Professional Documents
Culture Documents
INDUSTRY PROFILE
Air transport is the most modern, the quickest and the latest addition to the modes of
transport. Because of speed with which aero planes can fly, travel by air is becoming
increasingly popular. As far as the world trade is concerned it is still dominated by sea
transport because air transport is very expensive and is also unsuitable for carrying heavy,
bulky goods. However, transportation of high value light goods and perishable goods is
increasingly being done by air transport.
In 1929, Neville Vincent, a former RAF pilot came to India from Britain, joined TATA
Sons and made a survey of all possible air routes. He presented the scheme to Director of
TATA Sons. In Oct 1932 TATA Sons Ltd, which later become Air India International,
commenced weekly airmail services between Karachi and Madras via Allahabad and
Mumbai.
Later two more airlines came—The Indian National Airways came into existence in 1933
and Air Services of India into 1937. After the 2nd World War, the Government of India
announced a new policy for the Development of Air Transport Services. In the first two
years, it came into existence; the Government gave license to 11 companies to operate air
services in different regions.
At the time of independence there were 9 airlines operating with and beyond the frontiers
of the country carrying both air cargo and passengers. It was reduced to 8 with Orient
Airways shifting to Pakistan. These were:
Foreign airlines carrying international passenger traffic to and from India existed long
before Independence. Their operations are governed by bilateral agreements signed from
time to time between the Government of India and the governments of respective
countries. In 1980-81, the number of such airlines was 35. It rose to 49 in 1996-97.
The share of foreign airlines in India’s scheduled international traffic has increased. In
1971, their share was 55.58 per cent which went up to 65 per cent and declined to 58 per
cent during 1972-75. It fell to 55.72 per cent in 1976 and further to 55.02 per cent in
1977. Between 1978 and 1990 it gradually increased and rose to 75.93 per cent. In 1996,
the share was nearly 72 per cent.
The act prohibited any other than two companies to operate any schedule air transport to
or across India. The repeal of Air Corporation Act from 1 st March 1994 enabled private
operators to provide air transport services. Eight operators got the nod to commence
operation out of which only two have survived:
• Jet airways
• Sahara India
Aviation services in developed countries are categorized into three levels:
In India unfortunately the regional and non-scheduled or Tier 2 and Tier 3 services are
almost non existent. Even though such services normally constitute a small percentage of
domestic air services, the importance of such services should not be under-estimated, as
general aviation forms the entry point for personnel to enter the industry and gain
grassroots experience.
In 1953 a new dream took shape – to air link the vast South Asian subcontinent by a
single, modern and efficient airline. The airline was Indian Airlines. Today, Indian
Airlines, together with its fully owned subsidiary Alliance Air, is one of the largest
regional Airlines system in Asia with a fleet of 56 aircrafts, 8 wide bodied Airbus A300s,
34 Fly-by-wire Airbus A320s, 11 Boeing 737s and 3 Dornier D-288 aircrafts.
Indian Airlines has been setting the standards for civil aviation in India since its inception
in 1953. It has many firsts to its credit, including introduction of the wide bodied A300
aircraft on the domestic network, the fly-by-wire A320, Domestic Shuttle Service and
Walk-in-Flights. Its unique orange and white logo emblazoned on the tails of all its
aircrafts is perhaps the most widely recognized Indian brand symbol that, over the years
has become synonymous with services, efficiency and reliability.
CHAPTER - 2
COMPANY PROFILE
The National Aviation Company of India Limited (NACIL) was incorporated under the
Companies Act 1956 on 30 March 2007 and is owned by the Government of India based
at the Air India Building in Nariman Point, Mumbai. The Company was created to
facilitate the merger of the two main state-owned airlines in India: Air India, with its
subsidiary Air-India Express and Indian Airlines, together with its subsidiary Alliance
Air.
Whilst the merger and integration process has started, and a few routes have been
rationalised, a lot remains to be done before the various units start functioning as a
cohesive airline.
Upon completion of the merger, there will be one primary airline, Air India, with two
subsidiary carriers providing regional and low-cost, point-to-point services and a third
subsidiary for cargo operations:
• Air India
o Air India Express
o Air India Regional
o Air India Cargo
J.R.D.TATA
• Services
Rs 15257.47 Crores ($3.31 billion)
Revenue
(2007-08)
Rs 1619.12 Crores ($351.98 million)
Net income
(07-08)
Employees 32,000 (2009)
• Hotel Corporation of India
Limited
• Air India Air Transport
Services Limited CHAPTER – 3
• Air India Engineering Services
Subsidiaries Limited RESEARCH
• Air India Charters Limited METHODOLOGY
• IAL Airport Services Limited
• Firstly, to ascertain the Financial Performance of NACIL (Air India) before &
after merger with the help of ratio analysis.
