Indian Airlines

EXECUTIVE SUMMARY
Indian Airlines have been constantly innovating and upgrading its fleet and today is one of
the largest domestic airlines in the world with the fleet of 55 aircrafts including A320s A300s
and Boeing 737s.
Indian Airlines operates 220 flights everyday carrying more than 22000 passengers on its
networ!. It connects "3 domestic and #$ international stations li!e %ingapore &uala 'umpur
Bang!o! &atmandu &uwait %har(ah and )uscat etc.
*he pro(ect gives an insight to various aspects of finance department that are finance and
e+penditure division revenue division budget section effective management of wor!ing
capital analysis of financial statement and comparison with its closest competitors. *he
pro(ect is divided into five module beginning with the industry and company introduction to
various financial aspects of the company as mentioned above.
,inancial data of the companies was collected from the annual reports of the companies and
through relevant websites. ,or interpretation of data various financial tools and techni-ues
mainly ratio analysis is applied.

)anagement analysis of financial statement helps management to plan evaluate and control
operations within the company. *his helps in ma!ing difficult decisions such as which
employee to lay. off and when to e+pand operations.
Amity International Business %chool #
METHODOLOGY
*he analysis done is based on primary and secondary data. *he data was made available by
the regional financial office at /alam. I visited various sections of finance department of
Indian Airlines and tried to understand their day to day wor!ing. *he various section heads
helped me a lot in getting familiari0ed with the wor!ing of their sections. and company
annual report
I analy0ed the financial statements of Indian Airlines for understanding the 1or!ing 2apital
)anagement in the organi0ation. I have used the ,unds ,low %tatements 2ash ,low
%tatements and 3atio Analysis to uncover the problems faced by the 2ompany.
Amity International Business %chool 2
LEARNING OBJECTIVE
4escribe and e+plain the ob(ective of financial statement analysis.
4escribe the sources of information for financial statement analysis.
2alculate and e+plain the changes in financial statements using hori0ontal analysis
vertical analysis and trend analysis.
/erform ratio analysis on financial statement using li-uidity ratios long term
solvency ratio profitability test and mar!et test.
4escribe the considerations in financial statement analysis.

SCOPE OF THE STUDY
)anagement analysis of financial statement helps management to plan evaluate and control
operations within the company .this helps in ma!ing difficult decisions such as which
employee to lay off and when to e+pand operations.
Investors creditors and regulatory agencies generally focus their analysis of financial
statements on company as a whole. *hese statements include income statement balance
sheet a statement of stoc!holders e-uity a statement of flows of funds and cash and the
e+planatory notes that accompany the financial statements.
*he two primary ob(ective of every business are solvency and profitability.
Solvency is the ability of a company5s to pay its debts as they come due6 it is reflected on
company balance sheet profitability is the ability of a company to generate income6 it is
reflected on the company income statement.
*his study deals with several common methods of analy0ing and relating the data in financial
statements and as a result gaining a clear picture of the solvency and profitability of a
company.
LIMITATIONS
*his financial analysis is sub(ect to the following assumptions and limiting conditions8
#9 Information estimates and opinions contained in this report are obtained from
sources considered to be reliable. :owever we assume no liability for such sources.
29 ;*his financial analysis assumes that the 2ompany will continue to operate as a
going concern and that the character of its present business will remain intact.9
39 *he analysis contemplates facts and conditions e+isting as of the analysis date.
<vents and conditions occurring after that date have not been considered and we
have no obligation to update our report for such events and conditions.
79 Its only a study of interim reports
59 Analysis is based only on monetary information and non monetary factors are
ignored
"9 /rice level changes are not considered
79 =oing concern principle does not allow the analysis to give an e+act picture.
>9 Analysis is only a means and not an end in itself. *he analyst ma!es interpretation
and draws his own conclusions. 4ifferent people do it differently.
$9 2hanges in accounting procedure by a firm may often ma!e financial statements
misleading.
Cr!c"l reve# o$ l!er"!%re
,inancial statement analysis
,inancial statement analysis consists of applying analytical tools and techni-ues to financial
statements and other relevant data to obtain useful information. *his information reveals
significant relationships between data and trends in those data that assesses the company past
performance and current financial position. *he information shows the result of
conse-uences of prior management decisions. In addition it helps to ma!e predictions that
may have a direct effect on the decisions made by users of financial statement.
/resent and potential investors are interested in the future ability of a company to earn profits
its profitability. *hese investors wish to predict future dividends and changes in the mar!et
price of the company5s common stoc!. %ince both dividends and mar!et price changes are
li!ely to influence by earnings investors may predict earning. *he company past earnings
record is the logical starting point in predicting future earning.
%ome outside parties li!e creditors are more interested in predicting company5s solvency
rather than its profitability. *he li-uidity of the company affects its short term solvency. *he
company5s li-uidity I is its state of possessing li-uid assets such as cash and other assets
easily converted into cash. Because companies must pay short term debt soon li-uid assets
must be available for their payment.
'ong term creditors are interested in a company long term solvency which is usually
determined by the relationship of a company asset to its liabilities. =enerally we consider a
company to be solvent when its assets e+ceed its liabilities so that the company has positive
stoc!holders e-uity. *he larger the assets are in relation to its liabilities the greater the long
term solvency of the company.
Amity International Business %chool "
Investors perform several types of analysis on a company5s financial statement. All of these
analyses rely on comparison or relationships of data that enhance the utility or practical value
of accounting in formations.
%uch comparisons or relationships may be e+pressed as8
# absolute increase or decreases for an item from one period to ne+t.
2 percentages increases and decreases for an item from one period to ne+t
3 percentages of single items to an aggregate total.
7 trend percentages.
5 ratios.
S!e&' nvolve( n $n"nc"l '!"!e)en! "n"ly''
# )ethodical classification6
2 2omparisons of various inter connected figures with each other by different
?tools of financial analysis@
*ools of financial analysis
# comparative financial statement8 the comparative financial statements are those
statements which have been designed in a way to provide time perspectives to the
considerations of various elements of financial position embodied in such statements. In
these statements figures for two or more periods are placed side by side to facilitate
comparisons.
2omparative income statements8 it discloses net profitAnet loss on account of
operations. A comparative income statement will show absolute figures for two or
more periods the absolute change from one period to another and if desired the
change in terms of percentages.
2omparative balance sheet8 comparative balance sheet as on two or more different
dates can be used for comparing assets and liabilities and finding any increase or
decrease in those items.
2 common si0e financial statements8 these are those statements in which figures
reported are converted into percentages to some common base. In income statements the
sales figures are assume to be #00 and all figures are e+pressed as a percentage of sales.
%imilarly in balance sheet total of assets or liabilities are ta!en as #00 and all the figures
are e+pressed as a percentage of this total. *hese statements give information about trend
of individual items relationship to total.
,or the analysis of such statements between two firms they must be of the same si0e and
of same age.
3 *rend percentages8 trend percentages are immensely helpful in ma!ing study of
financial statements for several years. *he method of calculating trend percentages
involves the calculation of percentage relationship that each item bears to the same item
in the base year.
*he method of trend percentage is a useful analytical device for the management since by
substitution of percentages for large amounts6 the brevity and readability are achieved.
*hey are usually calculated only for ma(or items since the purpose is to highlight
important changes.
7 ,und ,low Analysis8 fund flow analysis has become an important tool in the analytical
!it of financial analysts credit granting institutions and financial managers.
5 3atio Analysis this is the most important tool available to financial analysts for their
wor!. An accounting ratio shows the relationship in mathematical terms between two
interrelated accounting figures. *he figures being compared must have some interrelation as
no purpose will be solved if the ratios are calculated between two figures which are not at all
related.

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INDUSTRY PROFILE
HISTORY OF CIVIL AVIATION
Air transport is the most modern the -uic!est 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 e+pensive and is also
unsuitable for carrying heavy bul!y goods. :owever transportation of high value
light goods and perishable goods is increasingly being done by air transport.
In #$2$ Beville Cincent a former 3A, pilot came to India from Britain (oined
*A*A %ons and made a survey of all possible air routes. :e presented the scheme to
4irector of *A*A %ons. In Dct #$32 *A*A %ons 'td which later become Air India
International commenced wee!ly airmail services between &arachi and )adras via
Allahabad and )umbai.
'ater two more airlines cameE*he Indian Bational Airways came into e+istence in
#$33 and Air %ervices of India into #$37. After the 2
nd
1orld 1ar the =overnment
of India announced a new policy for the 4evelopment of Air *ransport %ervices. In
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the first two years it came into e+istence6 the =overnment gave license to ##
companies to operate air services in different regions.
At the time of independence there were $ airlines operating with and beyond the
frontiers of the country carrying both air cargo and passengers. It was reduced to >
with Drient Airways shifting to /a!istan. *hese were8
Airways India 'td.
Air %ervices India 'td.
Bharat Airways 'td.
4eccan Airways 'td.
:imalayan Aviation 'td.
Indian Bational Airways 'td.
&alinga Airlines.
*a!ing into consideration to deteriorating financial position of the conglomeration
of private airlines the =ovt. nationali0ed the Airlines Industry in #$53 through Air
2orporation Ace #$53.
Bationali0ation resulted in creation of two companiesEIndian Airlines 2orporation
;operating domestic services and short range International services to ad(acent
countries9 F Air India International ;operate for overseas services9 F assets of all
then e+isting companies transferred to those companies.
,oreign airlines carrying international passenger traffic to and from India e+isted
long before Independence. *heir operations are governed by bilateral agreements
signed from time to time between the =overnment of India and the governments of
Amity International Business %chool #0
respective countries. In #$>0.># the number of such airlines was 35. It rose to 7$
in #$$".$7.
*he share of foreign airlines in IndiaGs scheduled international traffic has increased.
In #$7# their share was 55.5> per cent which went up to "5 per cent and declined
to 5> per cent during #$72.75. It fell to 55.72 per cent in #$7" and further to 55.02
per cent in #$77. Between #$7> and #$$0 it gradually increased and rose to 75.$3
per cent. In #$$" the share was nearly 72 per cent.
*he act prohibited any other than two companies to operate any schedule air
transport to or across India. *he repeal of Air 2orporation Act from #
st
)arch #$$7
enabled private operators to provide air transport services. <ight operators got the
nod to commence operation out of which only two have survived8
Het airways
%ahara India
Aviation services in developed countries are categori0ed into three levels8
#. Tr%n* Ro%!e'. 1hich connect ma(or city pairs
2. Re+on"l Ar Servce' . 1hich connect smaller towns over shorter distances
with small aircraft
3. Non,Sc-e(%le( Servce' . 1hich include air ta+i charters corporate or
private aviation
In India unfortunately the regional and non.scheduled or *ier 2 and *ier 3 services
are almost non e+istent. <ven though such services normally constitute a small
percentage of domestic air services the importance of such services should not be
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under.estimated as general aviation forms the entry point for personnel to enter the
industry and gain grassroots e+perience.
In #$53 a new dream too! shape I to air lin! the vast %outh Asian subcontinent by a
single modern and efficient airline. *he airline was Indian Airlines. *oday Indian
Airlines together with its fully owned subsidiary Alliance Air is one of the largest
regional Airlines system in Asia with a fleet of 5" aircrafts > wide bodied Airbus
A300s 37 ,ly.by.wire Airbus A320s ## Boeing 737s and 3 4ornier 4.2>>
aircrafts.
Indian Airlines has been setting the standards for civil aviation in India since its
inception in #$53. It has many firsts to its credit including introduction of the wide
bodied A300 aircraft on the domestic networ! the fly.by.wire A320 4omestic
%huttle %ervice and 1al!.in.,lights. Its uni-ue orange and white logo embla0oned
on the tails of all its aircrafts is perhaps the most widely recogni0ed Indian brand
symbol that over the years has become synonymous with services efficiency and
reliability.
%ince the past two years 2ivil Aviation in India has made giant strides and
is today a ma(or contributor to the growth of the national economy. Apart from
providing connectivity in a large and diverse country li!e India and serving the
transportation needs of the people in a speedy cost.effective and efficient manner
the aviation sector has also greatly facilitated the development of domestic and
international tourism business commerce and trade. 4uring the last two years
Indian 2ivil Aviation Industry witnessed significant opening up of Indian s!ies
paving the way for increased international and domestic connectivity. In fact air
travel for the first time has become affordable for the common man.
Boom in Air *ravel
*he recent growth in the 2ivil Aviation %ector has been more than encouraging. In
the first three years of the tenth plan air transport has grown at an average rate of
per cent per annum as against the plan estimate of 5 per cent. In fact during the
year 2007.05 air transport witnessed a very high growth of above 27 per cent. *he
=overnment is therefore convinced that an average growth rate of #" per cent p.a.
is achievable by 20#0. %uch growth can be achieved with a paradigm shift towards
greater liberali0ation and significant private sector participation in infrastructure
development.
*he present macro economic forecast in the country is ".> per cent =4/
growth rate over the coming years and already India is the fourth largest economy
in the world in terms of purchasing power parity with its 300 million strong middle
class. *he growth of service sector now demands a faster safer and wider networ!
of air service. If the present growth trend can be sustained civil aviation will be
the reason for the ?ta!e off@ of the Indian economy.
<ntrepreneurs ban!ers financiers and investors world.wide are now
convinced about the healthy growth prospects for 2ivil Aviation in India.
*herefore it is not surprising that a number of new airlines are proposing to enter
the mar!et while e+isting airlines are going for significant fleet
e+pansionArenewal. ,ive new airlines vi0.
Air 4eccan &ingfisher %pice Het /aramount Airways and =o Airlines have started
operations in past one and a half year or so. *wo more new airlines vi0. Indigo and
Indus Airways are e+pected to start operations shortly.
*here has also been a significant increase in both domestic and international air
traffic as well as cargo in India during the year 2007.05.
AAI handled 7.3 la!h aircraft movements ;#2J over the previous year9
5$ million passengers ;20J over the previous year9
#.3 million tones of cargo ;22J over the previous year9
*raffic trends8
Kear Aircraft movements /assenger movements
;in million9
2argo movements ;in tones9
Intl. 4om. *otal Intl. 4om. *otal Intl. 4om. *otal
200#.
02
#07>27 702#0> 50$$32 #3."2 2".3" 3$.$> 5"022" 2$7050 >5727"
2002. ##"772 77720> 5"0"50 #7.>2 2>.$0 73.72 "7"#37 333222 $7$35$
03
2003.
07
#32$37 50"072 "3>$7" #"."2 32.0> 7>.70 "$3#73 37502$ #0">202
2007.
05
#5>#$# 57#>27 7300#> #$.75 70.0$ 5$.57 >27>7" 7"503" #2>$$#2

