India’s largest airline, IndiGo is facing turbulence following an alleged rift between its co-founders Rakesh Gangwal and Rahul Bhatia over the low-cost carrier's expansion strategy, local media report. The tension is about the question whether a tie-up with an international carrier makes sense.
Bhatia holds about 38% in InterGlobe Aviation, the holding company of IndiGo, while Gangwal holds about 37%. The low-cost carrier was founded in 2006 and currently enjoys a market share of 46.9%,
and operates a fleet of 225 aircraft.
Gangwal, a former executive of United Airlines and US Airways, was instrumental in the aggressive expansion of the airline, while Bhatia handled its public and regulatory affairs, a report in
Asia Times said.
Law firms shall resolve the brotherly differences
Gangwal wants the airline to remain a budget carrier and is reportedly against a tie-up with any other airline. He is also not keen on diluting his equity. Bhatia, on the other hand, is open to a
tie-up with a foreign airline, possibly a full-service carrier, Live Mint reports. The founders have now hired law firms to resolve the differences outside the courts.
Although the two founders enjoy almost equal stakes in the airline, Bhatia wields much greater control over the board and management. His holding company Inter-Globe Enterprises (IGE) has the
right to appoint key managerial personnel, including the chairman, managing director, CEO and president. It also has the right to nominate three non-independent directors, one of whom will be
non-retiring.
The Rakesh Gangwal (RG) Group, on the other hand, has the right to nominate just one non-independent director, who will be a non-retiring director.
Currently, Inter-Globe Enterprises has operational control over the company and its management. The RG Group is required to fully comply with the shareholders’ agreement and the articles of
association, and its voting during general meetings is to be dictated by IGE.
This contentious shareholders’ agreement will expire in October this year and Gangwal is keen to change some clauses and also bring changes in the articles of association. However, this will
require a special resolution and 75% approval from shareholders.
Gangwal, a U.S. citizen, has been the driving force behind IndiGo’s emergence as one of the fastest growing carriers in the world.
Gangwal who was behind IndiGo’s record-breaking plane orders, its aggressive expansion in India and the ambition to make it a global carrier which resulted in vast changes in senior management.
Conflicting positions
While Gangwal worked from the shadows, his co-founder Bhatia ran the show in India, supporting the airline’s growth and manoeuvring regulatory hurdles.
With Jet Airways and Air India floundering, the two founders believe IndiGo can occupy the vacant slots left behind by the two legacy carriers. However, they differ over the way how this can be
accomplished.
Various reports say that Bhatia is open to considering wide-bodied aircraft to pursue its international dream. Gangwal is a believer in the budget carrier model of operating a single model
aircraft: the narrow-bodied Boeing 737. This would mean the airline would not be able to service long-haul destinations.
Instead, Gangwal preferred code-share agreements with foreign carriers. As of now IndiGo has stalled its plans to buy wide-bodies and has signed its first codeshare agreement with Turkish
Airlines.
One-stop flights to Europe targeted
In an effort to reassure employees about the future of the airline, Chief Executive Officer Rono Dutta, who is considered close to Gangwal, has meanwhile written an open letter in which he said:
“I am sure you are all aware of the press reports regarding alleged disagreements between our two promoters, I want to assure you that the growth strategy remains unchanged and firmly in place,
and the management is fully charged by the Board to implement it."
In an interview with Bloomberg, Dutta (who was president of United Airlines from 1999 to 2002) said the airline aims to start one-stop services further into Europe within six months. He
added that, apart from the current service to Istanbul, IndiGo wants to operate one-stop flights to cities like London from New Delhi, while flying non-stop to countries like China, Vietnam,
Myanmar and Russia. It's in talks with Airbus SE to buy a yet-to-be-released longer version of the aircraft manufacturer’s newest narrow-body jet. The airline is preparing to place a "large"
order, Dutta revealed, without specifying the number of aircraft.
Nol van Fenema
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