Indigo Promoter Dispute: Rahul Bhatia Explains Why Related-Party Transactions Exist
Indigo Promoter Rahul Bhatia tried to explain why Interglobe Aviation Ltd., the operator of IndiGo, has a number of related-party transactions with entities owned by him, a day after co-promoter Rakesh Gangwal termed them “questionable”.
Since the start of Interglobe Aviation’s flight operations, Bhatia’s InterGlobe Enterprises and its group companies have provided certain services and facilities to the aviation firm, he said in a statement issued today. “All RPTs (related-party transactions) have been executed on an arms’ length basis and in the ordinary course of business,” the statement by InterGlobe Enterprises said. “The IGE Group has nurtured and supported IGAL through its formative years and expansion years by making available these services.”
Gangwal, in a letter to the Securities and Exchange Board of India and in another letter to shareholders, alleged several irregularities in these transactions, ranging from lack of competitive bidding to lack of audit committee approval in some cases and backdating of contracts in others.
Bhatia’s statement today said the related-party transactions with his IGE in 2018-19 were 0.53 percent of the consolidated turnover of Interglobe Aviation at Rs 150.12 crore. That was up from 0.5 percent in 2017-18 at Rs 118.96 crore.
However, this only includes related-party deals with the IGE Group. There are other companies that Interglobe has related-party transactions with that are connected to Bhatia. A BloombergQuint analysis of the company’s annual reports shows that including those transactions, the number for 2017-18 stood at Rs 315 crore, or 1.3 percent of the airline’s revenue.
Related-party transactions existed in six areas, according to Bhatia’s statement:
- Real estate leased to Interglobe Aviation
- Call centre and IT services
- Simulator training facilities
- General sales agents
- Shared services
- Crew accommodation at Accor Hotels
Of these, the statement said, related-party deals exist in four areas now—call centre and IT services and shared services being phased out.
The statement explained why such transactions still exist in the four areas:
Bhatia’s InterGlobe Enterprises has leased office spaces to Interglobe Aviation for the long term, “generally” ranging from five to nine years, the statement said. The rentals are benchmarked to market rent prevailing at the time of leasing. “Several of the terms and conditions have been more favourable to IGAL than market practice,” the statement said.
Simulator Training Facility
The statement said that in 2011 IndiGo, with a 39-aircraft fleet, placed an order for another 180 planes. “At that time, there was no single facility in India and South Asia that could cater to IGAL’s growing pilot training requirements,” the statement said.
In this scenario, IGE reached out to Canadian simulation tech manufacturer CAE Inc. for a 50:50 joint venture CSTPL for flight training. The agreement became active from July 2013 for 15 years with a provision to review it for pricing and other terms every five years.
“IGAL (airline operator) has always been provided with more favourable terms as compared to any other customer of CSTPL,” the statement said.
InterGlobe Enterprises said it has been and continues to be a leading general sales agent for several airlines. IndiGo had appointed for domestic cargo and passengers. In 2015, the domestic passenger arrangement came up for renewal and IndiGo chose not to renew it, the statement said. In 2016, IndiGo also terminated the domestic passenger general sales agent arrangement arbitrarily. Currently, the arrangement is limited to foreign markets and is on an arms’ length basis, it said.
IGE said it has interest in the hotel business in joint venture with Accor—which owns and operates the Ibis and Novotel brands.
Over last several years, Interglobe Aviation, the operator of the airline, invited proposals for hotels to accommodate its crew in various cities, where Accor participated on an arms’ length.
Currently, the hotels that IGE’s joint venture with Accor provides to IndiGo crew is about 8 percent of the overall worldwide accommodation cost of Interglobe for 2018-19, the statement said.