COMPANY PROFILE
INDIAN AIRLINES LIMITED
Indian Airlines have been constantly innovating and upgrading its fleet and today is
one of the largest domestic airlines in the world with the fleet of 55 aircrafts
including A320s A300s and Boeing 737s.
Indian Airlines operates 220 flights everyday carrying more than 22000 passengers
on its networ!. It connects "3 domestic and #$ international stations li!e %ingapore
&uala 'umpur Bang!o! &atmandu &uwait %har(ah and )uscat etc.
*he airlines have grown from strength to strength by !eeping an e+cellent trac!
record of manpower and infrastructure development. Its internationally recogni0ed
pilots training academy the 2entral *raining <stablishment ;2*<9 ay :yderabad is
totally self.sufficient in training pilots engineers cabin crew and other personnel.
In addition to this Indian Airlines is self sufficient in aircraft maintenance5s to !eep
its aircraft in top flying condition.
Before #$53 i.e. before these airlines merged to from Indian Airlines there was no
set of rules and standards of operations of the airlines. *he operations mainly were
competition oriented and the result of which was that every airlines wanted to be
the cheapest one. *hus all most all the airlines did not have enough money to
maintain the aircraft5s. *hey presented an e+cellent e+ample of unhealthy
competition. Lltimately the =ovt. too! over by passing the Air 2orporation Act and
Indian Airlines come into being. *he Board of 4irector5s conducts the affairs of the
corporations.
Indian Airlines is one of the public sector corporations in India. A statutory
corporation li!e Indian Airlines is formed with definite ob(ectives in the interest of
the public tough based on pre.set principles.
*he ob(ective functions of Indian Airlines are as follows8
It shall be the function of the corporation to provide safe efficient ade-uate
economical and property co.ordinate air transport services whether 4omestic or
International or both.
2orporation shall so e+ercise their power as to secure that air transport services are
developed to the best advantage and in particular so e+ercise their power as to
secure that the services are provided at reasonable charges.
*he opening up of the s!ies in #$$2.$3 thrust Indian Airlines into a new
environment of competition and gave rise to greater e+pectations of the passengers.
Indian Airlines has faced the competition with aplomb catering to enhanced
passengers needs with various product upgrades and mar!eting initiatives. And at
the same time it has continued to fulfill its social obligations. *he airlines have
augmented its fleet of aircraft by leasing 5 Boeing 737 and 2 A.320 aircraft. /lans
are also underway to purchase new aircraft and thereby strive to establish itself as a
technology and mar!et driven organi0ation.
Indian Airlines operates a complement of 5> aircraft8 30 A.320s ## A.300s ##
Boeing.737 and 3 4ornier.022>s.
)umbai is the ma(or maintenance base for A.300 aircraft Avionics ;Aviation
<lectronics9 shops at A*<2 ;Automatic *est <-uipment 2omple+9 ta!e care of
repair and certification of all computers on board. Accessories overhaul division
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meets the needs of wheels bra!es and hydraulic is !nown does a complete overhaul
of A.300 engine only detail parts are sent abroad for repair.
4elhi is the ma(or maintenance base for A.320 and Boeing.737 aircraft. *he ?A@
chec!s for A.320 is carried out primarily in :yderabad and if need arises also in
4elhi. ?2@ chec!s 5 years and $ years are carried in 4elhi too.
Boeing.737 72A72 chec!s are carried out in 4elhi. 4elhi and &ol!ata both have
facility to carryout MA5 MB5 and M2@ chec!s on Boeing.737 aircraft but this (ob is
primarily carried out at &ol!ata. 1ell e-uipped Avionics overhaul shops at 4elhi
aid in.house repair to ma(ority of A320 and Boeing.737 components.
Het engines overhaul centers a multi.millionaire dollar enterprise underta!es repairs
to both C2500 AI engines of A.320 as well as H*>4.$A F H*>4.#7A engines of
Boeing.737 aircrafts. <ngines are dismantled. /arts replaced and state of art test
house. Dnly some modules and blades are sent abroad for refurbishment.
A full.fledge A/L repair center at &ol!ata ta!es the entire wor! of A/L5s from all
three aircrafts. %i+ ma(or stations namely 4elhi )umbai &ol!ata :yderabad
2hennai and Bangalore also e+tended night halt facilities for all three types of Het
aircrafts.
Indian Airlines is a /ublic utility under the Industrial 4ispute Act #$77 has to wor!
in the interest of public. In the view of this the corporation is accountable to public
through the government and parliament for its activities. *he control is two.fold8
*o see that corporation does not deviate from its ob(ectives.
*o have financial control because the funds of the corporation are derived from
public funds.
Sy).ol
Bonoy %ar!ar designed the new symbol. *he symbol chosen is based on the golden
section of ancient =ree!s. 'e 2rosier brought it in to favor. It is aesthetic and has a
pleasant format division. =eometrically simple and fits the letters ?IA @for Indian
Airlines.
*he letter ?I@ and first sto!es of letter ?A@ have been agreement by truncating the
first sto!e6 a device that also suggest the hori0ontal bar of letter has been !ept
vertical to suggests reliability. *he logotype has been specially designed in a
character based on a bold sans serif type phase. A particular shade of average
verging on the rust has been chosen as the house color.
Amity International Business %chool #>
Ne!#or*
*he Indian Airlines 'td. covers "0 domestic stations and #7 international stations out of
which #" are online and # is offline ;'ahore9. *he Indian Airlines 'td. International networ!
covers &uwait Dman LA< Natar Bahrain 1est Asia and /a!istan Bepal Bangladesh
)yanmar %ri 'an!a and )aldives in south Asia %ub 2ontinent.
Amity International Business %chool #$
S/OT ANALYSIS
,or a country of continental si0e li!e India a strong reliable and efficient 2ivil
Aviation %ector goes a long way in promoting and sustaining tourism. Indian
Airlines being a leader in this industry cannot operate in a vacuum. It needs to !eep
its eyes and ears open to survive in the liberali0ed economy of our country which
has paved a way for any private airlines to operate along with it. *he internal and
e+ternal environments contain various strengths wea!nesses opportunities and
threats which need to be identified well in an advance to ta!e care of various
situations that may arise from time to mime. 1e shall now try to focus on the above
mentioned factors in conte+t with present scenario one by one.
STRENGTHS
In$r"'!r%c!%r"l S%&&or!8 *he most notable strength of Indian Airlines
'imited is its vast infrastructural support built over five decades. *his has helped it
reduce its costs and at the same time increase its efficiencies. *he most notable
among its infrastructure are the 2entral *raining <stablishment ;2*<9 and Het
<ngine Dverhaul 2omple+ ;H<D29.
Flee!0' S!ren+!-8 Indian Airlines 'imited is one of the largest domestic airlines
in the world and is e-uipped with modern fleet of Airbus A.300 A.320 4ornier
A*3.72 and Boeing 737 Aircraft. As compared to the fleet of Indian Airlines
'imited the total fleet of all private airlines combined together is smaller than that
of Indian Airlines 'imited. *his clearly shows the superiority of Indian Airlines
'imited over this factor.
Amity International Business %chool 2#
V"'! co)&%!er1e( Ne!#or*8 <ach of the 55 domestic stations of Indian
Airlines 'imited is lin!ed over a computeri0ed networ! which provides instant
reservations and up to date information of each station instantly. *his is no doubt a
great achievement which proves that Indian Airliner 'imited has reali0ed its
potential.
L"r+e'! Ne!#or*8 Dver the last 50 years Indian Airlines has built up a reliable
and stable schedule that lin!s 75 destinations . 57 within India and 20 abroad. ,rom
the gateway cities of 4elhi in the north )umbai in west &ol!ata in the <ast and
2hennai in the %outh the passenger can ta!e off in an Indian Airlines 'imited is
within easy reach. In comparison of this each private airlines operate it ma+imum
of 30 4estinations which is no ways near the 75 4estinations which is no ways
near the destinations provided by Indian Airlines 'imited.
Mo'! Mo(ern Flee!8 Indian Airlines 'imited has been regularly updating its
fleet. :aving started Ci!ings and 4a!otas it now has Airbus A.320s the modern
aircrafts having a technology of fly by wire and is now in the process of phasing
out Boeing 737 aircrafts.
M"n!en"nce F"cl!e'8 In aviation industry maintenance plays a vital role. It
is the bac!bone of an organi0ation and no organi0ation can survive unless and until
it has good maintenance facilities. Indian Airlines 'imited has understood this very
well and has maintenance facilities in 4elhi :yderabad and &ol!ata. *he engineers
are well -ualified and hold a reputation of being one of the best in the aviation
industry. /rivate airlines are -uite dependent upon their foreign collaborations or
the Indian Airlines to maintain their aircrafts which is a costly affair.
H+-ly )o(ern1e( Cen!r"l Tr"nn+ E'!".l'-)en! 2CTE3
Hy(er"."( 48 2*< was established as a profit center by Indian Airlines. It
provides training in all aspects of Airlines )anagement both for personnel of
Indian Airlines as well as to representatives of other airlines as per 4=2A IA*A
and I2AD. It has been regarded as the best training facility in India and is
responsible for providing e+pert training facilities to Air India Blue 4art Alliance
Air. Air %ahara %ri 'an!an Airlines etc.
/EA5NESSES
L"c* o$ &er'on"l1e( "n( c%'!o)er $ren(ly 'ervce'8 *his is one of the
ma(or findings of our study. Almost all passengers feel that Indian Airlines 'imited
staff needs to be more customer friendly and professional in its approach. In
services industry it is the !ind of services that one provides matters and leaves its
impression in the mind of passengers. It infact is a measure of -uality of the
product. Indian Airlines 'imited needs to ta!e immediate steps in this regard to
change the public opinion.
Over'!"$$n+8 As mentioned earlier the total staff strength of Indian Airlines
'imited is #>7#5 as on date. Dn the average #$300.#$500 people travel on Indian
Airlines 'imited on its ##2 flights daily. It records three hundred departures per day
;including Alliance Air9. *his means that there is roughly about one staff recruited
against every passenger traveling. *his is no doubt a bad sign. Indian Airlines
'imited has understood this wea!ness now and hence has not made any ma(or
recruitment for last few years. )oreover there are around two thousand employees
retiring within ne+t two years which will trim wor! force automatically.
Un(er U!l1"!on o$ C"&"c!y8 Indian Airlines 'imited sells space which is
highly perishable. *his is because idle capacity would imply opportunity lost.
2apacity means the total number of seats offered by Indian Airlines 'imited daily
to its passengers. It has been observed that Indian Airlines 'imited offers around
32000 seats daily where as on average #$300 seats are utili0ed meaning an average
seat factor of about "0J. It is imperative to improve upon the situation before it is
too late. )ore mar!eting efforts are re-uired to attract larger passenger.
OPPORTUNITIES
Gro#!- o$ Av"!on In(%'!ry8 *he recession in the 1est the =ulf 1ars
%urat Dutbrea! and &argil 1ar have slowed tourist growth and conse-uently
affected the Indian Airlines 'imited revenues. :owever these were transient
setbac!s as has been proven by recovery of global tourist activity. Aviation industry
is growing at the rate of #0J per year. *his is no doubt a good sign. And Indian
Airlines 'imited must e+ploit this opportunity and ta!e ma+imum benefits out of it.
Clo'n+ Do#n o$ V"ro%' Prv"!e Arlne'8 <arlier Indian Airlines 'imited
was not allowed to operate on international sectors as Air India too! care of it.
1ith the liberali0ation of Indian economy =overnment of India gave Indian
Airlines 'imited a green signal to operate in the international routes. It is always
economical to operate on long routes and it is only by this attraction Indian Airlines
'imited has branched out to operate on #7 international sectors.
Pro$!' "$!er " lon+ !)e8 Indian Airlines 'imited had been running in red
from the year #$>$.$0 to #$$".$7 for a number of reasons. It started earning profit
in #$$7.$>. It earned a profit of 3s. 77.27 crores in #$$7.$> 3s. #7.#7 crores in
#$$>.$$ and 3s. 5#.72 crores in #$$$.00. But after that it again started ma!ing
losses with a loss of 3s. #5$.#7 crores in 2000.0#. It remained in red in 200#.02
with a loss of 3s.27".75 crores followed by a loss of 3s. #$".5" crores in 2002.03.
*hen it came in blac! once again in 2003.07 with a net profit of 3s. 77.#7 crores
which continues in 2007.05 and 2005.0" with a profit of around "7 crores in 2005.
0".
Cre"!on o$ &ro$! cen!er'8 4ue to its si0e Indian Airlines 'imited is unable to
be as nimble as it ought to be in term of decision ma!ing customer service and
employee motivation. 2onse-uently an integral part of its strategy was to hype off
certain activities into separate profit centers to ma!e them more focused fle+ible
and accountable. It was with this in mind that Indian Airlines 'imited created the
following profit centers8
2entral *raining <stablishment
Het <ngine Dverhaul 2omple+
Alliance Air
=round support
2argo
Au+iliary /ower Lnit
<ngineering
*he profit centers have already made useful contribution in the improved
performance of Indian Airlines 'imited.
O!-er O&&or!%n!e'8 the company stands to benefit from a variety of other
opportunities due to its inherent strengths and emerging mar!et trends. %ome of
these advantages are listed below8
=ood domestic mar!et growth potential in the event of upturns in the domestic
mar!et
%ynergy between domestic and international operations
)odern engineering infrastructure and highly s!illed manpower
3evenue potential from handling services rendered to other airlines
THREATS
Co)&e!!on I!'el$8 <ver since the inception of Indian Airlines 'imited it had
never tasted competition as it was a protected monopoly. 1hen the private airlines
entered this field there was a panic in Indian Airlines 'imited instead of thin!ing of
ways to tac!le it stated condemning the =ovt. /olicy and thought it as threat to it
e+istence. It is only recently that it has reali0ed that /rivate Airlines were here to
stay.
In'!".l!y n !-e Polce' o$ In("8 ,or the last 7 of 5 Kears there has been a
great uncertainty in the polities of India. %ince ma(ority of Indian Airlines 'imited
polices re-uires the approval of =ovt. hence an uncertainty in the political circle
hinders the decision ma!ing of Indian Airlines 'imited. <very =ovt. has its own
perception about aviation industry resulting in the change in the policies under
short intervals. *his not only results in the low moral of the management but also
ma!es it indecisive which is not good for an organi0ation.
In(%'!r"l Unre'!8 %tri!es are a familiar word for Indian Airlines 'imited.
<very now and then there are stri!es either by pilots engineers or ground staffs that
result not only in huge losses but also causes lot of inconvenience to the passenger
resulting in loss of image and creditability in the mar!et. Airlines
'imited must ta!e a serious view about it and sort out the things before it is too
late.
Amity International Business %chool 2"
FINANCIAL SYSTEM IN INDIAN AIRLINES
T-e M"n"+e)en! "! !-e Cen!er
*he Indian Airlines follows a centrali0ed system for revenue handling and a decentrali0ed
system for boo!ing of e+penditures. *he organi0ation has two head -uarters for finance. Dne
of the head -uarters deals with e+penditures and is located in the Airlines :ouse Bew 4elhi.
*he second head-uarter deals with revenue and is !nown as the 2entral 3evenue Accounts
;23A9. *he e+penditure division is overseen by two general managers while the 23A has
one general )anager.
Below the head-uarters are the regional offices which again have similar structure. :ere also
there is an e+penditure division which in case of the 4elhi region is in /alam. *he revenue
part is handled by an Area 3evenue 4ivision which in case of 4elhi region is in %afdar(ung.
<ach region is further subdivided into stations which are places where Indian Airlines has an
office.
All revenues e+cept for those that are incidental in nature are boo!ed by the 23A. Incidental
revenues are boo!ed by respective A34s. All e+penses related to the aircrafts are boo!ed by
the :ead Nuarters ;<+penditure9. All administrative e+penditures incurred in the regions are
boo!ed by the region.
*he head -uarters transfer a fi+ed sum of money to each region at prefi+ed dates so that they
can meet their e+penses. *his is called %cheduled *ransfer. If due to any reason the region
needs more funds the head -uarters can transfer it by way of %pecial *ransfer.
Amity International Business %chool 2>
F%nc!onn+ o$ !-e Fn"nce De&"r!)en! n !-e Nor!-ern Re+on
Fn"nce De&"r!)en!
6A7 Are" Reven%e Dv'on3 S"$("r8%n+9
Agency %ection
%creening %ection
Bills 3eceivable %ection
6B7 E:&en(!%re Dv'on3 P"l")9
Bill /assing . 'ocal
Bill /assing . Dutstation
/rovident ,und
/ayroll
2ash F Ban!
Bill 3aising F 3eali0ation
,inance F Budget
6A7 Are" Reven%e Dv'on
*he basic function of Area 3evenue 4ivision ;A349 is to boo! O*raffic 3evenueO earned by
Indian Airlines in its boo!s. *he various components of *raffic 3evenue are8
;< M"l Reven%e8 *his is the revenue derived from the carriage of )ail on the
routes of the carrier.
=< Ar$re+-! Reven%e8 It is the revenue derived from carriage of cargo on the
routes of the carrier.
Amity International Business %chool 2$
>< E:ce'' B"++"+e Reven%e8 It is the revenue derived from carriage of e+cess
baggage on the routes of the carrier.
?< P"''en+er reven%e8 It is the revenue derived from the carriage of passengers
over the routes of the carrier.
@< Pool Reven%e8 /ool is an agreement entered into by two national carriers
operating on the same route to pool their revenue in a !itty and then share the same on
a mutually agreed basis. *he main ob(ect of such agreements is to ma!e the services
operated by the /ool /artners complementary and not competitive. 3evenue generated
by such a pool is /ool 3evenue.
A< C-"r!er Reven%e8 It is the revenue derived from the 2hartering operations.
2harter is a special arrangement whereby for an agreed operation the carrier places the
entire capacity of an aircraft at the disposal of the person re-uesting for charter
services.
All these revenues are boo!ed by A34 in boo!s of Indian Airlines with an instrument of
maintaining records !nown as O3eporting ,ormO.
Her"rc-y "! Are" Reven%e Dv'on
Sec!on' "! ARD8
Senor M"n"+er
2ARD4
Dy< M"n"+er2'4
2A+ency4
Dy< M"n"+er2'4
2Screenn+4
Dy< M"n"+er2'4
2BBR 'ec!on4
Acco%n!' O$$cer2'4 Acco%n!' O$$cer2'4 Acco%n!' O$$cer2'4
S!"$$ S!"$$ S!"$$
#. A+ency8 4eals with the agents of Indian Airlines and maintain records of all the
transaction or sales done by Agents through 3eporting ,orms.
2. Screenn+8 /erforms the se-uential screening of all the 3eporting ,orms and
e+ecute Interline Billing.
3. Bll' Recev".le' 2BBR48 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.
;< A+ency Sec!on
*his 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 >0J of Indian
Airlines sales are through its agents F there are about "00 Indian Airlines agents in Borthern
3egion. *he Agency %ection at A34 deals with all Indian Airlines agents maintains records
ta!e disciplinary actions against defaults if any F prepare concealed summary of all
transaction through agents for the :ead Nuarters.
Agent8 An agent is an individual or an organi0ation authori0ed to act for and on behalf of an
airline sub(ect to the terms and conditions specified in the Agency Agreement. /assenger
Agents of Indian Airlines are authori0ed to issue /assenger *ic!ets and 2argo Agents are
authori0ed to issue 2onsignment BotesAAir 1aybills.

