air india

” REVENUE MODEL ANALYSIS OF PASSENGER TRAFFIC AND CARGO

TRAFFIC IN AIR INDIA LTD”

By

N.ANANDRAJ(21107631002)

A PROJECT REPORT

Submitted to theDEPARTMENT OF MANAGEMENT STUDIES

In partial fulfillment of the requirementsFor the award of the degree

Of

MASTER OF BUSINESS ADMINISTRATION

RAJALAKSHMI ENGINEERING COLLEGE

(Affiliated to Anna University)

THANDALAM

CHENNAI – 602 105

JUNE 2009

BONAFIDE CERTIFICATE

Certified that this project report” REVENUE MODEL ANALYSIS OF PASSENGER TRAFFIC AND CARGO TRAFFIC OF AIR INDIA LTD” with respect to the bonafide work of Mr. N.ANANDRAJ, Reg. No. 21107631002, Final year student of Rajalakshmi Engineering College carried out under my supervision. Certified further that, to the best of my knowledge, the work reported herein does not from any part of other project report or dissertation on the basis of a degree or award was concerned on an earlier occasion on this or any other candidate.

.

HEAD OF THE DEPARTMENT PROJECT SUPERVISOR

DATE DATE

INTERNAL EXAMINER EXTERNAL EXAMINER

DATE DATE

ACKNOWLEDGEMENTS

At the outset, I thank my beloved parents for their constant

encouragement and blessings provided towards the successful completion of this

project work.

I express my wholehearted gratitude to the Management of Rajalakshmi

Engineering College, Thandalam, Chennai – 602 105 for offering me an opportunity

for successfully completing this project.

I would like to take this opportunity, to express my Heartfelt thanks to

the Director Mr. P.S.Pandian Department of Management Studies for his

inspiration and encouragement throughout the programme and Dean Mr. Shankar

Department Of Management Studies for providing me with the necessary

facilities to our project work.

I would like to express my gratefulness to my faculty

Mr. K.Sampath kumar, Department of Management Studies for his interest and

valuable suggestion rendered throughout this project work.

It’s a privilege to entitle my sincere thanks to all faculty members of

Department of Management Studies who helped me a lot with their suggestion and

ideas for this project work

I am very much indebted to the Management of” AIR INDIA LTD

CHENNAI” for having permitted me to undergo a project work.

I gratefully acknowledge the major contributions made by the

Departmental staffs of finance who had guided me in all possible ways to

accomplish this project in a grandeur way.

I wish to express my sincere thanks to all helped me in making this project

successful. I thank almighty for showering all the blessings on me to complete

this project successfully and steering for success in every attempt of my life.

DECLARATION

I hereby declare that the project entitled” REVENUE MODEL

ANALYSIS OF PASSENGER TRAFFIC AND CARGO

TRAFFIC OF AIR INDIA LTD”, submitted by me for the award of the

degree of Master of Business Administration of the Anna University is a record of

project work done by me during June 2009 and the project has not formed basis

the award of any Degree, Diploma, Associate ship, Fellowship or other similar

titles.

Place :

Date :

(N.ANANDRAJ)

TABLE OF CONTENTS

CHAPTER NO. TITLE PAGE NO.

1 INTRODUCTION

1.1 GENERAL CONCEPT 1

1.2 MANAGEMENT CONCEPT 2

1.3 OBJECTIVES 9

1.4 RESEARCH METHODOLOGY 10

2 REVIEW OF LITERATURE 13

3 PROFILE OF AIR INDIA 18

4 ANALYSIS AND INTERPRETATION 25

5 SUMMARY AND CONCLUSION 53

FINDINGS OF THE STUDY 53

SUGGESTIONS 55

6 CONCLUSION. 57

7 BIBLIOGRAPHY 58

8 ANNEXURE 59

LIST OF TABLES

TABLE NO.

