A disaster looms large at IndiGo, and for once, there is no government policy to blame, nor competitive market pressures as mitigating factors. Perhaps it’s a clash of cultures between one promoter, who, despite his multi-billion dollar net worth, insists on every penny being accounted for, and another, who may see little wrong in the company doing the kind of “related party transactions" that are business as usual for several tycoon-led firms in India. Or, maybe, it’s a battle for control of a company that aims to take its domestic success global as a 450-500-plane airline that boasts of a well-oiled low-cost structure like that of Ryanair. Having maximized fleet utilization and crushed aircraft turnaround times for top-flight efficiency, IndiGo is a coveted asset with a hefty market share and healthy financials. It has come a long way since 2006, when Rakesh Gangwal and Rahul Bhatia joined hands to enter India’s aviation market on a wing and an ambition. US-based Gangwal was famous for having turned US Airways around, while Bhatia had valuable travel agency experience; the initial arrangement between them, it seems, was for the former to offer strategic direction and for the latter to deal with local aspects and regulatory issues. Though it was an equal-equity partnership more or less, Gangwal ceded operational control of the business to his local partner. In retrospect, this was perhaps naïve. Today, the two are at war.
Gangwal’s immediate grouse appears to concern related-party transactions that he claims infringe corporate governance norms, but Bhatia insists were done in the ordinary course of business and on an arm’s length basis. Under Section 188 of the Companies Act of 2013 and Clause 49 set by the Securities and Exchange Board of India (Sebi), which govern such transactions, these do not require approval of the company or its board. But Gangwal also contends that he was not consulted over key decisions, including orders for engines. Other differences have been in the air too. Gangwal’s vision was for IndiGo to use its domestic strength to power a global thrust, but IndiGo had begun to show signs of wear and tear, an inevitable outcome of searing growth. Something had to give. With Gangwal having lodged complaints with Sebi as well as other government agencies, the feud has only grown messier, of late. How it will end, nobody can predict.
The pity is that another casualty in the skies will be a big blow to India’s aviation market, which has been on a roll. The world’s third-largest, it recorded 18.6% growth in 2018, according to the International Air Transport Association, and is expected to double in size by 2023. With a proven low-cost model, IndiGo stands to be the biggest beneficiary of this boom. Ronojoy Dutta, CEO, InterGlobe Aviation, which operates IndiGo, has said the issues between the promoters have nothing to do with the airline and its functioning. Yet, the company can’t hope to stay unscathed for long. For the sake of the airline, maybe one partner needs to sell his stake to the other and exit. The agreement between the two, odd as it is, may complicate this, but a reconciliation seems difficult at this stage. With more aircraft on their way, IndiGo was set to go places. Its management practices have been the envy of other airlines. It would be a shame if its global dream is extinguished by friction at the top.