*here are two !inds of agents8
Gener"l S"le' A+en! 2GSA48 A =%A is one and only one agent authori0ed by Indian
Airlines to operate in a particular country however he can have sub.agent under him.
Indian Airlines have their =%AGs in L.&. L.%.A. 3ussia and 2anada. =%AGs are
entitled to %pecial rates by Indian Airlines as per the contract.
P"''en+er S"le' A+en! 2PSA48 1hen various %ales agents are appointed by Indian
Airlines for the same region they are !nown as /%AGs. *he rates for all the /%AGs are
same and fi+ed in advance.
*he various functions performed by Agency %ection are as follows8
"< A&&lc"!on' $or ne# "+ency8
Bew applicants apply to the commercial department which scrutini0e the applications
at very step and then forward the applications to the finance department. ,inance
4epartment chec!s the financial viability of the applicant and confirms the Ban!
=uarantee provided by the applicant. Ban! =uarantee should be at least of 3s. 2 lacs.
Dnce the verification of documents is complete the Agency %ection allots an agent with
a uni-ue code. Ban! =uarantee is ta!en from the agents and tic!ets are issued to the
agent.
.< M"n!"nn+ recor(' o$ A+en!'8
Agents are re-uired to submit details of each and every transaction or sale to A34
records of which are maintained by agency section. Agents are supposed to submit
following 3eporting ,orms8
AGT,;8
Agents will prepare 3eporting ,orm A=*.# in duplicate incorporating the
particulars of sale of tic!ets each day. In A=*.# the value of tic!ets sold on Bormal
and 2oncessional ,are basis will be reported separately. In case tic!ets are voided
the reasons therefore will be mentioned on the voided document. %uch documents
will also be reported in A=*.# with the remar! GvoidedG in the O3emar!sO column.
Agents will also prepare sheet.wise %ummary of A=*.#.
*he total number of voided coupons will also be mentioned in the %ummary of
AGT,;9
Agents will forward the original copy of A=*.# to A34 on daily basis. *he audit
coupons of the sold documents will be attached to each A=*.# sheet in the order of
reporting.
AGT,=8
Agents will prepare ,orm.A=*.2 in duplicate consolidating the boo!ings made
during a fortnight. *his form will show the value of boo!ings reported through
A=*.#. *his form will also show the amount of commission due to the agent on the
boo!ings made during that fortnight. Agents will forward the original copy of A=*.
2 to A34 by the stipulated dates.
AGT,>8
Agents will prepare ,orm.A=*.3 in duplicate incorporating the particulars of
refunds affected during a fortnight. Agents will forward the original copy of A=*.3
to A34 by the stipulated dates.
AGT,?8
Agents will prepare A=*.7 in duplicate consolidating the net boo!ing reported
through A=*.2 and the net refunds reported through A=*.3. *his form will also
show the particulars of InvoicesA4ebit Botes rose on the Agent and 2redit Botes
issued to the Agent. *his form will also show the net amount payable by the agent
in respect of the fortnightGs transactions. Agents will forward the original copy of
A=*.7 together with copies of 2redit Botes reported in A=*.7 and a 4emand 4raft
for the net amount due to IA' to A34 by the stipulated dates.
c< D'c&ln"ry "c!on' "+"n'! "+en!'8
All these forms are scrutini0ed and for any discrepancies disciplinary actions are ta!en
against the agents. *hese actions are generally OlegalO but due to growing comple+ities
of legal procedures Indian Airlines is getting its transactions with agents insured. *hus
defaults if any are recovered by insurance agencies.
(< Reconcl"!on8
Another ma(or (ob of the %ection is to prepare concealed summary of all the
transactions by each and every agent and the total revenue accrued. A *4% of 2.05J is
to be deducted out of the commission of the agents and to be submitted to the authority
by stipulated dates. *he Agency %ection is also responsible to the agents for providing
the certificate of *4% for them to file their annual return.
e< Blln+ o$ C-"r!er8
2harter8 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 re-uesting for the charter.
,i+ed charges for charter are8
Airbus.320 3s. 330000 Ahr
A.300 3s. 550000 Ahr
Boeing 3s. 2"0000 Ahr
$< Fore+n !r"n'"c!on'8
,or the Indian Airlines agents abroad all the transactions are carried through B%/ with
the help of IA*A agent. %ale of tic!ets transfer of revenue and payment of commission
to agents everything is done through IA*A agents.
=< Screenn+ Sec!on
*his section performs the se-uential screening or chec!ing of all the reporting forms and
e+ecutes Interline Billing. *he basic function of the %creening %ection is to screen8
a. 3eporting ,orms
b. %ales 3ecords ;HCs9
c. Interline Billing
d. )ail %tatements recovered from outstations
a. Re&or!n+ For)'8
3eporting ,orms are standard formats designed to report the sale of 2ash Calue 4ocuments
;2C4s9 that is basically the air tic!ets. *he 3eporting ,orms in use in I.A.'. are as follows8
a. Re&or!n+ For),;8 Issuance of /assenger *ic!ets <+cess Baggage *ic!ets and
)2Ds
b. Re&or!n+ For),=8 Issuance of I.A.'. Air 1aybills and carriage on other airlines
A1Bs on IA' routes
c. Re&or!n+ For),>3 ?3 @3 A3 I 2In'er!4 C D 2Dele!e48 Ad(ustments in %undry /arties
;2omputeri0ed9 Accounts
d. Re&or!n+ For),D8 Dutstanding 3ecoveries F )iscellaneous receipts
e. Re&or!n+ For),E8 3eceipts form agents
f. Re&or!n+ For),F C FA8 2ash F 2redit 3efunds
g. Re&or!n+ For) , ;G8 Ban! lodgment
h. Re&or!n+ For) ;; "n( ;;A8 2ash and 2redit 2arriage of )ail
b. Jo%rn"l Vo%c-er'8
It confirms that the tic!ets 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. ,or any discrepancies 4ebit Botes are issued to agents for the same
amount.
c. In!erlne Blln+8
%uppose a 4ealer at Bang!o! wants to deliver some goods to Haipur the transit will be
as follows8
Bang!o! ..... 4elhi.......Haipur
*hus the dealer will deposit the entire sum at Bang!o! and the transit of goods from
4elhi to Haipur will be by Indian Airlines thus the Indian Airlines will raise the Bill on
Bang!o! Air for the transit. *his is !nown as Interline Billing.
d. M"l S!"!e)en!8
*his is to !eep a chec! on the weights transited as )ails and charge on them. *he
various mail transits are as follows8
%tate .to.%tate
3egion .to.3egion
2ountry.to.2ountry
%peed /ost etc.
Another (ob for the section is to !eep a chec! on the money received for the
transactions. It needs to prepare all the ban! documents regarding receipts refunds and
concealed Bet 3eceipts and dispatch them to the 23A or <4/ along with the Ban!
%tatements confirming the deposit in Ban!.
Bll' Recev".le Sec!on
Bills 3eceivable %ection deals basically with the recovery of the credit from the credit
parties. Indian Airlines as its policy even issue tic!ets or provide service to certain parties on
credit and Bills 3eceivable %ection deals with the recovery of this credit from these credit
parties.
Bills 3eceivable %ection deals with two !inds of recovery8
3ecovery from internal parties8 Internal parties refer to the stations
3ecovery from the e+ternal parties8 <+ternal parties refer to the credit parties
*wo sub.sections under Bills 3eceivable %ection are8
#. Co)&%!er cell8 It deals with the e+ternal parties
2. Non,Co)&%!er Cell8 It deals with the internal parties
;< Co)&%!er Cell8 Indian Airlines issues tic!ets and provides services to certain Ocredit
partiesO li!e =overnment 4epartments and big business houses. It recovers the credit amount
due from them on monthly basis.

*hese parties initially approach to the commercial department for the authori0ation. Dnce the
terms F conditions are signed a permanent credit code is allotted to the party. Bow with the
authori0ation 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 fi+ed period !nown as O<+tension /eriodO. After
the e+tension period bills are drawn payment is collected and the parties are intimated to
pay. :owever if the party fails to clear the bills within the stipulated time period the
authority is suspended.
=< Non,Co)&%!er Cell8 *he non computer cell recovers any credit due from internal
parties that is the employees. *he collections from internal parties can be on account of the
following8
Cre(! C"r+o8 It is when consignor agrees to pay a boo!ing amount and
consignee is supposed to pay the cargoAfreight charges at the destination on point of
receiving the cargo. *hus it is duty of station manager to recover such amount.
I''%n+ Recovery Sec!on8 %ometimes due to human error there are short
collections on account of boo!ing amount on cargo or pac!s at the stations. 1hen the
%creening %ection identifies such short collections it either as!s the <4/ or itself
raises the bill on %tation. *he %tation manager follows it up and recovers the amount.
S!"$$ Cle"r"nce8 Bills 3eceivable %ection also recovers the pending clearances
from the staff. Bon 2omputer 2ell maintains the records of the recovery from the
employees and raise the bills on staff accordingly which are further dispatched to the
payroll %ection so as to be recovered from the salary of the employee.
6B7 E:&en(!%re Dv'on
<+penditure 4ivision is responsible for accounting for the e+penses made in the region. *his
includes e+penses on salary bills purchase of stationery and any other administrative
e+penses. *he division however does not boo! any e+penditure that is related to the aircraft
in any way.
;< Bll P"''n+,Loc"l
All the goods products and e-uipment that are re-uired for the day.to.day operations by the
supporting departments are purchased in bul! to be stored in anticipation of future
re-uirement. *he Bill /assing.'ocal passes all the bills regarding purchases li!e centrali0ed
purchasing of uniform catering stationary etc. for all 5 regions.
*he ma(or functions of this section are8
a. /urchasing
b. 4eductions
c. %ecurity 4eposits
a. P%rc-"'n+9 *he %tore F /urchase %ection places the purchase order for every local
purchase ;including all cash sales9. *hree documents re-uired for the purchase order
are8
a9 Initial proposal by vendor.
b9 Invoice by seller.
c9 2onfirmation by 3eceive F 4ispatch %ection.
*he procedure for ma!ing a purchase is as under8
Indentation by %ection
%tore F /urchase %ection places the order
3eceive F 4ispatch %ection receives the goods
Bill /assing.'ocal passes the bill
*hus the ma(or (ob of this %ection is to maintain records for all the local purchases
made and to pass the bills concerned. *hese goods are first brought to 4elhi and then
dispatched to all 5 regions as per the re-uirement.
b. De(%c!on'8 Another important (ob of Bill /assing.'ocal is to deduct *4% from the
commission or charge paid to vendors for the labor services provided by them.
2ertain goods in stores are such that they posses the Indian Airlines logo on them for
e.g. stationary bags tags folders batches etc. *hus the Indian Airlines gets those
goods printed form the vendors. =enerally Indian Airlines provides goods to the
printers and thus a *4% of 2.05J is deducted form the service charges provided to
them by Indian Airlines.
c. Sec%r!y De&o'!8 *his is the sum of amount that the vendors need to pay as a
security for the transactions with Indian Airlines. All the vendors have to deposit a
#0J amount of the order with Indian Airlines for all catering purchases. <ven for the
items for printing the vendors are re-uired to deposit a sum e-uivalent to #0J of the
value to goods or material advanced to them by Indian airlines.
=< Bll P"''n+,O%!'!"!on
*he northern region of Indian Airlines has its dealings in #5 outstation of which #7 are online
and #;Bhillai9 is offline. Bill /assing.Dutstation is the controlling authority for these
outstations. *hey issue advance Imprest 2he-ues of a predetermined value to all the stations
on wee!ly basis. *hese che-ues are always in name of %tation )anager F he is the
designated person who has the authority to encash it. *he Imprest amounts for various
outstations are as follows8.

