New Delhi: State-owned Air India Ltd is estimated to have posted a record loss of Rs 7,000 crore for the year ended March, undermining the carrier’s turnaround plan based on which the cash-strapped company is to get further cash infusions that it needs to survive.
Air India made a loss after tax of Rs 6,994 crore, wider than the previous year’s Rs 5,552.44 crore and falling short of targets that were set last year. The figures were contained in an internal assessment prepared by the carrier that was reviewed by Mint.
Net loss before tax is seen at Rs 7,195.75 crore compared with Rs 5,633.56 crore in the previous year.
The financial results, which are still being audited, are likely to be announced over the next few months. Air India’s revival plan, which was vetted by consulting firm Deloitte Touche Tohmatsu India Pvt. Ltd in March, had kept 2010-11 as the base year for most of the revenue and other projections with a turnaround seen in 2014-15.
The performance, if borne out by the final numbers, comes as all listed Indian airlines improved their financial showing during the fiscal year. The magnitude of its losses may be unmatched by any other global carrier, an analyst said.
“I can’t think of another carrier that will lose (in excess of) $1.5 billion during a year of recovery for the industry, despite high fuel costs,” said Ernest S. Arvai, president of US-based aviation consulting firm Arvai Group Inc. “Most have learnt how to earn incremental revenue from baggage and other fees to generate positive cash flow, and can price to earn a return, even if they need to curtail service on unprofitable routes. Air India is not allowed to make such choices.”
An Air India official, who declined to be named, blamed steeper oil prices and restricted government support for the losses. For one thing, the airline was granted Rs 1,200 crore equity only in January for the 2010-11 fiscal. Second, the “letter of comfort”—a form of sovereign guarantee—from the finance ministry hasn’t yet been furnished, resulting in increased interest charges.
The carrier’s losses have been steadily climbing since the government merged the domestic (Indian Airlines) and international (Air India) arms under Air India in 2007.
In 2006-07, they lost Rs 688.22 crore. In 2007-08, after the balance sheets were merged, the loss was Rs 2,226.16 crore. This increased to Rs 5,548.26 crore in 2008-09, according to data presented in Parliament by aviation minister Vayalar Ravi.
Air India’s latest loss estimate overshoots targets set on 31 March 2010 for fiscal 2011. The airline projected a net loss after tax of Rs 4,164 crore, a 16.81% increase in revenue to Rs 15,655.49 crore and expenses limited to Rs 19,819.49 crore, from the previous year. Apart from registering a loss of Rs 6,994 crore, revenue is now seen at Rs 13,963.93 crore and expenses at Rs 21,159.68 crore, according to the note cited above.
An Air India spokesperson said details about the earnings couldn’t be divulged as the accounts are still being audited. “The good news is that we have achieved targets, except last quarter due to increase in fuel, interest cost, depreciation, wage, etc.,” he said in an email.
Arvai, who tracks the airline closely, said he does not see it reviving with the current steps being taken by the government.
“Is Air India on the path to revival? I don’t believe so, and Air India will be another demonstration of how long it actually takes mortally wounded airlines, with no hope of recovery, to die,” he said, citing US carriers such as Pan American World Airways and Trans World Airlines that took 10-15 years to succumb to their problems.
“With government bailouts continuing, Air India could be even worse before finally racking up losses so mountainous that even government officials stop paying for failure,” Arvai added.
The cash-strapped carrier, with Rs 40,000 crore in debt, has been asked to produce a verifiable turnaround plan by the finance ministry before more equity or a letter of comfort can be infused into the airline by the government beyond Rs 3,200 crore already in place till 2011-12.
In the March Air India turnaround plan vetted by Deloitte, which was based on inputs from the airline’s management, the projections till 2014-15 were prepared on a total revenue of Rs 15,927 crore and total expenses of Rs 14,923 crore for 2010-11.
The carrier will fall short on both counts. The final turnaround plan is yet to be submitted to the government.
A former Air India official blamed the airline management and the government for its finances.
“Air India has seemingly lost the plot,” said S.S. Bhargava, former executive director at the airline. “The present management and the board of directors ought to take the blame for Air India’s current operational issues, and the past chairman and political leadership for bringing Air India to the brink of bankruptcy.”
Bhargava has been consistently critical of the carrier’s management since he left the organization.
Air India’s closest rival Jet Airways (India) Ltd, together with its subsidiary JetLite, narrowed its loss to Rs 85.84 crore in 2010-11 from Rs 420.18 crore a year ago. Kingfisher Airlines Ltd narrowed its net loss to Rs 1,027 crore from Rs 1,647 crore a year ago, while budget carrier SpiceJet Ltd increased its profit to Rs 101.15 crore from Rs 61.45 crore in fiscal 2010.