In a letter dated June 12 to the board of directors of InterGlobe Aviation, which owns and operates low-cost airline IndiGo, Rahul Bhatia states that the “angst” of his co-founder Rakesh Gangwal “lies elsewhere”.
“The genesis of Mr. Gangwal's angst lies elsewhere - the refusal of the IGE Group to succumb to his unreasonable demands to dilute the IGE Group's controlling rights; and the hurt ego of Mr. Gangwal on realising that upon his refusal to lend his hand in the Company's ongoing negotiations with Original Equipment Manufacturers [OEMs], the Company had proceeded to make alternate arrangements for the purpose,” wrote Bhatia in his the letter, which was made public by IndiGo on Tuesday.
While his letter doesn’t name the OEMs, as an airline IndiGo directly negotiates with airframe and engine manufacturers. Interestingly, on June 17, IndiGo announced that it had ordered CFM International LEAP-1A engines to power the remaining 280 A320neo and A321neo aircraft that it has on order.
The contract, which includes spare engines and an overhaul support agreement, is valued at more than $20 billion, at list price. CFM International, a 50:50 joint venture between GE and Safran Aircraft Engines, is one the largest engine suppliers to the A320neo series of aircraft.
IndiGo’s deal with CFM International saw it dump OEM Pratt & Whitney, whose engines currently power the airline’s fleet of Airbus A320neo aircraft. But ever since the induction of these aircraft began in 2016, IndiGo has faced periodic engine-related issues, which even caused some of its aircraft to be grounded.
“In hindsight, however, the Company will remain eternally grateful to Mr. Gangwal for having attempted to hold the Company's business to ransom (by purposely delaying the ongoing negotiations with OEMs), as this paved the way for the Company to institutionalise an area of operations which Mr. Gangwal had kept as his exclusive preserve (to serve his far-sighted motive which has now become abundantly evident),” Bhatia said in his 6-page letter.
Gangwal, who owns approximately 37% stake in InterGlobe Aviation, has accused Bhatia of flouting corporate governance norms, especially, in context to related party transitions (RPTs) between IndiGo and Bhatia’s IGE Group. Bhatia and IGE Group together own approximately 38% stake in InterGlobe Aviation.
“The relatively minuscule numbers- RPTs account for less than 0.7% (and continuing to decline) of the turnover of the Company- are relevant to negate Mr. Gangwal's story line that RPTs are commonplace and a daily affair and thereby the unsaid piece that these are a big source of leakage,” said Bhatia.
He further added, “The real objective of the RG Group [which belongs to Gangwal] is neither to investigate RPTs nor to seriously think about developing "robust procedures". It is to dilute the control of the IGE Group and to absolve the RG Group of its obligations under the AoA [articles of association], and indeed to malign the image and reputation of the IGE Group.”