a) Basis of preparation of financial statements
The financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in India
(''Indian GAAP''). The Company has prepared these financial statements to
comply in all material respects with the accounting standards notified
under the Companies (Accounting Standards) Rules, 2006, (as amended)
and the relevant provisions of the Companies Act, 1956. The financial
statements have been prepared on an accrual basis and under the
historical cost convention. The accounting policies adopted in the
preparation of financial statements are consistent with those of
The current year''s financial statements have been prepared and
presented in accordance with the requirements of the revised Schedule
VI, as notified under the Companies Act, 1956 and applicable to the
Company. The Company has also reclassified previous year figures in
accordance with these requirements.
The Company has achieved significant growth in revenues for the year
and has also managed to achieve better yields towards the end of the
year. However, the Company''s operating results has been materially
affected by various factors, particularly high aircraft fuel costs,
significant depreciation in the value of the currency and general
economic slowdown. The Company has been actively implementing various
measures such as fare and route rationalization, optimizing aircraft
utilization, improving operational efficiencies, renegotiation of
contracts and other cost control measures to improve the Company''s
operating results and cash flows. Subsequent to the close of the
financial year, business conditions have improved and the Company
expects to perform better in the future. In addition, the Company
continues to explore various options to raise finance in order to meet
its short term and long term obligations, with the promoters infusing
additional capital during and post the year end. The Company believes
that these measures will not only result in sustainable cash flows, but
also enhance the Company''s plans of expansion. Accordingly, the
Company''s financial statements have been prepared on a going concern
basis whereby the realization of assets and discharge of liabilities
are expected to occur in the normal course of business.
b) Use of estimates
The preparation of financial statements in conformity with Indian GAAP
requires management to make judgments, estimates and assumptions that
affect the reported amounts of revenues, expenses, assets and
liabilities and the disclosure of contingent liabilities, at the end of
the reporting period. Although these estimates are based on
management''s best knowledge of current events and actions, uncertainty
about these assumptions and estimates could result in the outcomes
requiring a material adjustment to the carrying amounts of assets or
liabilities in future periods.
c) Tangible fixed assets
Fixed assets are stated at cost, less accumulated depreciation and
impairment losses, if any. Cost comprises the purchase price and any
attributable cost of bringing the asset to its working condition for
its intended use. Any trade discounts and rebates are deducted in
arriving at the purchase price. For accounting periods commencing on
or after December 7, 2006, the Company adjusts exchange differences
arising on translation / settlement of long term foreign currency
monetary items pertaining to the acquisition of a depreciable asset to
the cost of the asset and depreciates the same over remaining life of
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including day-to-day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
Gains or losses arising from derecognition of fixed assets are measured
as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement of profit and
loss when the asset is derecognized.
Borrowing costs relating to acquisition of fixed assets which takes
substantial period of time to get ready for its intended use are also
included to the extent they relate to the period till such assets are
ready to be put to use.
The cost of fixed assets not ready for intended use before such date is
disclosed under capital work- in-progress.
d) Depreciation on tangible fixed assets
Depreciation is provided using the straight line method in the manner
specified in Schedule XIV to the Act, at the rates prescribed therein
or at the rates based on management''s estimate of the useful lives of
such assets, whichever is higher, as follows:
Asset Description Percentage
Office Equipment 4.75%
Furniture and Fixtures 6.33%
Motor Vehicles 9.50% - 11.31%
Plant and Machinery 4.75%
Rotable and Tools 5.60%
Leasehold improvements are amortised over the estimated useful lives or
the remaining primary lease period, whichever is less. Assets
individually costing Rupees five thousand or less are fully depreciated
in the year of purchase.
e) Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Intangible assets are amortized on a
straight line basis over the estimated useful economic life.
Costs incurred towards purchase of computer software are depreciated
using the straight-line method over a period based on management''s
estimate of useful lives of such software being 3 years, or over the
license period of the software, whichever is shorter.
