No Operating Profit In FY16, Air India Under-Reporting Losses For Years, Says C&AG

Air India’s operating profit, which it said was achieved for the first time in a decade last fiscal, is a figment of the airline’s imagination. The Comptroller & Auditor General (C&AG) has said the airline has been under-reporting its losses, neglecting to make provisions for routine stuff like outstandings to airport operators, and has been filling in excess valuation for some of its properties like the one at Baba Kharak Singh Marg in New Delhi. So, in 2015-16, when Air India was being hailed for its maiden operating profit of Rs 105 crore, the C&AG found that it actually made an operating loss of Rs 321 crore! Not only C&AG, the same observations have been apparently made by the airline’s statutory auditors, said senior C&AG officials.

If this is the case, why did no one in the Ministry of Civil Aviation – which has two member representatives on the airline’s board of directors – take up this matter? Remember, the government is the sole owner of this airline, and its annual statements are placed in Parliament.

What is even more disturbing is that under-reporting is not confined to Financial Year 2016. The C&AG has said “understatement of losses” was Rs 1,455.8 crore for 2012-13, Rs 2,966.66 crore for 2013-14 and 1,992.77 crore for 2014-15. This means it understated losses by a whopping Rs 6,415.23 crore for the three years between 2012 and 2015. Add to that about Rs 426 crore of losses the airline under-reported in 2015-16, and the total figure comes to about Rs 6,841 crore.

“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,” H Pradeep Rao, Deputy CAG, said at a media interaction today (10 March). The press conference had been called after the report on ‘Turnaround Plan and Financial Restructuring Plan of Air India Limited’ was tabled in Parliament earlier in the day.

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

Loans take away bailout benefit

The government approved a bailout package for Air India in 2012 which comprised Rs 42,182 crore equity infusion till 2031-32. But the airline’s short-term loans kept rising to more than four times the limits laid down in a turnaround plan due to “failure in generating projected revenue, mainly on account of non-achievement of asset-monetisation target, increase in staff costs,” the C&AG said in its report. It has said that Air India failed to meet its cash-credit limits, leading to an increase in short-term loans to Rs 14,551 crore as on 31 March 2016, against the target of Rs 3,645.9 crore. This has led the C&AG to recommend that “the company and the ministry (Of civil aviation) may need to reassess the requirement of funds envisaged in the turnaround plan.” Remember, until March last year, the government has already released Rs 22,280 crore equity to Air India.

Loss-making routes

The C&AG has said only 17 services (seven international and 10 domestic) recovered total costs in 2015-16, while 36 services, including five international and 31 domestic, did not recover even the variable costs during the year, though they met ATF costs. Another 169 services (56 international and 113 domestic) did not recover total costs, though they recovered variable costs. It is no secret that Air India’s international operations are bleeding it dry, more than its domestic flights. The deficit on international operations was a whopping Rs 3,755 crore last fiscal – or over Rs 10 crore a day! Though it is lower than the previous two fiscal years, it compares poorly with the Rs 1,759 crore deficit logged in by Air India’s domestic operations.

Dreamliner woes

The C&AG has said in its report that Air India received only $328 million in compensation from Boeing & Co for the delay in induction of the Boeing 787-800 Dreamliner aircraft, although it had lodged an initial claim of $710 million. That’s less than half of what the airline had claimed on account of losses incurred due to delayed aircraft deliveries. Boeing had delayed delivery of these aircraft by over two years.

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