Kingfisher Airlines

1.  We have audited the attached Balance Sheet of Kingfisher Airlines
 Limited (formerly known as Deccan Aviation Limited) (the Company) as
 at March 31, 2009, the Profit and Loss Account and the Cash Flow
 Statement for the year ended on that date, annexed thereto. These
 financial statements a re the responsibility of the Companys
 management. Our responsibility is to express an opinion on these
 financial statements based on our audit.
 
 2.  We conducted our audit in accordance with auditing standards
 generally accepted in India. Those standards require that we plan and
 perform the audit to obtain reasonable assurance about whether the
 financial statements are free of material misstatement. An audit
 includes examining, on a test basis, evidence supporting the amounts
 and disclosures in the financial statements. An audit also includes
 assessing the accounting principles used and significant estimates made
 by management, as well as evaluating the overall financial statement
 presentation. We believe that our audit provides a reasonable basis for
 our opinion.
 
 3.  As required by the Companies (Auditors Report) Order, 2003 issued
 by the Central Government of India in terms of sub-section (4A) of
 section 227 of the Companies Act, 1956 (the Act), as amended by the
 Companies (Auditors Report) (Amendment) Order, 2004 (herein after
 collectively referred to as the Order) we enclose in the annexure a
 statement on matters specified in paragraphs 4 and 5 of the Order.
 
 4.  The working results for the nine months ended March 31, 2008 was
 after charging off sums of Rs. 28,270,478 and Rs. 2,628,571 towards
 amortization of training and preoperative expenses respectively based
 on the Companys accounting policy of amortizing the said expenditure
 over a period of 3 years. We are of the opinion that such accounting
 treatment is not in accordance with (AS) 26 on Intangible Assets
 issued by the Institute of Chartered Accountants of India and such
 expenses were required to be written off to the profit and loss account
 as and when incurred. However, this has no impact on the current years
 Profit and Loss Account.
 
 5.  Other Income for the fifteen months ended June 30, 2006 included a
 sum of Rs. 267,220,000 towards certain subsidy provided to the Company
 by one of its suppliers in conjunction with lease of air crafts on
 operating lease basis. The previous auditors had reported that they
 were of the opinion that such accounting treatment was not in
 accordance with Accounting Standard 19 on Leases and the subsidy
 should be recorded on a straight-line basis over the period of the
 lease. Their audit report on the financial statements for the fifteen
 months ended June 30, 2006 was modified in this matter. We concur with
 the views of the said auditors in principle that such subsidy should be
 recognized on a systematic basis in the Profit and Loss Account over
 the periods necessary to match them with the related costs, which they
 are intended to compensate although the matter does not appear to be
 covered explicitly by the said AS 19.
 
 6.  The Company novated its rights in certain aircrafts purchase
 agreements during the year in favor of certain lessors and took such
 aircrafts back on operating lease from the same persons. The Company
 incurred a loss of Rs. 1,362,960,844 on such novation (including
 interest on loans borrowed for making pre-delivery payments to aircraft
 manufacturers of Rs. 530,533,750).  In the absence of an independent
 valuation report, we have relied on the representations of the
 management that the hovation was not established at fair value, the
 fair value of the aircrafts is at least equal to or more than the cost
 of acquisition and the preconditions specified in AS 19 for deferring
 the said loss are satisfied. We do not express any independent opinion
 in the matter.
 
 7.  We further report that, except for the effect, if any, of the
 matters stated in paragraphs 6 above and 13(a) below and note 31 of
 Schedule 19, whose effect are not ascertainable, had the observations
 made in paragraphs 4 & 5 above been considered, the loss after tax for
 the year ended March 31, 2009 would have been Rs. 16,040,796,016 (March
 31, 2008-Rs. 1,814,834,524) as against the reported loss of Rs.
 16,088,299,349 (March 31, 2008 - Rs. 1,881,361,073), the debit balance
 in profit and loss account as at March 31, 2009 would have been Rs.
 25,886,490,461 (March 31, 2008 - Rs. 9,845,694,445) as against the
 reported figure of Rs. 25,765,856,572 (March 31, 2008 - Rs.
 9,677,557,223) and other liabilities would have been Rs. 3,597,561,827
 (March 31, 2008 - Rs. 680,362,049) as against the reported figure of
 Rs. 3,476,927,938 (March 31, 2008 - Rs. 512,224,827).
 