Agra . 3s. #0000 Amritsar . 3s.50000
Bhopal . 3s. 20000 2handigarh . 3s.#5000
=walior . 3s. #0000 Hammu . 3s.30000
Hodhpur . 3s. #2500 &ha(uraho . 3s.#5000
'eh . 3s. #0000 'uc!now . 3s.70000
3aipur . 3s. #2500 Bhillai . 3s.500
%hrinagar . 3s. 70000 Ldaipur . 3s.20000
Caranasi . 3s. 35000
*he procedure by which the various stations meet their e+penses is8
Issue of Impressed che-ues
%tation )anager gets it encashed
)eet all the e+penses
%end monthly e+pense statement to Bill /assing.Dutstation
2oncerned Accounting is done
All the vouchers should come along with monthly e+penditure statement and %tation
)anagers should sign all the /etty 2ash Couchers. Dutstations can as! for the %pecial
Imprest 2he-ues whenever there is a need for meeting e+traordinary e+penses. At the end of
every financial year the Ban! %ection is sub(ect to ma!e a reconciliation %tatement. 2losing
Balances with the outstations should match the statement prepared by Bill /assing section.
*he ma(or e+penses for outstations are8
a9 :otel Bills8 for the pac!s offered by Indian Airlines or stay over of pac!s 2abin
crew F 2oc!pit crew.
b9 2atering Bills8 for the catering services provided onboard by various caterers li!e
*a( 2aterers %helf Air 2atering and Ambassador etc.
c9 )edical bills8 Bills of all the medical facilities provided to Indian Airlines
employees by hospitals doctors or chemists.
d9 3ent8 All the land with Indian Airlines is on 'ease thus a monthly rent is given to
the 'easer ;owner9.
>< Prov(en! F%n(
*he facility for provident fund is available to any employee only after the completion of one
complete year service. A $J p.a. rate of interest is payable to employee on the amount in
/rovident ,und. *he amount of /rovident ,und is calculated as follows8
2ontribution to /rovident ,und8 #0J of /rovident ,und %alary
1here /rovident ,und %alary P Basic %alary Q C4A Q %pecial Allowances
;*here is a provision for a %pecial pay or any *echnical pay for engineers F *echnicians etc.9
<mployees however have the option of withdrawing the amount from their /rovident ,und if
ever re-uired. *he /rovident ,und amount can be withdrawn in two ways8
Re&"y".le #!-(r"#"l8 1ithdrawal that is to be returned bac! within a stipulated
time span e+ceeding ma+imum up to a period of 33 months.
An interest of #0.5J p.a. is payable on such a withdrawal on " months
reducing balance
<mployee can withdraw ma+imum of " times of hisAher /rovident ,und
salary
3efundable withdrawal can be availed for any religious ceremony which an
employee is incumbent to perform
Non,Re$%n(".le /!-(r"#"l8 1ithdrawal which need not be returned by the
employee. An employee can avail such a non.refundable withdrawal only after #5
years of service. It is available for the following purposes8
,or the purpose of marriage of siblings or any ,emale dependent
/urchase of 'and :ouse etc
2onstruction of :ouse. /ayable in two e-ual installments
Bon.3efundable withdrawal is payable after completion of #5 yrs service or
within #0 yr before the date of retirement.
Income *a+ is charged on /rovident ,und amount as per the ta+ation norms e+isting in the
country from time to time.
?< P"yroll
*his section is responsible for ma!ing the salary slips of the employees. 1hen a person is
appointed the payroll section receives his (oining letter and the various terms and conditions
on which he is appointed. *he section issues the person a %taff Bumber. *hus every
employee has a staff number and is recogni0ed by that.
*he salary slip of the person includes basic data about the employee li!e the %taff Bumber
Bame 4esignation 2ode 4esignation %tation 2ode 4epartment 2ode 4ate of Birth
;4DB9 4ate of Hoining ;4DH9 Ban! Account number.
Dther than these details it includes Basic /ay 4earness Allowance ;4A9 and other
allowances. <ven if the =overnment increases the 4A the company does not increase it
unless decided by their various unions. %ome allowances are common to all employees
whereas some vary according to the agreements with the person.
*he ne+t items in the salary slip are the %tatuary 4eductions li!e /rovident ,und Income *a+
and <mployee %tate Insurance ;<%I9. %alary slip also includes annual salary ta+able salary
ta+ and rebates etc.
@< C"'- C B"n* Sec!on
2ash and Ban! section controls all payment and receipts relating to the particulars region.
Ban! Boo! maintains the records of disbursement accounts at the outstations. 2ash %ection
deals with and maintains all the records concerning the cash payments and Ban! %ection
provides the concerned Ban!ing treatment. It receives an advance sum of 3s. # crore 20 la!hs
per month from the :ead Nuarters to meet all e+penses in the region.
*hey are engaged in the following8
a. P"y)en! o$ vo%c-er'8 *hey entertain and ma!e payments for the vouchers li!e
*elephone Bills <ntertainment etc.
b. S"l"ry D'!r.%!on8 *he cash payment of pay slips and the corresponding
accounting.
c. A(v"nce' $or e)&loyee'8 Advancing money to the employees receiving bac! the
left.out amount and accounting the same.
d. M'cell"neo%' I!e)'8 )aintain tenders canteen sales sale of scrap etc.
Another (ob with the section is to handle all the cash receipts although Ban! %ection does the
concerned accounting. 2ash %ection is re-uired to compile a concealed summari0ed monthly
report for all the e+penditure incurred by the 2ash %ection or all the cash payments made by
it. *his report is to be forwarded to the O,inance and Budget %ectionO every month. *he
retention period for such records is about 5 years.
A< Bll R"'n+ C Re"l1"!on9
Indian Airlines provide ground handling to various other airlines for which they charge them.
Indian Airlines has its own infrastructure which other small airlines lac!. *hus it provides
various infrastructure facilities to other airlines on a predetermined charge. ,or recovering
such charges due on other airlines Bill 3aising F 3eali0ation %ection raise bills on such
airlines. *hus the main (ob of the %ection is to raise bills on other airlines for the services
provided and maintaining records for the same.
*he Bureau of 2ivil Aviation %ecurity under Indian Airlines provides security to other
airlines on charge basis for which similar billing is done by Bill 3aising F 3eali0ation
%ection. 1henever any service is provided corresponding handling forms li!e =round
:andling ,orm %ecurity :andling ,orm etc. are to be filled and on basis of these handling
forms bills are raised on other airlines.
*here are two !inds of parties8
a. C"'- P"r!e'8 *hese parties are supposed to ma!e cash payment at the time of
handling only in regard of the service provided to them by Indian Airlines.
b. Cre(! P"r!e'8 *hese parties avail the handling services of Indian Airlines on
credit and to them. *he Bill 3aising F 3eali0ation %ection raises bills and receives
the amount from them thereafter.
All the bills to foreign Airlines are raised and settled through IA*A clearance house. Billing
for all private CI/ flights i.e. chartered flights for /resident /rime )inister Cice /resident
is also done by Bill 3aising F 3eali0ation %ection. Bills are raised to the concerned
ministries and settlement is done thereafter.
Indian Airlines provide all :andling F %ecurity services to Alliance Air its subsidiary for
which Bill 3aising F 3eali0ation %ection raises the bills on Alliance Air. *hese bills are
boo!ed under the head O:andling 3eceiptO. *he revenue earned by :andling is boo!ed in
Balance %heet under the head OBon.Dperating 3evenueO.
D< Fn"nce C B%(+e!
,inance FBudget %ection is responsible for maintaining the Hournal %ubsidiary Boo!s and
=eneral 'edger for facilitating reconciliation of the inter.region accounts maintaining a
record of assets providing deprecation thereon and !eeping record of deposits revived from
contractor and supplier etc. *he section also compiles budget estimates and annual accounts
relating to the region which are submitted to the :ead Nuarters.
BL4=<* AB4 BL4=<*A3K 2DB*3D'

BUDGETING
A Budget is a detailed plan of operations for some specific future period.
It is an estimate prepared in advance of the period to which it applies. It acts as a business
barometer as it is a complete programme of activities of the business covered.
*he 2harted )anagement Accountants 'ondon defines a Budget as6
?A financial and A or -uantitative statement prepared prior to a defined period of time of the
policies to be pursued during that period for the purpose of attaining a given ob(ective.@
*he essentials of a Budget are8 .
It is prepared in advance and is based on a future plant of actions.
It relates to a future period and is based on ob(ective to be attained.
It is a statement e+pressed in and A or physical units prepared for the implementation of
policy formulated by the management.
4ifferent types Budgets are prepared by an industrial concern for different purposes. A %ales
Budget is prepared for the purpose of forecasting the sales of future period. A )anufacturing
2ost Budget is prepared for forecasting the manufacturing cost. *he )aster Budget embodies
the forecasts for. sales and other incomes for manufacturing mar!eting and other e+penses
for cash and capital re-uirements besides forecasting the figures of profit and loss.
BL4=<* AB4 BL4=<*A3K 2DB*3D'
Indian Airlines 'imited brings a very capital.intensive company which needs
good planning and control devices to succeed in this highly competitive and changing
aviation industry. It needs to manage its resources optimally. ,or
this reason it becomes inevitable to plan for structure. It needs to decide in advance what to
do how to do who will do it and when to do. In this case Budget serves as an important
planning and control device. )ostly all the concerns prepare Budget and Indian Airlines
'imited is no e+ception to this. =enerally the budgets prepares by Indian Airlines 'imited are
for one financial year. *he real purpose of preparation of these budgets is to educate the
employees regarding the plan and policies of top management what is re-uired of them.
Indian Airlines 'imited ma!es certain basic assumptions at the time of preparation
of budget but as we !now that nothing is static in this world so there is always a possibility
that the assumptions may change. *his ma!es it necccessary for the management to revise the
budgets. ,or this reason mostly two budgets are prepared for a single financial year. ,irstly a
budget is prepared for the ne+t year !eeping in mind the previous year figures. but to ma!e
budget more realistic reliable and accurate the 3evised Budget is also prepared. *his revised
budget is prepared at the end of ninth month of same year.
As management has actual figure for nine month so it is in better
position to estimate the budget for the remaining three months. *he most important
advantage of preparing of revised budget is that the management is able to reduce the
variances between actual and budgeted figures.

3<C<BL< AB4 <R/<B4I*L3< BL4=<*
*he planning department finali0es 3evenue Budget. In consultation with other departments
!eeping in view the re-uirements of Aircrafts *raffic /ersonnel and ,easibility of the
Dperation. It indicates the proposed routes to be
operated the fre-uency of operation of each route and the type of aircraft to be used for each
service. *his program of operation is forwarded to all the 3egions and the department heads
at the :ead Nuarters ;:Ns9 for furnishing within stipulated time their estimates for revenue
<arning and <+penditure items within their spheres.
*he <+penditure on 3evenue Account is analy0ed functional grip wise ob(ect head wise and
station wise. Based on this analysis of the actual for the previous years the regions and
departments ma!e their assessment of the e+penses on the basis of the new program of
operation and compile their estimates for the e+penditure under each detailed :ead of
Account in effect from M=rass 3oot5 upwards. *he regions and the :ead-uarters5 Accounting
Lnit for Budget section at :ead-uarters forward these detailed estimates supported by
(ustification. *he fuel and oil e+penditure is estimated on the basis of average consumption of
fuel per flying hours on each type of aircraft and the proposed utili0ation of the aircraft as per
the program of operation. *he 4irectors of Dperation and 4irector of *raining indicate the
crew and their training re-uirement in relation to their new plans of operations. 4irector of
<ngineering assess the number of ma(or chec!s and overhaul that will fall due for the Aircraft
airframes is arrived at. *he 4irector of <ngineering 4irector of %tores and /urchases and the
,inance department !eeping in view price rise (ointly arrives at this assessment.
1hile scrutini0ing and compiling the budget estimates at :ead-uarters if necessary some
modifications are made and at the end provisions are
added that are considered necessary and prudent and total estimates of e+penditure to be
incurred during the budget period are arrived at. *he broad features of the Budget are also
discussed with the 2hairman and )anaging 4irector of the company. *he final budget is then
placed before the Board. After the Board5s approval a copy of the budget estimates is given to
the =overnment.
BL4=<* A''D2A*IDB
After the approval of the Budget estimate by the Board it is allocated to the regions. A part of
the amount is !ept at :ead-uarters as reserve amount. *he regions in turns reallocated the
same to the department concerned the allocation does not imply any authority as per the
delegation of the financial power is to obtain. /urchase procedure and other instruction issued
from time to time for procurement of times incurring on e+penditure.
BL4=<*A3K 2DB*3D'
*he regions report actual e+penditure incurred every month to head-uarters under
various heads along with monthly targets if there is any variation. *he (ustifications are
recorded Budget section at :ead-uarters prepares monthly report called M)anagement
Information5 indicating vis.S.vis budget estimates of financial as well as operational data
which is re.circulated effecting performance and are brought to the notice of the concerned
department for corrective actions. A monthly and -uarterly report on !ey points of financial
and operational data along with (ustification for the variation is sent to the )inistry of 2ivil
Aviation. *he -uarterly report compared with the budget estimates and the actual of the
corresponding period of the previous years are discussed with )inister also.
2A/I*A' BL4=<*
*he 2apital <+penditure Budget of Indian Airlines 'imited is dependent on the
amount approved by the =overnment annually at the beginning of the financial year. *his
amount so approved by the =overnment is again allocated out of the outlay mar!ed for the
company in the five.year plan period. *he
=overnment fi+es the five.year plan or the annual outlay. After deliberation on the proposal
submitted by Indian Airlines 'imited to the =overnment these proposals are prepared by the
company in coordination with the /lanning department and the ,inance department !eeping
in view the Aircraft re-uirement based on the pro(ected traffic demand and the re-uirement
of other supporting assets li!e engineering e-uipment ground support e-uipment
communication e-uipment vehicle and building pro(ects etc. 3egion5s re-uirements are
invited and discussed before the submission of proposal to the =overnment. It may be noted
that out of the total capital e+penditure 75Jto >0J relates to Aircraft /ro(ects and the
balance relates to the other supporting facilities.
*he company is normally re-uired to meet the capital e+penditure from its own
internal resources. *herefore the 2apital Budget of the internal resources and thus the capital
budget is re-uired to be prepared accordingly.
*he regions and :ead-uarters compile their capital re-uirement for they are
continuing schemes separately. *he 3egional ,inance )anager with the respective
department heads discusses these re-uirements. After scrutiny the budget is sent to
:ead-uarters.
*he re-uirement so received is again discussed with the respective department heads at
:ead-uarters and also with the regional heads with special emphasis on cost benefit analysis
and operational e+igencies. *he priorities of various schemes are decided in consultation with
the department heads and budget is compiled within the framewor!s of the outlay ta!ing
only high priority scheme. *he consolidated Balance %heet is discussed with the 2hairman
and )anaging 4irector and finally presented to the Board for approval. *he budget is
classified
into plan and non.plan e+penditure. *he plan e+penditure includes all 2apital <+penditure
and Aircraft loan repayment and Advances. *he non.plan e+penditure is accounted for
repayable advances to stall for housing etc. modification to Aircraft and special and general
tolls and e-uipment.

INDIA AIRLINES LIMITED
NOTE ON REVENUE AND EXPENDITURE BUDGET
#.0 *:< K<A3 2007.05
#.# As per 3evised <stimates for the year 2007.05 Indian Airlines is e+pected to end
up with on operating /rofit (ob 3s 53.50 corers and a Bet /rofit;After *a+9 3s
#7.50 crores.
#.2 *his will be second successive year when the company will be achieving Bet
/rofit after suffering Bet 'oss continuously for 3 years during 2000.0# to 2002.03.
#.3 *he performance of the company in terms of capacity produced ;A *&ms9 is better
than compared to both the budget estimates and achievement during last year.
%imilarly the capacity utili0ation in terms of 3*&ms 3/&ms and number of /a+ is
also better when compared to both the budgets estimates and previous year.
#.7 As a conse-uence it is estimated that company will be earning Bet profit;After
*a+9 of 3s #7.50 crores as against the budgeted Bet 'oss of 3s 27.75 crores during
the year under review. :owever the revised Bet /rofit;After *a+9 of rupees #7.50
crores will be less than the previous years Bet /rofit of 3s 77.#7 crores. *his is
mainly due to the fact that A*, prices increased by almost 30J on an average
during 2007.05. In the month of Bovember 2007 domestic A*, prices touched an
all time high of 3s33 "00 per &' as against the average the A*, price of about 3s
2#000 per &' during 2003.07.
#.5 *he revised operating revenue for the year under review is higher by 3s5$".70
crores when compared with the year 2003.07. *he increased is on account of
increased in /a+ revenue primarily due to impact of increase in domestic rupee
,eres;domestic rupee ,are was enhanced by #0J 1.<.,.2#
st
Hune 2007 and again
by #0J 1.<.,.#7
th
Dctober 20079 and increase in number of passengers.
#." 2ompared to the previous year the revised operating e+penses for 2007.05 are
higher by 3s"">.30 crores. *he increase in mainly on account of increase in A*,
cost;3s 7"" crores9 Increased in Aircraft maintenance;3s #7" crores9 Boo!ing
agency commission;3s 2> crores9 :ire of Aircraft;3s30 crores9 etc..
#.7 *he utili0ation of Aircraft fleet during the year 2007.05 vis.S.vis last year is
detailed below8
A.300 utili0ation increased to 307# :rs from 2>53 :rs during the previous
year.
A.320 utili0ation improved to 3557 :rs from 372" :rs during the previous
year.
#.> *he B.737 fleet of the company which was transferred on lease basis in phases
during the year #$$".$7 to Airlines allied services limited;AA%'9 a wholly owned
subsidiary company continued to be operated by it under the banner of Airlines
Air.
;<F Fn"nc"l' H+-l+-!'
*he following table summari0es the financial results for the year 2007.05;revised
estimates9 as compared to Budgets estimates 2007.05 and actual of 2003.078
2003.07
Actuals