Where the Company is a lessee
Leases where the lessor effectively retains substantially all the risks
and benefits of ownership of the leased item, are classified as
operating leases. Operating lease payments are recognized as an expense
in the Profit and Loss account on a straight-line basis over the lease
term. Lease management fee, legal charges and other initial direct
costs of lease are capitalized.
Sale and lease back arrangements
Profit or loss on sale and lease back arrangements resulting in
operating leases are recognized immediately in case the transaction is
established at fair value. If the sale price is below fair value, any
profit or loss is recognised immediately except that, if the loss is
compensated by future lease payments at below market price, it is
deferred and amortised in proportion to the lease payments over the
period for which the asset is expected to be used. If the sale price is
above fair value, the excess over the fair value is deferred and
amortized over the period for which the asset is expected to be used.
The sale and lease back arrangements entered into by the Company are as
per the standard commercial terms prevalent in the industry. The
Company does not have an option to buy back the aircraft, nor does it
have an option to renew or extend the lease after the expiry of the
g) Borrowing costs
Borrowing cost includes interest, amortization of ancillary costs
incurred in connection with the arrangement of borrowings and exchange
differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost.
Borrowing costs directly attributable to the acquisition, construction
or production of an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale are capitalized as
part of the cost of the respective asset. All other borrowing costs are
expensed in the period they occur. Borrowing costs consist of interest
and other costs that an entity incurs in connection with the borrowing
h) Impairment of tangible and intangible assets
The Company assesses at each reporting date whether there is an
indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Company
estimates the asset''s recoverable amount. An asset''s recoverable amount
is the higher of an asset''s or cash-generating unit''s (CGU) net selling
price and its value in use. The recoverable amount is determined for an
individual asset, unless the asset does not generate cash inflows that
are largely independent of those from other assets or groups of assets.
Where the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. In determining net
selling price, recent market transactions are taken into account, if
available. If no such transactions can be identified, an appropriate
valuation model is used.
The Company bases its impairment calculation on detailed budgets and
forecast calculations which are prepared separately for each of the
Company''s cash-generating units to which the individual assets are
allocated. These budgets and forecast calculations are generally
covering a period of five years. For longer periods, a long term growth
rate is calculated and applied to project future cash flows after the
Impairment losses of continuing operations, including impairment on
inventories, are recognized in the statement of profit and loss. After
impairment, depreciation is provided on the revised carrying amount of
the asset over its remaining useful life.
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer
exist or may have decreased. If such indication exists, the Company
estimates the asset''s or cash-generating unit''s recoverable amount. A
previously recognized impairment loss is reversed only if there has
been a change in the assumptions used to determine the asset''s
recoverable amount since the last impairment loss was recognized. The
reversal is limited so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying amount that
would have been determined, net of depreciation, had no impairment loss
been recognized for the asset in prior years. Such reversal is
recognized in the statement of profit and loss.
Inventories comprises of expendable aircraft spares and miscellaneous
stores. Inventories have been valued at cost or net realizable value,
whichever is lower after providing for obsolescence and other losses,
where considered necessary. Cost includes custom duty, taxes, freight
and other charges, as applicable and is determined on a weighted
j) Revenue recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue can be
reliably measured. The revenue is recognized net of VAT / Service tax
Passenger revenues and cargo revenues are recognised as and when
transportation is provided i.e. when the service is rendered. Amounts
received in advance towards travel bookings / reservations are shown
under current liabilities as unearned revenue.
Revenues from special service requests in the nature of fees charged
from passengers for reservation, changes in itinerary, cancellation of
flight tickets etc. are recognised as revenues on rendering of the
Income in respect of hiring / renting out of equipments and spare parts
is due on time proportion basis at rates agreed with the lessee. Due to
significant uncertainties involved in realization, the income is
recorded on settlement with the lessee or actual realization, whichever
Training Income is recognized upon completion of the related training
Export incentives are recognized on availment of the benefits under the
Interest income is recognised on a time proportion basis taking into
account the amount outstanding and the rate applicable. Interest income
is included under the head Other Income in the statement of profit
k) Manufacturers incentives
The Company receives incentives from Original equipment manufacturers
(''OEM''s'') of aircraft components in connection with acquisition of
aircrafts. As the related aircrafts are held under operating lease by
the Company, these incentives are recognized as income coinciding with
delivery of the related aircrafts.
