‘AI made operational loss, not profit’

National carrier had significantly understated losses in the previous few years, says CAG

Planes fly past a Boeing Co. 787 Dreamliner aircraft, operated by Air India Ltd., on display during the India Aviation 2014 air show held at the Begumpet Airport in Hyderabad, India, on Wednesday, March 13, 2014. The air show takes place from March 12-16. Photographer: Dhiraj Singh/Bloomberg

The Comptroller and Auditor General (CAG) on Friday dismissed Air India’s claims of recording operational profits for the first time in a decade in 2015-16.

The auditor observed that the national carrier had significantly understated its losses in the previous few years.

While Air India reported an operational profit of ₹105 crore in 2015-16, the CAG said the airline’s standalone operational loss stood at ₹321.40 crore, instead.

Provisions ignored

“Air India said that they had made an operational profit last year,” H. Pradeep Rao, Deputy Comptroller and Auditor General told reporters here. “But based on observations made by statutory auditors and subsequent checks conducted by us, they (Air India) have not made certain provisions which they should have made based on standard accounting procedures that resulted in under-reporting of losses.”

Air India also made “understatement of losses” to the tune of ₹1,455 crore in 2012-13, ₹2,966 crore in 2013-14 and ₹1,992 crore in 2014-15, CAG said in its audit report on Turnaround Plan and Financial Restructuring Plan of loss-making national carrier Air India.

During his Independence Day speech last year, Prime Minister Narendra Modi had said that Air India had “succeeded” in turning around the operations of the “notorious” national carrier into an “operational profit-making” company in the last year.

Air India is surviving on a bailout package approved by the Union government in 2011.

According to the turnaround plan, the Centre has to infuse equity of ₹42,182 crore in the national carrier till 2031-32. However, the CAG recommended reducing the equity infusion to Air India since the airline reduced its aircraft loans through sale of aircraft.

“As the equity committed by Government was specific to repayment of GoI guaranteed aircraft loans, future equity releases need to be adjusted for the reduction in the loan component arising out of sale of five aircraft and consequent repayment of loan pertaining to them,” according to the CAG report.

The Civil Aviation Ministry has agreed to taper the equity sum in the coming years, the report noted.

The CAG noted that the airline failed to generate revenues as per its turnaround plan and also couldn’t achieve other targets related to monetisation, staff costs, aircraft maintenance and interest charges. The airline also fell short in maintaining its operational performance targets in terms of on-time performance, passenger load factor and network yields, the CAG observed.

The CAG report also said that Air India sold five Boeing 777-200 Long Range aircraft to Etihad Airways “at a price significantly lower than the indicative market price of $86 to $92 million per aircraft.”

Further, Air India received $328 million for compensation for delay in induction of the Boeing 787-800 aircraft although it had lodged an initial claim of $710 million against Boeing.