2007.05
J IncreaseA;4ecrease9
3.<. Dver 2003.07

Budget
<stimates
3evised
<stimates

;3upees in crores9
Dperating 3evenue 7"7$.>0 507#.00 527".50 #2.>0
Dperating <+penses 7527.70 5027.50 5#$3.00 #7.>0
Dperating /rofitA;'oss9 #25.#0 #".#0 53.50 ;57.209
*otal 3evenue 7725."7 5077.50 5252.00 ##.#0
*otal <+penses 7"77.50 5072.25 5233.50 ##.$0
Bet /rofitA;'oss9Before *a+ 7>.#7 ;27.759 #>.50 ;"#."09
/rovision for *a+ 7.00 . #.00 ;75.009
Bet /rofitA;'oss9 After *a+ 77.#7 ;27.759 #7.50 ;"0.709
O&er"!on"l H+-l+-!
*he following tables summari0e the operational performance for the 2007.
05;revised estimates9 as compared to budgets estimates 2007.05 and actuals of
2003.078
2003.07
Actuals

2007.05
3.<. Dver 2003.07

Budget
<stimates
3evised
<stimates

;3upees in crores9
Available *onne &ms;)illion #337.0"$ #73$.>77 #7"2.$77 $.70
3evenue *onne &ms ;)illion9 >77.775 $5$.7>2 #00>.2#7 #7.$0
Dverall 'oad ,actor;J9 "5.>0 "".70 ">.$0 7.70
Available %eat &ms;)illion9 #3500.7$> #7"75.5>" #7>0#."03 $."0
3ev. /assenger &ms;)illion9 >#">.03> $03".0"7 $577.702 #".$0
/assenger 'oad ,actor;J9 "0.50 "#.70 "7.50 "."0
Bo. of /assengers;)illion9 5.$00 ".5#$ 7.07> 20.0
=<G T-e Ye"r =GG@,GA
A''%)&!on
2.# Budget estimates for 2005.0" are based on the following assumptions
2arriage of >.$05 million passengers.
/romotional fairs li!e ape+ to continue.
Induction of nine more A.320 aircraft on lease during 2005.0" besides #7th A.320
already on lease.
Induction of Bine 1ide Bodied Aircraft on lease from Bovember 2005.
B.737 fleet will continue to be operated by Alliance Air.
Aircraft utili0ation as under 8
Ty&e o$ Arcr"$! Ho%r' E$$ec!ve Flee!
A.300 3057 3.0
A.320 35"3 7$.>
1ide Body 70"> 3.7
,oreign e+change rate of L%T#P3s75A.
A*, e+penditure is based on average A*, prices prevalent during 2007.05.
Insurance premium landing and navigational charges at e+isting rates.
Fn"nc"l H+-l+-!'
2.2 *he budgets estimates for the year 2005.0" indicates an operating profit of 3s3>.25
crores and a Bet /rofit;After *a+9 of 3s#0.75 crores.
2.3 *he Dperating 3evenue for the year 2005.0" is higher by 3s##7#.25 crores when
compared to 3evised <stimates for the year 2007.05. *he increase in 3evenue is
mainly due to full years impacts of fair revision during 2007.05 and increase in
number of passenger.
2.7 2ompared to 3evised <stimates 2007.05 the increase in Dperating <+penses by
3s##>".50 crores mainly due to increase in scheduled operations;A*&ms9 by
7>.2J increase in number of lease Aircraft resulting in increase in lease charges
and normal cost escalation etc..
2.5 *he summaries budget estimates for the year 2005.0" vis.S.vis revised estimates
for the year 2007.05 are given below8
2007.05 2005.0"
Dver 2007.05

3evised
<stimates
Budget
<stimates

;3upees in crores9
Dperating 3evenue 527".50 "7#7.75 22.3
Dperating <+penses 5#$3.00 "37$.50 22.>
Dperating /rofitA;'oss9 53.50 3>.25 ;2>.59
*otal 3evenue 5252.00 "723.25 22.3
*otal <+penses 5233.50 "7##.75 22.5
Bet /rofitA;'oss9Before *a+ #>.50 ##.50 ;37.>9
/rovision for *a+ #.00 0.75 ;25.09
Bet /rofitA;'oss9 After *a+ #7.50 #0.75 ;3>."9
=<A O&er"!on"l H+-l+-!
*he operational performance of Indian Airlines for the year 2005.0" vis.S.vis
revised estimates for the year 2007.05 is tabulated below8
2007.05 2005.0"
Dver 2007.05

3evised
<stimates
Budget
<stimates

Available *one
&ilometers;)illion9 #7"2.$77 2#">.0#7 7>.20
3evenue *one
&ilometers;)illion9 #00>.2#7 #370.2#3 35.$0
Dverlall 'oad ,actor ;J9 ">.$0 "3.20 ;>.309
Available %eat
&ilometers;)illion9 #7>0#."03 #$7#3.>"2 3#.20
3evenue /assenger
&ilometers;)illion9 $577.702 #2"22.$72 32.20
/assenger 'oad ,actor;J9 "7.50 "5.0 0.>
Bo of /assenger;)illion9 7.07> >.$05 25.>0
A(ver!'n+ "n( &ro)o!on "' " H o$ '"le'
C"lc%l"!on'
In("n "rlne' 8e! "r#"y'

AC& 7#70#.7 7707.#
S"le' 57"3$#."2 73750.20
H 5.50 7.55
O&er"!n+ )"r+n
It is used to measure pricing strategy and operating efficiency of the organi0ation.
I! ' c"lc%l"!e( "' $ollo#'8
P operating income before interest depreciation and ta+es;D/BI4A*9
%ales
%A'<% P salesQ other income U total e+penditure
*he operating profit margin indicates the profits of the company before interests
depreciation and ta+es. *he higher the operating margins the greater pricing fle+ibility a
firm has in its operations however it could also indicate the degree of cost control
management a firm possesses.
Indian airlines (et airways
D/BI4A* >"75>.77 #2"0#.00
%ales 57"3$#."2 73750.20
J #5 2>.>0
Pro$! .e$ore !": "' " H o$ '"le'
P profit before ta+
%ales
/bt "50"" .77 57##.70
%ales 57"3$#."2 73750.20
J ##.2$ #2.37
Re!%rn on ne!#or!-2RON/4
P ad(usted profit after ta+
Aver"+e ne!#or!-
3eturn on networth measures the profitability of the funds invested by shareholders of the
firm. It is regarded as a very important measure because it reflects the productivity of the
ownership capital employed in the firm. It is influnced by several factors li!e earning
power debt. e-uity ratio average cost of debt funds and ta+ rate.

Ad( /A* 7#3#7.70 3$#$.$0
Avg networth "7$$>".7> #7#"#."0
J .0" 0 .23
Re!%rn on c"&!"l e)&loye( 2ROCE4
3D2< P earning before interest F ta+es ;<BI*9
Average capital employed
3eturn on capital employed ;3D2<9 is a measure of the returns that a company is
reali0ing from its investment ie shareholder fund and loan fund. In other words the
ratio represents the efficiency with which capital is being utili0ed to generate revenue.
3D2< P earning before interests F ta+es;<BI*9
Average capital employed
P earning before interest F ta+es ;<BI*9
*otal assets I current liabilities
<BI* "50"".77 57##.70
Avg capital employed #2#0"">.7> 7">#0.00

J .05 .#2
Inven!ory !%rnover r"!o
It measures the number of times a company inventory is turned over in a year. It also
suggests how ade-uate a company inventory is for its business volume. In general a
higher inventory turnover ratio is indicative of better performance since this indicates that
the firm inventories are being sold more -uic!ly. :owever if the ratio is too high then
firm may be losing sales to competitors due to inventory shortages. :igh inventory levels
are unhealthy because they represent an investment with a rate of return of 0ero. It also
opens the company up to trouble in the case of falling prices.
2D=% may be substituted because sales are recorded at mar!et value while inventories
are usually recorded at cost also average inventory may be used instead of the ending
inventory level to minimi0e seasonal factors.
INVENTORY TURNOVER RATIO I COGSB AVG INVENTORY
Average inventory P ; D/ inventory Q 2I inventory9A2
Average inventory ##000 3325.20
2ogs 7>$$32.>> 3##7>.50
3atio 77.57 $.37
4ebtor turnover ratio
It assesses the firms management of its accounts receivables and thus its credit policy. In
general higher the debtor turnover ration the better since this applies that the firm is
collecting on its accounts receivables sooner. :owever if the ratio is too high then the
firm may be offering too large of a discount for early payment or may have to restrictive
credit terms. *he debtor turnover ratio is calculated by dividing since by sundry debtors.
;Bote 8 since account receivables arise from credit sales it is more meaningful to use
credit sales in the numerator if the data is available9. A business will normally prefer a
shortage average settlement period than a longer one as once again funds are being tied
up which may be used for more profitable purposes although this ratio can be useful it is
important to remember that it produces an average figure for the number of days debts
are outstanding. *his average may be badly distorted by for e+ample a few large
customers who are very slow pairs.
De.!or T%rnover R"!o P %ales A average debtors
Average 4ebtor P Dp debtor Q cl debtors
2
*he debtor collection period is calculated by dividing the number of days in a year 3"5
by the 4ebtor turnover ratio. *herefore the days receivables indicates the average
number of days it ta!es a company to collect and paid invoices. *his ratio is also !nown
as the days sales outstanding ;4%D or A2/9.
4ebtor collection period P 3"5A debtor turnover ratio
Avg debtor $2000 2523.#0
%ales 57"3$#."2 73750.20
3atio ".27 #7.37
F:e( !%rnover r"!o
It measures the efficiency of asset management. *he greater the values of the ratio the
more intensely are the assets utili0ed. *herefore higher the ratio more efficient the
management is a -uestionable issue. It is because in the total assets a large chun!s of
assets have turned out obsolete or e+cessive volume of assets have been left idle causing
idle cost of capital.
Incase of assets turnover ratio the analysis may face some problem. *o avoid the
problems some steps should be ta!en before computing the ratio. As the fi+ed assets are
considered net of depreciation this ratio will be high incase of an old established firm
while it will be low incase of a new one though the operating efficiency en(oyed by both
firms may be e-ual. *herefore before accepting the numerical appearance of ratios as
dependable data for analysis they must en-uire all the aspects of calculation so that
analysis may not ta!e up a biased shape.
F:e( "''e! !%rnover r"!o I '"le'B "v+ $:e( "''e!
Avg fi+ed asset #2752">.5> 23#7".30
%ales 57"3$#."2 73750.20
3atio .7" #.>$
COMPARATIVE BALANCE SHEET OF INDIAN AIRLINES
/A3*I2L'A3% 2002.03 2003.
07
2007.
05
AB%D'L*<
IB23<A%< D3
4<23<A%
J IB23<A%< D3 4<23<A%<
'ABI'I*I<%
a9paid of capital
I9=overnment #05.#$ #05.#$ #05.#$
ii9Dthers . . .
b93eserve And
Amity International Business %chool "0
%urplus
I9,ree 3eserve And
%urplus
ii9capitalAother
reserves
55#.3$ 557.7> 55$.37 3.3$ 7.$5 ."# #.77
iii9%hare /remium
Account
c9Borrowings
i9,rom =ovt Df
India
ii9,rom ,inancial
Institutions
iii9,oreign
2urrency 'oans
#"27.>> #33".53 #0#".77 .2$#.35 ."##.#7 .#7.$ .37.57
iv92ash 2redit 5#.05 $#.25 273.5# 70.23 7>.> 7>.> 377
v9Dthers 32.05 32.3" 32.05 32.3"
vi9Interest Accrued
F4ue
d9i92urrent
'iabilities
F/rovisions
#730.#> 203$.53 22$"."# 30$.35 5"".73 #7.>> 32.77
ii9/rovision for
=ratuity
#7>.$> #$7.5 2">.> #5.52 >$.>2 >."7 50.#>
e94iffered *a+
'iability
TOTAL 7277."7 7353.>" 7522.55
ASSETS
f9=ross Bloc! 53"$.77 57>7.7$ 57$2.77 ##77.75 #23.03 2.#7 2.2$
g9'ess 2umulative
4epreciation
2""0.3> 2$33." 3#2#.> 273.22 7"#.72 #0.27 #7.37
h9Bet Bloc! 270$.3" 2550.>5 2370.$7 .#5>.77 .33>.3$ .5.> .#2.7$
i92apital 1or!.in.
programs
#3.55 5.35 >.># .>.2 .7.77 .
"0.52
.35
(9Investments 2.3" 2.3$ 2.>3 .03 .77 #.27 #$.$2
!92urrent Assets
'oans FAdvances
#005.35 ##2#.52 #2#$.23 ##".#7 2#3.>> ##.5" 2#.27
l94iffered *a+
Assets
m9)iscellaneous
<+penditure not
write
.7$ .77 .7$ .77
n9Accumulated
'oss
5#7.05 "73.22 $#$.$7 #5$.#7 70$.52 3# 7$
TOTAL 7277."7 7353.>" 7522.55
Amity International Business %chool "#
091or!ing
2apital;!.d;i9.c;vi99
.727.>3 .$#>.0# .
#077.3>
.#$3.#> .352.55 .
2"."5
.7>."7
p92apital
<mployed;hQo9
#$>7.53 #"32.>> #2$3.5$ .35#."5 ."$0.$7 .
#7.72
.37.>2
-9Bet 1orth ;aQb9
;i9Qb;iii9.m.n9
.70>.>" .5">.52 .>#5.52 .#5$."" .70"."" .
3$.05
.$$.7"
*he presentation of comparative financial statements in annual and other reports
enhances the usefulness of such reports and brings out more clearly the nature and trend
of current changes affecting the enterprise. %uch presentation emphasi0es the fact that
statements for a series of periods are so far more significant than those of a single period
and that the accounts of one period are but an installment of what is essentially a
continuous history.
*he utility of preparing comparative financial statements has also been reali0ed in our
country. *he companies act #$5" provides that companies should also give figures for
different items for the period together with current period figures and their profitF loss
account and balance sheet.
FOREIGN EXCHANGE EARNINGS
*his is an important source of revenue for IA'. Infact IA' is the only domestic airlines
which en(oys the privilege to operate in foreign destinations. It has shown a very consistent
growth in revenue generation over a period of time.

Pro$! B lo''

O&er"!n+ E:&en'e'
*he trend of operating e+penses shows an unfavourable situation. *hough important reasons
for increase in such e+penses are due to the increase in number of destinations and the age of
aircrafts being used which increases the e+penses on fuel oil and repairs and maintenance
etc.
Dther e+penses8
3emuneration and other benefits to employees
/rovision for doubtful debts etc.