TITLE PAGE NO

1.1

TABLE SHOWING THE BREAK UP OF REVENUE EARNED BY AIR INDIA DURING THE YEAR - 2001-2002

25

1.2


27

1.3


29

1.4


31

1.5


33

2.1

TABLE INDICATING CURRENT ASSETS, CURRENT LIABILITIES AND CURRENT RATIO FOR THE YEAR 2001-2006

35

2.2

TABLE INDICATING CASH, CURRENT LIABILITIES AND CASH POSITION RATIO FOR THE YEAR 2001-2006

37

2.3

TABLE INDICATING LONG TERM DEBT, SHARE HOLDERS FUND AND DEBT EQUITY RATIO FOR THE YEAR 2001-2006

39

2.4

TABLE INDICATING PROPRIETORS FUND, TOTAL TANGIBLE ASSETS AND CASH POSITION RATIO FOR THE YEAR 2001-2006

41

2.5

TABLE INDICATING NET PROFIT, TOTAL SALES AND NET PROFIT RATIO FOR THE YEAR 2001-2006

43

2.6

TABLE INDICATING NET PROFIT, SHARE HOLDERS FUND AND

RETURN ON SHARE HOLDERS FUND FOR THE YEAR 2001-2006

45

2.7

TABLE INDICATING NET PROFIT, FIXED INTEREST CHARGES AND

INTEREST COVERAGE RATIO FOR THE YEAR 2001-2006

47

2.8

TABLE INDICATING SALES, FIXED ASSETS AND FIXED ASSET

TURNOVER RATIO FOR THE YEAR 2001-2006

49

2.9

TABLE INDICATING SALES, WORKING CAPITAL AND WORKING

CAPITAL TURNOVER RATIO FOR THE YEAR 2001-2006

51

LIST OF CHART

TABLE NO.

TITLE PAGE NO

1.1CHART SHOWING THE BREAK UP OF REVENUE EARNED BY AIR

INDIA DURING THE YEAR - 2001-2002 26









2.1CHART INDICATING CURRENT ASSETS, CURRENT LIABILITIES AND

CURRENT RATIO FOR THE YEAR 2001-2006 36

2.2CHART INDICATING CASH, CURRENT LIABILITIES AND CASH

POSITION RATIO FOR THE YEAR 2001-2006 38

2.3CHART INDICATING LONG TERM DEBT, SHARE HOLDERS FUND AND

DEBT EQUITY RATIO FOR THE YEAR 2001-2006 40

2.4CHART INDICATING PROPRIETORS FUND, TOTAL TANGIBLE ASSETS

AND CASH POSITION RATIO FOR THE YEAR 2001-2006 42

2.5CHART INDICATING NET PROFIT, TOTAL SALES AND NET PROFIT

RATIO FOR THE YEAR 2001-2006 44

2.6CHART INDICATING NET PROFIT, SHARE HOLDERS FUND AND

RETURN ON SHARE HOLDERS FUND FOR THE YEAR 2001-2006 46

2.7CHART INDICATING NET PROFIT, FIXED INTEREST CHARGES AND

INTEREST COVERAGE RATIO FOR THE YEAR 2001-2006 48

2.8CHART INDICATING SALES, FIXED ASSETS AND FIXED ASSET

TURNOVER RATIO FOR THE YEAR 2001-2006 50

2.9CHART INDICATING SALES, WORKING CAPITAL AND WORKING

CAPITAL TURNOVER RATIO FOR THE YEAR 2001-2006 52

CHAPTER -1INTRODUCTION

1.1 GENERAL CONCEPT

Airlines are the major source of transport which carries passengers and freight over

regularly scheduled routes or on routes, called “charters,” specifically designed for a

group of travelers or a particular cargo.

Passenger airline carrier is the regional carrier. Regional airlines operate short-haul and

medium-haul scheduled airline service with an emphasis on connecting smaller

communities with larger cities and hubs. Some of the largest regional carriers are

subsidiaries of the major airlines, but most are independently owned, often contracting

their services to the majors.

Cargo is another segment of the airline industry. Cargo can be carried in cargo holds of

passenger airlines or on aircraft designed exclusively to carry freight. Cargo carriers in

the air transportation industry do not provide door-to-door service. Instead, they provide

only air transport from an airport near the cargo’s origin to an airport near the cargo’s

destination.

