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September 25, 2019

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Icarus’ Melting Wings – Turbulence In Aviation In India


- Rakhee Biswas, Senior Technology Lawyer and upcoming Aviation Lawyer [ ]

Rakhee-Biswas

The collaboration between Rahul Bhatia and Rakesh Gangwal hit an air pocket mid-2019…

Barely had the dust settled on the Kingfisher saga that reports surfaced of the Jet Airways crash, with IndiGo now following suit.

Larger than life promoters building airline brands is a global phenomenon. Richard Branson of Virgin Atlantic and Vijay Mallya were quite successful as brand ambassadors of their own airlines. Aviation, after all, is not just another business. It signifies a gravity-defying flight of human ambition, not to mention conquering potent natural forces of lightning and turbulence. In comparison, corporate turbulence seems like a cakewalk.

Both Jet Airways and Kingfisher were led by single promoters who took all major decisions and steered their airlines initially towards the sky and then down, eventually crashing with no evident signs of recovery. Corporate governance in both these cases appears to have been a casualty of the ambition and authority of the promoters. Were these cases of Icarus’ wings steering the flight beyond its limits only to suffer a meltdown?

Is the Icarus syndrome an affliction of any business where an individual or a set of individuals become larger than life and corporate governance is diluted?

Greek-mythology

While the privatized Indian aviation industry was still managing to take baby steps towards survival and potential profitability, IndiGo was founded by close friends Rahul Bhatia and Rakesh Gangwal in 2005. Both focused on being behind-the-scene leaders and making IndiGo a profitable budget airline, offering economy plus services at economy tariffs, on time performance as its motto reinforced in flight announcements and promotional materials, and not to forget creative snack covers that sometimes made flyers choose Indigo over other airlines.

In a few years, IndiGo was a successful, profitable, airline unlike any other airline in India. Successful leadership at IndiGo generated remarkable growth and prominence; IndiGo within a short time of its inception was able to capture the sky, quite literally, with its smart in air and on ground maneuver.

The collaboration between Rahul Bhatia and Rakesh Gangwal was revered in business circles. It illustrated how true collaborations could create remarkable businesses. However, that was until mid-2019 when IndiGo was hit by strong turbulence in the form of an alleged rift between the promoters.

Much has been written about ongoing blues, the rift between the promoters, related party transactions, audit report, soft handling of related party transactions and so on. IndiGo hitting an air pocket was not an event the country was prepared for, given that nearly 50% of India’s flying capacity rested on IndiGo’s wings.

Co-promoted businesses have peculiar vulnerabilities. They have an additional responsibility to maintain not only the actual but also perceived neutrality towards promoters and their other interested/related parties. Any actual or perceived favoritism can be fatal to the survival of a copromoted business.

According to Professor Noam Wasserman, author of ‘The Founder’s Dilemma’ (also quoted in Harvard Business Review), 65% of start-ups fail due to co-promoters falling out.

The reasons for such fallouts are often ego clashes, actual or perceived financial disparities, sense of one having better rights over the other, actual or perceived Board favoritism, actual or perceived suppression of authority or excess thereof.

Given the operating commercial, human and business motivations that a co-promoted business is vulnerable to such soaring ambition, power, authority and conflicting goals; governance as well as assertive board actions assume even more importance. The wings of co-promoted businesses are indeed made of fragile wax, much like Icarus’ that may quickly melt in the heat and fire of an individual’s vulnerability, suspicion, mistrust, ego and vengeance which no amount of wisdom can douse.

We may see some valuable lessons on governance emerging over the next few weeks, additional safeguards on corporate ethics and compliance are also expected.

“If entrepreneurship is a battle, most casualties stem from friendly fire or self-inflicted wounds” - wrote in Professor Noam Wasserman in ‘The Founder’s Dilemma’.

In the interest of the aviation industry and the flyers, let us hope the IndiGo dispute will see a happy ending and Icarus’ wings will not melt.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

 

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