IndiGo was Bhatia’s dream who had been tracking the Indian aviation industry for long from close quarters. But Bhatia was not willing to take off without Gangwal who was deterred by the challenging Indian aviation market. He agreed after some persuasion by Bhatia and IndiGo started flying in 2006. In less than two decades, the two worked magic and created a unique phenomenon in the Indian skies, the biggest and profitable airline that customers liked.
The history of IndiGo may soon take a sharp turn with the exit of Gangwal. ET has reported that the Gangwal family likely sold shares worth $450 million (Rs 3,730 crore) through a block deal on Wednesday. This will mark a slow exit of Gangwal who built the airline from ground up.
Why Bhatia needed Gangwal
Bhatia, who studied electrical engineering in Canada and returned to India in 1984, had his first dream of starting a telecom business. But the dream failed to come true due to the government policies of the day. Bhatia had to join his father’s travel business, and that’s where he had his second dream of starting an airline. Bhatia developed his father’s air travel business into a new company InterGlobe Enterprises which had come to have many global partnerships with airlines and hotels. In 2004, he launched InterGlobe Aviation which acquired an airline licence, and placed the biggest order in Airbus history for hundred A320 aircrafts to launch IndiGo. By then, Bhatia had obtained a close view of the Indian aviation market and knew how it worked.Yet, he needed Gangwal.Gangwal, who studied mechanical engineering at IIT Kanpur and then did an MBA from Wharton, had by then decades of experience of working in the aviation industry at senior positions. For a new airline that aimed to offer quality and performance as well as become profitable, Gangwal’s global experience was vital.Gangwal, who had worked at Ford Motor Company and Philips India, had his first brush with aviation in 1980 while he was an associate at a consultancy, Booz Allen & Hamilton, where he worked closely with United Airlines. For years later, he joined United Airline and held several senior positions there.
In 1994, Gangwal became executive vice-president of Air France. Four years later, he became the president and CEO of US Airways, the airline which later merged with American Airlines. Before he co-founded IndiGo, he was chairman and CEO of Worldspan Technologies, a provider of travel technology and information services to the industry.
While Bhatia was the man who knew how the Indian aviation market worked, Gangwal was the man who knew how an airline did. The two men went on to create a successful airline in times when few would be brave enough to venture into the Indian aviation sector which had a very high mortality rate.
In 2005, IndiGo had tossed this rulebook out of the window a year before launch. The airline shopped for 100 Airbus aircraft, a massive order for any airline, leave alone a new one. IndiGo swung the deal because the management of Airbus, the aircraft maker, was seemingly comforted by the presence of Gangwal at the helm. Experts said Gangwal’s ability to take risks and strike winning deals was reflected in IndiGo’s first 100 aircraft order, which proved game-changing both strategically and financially. Gangwal laid down the parameters on how the airline should function. IndiGo’s decision to stay the course with one type of planes — the A320s — which renders benefits in terms of managing and training personnel and costs was Gangwal’s. IndiGo stuck to its business plan and model religiously thanks to Gangwal’s supervision.
IndiGo’s astounding rise
IndiGo, which was guided by Bhatia and Gangwal but run by professionals, was a surprising success. In 2010, within four years of operation, IndiGo had captured 17.3% domestic market share and had replaced Air India at the No 3 spot. In 2012, IndiGo became the biggest, and India’s only profitable, domestic airline by cornering a 27% market share. The growth, when matched with its low fares, better customer experience and punctuality and profitability, was astounding in the times when other airlines were either struggling or failing. IndiGo’s IATA code, 6E, was now being pronounced as “sexy”.
IndiGo is the market leader now in India with a market share of nearly 57 per cent with lowest cancellations and industry-leading on-time performance
While travellers attributed IndiGo’s success to the efficient service they experienced on board and planes that ran on time, some analysts speculated that it made most of its money from sale-and-leaseback transactions, in which an airline operator sells new planes to leasing companies and in a parallel transaction leases the same aircraft. The price at which the aircraft is sold to a leasing company is usually higher than the price paid to the aircraft maker.
In 2016, 10 years after its launch, InterGlobe Aviation went public and created three new candidates for the Forbes billionaires list: father and son pair Kapil and Rahul Bhatia and Rakesh Gangwal. Today, IndiGo is the market leader with a market share of nearly 57 per cent with lowest cancellations and industry-leading on-time performance. Gangwal and Bhatia, with their strong team of aviation professionals, ensured that IndiGo achieved what remains elusive in the Indian aviation sector, profitability.
The clash in the cockpit
Gangwal, a US citizen, kept a low profile and worked from the shadows while Bhatia ran the show in India, supporting the airline’s growth and manoeuvring regulatory hurdles. But differences began cropping up between the two, with Gangwal supporting growth at a breakneck speed to harness the potential of India’s aviation market and some of the airline’s management while Bhatia opted for a more cautious approach.
In February 2018, Gangwal declared that FY19 would see IndiGo 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.
Both founders believed the group was at an inflection point as it chased its next phase of growth. With Jet Airways and Air India floundering, they believed IndiGo could occupy the vacant slots left behind by the two legacy carriers. How to grab this opportunity was where they differed.
Bhatia was open to considering wide-bodied aircraft to pursue its international dream. Gangwal was a believer in the budget carrier Southwest Airlines’ model of operating a single model aircraft: the narrow-bodied Boeing 737. This would have meant the airline would not be able to service long-haul destinations. Instead, Gangwal preferred code-share agreements with foreign carriers.
The open war
Bhatia and Gangwal held near-equal stakes in IndiGo, respectively 38% and 37%, but the scales were tilted in favour of Bhatia when it came to the control of the board and management. They fell out in early 2020 when Gangwal sought to modify certain rules in the company’s articles of association.
Gangwal complained to Sebi, and copied to the prime minister, the commerce minister, the finance minister, the aviation minister and the DGCA, that a shareholders’ agreement between himself and Bhatia gave the latter “unusual controlling rights over IndiGo” and that these rights and “a lack of diversity and paucity” of independent directors “may very well be at the root of why governance matters have taken such a back seat at IndiGo.” In his letter, Gangwal alleged that over the years, Bhatia began “building an ecosystem of other companies that would enter into dozens of related-party transactions with IndiGo.”
In a separate letter to the board, Gangwal has alleged that various related-party transactions with the InterGlobe Enterprises Group [Bhatia’s company] were executed without seeking audit committee approval and many were executed without seeking competitive bids from third parties. He claimed many had been signed with retrospective effect.
Speaking to ET, Gangwal had confirmed the widening gulf between the two promoters on corporate governance issues. “This is a national issue where some companies have lost their moral compass of governance and the nation needs to address this issue formally,” Gangwal said. However, the company claimed the transactions were done at “arm’s length” and through a tendering process and companies owned by Bhatia’s Interglobe didn’t always win the contracts.
Finally, an extraordinary general meeting held in December 2021 paved the way for an amicable solution. Last year in February, Gangwal resigned from the company board as the non-executive and non-independent director. In his resignation letter, he also said he will “slowly” reduce stake in the company for the next five years.
Though IndiGo soared with their guidance, both Gangwal and Bhatia had ensured to stay away from the management and let the professionals run the airline. That far-sighted approach will now provide stability to the airline when one of the promoters is on his way out, though the process had started last year with Gangwal’s resignation from the board.
