Gangwal's sudden exit from IndiGo raises many speculations
In a terse four para resignation letter, IndiGo co-founder expressed his inability to continue on the low-cost carrier's (LCC's) board.
- Feb 18, 2022,
- Updated Feb 19, 2022 4:14 PM IST
The resignation of Rakesh Gangwal, one of the co-founders of India's largest airline IndiGo, has left many in the world's third-largest domestic aviation market baffled. Although it was widely speculated that Gangwal might gradually reduce his holding in the airline, hardly anyone had expected him to announce a sudden exit from the board of the company that he had helped painstakingly build.
In a terse four para resignation letter, Gangwal expressed his inability to continue on the low-cost carrier's (LCC's) board as co-promoter and director and announced his exit to avoid gaining access to any unpublished price sensitive information (UPSI) as he planned to reduce his stake in the company over the next five years.
On December 30 he and co-founder Rahul Bhatia had resolved certain contentious terms of the shareholders' agreement to amend the articles of association (AoA) to allow the transfer of shares by the promoters to a third party after a three-year dispute. Together with their related entities and individuals, Gangwal and Bhatia control a staggering 77.4 per cent stake in InterGlobe Aviation.
"It's the end of the Gangwal era at IndiGo. He was one of the key pillars who provided direction to the airline," said partner at Caladrius Aero Consulting, Rohit Tomar.
Others speculated over the reasons behind the sudden decision.
"It's an unfortunate development. It appears the differences between the two partners had become irreconcilable. The settlement may have been public posturing to show that everything was hunky-dory at the company. However, if there was an amicable solution, why would Gangwal suddenly announce his resignation?" said the industry veteran and former executive director at Air India, Jitendra Bhargava.
Aviation industry insiders often like to point out that while Bhatia effectively managed the policy environment, it was Gangwal who helped lay a rock-solid foundation for the airline company. Also, not many even within the industry are aware that from 1998 to 2003, Gangwal was the chief executive at Arizona (US) headquartered commercial airline, US Airways. This makes him one of the select few people of Indian origin to have helmed a large global airline company, and that too in the US, the largest and most cut-throat aviation market globally.
US Airways was merged with American Airlines in 2015.
Hard negotiator
A year before taking to the skies in 2006, IndiGo attracted considerable attention when news broke of its eye-popping order for 100 A320 aircraft from French aircraft manufacturer, Airbus. The order would be rivalled only by the airline's deal for 250 A320 Neo aircraft in 2015.
"The price negotiated with Airbus by IndiGo is one of the lowest in the world. As competition heats up in the market with the entry of new players, this will continue to give them considerable cost advantage," a senior executive with a domestic airline company said requesting anonymity.
According to market sources, the hard negotiations with Airbus were driven entirely by Gangwal, who relied on his experience of global aviation and personal goodwill within the industry to manage the best possible deal for IndiGo.
Gangwal's departure from IndiGo may have an impact on the airline's long-term growth strategy.
"The resignation is not likely to have an immediate impact on the carrier as its scale of operations is now largely on autopilot. In the long run, this could have an impact in critical areas like cost management and price negotiations with especially original equipment makers (OEMs)," observed Tomar.
Interestingly, on February 4, IndiGo had announced the elevation of Bhatia to managing director. The move has been seen as an attempt on IndiGo's part to be future-ready for the impending competition in the Indian skies. Developments like Tata Group's acquisition of Air India and the summer launch of big bull Rakesh Jhunjhunwala promoted Akasa Air will likely shake up the market.
However, many within the industry refuse to buy that argument.
"There is more to it than meets the eye. Why would one of the promoters decide to become the company's managing director? Has that been done to ensure a complete sway over the day-to-day functioning of the company?" said Bhargava.
Despite being notorious for always avoiding the limelight, Gangwal is widely respected for his industry experience. The news has left many to hope that he continues his close involvement with one of the world's fastest-growing aviation markets.
"One would hope that Mr. Gangwal invests into another startup airline in India to build a sustainable aviation company just like he did at IndiGo," remarked Tomar.
As the news broke on Friday evening, an airline analyst wistfully told Business Today, "Has IndiGo reached an inflection point just as Jet Airways did in 2005, after a very successful listing on the stock exchanges. The series of events that follow may make or break IndiGo's fortunes in the long term."
