Grounded carrier Kingfisher Airlines’ decision to consider it a ‘going concern’ entity,despite having accumulated huge losses and defaulted on loans,has come for a sharp criticism by its own auditors,given a lack of clarity about its revival plans.
At the same time,the auditors of Kingfisher’s parent entity,United Breweries (Holdings) Ltd,have also expressed their concern over the company’s significant exposure to the airline,which has been grounded for about 10 months now and its flying permit also lapsed long ago.
Part of Vijay Mallya-led UB group,Kingfisher has never reported a full-year profit as yet,its accumulated losses have crossed Rs 17,000 crore,net worth has been completely eroded and lenders have recalled loans totalling more than Rs 6,000 crore after repeated defaults.
In their latest ‘review report’ presented to Kingfisher’s board,the auditors said: “These events cast significant doubt on the ability of the company to continue as a going concern”.
In accounting parlance,’going concern’ entities are generally those that function without any threat of liquidation in the foreseeable future.
The auditors said that Kingfisher continues to prepare financial results on a going concern basis “notwithstanding the fact that the company’s net worth is completely eroded,the scheduled air operator’s permit issued by the Director General of Civil Aviation has lapsed and the consortium of banks have recalled their debt to the company.”
They further said that the appropriateness of this ‘going concern’ basis is inter-alia dependent on the company’s ability to obtain renewal of its flying permit,infuse requisite funds for meeting various obligations,rescheduling of debt and other liabilities and resuming normal operations.
The company on its part said that it has “detailed plans for renewal of its operations and has filed the necessary application to the DGCL to renew the permit and is exploring various options to recapitalise and resume operations”.
“The company will also request the banks at an appropriate time for debt restructuring. Based on the detailed evaluation of the current situation,plans formulated and active discussions underway with prospective investors,management is confident of raising adequate finance,obtaining renewal of the permit,rescheduling debt and receiving continued support from the group.
“Therefore,the management holds the view that the company will realise its assets and discharge liabilities in the normal course of business. Accordingly,the financial results have been prepared on the basis that the company is a going concern and that no adjustments are required to be carrying value of assets and liabilities,” Kingfisher said in notes to its latest quarter financial results.