:ave reduced a profit to a great e+tent. *he trend clearly reflects that the operating e+penses
are still going to increase in the coming years . it has already crossed 7000 crores.
Reven%e
*he revenue comprises of passenger revenue and operating revenues. *he revenue graph is
showing a favourable trend over a period of #2 years since #$$3.$7
;< R"!o An"ly''
Amity International Business %chool ""
3atio Analysis is a very powerful analytical tool for measuring performance of an
organi0ation. *he ratio analysis concentrates on the interrelationship among the figures
appearing in the aforementioned four financial statements. *he 3atio Analysis helps the
management to analy0e the past performance of the firm and to ma!e further pro(ections.
3atio Analysis allows interested parties to ma!e an evaluation of certain aspects of the firm5s
performance. In this analysis the following ratios have been used8
2urrent 3atio
Nuic! 3atio
2urrent Assets to Bet Assets ratio
2urrent 'iabilities to Bet Assets ratio
Inventory *urnover 3atio
2urrent Assets *urnover 3atio
1or!ing 2apital *urnover
4ebtor *urnover 3atio
3eceivables *urnover 3atio
/ayables *urnover 3atio
2reditors *urnover 3atio
Average 4ebt 2ollection /eriod
Average 3eceivables 2ollection /eriod
Average /ayment /eriod
1or!ing 2apital 'everage
C%rren! R"!o
*he current ratio measures the solvency of the firm in the short run. It compares the current
assets of the firm with its current liabilities and provisions. *he ideal ratio varies according to
the nature of the industry. Lsually firms in service industries do not need a high current ratio
as most of their business ta!es place on the basis of cash consideration.
*he following is the current ratio position of Indian Airlines in the past three years8
P"r!c%l"r' =GG=,G> =GG>,G? =GG?,G@
2urrent 3atio 0.775 0.7>2 0.77"
*he following chart has been prepared on the basis of the above current ratio8
*he chart clearly shows that the current ratio of Indian Airlines has deteriorated over the past
year. It has remained less than one clearly showing that the company has a negative net
wor!ing capital.
Amity International Business %chool ">
Current Ratio
0.420
0.430
0.440
0.450
0.460
0.470
0.480
0.490
2002-03 2003-04 2004-05
J%c* R"!o
*he -uic! ratio measures the ability of the firm to meet its current obligations at a very short
notice. Ideally one li!es it to be #8#. :owever again on the basis of the nature of the industry
it may vary. %ervice firms do not have much need for inventories. *hus in case of service
industries it may even be less than #8#.
*he following is the -uic! ratio position of Indian Airlines in the past three years8
Nuic! 3atio 0.727 0.772 0.70>
*he following chart has been prepared on the basis of the above -uic! ratio8
*he chart follows the trend shown by the current ratios. :ere also the -uic! ratio has
wea!ened over the previous year. *hus the company does not have a very good li-uidity
position. Also as the difference between the current and -uic! ratios is little it indicates that
the inventories do not form a ma(or part of the current assets of the firm.
Amity International Business %chool "$
Quick Ratio
0.380
0.390
0.400
0.410
0.420
0.430
0.440
0.450
2002-03 2003-04 2004-05
C%rren! A''e!' !o Ne! A''e!' r"!o C C%rren! L".l!e' !o Ne! A''e!' r"!o
2urrent assets to net assets ratio e+plains the relationship between current assets and total
investment in assets. A business enterprise should use its current assets effectively and
economically because it is out of the management of these assets that the profits accrue. A
business will end up in losses if there is any lacuna in managing the assets to the advantage of
business. Investment in fi+ed assets being inelastic in nature there is no elbow room to ma!e
amends in this sphere and its impact on profitability remains the least.
2urrent liabilities to net assets ratio e+plains the relationship between current liabilities and
total investment in assets. *he ratio indicates the proportion of total assets financed by the
short term funds. *he higher is the ratio the more profitable and ris!y will be the scenario for
the management. *his is because the short term funds are cheaper when compared to long
term ones. *hus more is the proportion of net assets of the firm that are financed by the short
term funds the lower will be the interest burden on the firm. :ence its profits will also tend
to be more. :owever as the short term funds are more volatile and have to be paid at a much
shorter notice than the long term funds therefore they tend to increase the ris! of the firm.
*he following is the current assets to net assets ratio and current liabilities to net assets ratio
position of Indian Airlines in the past three years8
2urrent Assets to Bet Assets ratio 0.33$ 0.3>0 0.703
2urrent 'iabilities to Bet Assets ratio 0.7#2 0.772 0.755
*he following comparative chart has been prepared on the basis of these ratios8
:ere we see that the current liabilities to net assets ratio is almost the double of current assets
to net assets ratio. %o the company is actually using the short term funds to finance its fi+ed
assets. *his may be due to the lower cost of these funds in comparison to the long term funds.
Inven!ory T%rnover R"!o
Dften the management is faced with the problem of deciding the ideal amount of inventories
for its operations. *he inventory turnover ratio indicates how many times the company5s
inventory has been sold during the year. %o if a company has a good inventory turnover ratio
the management can be sure that the company has an ideal level of inventory.
Comparison of Current Assets to et assets Ratio ! Current "ia#i$ities to et Assets Ratio
0.000
0.100
0.200
0.300
0.400
0.500
0.600
0.700
0.800
2002-03 2003-04 2004-05
Current Assets to et Assets ratio Current "ia#i$ities to et Assets ratio
*he following is the inventory turnover ratio position of Indian Airlines in the past three
years8
Inventory *urnover 3atio 25.>#" 3#."37 3".>35
*he following chart has been prepared on the basis of the inventory turnover ratio8
*he inventory turnover ratio has constantly increased over the past three years. *hus the
company is turning over its inventories more and more rapidly over the past three years. *his
is in line with the constantly observation made with the current and -uic! ratios that the
inventories are constantly decreasing. And this is due to the improving Inventory turnover
ratio.
%n&entor' (urno&er Ratio
0.000
5.000
10.000
15.000
20.000
25.000
30.000
35.000
40.000
2002-03 2003-04 2004-05
C%rren! A''e!' T%rnover R"!o
*he current asset turnover ratio indicates the efficiency with which current assets turn into
sales. A lower current assets turnover ratio implies by and large a more efficient use of funds.
*hus a high turnover rate indicates reduced loc! up of funds in current assets. An analysis of
this ratio over a period of time reflects wor!ing capital management of a firm.
*he following is the current assets turnover ratio position of Indian Airlines in the past three
years8
2urrent Assets *urnover 3atio 2.$0" 2.$"7 3.557
*he following chart has been prepared on the basis of the current assets turnover ratio8
Current Assets (urno&er Ratio
0.000
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
2002-03 2003-04 2004-05
*he current assets turnover ratio has constantly increased over the past three years. *his
indicates that lesser funds have remained loc!ed up in the current assets. It has already been
seen from the comparison of the current assets to net assets ratio and the current
liabilities to net assets ratio that the current liabilities are increasingly being used to finance
to fi+ed assets. *his may be due to the reducing current assets of the company.
/or*n+ C"&!"l T%rnover
*he wor!ing capital turnover ratio helps to measure the efficiency of the utili0ation of net
wor!ing capital. It signifies that for an amount of sales a relative amount of wor!ing capital
is needed. If any increase in sales is contemplated the wor!ing capital should be ade-uate
and thus this ratio helps management to maintain an ade-uate level of wor!ing capital.
*he following is the wor!ing capital turnover ratio position of Indian Airlines in the past
three years8
1or!ing 2apital *urnover .2."32 .2.7"7 .2.>5>
*he following chart has been prepared on the basis of the wor!ing capital turnover ratio8
*hough the traffic revenue for the company has constantly improved yet the constantly
reducing negative net wor!ing capital has led to a regularly falling wor!ing capital turnover
ratio. %o the company may be increasing its revenue at the cost of its wor!ing capital. *hus
higher profits of the company may be coming at the cost of its li-uidity.
De.!or T%rnover R"!o
*he debtor turnover ratio finds out whether the amount of resources tied up in debtors is
reasonable and if the company has been efficient in converting debtors into cash. *he higher
the ratio the better is the position.
*he following is the debtor turnover ratio position of Indian Airlines in the past three years8
4ebtor *urnover 3atio 5.307 5.70# 5.$3#
*he following chart has been prepared on the basis of the debtor turnover ratio8
)orkin* Capita$ (urno&er Ratio
-2.900
-2.850
-2.800
-2.750
-2.700
-2.650
-2.600
-2.550
-2.500
2002-03 2003-04 2004-05
*he debtor turnover ratio is constantly improving and has shown a remar!able improvement
over the past year. *hus the collections from the debtors has constantly improved. If the
company can maintain this trend it will have a good cash flow in the coming years.
Recev".le' T%rnover R"!o
*he receivables turnover ratio finds out whether the amount of resources tied up in debtors
and loans F advances is reasonable and if the company has been efficient in converting
debtors and the loans F advance e+tended by it into cash. *he higher the ratio the better is
the position.
*he following is the receivables turnover ratio position of Indian Airlines in the past three
years8
3eceivables *urnover 3atio 7.7## 7.05> 7.35"
*he following chart has been prepared on the basis of the receivables turnover ratio8
+e#tor (urno&er Ratio
4.800
5.000
5.200
5.400
5.600
5.800
6.000
2002-03 2003-04 2004-05
*he receivables turnover ratio has not followed the trend set by the debtor turnover ratio. %o
the collection of loans and advances e+tended by the company has not been as good as that of
the debtors.

P"y".le' T%rnover R"!o
*he payables turnover ratio finds out whether the amount owed by the firm to its creditors
and ban!s towards short term credit is being paid in good time or not. *he lower the ratio the
better is the position for the firm.
*he following is the payables turnover ratio position of Indian Airlines in the past three
years8
P"r!c%l"r' =GG=,G= =GG>,G? =GG?,G@
/ayables *urnover 3atio #."#7 #.">7 #.>$#
*he following chart has been prepared on the basis of the payables turnover ratio8
Recei&a#$es (urno&er Ratio
3.800
3.900
4.000
4.100
4.200
4.300
4.400
4.500
2002-03 2003-04 2004-05
*he payables turnover ratio has constantly increased. %o the company has been paying off its
current liabilities more -uic!ly. *his bodes well for the creditworthiness of the company. *his
is also interesting !eeping in mind that the current assets of the firm are less than current
liabilities.
Cre(!or' T%rnover R"!o
*he creditors turnover ratio finds out whether the amount owed by the firm to its creditors.
*he lower the ratio the better is the position for the firm.
*he following is the creditors turnover ratio position of Indian Airlines in the past three
years8
2reditors *urnover 3atio #.$#0 #.$07 7.027
*he following chart has been prepared on the basis of the creditors turnover ratio8
,a'a#$es (urno&er Ratio
1.450
1.500
1.550
1.600
1.650
1.700
1.750
1.800
1.850
1.900
1.950
2002-03 2003-04 2004-05
*he creditors turnover ratio has also increased !eeping in with the trend set by the payables
turnover ratio. :owever 2003.07 has seen a ma(or increase in the ratio. %o the payment to
the creditors has been more robust in the last year. :owever their share in the total current
liabilities has remained low.
Aver"+e De.! Collec!on3 Aver"+e Recev".le' Collec!on C Aver"+e P"y)en! Pero('
Average debt collection period represents how long does the firm ta!e in converting it
debtors into cash. *he lesser the number of days the better it is for the organi0ation. :owever
too low a period would indicate the firm might be losing on business as it is not e+tending
proper credit period to its customers.
Average receivables collection period represents how long does the firm ta!e in converting it
debtors and loans F advances e+tended by it to others into cash. *he lesser the number of
days the better it is for the organi0ation. :owever too low a period would indicate the firm
might be losing on business as it is not e+tending proper credit period to its customers.
Average payment period represents how long does the firm to pay to its creditors and other
sources of short term finance. *he longer is the period the better it is for the organi0ation.
Cre-itors (urno&er Ratio
0.000
0.500
1.000
1.500
2.000
2.500
3.000
3.500
4.000
4.500
2002-03 2003-04 2004-05
:owever too long a period would indicate the firm might be losing on the confidence of its
creditors and other sources of short term finance.
*he following is the a&era*e -e#t co$$ection. a&era*e recei&a#$es co$$ection an- a&era*e pa'ment
perio- position of Indian Airlines in the past three years8
Average 4ebt 2ollection /eriod ">.>#7 "7.5>" "#.577
Average 3eceivables 2ollection /eriod >2.750 >$.$37 >3.7>$
Average /ayment /eriod 225.""7 2#".7#3 #$3.037
Amity International Business %chool >0
*he following comparative chart has been prepared on the basis of these ratios8
*he above comparison chart clearly shows that the collection periods have been much less
than the payment periods. In fact the collection periods are almost three to four times the
payment period. *hough the position has deteriorated over the last year still it is much within
comfortable limits. %o the company does not seem to face any li-uidity crises in the coming
days.
/or*n+ C"&!"l Lever"+e
*he wor!ing capital leverage indicates the impact of wor!ing capital on the profitability of
the firm. It measures the responsiveness of 3eturn on 2apital <mployed for changes in
current assets. :igher levels of investment in current assets than is actually re-uired mean
increase in the cost of interest charges on the short term loans and other sources of wor!ing
capital finance. *his will result in lower return on capital employed.
Amity International Business %chool >#
Comparison /f +e#ts an- Recei&a#$es Co$$ections perio- an- ,a'ment ,erio-
0.000
50.000
100.000
150.000
200.000
250.000
2002-03 2003-04 2004-05
A&era*e +e#t Co$$ection ,erio- A&era*e Recei&a#$es Co$$ection ,erio- A&era*e ,a'ment ,erio-
*he following is the wor!ing capital leverage position of Indian Airlines in the past three
years8
1or!ing 2apital 'everage 0.37> 0.3>> 0.3$"
*he following chart has been prepared on the basis of the payables turnover ratio8
*he above chart shows that the company has been constantly increasingly leveraging its
wor!ing capital. Its current assets have been constantly falling while the current liabilities
have been increasing. Lltimately it seems the company has replaced a part of its long term
funds with the short term ones thereby increasing its profitability at the cost of li-uidity.
)orkin* Capita$ "e&era*e
0.320
0.330
0.340
0.350
0.360
0.370
0.380
0.390
0.400
0.410
2002-03 2003-04 2004-05
So%rce' "n( %!l1"!on o$ $%n('
A %ources of fund from operations 3s in crores
i9 profit for the year 77.#7
Add8depreciation 30".#>
Add8 increase in insurance reserve 3.73
Add8 miscellaneous e+penditure to the e+tent written off .32
less8 profit on sales of fi+ed assets 7.#0 350.30
ii9 sale proceedsAad(ustment of fi+ed assets 37.75
iii9decrease in wor!ing capital #27.25
*otal8 50$.30
B utili0ation of funds
i9 increase in fi+ed assets and capital wor! in progress 37.3>
ii9 decrease in loans 777.>7
iii9 increase in investments .05
*otal8 50$.30
Reco))en("!on'
Indian Airlines problems can be stated in (ust one phrase. ?Begative Bet 1or!ing
2apital@. All recommendations discussed here relate to finding solution to this problem.
*he basic aim of these recommendations is not to help Indian Airlines achieve a positive
net wor!ing capital but to help it attain 0ero net wor!ing capital.
;< I)&rovn+ Collec!on "n( P"y)en! Pero('
*he company should aim at reducing its collections period to around 25 to 30 days
while bringing the payment period down to 35 to 70 days over the ne+t three years.
*his 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 organi0ation. At
the same time a fall in payment period will improve the wor!ing capital position of
the company. *hus Indian Airlines would be able to decrease its creditors to a great
e+tent and at the same time improve its creditworthiness.
=< R"'n+ Lon+ Ter) F%n('
*he 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 <+ternal 2ommercial
Borrowings ;<2Bs9. As the rates of interest is lower in Hapan <uropean 2ountries
and America it can raise low cost long term debt to partly replace the current
liabilities that are being used to finance the fi+ed assets. Dther than <2Bs shares and
debentures are also sustainable sources of long term finance.
>< Incre"'n+ nve'!)en!' n )"r*e!".le 'ec%r!e'
Indian Airlines 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 mar!etable securities.
*his will serve the dual purpose of having productive and yet li-uid funds. ,or more
profitable short term funds Indian Airlines can form a special team of investment
managers who can manage both the long term and short term funds.
)oreover a large part of the current liabilities of the company are due to uncollected
salaries of the employees. *hough most of the salary payments in Indian Airlines Are
done by the <lectronic 2learance %ystem ;<2%9 facilitated by 3eserve Ban! of India
;3BI9 yet there are some employees who due to different reasons cannot or do not
opt for the <2%. *heir reasons can be high mobility li!e in case of a pilot or
unavailability of the facility which is the case for employees in some outstations.
*hese employees get their salaries manually. 1hen their salaries remain uncollected
the company writes them as a current liability in its boo!s. *he company should
invest the amount of these uncollected or unclaimed salaries in short term mar!etable
securities. *his will ensure that the amount of these uncollected salaries does not
remain unproductive and at the same time it does not affect the wor!ing capital
position of the company.
Concl%'on
Indian Airlines is the largest domestic carrier in the world in terms of fleet strength. 3ight
now celebrating fifty years of operations it has seen both the ups and downs of the
industry. It has faced losses and made gains. In this fiftieth year of its operation it has
been riding on the bac! of an efficient management to earn profits after facing losses in
the past few years.
It had adopted a negative wor!ing capital so as to bolster its profits and managerial
efficiency. *oday financial managers round the world do not consider it wrong for a
company to have negative wor!ing capital. :owever the evils of illi-uidity in the short
term are too dangerous to overloo!. *hus it is always better to ta!e up 0ero wor!ing
capital rather than negative wor!ing capital as a policy. *his not only helps the company
to increase its efficiency in managing its funds but also gives the company enough
li-uidity in the short term to overcome the short term li-uidity problems. *he report does
not foresee any li-uidity problem for the company in near future. :owever a company
must prepare itself such that it does not face any problem even in the worst case scenario.
Amity International Business %chool >"

