The Directors present the 17th Annual Report along with the Audited
Accounts of your Company for the year ended March 31, 2012.
Your Company''s operations during the year ended March 31, 2012 have
(Rs. in million)
Year ended Year ended
31, 2012 31, 2011
Gross Income 58,239.08 64,955.62
Earnings before financial 1,222.08 11,084.37
charges, lease rentals,
depreciation & amortization
and taxes (EBITDAR)
Depreciation & Amortization 3,418.66 2,410.38
Lease Rentals 8,684.52 9,839.96
Financial charges 12,763.35 13,129.40
Profit / (Loss) before taxes (23,644.45) (14,295.36)
Provision for taxes 11,180.85 4,933.85
Net Profit / (Loss) from (12,463.60) (9,361.51)
ordinary activities after tax
Exceptional Item 10,816.48 912.47
Net Profit / (Loss) after tax (23,280.08) (10,273.98)
Scheduled Airline Operations
During the year under review, your Company recorded a domestic market
share of 15.6% and carried more than 10.5 million passengers across
both domestic and international sectors. Fleet size of aircraft used in
scheduled operations stood at 55 aircraft at year end. Despite
significant downsizing measures in the second half of the year, your
Company operated over 110,000 flights in the year and maintained
connectivity to key destinations in the country through the year,
including under-serviced stations such as Dharamsala, Shimla, Kulu,
Hubli and Kandla.
During the first half of the year, your Company had been able to
recover the Airbus A320 family aircraft in your Company''s fleet which
were grounded in 2010-11 due to V2500 engine related issues. This
reflected in strong operating performance for both the quarters of the
first half of 2011-12. Your Company had also made public its intent to
exit the low-cost model and to reconfigure aircraft along with a phased
transition to the Full-Service model. Your Company has been able to
partially progress on this plan.
However, given the pressure on the cost front due to unabated increase
of fuel prices, Rupee de-valuation, rising interest rate and continued
downward pressure on yields, your Company decided to downsize
operations starting November, 2011. Despite the operational downsizing,
the cash losses continued, leading to discontinuation of services from
IATA''s Billing and Settlement Plan (BSP). Despite the additional
disadvantage created, your Company designed alternate means to sell and
As a part of the overall downsizing of operations during the year under
review, your Company also temporarily shut down operations on its
international network to contain operational losses.
Your Company continues to maintain a member-elect status with the
oneworld Alliance. The 15 to 18 month complex integration process was
successfully near completion for the February 10, 2012 integration
date. However, in light of priorities centered around your Company''s
recapitalization efforts, the oneworld management team agreed with your
Company to defer the joining date - a move that would give your Company
more time to address the challenges. They agreed to work with your
Company during this phase with an aim of setting a newjoining date.
Your Company continued to focus on major cost control initiatives
during the year to reduce distribution costs, implement fuel
optimization systems and processes, improve aircraft utilization,
optimize headcount and re-negotiate general contracts in order to
enforce cost competitiveness, which is reflected in an improvement in
the non-fuel EBITDA cost index.
Your Company continued its focus on various marketing and commercial
initiatives including tie-ups with corporate houses to get premium
business and launch of the Business Mileage program targeted at Small
Medium Enterprises (SME). During the year under review, your Company
won the ''Best Indian Airline'' Award from Business Traveller Magazine -
London, ''Best Airline for Business Travel within India'' and ''Best
Airline for Leisure Travel within India'' from Conde NAST READER Travel
Awards and ''Best Loyalty Innovation'' Award in the Judge''s Choice
category at Loyalty Awards 2012 hosted by Flight Global.
In view of operating losses incurred during the year, your Directors do
not recommend payment of any dividend.
The statement of your Company''s interest in its only subsidiary, Vitae
India Spirits Limited, as at March 31, 2012, prepared in accordance
with the provisions of Section 212(3) of the Companies Act, 1956 is
attached to the Balance Sheet.
Your Company had successfully established itself as one of India''s
largest domestic carriers by passengers flown and cities served over
the last decade. Your Company has long enjoyed market leadership with a
wide network reach in India, an awarded frequent flyer program and wide
distribution. Due to the current situation, your Company is operating
as a holding pattern with limited operation, pending policy changes
which are in the offing.
The Indian airline industry is currently exposed to one of the toughest
operating environments and is expected to struggle with profitability
pressures, with one of the highest prices for Jet Fuel across the world
given tax structure, recent depreciation of the rupee, and the high
cost of borrowing. The Government of India is in the process to usher
in fiscal measures and reforms that will make the operating environment
more conducive for profitable business, viz.
- Approved direct import of jet fuel by airlines.
- Allowed External Commercial Borrowings (ECB) to the extent of USD 1
billion to be used as working capital.
- Opened the international market to private carriers by taking away
the right of first refusal from the national carrier.
