The Comptroller and Auditor General (CAG) has come down heavily on Indian Airlines (IA) for understating its net loss by about Rs 143 crore and accumulated losses by Rs 53 crore for 1995-96. It has also pointed out that only 14 of the 123 domestic services operated during the year could meet the total cost of operations.
In its latest report, CAG has noted that, had these losses been taken into account, the net loss would have shot up from Rs 108.94 crore to Rs 251.74 crore. However, IA, in its reply to the comments, has denied any understatement of loss.
The report states that the annual accounts of the airline do not include Rs 135.72 crore payable to the government for guarantees given for loans taken by IA for purchase of aircraft. Had this been taken into account, interest and financing charges on aircraft projects would have gone up from Rs 257.34 crore to Rs 393.06 crore.
More From This Section
IA has replied that in view of the continuing losses being incurred by the airline, the government had been requested to consider exemption of the guarantee fee. But CAG pointed out that after consulting the finance ministry, the ministry of civil aviation had already turned down the request of IA for waiver of the guarantee fee.
The airline stated that a provision had been made in the accounts at the prescribed rate of 1.2 per cent wherever there was a stipulation by the government for payment of such guarantee fee. There are, however, certain loans which do not provide any stipulation for payment of guarantee fee. In such cases, the fee has not been provided, but suitable disclosure has been made in the notes of accounts, it stated.
The CAG said that an analysis of the routes and services operated during the year revealed that out of 123 domestic services, 109 could not meet the total cost of operations. Out of these, 25 services could not even meet the direct (cash) cost of operations. In the international sector, out of 24 services, 15 did not meet the total cost of operations and out of these two of them could not meet even the direct (cash) cost.
With regard to obsolescence reserves, CAG stated that there has been an understatement of accumulated losses by Rs 53.37 crore. The report said the obsolescence reserve of Rs 231.70 crore includes two special credits amounting to Rs 22.87 crore received from Airbus Industrie and International Aero engine which have already been utilised for purchase of stores and spares. Accordingly, the obsolescence reserve has been inflated to that extent.
In a similar manner, Rs 826 lakh was erroneously credited to obsolescence reserve during 1994-95, resulting in a net excess of Rs 53.37 crore transferred to the general reserve during 1995-96.
The report said according to the airlines own estimates, the obsolescence reserve of Rs 231.70 crore was neededagainst the available reserve of Rs 285.07 crore as on March 31, 1996, thereby estimating an excess of Rs 53.37 crore in the reserve transferred to the general reserve. However, the Rs 285.07 crore reserve included erroneous credits of Rs 31.12 crore. Hence, the transfer of Rs 53.37 crore to the general reserve was incorrect. CAG also criticised the policy of the company in adjusting the loss/profit on sale of spares to obsolescence reserve instead of charging to profit and loss account which was in violation of accounting standard 10.
In its reply, IA has said that there has been no change in the obsolescence policy being followed over the years. Disclosures in this regard had also been made in the significant accounting policy schedule of the profit and loss accounts. Moreover, had the special credit not been transferred to the obsolescence reserve, it would have been transferred to the profit and loss account. The CAG said the liabilities relating to Abu Dhabi, Muscat and Dubai joint venture operations with Air India had not been revalued at the exchange rates prevalent as on March 31, 1996. Hence, this had resulted in understatement of loss by Rs 109 lakh.
CAG said among the other heads in the profit and loss account, where the losses had been understated, are by way of crediting Rs 30.47 crore less to the capital reserve; under-provision of depreciation amounting to Rs 337.09 lakh; understating the loss in the case of outside repairs by Rs 427.22 lakh and misclassification of prior period expenses relating to employees remuneration which had resulted in understatement of losses by Rs 28.81 crore.