INSUBCONTINENT EXCLUSIVE:
By Andy MukherjeeThe co-founders of India’s No
1 airline are engaged in a bitter feud
Their quarrel couldn’t have come at a worse time for minority shareholders of InterGlobe Aviation Ltd., the company that owns IndiGo
Investors were just starting to enjoy the fruits of a frenetic expansion that saw the no-frills carrier, Asia’s largest, double its
capacity in the three years through March
Full-cost rival Jet Airways India Ltd
tried to keep up, until it was forced to ground its last plane in April under a truckload of debt
Meanwhile, InterGlobe has put together a cash war chest — net of debt — of nearly $2 billion
This is the time for IndiGo to be rewarding shareholders by consolidating its leadership position and filling the gap left by Jet,
especially on overseas routes
Instead, the founders are busy picking fights.
Rakesh Gangwal, a former CEO of U.S
Airways Group Inc., has dashed off a letter to the Indian stock-market regulator alleging corporate-governance lapses
He says partner Rahul Bhatia, who owns 1 percentage point more than U.S.-based Gangwal’s 37% stake, is dragging IndiGo into transactions
with his other businesses, which are mostly housed under InterGlobe Enterprises Ltd
(IGE Group), without adequate auditing
The airline pays rent to IGE’s real-estate unit; the crew stays at hotels operated by Bhatia’s joint venture with Accor SA; pilots are
trained at IGE’s flight simulator, a collaboration with Canada’s CAE Inc.; a Bhatia firm has also acted as a sales agent for
IndiGo.
What amounted to $22 million of related-party transactions, for a carrier that took in $4 billion in annual revenue, doesn’t
exactly smack of a governance scandal
Not at an airline that thrives on keeping its costs under control
Bhatia, for his part, wants to know why Gangwal is questioning the arrangements now when he “did not raise for 13 years a whisper.” The
India-based partner says he took most of the economic risk when setting up the airline
Besides, Gangwal isn’t denying entering into a shareholders’ agreement that gives Bhatia control, including the power to nominate half
of the six-member board and most of the top managers
Gangwal’s letter mentions whistleblowers
Unless those charges are serious and material, the battle looks more about monetizing a business that he never wanted any part of until a
persistent Bhatia talked him into it
Today, the co-founders can be legitimately proud of IndiGo, a rare success story in global aviation, achieved in a brutally
price-competitive and fast-growing market
The problem seems to be about dividing up that success fairly
It probably rankles billionaire Gangwal, the strategy whiz, that his 37% stake is perhaps worth less than the market value of roughly $3
billion, while his money-man (former) friend’s 38% stake is worth much more
After all, any airline or a buyout firm willing to write that big a check would want a measure of influence over the airline’s future:
That’s something only Bhatia can give
If that’s the real reason Gangwal is seeking to enlist the regulator’s help “to make necessary changes to the unusual controlling
rights available to the IGE Group,” then it’s a failure of mediation.
From the shareholders’ perspective, it’s a dangerous lapse
Indians’ trust in business and business tycoons, finance and financiers, accounts and auditors has probably never been lower
Any suggestion of impropriety now can spiral out of control
No wonder the infighting dragged InterGlobe shares down nearly 11% on Wednesday, as investors braced themselves for a protracted and
unpleasant legal and public-relations skirmish – much like the one that flared up at the Tata Group in 2016, after it fired then-Chairman
Cyrus Mistry, who also happened to be a large shareholder.
IndiGo became No
1 by making flights take off and land on time more often than most other large global airlines
To investors’ horror, the messiness the carrier so studiously avoided in its operations – by relying on a single type of aircraft (the
narrow-bodied Airbus), deploying its fleet efficiently and growing it strategically – has finally come back to haunt it
Not at the tarmac, but in the boardroom