• Secondly, to ascertain the future outcome of merger of Indian Airlines & Air
India.
Research Methodology
Information was collected through both primary and secondary sources. The data
collected for this project has been taken from the primary and secondary source.
Primary Data: In some cases the researchers may realize the need for collecting the first
hand information. As in the case of everyday life, if we want to have first hand
information or any happening or event, we either ask someone who knows about it or we
observe it ourselves, we do the both.
CHAPTER - 4
Functioning of Finance Department in the Northern
Region
Finance Department
• Agency Section
• Screening Section
• Bills Receivable Section
The basic function of Area Revenue Division (ARD) is to book "Traffic Revenue" earned
by Indian Airlines in its books. The various components of Traffic Revenue are:
1. Mail Revenue: This is the revenue derived from the carriage of Mail on the
routes of the carrier.
2. Airfreight Revenue: It is the revenue derived from carriage of cargo on the
routes of the carrier.
3. Excess Baggage Revenue: It is the revenue derived from carriage of excess
baggage on the routes of the carrier.
4. Passenger revenue: It is the revenue derived from the carriage of passengers
over the routes of the carrier.
5. Pool Revenue: Pool is an agreement entered into by two national carriers
operating on the same route, to pool their revenue in a kitty and then share the same
on a mutually agreed basis. The main object of such agreements is to make the
services operated by the Pool Partners complementary and not competitive.
Revenue generated by such a pool is Pool Revenue.
6. Charter Revenue: It is the revenue derived from the Chartering operations.
Charter is a special arrangement, whereby for an agreed operation, the carrier places
the entire capacity of an aircraft at the disposal of the person requesting for charter
services.
All these revenues are booked by ARD in books of Indian Airlines with an instrument of
maintaining records known as "Reporting Form".
Dy. Manager(s)
(Agency) Dy. Manager(s) Dy. Manager(s)
(Screening) (B/R section)
1. Agency: Deals with the agents of Indian Airlines and maintain records of all
the transaction or sales done by Agents through Reporting Forms.
2. Screening: Performs the sequential screening of all the Reporting Forms and
execute Interline Billing.
3. Bills Receivables (B/R): It maintains the records of all the credit parties of
Indian Airlines and raise bill or debit notes to such parties for services rendered to
them by Indian Airlines.
1. Agency Section
This section deals with the agents of Indian Airlines and maintains records of all the
transactions or sales done by the agents through the reporting forms. About 80% of
Indian Airlines sales are through its agents & there are about 600 Indian Airlines agents
in Northern Region. The Agency Section at ARD deals with all Indian Airlines agents
maintains records, take disciplinary actions against defaults if any & prepare concealed
summary of all transaction through agents for the Head Quarters.
• General Sales Agent (GSA): A GSA is one and only one agent authorized by
Indian Airlines to operate in a particular country however he can have sub-agent
under him. Indian Airlines have their GSA's in U.K., U.S.A., Russia and Canada.
GSA's are entitled to Special rates by Indian Airlines as per the contract.
• Passenger Sales Agent (:PSA) When various Sales agents are appointed by Indian
Airlines for the same region, they are known as PSA's. The rates for all the PSA's
are same and fixed in advance.
• AGT-1:
Agents will prepare Reporting Form AGT-1 in duplicate incorporating the
particulars of sale of tickets each day. In AGT-1, the value of tickets sold on
Normal and Concessional Fare basis will be reported separately. In case tickets
are voided, the reasons therefore will be mentioned on the voided document.
Such documents will also be reported in AGT-1 with the remark 'voided' in the
"Remarks" column. Agents will also prepare sheet-wise Summary of AGT-1.
The total number of voided coupons will also be mentioned in the Summary of
AGT-1:
Agents will forward the original copy of AGT-1 to ARD on daily basis. The
audit coupons of the sold documents will be attached to each AGT-1 sheet in
the order of reporting.
• AGT-2:
Agents will prepare Form-AGT-2 in duplicate, consolidating the bookings made
during a fortnight. This form will show the value of bookings reported through
AGT-1. This form will also show the amount of commission due to the agent on
the bookings made during that fortnight. Agents will forward the original copy
of AGT-2 to ARD by the stipulated dates.
• AGT-3:
Agents will prepare Form-AGT-3, in duplicate, incorporating the particulars of
refunds affected during a fortnight. Agents will forward the original copy of
AGT-3 to ARD by the stipulated dates.