The project deals with analyzing the revenue model of passenger traffic and cargo traffic

in Air India and its contribution towards the total profit of the organisation. The revenue

generated from passenger traffic and cargo traffic is compared and the more revenue

generating traffic is found and its reason for the decline in revenue is found and

suggestions were given to improve its revenue. The ratio analysis is also done to find out

the profitability position of the organisation.

The outcome of the study will contribute to find the ways and means by which the

company will be able to increase its revenue in its highest contributing operations and

in turn the total profit.

1.2 MANAGEMENT CONCEPT

ACCOUNTING CONVENTION

These accounts have been prepared with the going concern

concept on accrual basis under historical cost convention, except as specifically

stated, and are in compliance with generally accepted accounting principles and the

accounting standards referred to in section 211(3c) of the companies act,1956

USE OF ESTIMATES

The preparation of financial statements in conformity with

generally accepted accounting principles requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosure of

contingent liabilities at the date of financial statements and the reported amounts of

revenue and expenses during the reporting period particularly in respect of major

items such as traffic revenue, provision for liabilities, depreciation, obsolescence,

doubtful debts and advances and the contingent liabilities. Difference between the

actual results and estimates are recognized in the period in which results are known /

materialized.

FIXED ASSETS

i. Fixed assets are stated at historical cost.

ii. Aircraft fleet and equipment are stated at purchase price and other incidental

cost, including interest incurred upto the delivery. Exchange differences on

conversion of foreign currency loans taken for acquisition of aircraft are

adjusted to the cost of the air craft.

iii. Financial lease: Aircraft fleet and equipment acquired under finance leases

are those in respect of which all the risks and rewards of ownership are

transferred to the company.

iv. Depreciation on fixed assets is provided on straight line method at the rates

and in the manner prescribed in schedule XIV to the companies act ,1956

except for the following:

a) Airframe equipment rotables and aero engine equipment rotables

relating to air craft which have completed the useful life are

depreciated over the remaining commercial life of the respective

air craft based on airworthiness as certified by Director General of

Civil Aviation (DGCA).

b) Increase /decrease in cost arising on account of translation of

foreign currency liability for acquisition of fixed assets is

amortized over the residual life of the respective assets.

c) The vehicles are depreciated at 14.29% considering useful life as

Leasehold 7 years.

d) Depreciation on additions to “Other Fixed Assets” is provided for

the full year in the year of acquisition and no depreciation is

provided in the year of disposal.

v. land is amortized over the period of lease.

vi. Intangible assets are amortized over its useful life or five years whichever is

lower.

IMPAIRMENT OF ASSETS

The carrying value of fixed assets of the identified cash-generating

unit are reviewed for impairment at each balance sheet date to determine whether

there is any indication of impairment.

The aircraft are grouped at the fleet type level to constitute a cash

generating unit for comparing the recoverable amount (higher of its net selling price

and value in use with the carrying amount. the net selling prices of aircraft fleet and

equipment are estimated by the management using published sources as available.

If the carrying value of a cash generating units exceeds its estimated recoverable

amount an impairment loss is recognized in the profit&loss account and the assets of

the cash generating unit are written down to their recoverable amount.

INVESTMENTS

Long term investments are stated at cost less diminution other than

temporary, in value, if any. Current investments are valued at lower cost and fair

market value.

INVENTORY

i. Spare parts stores and tools are valued at prime cost on weighted average

basis.

ii. Obsolescence provision for aircraft stores and spare parts

a) Relating to aircraft fleet that has completed the useful/statutory life is

made in full.

b) Relating to aircraft fleet other than that indicated above is made at the rate

of 3% on inventory purchased during the year and forming part of the

closing inventory and at the rate of 6% on the balance inventory on an

annual basis.

c) Relating to dry lease air craft fleet is made on the basis of completed lease

period compared to the total lease period as at the year end.

iii. Obsolescence provision for non-aircraft stores and spares is made to the

extent of non-moving inventory for the period exceeding five years.