%ince the past two years 2ivil Aviation in India has made giant strides and is today a ma(or
contributor to the growth of the national economy. Apart from providing connectivity in a
large and diverse country li!e India and serving the transportation needs of the people in a
speedy cost.effective and efficient manner the aviation sector has also greatly facilitated the
development of domestic and international tourism business commerce and trade. 4uring
the last two years Indian 2ivil Aviation Industry witnessed significant opening up of Indian
s!ies paving the way for increased international and domestic connectivity. In fact air travel
for the first time has become affordable for the common man.
Boo) n Ar Tr"vel
*he recent growth in the 2ivil Aviation %ector has been more than encouraging. In the first
three years of the tenth plan air transport has grown at an average rate of per cent per annum
as against the plan estimate of 5 per cent. In fact during the year 2007.05 air transport
witnessed a very high growth of above 27 per cent. *he =overnment is therefore convinced
that an average growth rate of #" per cent p.a. is achievable by 20#0. %uch growth can be
achieved with a paradigm shift towards greater liberali0ation and significant private sector
participation in infrastructure development.
*he present macro economic forecast in the country is ".> per cent =4/ growth rate
over the coming years and already India is the fourth largest economy in the world in terms
of purchasing power parity with its 300 million strong middle class. *he growth of service
sector now demands a faster safer and wider networ! of air service. If the present growth
trend can be sustained civil aviation will be the reason for the ?ta!e off@ of the Indian
economy.
<ntrepreneurs ban!ers financiers and investors world.wide are now convinced
about the healthy growth prospects for 2ivil Aviation in India. *herefore it is not surprising
that a number of new airlines are proposing to enter the mar!et while e+isting airlines are
going for significant fleet e+pansionArenewal. ,ive new airlines vi0.
operations in past one and a half year or so. *wo more new airlines vi0. Indigo and Indus
Airways are e+pected to start operations shortly.
*here has also been a significant increase in both domestic and international air traffic as well
as cargo in India during the year 2007.05.
Tr"$$c !ren('8
;in million9
200#.
02
#07>27 702#0> 50$$32 #3."2 2".3" 3$.$> 5"022" 2$7050 >5727"
2002.
03
##"772 77720> 5"0"50 #7.>2 2>.$0 73.72 "7"#37 333222 $7$35$
2003.
07
#32$37 50"072 "3>$7" #"."2 32.0> 7>.70 "$3#73 37502$ #0">202
2007.
05
#5>#$# 57#>27 7300#> #$.75 70.0$ 5$.57 >27>7" 7"503" #2>$$#2

L.er"l1"!on o$ Ar Servce'
'iberali0ation of air services in the last one year has created history. It has increased
connectivity and helped in lowering fares. Lnder a revised air services agreement with L%A
both sides can designate any number of services to any point in the territory of the other
Amity International Business %chool >>
country with full intermediate and beyond traffic rights. %imilarly traffic rights were
enhanced with #> other countries also in order to enable greater connectivity toAfrom India
e.g. Australia L& =ermany 2hina ,rance Betherlands Belgium 2anada %ingapore
)auritius Bew Vealand LA< etc. *his will lead to more flights and better connectivity
from these countries to India providing more commercial opportunity to all operating
carriers.
Pro+re'' n I)&le)en!"!on o$ KD L D0 Polcy
In pursuance of the policy framewor! to permit the designated airlines of all countries having
Air %ervices Agreements with India to operate 7 flightsAwee! each to any two international
airports in India the designated airlines of Austria ,inland 3epublic of &orea )aldives
Armenia Kemen L!raine etc. have been offered additional capacity as re-uested by the
respective =overnments sub(ect to reciprocal rights to the Indian carriers.
O&enn+ %& o$ In!ern"!on"l Ro%!e' !o Prv"!e C"rrer'
1ith a view to optimally utili0ing the traffic rights available to India under various bilateral
it has been decided to permit Indian scheduled carriers with 5 years of domestic operations
and with a minimum fleet si0e of 20 aircraft to operate on all international routes e+cept =ulf
countries which have been !ept reserved for Air India and Indian Airlines for a period of 3
years. Het Airways and Air %ahara have so far been permitted to operate to %ri 'an!a Bepal
Bangladesh L& )alaysia and %ingapore.
*he =overnment has also decided to formulate appropriate measures for establishing
improved operational synergy between Air India and Indian Airlines for their mutual benefit.
2onse-uently there will not only be more balanced utilisation of traffic rights between Indian
and foreign carriers but also the competition will bring down tariffs which will benefit
passengers directly. At the same time there will be an increase in capacity and connectivity
that will benefit passengers by giving them more seats and choices.
Polcy Re+"r(n+ Co))erc"l A+ree)en!'
*he policy of the =overnment mandated commercial agreements which is prevalent only in
India has been a point of severe criticism from various -uarters including )inistry of
*ourism. It has been decided that =overnment will not henceforth mandate any commercial
Amity International Business %chool >$
agreement during bilateral Air %ervices consultations. ,oreign airlines starting new air
services therefore will not have to pay compensation to our airlines by way of mandated
commercial agreements. *his will help to bring down tariffs and increase connectivity
thereby providing direct benefits to passengers.
L)!e( O&en S*y Polcy
Bon.availability of seats to and from India during the pea! winter season has been
one of the ma(or constraints faced by passengers. In order to ensure sufficient availability of
seats a limited Dpen %!y /olicy was adopted by the =overnment for the year 2005.0" under
which designated foreign airlines have been permitted to mount as many services as they
wish to the available points of call sub(ect to the terms and conditions of the e+isting
commercial arrangements between the airlines of both sides for the period 4ecember # 2005
to Hanuary 3# 200". Also foreign airlines have been permitted to upgrade their e-uipment at
their e+isting fre-uencies during the period Bovember # 2005 to )arch 3# 200".
3emoval of 3estriction on /hotography
India was among the few countries in the world which had restrictions on photography by
passengers at the terminal buildings of the airports and from inside the aircraft. *hese
restrictions had outlived their utility and often presented a rather negative image of the
country to the foreign travelers particularly tourists who were accustomed to ta!e
photographs at airports and while in flight. *hese outdated restrictions have now been
removed through amendments in Aircraft 3ules to permit photography by passengers of
scheduled flights at the terminal buildings of civil aerodromes and civil enclaves at 4efense
aerodromes. In addition passengers are also now permitted to ta!e photographs from inside
an aircraft while in flight or landingAta!e off at civil aerodromes.
A)en()en! n Arcr"$! R%le'
*he Aircraft Act and Aircraft 3ules are reviewed from time to time and amendments are
carried out to !eep the provisions abreast with the international standards and development in
the civil aviation sector. As part of this initiative amendments to Aircraft 3ules #$37 have
been carried out relating to removal of restriction on photography by passengers at the
Amity International Business %chool $0
terminal buildings of the airports and from inside the aircraft air fares and rela+ation in upper
age limit for the pilots from "0 to "5 years sub(ect to fulfillment of certain conditions.
Lo# Co'! O&er"!on' .y Ar In("
In what is a boon for e+patriate Indians wor!ing in the =ulf 3egion and %.<. Asia Air India
has operationalised ?Air India <+press@ a new budget carrier under the banner of Air India
2harters 'imited ;AI2'9 a wholly owned subsidiary of Air India has commenced operation
with dry lease aircraft over a period of one year from )arch 2005 to April 200". ,lights to
%outh <ast Asia and =ulf ;e+cluding %audi Arabia9 are being operated by this carrier at
substantially reduced fares effective summer of 2005.
)umbai )ay $ ;IAB%9 A fierce battle for mar!et share is set to unfold in the Indian s!y as a
number of budget airlines spread their wings in the months ahead to cash in on increasing air
traffic and rising income levels.
At least four new low.cost airlines will ta!e off in the domestic aviation sector over the ne+t
si+ months and half a do0en more are li!ely to be added in two to three years triggering a
severe price war.
After the commercial launch of &ingfisher Airlines )onday the ran! of budget airlines will
have other new entrants li!e )agic Air %pice Het =o Air and Air Dne in the coming months.
O*he Indian aviation sector has really entered into a very e+citing phase after years of over.
regulationO said &apil &aul 2<D of 2entre for Asia /acific Aviation an international
research organi0ation.
O*he potential for budget airlines is huge for a country li!e India with over a one billion
population. <ven after the launch of the new airlines this year there will be room for many
more players in the years aheadO &aul told IAB%.
Amity International Business %chool $#
According to the 2entre for Asia /acific Aviation the new low.cost airlines will help add at
least five million new passengers every year ta!ing the total number of air travelers to 50
million by 20#0.
2urrently the four main domestic airlines . state.run Indian Airlines Het Airways Air %ahara
and low.cost Air 4eccan . carry some #$ million passengers among themselves every year.
In comparison a staggering #7 million people travel by trains every day. )ost of the budget
airlines are betting on growth by encouraging railway passengers to fly at fares that are at
times cheaper than train tic!ets.
Although &ingfisher Airlines . the aviation arm of Bangalore.based li-uor giant LB =roup .
is being positioned as a Ofull serviceO airline it will have (ust one class for all passengers.
*he tic!ets for &ingfisher Airlines will be sold in three different slabs on the first.come.first.
serve basis and the lowest level will be cheaper than the fares of other full.service airlines.
OItGs to the new India that we offer &ingfisher AirlinesO said Ci(ay )allya chairman of the
LB =roup that ma!es the largest.selling &ingfisher beer.
O1e will ma!e our own mar! in the domestic aviation mar!et by offering e+tremely good
value proposition to the customer. 1e understand consumersG needs and aspirationsO he
added.
)allya says his airline is betting on the #50 million Oconsuming class peopleO who are being
added to the Indian economy every year for grabbing a larger share of the Indian s!y.
Air 4eccan the pioneer of the budget airline mar!et in India is not worried by the impending
competition.
O*he launch of many new budget airlines is good for all of us. *he new players will help
grow the mar!et si0e and as the mar!et si0e grows so will the revenues of all airlinesO said
=.3. =opinath 2<D of Air 4eccan told IAB%.
OI thin! the aviation sector has all the ingredients to replicate the success of the booming
mobile telephone business in India. As the competition heats up and prices come down more
and more people will prefer to fly.O
Air 4eccan which started operations in August 2003 hopes to fly four million passengers
this year up from a million people in the previous year.
OIndiaGs aviation sector is very small as compared to its population. *he country handles some
"00 flights a day whereas the %ingapore airport alone handles 3200 flights. Air travel in
India should be as fundamental as breathing.O
*he state.owned Indian Airlines is finding difficulty in facing even a moderate level of
competition preva iling at present in the domestic civil aviation industry. 4espite a long 50
years of e+perience behind it the mar!et share of the airline has been slowly but surely
dwindling since #$$# when the open s!y policy was implemented. *he declining mar!et
share is an indication of inefficiency which is reflected in its poor financial performance.
*he financial performance of Indian Airlines started deteriorating from #$>$.$0 even before
competition too!.off. Between #$>$.$0 and 200#.02 the airline incurred losses in #0
financial years. *he cumulative net losses amounted to 3s #7." billion against a cumulative
profit of (ust 3s #.# billion for this period. In such a situation many analysts feel that it5s
time for the government to handover the management to the private sector by reducing its
own share below 50 per cent. :owever the government is not yet convinced with this line of
argument and has put off the disinvestment of the airline for some more time. *he plan of the
government is now to revive Indian Airlines financially before offering it for sale so as to
fetch a better price. In this endeavor the government has allowed airline to induct 73 new
aircraft at the cost of T 2 billion.
1hen a new investment is made it is however necessary to ensure that it does not aggravate
the problems of Indian Airlines further by rendering it even less cost competitive as
happened in the recent past. 1ith inductions of A.320 aircraft in the fleet the average annual
growth rate in unit cost of the airline went up from 7.3 per cent during #$"7.>> to ##.7 per
cent during#$>$.$$. *o control such a drastic increase in the unit cost growth resulting from
new investment it is necessary to pay attention to corresponding improvements in the
productivity of factors as well.
Available evidence suggests that there is a vast scope for Indian Airlines to reduce the growth
in unit cost by improving the productivity level. ,or instance according to a study by 1indle
;#$$#9 Indian Airlines in terms of total factor productivity stood at 35th in the ran!ing of 7#
selected airlines of the world in #$>3. Also according to another study ;:ashim 20029 the
airline witnessed a negative productivity growth at the average rate of 0.7 per cent per annum
during #$"7.$$.
In spite of the rapid increase in unit cost and poor productivity performance there has been
no systematic study on Indian Airlines aiming at analy0ing the productivity change in relation
to the growth in unit cost. *he absence of such a study ma!es it difficult to suggest the
re-uired corrective measures.
*he financial performance of Indian Airlines has been unsatisfactory since #$>$.$0 despite
numerous hi!es in fares. *he main reason for poor performance has been the fast growth in
its unit cost. But so far no attempt has been made to study whether this was the result of
decline in productivity or increase in prices of inputs or both. *he present study thus
attempts to relate the unit cost with productivity over the period #$"7.$$. /artial factor
productivity as well as *,/ have been estimated along with the unit cost. In addition a
decomposition analysis of the unit cost differential has also been underta!en by utili0ing a
translog variable cost function to identify the role of each source of productivity and factors5
prices in the unit cost growth.
*he results on partial factor productivity of factors show improvements in the productivity of
labour and energy but deterioration in productivity of capital and materials. *he result on the
overall productivity shows that *,/ has grown by a meager average rate of 0.7 per cent per
annum over the period of this study. :owever the unit cost during the corresponding period
has increased at a much faster rate of $.$ per cent per annum. *he results also show that the
performance of Indian Airlines witnessed deterioration after #$>>.>$ when productivity
growth became negative and the unit cost grew at a much faster rate than in the period #$"7.
>>.
4ecomposition of unit cost differential of Indian Airlines reveals that the increase in factor
prices has far e+ceeded the improvement in productivity resulting in a high growth in unit
cost over the years. *he improvement in productivity can be attributed mainly to the
e+pansion of output as the capital stoc! contributed only slightly and technical change
played an opposite role. ,urther analysis shows that productivity change helped reducing the
growth in unit cost only during #$"5.>>. In the subse-uent period #$>$.$$ productivity
change raised the unit cost growth due to the slowdown in output growth technical
retrogression and poor capacity utili0ation. 2apacity e+pansion in form of A.320 aircraft at
the time of demand recession was the main reason behind this. *he high price of A.320
aircraft contributed additionally to the increase in unit cost growth. :ence the increasing unit
cost and losses of Indian Airlines had largely to do with the inductions of A.320 aircraft at a
wrong time. A cheaper aircraft or hiring of the aircraft on lease basis would have been a
better option.
,rom the above analysis it can be concluded that there is an ardent need for Indian Airlines to
Improve its productivity. *his will re-uire proper utili0ation of capital stoc! in particular
And other inputs in general. A correct selection of aircraft for the fleet is e-ually important
as it greatly influences the productivity change the unit cost growth the profitability and its
)ar!et share
N #. Indian Airlines is facing a tough competition from its competitorsW
N 2. *he financial performance of Indian Airlines has been unsatisfactory during $0 but it is
now improving commentW
Amity International Business %chool $"
REFRENCES
http8AAindian.airlines.nic.inAscriptsAinde+Uin.asp
http8AAwww.(etairways.comA2ulturesAen.L%A=lobalJ20BavigationAbrowserchec!
http8AAtravel.indiatimes.comAovtAfacesAovtAairlineinde+.(spWmaileridP=oogle
http8AAwww.indiastat.comAindiaA%how4ata.aspWsecidP"2FptidP30FlevelP2
http8AAwww.asiatradehub.comAindiaAcivilaviation.asp
http8AAindiabudget.nic.inAes$7.$>Achap$>.pdf
http8AAsearch.yahoo.comAsearchWpPwww.indian.airlines.nic.inFeiPL*,.>FfrPieas.
dnsF+Pwrt
BIBLIOGRAPHY
Annual report of Indian airlines 2002.2003
Annual report of Indian airlines 2003.2007
2apital and revenue budget of 2002.2003
2apital and revenue budget of 2003.2007
1or!ing capital management by prasan 2handra
Analysis of financial statements by *.%.=rewal
,inancial management by 3./.3ustagi.
Amity International Business %chool $>
Amity International Business %chool $$