• AGT-4:
Agents will prepare AGT-4 in duplicate, consolidating the net booking reported
through AGT-2 and the net refunds reported through AGT-3. This form will
also show the particulars of Invoices/Debit Notes rose on the Agent and Credit
Notes issued to the Agent. This form will also show the net amount payable by
the agent in respect of the fortnight's transactions. Agents will forward the
original copy of AGT-4 together with copies of Credit Notes reported in AGT-4
and a Demand Draft for the net amount due to IAL, to ARD by the stipulated
dates.
d. Reconciliation:
Another major job of the Section is to prepare concealed summary of all the
transactions by each and every agent and the total revenue accrued. A TDS of
2.05% is to be deducted out of the commission of the agents and to be submitted to
the authority by stipulated dates. The Agency Section is also responsible to the
agents for providing the certificate of TDS, for them to file their annual return.
e.Billing of Charter:
Charter: It is a special arrangement, whereby for an agreed operation, the carrier
places the entire capacity of an aircraft at the disposal of the person requesting for
the charter.
Fixed charges for charter are:
Airbus-320 Rs. 330,000 /hr
A-300 Rs. 550,000 /hr
Boeing Rs. 260,000 /hr
f. Foreign transactions:
For the Indian Airlines agents abroad, all the transactions are carried through BSP
with the help of IATA agent. Sale of tickets, transfer of revenue and payment of
commission to agents, everything is done through IATA agents.
2. Screening Section
This section performs the sequential screening or checking of all the reporting forms and
executes Interline Billing. The basic function of the Screening Section is to screen:
a. Reporting Forms
b. Sales Records (JVs)
c. Interline Billing
d. Mail Statements recovered from outstations
a.Reporting Forms:
Reporting Forms are standard formats designed to report the sale of Cash Value
Documents (CVDs) that is basically the air tickets. The Reporting Forms in use in I.A.L.
are as follows:
b. Journal Vouchers:
It confirms that the tickets are issued serially by the agents and that they report them
along with the rates charged for the service along with details of any concession and
discount offered. For any discrepancies Debit Notes are issued to agents for the
same amount.
c.Interline Billing:
Suppose a Dealer at Bangkok wants to deliver some goods to Jaipur, the transit will
be as follows:
d. Mail Statement:
This is to keep a check on the weights transited as Mails and charge on them. The
various mail transits are as follows:
• State -to-State
• Region -to-Region
• Country-to-Country
• Speed Post etc.
Another job for the section is to keep a check on the money received for the
transactions. It needs to prepare all the bank documents regarding receipts, refunds
and concealed Net Receipts and dispatch them to the CRA or EDP along with the
Bank Statements confirming the deposit in Bank.
Bills Receivable Section deals basically with the recovery of the credit from the credit
parties. Indian Airlines as its policy, even issue tickets or provide service to certain
parties on credit and Bills Receivable Section deals with the recovery of this credit from
these credit parties.
1. Computer Cell: Indian Airlines issues tickets and provides services to certain
"credit parties" like Government Departments and big business houses. It
recovers the credit amount due from them on monthly basis.
These parties initially approach to the commercial department for the authorization. Once
the terms & conditions are signed a permanent credit code is allotted to the party. Now
with the authorization letter and the credit party code Indian Airlines services can be
availed on credit and the bills are sent to the party directly.
Authorities to avail services are given for a fixed period known as "Extension Period".
After the extension period, bills are drawn, payment is collected and the parties are
intimated to pay. However if the party fails to clear the bills within the stipulated time
period the authority is suspended.
2. Non-Computer Cell: The non computer cell recovers any credit due from
internal parties, that is, the employees. The collections from internal parties can
be on account of the following:
• Issuing Recovery Section: Sometimes due to human error there are short
collections on account of booking amount on cargo or packs at the stations. When
the Screening Section identifies such short collections it either asks the EDP or
itself raises the bill on Station. The Station manager follows it up and recovers the
amount.
• Staff Clearance: Bills Receivable Section also recovers the pending clearances
from the staff. Non Computer Cell maintains the records of the recovery from the
employees and raise the bills on staff accordingly which are further dispatched to
the payroll Section so as to be recovered from the salary of the employee.
Expenditure Division is responsible for accounting for the expenses made in the region.
This includes expenses on salary bills, purchase of stationery and any other
administrative expenses. The division however does not book any expenditure that is
related to the aircraft in any way.
1. Bill Passing-Local
All the goods, products and equipment that are required for the day-to-day operations by
the supporting departments are purchased in bulk to be stored in anticipation of future
requirement. The Bill Passing-Local passes all the bills regarding purchases like
centralized purchasing of uniform, catering, stationary etc. for all 5 regions.
a. Purchasing: The Store & Purchase Section places the purchase order for every
local purchase (including all cash sales). Three documents required for the
purchase order are:
a) Initial proposal by vendor.
b) Invoice by seller.
c) Confirmation by Receive & Dispatch Section.