 8.  As a result of the changes in the methods of accounting referred to
 in notes 34 to 36 of schedule 19, the loss for the year before tax
 expense, loss for the year after tax expense and debit balance in
 Profit and Loss Account as at March 31, 2009 stand reduced by Rs.
 12,607,833,100, Rs. 11,432,697,935 and Rs. 11,432,697,935 respectively.
 
 9.  Without qualifying our opinion, attention of the members is invited
 to note 30 of schedule 19, regarding the reasons for preparing the
 financial statements of the Company on a going concern basis,
 notwithstanding the fact that its net worth is completely eroded.
 
 Further to our comments in the annexure referred to above, we report
 that:
 
 10.  We have obtained all the information and explanations, which to
 the best of our knowledge and belief were necessary for the purpose of
 our audit.
 
 11.  In our opinion, the Company has kept proper books of account as
 required by Law so far as appears from our examination of those books.
 
 12.  The Balance Sheet, Profit and Loss Account and Cash Flow Statement
 dealt with by this report are in agreement with the books of account.
 
 13.  (a) Attention of the members is invited to note 19 of schedule 19
 regarding recognition of deferred tax credit during the year
 aggregating to Rs. 5,588,761,517 (period ended March 31, 2008 Rs.
 4,984,997,384) (Total amount recognized up to March 31, 2009 Rs.
 16,697,320,245) by virtue of which its loss for the year and debit
 balance in Profit and Loss Account each stand reduced by Rs.
 5,588,761,517 (Period ended March 31, 2008 Rs. 4,984,997,384) and Rs.
 16,697,320,245 (As at March 31, 2008 Rs. 4,984,997,384) respectively.
 In view of explanation 1 to clause 17 of Accounting Standard 22, we
 cannot express any independent opinion in the matter.
 
 (b) In our opinion, subject to the effect of the matters stated in
 paras 4 to 6 and 13(a) above, the Balance Sheet, Profit & Loss Account
 and Cash Flow Statement dealt with by this report comply in all
 material respects, with the mandatory Accounting Standards referred to
 in sub-section (3C) of section 211 of the Act.
 
 14.  On the basis of written representations received from Directors as
 on March 31, 2009 and taken on record by the Board of Directors, we
 report that none of the Directors of the Company, are disqualified as
 on that date from being appointed as a director, under clause (g) of
 sub-section (1) of section 274 of the Act.
 
 15.  In our opinion and to the best of our knowledge and according to
 the information and explanations given to us, the said accounts subject
 to note 26 of schedule 19 and read with other notes on accounts, give
 the information required by the Act in the manner so required and
 subject to the effect of the matters stated in paras 4 to 7 & 13(a)
 above, our observations in para 4 of the annexure and note 31 of
 schedule 19 regarding the basis of estimation of unflown revenue as at
 March 31, 2009 (effect thereof on revenue not ascertainable) give a
 true and fair view in conformity with the accounting principles
 generally accepted in India
 
 i.  In the case of the Balance Sheet, of the state of affairs of the
 Company as at March 31, 2009;
 
 ii.  In the case of Profit and Loss account, of the loss for the year
 ended on that date; and
 
 iii.  In the case of Cash Flow statement, of the cash flows for the
 year ended on that date.
 
 
 Annexure to the Auditors Report
 
 (AS REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE TO THE
 MEMBERS OF KINGFISHER AIRLINES LIMITED (FORMERLY KNOWN AS DECCAN
 AVIATION LIMITED)
 
 1.  a. The Company has maintained proper records showing full
 particulars including quantitative details and situation of fixed
 assets.
 
 b.  A portion of the fixed assets have been physically verified by the
 management during the year. We understand that no material
 discrepancies were noticed on such verification. We understand that a
 comprehensive verification of all fixed assets and incorporation of
 comprehensive description of assets and current location in the asset
 records is proposed to be carried out in the current year.
 
 c.  There was no substantial disposal of fixed assets during the year.
 
