Crisis in IndiGo as promoters Rahul Bhatia, Rakesh Gangwal differ over airline control, expansion; hire law firms
BusinessToday.In May 16, 2019
Hot on the heels of Jet Airways crisis, India's biggest airline IndiGo is also seeing some turbulence with its founders, Rahul Bhatia and Rakesh Gangwal, having serious differences over the airline's expansion strategies. Reports say both these industry stalwarts disagree on some clauses in the shareholders' agreement and the airline's management control. Analysts say these differences may be disastrous for the Indian aviation sector, which is already in trouble after the recent shutting down of Jet Airways.
The dispute between the promoters has reportedly escalated in the past few weeks, with Bhatia unsure about Gangwal's aggressive approach to expanding overseas. Bhatia also fears that Gangwal is trying to take greater control over the airline as he hired his own team, including some top-level executives, on key posts in the recent past. Both of them, however, are trying to sort out these differences, and have hired JSA Law and Khaitan & Co to settle issues, reported the Economic Times.
Rahul Bhatia has a family stake of 38.26 per cent in IndiGo, while Rakesh Gangwal, along with his family, owns 36.69 per cent in the low-cost carrier, which has a market capitalisation of Rs 61,833 crore. Founded in 2006, Interglobe Aviation, also known as IndiGo, was a joint venture between Bhatia and Gangwal. The company was listed in 2013, a time when both of them held a 99 per cent stake in the airline. Gangwal was driving force behind making IndiGo a global carrier, while Bhatia looked at the airline's affairs in India.
The issues cropped up in 2018 after Gangwal sought aggressive expansion to tap into India's aviation market while Bhatia called for a balanced and cautious approach. Gangwal in February 2018 had claimed to increase the airline's capacity to 250 from 155 (almost 52 per cent). The proposal didn't go down well with IndiGo management, including Aditya Ghosh who subsequently resigned from the airline as its whole-time director in April 2018. Questioning Gangwal's approach, the Bhatia camp had reportedly raised the issue of "overcapacity" and "yield". The crises deepened after Gosh's exit and the appointment of foreign executives on key management posts, including Gregory Taylor as its CEO. Most of these employees were hired by Gangwal from United Airlines. Interestingly, Gangwal himself is an aviation veteran and had worked with United Airlines and US Airways before he launched IndiGo.
Right now, both the parties are reportedly weighing in all the possible option with the help of their law agencies, which are monitoring the situation. Since the talks are at initial stages, no one has reportedly called for buying each other's stake and exiting from the airline. Though both believe that they can grab the space left by the apparent closure of Jet Airways, both have different strategies. While Bhatia believes wide-bodied aircraft could be helpful in achieving IndiGo's international dream, Gangwal says narrow-bodied aircraft like Boeing 737 for all its operations, and codeshare agreements with other global carriers to cater to long-haul passengers, could help it gain the global market share. With a market share of 47 per cent, IndiGo has a fleet of 225 aircraft right now. The airline runs 1,400 daily flights to 54 domestic and 17 international routes (March figures).