, which was bought by IBM.
Then came Rapid Travel Solutions, a travel software business, which he founded and also sold. “The day after I did the deal, I met their MD who said, What do you want to do?' I said, I want to leave.' He said, You can't, you're contracted to us for two years.' It was like a prison sentence.”
Finally, in 2003, he was allowed to go. “I spent some time travelling, then in 2004 I started work on the airline.”
The idea for a business-class-only carrier came from his own experience. “Purely as a customer paying for my own staff to travel, I used to think, we can pay £500 for them to sit at the back or £4000 at the front. I could never reconcile the difference — could never see how it was worth the extra £3500. They were still treated like sheep, even at that price. Of course, the truth was that the business-class passengers at the front were subsidising the people in economy at the back.”
He consulted his cousin Christopher Foyle, who besides overseeing the book store in Charing Cross Road had his own separate aviation interests. Hunt came up with a plan for 100 seats, all business class, on a Boeing 767-200 to New York. At 65 seats sold at £999 he broke even — any seats after that represented clear profit.
“Everybody except Simon Calder [The Independent travel writer and TV presenter who delights in the cheap seats] wants to travel business class. There was no question the demand was there. The idea, as well, was to create an offer so compelling that people would want to fly with us.”
Instead of providing a type of service identical to the opposition, Hunt surveyed what travellers wanted. The answers came back: own private terminal, ladies -only loos, carbon neutral, with lighter, healthier food.
“That's what we did,” he says. “They obviously liked it — in 18 months we carried 130,000 passengers.”
Contrary to what was widely supposed, he says, it wasn't the rising oil price and the credit crunch in themselves that killed Silverjet. With hindsight, its downfall was seeded right at the beginning, with the initial fund-raising. He needed £100 million. “Let me tell you, that's the scariest part. For two years, from 2004 to 20 06, I seemed to do nothing but try and get the money. I did it myself. I must have approached 900 potential investors — high net worth individuals, private equity, sovereign wealth funds, ruling families. You name them, I saw them. Three times I almost got there, but on each occasion they wanted to change the deal at the last minute. I took the view that if you can't trust someone you don't want them as your business partner, so I said no.”
Eventually, he met a broker who suggested the IPO route. “We went for three tranches. If we got £25 million, we could launch. We went on AIM and sold the shares at 112p. That was enough for one aircraft. Two more share sales gave us enough for two more planes, so at the end we had two flying to New York and one to Dubai — and they were 70% full.”
Then, last August, the world changed. “I was on holiday and one of our biggest investors, a fund manager who was a big aviation specialist, got an edict from on high, Get out of airlines.' His bosses were afraid of the coming downturn and wanted out of all the carriers.”
He shakes his head at the memory. “US banks were taking hits on subprime and the mood had shifted. I argued we weren't like other airlines — we were a start-up, a niche player— but it was no good. From that moment on we were pushing water uphill.”
Hunt still raised a further £22 million in December, including £10 million from the Reuben brothers, but sentiment was altering. “Maxjet [another business-class-only transatlantic airline] went down and a herd mentality took over. It was crazy — if several athletes are in a race, and one falls over, it doesn't mean the others will as well.”
The hammer blow came, he says, when analyst Mike Stoddart at investment bank Daniel Stewart issued a 32-page circular advising investors to sell “at any price” as the airline was “doomed to fail”. He said the occupancy level was too low, and Silverjet would be forced to beg for more cash.
The shares dived 29% and, despite Silverjet's efforts to highlight inaccuracies in his report (Hunt claimed the take-up figure was wrong and was actually much higher), the damage was done.
Hunt clearly feels hard done by. “Mike Stoddart was not an aviation analyst. He spent one hour with us. My dog could have done better analysis.”
He suspects, but cannot prove, that the giant carriers were out to wreck Silverjet. “We'd just come on to their radar — we had an 80% load factor, not the Stoddart figure. Then this happened.”
A search began for a new investor — one who could swallow the whole lot and take it off the stock market — but Hunt was let down. An Irish proposal failed to harden and a promised Middle Eastern backer didn't deliver (that no-show is now the subject of a Serious Fraud Office inquiry, into whether Hunt was the victim of a scam involving bogus documents and an attempt to take over his company).
Oil wasn't to blame, he says. “For every $10 on the barrel price, we'd put £35 on a ticket. But the legacy carriers were asking business passengers to bear more of the increase — putting £50-£60 on the cost of a business fare. It was investor sentiment that made our situation impossible. They saw Maxjet go down and thought we'd be next.”
Would he do it again? He doesn't hesitate. “Tomorrow, if I had the right investor. We had a great business model and we would have made a lot of money.”
He's got other ventures on the go. He's a director of Lowcosttravel and another business, Global Travel Markets. “I'm doing OK. I've never had calls from headhunters. I suppose I'm unemployable — but then I was never any good at working for others.” He's smiling as he says it.