FOREIGN CURRENCY TRANSLATION

i. Current Assets And Current Liabilities

Foreign currency denominated current assets and current

liabilities balances at the year-end are translated at the year-end

exchange rate calculated by Foreign Exchange Dealers Association of

India (FEDAI), and the gains/losses arising out of fluctuations in

exchange rates are recognized in the profit and loss account.

ii. Foreign Currency Loans

The outstanding balances of loans as at the end of each quarter

are translated at established quarterly rates(based on published IATA

rates) as applicable for the next quarter. The outstanding balances of

these loans as at the end of the year are translated at FEDAI closing

rates. The differences arising there from

a) relating to loans for acquisition of fixed assets are adjusted to the

cost of the identified fixed assets.

b) Related to other loans are transferred to profit and loss account.

iii. Revenue And Expenditure translations

a) Foreign currency translations of revenue and expenditure are

translated at established quarterly rates (based on published

IATA rates).

b) Interline settlement with airlines for transportation is carried

out at the exchange rate published by IATA for respective

month.

REVENUE RECOGNITION

i. Passenger and cargo sales are recognized as revenue, net of

incentives on sales, when the service is rendered. Amount

represented by sales, for which service remains to be rendered, are

reflected in the accounts as current liabilities under the head

“Advances from Customers”. The balance remaining in said

accounts in respect of passenger and cargo sales, for the period

more than two years and in respect of partly utilized coupons on

identification of revenue when the profitability of utilization

ceases, are recognized as ‘Other Revenue’

ii. The pool revenue is accounted on an accrual basis as per the

arrangements with the airlines concerned. If details of passengers

carried by the pool partners are not received, the revenue is booked

on an estimated basis as per the agreements with respective pool

partners.

iii. Income from interest is recognized on time proportion basis and in

respect of dividend is recognized when right to receive the

payment is established.

iv. The claims receivable from insurance company are accounted for

their acceptance by the insurance company.

OPERATING LEASES

Leases where assets are acquired with or without an option to purchase

where title may or may not eventually be transferred are considered as operating

leases and lease rentals payable for the year are charged to profit and loss account.

BORROWING COST

i. Borrowing cost that are directly attributable to acquisition,

construction or production of qualifying assets are capitalized up to the

time the assets gets ready for its intended use.

ii. Borrowing cost other than stated above is treated as period cost.

COMMODITY HEDGING TRANSACTIONS

Commodity hedging contracts are accounted on the date of their

settlement and realized gain /loss in respect of settled contracts are recognized in

the profit and loss account.

RETIREMENT BENEFITS

i. Provident fund is contributed to Air India Employees provident fund and

charged to profit and loss account of the year.

ii. Gratuity, leave encashment and post retirement medical benefits for staff

recruited in India are provided on actuarial valuation basis as the balance

sheet date.

iii. Liability for gratuity, leave encashment, pension and other retirement

benefits for staff directly recruited at foreign stations is provided as per

local laws prevailing in the respective countries as at the balance sheet

date.

FREQUENT FLYER PROGRAM

The company operates joint frequent flyer programme that provides

travel awards to its members based on accumulated mileage points. The estimated

cost of providing free travel under this programme is provided for and charged to

Profit and Loss Account.

MISCELLANEOUS EXPENDITURE/DEFERRED REVENUE

EXPENDITURE

Expenditure incurred upto 31-3-2003 on significant modernization

and improvements to aircraft, training, booking office decoration and other

benefit of such cost is expected to accrue.

OTHER LIABILITIES

Liabilities which are more than three years old are reversed unless such

liabilities are specifically known to be payable in the future.

TAXES ON INCOME

Provision for current tax is made in accordance with the provision of

Income Tax, 1961

Deferred tax is recognized on timing between book and taxable profits

using the tax rates and laws that have been enacted or substantively

enacted as on the balance sheet date. The deferred tax assets are

recognized and carried forward to the extent that there is a virtual certainty

that the assets will be realized in the future.

PROVISION AND CONTINGENT LIABILITIES

Provisions are recognized in the accounts in respect of present probable

obligation, the amounts of which can be reliably estimated.

Contingent liabilities exceeding Rs.0.1 million in each case are disclosed in

respect of possible obligations that arise from past events but their existence is

confirmed by the occurrence or non-occurrence of one or more uncertain future

events not wholly within the control of the company.