Indentation by Section
Thus the major job of this Section is to maintain records for all the local,
purchases made and to pass the bills concerned. These goods are first brought to
Delhi and then dispatched to all 5 regions as per the requirement.
2. Bill Passing-Outstation
The northern region of Indian Airlines has its dealings in 15 outstation of which 14 are
online and 1(Bhillai) is offline. Bill Passing-Outstation is the controlling authority for
these outstations. They issue advance Imprest Cheques of a predetermined value to all the
stations on weekly basis. These cheques are always in name of Station Manager & he is
the designated person who has the authority to encash it. The Imprest amounts for various
outstations are as follows:-
The procedure by which the various stations meet their expenses is:
All the vouchers should come along with monthly expenditure statement and Station
Managers should sign all the Petty Cash Vouchers. Outstations can ask for the Special
Imprest Cheques whenever there is a need for meeting extraordinary expenses. At the end
of every financial year the Bank Section is subject to make a reconciliation Statement.
Closing Balances with the outstations should match the statement prepared by Bill
Passing section.
The major expenses for outstations are:
a) Hotel Bills: for the packs offered by Indian Airlines or stay over of packs, Cabin
crew & Cockpit crew.
b) Catering Bills: for the catering services provided onboard by various caterers
like Taj Caterers, Shelf Air Catering and Ambassador etc.
c) Medical bills: Bills of all the medical facilities provided to Indian Airlines
employees by hospitals, doctors or chemists.
d) Rent: All the land with Indian Airlines is on Lease, thus a monthly rent is given
to the Leaser (owner).
3. Provident Fund
The facility for provident fund is available to any employee only after the completion of
one complete year service. A 9% p.a. rate of interest is payable to employee on the
amount in Provident Fund. The amount of Provident Fund is calculated as follows:
Contribution to Provident Fund: 10% of Provident Fund Salary
Where Provident Fund Salary = Basic Salary + VDA + Special Allowances
(There is a provision for a Special pay or any Technical pay for engineers & Technicians
etc.)
Employees however have the option of withdrawing the amount from their Provident
Fund if ever required. The Provident Fund amount can be withdrawn in two ways:
Income Tax is charged on Provident Fund amount as per the taxation norms existing in
the country from time to time.
4. Payroll
This section is responsible for making the salary slips of the employees. When a person is
appointed the payroll section receives his joining letter and the various terms and
conditions on which he is appointed. The section issues the person a Staff Number. Thus
every employee has a staff number and is recognized by that.
The salary slip of the person includes basic data about the employee like the Staff
Number, Name, Designation Code, Designation, Station Code, Department Code, Date of
Birth (DOB), Date of Joining (DOJ), Bank Account number.
Other than these details it includes Basic Pay, Dearness Allowance (DA) and other
allowances. Even if the Government increases the DA the company does not increase it,
unless decided by their various unions. Some allowances are common to all employees
whereas some vary according to the agreements with the person.
The next items in the salary slip are the Statuary Deductions like Provident Fund, Income
Tax and Employee State Insurance (ESI). Salary slip also includes annual salary, taxable
salary, tax and rebates etc.
Cash and Bank section controls all payment and receipts relating to the particulars region.
Bank Book maintains the records of disbursement accounts at the outstations. Cash
Section deals with and maintains all the records concerning the cash payments and Bank
Section provides the concerned Banking treatment. It receives an advance sum of Rs. 1
crore 20 lakhs per month from the Head Quarters to meet all expenses in the region.
Another job with the section is to handle all the cash receipts, although Bank Section
does the concerned accounting. Cash Section is required to compile a concealed,
summarized monthly report for all the expenditure incurred by the Cash Section or all the
cash payments made by it. This report is to be forwarded to the "Finance and Budget
Section" every month. The retention period for such records is about 5 years.
Indian Airlines provide ground handling to various other airlines for which they charge
them. Indian Airlines has its own infrastructure, which other small airlines lack. Thus it
provides various infrastructure facilities to other airlines on a predetermined charge. For
recovering such charges due on other airlines Bill Raising & Realization Section raise
bills on such airlines. Thus the main job of the Section is to raise bills on other airlines
for the services provided and maintaining records for the same.
The Bureau of Civil Aviation Security under Indian Airlines provides security to other
airlines on charge basis for which similar billing is done by Bill Raising & Realization
Section. Whenever any service is provided, corresponding handling forms like Ground
Handling Form, Security Handling Form etc. are to be filled and on basis of these
handling forms bills are raised on other airlines.
b. Credit Parties: These parties avail the handling services of Indian Airlines on
credit and to them. The Bill Raising & Realization Section raises bills and
receives the amount from them thereafter.