 2.  a. Management has conducted physical verification of inventory at
 reasonable intervals during the year.
 
 b.  The procedures of physical verification of inventories followed by
 the management are reasonable and adequate in relation to the size of
 the Company and the nature of its business.
 
 c.  No material discrepancies were noticed on physical verification.
 
 3.  a. As informed, the Company has not granted any loans, secured or
 unsecured to companies, firms or other parties covered in the register
 maintained under section 301 of the Act.
 
 b. As informed, the Company has taken loans from a company covered in
 the register maintained under section 301 of the Act. The total amount
 outstanding as at year end was Rs. 976,100,000 and the maximum amount
 outstanding at any time during the year was Rs. 976,100,000. The rate
 of interest and the terms and conditions on which the said loans are
 taken is not prima-facie prejudicial to the interests of the Company.
 No stipulations for repayment have been prescribed and as such no
 comments regarding regularity of payments are being made. Interest
 aggregating to Rs. 133,469,737 was payable as on March 31, 2009.
 
 4.  In our opinion and according to the information and explanation
 given to us, and taking into consideration managements representation
 that a large number of items are of a special nature for which
 alternative quotations cannot be obtained, there are adequate internal
 control procedures commensurate with the size of the Company and the
 nature of its business for the purchases of inventory and fixed assets.
 However, internal control procedures in respect of sale of services
 (refer notes 31 to 33 of schedule 19) need to be strengthened to make
 the same commensurate with its size and the nature of its business and
 for the sale of services. During the course of our audit, no continuing
 failure to correct major weakness in internal controls has been
 noticed.
 
 5.  a. According to the information and explanations given to us, we
 are of the opinion that transactions that need to be entered into the
 register maintained under section 301 of the Companies Act, 1956 have
 been so entered.
 
 b. Further, contracts or arrangements referred to in section 301 of the
 Act and aggregating to Rs.  500,000 or more per party have been entered
 into at prices which are reasonable as compared to similar services
 rendered to other parties except in respect of advertisement and sales
 promotional expenses of Rs.29,760,481 where we are unable to make any
 comments on reasonability of rates since there were no similar
 transactions with third parties at the relevant time.
 
 6.  The Company has not accepted any deposits from the public.
 
 7.  The Company has an internal audit system commensurate with the size
 and nature of its business.
 
 8.  To the best of our knowledge and as explained, the Central
 Government has not prescribed the maintenance of cost records under
 section 209(1) (d) of the Act for the products of the Company.
 
 9.  a. Undisputed statutory dues in respect of service tax,
 
 withholding taxes, provident fund, fringe benefit tax and employees
 state insurance dues have not been regularly deposited with the
 appropriate authorities.  Undisputed statutory dues in respect of
 investor education and protection fund, customs, excise duty, cess and
 wealth tax as applicable, have generally been regularly deposited with
 the appropriate authorities. Since to the best of our knowledge, the
 Central Government has till date not prescribed the amount of cess
 payable under section 441A of the Act, no comments in this respect have
 been made.
 
 b. According to the information and explanations given to us :-
 
 (i) No amounts were outstanding as at year end on account of undisputed
 amounts payable in respect of provident fund, employees state
 insurance, investor protection and promotion fund, wealth tax, sales
 tax, customs duty, excise duty, and cess for a period of more than six
 months from the date they became payable.
 
