While a defamation suit is unlikely, Rahul Bhatia’s InterGlobe Enterprise, which owns 37 per cent stake in IndiGo, will support groups of minority investors if they sue Gangwal for causing erosion of shareholder’s wealth. After their bitter public spat, it’s unlikely that Bhatia will allow any more room to Gangwal, says Arindam Majumdar.
In the early 1990s, Rahul Bhatia returned to India from Canada with a Master’s degree.
At the time, he was unwilling to join his father’s travel business and wanted to go off to the US to ‘do his own thing’.
Fate, though, willed otherwise.
In September 1991, Bhatia Senior was forced out of his company after his business partners quietly increased their equity in it.
This convinced his son to take the plunge in the travel business.
He built a new company and went on to convert it into a conglomerate - InterGlobe Enterprises.
He also drew an important life lesson from his father’s experience - never trust anyone blindly.
Cut to 2001. Firmly entrenched in the travel and hospitality business, Bhatia now decided to start an airline.
He knew, however, that he needed a specialist aviation mind on board.
In came Rakesh Gangwal, a close friend, and one whose deep relationships cultivated during his years at the helm of US Airways and United Airlines had made him a master at doing business with aircraft and engine manufacturers.
A person who was part of the founding team of IndiGo Airlines recounts an example of Gangwal’s negotiating prowess.
In 2011, an aircraft lessor, with which IndiGo had done six aircraft sale-and-leaseback transactions, went bust.
“Everyone at IndiGo feared there would be a payment default to Airbus.
"Gangwal picked up the phone, spoke to Airbus’ chief commercial officer (CCO) John Leahy and got the lease transferred from the lessor to Airbus’ books in 30 minutes!” the person said.
Gangwal’s foresight in going for timely aircraft orders is what enables IndiGo to induct four planes per month today.
In 2005, he had convinced Bhatia to go for a mega 100 aircraft order.
According to the person quoted earlier, Bhatia was unconvinced that an Airbus or a Boeing would be ready to sign a 100-aircraft deal with a start-up Indian airline.
“Leave it to me,” Gangwal told him. “You take care of the regulatory hurdles. The planes will be there.”
The results of the sweetheart deals are still paying off for IndiGo.
While its peer Jet Airways has gone bankrupt, IndiGo sits pretty with Rs 17,300-crore free cash on its books.
In less than two years, IndiGo will finalise one more mega aircraft order.
But this time, Gangwal is not part of the negotiations.
Instead, Kiran Rao, former executive vice-president-marketing at Airbus, and Riyaz Peer Mohammed, IndiGo’s chief aircraft acquisition officer, are leading the talks and reporting back to Bhatia.
Last month, IndiGo signed its most efficient deal when it dropped Pratt & Whitney for CFM engines and spares for 250 aircraft.
Once again, Gangwal was not involved in the deal.
Industry sources said CFM offered a lower price than what Pratt had offered IndiGo in 2012 to sell the geared turbofan engines of 150 aircraft, for which IndiGo was the debut customer.
Usually, airlines get hefty incentives for being the launch customer of engines, but getting incentives on an already proven engine is quite extraordinary.
“It’s a killer deal. Rao and Riyaz successfully played Pratt executives against CFM’s who were desperate to sign up a customer like IndiGo.
"Credit goes to Rao. The man has been selling aircraft across the globe for more than 30 years. He is no less, if not better, than Gangwal,” said a person who was part of the negotiations.
IndiGo seems to have finally outgrown its illustrious founder.
To be fair, Gangwal had already removed himself from the day-to-day operations of the company as his tussle with Bhatia had become severe.
Was he trying to blackmail his partner? Gangwal denies that charge.
“I just didn’t want to be part of the process when so many things were not in order,” he said.
Bhatia thinks otherwise.
By October 2018, Airbus had given multiple reminders to the airline for finalising their engine orders and threatened that any further delay would lead to IndiGo losing its delivery slots of planes.
“IndiGo, known for its swift decision-making, was surprisingly slow.
"It was as if Gangwal, busy with his boardroom tussle with Bhatia, was holding the airline to ransom by putting a gun to its head,” said a person close to Bhatia.
In mid-October, a frustrated Bhatia got Rao to finalise the deal.
“The day his appointment was announced, Gangwal shot off an angry email, questioning the appointment.
"Incidentally, that was the first time when he started accusing Bhatia of unfairly gaining from related-party transactions (RPTs),” the source says.
Gangwal, who has vehemently denied the charge, says independent director Anupam Khanna, who is also the chairman of the audit committee, had raised the issue of RPTs multiple times and failed to get a satisfactory response.
Things only went downhill from there.
Bhatia felt that he had given too much leeway to his partner.
He was now determined to wrest back control.
Up to that time, Gangwal was acting almost as a passionate chief executive officer (CEO) of the airline - right from handpicking talent at the junior level to overseeing strategy in every department.