Free of cost spare parts received in respect of purchase of aircraft''s
are recorded at a nominal value.
Non cash incentives relating to aircrafts taken on finance lease are
recorded as and when due to the Company by setting up a deferred asset
and a corresponding incentive. These incentives are recognized under
the head other income in the statement of profit and loss on a straight
line basis over the remaining lease period of the related lease.
The deferred asset explained above is reduced on the basis of
utilization against purchase of goods and services.
l) Aircraft maintenance costs and engine repairs
Aircraft, Auxiliary Power Unit (''APU'') and Engine maintenance and
repair costs are expensed as incurred. In cases where such overhaul
costs in respect of engines / APU are covered by third party
maintenance agreements, these are accounted in accordance therewith,
along with adequate estimates.
m) Foreign currency translation
Foreign currency transactions are recorded in the reporting currency,
by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the
Foreign currency monetary items are reported using the closing rate.
Non-monetary items which are carried in terms of historical cost
denominated in a foreign currency are reported using the exchange rate
at the date of the transaction; and non-monetary items which are
carried at fair value or other similar valuation denominated in a
foreign currency are reported using the exchange rates that existed
when the values were determined.
With effect from accounting periods commencing on or after December 7,
2006, the Company accounts for exchange differences arising on
translation / settlement of foreign currency monetary items as below:
- Exchange differences arising on long-term foreign currency monetary
items related to acquisition of a fixed asset are capitalized and
depreciated over the remaining useful life of the asset. For this
purpose, the Company treats a foreign monetary item as long-term
foreign currency monetary item, if it has a term of 12 months or more
at the date of its origination.
- Exchange differences arising on other long-term foreign currency
monetary items are accumulated in the Foreign Currency Monetary Item
Translation Difference Account and amortized over the remaining life
of the concerned monetary item.
- All other exchange differences are recognized as income or as
expenses in the period in which they arise.
n) Retirement and other employee benefits
Retirement benefit in the form of provident fund is a defined
contribution scheme. The contributions to the provident fund are
charged to the statement of profit and loss for the year when the
contributions to the respective fund are due. The Company has no
obligation, other than the contribution payable to the provident fund.
Gratuity liability under the Payment of Gratuity Act, 1972 is a defined
benefit obligation. The cost of providing benefits under this plan is
determined on the basis of actuarial valuation at each year-end.
Actuarial gains and losses are recognized in full in the period in
which they occur in the statement of profit and loss.
Accumulated leave, which is expected to be utilized within the next 12
months, is treated as short- term employee benefit. The Company
measures the expected cost of such absences as the additional amount
that it expects to pay as a result of the unused entitlement that has
accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward
beyond twelve months, as long-term employee benefit for measurement
purposes. Such long-term compensated absences are provided for based on
the actuarial valuation using the projected unit credit method at the
year- end. Actuarial gains / losses are immediately taken to the
statement of profit and loss and are not deferred. The Company presents
the entire leave as a current liability in the balance sheet, since it
does not have an unconditional right to defer its settlement for 12
months after the reporting date.
o) Income taxes
Tax expense comprises current and deferred income taxes. Current income
tax is measured at the amount expected to be paid to the tax
authorities in accordance with the Income-tax Act, 1961 enacted in
India. Deferred tax is measured using the tax rates and the tax laws
enacted or substantively enacted at the reporting date.
Deferred income taxes reflects the impact of current year timing
differences between taxable income and accounting income for the year
and reversal of timing differences of earlier years. Deferred tax is
measured based on the tax rates and the tax laws enacted or
substantively enacted at the reporting date.