- In the process of modifying the Foreign Direct Investment (FDI)
policy that will allow foreign airlines to invest in Indian carriers.
Your Company will undertake a phased and pragmatic approach to
re-induction of capacity as well as further market expansion. The focus
will be on maximizing the nascent potential of the domestic Indian
market and capitalizing on strategic international routes.
Your Company will continue to closely monitor key market trends as well
as macro-economic environment in the Country from a global perspective
linked to the recovery plan.
Optionally Convertible Debentures
Loans / Inter Corporate Deposits from certain business associates
aggregating to Rs.7,093 million were converted into 70,931,985 8%
Optionally Convertible Debentures of Rs.100/- each (OCDs) which were
convertible into equity shares within a period of 18 months from their
issue, after which they were redeemable.
During the year under review, your Company, on February 18, 2012,
allotted 79,868,051 Equity Shares of Rs. 10/- each of your Company
pursuant to the conversion of 19,975,000 OCDs of Rs 100/- each.
Subsequent upon the said allotment of equity shares as mentioned above,
United Breweries (Holdings) Limited (UBHL) along with its subsidiaries
holds 47.89% of the paid-up share capital of your Company and therefore
your Company ceases to be a subsidiary of UBHL.
Subsequent to the year under review, your Company further allotted to
the then holders of the OCDs pursuant to the exercise of the conversion
option by them:
1. 35,642,361 Equity Shares of Rs. 10/- each of your Company, pursuant
to the conversion of 8,422,290 OCDs of Rs 100/- each on April 10, 2012.
2. 62,160,364 Equity Shares of Rs. 10/- each of your Company, pursuant
to the conversion of 14,427,421 OCDs of Rs 100/- each on April 24,
3. 133,272,991 Equity Shares of Rs. 10/- each of your Company,
pursuant to the conversion of 28,107,274 OCDs of Rs 100/- each on June
As on date, all the OCDs have been converted into equity shares.
During the year under review, your Company''s Authorised Share Capital
remained unchanged at Rs. 42,500,000,000/- comprising of 1,650,000,000
Equity Shares of Rs. 10/- each and 2,600,000,000 Preference Shares of
Rs. 10/- each.
During the year under review, the Issued, Subscribed and Paid-up Share
Capital of your Company has increased from Rs. 10,508,792,230/- divided
into 497,779,223 Equity Shares of Rs. 10/- each and 553,100,000 8%
Cumulative Redeemable Preference Shares of Rs. 10/- each to Rs.
11,307,472,740/- divided into 577,647,274 Equity Shares of Rs. 10/-
each and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs.
Subsequent to the year under review, the Issued, Subscribed and Paid-up
Share Capital of your Company has increased to Rs. 13,618,229,900/-
divided into 808,722,990 Equity Shares of Rs. 10/- each and 553,100,000
8% Cumulative Redeemable Preference Shares of Rs. 10/- each.
The trading in the equity shares of your Company is under compulsory
dematerialization mode. As of date, equity shares representing 99.91%
of the equity share capital are in dematerialized form. As the
depository system offers numerous advantages, members are requested to
take advantage of the same and avail of the facility of
dematerialization of your Company''s shares.
As regards observations in para 4 of Auditors'' Report, the Statutory
Auditors have qualified their report with a remark that the receipt of
subsidy from aircraft manufacturers should be recognized as income on
an systematic basis over the period necessary to match them with
related costs which they are intended to compensate though the
accounting treatment does not appear to be covered by the Accounting
Standard (AS)-19 (Accounting for Leases) issued by the Institute of
Chartered Accountants of India. In the opinion of the Directors:
(1) The lessor of the Aircraft is a person other than the Aircraft
manufacturer and the lease contract is independent of the contract with
(2) The termination, if any, of the lease contract does not in any
event breach the conditions for the grant of subsidy by the Aircraft
(3) The subsidy value, referred to in Para 4 of the Audit Report have
been received by your Company during the 15 months period ended June
30, 2006. As per Section 28 (iv) of the Income Tax Act, 1961, and
precedents available under Income Tax laws, including pronouncements of
the Apex Court, the revenue arising out of support packages will be
treated as income for taxation purposes and therefore, it would not be
prudent for your Company to treat the said revenues differently in the
books of Accounts and for taxation purposes.
(4) In the event of non compliance of the contract with the Aircraft
manufacturer, the resultant possibility of recovery of subsidy granted
by the Aircraft manufacturer has been disclosed as contingent liability
and this accounting treatment adopted by your Company is also based on
the well established principle of differentiation of revenue receipt
and capital receipt.
In view of the above, in the opinion of your Company, the accounting
treatment of the support package received from the Aircraft
manufacturer, as Income in the year of accrual and receipt is in order.