%ince the past two years 2ivil Aviation in India has made giant strides and is today a ma(or
contributor to the growth of the national economy. Apart from providing connectivity in a
large and diverse country li!e India and serving the transportation needs of the people in a
speedy cost.effective and efficient manner the aviation sector has also greatly facilitated the
development of domestic and international tourism business commerce and trade. 4uring
Amity International Business %chool
#00
the last two years Indian 2ivil Aviation Industry witnessed significant opening up of Indian
s!ies paving the way for increased international and domestic connectivity. In fact air travel
for the first time has become affordable for the common man.
Boo) n Ar Tr"vel
*he recent growth in the 2ivil Aviation %ector has been more than encouraging. In the first
three years of the tenth plan air transport has grown at an average rate of per cent per annum
as against the plan estimate of 5 per cent. In fact during the year 2007.05 air transport
witnessed a very high growth of above 27 per cent. *he =overnment is therefore convinced
that an average growth rate of #" per cent p.a. is achievable by 20#0. %uch growth can be
achieved with a paradigm shift towards greater liberali0ation and significant private sector
participation in infrastructure development.
*he present macro economic forecast in the country is ".> per cent =4/ growth rate
over the coming years and already India is the fourth largest economy in the world in terms
of purchasing power parity with its 300 million strong middle class. *he growth of service
sector now demands a faster safer and wider networ! of air service. If the present growth
trend can be sustained civil aviation will be the reason for the ?ta!e off@ of the Indian
economy.
<ntrepreneurs ban!ers financiers and investors world.wide are now convinced
about the healthy growth prospects for 2ivil Aviation in India. *herefore it is not surprising
that a number of new airlines are proposing to enter the mar!et while e+isting airlines are
going for significant fleet e+pansionArenewal. ,ive new airlines vi0.
operations in past one and a half year or so. *wo more new airlines vi0. Indigo and Indus
Airways are e+pected to start operations shortly.
*here has also been a significant increase in both domestic and international air traffic as well
as cargo in India during the year 2007.05.
Tr"$$c !ren('8
#0#
;in million9
200#.
02
#07>27 702#0> 50$$32 #3."2 2".3" 3$.$> 5"022" 2$7050 >5727"
2002.
03
##"772 77720> 5"0"50 #7.>2 2>.$0 73.72 "7"#37 333222 $7$35$
2003.
07
#32$37 50"072 "3>$7" #"."2 32.0> 7>.70 "$3#73 37502$ #0">202
2007.
05
#5>#$# 57#>27 7300#> #$.75 70.0$ 5$.57 >27>7" 7"503" #2>$$#2

L.er"l1"!on o$ Ar Servce'
'iberali0ation of air services in the last one year has created history. It has increased
connectivity and helped in lowering fares. Lnder a revised air services agreement with L%A
both sides can designate any number of services to any point in the territory of the other
country with full intermediate and beyond traffic rights. %imilarly traffic rights were
enhanced with #> other countries also in order to enable greater connectivity toAfrom India
e.g. Australia L& =ermany 2hina ,rance Betherlands Belgium 2anada %ingapore
)auritius Bew Vealand LA< etc. *his will lead to more flights and better connectivity
from these countries to India providing more commercial opportunity to all operating
carriers.
Pro+re'' n I)&le)en!"!on o$ KD L D0 Polcy
In pursuance of the policy framewor! to permit the designated airlines of all countries having
Air %ervices Agreements with India to operate 7 flightsAwee! each to any two international
airports in India the designated airlines of Austria ,inland 3epublic of &orea )aldives
#02
Armenia Kemen L!raine etc. have been offered additional capacity as re-uested by the
respective =overnments sub(ect to reciprocal rights to the Indian carriers.
O&enn+ %& o$ In!ern"!on"l Ro%!e' !o Prv"!e C"rrer'
1ith a view to optimally utili0ing the traffic rights available to India under various bilateral
it has been decided to permit Indian scheduled carriers with 5 years of domestic operations
and with a minimum fleet si0e of 20 aircraft to operate on all international routes e+cept =ulf
countries which have been !ept reserved for Air India and Indian Airlines for a period of 3
years. Het Airways and Air %ahara have so far been permitted to operate to %ri 'an!a Bepal
Bangladesh L& )alaysia and %ingapore.
*he =overnment has also decided to formulate appropriate measures for establishing
improved operational synergy between Air India and Indian Airlines for their mutual benefit.
2onse-uently there will not only be more balanced utilisation of traffic rights between Indian
and foreign carriers but also the competition will bring down tariffs which will benefit
passengers directly. At the same time there will be an increase in capacity and connectivity
that will benefit passengers by giving them more seats and choices.
Polcy Re+"r(n+ Co))erc"l A+ree)en!'
*he policy of the =overnment mandated commercial agreements which is prevalent only in
India has been a point of severe criticism from various -uarters including )inistry of
*ourism. It has been decided that =overnment will not henceforth mandate any commercial
agreement during bilateral Air %ervices consultations. ,oreign airlines starting new air
services therefore will not have to pay compensation to our airlines by way of mandated
commercial agreements. *his will help to bring down tariffs and increase connectivity
thereby providing direct benefits to passengers.
L)!e( O&en S*y Polcy
Bon.availability of seats to and from India during the pea! winter season has been
one of the ma(or constraints faced by passengers. In order to ensure sufficient availability of
seats a limited Dpen %!y /olicy was adopted by the =overnment for the year 2005.0" under
which designated foreign airlines have been permitted to mount as many services as they
#03
wish to the available points of call sub(ect to the terms and conditions of the e+isting
commercial arrangements between the airlines of both sides for the period 4ecember # 2005
to Hanuary 3# 200". Also foreign airlines have been permitted to upgrade their e-uipment at
their e+isting fre-uencies during the period Bovember # 2005 to )arch 3# 200".
3emoval of 3estriction on /hotography
India was among the few countries in the world which had restrictions on photography by
passengers at the terminal buildings of the airports and from inside the aircraft. *hese
restrictions had outlived their utility and often presented a rather negative image of the
country to the foreign travelers particularly tourists who were accustomed to ta!e
photographs at airports and while in flight. *hese outdated restrictions have now been
removed through amendments in Aircraft 3ules to permit photography by passengers of
scheduled flights at the terminal buildings of civil aerodromes and civil enclaves at 4efense
aerodromes. In addition passengers are also now permitted to ta!e photographs from inside
an aircraft while in flight or landingAta!e off at civil aerodromes.
A)en()en! n Arcr"$! R%le'
*he Aircraft Act and Aircraft 3ules are reviewed from time to time and amendments are
carried out to !eep the provisions abreast with the international standards and development in
the civil aviation sector. As part of this initiative amendments to Aircraft 3ules #$37 have
been carried out relating to removal of restriction on photography by passengers at the
terminal buildings of the airports and from inside the aircraft air fares and rela+ation in upper
age limit for the pilots from "0 to "5 years sub(ect to fulfillment of certain conditions.
Lo# Co'! O&er"!on' .y Ar In("
In what is a boon for e+patriate Indians wor!ing in the =ulf 3egion and %.<. Asia Air India
has operationalised ?Air India <+press@ a new budget carrier under the banner of Air India
2harters 'imited ;AI2'9 a wholly owned subsidiary of Air India has commenced operation
with dry lease aircraft over a period of one year from )arch 2005 to April 200". ,lights to
%outh <ast Asia and =ulf ;e+cluding %audi Arabia9 are being operated by this carrier at
substantially reduced fares effective summer of 2005.
#07
)umbai )ay $ ;IAB%9 A fierce battle for mar!et share is set to unfold in the Indian s!y as a
number of budget airlines spread their wings in the months ahead to cash in on increasing air
traffic and rising income levels.
At least four new low.cost airlines will ta!e off in the domestic aviation sector over the ne+t
si+ months and half a do0en more are li!ely to be added in two to three years triggering a
severe price war.
After the commercial launch of &ingfisher Airlines )onday the ran! of budget airlines will
have other new entrants li!e )agic Air %pice Het =o Air and Air Dne in the coming months.
O*he Indian aviation sector has really entered into a very e+citing phase after years of over.
regulationO said &apil &aul 2<D of 2entre for Asia /acific Aviation an international
research organi0ation.
O*he potential for budget airlines is huge for a country li!e India with over a one billion
population. <ven after the launch of the new airlines this year there will be room for many
more players in the years aheadO &aul told IAB%.
According to the 2entre for Asia /acific Aviation the new low.cost airlines will help add at
least five million new passengers every year ta!ing the total number of air travelers to 50
million by 20#0.
2urrently the four main domestic airlines . state.run Indian Airlines Het Airways Air %ahara
and low.cost Air 4eccan . carry some #$ million passengers among themselves every year.
In comparison a staggering #7 million people travel by trains every day. )ost of the budget
airlines are betting on growth by encouraging railway passengers to fly at fares that are at
times cheaper than train tic!ets.
Although &ingfisher Airlines . the aviation arm of Bangalore.based li-uor giant LB =roup .
is being positioned as a Ofull serviceO airline it will have (ust one class for all passengers.
*he tic!ets for &ingfisher Airlines will be sold in three different slabs on the first.come.first.
serve basis and the lowest level will be cheaper than the fares of other full.service airlines.
#05
OItGs to the new India that we offer &ingfisher AirlinesO said Ci(ay )allya chairman of the
LB =roup that ma!es the largest.selling &ingfisher beer.
O1e will ma!e our own mar! in the domestic aviation mar!et by offering e+tremely good
value proposition to the customer. 1e understand consumersG needs and aspirationsO he
added.
)allya says his airline is betting on the #50 million Oconsuming class peopleO who are being
added to the Indian economy every year for grabbing a larger share of the Indian s!y.
Air 4eccan the pioneer of the budget airline mar!et in India is not worried by the impending
competition.
O*he launch of many new budget airlines is good for all of us. *he new players will help
grow the mar!et si0e and as the mar!et si0e grows so will the revenues of all airlinesO said
=.3. =opinath 2<D of Air 4eccan told IAB%.
OI thin! the aviation sector has all the ingredients to replicate the success of the booming
mobile telephone business in India. As the competition heats up and prices come down more
and more people will prefer to fly.O
Air 4eccan which started operations in August 2003 hopes to fly four million passengers
this year up from a million people in the previous year.
OIndiaGs aviation sector is very small as compared to its population. *he country handles some
"00 flights a day whereas the %ingapore airport alone handles 3200 flights. Air travel in
India should be as fundamental as breathing.O
*he state.owned Indian Airlines is finding difficulty in facing even a moderate level of
competition preva iling at present in the domestic civil aviation industry. 4espite a long 50
years of e+perience behind it the mar!et share of the airline has been slowly but surely
dwindling since #$$# when the open s!y policy was implemented. *he declining mar!et
share is an indication of inefficiency which is reflected in its poor financial performance.
*he financial performance of Indian Airlines started deteriorating from #$>$.$0 even before
competition too!.off. Between #$>$.$0 and 200#.02 the airline incurred losses in #0
#0"
financial years. *he cumulative net losses amounted to 3s #7." billion against a cumulative
profit of (ust 3s #.# billion for this period. In such a situation many analysts feel that it5s
time for the government to handover the management to the private sector by reducing its
own share below 50 per cent. :owever the government is not yet convinced with this line of
argument and has put off the disinvestment of the airline for some more time. *he plan of the
government is now to revive Indian Airlines financially before offering it for sale so as to
fetch a better price. In this endeavor the government has allowed airline to induct 73 new
aircraft at the cost of T 2 billion.
1hen a new investment is made it is however necessary to ensure that it does not aggravate
the problems of Indian Airlines further by rendering it even less cost competitive as
happened in the recent past. 1ith inductions of A.320 aircraft in the fleet the average annual
growth rate in unit cost of the airline went up from 7.3 per cent during #$"7.>> to ##.7 per
cent during#$>$.$$. *o control such a drastic increase in the unit cost growth resulting from
new investment it is necessary to pay attention to corresponding improvements in the
productivity of factors as well.
Available evidence suggests that there is a vast scope for Indian Airlines to reduce the growth
in unit cost by improving the productivity level. ,or instance according to a study by 1indle
;#$$#9 Indian Airlines in terms of total factor productivity stood at 35th in the ran!ing of 7#
selected airlines of the world in #$>3. Also according to another study ;:ashim 20029 the
airline witnessed a negative productivity growth at the average rate of 0.7 per cent per annum
during #$"7.$$.
In spite of the rapid increase in unit cost and poor productivity performance there has been
no systematic study on Indian Airlines aiming at analy0ing the productivity change in relation
to the growth in unit cost. *he absence of such a study ma!es it difficult to suggest the
#07
re-uired corrective measures.
*he financial performance of Indian Airlines has been unsatisfactory since #$>$.$0 despite
numerous hi!es in fares. *he main reason for poor performance has been the fast growth in
its unit cost. But so far no attempt has been made to study whether this was the result of
decline in productivity or increase in prices of inputs or both. *he present study thus
attempts to relate the unit cost with productivity over the period #$"7.$$. /artial factor
productivity as well as *,/ have been estimated along with the unit cost. In addition a
decomposition analysis of the unit cost differential has also been underta!en by utili0ing a
translog variable cost function to identify the role of each source of productivity and factors5
prices in the unit cost growth.
*he results on partial factor productivity of factors show improvements in the productivity of
labour and energy but deterioration in productivity of capital and materials. *he result on the
overall productivity shows that *,/ has grown by a meager average rate of 0.7 per cent per
annum over the period of this study. :owever the unit cost during the corresponding period
has increased at a much faster rate of $.$ per cent per annum. *he results also show that the
performance of Indian Airlines witnessed deterioration after #$>>.>$ when productivity
growth became negative and the unit cost grew at a much faster rate than in the period #$"7.
>>.
4ecomposition of unit cost differential of Indian Airlines reveals that the increase in factor
prices has far e+ceeded the improvement in productivity resulting in a high growth in unit
cost over the years. *he improvement in productivity can be attributed mainly to the
e+pansion of output as the capital stoc! contributed only slightly and technical change
played an opposite role. ,urther analysis shows that productivity change helped reducing the
growth in unit cost only during #$"5.>>. In the subse-uent period #$>$.$$ productivity
#0>
change raised the unit cost growth due to the slowdown in output growth technical
retrogression and poor capacity utili0ation. 2apacity e+pansion in form of A.320 aircraft at
the time of demand recession was the main reason behind this. *he high price of A.320
aircraft contributed additionally to the increase in unit cost growth. :ence the increasing unit
cost and losses of Indian Airlines had largely to do with the inductions of A.320 aircraft at a
wrong time. A cheaper aircraft or hiring of the aircraft on lease basis would have been a
better option.
,rom the above analysis it can be concluded that there is an ardent need for Indian Airlines to
Improve its productivity. *his will re-uire proper utili0ation of capital stoc! in particular
And other inputs in general. A correct selection of aircraft for the fleet is e-ually important
as
it greatly influences the productivity change the unit cost growth the profitability and its
)ar!et share
N #. Indian Airlines is facing a tough competition from its competitorsW
N 2. *he financial performance of Indian Airlines has been unsatisfactory during $0 but it is
now improving commentW
#0$

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