“His monthly meetings were exhausting, and he pushed executives to give their own ideas.
"He would throw new ideas, allow the department head to take calls, but again throw counter points.
"Decision-making was encouraged. Failures were not tolerated,” said a senior IndiGo executive.
Pankaj Madan, the former chief financial officer, was replaced in 2017 by Rohit Philip, a veteran at United Airlines, as Gangwal felt Madan was not ‘up to the task’.
He had started appointing expats in crucial management positions, sidelining Indian executives.
“Former president Aditya Ghosh came to know about them only after they had been selected,” said a source.
“Gangwal believes IndiGo has been built by expats. He admired former CEO Greg Taylor.
"At the 2017-18 (FY18) preview meeting, Gangwal had said, ‘now that Taylor has come, there will be an additional 5 per cent yearly increase in yield’.
"Isn’t it odd to give all the credit to a single person?” asked the source.
Bhatia, though, roots for Indian executives and enjoys their trust.
Many of them were the reason for IndiGo’s stellar performance, which led to a bumper public listing in 2015.
“In hindsight, Bhatia thinks he should have stepped in earlier.
"People like Ghosh (former president) and Sanjay Kumar (former CCO) gave their blood for the company,” a person close to him said.
By October 2018, Bhatia’s fallout with Taylor was evident.
He told Gangwal that Taylor was not CEO material and did not deserve to get a salary of around Rs 36 crore.
As president, Ghosh used to draw a salary of Rs 21 crore, including stock options.
With Bhatia back in the scheme of things, there was a churn of executives again.
Taylor was forced out and replaced by Ronojoy Dutta.
Cindy Szadokierski, vice-president, airport operations, and chief planning officer Michael Swiatek left soon after.
More changes followed and more are to come.
Two months ago, Abhijit Dasgupta, a former Jet Airways executive, was appointed as head of network planning and SpiceJet’s Shilpa Bhatia is likely to come in as head of sales.
This will be the first time that the airline will have an executive position for sales, which is currently being held by CCO Willy Boulter - another expat.
Bhatia has the approval of CEO Dutta with whom she had worked at Air Sahara.
In the mid-management level too, old IndiGo hands are now being rewarded and prepared for future leadership roles.
For instance, old timer Ankur Goel was recently elevated as vice-president, treasury.
Manish Puri, who has spent 13 years at the company, has been made vice-president, sales.
Industry sources said that the airline is going to appoint more Indian executives in core positions.
Gangwal out in cold
As for Gangwal, he was not even in the loop on CEO Dutta’s appointment until his selection was finalised.
“He was very upset, but didn’t officially dissent on his appointment because that would have created mistrust in the boardroom.
"Gangwal doesn’t think Rono is the right person to run the airline.
"The record profit of over Rs 1,000 crore in the last quarter was only possible because of Jet Airways’ demise.
"In two years, IndiGo will see the result of weakening the management structure which he had set up,” a person close to Gangwal said.
CEO Dutta, though, has given credit to the internal efforts of the management for the bumper profit.
Lately, matters related to corporate strategy have also been slipping out of Gangwal’s hands.
By the end of FY18, IndiGo had buried his proposal of outright purchase of A320neo aircraft and returned to the tried-and-tested asset-light model of sale and leaseback.
This was barely four months after Gangwal had convinced the management that buying rather than leasing aircraft was a good policy.
From then on, IndiGo has only added 12 planes, mostly ATR (Aerei da Trasporto Regionale or Avions de transport regional), to its own books.
“Gangwal had said that successful global airlines like Southwest, Ryanair, have a large number of owned aircraft and this has helped these carriers build a strong balance sheet,” a source said.
After their bitter public spat, it’s unlikely that Bhatia will allow any more room to Gangwal.
“Bhatia is not someone who forgives a public insult.
"If Gangwal thinks he will bury the hatchet and move on, that’s impossible,” said a source close to Bhatia.
While a defamation suit is unlikely, Bhatia’s InterGlobe Enterprise, which owns 37 per cent stake in IndiGo, will support groups of minority investors if they sue Gangwal for causing erosion of shareholder’s wealth.
After Gangwal’s letter to the Securities and Exchange Board of India was made public, the company lost close to $1 billion in market value in one day.
Over the next two months, the IndiGo management will meet influential domestic and foreign investor groups to assure them that “the company has grown beyond one or two persons”.
“This is Bhatia’s company. In this lifetime, Gangwal will not get control of it.
"If he wants, he can cash out by selling his equity,” said a close friend of Bhatia.
Recently, Ritesh Agarwal, founder of OYO Rooms, fortified himself against primary investor SoftBank by increasing his stake and including a clause which forbids SoftBank to increase stake beyond 50 per cent without his approval.
Bhatia, once Agarwal’s mentor, must be closely following his protégé as he charts a way to push his partner out.
IndiGo, the airline Gangwal built with his own hands, has finally decided to fly without its architect.
Photograph: PTI Photo