Air India looks to financial rejig to turn profitable

By: and |
Mumbai | Published: April 7, 2015 1:44:43 AM

With accumulated losses of close to Rs 31,000 crore, Air India is looking to its rejig its balance sheet so as to be able to report...

Air India, air india flight, emergency landing, Newark Liberty International AirportThough the airline is expected to report reasonably good revenues of around R21,290 crore for FY15, losses are estimated as R4,346 crore as a big chunk of revenues of will be eaten up by interest costs on outstanding borrowings of close to Rs 40,000 crore. (Reuters)

With accumulated losses of close to R31,000 crore, Air India is looking to its rejig its balance sheet so as to be able to report a profit. The national carrier wants to treat a part of the government’s equity infusion as a grant or income so as to prop up the bottom line. A proposal to this effect has been forwarded by the civil aviation ministry to the finance ministry and if accepted, the carrier hopes to report a profit in 2017-18, the first time in a decade.

Though the airline is expected to report reasonably good revenues of around R21,290 crore for FY15, losses are estimated as R4,346 crore as a big chunk of revenues of will be eaten up by interest costs on outstanding borrowings of close to R40,000 crore.

The interest is funded by the government, which subscribes to the carrier’s equity capital; the airline wants this amount to be reflected as income. “The R4,300 crore of equity has been used to fund the interest cost so the correct way to account for this is to treat this as income although over the last three years it has been treated as capital in the balance sheet,” an Air India executive observed.

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Executives explained that according to Accounting Standard 12, grants could be accounted for via the ‘capital approach’, by which it is treated as part of shareholders’ funds, or the ‘income approach’, in which case the grant is taken to income over one or more periods. Analysts agree that a ‘profitable airline’ might find it easier to raise loans to fund its expansion plans.

The airline, which is required to fulfil key operational and financial targets to be eligible for the cash infusion — R30,000 crore across 10 years — has already received close to R18,000 crore. The turnaround plan was approved in 2012.

The airline, which was expected to post an operational loss of R1,235 crore during FY15, had operational losses to the tune of R1,700 crore in the first nine months of FY15.

In the nine months to December 2014, Air India’s total revenues were R16,000 crore while operating expenses were R16,700 crore and net losses R3,600 crore. According to the airline’s budget estimates for FY15, Air India is expected to post a net loss of R4,346 crore, on the back of total revenues of R21,290 crore and operating expenses of R22,525 crore.

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