 (ii) Undisputed amounts payable in respect of tax deducted at source of
 Rs. 1,113,000,831, service tax of Rs. 28,064,601, professional tax of
 Rs. 222,868 (in all cases relating to the years 2007-08 and 2008-09)
 and fringe benefit tax of Rs. 52,616,277 (first and second installments
 of advance tax payable for the year 2008-09) were outstanding for a
 period of more than six months from the date they became payable
 (excluding applicable interest). The due dates for these amounts are as
 per respective statutes.
 
 c. According to the information and explanations given to us, dues
 aggregating to Rs. 272,155,247 (relating to assessment years 2007 -
 2008 and 2008 - 2009) had not been deposited as at March 31, 2009 (on
 account of withholding tax under the Income Tax Act, 1961) on account
 of disputes. Appeals are pending before the Commissioner of Income Tax
 (Appeals).
 
 10.  The Companys accumulated losses at the end of the financial year
 were more than fifty percent of its net worth. The Company has incurred
 cash losses during the financial year and in the immediately preceding
 financial period.
 
 11.  Based on our audit procedures and as per the information and
 explanations given by the management, the Company has defaulted in
 repayment of loans and interest to banks and financial institutions.
 Delays ranging up to 61 days (in payment of overdue installment) and up
 to 84 days (in payment of overdue interest) were noticed in several
 months. The unpaid overdue installments and interest to banks as at
 March 31, 2009 was Rs. 270,330,602 and Rs. 219,036,316 respectively.
 The unpaid overdue interest to financial institutions as at March 31,
 2009 was Rs. 4,025,178. We understand that these amounts have been paid
 after March 31, 2009. There were no dues payable to the debenture
 holders.
 
 12.  According to the information and explanations given to us and
 based on the documents and records produced to us, the Company has not
 granted loans and advances on the basis of security by way of pledge of
 shares, debentures and other securities. Accordingly, the provisions of
 the clause 4(xii) of the Order are not applicable to the Company.
 
 13.  In our opinion, the Company is not a chit fund or a nidhi, mutual
 benefit fund / society. Accordingly, the provisions of the clause
 4(xiii) of the Order are not applicable to the Company.
 
 14.  In our opinion the Company is not dealing in or trading in shares,
 securities, debentures and other investments.  Accordingly, the
 provisions of clause 4(xiv) of the Order are not applicable to the
 Company.
 
 15.  According to the information and explanations given to us, the
 Company has not given guarantees during the year for loans taken by
 others from banks or financial institutions. Accordingly, the
 provisions of clause 4(xv) of the Order are not applicable to the
 Company.
 
 16.  Based on information and explanations given to us by the
 management, term loans taken during the year have been applied for the
 purpose for which they were obtained.
 
 17.  According to the information and explanations given to us and on
 an overall examination of the balance sheet of the company, we report
 that funds raised on short- term basis (including increase in current
 liabilities as at March 31, 2009 as compared to March 31, 2008) to an
 aggregate extent of Rs. 46,302,002,577 have been used for long term
 investment as at March 31, 2009.
 
 18.  The Company has not made any preferential allotment of shares to
 parties or companies covered in the register maintained under section
 301 of the Act. Accordingly, the provisions of clause 4(xviii) of the
 Order are not applicable to the Company.
 
 19.  There were no debentures outstanding at any time during the year.
 Accordingly, the provisions of clause 4(xix) of the Order are not
 applicable to the Company.
 
 20.  We have verified the end use of money raised by public issue
 during the period ended June 30, 2006 and incurred during the current
 year and the same has been disclosed in the notes to the financial
 statements (Refer note 5 of schedule 19).
 
 21.  As per the information and explanations furnished to us by the
 management, no material frauds on or by the Company and causing
 material misstatements to financial statements have been noticed or
 reported during the course of our audit, except for charge backs
 received by the Company aggregating to Rs. 437,328,467 from credit card
 service providers due to misutilisation of credit cards by third
 parties (Refer Note 33 of schedule 19).
 
 
 
                                          For B. K. RAMADHYANI & CO.
                                               Chartered Accountants
 Bangalore                                 (R. Satyanarayana Murthi)
 July 28, 2009                                              Partner
                                                Membership No. 24248
                                               B. K. Ramadhyani & Co.
                                               Chartered Accountants
 
 4B, Chitrapur Bhavan
 No. 68, 8th Main, 15th Cross
 Malleswaram
 Bangalore-560 055