Billionaire owners' public spat weighs on Indian airline IndiGo's future

Rakesh Gangwal, 65, is accusing partner Rahul Bhatia, 59, of corporate-governance transgressions at Indian budget airline IndiGo and wants his powers curbed. PHOTO: REUTERS

NEW DELHI (BLOOMBERG) - A fight between two billionaire co-founders is threatening to derail one of the world's most successful airlines.

Rakesh Gangwal, 65, is accusing partner Rahul Bhatia, 59, of corporate-governance transgressions at Indian budget airline IndiGo and wants his powers curbed. Bhatia denies the allegations, and there's no sign yet that the disagreement is affecting financial performance of the airline, operated by InterGlobe Aviation Ltd.

Yet analysts see risks in a prolonged dispute - even after Asia's biggest discount carrier by market value posted record profit last week. While local media reports have suggested the owners may be negotiating a truce, neither Bhatia, whose holding company owns 38 per cent of the airline, nor Gangwal, who with affiliates holds 37 per cent, was available for comment.

Here's what could happen as the tussle drags on:

Drawn out legal battle

With Gangwal not backing down, and Bhatia denying the allegations, the dispute could end up in court. Gangwal has sought intervention of India's stock-market regulator to address what he says are "unusual controlling rights" held by Bhatia. Those powers, Gangwal alleges, have allowed his partner to push through related-party transactions in violation of rules. Gangwal, who is based in the US, has said he has no plans to exit the venture or take control. Brokerage Edelweiss Financial, which has a hold rating on the stock, has recommended "a cautious approach in light of recent concerns on governance."

Rivals take advantage

A prolonged dispute could dent IndiGo's lead in India, where it controls close to 50 per cent of the local market. SpiceJet Ltd, the No 2 player, has taken full advantage of a rival shutting down by snapping up its Boeing Co jets. During the past two months, SpiceJet has added 250 basis points to its market share, while IndiGo lost 180 basis points, according to regulator data. Another rival called Vistara, a joint venture between Singapore Airlines and conglomerate Tata Group, is gearing up for its first international flight, and a quick ramp-up by the cash-rich airline may hit IndiGo's plans to add capacity on overseas routes.

Dilution of brand

The owners' fracas sends the "wrong signal" and can hurt confidence of other stakeholders, according to Tarun Bhatia, head of South Asia and India at corporate-governance adviser Kroll. Questions about governance will cause uncertainty among employees, customers and lenders, eventually affecting the brand and encouraging flyers to look at other options, he said. IndiGo, named the most trusted airline brand in India, has lost some goodwill over the past few years after some incidents where flight attendants were rough with passengers. An ongoing spat between the co-founders - dominating front pages of local newspapers - could make it worse.

Airbus orders at risk

IndiGo is the world's largest customer for Airbus SE's A320neo jets and has placed orders valued at more than U$40 billion at sticker prices. It's currently adding about one aircraft every week. The carrier is also in talks to buy more Airbus jets including the recently-introduced A321 XLR. While the company has said the governance feud doesn't have anything to do with its plans to fly more overseas routes, a prolonged tussle could affect its expansion and plane orders.

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