The Descent of Air India (25 page)

•  For the same year, Air India also decided to capitalise its maintenance expenditure instead of charging it to the profit and loss account. This allowed the airline to show a reduction in expenses on aircraft maintenance to the extent of
236.69 crore (which included
157.88 crore for the previous years). The management said that it had been a mistake in the earlier years to charge the expenditure to the profit and loss account, and hence the correction. The auditors, however, felt it prudent to draw attention to the fact since the entry would show a drop in expenses although there had been none.

•  The auditors were also concerned about the manner in which Air India was calculating its rental earnings. It had claimed
77 crore as rent from the office building at Nariman point, which was a gross exaggeration, given that several tenants in the building were paying antiquated rates of
3–5 per square foot and a large part of the building was lying vacant following the eviction of many tenants on the grounds that Air India needed the space for itself. Some tenants had challenged their ouster, and the Committee of Disputes was looking into the charges made against Air India. Until the disputes were settled, Air India could not rent out the vacated space. There was no way that it could have earned the amount that it said it did in the annual report. It would be interesting, however, to understand the calculations that led to the figure. While hearing the case of one of the evicted tenants, the Committee of Disputes had used an approximate rent estimate of
300 per square foot of the building. The figure was hypothetical and meant for the express purpose of the court hearing. Air India applied this rate to all tenants for their occupation since 1 April 1995 i.e. from the time their licenses were terminated. They were asked to pay mesne profits/damages until they handed the premises over to Air India and that helped arrive at the amount of
77.77 crore. The auditors noted, ‘The actual rent earned during 2006/07 from the tenants was Rs. 2 crores.’ Such an ingenious method of bolstering revenues was adopted for the first time during this period.

•  The auditors stated that Air India had changed its policy on accounting of exchange rate difference which was not in compliance with Schedule VI of the Companies Act and the impact of this change on the airline’s loss figure for the year was not ‘ascertainable’.

•  Air India recognised a deferred tax benefit of
201.93 crore which would bring its losses down by the same amount. This was done with the intention of adjusting the amount against future taxable profit which the auditors said was difficult to ascertain in view of future uncertainty.

There were many other discrepancies that the auditors pointed out. For instance, the report said, ‘Related to Airport Authority issues for ground handling, route navigation charges, the auditors have estimated that the Company has underestimated losses by
135.26 crores.’They also made a note of areas of non-compliance with the Companies Act and the Accounting Standards. The auditor further noted that ‘despite not being able to ascertain impact of certain changes in accounting policies, in respect of some other changes, the loss would have been much more.’

What was extremely shocking was the fact that while there were so many revelations in the auditor’s report about the changes in accounting policies, the principal director of commercial audit of the CAG’s office after perusing the financial statements of Air India for the year said, ‘Nothing significant has come to my knowledge,’ thereby giving the airline a clean report. This was intriguing and surprising, given that the CAG’s report was prepared by its officers, who were based out of the fourth floor of the Air India’s accounts office and were auditing Air India’s accounts throughout the year.

The auditors further reported that without considering items like accounting for forward sales, exchange rate, and stores and spares, which couldn’t be quantified, if only the aberrations relating to the revaluation of inventory, capitalisation of spares, change in the classification of ‘owned aircraft’ inventory to ‘leased aircraft’ inventory and dues to/from the Airports Authority of India were taken into consideration, the net loss for 2006–07 would have been
799.64 crore as against the reported figure of
447.93 crore.

The juggling of accounts continued even after the merger with Indian Airlines. With the induction of new aircraft in July 2007, Air India decided to take the ‘useful life’ of B777/B787 aircraft and Airbus A319/320/321 aircraft as 20 years, as against 16.96 years, prescribed in Schedule XIV of the Companies Act, 1956. This action resulted in a higher estimated life of assets and a consequent drop in depreciation provision. By 2008–09, once a significant number of new aircraft had been added to the fleet, the depreciation provision was lowered by
92 crore, prompting the auditors to remark in their report that the loss for the year was understated by this amount. During the previous year, 2007–08, the understated loss was
24.63 crore. During 2011–12, the airline has been accused of understating its losses by
2,842 crore by its auditors. Instead of introducing a disciplined and more transparent system of expenditure and revenue management, the airline looked for accounting loopholes. Deception, not course correction, was the name of the game. When the management of an organisation resorts to such measures, it indicates a serious lapse in judgement on the part of those entrusted with its care and raises doubts about their true intentions.