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.”
If the HCI numbers are added to the net loss figure, then the average daily net loss inches closer to Rs 16 crore. The auditors have also said that Air India’s current liabilities exceed its current assets by Rs 38,161.37 crore and together with the accumulated losses, there has been complete net worth erosion of the company.
It is important to note that the ministry of civil aviation last year had asserted in Parliament that provisional loss figures for Air India indicated a turnaround, with provisional net loss significantly lower than the actual, final figure coming in now. The government had said in Parliament that the provisional net loss figure was just Rs 3500 crore. So almost Rs 1800 crore got inexplicably added to the net loss number, even if one were to disregard the auditors’ comments.
Meanwhile, Pradeep Singh Kharola, the Chairman and MD of AI during 2017-18, said in the annual report that the net loss was “primarily due to a huge outstanding debt on which interest charge of Rs 4155.68 crore was incurred. Our increasing operating costs are also a cause of concern.... the huge loss indicated that Air India needs to take immediate steps for improving its revenue as well as bringing internal efficiencies. The high cost of aviation fuel and an unfavourable exchange rate would pose serious threat to the financial performance of Air India.”
Besides the parent airline, three of Air India’s five subsidiaries also posted losses during the year.
Now, as Kharola’s predecessor Ashwani Lohani has been called back from retirement to again steer the airline, questions remain about its future. The government, on its part, has been maintaining that plans for strategic disinvestment of the airline have not been abandoned. In this endeavor, the Union Cabinet has, last night, approved creation of a special purpose vehicle (SPV).
Called Air India Asset Holding Company (AIAHL), this SPV will hold transferred debt – Rs 29464 crore - of the airline besides its subsidiaries - Air India Air Transport Services (ground handling), Air India Express and Airline Allied Services (AASL). Also, some other non-core assets, paintings and artefacts and other non-operational assets of the carrier will be transferred to the SPV. This would mean Air India’s debt burden would be more than halved since it will be left with about Rs 25,500 crore on its books.
The Centre had invited bids from potential buyers for 76 per cent of its stake in Air India in March, 2018. But not a single bidder came forward by the deadline, many concerned about government’s residual minority stake and almost all unwilling to take on the huge debt pile.
Now, as the latest financials provide more clarity on its operations and more than half the debt is being transferred to the SPV, it will now be the headache of the government and by extension, of the Indian taxpayers.
Will Air India become more attractive a buy for potential investors? This remains to be seen. A new government at the Centre this summer may disinvest the airline once again this summer.
(The author is a senior journalist)
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