PRIOR PERIOD ITEMS

The Income and Expenses which arise in the current period as result of

errors and omissions in preparation of financial statements of one or more prior

period are considered as prior period items and are shown separately in the

financial statements.

CASH FLOW STATEMENTS

Cash flow are reported using the indirect method, whereby profit before tax

is adjusted for the effects of transactions of a non-cash nature and deferrals or

accruals of past or future cash receipts or payments.

The cash flows from regular operating, financing and investing activities of

the company are segregated.

HAJ OPERATIONS

Company acts as a ‘Nodal Agency’ on behalf of the government of India

and the expenses incurred by the company/ paid to other participating airlines and

claimed from the government of India/central haj committee is recognized as

revenue

CHAPTER 1.3

OBJECTIVES

PRIMARY OBJECTIVE

To analyze a revenue model of passenger traffic and cargo traffic so as to

suggest various measures for the improvement of traffic revenue.

SECONDARY OBJECTIVE

To analyze the revenue model of air India limited during financial years(2002-

2006)

To analyze the profitability position of air India limited during financial

years(2002-2006)

1.4 RESEARCH METHODOLOGY

SCOPE

The scope of the study is to analyze the revenue model of the Air India Limited.

With particular reference to passenger traffic and cargo traffic and suggest steps for

improving the same.

AREA OF STUDY

The nature of study is made to understand the features and concept underlying in

revenue and profit. The topic under study deals with ‘Revenue Model Analysis of

Passenger Traffic and Cargo Traffic in Air India Limited’ which plays a vital role in

the development of the organization. All projection and interpretation are based on the

balance sheet, income statement etc and financial tools is applied for such analysis of the

financial statement which helps to know the overall profitability position of the

organization.

RESEARCH DESIGN

The main objective of the research is to describe ‘the state of affairs as it exists at

present. The research is a descriptive one.

SOURCE OF DATA

The information needed for the study is collected from organization in two ways.

They are,

1. Primary data

2. Secondary data

Primary data

The primary data was collected through discussion and interaction with various

executives in the organization.

Secondary Data

The secondary data required was collected from annual reports of the

company, balance sheet, income statement, journals etc.

TOOLS USED IN DATA ANALYSIS

Data collected from secondary source is in the form of annual report, which was analyzed

using tools/technique.

The financial tools applied are

Revenue model analysis

Ratio analysis

REFERENCE PERIOD

The data reference period is five years 2001 to2006

CHAPTERISATION

1. Introduction, objectives, research methodology, chapterisation

2. Review of literature.

3. Company profile

4. Analysis and interpretation.

5. Findings, suggestions, conclusions.

CHAPTER 2LITERATURE REVIEW

This chapter provides readers for information of the airline industry in details.

Firstly, start with the industry overview and characteristics of low-cost and traditional

airlines. The next topic describes competitive issues, which consist of deregulation, cost

operation and loyalty schemes. Each factor has both advantage and disadvantage affect to

low-cost and traditional airlines. Later topic describes financial performance and return

on investment of the industry. The last topic discusses future growth in the industry,

whether low-cost and traditional airlines have opportunities to grow in the business,

according to optimistic factors forecasted.

4.1 Industry Overview

Travel and tourism is the largest industry in the world and air transport plays

the significant role to this industry (Hanlon, 2007). Airline business is included in the air

transport industry, which consists of aircraft manufacturers, airports, air traffic services,

etc (Seristö, 1993). The air transport has grown for long period consistently.

The airline deregulation began in the U.S. in 1978 and spread across other

regions of the world, leading to a rapid growth in the air transportation industry during

the last decade (Sinha, 2002). There have been number of new airlines entered to the

industry, high demand on aircraft for the fleet expansion, and increase in passenger traffic

steadily. The passengers of scheduled airlines showed in the figure 3 imply the growth in

the airline business from 1990 to 2006.