All the bills to foreign Airlines are raised and settled through IATA clearance house.
Billing for all private VIP flights i.e. chartered flights for President, Prime Minister, Vice
President, is also done by Bill Raising & Realization Section. Bills are raised to the
concerned ministries and settlement is done thereafter.
Indian Airlines provide all Handling & Security services to Alliance Air, its subsidiary,
for which Bill Raising & Realization Section raises the bills on Alliance Air. These bills
are booked under the head "Handling Receipt". The revenue earned by Handling is
booked in Balance Sheet under the head "Non-Operating Revenue".
Finance &Budget Section is responsible for maintaining the Journal, Subsidiary Books
and General Ledger for facilitating reconciliation of the inter-region accounts,
maintaining a record of assets, providing deprecation thereon and keeping record of
deposits revived from contractor and supplier etc. The section also compiles budget
estimates and annual accounts relating to the region, which are submitted to the Head
Quarters.
CHAPTER - 5
AMALGAMATION OF AIR INDIA & INDIAN AIRLINES
The Government of India, on 1 March 2007, approved the merger of Air India and Indian
Airlines. Consequent to the above, a new Company viz National Aviation Company of
India Limited (NACIL) was incorporated under the Companies Act, 1956 on 30 March
2007 with its Registered Office at Airlines House, 113 Gurudwara Rakabganj Road, New
Delhi. The Certificate to Commence Business was obtained on 14 May 2007. Presently,
the Board of NACIL consists of:
• Shri Raghu Menon, Addl Secretary & Financial Advisor, Ministry of Civil
Aviation
• Shri R K Singh, Jt Secretary, Ministry of Civil Aviation
• Shri Rajiv Bansal, Director, Ministry of Civil Aviation
The most important development with respect to the company Indian Airlines has been
the merger of both the Public Sector carriers of India namely Indian Airlines Ltd. And
Air India Ltd With a new company namely National Aviation Company of India Ltd.
After the approval to the scheme of merger by the government of India, the ministry of
corporate Affairs vides their Order dated 22nd August 2007 has approved the scheme of
Amalgamation of Air India Limited and Indian Airlines Ltd With the National Aviation
Company of India Ltd (NACIL) with effect from 1st April 2007.
The merger of new company will enable the new company to generate further
momentum, as the combined strength of two companies will give various synergy
benefits resulting into financial benefits to NACIL.
Some of the benefits which will accrue to NACIL are:
• Route Rationalization
• Fuel Procurement
• Engineering
• Stores & Inventory Purchase both aircraft and non aircraft
• Insurance benefits
• Handling of flights
• Employee Productivity
The Scheme of Amalgamation of Air India Limited and Indian Airlines Limited with
National Aviation Company of India Limited was approved by the Board of Directors of
all the three Companies.
Thereafter, the Meetings of Secured and Unsecured Creditors of Air India and Indian
Airlines were held in New Delhi on 28 June 2007, in which the Scheme of Amalgamation
was approved by the Creditors. The final hearing of the merger petition was held on 31
July 2007 wherein the last date for submissions of objections was fixed on 8 August
2007 and the Order of the Ministry of Corporate Affairs is awaited.
The Authorized and Paid-Up Share Capital of the merged entity will be Rs.1500, 05,
00,000/- and Rs.145,00,00,000/- respectively.
It has been decided that post merger, the new entity will be known as “Air India” while
“Maharaja” will be retained as its mascot. The logo of the new airline will be a red
colored flying swan with the “Konark Chakra” in orange placed inside it. The flying
swan has been morphed from Air India’s characteristic logo “The Centaur” whereas the
“Konark Chakra” was reminiscent of Indian’s logo. The Corporate Office of NACIL will
beatMumbai.
The Government has approved the appointment of Shri V Thulasidas and Dr V Trivedi as
Chairman & Managing Director and Joint Managing Director, respectively, of the
merged entity, with effect from the date of merger.
Result of Amalgmation
Transfer of assets:
As per the section 391-394 all the assets of both the companies are managed by the
National Aviation Company of India Limited. It includes all intangible assets, land,
buildings etc.
As well as all the: Subsidiary companies Of Indian Airlines i.e,
• Airlines Allied Services Ltd.
• Vayoodoot Limited
• IAL Airports Services Limited& Subsidiary Companies of Air India i.e.
• Air India Engineering Services Limited
• Air India Air Transport Services Limited
• Hotel Corporation Of India Limited
• Air India Charters Limited
Shall become the subsidiaries of the NACIL.
