Air India profit claim wrong, lost over Rs 6,000 crore in 3 years: CAG report | india-news | Hindustan Times
Today in New Delhi, India
Mar 30, 2017-Thursday
-°C
New Delhi
  • Humidity
    -
  • Wind
    -

Air India profit claim wrong, lost over Rs 6,000 crore in 3 years: CAG report

india Updated: Mar 11, 2017 07:37 IST
Mahua Venkatesh
Air India

An Air India plane at the Chandigarh airport, January 16, 2017. (Keshav Singh / HT Photo )

National carrier Air India incurred a loss of Rs 321 crore in 2015-16 instead of an operating profit of Rs 105 crore that the airline declared last October, officials with the comptroller and auditor general (CAG) said on Friday.

Also, a CAG report tabled in Parliament says the carrier understated losses to the tune of Rs 6,415 crore in three years from 2012.

The heavily-indebted airline had announced for the first time in a decade an operating profit, which entails earnings before interest payouts and taxes.

“The airline on a standalone basis made an operating loss of Rs 321.4 crore ... We won’t say this was due to misreporting but this was due to non-provisioning,” said V Kurian, director general at the auditor’s office.

Another CAG official, highlighting the state-run carrier’s financial distress, said Air India didn’t make provisions in its balance sheet for expenditures such as depreciation and maintenance.

The airline didn’t respond when its comments were sought.

Kurian said the airline made inadequate provisions for payment of various liabilities, including outstanding amounts to the Airports Authority of India and payment to employees for encashing leave, and had also made excess valuation of a company property in Delhi.

The report says Air India didn’t heed the advice of a government-appointed committee, formed to restructure the airline’s expenses. The panel had recommended that the carrier could cut costs by accommodating its pilots and crew in lower-range lodgings near airports, instead of five-star hotels.

“Audit, however, noticed that the company continued to accommodate its crew in five-star hotels. For Delhi station alone, the company incurred an expenditure of Rs 119 crore for hotel accommodation of its crew in five-star hotels from 2012 to 2016,” the CAG report says.

The auditor mentioned the heavy loss the carrier incurred when it sold five of its wide-body Boeing 777-200 long-range aircraft to Etihad Airways at a significantly lower price than the “indicative” market value in 2013.

The planes were sold for $336.5 million, with each accounting for $67.3 million. Two companies — Avitas and Ascent — were apparently paying $86 and $92 million for each aircraft. But Air India sold the planes to Etihad after it found no buyers at the market value, the report says.

The carrier reasoned that the planes were sold to save interest payments and to avoid maintenance costs.

The auditor was not convinced. “While audit appreciates the savings realized in maintenance cost and interest payments, such savings cannot justify the shortcomings of the sale process.”

The CAG suggested the airline should monetise more of its assets faster to reduce its debt burden and speed up the leasing of narrow-body aircraft to improve its performance.

The auditor said inordinate delay in replacing its vintage fleet of A320 aircraft has defeated the objective of reducing maintenance costs.

The government is expected to use the CAG report to evaluate the progress of Air India’s restructuring, after it was bailed out in 2012 with $5.8 billion of taxpayer’s money. The amount of bailout funds given to the airline could be reassessed as it has breached loan limits set under the restructuring plan.

The increase in loans was “due to failure in generating projected revenue, mainly on account of non-achievement of asset-monetisation target, increase in staff costs”, the report says.

(With agency inputs)