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When partners co-pilot an Indian airline into jeopardy

Several guesses have been made on how it went wrong including a wrangle over the purchase of CFM power plants.

The most profitable carrier in India, if not the only one, is flying straight into clear air turbulence (CAT) and could well shake itself up. The thing with CAT is no one sees it coming. A cloudless sky and suddenly everyone is being tossed around. The conflict between Indigo's two partners Rahul Bhatia and Rakesh Gangwal came as a shock. It has been brewing the past one year but no one thought it would reach the level of a legal confrontation. While experts feel that the arbitration option whether through securities regulator in India or any other body is the sanest and safest course and better than the hostile conflict they also acknowledge that the two partners are not buddies anymore and this schism could rent asunder a perfectly sculpted 13 years of success. The spectre of Jet and its demise recently with none to pick up the pieces is a scary example of what could be if these two don't get their act together. Seeing that both are wealthy beyond being just rich, it is seen as hugely selfish to place in jeopardy a carrier that is doing so well not to mention the cloud of doubt that now hangs over the heads of 3,100 employees.
Several guesses have been made on how it went wrong including a wrangle over the purchase of CFM power plants. Maybe it is a contributory reason but the two main areas of contention are corporate governance and Relative Party Transactions (RPT) that stick in the craw.
So, what is the beef. With Indian media largely supporting Bhatia, Florida-based Gangwal is not getting a look in with his peeves. And he probably has legitimate ones, too.
Insiders believe Gangwal showed annoyance over Bhatia using the Indigo hub to launch several other enterprises in which obviously Gangwal had no say. This really is the issue and in the Florida camp there is this outrage that the Indian partner has gone beyond acceptable limits and amounts to misuse of position with Relative Party Transactions getting out of hand. The RPT allows for an arrangement between two parties who are joined by a preexisting business relationship or common interest. Gangwal has been feeling he was being left out in the cold what with Bhatia having control of the Board in what is seen by the other side as unbalanced and totally in favour of Bhatia.
Then came the commitment to expansion. Indigo takes delivery of a new aircraft every two weeks compelling a constant review of its services especially its route map and frequency. Unless you get the right slot and time the extra flight is not financially viable. Bhatia has ostensibly been pushing for widebodies and a more global expansion, his western approach kicking in. Gangwal wants to go for more narrow bodies like the A320/321s which comprise the fleet now. 
Bhatia's people are put out that Gangwal went to the securities board and elected to go the legal way. They still intend to see all this brouhaha as a storm in a teacup and the reflection of a Gangwal with a bruised ego because Bhatia has been so successful in his initiatives. Like the story goes Rahul got a better deal on the $2 billion cfm engines triggered by Rakesh and supposedly started all this off.
Insiders believe Gangwal always thought Indigo won't run profitably without him. His contacts on aircraft, engine and related vendors helped at the start but over a period Bhatia could do better deals for the company than Gangwal. This side of the net is surprised why he's woken up now, 12-13 years later after enjoying the fruits of their combined labour.
Whatever the reasons the fact is Indigo will be hurt if this carries on. The longer the settlement takes the more the uncertainty. Already the shares have been negatively impacted upon. Should two men put so much in jeopardy?
bikram@khaleejtimes.com