Transfer of Liabilities
All loans raised and used and liabilities incurred by both the companies are transferred to
the National Aviation Company of India Limited.
• As per the news published in March 29, 2007: The amalgamation is indeed going
to be one of the land marks in India’s aviation history. With Air India and Indian
Airlines boasting of a combined fleet of 122 aircraft and over 34,000 employees,
including 1,315 pilots, the merger will create one of the largest airlines in the
world in terms of the number of aircraft. According to reports the government
expects the merged entity to save around Rs 5,000 crore on an annual basis from
synergies in operations and sharing common facilities. Meanwhile, a sticky issue
is also being sorted out simultaneously as the two carriers speed ahead towards
the merger. The Union government has assured airline employees that their
interests, including employment conditions, wages, seniority and career
progression, would be taken care of and a grievance redressal mechanism would
be in place to protect their interests. The suggestion is that a careful integration of
manpower needs be done at various levels. Consultant Accenture has reportedly
mooted a top-to bottom integration of the employees and has proposed that the
pay scales be revised to bring parity in promotion procedures, according to a
report. So with almost all issues now being sorted out, the runway is hassle free,
well almost. The biggest airline will see more planes flying into its stables too.
The two carriers have placed orders for more aircraft. Reports said that Air-India
has ordered 68 Boeings, while Indian has finalized the acquisition of 43 Airbus
aircraft. So by year 2011, these new planes will also be Air Indian’s own, making
its stock soar high in the industry and service circles.
• Mr. kapil kaul , chief executive for South Asia for Centre for Asia Pacific
Aviation, a leading airline industry think tank said 'The two state-owned carriers
have both suffered from years of under-investment in their fleet and products,''A
combined Air India-Indian Airlines has the potential to become a major global
player if the merger is completed quickly. A full restructuring must also follow to
allow them to realise their potential,’ Finally, there must be partial sale of equity
by way of an initial public offer to help induce professionalism and market
dynamics, followed by privatisation over the next five years or so.
Positive aspects
• According to industry experts, the merged entity will have a fleet size of 125 new
generation aircraft by 2010 after new aircraft are added and some of the existing
ones are phased out to emerge among the top 30 carriers globally. The turnover
will also top Rs.150 billion.
• At a macro level, experts say the merger between the two state-run carriers will
see the beginning of the process of consolidation in the Indian aviation space - the
fastest growing in the world followed by China, Indonesia and Thailand.
• The merger to create an airline with 125-130 aircraft which is Asia’s biggest
airlines and soon more aircrafts are to be purchase.
• The cost is also going to reduce because the new routes and timetables of flights
are made according to the need and through which proper utilization of resources
are made.
Negative aspects
CONCLUSION
From the above brief discussion of the facts and figure we can easily conclude that the
merger plays huge advantage not only for the growth and survival of the companies but
also to be in market.
As we know, the merged entity will have a fleet size of 125 new generation aircraft by
the end of 2010 after new aircraft are added and some of the existing ones are phased out
to emerge among the top 30 carriers globally. The turnover will also top Rs.150 billion.
This will showing that both Indian airlines and air India going on right track and soon it
will become the No.1 Airline player.
CHAPTER - 6
RATIO ANALYSIS OF N.A.C.I.L, AIR INDIA & INDIAN
AIRLINES
Financial analysis is the starting point of making plans, before using any sophisticated
forecasting and planning procedures. Understanding the past is a prerequisite for
anticipating the future. Management should be particularly interested in knowing
financial strength of the firm to make their best use and to be able to spot out financial
weakness of the firm to take suitable corrective action. The future plans of the firm
should be laid down in view of the firm’s financial strengths and weakness.
Following ratios have been calculated:-
Liquidity Ratios:
1. Current Ratio
2. Quick Ratio
Leverage Ratios:
1. Debt Equity Ratio
Activity Ratios:
1. Fixed Assets Turnover Ratio
2. Inventory Turnover Ratio
3. Debtors Turnover Ratio
4. Current Asset Turnover Ratio
Profitability Ratios:
1. Net Profit Ratio
2. Return on equity
3. Return on Investment
CURRENT RATIO
The current ratio is the ratio of total current assets to current liabilities. It is calculated by
dividing current assets by current liabilities. Current Ratio is considered satisfactory if it
is 2:1. If the value of current assets becomes half, the organization will be able to meet its
obligation. The current ratio of NACIL meets the bare minimum of 1.33, which is
considered by banks as the minimum acceptable level for providing working capital
finance. The ratio indicates that the company not enjoys a better financial health and
would not be able to meet its immediate debts.
