We now had three sources of funds: the IPO, equity partners, and the bank lien. I decided to go ahead. I called Kiran Rao, global head for pricing and Asia head for sales at Airbus, and said Deccan wanted to place orders for sixty Airbus-320 aircrafts. He must have had a heart attack! He said he would fly down to Bengaluru with his boss and chief commercial officer, John Leahy.
Kiran Rao, and John Leahy and his wife, were in Bengaluru soon after. I organized an outing for all of us at Kabini Game Reserve. I wanted a break from the hectic routine, and here was an excellent opportunity to blend business with leisure. Bhargavi joined us on that trip. Nature is a good primer before embarking on serious business, softening and mellowing us. We become more willing to give and also more amenable to concluding a deal.
We flew by Deccan helicopters to Kabini where we did the safari, followed the elephant trail for some distance, and relaxed on the riverbank. We lit a campfire in the evening. After two days spent on the banks of the Kabini River, we flew to Hampi. I believe that Hampi has the most variegated rock formations in the world. Its landscape is far more differentiated with far more distinctive features than the landscape at Grand Canyon. The ruins of Hampi are spread over around 20,000 hectares of hilly terrain with rock, boulder, and ridge. The Tungabhadra River meanders through this scattered topography, forming little pools here and turning into sharp eddies there. Many of these riverine alcoves are completely surrounded by boulder formations that simply astonish the visitor.
The land there is parched and dry except along the course of the river where trees shoot through nooks between the rocks. The pools in the niches are sacred, and legend has it that ancient sages chose those locations as meditative retreats. At sunrise and sunset Hampi is suffused with the mud-orange colour of the rock and the earth. A miasma of dust hangs over the landscape as day dawns. The light is a dull burnished copper. Historians have wondered how the rulers of Hampi were able to attain the near-perfect north–south alignment of the important architectural features of the once resplendent city.
We chose a resort that was neatly tucked into the boulders on the hillside. We went around and saw the ruins: the palaces, the temples, the musical pillars, and the huge apron of the durbar hall.
On the evening before our departure, John, Kiran, and I sat on the balcony overlooking the Tungabhadra where I offered them whiskey. I had so far avoided discussing business. After we were through with the first drink, John, unable to contain himself any longer, said, ‘Gopi, I thought you invited us to discuss the purchase of Airbus aircraft. We are leaving tomorrow and you have not even broached the subject.’ I said, ‘John, I deliberately did not broach the subject in Bengaluru or until now. There are two possibilities. I order sixty aircrafts and we finalize a deal in one hour; alternatively I could appoint a purchase committee and run an elaborate techno-economic comparison between Boeing and Airbus to choose the best which could drag on for six to nine months as you bid against each other. I have done my homework and I have met CEOs of international airlines. I know the price. If you make an offer I can’t refuse, we can choose the first option and close it in the next hour and toast the deal on the banks of the holy Tungabhadra and in the midst of this historic city.’ John stared in disbelief. He said, ‘What is your asking price?’
I said, ‘I am willing to buy sixty no-frills Airbus-320 aircraft from you at the rate $28.5 million apiece. If you say $29 million then we will have to go through the due bidding and evaluation process between Airbus and Boeing. The decision is yours.’
John and Kiran looked lost at the suddenness of this quote. They left their whiskey glasses on the table and went indoors to consult the management of Airbus Industrie in France. They returned after an hour and said, ‘Give us twenty-nine.’ I said that would not be possible. Once the equity investment came in investors would want stringent audits of all major decisions Deccan made. My prerogative would then be curtailed. I asked them to think about all these factors and gave them till the next day to decide. ‘If you agree, we can be in Bengaluru by 10 a.m. and sign the purchase contract by 1 p.m. I will call a press conference at 4 p.m.,’ I said. Kiran Rao, whom I had known earlier, tried to reason with me in confidence after dinner that evening. I however reiterated what I had already said, and refused to budge.
