Logistics

Air India understated losses significantly, says CAG

Our Bureau New Delhi | Updated on January 13, 2018 Published on March 10, 2017

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Made inadequate provisions for payment of various liabilities

Air India reported an operating loss of ₹321 crore during fiscal 2016, the Comptroller and Auditor General (CAG) of India, the government auditor said on Friday.

Air India said it had made an operating profit of ₹105 crore during fiscal 2016.

“While Air India has said that it has reported an operating profit in fiscal 2016, based on observation of statutory auditors and subsequently by the CAG the airline has not made provisions, it should have as per the standard accounting procedures resulting in under reporting of the loss,” said H Pradeep Rao, Deputy CAG, at a media interaction, after its report ‘Turnaround plan and financial restructuring plan of Air India Ltd’ was tabled in Parliament.

The CAG official added that the airline had inadequate provisions for payment of various liabilities including outstanding to the Airports Authority of India, payment of liability to employees en-cashing leave and had also made excess valuation of one of the two properties that it has in Delhi.

Rework funding plans

Further, CAG has recommended that considering the erosion of the benefits of financial restructuring due to the high volume of short-term loans, the value of which was nearly four times the cash credit laid down in the turnaround plan, the “Company and Ministry may need to reassess the requirement of funds envisaged in the plan.”

It has also called for the fast tracking of monetisation of assets apart from expediting the process of speeding up the leasing of additional Airbus A-320 aircraft.

CAG also recommended that considering the significant equity funds committed by the government to the airline, a decision regarding grant of additional bilateral rights to foreign carriers should take into consideration their impact on Air India.

The CAG report says that though Air India Ltd reported a positive Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) ₹166 crore during April-December 2014 from a negative ₹191 crore during the period April-December 2013, both the statutory auditors and CAG have expressed “qualified opinion” on Air India Ltd accounts for the three year period 2012-13 to 2014-15 pointing out significant understatement of losses in the financial statements presented by the company.

“The understatement of losses were ₹1,455.8 crore (2012-13), ₹2,966.66 crore (2013-14) and ₹1,992.77 crore (2014-15). Considering the effect of these qualifications on the financial statement, the EBITDA would be negative up to March 2015,” the report states.

The report adds that Air India incurred a book loss of ₹671.07 crore and payment of ₹324.67 crore on the sale of five Boeing 777-200 Long Range aircraft and payment of ₹324.67 crore towards interest on loans availed for procurement of these aircraft, the report points out. Besides, Air India received only $328 million for compensation from Boeing for delay in induction of the Boeing 787-800 aircraft although it had lodged an initial claim of $710 million.

An analysis of the routes operated by the airline shows that only 17 of its services (7 international and 10 domestic) recovered total costs in 2015-16 while 36 services including 5 international and 31 domestic did not recover the variable costs during the year though they met ATF costs.

Published on March 10, 2017
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