Will IndiGo’s promoters separate?

The long-standing feud between Rakesh Gangwal and Rahul Bhatia, the co-promoters of India’s largest airline, IndiGo, has come to an amicable end. IndiGo shareholders voted Thursday to remove a clause from the airline’s bylaws that granted Bhatia and Gangwal the right of first refusal to acquire the other’s shares. The fact that the two sides had engaged in a bitter battle first emerged in July 2019, when Gangwal knocked on the doors of the Securities and Exchange Board of India, seeking to intervene in corporate governance issues. of the airline. Bhatia rejects this accusation of breaches.

What happens next for IndiGo? Are Bhatia and Gangwal going to bury the hatchet or are they about to go their separate ways? The future could be played out in two or three possible ways.

IndiGo’s recipe for success was the Bhatia-Gangwal partnership. He might not have reached the heights he has, if only one of the two had promoted him. While Bhatia brings decades of information about the Indian aviation industry to the table, Gangwal brings global best practices to the table. IndiGo’s share price had fallen nearly 20% the day news of the fight between Bhatia and Gangwal became public. News of the feud’s end saw the title close at ??2016.15, almost 2% more than Friday. Together, the co-promoters hold 74.4% of the airline’s capital.

Freed from the deleted clause, the two are now free to explore the option of leaving the airline, partially or totally. Whether, when and who will exercise the option will keep market watchers on the alert.

What are the chances of a sale? Either of the two exits, and it will be more likely Gangwal, will allow there to be only one dominant owner, which will allow the airline to operate more smoothly.

A more likely scenario, however, is that one of the two partners dilutes their property and waits to exit at higher valuations. Covid-related travel restrictions have pushed IndiGo into debt. The airline has reported losses for more than nine consecutive quarters. Its total debt (including capitalized operating lease debt) is greater than ??32,335.3 crores. Despite the difficulties linked to the Covid, the airline remains attractive to potential investors. The main reason being IndiGo’s leadership in the market. It controls more than 57% of the air transport market. The duration of this advantage will depend on the competition between Air-India and Vistara, owned by Tata. IndiGo’s fleet of over 250 aircraft, most of which are fuel efficient, gives it an economic advantage and global reach; it can operate flights to destinations up to six hours away from India. As on the outskirts of Europe.

Proceeds from IndiGo shares sold could be useful in acquiring ownership, in part or in whole, of an overseas airline. Global airlines are bleeding. The International Air Transport Association (IATA) estimates that the global air transport industry will suffer losses of $ 11.6 billion this year. IATA estimates that airlines have received a total of $ 123 billion in government assistance. Of which they must repay 67 billion dollars. Airlines ‘net debt will drop from $ 430 billion at the end of 2019 to $ 550 billion at the end of 2020. As fewer international flights are operated, paying off these heavy debts will prolong the airlines’ recovery and encourage them to seek investors. . Aviation assets will be asking for significant discounts.

Struggling airlines will prefer funding from private investors rather than government bailouts with strict conditions. Take the case of Lufthansa, the German airline. The German government gave him 6 billion euros. One of the conditions Lufthansa accepts in exchange for the money is to cap the remuneration of its management, including the ban on paying bonuses, until at least 75% of the recapitalization received from the government is reimbursed. The airline has agreed to refrain from acquiring a stake of more than 10 percent in competitors or other operators in the same industry until that date. In fact, this is the main reason why Lufthansa was unable to bid for the Air India privatization sale by the Indian government.

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