I was already seated at the breakfast table when John came in, and as he took his seat, proffered his hand and said, ‘Captain, Congratulations! Let us shake hands. You have the deal at 28.5! but we have to rush to Bengaluru as we have a lot of documents to prepare to seal the deal.’ I straightaway called Mohan and conveyed the good news. I told him that we would be landing by 10 a.m. and we had three to four hours to get the documents finalized. We would meet the press at 4 p.m.
We took off in our choppers, did a perambulation of the Virupaksha temple, got an aerial view of the magnificence of Hampi, and flew straight to Bengaluru. Both teams got together to work out the nitty-gritty of the MOU. I had called and asked Vijaya Menon to organize the press meet at 4 p.m. The document was signed before the well attended media conference. The following day we made the headlines in all the leading newspapers. They screamed: ‘Deccan places order for sixty aircrafts with Airbus Industrie.’
John and Kiran were happy that the deal had come through. John said he would give Deccan an extra $15 million to fund combined marketing, recruiting training captains, and to hire the best consultants in the world for systems and processes. In addition to this $15 million, Deccan got $10 million as part of the purchase for pilot training and engineer training, thus saving us $25 million in cash expenditure that we would have had to incur had we gone in for the purchase of second-hand aircraft. The celebrations had begun.
It was unbelievable that with less than a crore of rupees in our bank account we had ordered aircraft worth 12,000 crore. This changed Deccan and Indian aviation forever.
When I ordered my fleet of 60 airbuses strange reactions came from different people. Minister Praful Patel was one of the first to call me. He asked, ‘Gopi, is this some kind of a joke? I hear that you have ordered 60 airbuses?’ There was huge uproar in the parliament—members asked questions as to how come an upstart startup like Air Deccan could order 60 airbuses while Indian Airlines after being in the business for 55 years still struggled to order a handful!
Around the same time I got a call from a former member of the parliament. I thought it was one of the routine calls that I used to get from politicians requesting for tickets to the smaller cities—since it was only Deccan that flew to destinations like Rajamundhry, Jamshedpur, Gwalior etc. But I soon realized that the call was for a reason far more important than I ever would have thought. So we decided to meet and discuss the issue.
When we met he said he was in Delhi a few days back and was taking a walk in the parliament and met a prominent politician. The politician asked him if he knew me well and what he thought of Air Deccan. He then said that the file for leasing 60 airbuses had reached his desk and he had to clear it before it reached P.Chidambaram. The subtext here was that I needed to pay up—‘donate’ to his party fund, as was euphemistically put—to get cleared. I was both angry and surprised to hear this—on one hand hung the fate of my company, on the other the very principles I run the company on!
I barely could sleep that night and after much deliberation I decided I would not pay the bribe. Next morning I called up cabinet minister Chidambaram’s secretary and asked for an appointment.
P. Chidambaram is known for his razor sharp mind and no non-sense attitude. He never has the time to suffer fools. When I met him, after a brief chit-chat he asked me the real reason why I wanted to see him. I said that I wanted him to change a certain rule in his ministry. I said while I can transfer any amount of money to any company account across the world, when I am buying aircrafts, without any government approval, when I am leasing aircrafts and transferring much lesser sums, I need a formal clearance from the finance ministry. I insisted that this resulted in loss of time, energy and busi
ness. On hearing me out the minister said that I should not try to teach him how to run his ministry but yes, if there was any specific problem that I encountered he will certainly help me. So reluctantly I told him about the incident. He asked for names and I had no option but to divulge them too. The minister then said that if I pay a single penny my file will not be cleared but yes, if the papers are in place, then my file will be cleared soon. On hearing this I left, still unsure about my fleet of airbuses and the future of Air Deccan. Just as I landed in Bengaluru, I got a call from Chidambaram s’secretary and he said the file had been cleared!