The fair market value of these Aircraft is not easily ascertainable due
to the unique specifications of the Aircraft. Therefore, the management
has obtained the valuation report for Aircraft of similar type from a
leasing company to ascertain the fair market value which is higher than
the sale price of these Aircraft. This is also supported by the fact
that the insurance value to be covered as per respective Lease
Agreements is much more than the sale value of the Aircraft.
As regards the observations in para 5 of the Auditors'' Report, your
Company has adopted the Exposure draft on Accounting Standard - 10
(Revised) ''Tangible Fixed Assets'' which allows such costs on major
repairs and maintenance incurred to be amortized over the incremental
life of the asset. Your Company has extended the same treatment to
costs incurred on major repairs and maintenance for engines pertaining
to aircrafts acquired on Operating Lease.
As regards the observations in paras 8, 9 & 10 of the Auditors'' Report,
the note numbers 36(b), 39 & 52 to Notes to Financial Statements are
As regards the observations in the Annexure to the Auditors'' Report,
your Company has taken / is taking necessary steps to ensure
improvement in certain procedures and also compliance with relevant
Mr. A. K. Ravi Nedungadi, Director, retires by rotation and, being
eligible, offers himself for re-appointment.
During the year under review, the following Directors resigned from the
Board of Directors of your Company:
1. Diwan Arun Nanda - with effect from
September 5, 2011
2. Mr. Piyush Mankad - with effect from
January 9, 2012
3. Mr. Ghyanendra Nath Bajpai - with effect from
January 9, 2012
4. Mr. Vjay Amritraj - with effect from
March 14, 2012
5. Mr. Anil Kumar Ganguly - with effect from
March 17, 2012
Subsequent to the year under review, Mr. Manmohan Singh Kapur was
appointed as an Additional Director with effect from April 24, 2012 and
holds office up to the date of the ensuing Annual General Meeting of
your Company. Notice in writing has been received from a Member
signifying intention to propose the appointment of Mr. Manmohan Singh
Kapur as a Director of your Company at the ensuing Annual General
M/s. B. K. Ramadhyani & Co., your Company''s Auditors have confirmed
that they are eligible for re-appointment at the ensuing Annual General
Meeting and it is proposed to re-appoint them and to fix their
Listing of Shares of Your Company
All the equity shares of your Company are listed on the Bombay Stock
Exchange Limited and The National Stock Exchange of India Limited. The
listing fee for the year 2012-13 has been paid to these Stock
A report on Corporate Governance is annexed separately as part of this
Report along with a certificate of compliance from a Company Secretary
in practice. Necessary requirements of obtaining certifications/
declarations in terms of Clause 49 have been complied with.
Management Discussion and Analysis
Pursuant to Clause 49 of the Listing Agreement with the Stock
Exchanges, the Management Discussion and Analysis Report is annexed and
forms an integral part of the Annual Report.
Employee relations remained cordial. The information as are required to
be provided in terms of Section 217(2A) of the Companies Act, 1956 read
with the amended Companies (Particulars of Employees) Rules, 1975, have
been included as an annexure to this Report.
Employee Stock Option Plan (ESOP)
Your Company had approved ESOP 2011 at the last Annual General Meeting
of your Company held on September 28, 2011. As on date, your Company
has not granted any option under ESOP 2011.
Disclosures as required by Clause 12 of the SEBI (Employee Stock Option
Scheme and Employee Stock Purchase Scheme), Guidelines 1999 are annexed
to this Report.
Conservation of Energy, Research and Development, Technology
Absorption, Foreign Exchange Earnings and Outgo
The particulars as prescribed under section 217(1)(e) of the Companies
Act, 1956 and the rules framed there under are not applicable to your
The relevant information relating to Foreign Exchange Earning and Outgo
appears in the Note No. 31(a) to (e) to the Financial Statements.
Directors'' Responsibility Statement
Pursuant to Section 217(2AA) of the Companies Act, 1956, in relation to
the Financial Statements of your Company for the year ended March 31,
2012, the Board of Directors reports that:
- in the preparation of the Accounts for the year ended March 31, 2012,
the applicable accounting standards have been followed along with
proper explanation relating to material departures;
- accounting policies have been selected and applied consistently and
that the judgments and estimates made are reasonable and prudent so as
to give a true and fair view of the state of affairs of your Company as
at March 31, 2012 and of the Loss of your Company for the year ended
March 31, 2012;
- proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of your Company and
for preventing and detecting fraud and other irregularities;
- the accounts for the year ended March 31, 2012, have been prepared on
a going concern basis.
Your Directors place on record their sincere appreciation for the
continued support from shareholders, customers, the Government of India
especially the Ministry of Civil Aviation and the Directorate General
of Civil Aviation, the various State Governments, Airports Authority of
India, the Reserve Bank of India, lending banks and financial
institutions, suppliers, other business associates and employees.
For and on Behalf of the Board of Directors
Mumbai Dr. Vjay Mallya
August 10, 2012 Chairman & Managing Director