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IndiGo Promoters Spat Controversy

IndiGo Promoters Spat Controversy

Tag: GS 3 || Economy|| Infrastructure || Transportation

Why in news?

  • Promoters of India’s largest and most profitable airline IndiGo are reportedly at loggerheads because of differences in opinions about the airline’s future strategies and management control.

History of the promoters

  • The promoters, also the founders of the airline — Rahul Bhatia and Rakesh Gangwal — have appointed separate law firms to settle the dispute between them.
  • Rahul Bhatia and Rakesh Gangwal founded IndiGo as a low-cost airline back in 2006.
  • Bhatia worked in the hospitality sector while Gangwal, a US citizen was a senior executive at United Airlines.
  • Both the promoters held nearly 99% stake in the airline prior to its listing in 2013.
  • As of March 31, 2019, Bhatia held 38% stake while Gangwal owned 37% share in Interglobe Aviation, the parent company of IndiGo.
  • While both Bhatia and Gangwal are directors of the company, Bhatia was also the airline’s interim chief executive till January 2019 taking over after Aditya Ghosh’s exit last year.

Conflict

  • Strategy for growth: Sources have indicated that the main point of contention between the two founders is over the strategy for the airline’s growth.
    • While Gangwal is said to favour a more aggressive growth path, Bhatia is understood to be for a slow and steady approach.
    • IndiGo’s aggressive expansion over past two years has led to a furore in the sector with almost everybody raising doubts on its ability to fill up additional seats.
    • For instance, the airline revised its capacity addition guidance over the last two years from 22% in April-June quarter of 2017 to 34% in January-March quarter of 2019. Adding a substantial 34% capacity quarter-on-quarter and ensuring a healthy occupancy rate (80-90%) are not easy.
  • Appointments of senior management: Further, it is learnt that the two have been in a tussle over appointments of senior management personnel at the airline.

Outcome of this tussle

  • Aviation sector: The news of dispute between the promoters of IndiGo has come out at a wrong time for the aviation sector, which is struggling to cope up after the Jet fiasco.
  • Share value: Any continuing dispute or even rumours of differences will not do any good to the airline and impact the share value of the company.
    • The promoters will have to face direct consequences in terms of financial losses.
    • As a knee-jerk reaction to the development, the Street beat down Interglobe Aviation’s stock, which traded 6.74% lower than its previous close at Rs 1,500.15 on the BSE.
  • Industry watchers have indicated that the fact that both have delegated their lawyers to work the dispute out shows that the conflict is unlikely to affect the airline or its operations in the immediate term.
  • However, the longer term flight path of IndiGo will depend on which of the promoters gets an upper hand.

Mains question

  • Examine the challenges faced by Indian aviation sector.