Deccan’s fortunes were looking up, as testified by the turn of events. At about the time we signed the Airbus contract, ATR had got a new CEO, Filippo Bagnato. Filippo Bagnato, an Italian by birth, is one of those rare people you only encounter in life if you are very fortunate. He is a very affectionate person, and is also endowed with an intellect of a very high order. He is a great leader of people. He is an aircraft design engineer who had worked on projects for the Euro-Fighter, Ferrari, and Boeing. When he took over ATR, according to the rule that the CEO would be French and Italian alternately, the aircraft manufacturer was facing the same kind of problems as Deccan: managing explosive growth. I called him to say that Deccan was interested in buying thirty ATRs. When he came to India, I took him to Bellary and Hubli, and other small cities and told him that Deccan planned to fly to these Tier II and Tier III cities in the country. I said I wanted to lease ten ATRs and buy thirty.
Mohan and I flew to Paris to finalize the deal with ATR. In exactly the same way as I pursued the deal with Airbus, I asked him to give me the aircraft at a specified rate and I would sign. Filippo agreed and voluntarily offered us support to strengthen our engineering operations. Filippo, since then, became a good friend and I have frequently consulted him on many issues. Once when I was having problems with some of my board members who were interfering and meddling in my functioning as a CEO, I went to Filippo and asked him for advice as to how he as a CEO dealt with his board members. He said to stand firm at all costs and never to let the board undermine my decisions as a CEO. He finally said that the board must concern itself with strategy, vision, corporate governance and overall performance of the company at the end of the day—but not in the ‘Kamasutra’ of management.
Mohan Kumar was doing something akin to creating the perpetuum mobile of finance. He teamed up with Ramki Sundaram, London-based finance executive with a South African bank called Investec. Ramki, who has an engineering degree from one of the IITs, is endowed with a razor-sharp mind and an excellent temperament. Mohan discussed this fantastic modus operandi with Ramki Sundaram. This was the idea: Investec would take the sixty Airbus aircraft we had ordered on assignment from us and give us $100 million upfront in tranches. Deccan had negotiated a price for each Airbus aircraft we were buying from the manufacturer. The aircraft price appreciates with time so we would agree to sell the aircraft just ahead of delivery to a leasing company for a profit of $5–8 million. Deccan and Investec would split the profit between ourselves in such a manner that Investec got its $100 million back and a return on the investment. The assignment to Investec of the 60 aircrafts was without prejudice to Deccan, losing its first right to buy or undertake sale and lease-back so that flight operations would escalate as planned. If Deccan defaulted for any reason, there would be no recourse, i.e., Deccan assets would not be touched. Investec for its part would however have the assigned 60 aircrafts, or what remained of the number at the time of default, and actually stood to make more money.
Investec agreed to this deal but wanted a consent letter from Airbus. Initially, Airbus was reluctant to issue the letter, but I drew their attention to a clause in our agreement that allowed us to assign aircraft to whomsoever we chose. Deccan had agreed to take the downside if it came to the crunch, arguing that Deccan had the right to benefit from the upside too. Airbus eventually agreed. This piece of wizardry was acknowledged: Deccan and Investec were chosen for Euromoney’s Most Innovative Financial Deal of the Year Award that year. Euromoney is a well-known publisher and events organizer related to aviation finance.
Mohan Kumar’s ingenuity flowed on. He next came up with the idea of e-Coupons for frequent travellers. Deccan sold these e-Coupons for an advance payment of one lakh rupees on the Airbus sector and 50,000 rupees on the ATR sector. The subscriber to these e-Coupons would get thirty-five tickets which he or she could use for one year, at one e-Coupon exchanged for a one way journey. Many passengers travelling regularly on long-distance flights subscribed to these tickets. We made these coupons blackmarket-proof by requiring that those who bought them would have to list the names of the people who would use them in the course of the year. Deccan checked passengers by their ID cards so no impostor could use them and no agent could misuse them. E-Coupons brought the airline committed, sums of money in advance and ensured higher occupancy. It was hugely popular with the frequent flyers.