QUICK RATIO
Quick ratio refers to current assets which can be converted into cash immediately or at a
short notice. The quick ratio is the ratio between quick current assets and current
liabilities and is calculated by dividing the quick assets by current liabilities. The Quick
Ratio is quite satisfactory.
DEBT-EQUITY RATIO
Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value
of fixed assets (on the balance sheet). It indicates how well the business is using its fixed
assets to generate sales Higher the ratio, the better, because a high ratio indicates the
business has less money tied up in fixed assets for each dollar of sales revenue. A
declining ratio may indicate that the business is over-invested in plant, equipment, or
other fixed assets. This ratio shows the firm’s ability in generating sales from all financial
resources committed to Total Assets. It is calculated to know the utilization of fixed
assets. Here we see that FATR for NACIL is very high, the reasons for this high FATR is
the fact that the combined assets of Air India & Indian Airlines which have been merged
into NACIL have been booked at fair value i.e. their current values, hence high FTR for
NACIL.
INVENTORY TURNOVER RATIO
It indicates that how quickly the inventory is sold. High ratio is always better than low
ratio as it shows good inventory management. Low ratio adversely affects the ability to
meet customer demand which is bad for company’s image. The ITR of NACIL is quite
low.
DEBTOR TURNOVER RATIO
This ratio is also known as Debtors velocity. The higher the value of DTR the more
efficient is the management of credits. The ratio has declined for IA. Also DTR for Air
India has declined. For NACIL DTR is decent if compared to DTR’s of Air India &
Indian Airlines.
Current Assets Turnover ratio shows the productivity of the company's current assets.
Here we see that the CATR was very high for both the companies, hence it shows that the
company’s current assets were highly productive. CATR for NACIL is also satisfactory
which shows that company’s current assets are highly productive.
RETURN ON EQUITY
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Indian Airlines .0656 .0975 .0494 -.0240
Air India .0060 .0062 .0009 -.0110
NACIL -.27
Return on Equity measures the rate of return on the ownership interest (shareholders'
equity) of the common stock owners. It measures a firm's efficiency at generating profits
from every dollar of shareholders' equity. It shows how well a company uses investment
dollars to generate earnings growth. ROE is equal to a fiscal year's net income (after
preferred stock dividends but before common stock dividends) divided by total equity
(excluding preferred shares), expressed as a percentage. Here the ROE for Indian Airlines
is much higher as compared to Air India. Return on Equity for NACIL is negative, it
shows that investors will not really be interested in investing in NACIL.
RETURN ON INVESTMENT
It explains the relationship between EBIT (net of taxes) and Capital Employed. ROI has
sharply declined due to decline in EBIT, after 2005-06. It shows that the investment is
not yielding a satisfactory return due to increase in expenses and decline in EBIT. Return
on Investment for NACIL is also negative, which shows that investing in NACIL is not
beneficial.
CHAPTER – 7
SWOT ANALYSIS OF NACIL (AIR INDIA)
Air India is the leading airlines in the India. Air India is based on domestic enplaned
passengers and scheduled domestic departures. Air India has shown a strong performance
in revenues in 2008. Strong operating performance lends financial stability to the
company which could be leveraged to seek more growth avenues of growth in future.
However, the rising prices of aviation turbine fuel could adversely affect Air India
operating margins.
STRENGTHS
• Operational Performance
During fiscal year 2008, the company’s revenue growth was driven by increase in
passenger segment revenue and merger with Indian airlines. The increase in passenger
revenues primarily was due to an increase in capacity, and an increase in load factor. In
addition the revenue growth is backed by growth in freight and cargo revenues, which
was a result of higher rates charged. This growth was also partly driven by improved
efficiency in the company’s operations. Strong operating performance lends financial
stability to the company which could be leveraged to seek more growth avenues in the
future.
• Market Leadership
Air India is the leading airlines in the India. The airline has been ranked the top in India’s
domestic airline (in terms of number of passengers) by the bureau of transportation
statistics (BTS) in 2005. Air India newly orders about 68 from Boeing and 43 from
Airbus. Air India dominates the markets it serves, ranking first in market share in India.
Its strong market position is driven not just by consistent delivery of low fares but also
due to reliable service, frequent and convenient flights, comfortable cabins, in-flight
experience, frequent flyer programs, hassle-free airports, and friendly customer service.
Strong market position gives the company the advantage of scale and helps it in
strengthening its brand image.
WEAKNESSES
NACIL sells space, which is highly perishable. This is because idle capacity would imply
opportunity lost. Capacity means the total number of seats offered by NACIL daily to its
passengers.
