Thursday, July 11, 2019

IndiGo can't fly high with fights in the cockpit

The 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 USD 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 US 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 per cent 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 USD 22 million of related-party transactions, for a carrier that took in USD 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.
11/07/19 Andy Mukherjee/Bloomberg

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