Indigo promoters’ feud may not end soon despite ‘truce’ claims

The ongoing feud between the two co-promoters of IndiGo airlines, Rakesh Gangwal and Rahul Bhatia, is one of changing power equation in the company.

When the airline was conceptualised, both Bhatia and Gangwal needed each other. Perhaps, Bhatia needed Gangwal more.

If rumors are to be believed, when the idea of starting IndiGo was mooted, Bhatia found it difficult to convince the aircraft manufacturers — Boeing and Airbus — to provide him the aircraft required to start the airline.

IndiGo, a start-up, wanted to place an order for 100 aircraft, something which had never happened globally till then. That’s when Bhatia got in touch with the US based Gangwal (both long-time friends) who approached Airbus, and IndiGo’s order was accepted by the aircraft manufacturer. People connected with the business told BusinessLine: “You do not say no to a person (Gangwal) who has ordered thousands of aircraft during his tenure in various global airlines.”

Before IndiGo, Gangwal had spent more than 30 years working in and leading airlines including United Airlines, Air France and US Airways.

Possibly an indebted Bhatia decided to offer half the airline company to Gangwal. Gangwal returned the favour by agreeing to the terms and conditions which are clearly in favour of Bhatia.

These include the right to appoint three of the six IndiGo directors; the right to appoint the chairman of the board (to be appointed on the nomination of InterGlobe Enterprises (IGE) that is owned by Bhatia); the right to nominate and appoint the Managing Director; and the right to nominate and appoint the CEO.

Kingfisher opportunity

Depending on which side you believe, there is talk that Gangwal spotted that Kingfisher will eventually shut down leading to a bigger opportunity for IndiGo. Bhatia went with this thinking and IndiGo ordered more planes to cash in on the market opportunity.

Things ran smoothly till last year when Gangwal decided that he was going to give up the operational aspects of IndiGo and move to other issues. According to some, Gangwal focused his attention on issues related to corporate governance in the company and also related party transactions (RPTs) which IndiGo has with IGE.

It is here that things get fuzzy, and today, both sides are blaming each other.

Sources close to the development say that the first red flag on the RPTs was raised just about a week after the company decided to bring in a former Airbus executive, who is being investigated by the Indian authorities, to firm up an order for engines, as Gangwal was dragging his feet on the issue and IndiGo ran the risk of running into default with Airbus if the engines were not ordered.

Not true say those who believe Gangwal. Instead, they maintain that Gangwal flagged the corporate governance issue as early as middle of last year, and when he didn’t get any satisfactory answers, he approached the Securities and Exchange Board of India.

While the RPT issue is still not settled-- in the last board meeting it was just decided to increase the board’s strength to 10 from the current six members and get an independent woman director on the board -- there are more allegations and counter allegations.

Sources claim that there is nothing wrong in the RPTs, which had been cleared by the audit committee of the board and that only some procedural lapses were flagged by EY. The audit committee has both the independent directors of the company.

Sources close to the development say that Bhatia will not agree to any change in the agreements that were entered into when the airline started which gave IGE major powers. After all, say those in the know, Gangwal merely invested ₹15 crore and has benefited immensely from IndiGo’s growth while Bhatia and his father have pumped in more than ₹1,100 crore into the company. The point being made is that Gangwal benefitted from the economic upside of IndiGo while all the risks were taken by the Bhatias.

Perhaps Gangwal is keen to secure a more active role in the governance of the company rather than remaining a passive partner, and this is what has led to the current situation.