Saturday, March 02, 2019

Why No One Wants Air India Stake: Accumulated Losses More Than India's Health Budget in FY18

New Delhi: Last summer, the Modi government failed at its maiden attempt to disinvest Air India as potential bidders remained unconvinced about several aspects of the proposed sale, including the airline’s financials. Now, as the latest numbers have come in, it becomes a little clearer why potential investors may found this white elephant not worth a look.

The airline’s latest annual report shows that it had incurred accumulated losses of Rs 53,583.92 crore as of March 31, 2018. To put this number in context, suffice it to say that Air India’s accumulated losses were a tad above India’s entire health budget for that year. Further, the airline has never made a net profit since the two erstwhile airlines, Air India and Indian Airlines, merged to form the current entity in 2007.
Thus, the mountain of accumulated losses has been created over the last decade with the net loss for 2017-18 coming in at Rs 5348.7 crore. This means an average daily loss of just under Rs 15 crore was posted by Air India in 2017-18. With such dismal numbers, it is no surprise that Air India became the second biggest loss-making Central Public Sector Enterprise among 339 such companies in FY18.
However, the only saving grace is that the net loss figure was lesser in 2017-18 compared to the previous year, when it had posted Rs 6452.9 crore or an average daily net loss of about Rs 18 crore. But here’s a fresh shocker: the independent auditors who have audited the airline’s financials for 2017-18 have said in their notes in the latest annual report that “loss has been understated by Rs 338.7 crore”.

The auditors have also said that “No impairment has been made in the carrying value of investment in subsidiary company, Hotel Corporation of India Limited (carrying value of investments aggregating to Rs 110.6 crore), though there is uncertainty in implementation of the proposed revival plan. Further, no provision has been made in respect of advances to the above subsidiary company amounting to Rs 228.1 crore, including interest accrued thereon. As a result of the above, loss for the year is understated by Rs 338.7 crore (with the consequential impact on EPS), accumulated losses are understated and total assets are over stated by the same amount.”
02/03/19 Sindhu Bhattacharya/
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