IndiGo promoters' spat is different from other airline crises; every disagreement need not result in parting of ways

It was IndiGo that won rave reviews when it placed a massive order with Airbus Industries for delivery of more than 100 aircraft in a phased manner but at a fixed price.

S Murlidharan May 17, 2019 10:42:37 IST
IndiGo promoters' spat is different from other airline crises; every disagreement need not result in parting of ways
  • For the December quarter, IndiGo had reported a 75% dip in its profit to Rs 190 crore

  • Though there are reports of they going to NCLT, it appears their differences are not insurmountable

  • IndiGo’s owner Interglobe Aviation Ltd is a listed company where public interest is paramount

Indigo is acknowledged both by the cognoscenti as well as by the travelers as the best-run airline in the country though of late its turnaround time is also getting little sluggish causing delays in departures and arrivals. But that is something fliers have been taking in their strides just as they are only mildly bemused by the going tussle between Rahul Bhatia and Rakesh Gangwal the two feisty promoters of the low-cost airline. It is, however, equally true that IndiGo apart from being hit by the ‘delay’ malaise characterising most of the airlines is also plagued by the prospects of losses.

For the December quarter, IndiGo had reported a 75 percent dip in its profit to Rs 190 crore. It is this element that has caused consternation among its well-wishers over the spat at a time when they should be pulling up their socks and seeking to capitalize on the void left by Jet Airways.

Though there are reports of they going to National Company Law Tribunal (NCLT) for resolution of their differences, to those who are aware of company law and jurisprudence it appears their differences are not insurmountable. If anything, they are healthy differences of opinion between two shrewd businessmen who have entered into shareholders’ agreement for good measure.

Shareholders’ agreement is a private agreement between two sets of dominant shareholders—usually the foreign collaborator and the Indian promoter---outside of the articles of association. It is a secretive document they set store by in case of differences. The Supreme Court has made it clear that such agreement can be enforced by the two parties but not by making the company itself a party to it unless the terms of such agreement are made part of the articles of association. Be that as it may.

IndiGo promoters spat is different from other airline crises every disagreement need not result in parting of ways

Representational image. Reuters

It was IndiGo that won rave reviews when it placed a massive order with Airbus Industries for delivery of more than 100 aircraft in a phased manner but at a fixed price. In contrast, Air India was pilloried for procuring almost the same number of aircraft in one go thereby committing a cardinal sin----unused capacity. IndiGo staggered the deliveries to coincide with the anticipated fleet expansion warranted by new routes and expansion of services on the existing routes.

This time round it seems the two groups are unable to agree on the course of expansion. The Gangwal group owning 37 percent stake is reportedly keen on expanding IndiGo’s international operations by sticking to narrow-bodied aircraft whereas the Bhatia group owning 38 percent wants multiple-aisled wide-bodied aircraft for international operations. A single aisle aircraft consumes that much less fuel and maintenance. The nature of their healthy differences was highlighted by a report in The Economic Times.

Speed versus caution

It was Gangwal, a US citizen, who was behind IndiGo’s plane orders, its aggressive expansion in India and the ambition to make it a global carrier which resulted in vast changes in senior management, according to the news report. But differences cropped up on several occasions in the last two years, with Gangwal supporting growth at breakneck speed to harness the potential of India’s aviation market and some of the airline’s management and on occasion, Bhatia, opting for a more cautious approach.

This kerfuffle is easily amenable to closure either through arbitration or taking the matter to the general body of shareholders or through the intervention of National Company Law Tribunal (NCLT) under the Companies Act, 2013 though the NCLT may be loath to intervene unless a case for mismanagement or oppression is strongly made out. In the past, the Company Law Board used to order buyout of the minority interests by the majority. But that was in the context of closely held companies. IndiGo’s owner Interglobe Aviation Ltd, on the other hand, is a listed company where public interest is paramount.

One hopes and prays this fight in the cockpit does not degenerate into a full-blown crisis. After all unlike Air India, Kingfisher and Jet Airways, the IndiGo crisis is more in the nature of healthy intellectual disagreement that has the potential to leaven aggression with caution. Every disagreement need not necessarily point to or result in a parting of ways.

(The writer is a senior columnist and tweets @smurlidharan)

Updated Date:

also read

Air India modifies in-flight alcohol service policy
India

Air India modifies in-flight alcohol service policy

According to the revised policy, guests should not be permitted to drink alcohol unless served by the cabin crew and that the cabin crew be attentive to identifying guests that might be consuming their own alcohol

Pee-gate: DGCA slaps Rs 30 lakh penalty on Air India, suspends pilot’s licence for 3 months
India

Pee-gate: DGCA slaps Rs 30 lakh penalty on Air India, suspends pilot’s licence for 3 months

The pilot of the concerned AI flight has also had his licence suspended for the next three months for failing to discharge his duties as per Rule 141 of the Aircraft Rules, 1937 and applicable DGCA CAR

Delhi's airspace to get relief, new heliport set to come up in Gurgaon soon
India

Delhi's airspace to get relief, new heliport set to come up in Gurgaon soon

The heliport is a part of Air India’s larger initiative to invest around Rs 35,000 crores in Haryana