Deferred tax liabilities are recognized for all taxable timing
differences. Deferred tax assets are recognised only to the extent that
there is reasonable certainty that sufficient future taxable income
will be available against which such deferred tax assets can be
realised. As the Company has unabsorbed depreciation or carry forward
tax losses, deferred tax assets are recognised only if there is virtual
certainty supported by convincing evidence that such deferred tax
assets can be realised against future taxable profits.
At each reporting date, the Company re-assesses unrecognized deferred
tax assets. It recognizes unrecognized deferred tax asset to the extent
that it has become reasonably certain or virtually certain, as the case
may be, that sufficient future taxable income will be available against
which such deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed at each balance
sheet date. The Company writes-down the carrying amount of a deferred
tax asset to the extent that it is no longer reasonably certain or
virtually certain, as the case may be, that sufficient future taxable
income will be available against which deferred tax asset can be
realised. Any such write-down is reversed to the extent that it becomes
reasonably certain that sufficient future taxable income will be
Minimum Alternative Tax (''MAT'') credit is recognised as an asset only
when and to the extent there is convincing evidence that the Company
will pay normal income tax during the specified period. In the year in
which the credit becomes eligible to be recognized as an asset in
accordance with the recommendations contained in Guidance Note issued
by the Institute of Chartered Accountants of India, the said asset is
created by way of a credit to the profit and loss account and shown as
MAT Credit Entitlement. The Company reviews the same at each balance
sheet date and writes down the carrying amount of MAT Credit
Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal Income Tax during the specified
p) Employee stock compensation cost
Measurement and disclosure of the employee share-based payment plans is
done in accordance with SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999 and the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute
of Chartered Accountants of India. The Company measures compensation
cost relating to employee stock options using the intrinsic value as
applicable to the relevant grant. Compensation expense is amortized
over the vesting period of the option on a straight line basis.
q) Segment reporting
The Company''s operations predominantly relate only to air
transportation services and accordingly this is the only primary
reportable segment. Further, the operations of the Company are
substantially limited within one geographical segment (India) and
accordingly this is considered the only reportable secondary segment.
r) Earnings Per Share (EPS)
The earnings considered in ascertaining the Company''s earnings per
share comprise the net profit or loss after tax attributable to equity
share holders. The number of shares used in computing basic earnings
per share is the weighted average number of shares outstanding during
the year. The number of shares used in computing diluted earnings per
share comprises the weighted average number of shares considered for
deriving basic earnings per share and also the weighted average number
of shares, if any, which would have been issued on the conversion of
all dilutive potential equity shares.
A provision is recognized when an enterprise has a present obligation
as a result of past event and it is probable that an outflow of
resources will be required to settle the obligation, in respect of
which a reliable estimate can be made. Provisions are not discounted to
its present value and are determined based on best estimate of amounts
required to settle the obligation at the balance sheet date. These are
reviewed at each balance sheet date and adjusted to reflect the current
t) Contingent liabilities
A contingent liability is a possible obligation that arises from past
events whose existence will be confirmed by the occurrence or non
occurrence of one or more uncertain future events beyond the control of
Company or present obligation that is not recognized because it is not
probable that an outflow of resources will be required to settle the
obligation. A contingent liability also arises in extreme rare cases
where there is a liability that cannot be recognized because it cannot
be measured reliably. The Company does not recognise a contingent
liability but discloses its existence in the financial statements.
u) Cash and cash equivalents
Cash and cash equivalents for the purpose of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
v) Measurement of Earnings Before Interest, Tax, Depreciation and
As permitted by the Guidance Note on the Revised Schedule VI to the
Companies Act, 1956, the Company has elected to present EBITDA as a
separate line item on the face of the statement of profit and loss. The
Company measures EBITDA on the basis of profit / (loss) from continuing
operations. In its measurement, the Company does not include
depreciation and amortization, finance costs, tax expense and, where
applicable, prior period items.