As a mergers and acquisition (M&A) specialist, I am used to seeing people with the money taking a swipe at one another. However, it has all been in the confines of the boardroom where some deals get made, and some go south. At the end of it, people always shake hands and move on. This is unlike what is being seen in Corporate India in recent times where hostility rears its head among promoters. Think Tatas and Cyrus Mistry.
The latest to join this bandwagon are Rakesh Gangwal and Rahul Bhatia, co-promoters and big billionaire owners of IndiGo. Gangwal and Bhatia are communicating with each other via the Securities and Exchange Board of India (Sebi), and worse, pointing fingers at the other’s agenda in the airline.
The aviation sector in India is caught in rough weather. Most Indian airlines are already in some sort of trouble. Air India, the national carrier, has an existential crisis, which is being brilliantly distracted by the Government of India by infusing taxpayers money to deck it up for a sale again. GoAir seems to be clueless, SpiceJet has been recently hit by a streak of safety-related incidents. It has a dozen 737 MAX aircraft sitting on the ground with no clarity on when they can fly. Jet Airways is already in the NCLT. Given the turbulence in the sector, one would have thought IndiGo would have taken the next steps to fly over its 50 percent market share in the coming days.
Instead, in May 2019, there were media reports about the discord between Bhatia and Gangwal. At that point, I had written if this issue was not nipped in the bud, it would cause a distraction for the airline. Over the years, IndiGo has taken over 50 percent of India’s domestic market share with a dogged determination backed with quick and disciplined execution of their business plan.
In the past few days, the spat between the co-promoters has taken centre stage in the media. In a statement to CNBC-TV18, Ronojoy Datta, CEO of IndiGo, explained the dispute as an administrative issue with respect to some Related Party Transactions.
Now that the promoter spat is out in the open, it has some interesting takes. For instance, Gangwal called the corporate governance standards at InterGlobe Aviation similar to that of a paan ki dukaan. Bhatia countered it by calling it a theatrical act and said the allegations are misleading and frivolous. Remember, the duo built a business together over the past one and a half decades and are multi-billionaires thanks to the airline they are fussing over now.
Gangwal was the brains while Rahul Bhatia brought economic exposure to the airline they founded. It seemed only right to expect that Bhatia had management control of sorts for long. Perhaps Gangwal realised that his work had paid off many times over for Bhatia and felt it was time to level the playing field for both of them. This may or may not have been something that the other party would have agreed to.
OEM negotiations were the domain of Gangwal for long, who cracked deals such as the 100-aircraft orders for IndiGo as a startup at the Paris Air Show in 2005. The airline made money every time it took delivery of an airplane. To that extent, it was a job well done by Gangwal.
What could have led to the spat coming out in the open could be a major deal signed by IndiGo by switching from Pratt & Whitney to CFM as their engine supplier valued at $20 billion. Engine switches are rare in the industry, but IndiGo has been having troubles with the Pratt and Whitney engines for long and they don’t seem to be going away. Billed as the biggest engine deal in history for the supply of engines to 280 A320 family aircraft of the airline, this may have caused the flip to CFM, and it may not have had the blessings of the Gangwal faction.
IndiGo seems to be now caught up neck-up in their co-promoters' disputes. With a move that brought internal disputes into the public arena by sending off letters to the Sebi, besides copying the Government of India, it was hard not to take notice. SEBI is investigating not only the reported issue of Related Party Transactions but could also summon the CEO to see if he deliberately downplayed the differences recently. On the other hand, the Ministry of Corporate Affairs is now probing if there is any violation of the Companies Act.
All of these moves will lead to two possible outcomes. It could either see the exit of one of the founders, which would be a very expensive affair. Or it could lead to widening of differences between Gangwal and Bhatia and eventually be taken to the courts. What I don’t see happening is a de-escalation anytime soon, given that both sides have a reputation to protect. Also, now that the dispute has involved the government, the latter would be obliged to look-in before giving clearance. And that could be a lengthy process, no less.
What everyone would love to have, though, is for the co-promoters to smoke the peace pipe and reset their equation. But that is easier said than done when in the public glare. In the meanwhile, if you don’t hear any new route announcements from the airline, you know what is keeping them busy.
The writer is Mumbai-based business travel and aviation journalist and the founder of the Indian frequent-traveller website Live From A Lounge (www.livefromalounge.com.) He tweets at @LiveFromALounge)
Updated Date: Jul 12, 2019 18:32:23 IST