Business Today has reached out to IndiGo for an official comment, and the story will be updated as and when they respond.
Also read: IndiGo co-founder Rakesh Gangwal steps down from board
The resignation of Rakesh Gangwal, one of the co-founders of India's largest airline IndiGo, has left many in the world's third-largest domestic aviation market baffled. Although it was widely speculated that Gangwal might gradually reduce his holding in the airline, hardly anyone had expected him to announce a sudden exit from the board of the company that he had helped painstakingly build.
In a terse four para resignation letter, Gangwal expressed his inability to continue on the low-cost carrier's (LCC's) board as co-promoter and director and announced his exit to avoid gaining access to any unpublished price sensitive information (UPSI) as he planned to reduce his stake in the company over the next five years.
On December 30 he and co-founder Rahul Bhatia had resolved certain contentious terms of the shareholders' agreement to amend the articles of association (AoA) to allow the transfer of shares by the promoters to a third party after a three-year dispute. Together with their related entities and individuals, Gangwal and Bhatia control a staggering 77.4 per cent stake in InterGlobe Aviation.
"It's the end of the Gangwal era at IndiGo. He was one of the key pillars who provided direction to the airline," said partner at Caladrius Aero Consulting, Rohit Tomar.
Others speculated over the reasons behind the sudden decision.
"It's an unfortunate development. It appears the differences between the two partners had become irreconcilable. The settlement may have been public posturing to show that everything was hunky-dory at the company. However, if there was an amicable solution, why would Gangwal suddenly announce his resignation?" said the industry veteran and former executive director at Air India, Jitendra Bhargava.
Aviation industry insiders often like to point out that while Bhatia effectively managed the policy environment, it was Gangwal who helped lay a rock-solid foundation for the airline company. Also, not many even within the industry are aware that from 1998 to 2003, Gangwal was the chief executive at Arizona (US) headquartered commercial airline, US Airways. This makes him one of the select few people of Indian origin to have helmed a large global airline company, and that too in the US, the largest and most cut-throat aviation market globally.
US Airways was merged with American Airlines in 2015.
Hard negotiator
A year before taking to the skies in 2006, IndiGo attracted considerable attention when news broke of its eye-popping order for 100 A320 aircraft from French aircraft manufacturer, Airbus. The order would be rivalled only by the airline's deal for 250 A320 Neo aircraft in 2015.
"The price negotiated with Airbus by IndiGo is one of the lowest in the world. As competition heats up in the market with the entry of new players, this will continue to give them considerable cost advantage," a senior executive with a domestic airline company said requesting anonymity.
According to market sources, the hard negotiations with Airbus were driven entirely by Gangwal, who relied on his experience of global aviation and personal goodwill within the industry to manage the best possible deal for IndiGo.
Gangwal's departure from IndiGo may have an impact on the airline's long-term growth strategy.
"The resignation is not likely to have an immediate impact on the carrier as its scale of operations is now largely on autopilot. In the long run, this could have an impact in critical areas like cost management and price negotiations with especially original equipment makers (OEMs)," observed Tomar.
Interestingly, on February 4, IndiGo had announced the elevation of Bhatia to managing director. The move has been seen as an attempt on IndiGo's part to be future-ready for the impending competition in the Indian skies. Developments like Tata Group's acquisition of Air India and the summer launch of big bull Rakesh Jhunjhunwala promoted Akasa Air will likely shake up the market.
However, many within the industry refuse to buy that argument.
"There is more to it than meets the eye. Why would one of the promoters decide to become the company's managing director? Has that been done to ensure a complete sway over the day-to-day functioning of the company?" said Bhargava.
Despite being notorious for always avoiding the limelight, Gangwal is widely respected for his industry experience. The news has left many to hope that he continues his close involvement with one of the world's fastest-growing aviation markets.
"One would hope that Mr. Gangwal invests into another startup airline in India to build a sustainable aviation company just like he did at IndiGo," remarked Tomar.
As the news broke on Friday evening, an airline analyst wistfully told Business Today, "Has IndiGo reached an inflection point just as Jet Airways did in 2005, after a very successful listing on the stock exchanges. The series of events that follow may make or break IndiGo's fortunes in the long term."
Business Today has reached out to IndiGo for an official comment, and the story will be updated as and when they respond.
Also read: IndiGo co-founder Rakesh Gangwal steps down from board