Each time a new process of transaction was added, the software had to be tweaked too. The software was tinkered to allow e-Coupon transactions to take place outside the dynamic pricing loop. Each transaction was noted and the next time the subscriber booked a ticket, the system discounted the previous instance of use. This worked smoothly.
Deccan’s Rupee 1 and Rupee 500—book early pay less philosophy filled the planes and brought in large cash-flows. The tickets were valid for purchase three months ahead of travel. The tech savvy, among others, managed to get the best deals. On the day that rupee and other early-bird offers were announced, there was such a rush on our IT system that it slowed down. The techies worked in the 24-hour cycle and often booked it at the dot of midnight and were, therefore, the first to register for the tickets. There was a fair degree of suspicion in the public mind that perhaps our one-rupee tickets were a sham. Nobody had met those who bought such tickets and travelled. We gave journalists names and contact details of these. Journalists got in touch with the passengers to ensure we weren’t lying. It actually happened that these one-rupee fliers were people with an address: a software engineer from Infosys or a retired government official. The word spread and it proved to be a really worthwhile strategy that drew more people to us.
Whenever I travelled I made it a point to ask the air-hostess to announce that I was on board and that I would go around meeting passengers. I was interested in first time travellers and those who held one-rupee and 500rupee tickets. I told the air-hostess to hand them the public address system and ask them to say a few words about where and how they had got the tickets. There was one man who was travelling to Jammu with his wife. He came on the address system and said that earlier he used to go on a trip with his wife by Rajdhani Express once a month; he now travelled by air on Air Deccan. He continued to talk, and caused much merriment. People clapped and cheered him while his shy wife shrank into the depths of her seat and covered her face with her pallu to avoid the gaze of the amused passengers.
Among the people who called and gave me valuable, and encouraging, feedback was C.K. Prahalad. When my secretary got me on the phone I did not know it was the C.K. Prahalad, one of the most internationally respected management visionaries. He said, ‘Captain Gopi, I am calling from Delhi airport. I am boarding a flight to Jaipur. Right in front are three lambani tribal women who are about to board with all their gypsy belongings. I wanted to congratulate you. You have really made the common people fly. Hats off to you! I am coming to Bengaluru next week. I have a few things to discuss. Could I come over and meet you?’
He came over the following week and we had dinner together. Prahalad has an arresting way of speaking. He can make very complex concepts seem simple. On the other hand, if you explain to him the way you are doing something, he quickly draws a pattern out of it and enunciates a little law that has a much wider appeal than that, its specific use enunciated. He is a true model builder; a theory builder, a perceptive thinker and has a very mesmeric presence. We spent about three–four hours together.
Prahalad said he had just published a book, Fortune at the Bottom of the Pyramid. It warns us not to treat people who are economically disadvantaged as poor people but rather as customers. It is they who sustain the pyramid of fortune at the top. He also said he was spearheading a seminar at the Infosys campus, and wanted me to address it, to which I readily agreed. There was another project on hand. He had been commissioned to make a half-hour documentary on thirty entrepreneurs around the world who had changed businesses by including the bottom of the pyramid. I was one of the thirty and he wanted to make a film on Deccan and me.
The Air Deccan website became the largest commercial one in India. Our revenue rose steadily initially and then suddenly surged. By the end of three years we were garnering $1.5 million to $2 million a day. This cash-flow kept the company going, but after a year and a half, certain events occurred that began to trouble the company.
The Challenges
Growth brought me a fan following. People thronged dinners, talks, and events I attended and said they admired the company. Village elders showered their blessings on me.
However, amidst all this admiration, as time passed, people began approaching me and very gently and hesitantly, began complaining about frequent delays. I was extremely embarrassed by such negative feedback. I immediately sought explanations and dealt toughly with the issue. People had missed a wedding, got late for an exam, cancelled a meeting. It was a nightmare and gave Deccan a bad name. Journalists were among my frequent fliers, many of whom had never flown earlier but were now flying regularly. There was always one on board a Deccan flight. Each time a flight got delayed a reporter was at hand to relay bad coverage.
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