IndiGo promoters' dispute can end soon: Analysts

A leadership storm is brewing at the helm of InterGlobe Aviation, the parent company of IndiGo Airlines, with its headquarters in Udyog Vihar, Gurgaon.

IndiGo's steady financial progress was halted on Thursday, by reports of a legal battle over specific clauses in the company's shareholding agreement. The two promoters—Rahul Bhatia and Rakesh Gangwal—have not yet formally come out over the disagreement, but according to company insiders, the storm may have passed for now.

"We understand that neither of the two promoters involved have come to any decision about a legal dispute. They are in consultations with the law firms, as personal clients, for a very long time," said an InterGlobe Aviation management official, who declined to be named.

According to this source, the dispute at India's leading private airline has been ongoing for the last few months. "It was more of an 'ego clash' sort of thing over some operational strategies for the airline," this source said.

Following the sudden exit of Aditya Ghosh as president of InterGlobe Aviation, Rahul Bhatia was filling in as the interim CEO. Ghosh was largely considered to be 'Bhatia's man'. During this time, Gangwal, who was formerly chairman and CEO of US Airways and had worked with United Airlines, recruited seven expatriates, four of whom had worked with him or under him during his tenure at US Airways.

One of these four, Gregory Taylor, who was recruited as a senior adviser, was tipped to be 'CEO and president designate' for IndiGo by parent company InterGlobe Aviation just a year back. Taylor, who had worked with Gangwal at US Airways, also had an earlier one-year stint with IndiGo. Taylor started instituting some changes in the airline's functioning.

"Our roster system was changed and introduced more flights to service for everyone of us," said an IndiGo pilot, indicating the changes brought about by the expatriate management team of the airline. "This caused some heartburn, and many pilots and crew members started to quit, unable to take the workload," he adds.

IndiGo witnessed an exodus of pilots as fatigue levels went up with the introduction of the new roster system. Following the news coming out in the open about four months back, IndiGo started to introduce a new flight management system by replacing the roster.

"The management had to make some course corrections as there were no other alternatives," said an IndiGo insider. Sometime at this point, Gangwal, reported to be a maverick promoter, lost interest in Taylor after coming under intense questioning by the board on his choice for the future president of the airline.

In the last four months, IndiGo had been abuzz with updates on “hard decisions for people at the top”. These would mostly include updates about exchanges between Gangwal and Bhatia at the board meetings. However, the updates about sidelining of Greg Taylor were also becoming evident to employees.

One of the debates between these two promoters sparked off two months back, after IndiGo arrived at a code-share arrangement with Turkish Airlines. IndiGo currently operates flights to seven international destinations—Singapore, Bangkok, Doha, Dubai, Kathmandu, Muscat and Sharjah. The airline in December 2018 inked a code-share agreement with Turkish Airlines.

For the Istanbul service, which started from March this year, Bhatia had preferred acquiring wide-bodied aircraft, whereas Gangwal's preference was for narrow-bodied planes even on the international route. “He was more in favour of deploying a small fleet of Boeing 737s for international routes,” said a person in know of the developments between the two promoters.

Gangwal was supported by his former colleague at United Airlines and present CEO of IndiGo Ronojoy Dutta. Bhatia, apparently, was not in favour of Dutta as the choice to head the airline. Duttta was recruited as a principal consultant along with Gregory and others last year.

This apparently drove Bhatia to consult law firm J. Sagar Associates to take a re-look at the shareholders agreement clauses. Apparently, Gangwal too, consulted the legal team of Khaitan & Co from Mumbai and Delhi.

Bhatia and Gangwal holds 38.26 per cent and 36.68 per cent stake in InterGlobe, respectively. The two together held about 90 per cent of the company's shares when its IPO was announced in 2015.

Company insiders say that the two are seen as 'cordial friends' mostly. "Though these friends do have their share of difference in opinions. In the past, we have heard there were some differences also over appointing the right advertising agencies to aspects about training modules of our pilots and crew members," said Anil Bhasin, an aviation industry consultant with Mott MacDonald, India.

The consultancy sees this spate of trouble at the IndiGo leadership as a temporary phase, which will soon pass away. IndiGo stocks dipped by as much as 9 per cent on Thursday, after the news of the tiff between the two promoters of the airline became public. In a clarification on the news about the rift between the two promoters, IndiGo has said that the company is not in a position to clarify as this concerns their promoters.

"The company is at a critical juncture in its growth story and is on an extremely strong footing with its only risk factor being higher oil prices in the future. Having said that, we expect the two promoters to understand this and wait it out to settle their ownership disputes at a later time," said Swarnendu Bhishan, an aviation research analyst with stock broking firm Motilal Oswal.

Motilal Oswal along with a couple of other stock research firms now expect IndiGo to open higher as the bell rings at Dalal Street on Friday for the last trade session this week. Investors need not bail out from the stock in a hurry, market experts said.

Mandatory Disclaimer: The author holds no stocks of InterGlobe Aviation.