1. Air India’s operating profit was a loss: CAG

Air India’s operating profit was a loss: CAG

Air India, which is surviving on a government bailout package of over R30,000 crore, had last year announced that it has posted an operating profit of R105 crore in FY16 after over a decade, showing it was on course to becoming a profitable organisation.

By: | New Delhi | Published: March 11, 2017 5:16 AM
“Air India did not make the required provision during the last financial year and this has resulted in under-reporting of its losses,” said Pradeep Rao, deputy CAG. (Reuters)

Puncturing the government’s narrative that state-owned carrier Air India was moving towards profitability, the Comptroller and Auditor General (CAG) on Friday said that the R105-crore operating profit posted by the airline in FY16 was actually an operating loss of R321.4 crore. While making it clear there was no number fudging, CAG officials said figures reported by the airline are “actually under-reporting of loss”. Air India should have made provisions for depreciation and service taxes that according to CAG came to R420 crore. “Air India did not make the required provision during the last financial year and this has resulted in under-reporting of its losses,” said Pradeep Rao, deputy CAG.

Air India, which is surviving on a government bailout package of over R30,000 crore, had last year announced that it has posted an operating profit of R105 crore in FY16 after over a decade, showing it was on course to becoming a profitable organisation. However, in the two quarters of the current fiscal, it once again missed its targets and posted operating losses. For instance, in the first quarter of the current fiscal it posted an operating loss of R246 crore and in Q2 of R461 crore.

“For 2015-16, where Air India has reported an operating profit of approximately R105 crore, the audit of Air India’s standalone accounts for 2015-16 has been completed,” Rao said. Based on the observations from the company’s statutory auditor and subsequent CAG check, “We have found they have not made provisions which they should have made in terms of standard accounting procedures,” he added.

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Rao spoke about Air India’s financial performance during the 2015-16 fiscal while briefing reporters about the CAG’s performance audit on ‘Turnaround Plan (TAP) and Financial Restructuring Plan (FRP) of Air India’. The performance audit report, which covered the period from 2010-11 to 2015-16, was tabled in Parliament on Friday.
VK Kurien, director general at CAG, said there was an under-reporting of loss by Air India in the last fiscal. “Since we have separately completed the audit of AI’s standalone financial statement for 2015-16, this Rs 105 crore (of operating profit) does not represent the actual…,” he said.

The CAG report said that Air India understated its losses by Rs 1,455.8 crore in FY13 by Rs 2,966 in FY14 and by Rs 1,992.77 crore in FY15. The report also took note of the lower price that Air India received when it sold five Boeing 777 aircraft to Etihad Airways compared with a market price in the range of $86-92 million. According to the auditor, the airline made a book loss of Rs 671.07 crore as result and paid Rs 324.67 crore towards interest on loans availed for the procurement of the same wide-body aircraft. According to a statement by minister of state for ministry of civil aviation Jayant Sinha in Parliament recently, Air India is expected to increase its revenue by 9% at the end of the current financial year to Rs 22,521 crore.

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