Air India understated losses by Rs.2,842.5 cr: Audit report

Auditors R Devendra Kumar & Associates,Kapoor Tandon & Co and PKKG Balasubramaniam & Associates were appointed by the Comptroller and Auditor General of India to review Air India’s accounts for 2011-12.

“The company has been carrying the net balance of deferred tax asset amounting to R2,842.5 crore which was recognised in 2007-08 and 2008-09. In the subsequent years,deferred tax asset has been recognised only to the extent of deferred tax liabilities as a prudent measure,” auditors said in their report to the management. The report is part of Air India’s FY12 annual report,a copy of which has been reviewed by FE.

The report added: “Since virtual certainty as stipulated under Accounting Standard – 22 had not been established in the year 2009-10,the carrying amount of deferred tax asset should have been charged in the year 2009-10 itself. Consequent to the above,the balance in the prior period adjustments in the “Statement of Profit and Loss” has been under-stated to the extent of R2,842.5 crore with the consequential effect,the “Loss after Tax for the Year” is understated to the tune of R2,842.5 crore.”

“In the current year,the company had taken several initiatives towards improving its financial and operational performance,” the management said in its reply. “The company targets to turn Ebitda-positive in 2012-13 as a result of these measures. Reversal of deferred tax asset created in 2007-08 and 2008-09 would be incorrect at this juncture due to the improved performance of the company and would reflect a lack of confidence in the implementation of the turnaround plan which aims at return to profitability within a reasonable period of time.”

The management further stated that in the first half of 2012-13,on-time performance of the airline improved to 85%,passenger load factors to 70.9%,yield to Rs 4.31 and fleet utilisation of the aircraft also increased to 10.5 hours for narrow body aircraft and 12.5 hours for widebody aircraft.

Such measures have resulted in a reduction of cash losses for the period from April to September 2012 as compared with last year,the management added. “The management is therefore confident of utilising the net deferred tax asset to the extent of Rs 2,842.5 crore already recognised during the initial two years of merger that is,2007-08,2008-09 against future tax liability,” Air India’s directors stated.