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IndiGo row: $20 billion pact with CFM may have sparked the Bhatia-Gangwal feud

BusinessToday.In     July 11, 2019

IndiGo row: InterGlobe Aviation Ltd's agreement worth $20 billion it signed in June with aircraft engine maker CFM International might be the cause of the tiff between the IndiGo promoters Rakesh Gangwal and Rahul Bhatia.

IndiGo on June 17 had placed an order worth $20 billion for aircraft engines from CFM International for its 280 Airbus A320neo and A321neo planes. CFM is a 50:50 joint venture (JV) between the US' General Electric and French engine maker Safran.

However, RG Group, which is controlled by InterGlobe Aviation co-founder Rakesh Gangwal, had not reportedly supported the board's decision to place such a large order with CFM.

Also Read: IndiGo's pain is SpiceJet's gain: Ajay Singh-led airline rises over 9% in early trade

Gangwal has been handling the technical aspects of IndiGo since its genesis in 2005. Gangwal also did not seem very keen to consider new service agreements with CFM or any entity to ensure A320 neo aircraft's smooth operations, Mint reported.

However, co-founder Rahul Bhatia and the board went forward and confirmed a long-term pact with CFM, the report stated.

The move to switch from Airbus' fuel-efficient A320neo family aircraft came after a series of issues with the Pratt & Whitney (P&W) engines fitted in them. A lot of planes of the budget carrier have been grounded due to trouble with the P&W engines. IndiGo is the largest customer of A320 family of narrow-body airliners produced by Airbus with an order book of 430 aircraft.

Also Read: Crisis in IndiGo over feud between promoters: Here's full text of Rakesh Gangwal's letter to SEBI

The deal between the IndiGo and CFM came as a big jolt to the P&W powered turbofan engine programme. This was the only alternative to CFM's LEAP1-A for the A320neo family aircraft. IndiGo has time and again been facing problems with P&W engines, manufactured by the US firm since their induction in 2016. The safety concerns over these engines have increased recently due to a spurt in the number of reported snags on aircraft fitted with them.

In a letter to market regulator Sebi on Tuesday, IndiGo promoter Rakesh Gangwal flagged serious corporate governance lapses at the company. Gangwal said that even a "paan ki dukaan" (betel shop) would have managed matters with more grace.

Gangwal has made these allegations while he is engaged in a bitter tussle with co-founder Rahul Bhatia. Gangwal, along with his affiliates, holds around 37 per cent stake in InterGlobe Aviation. Co-founder Rahul Bhatia and his affiliates (IGE Group) has around 38 per cent stake. InterGlobe Aviation (or IndiGo) is also the parent of the country's largest airline IndiGo.

Also Read: Feud between IndiGo promoters: Gangwal says even 'paan ki dukaan' would have handled matters with more grace

In his letter to SEBI, Gangwal has alleged Bhatia of indulging in questionable related-party transactions. According to him, the shareholders' agreement provides Bhatia unusual controlling rights over IndiGo. He stated that the company "started veering off" from the core principles and values of governance that made the company what it is today.

"Beyond just questionable Related Party Transactions, various fundamental governance norms and laws are not being adhered to and this is inevitably going to lead to unfortunate outcomes unless effective measures are taken today," Gangwal said in the letter.

Also Read: Crisis in IndiGo as promoters Rahul Bhatia, Rakesh Gangwal differ over airline control, expansion; hire law firms

Gangwal has also sent a copy of the letter to Prime Minister Narendra Modi, Finance Minister Nirmala Sitharaman, Civil Aviation Minister Hardeep Singh Puri and Commerce Minister Piyush Goyal among others.

Meanwhile, SEBI has sought details from InterGlobe Aviation against the complaint filed by Gangwal. IndiGo's parent firm has been asked to furnish its response by July 19. In a stock exchange filing, the company has also confirmed that its board of directors has received a letter from Gangwal.

Also Read: French-US engine maker CFM International wins jet engines order from IndiGo: report

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