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Trouble erupts in IndiGo cockpit over flight path

Clauses in shareholder pact may have led to rift. Legal cos helping founders resolve issues.

Updated: May 16, 2019, 03.31 PM IST
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Our growth strategy remains unchanged: IndiGo CEO after reported disagreement between promoters
Our growth strategy remains unchanged: IndiGo CEO after reported disagreement between promoters
MUMBAI: Serious differences have cropped up between the two founders of IndiGo that could end up affecting the airline’s functioning if left unresolved, people close to the development have told ET.

Among the issues are clauses in the shareholders’ agreement and differences between the two founders — Rahul Bhatia and Rakesh Gangwal — over strategies and ambitions for the airline. ET couldn’t immediately ascertain the specific clauses in the shareholders’ agreement that are a bone of contention.

The promoters refused to comment on the development.

ET Now, ET’s business channel, was the first to break the story on Wednesday evening.

Both founders are, however, trying to iron out the differences so that the functioning of the airline isn’t impacted. “The dispute may have escalated in the last few weeks, but things are at a very nascent stage with regard to any formal legal dispute and both parties are weighing other options as well,” said one of the persons.

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Legal firms Khaitan & Co and J Sagar Associates are helping the founders resolve the problems. “The promoters, Gangwal and Bhatia, are old clients of Khaitan & Co and J Sagar Associates, respectively, and hence the leadership teams from both the firms are actively overseeing the entire situation,” the same person said.

Neither of the promoters has yet broached the possibility of buying the other out or exiting the airline.

Gangwal, a United Airlines and US Airways veteran, has been the driving force behind IndiGo’s emergence as one of the fastest growing carriers in the world.

Speed Vs Caution
It was 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.

Gangwal, a US citizen, worked from the shadows while Bhatia ran the show in India, supporting the airline’s growth and manoeuvring regulatory hurdles. Sources said Gangwal was also reluctant to take up a board seat in IndiGo, saying instead that he wanted to push its growth and expansion.

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.

In February last year, Gangwal declared that FY19 would see Indi-Go increasing its capacity by 52%, more than it had ever done, and taking its fleet size to 250 from 155. This was opposed by a majority of its management, including then president Aditya Ghosh, saying this would create problems of overcapacity and impact yields. Gangwal is said to have retorted that with India’s potential, nothing less than 500 aircraft was too many. Ghosh subsequently resigned. IndiGo currently has a fleet of 225 planes.

Both founders believe the group is at an inflection point as it chases its next phase of growth. With Jet Airways and Air India floundering, they believe IndiGo can occupy the vacant slots left behind by the two legacy carriers. How to grab this opportunity is where they differ.

Bhatia is open to considering wide-bodied aircraft to pursue its international dream. Gangwal is a believer in the budget carrier Southwest Airlines’ model of operating a single model aircraft: the narrow-bodied Boeing 737. This would mean the airline would not be able to service longhaul 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.

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