OPPORTUNITIES
In mature markets demand for air travel is increasingly being driven by ticket price and
consumer confidence. A survey by the US Commerce Department shows that ticket price
is the number one criterion for passengers when selecting a flight, well ahead of the
availability of a non-stop service. As markets have progressively matured, the GDP
elasticity of air travel demand has declined. In the US for example, a 1% growth in GDP
will typically result in a 1.2% growth in domestic air travel, compared with a growth of
almost 2% in air travel some 20 years ago.
The Indian economy is one of the fastest growing in the world, but the boom is not
without its stops, starts, and bottlenecks, all of which also make themselves felt in the
country’s freight transport sector. Air India had also launched a major cargo incentive
scheme for cargo agents of Air India and erstwhile Indian on the entire network. The
scheme, which generated enormous response, entitled top producing agents of each
region to become eligible for an all-inclusive incentive trip on Star Cruise.
The demand for air travel to the Asia Pacific is rising driven by increased economic
activity in emerging Asian countries such as China and India. Traffic is projected to grow
at 7% in China and India combined, above the world average of 5%. Further, the share of
Asia Pacific region in world passenger traffic (revenue passenger kilometers) is forecast
to rise from 25% in 2003 to 31% in 2023. Against this backdrop, Air India well
positioned to benefit with its increasing emphasis on Asia-Pacific operations.
THREATS
The price of aviation turbine fuel (ATF) has soared to record highs in the past few years
and continues to hold at that level. Last few years have once again clearly highlighted the
highly cyclical nature of the Aviation industry worldwide. The ATF prices in India are
substantially higher than its price in international markets. Aircraft fuel is a major
contributor to Air India operating expenses. Moreover, the bonded price applicable for
international flights ex-India is higher than the ATF price in the international markets.
Priced 65% higher in India on an average, compared to international benchmarks.
Therefore, this will need stronger revenue growth and greater cost controls in other areas
to overcome the increase in fuel prices.
The past few years have seen Central Banks impose higher interest rates to check
inflation and the overheating of regional economies. The Reserve Bank of India has led
the way raising interest rates. Inflation fears in the India may see another raise in the
short-term. According to Economics times, the India real GDP growth is 9.20% in 2007
to 9.00% in 2008 and this downward trend is also seen in 2009. This in turn could
depress consumer spending and offset some of the positive trends in the India for the
company.
• Intensifying Competetion
AIR INDIA is now competing against more credible low cost carriers such as Spice jet,
Go air, Indigo Airline, and Jetlite etc. Indigo Airlines remains Air India strongest
competitor because of its competitive cost structure, strong brand name and ambitious
growth plans over the next seven years. Air India also faces increased competition from
Air Deccan low-fares subsidiary, Song. Moreover, major legacy airlines have been
focusing on restructuring costs, which has improved their competitiveness. With costs
restructured, the legacy airlines are becoming more formidable competitors in terms of
increasing capacity, matching prices and leveraging their frequent flier programs.
Increasing competition could adversely affect the company’s margins.
CHAPTER - 8
ISSUE AND CHALLENGES FACED
• Increased Competetion
• Overstaffing
The Indian Aviation industry has hit an air pocket, forcing three largest airlines NACIL,
Kingfisher and Jet Airways to scramble into salvage mode. In India, on the back of
soaring fuel prices and dwindling passenger loads, there is need for cost cutting
initiatives. Following are the recommendations:-
• Changing Schedules
To overcome the losses NACIL can change the schedules of flights to increase passenger
loads.
• No New Recruitments
NACIL is suffering from the problem of overstaffing so they should not do fresh
recruitments unless it is essentially required.
Beside cost cutting initiative other recommendation to attain zero net working capital
are:-
• Improving Collection and Payment Period
The company should aim at reducing its collections period to around 25 to 30 days while
bringing the payment period down to 35 to 40 days over the next three years. This will
help it in increasing its debtor turnover resulting in a decrease in the collection period and
increase in the availability of the funds with the organization. At the same time a fall in
payment period will improve the working capital position of the company. Thus NACIL
would be able to decrease its creditors to a great extent and at the same time improve its
creditworthiness.
The company should raise long term funds either by issuing shares or debentures or any
other long term credit. It may also raise debt by issuing External Commercial Borrowings
(ECBs). As the rates of interest are lower in Japan, European Countries and America, it
can raise low cost long term debt to partly replace the current liabilities that are being
used to finance the fixed assets. Other than ECBs shares and debentures are also
sustainable sources of long term finance.
NACIL can cover a part of the increased financing costs due to resorting to long term
finance by investing a part of its funds in short term marketable securities. This will serve
the dual purpose of having productive and yet liquid funds. For more profitable short
term funds NACIL can form a special team of investment managers who can manage
both the long term and short term funds.