Source: Modified - Hanlon 2007, 3

Passenger traffic grows from 1990 to 2006 at the average rate 4%. The

highest growth is in 2004 around 12% then decreases to 7% and 4% in 2005 and 2006

consecutively (Hanlon, 2007). The passenger growth keeps growing in 2007 and

forecasts to continue in the future, according to the liberalization of the industry. Asian

and Middle East markets are considered to grow faster than other mature markets, the

U.S. and European. Average world passenger growth rate is estimated at 5% annually

(Hanlon, 2007). One substantial reason for growth in the airline business is the new

entrants. Since the barriers of the industry have been non-existent in many parts of the

world by deregulations and open-skies agreements, low-cost or no-frills airlines are

entered into the business. The new entrants seem to be more successful than failure in

their operations. They can share the market with profitability from traditional or full-

service airlines and increase portion of market share gradually. Some traditional airlines

have to adjust their strategies by set up subsidiaries low-cost airlines to maintain the

market share and also being their marketing arms. The table below shows some

traditional airlines and their related low-cost airlines.

Traditional Airlines and their related Low-cost Airlines

Traditional Airlines Low-cost Airlines

British Midland Airways (bmi) bmiaby

Lufthansa Germanwings

Qantas Airways Jetstar Airways

Scandinavian Airlines AirBaltic

Blue1

Snowflake

Singapore Airlines Tiger Airways

Thai Airways Nok Airlines

Source: Individual airline website

Southwest Airlines, the U.S. based airline, is the pioneer of low-cost model. Southwest

Airlines has operated the business with consistency profitability for long years. With the

concept of simple product and low operation costs, Southwest Airlines becomes the role

model in this industry (Schneiderbauer and Fainsilber, 2002). To overview how different

between low-cost and traditional airlines, table 2 summarizes main features between them

accordingly.

Competitive Issues

Deregulation

Deregulation has made a big change in the airline industry. It has brought

competitive, affordable fares and service improvement in the airline business.

Deregulation allows newcomers entered the market, which most of them are low-cost

airlines. In 2006, there are over 1,400 airlines in the global including traditional airlines,

low-cost airlines, charter operators, freight carriers, etc (Hanlon, 2007).

One substantial benefit of deregulation is that travelers have more

alternatives with affordable fares. Low-cost airlines offer high discounts, create

competitive and erode traditional airlines’ market share. The expansion of low-cost

airlines forces traditional airlines to adjust their strategies to prevent losing market shares

additionally.

As the effect of deregulation has not yet deployed, opportunities still opens for new

entrants.

Source: Airbus 2006, 31

But, survival in the competitive market is more important. Using the

success model in the industry may not guarantee that new entrants will operate the

business successfully. Therefore, some of businesses will leave the industry accordingly.

The market entries are expected for the near future while the market exits are predicted in

middle or long-term period (Bieger and Laesser, 2004).

Cost Operation

According to low fare offered to passengers, low-cost airlines need to operate their costs

effectively to gain maximized profits, and be able to compete in the fierce market. Major

strategies that low-cost airlines using for cost effectiveness are as follows (Bieger and

Laesser,2004):

- Keep away from highly frequented airports and use small airports instead. This can

reduce the airport fees, which the small airports charge at the lower fees.

- There is no-frills for in-flight services. Passengers need to buy foods or beverages

during the flight. This strategy not only saves in-flight costs, but also makes other

revenues for the airlines.

- Keep low distribution costs by taking advantage on internet and using call center

channels. Most low-cost airlines have a large proportion of booking online. This

32 distribution channel can eliminate intermediate agents that caused high commission

expenses, which traditional airlines normally pay for them.

- Minimize turnaround time to keep aircraft at the high utilization. As the costs are

incurred while the aircraft park at the airports, the revenues are recognized while the

aircraft fly in the skies.

For example of better cost operation, figure 5 shows that among the U.S. airlines, low

cost airlines have lower unit cost per available seat mile2 than traditional (legacy) airlines

during 1998-2004. Please note that both of “mile” and “kilometer” are used for distance

units in this thesis, depending on information of the U.S. airlines, European airlines, or

other airlines, which use different the distance units.

Financial Performance

The airline business is very typical in the term of investing capital. It has been used heavy

capital over the past century and people still invest the money on this extraordinary

business (Hanlon, 2007). Even though the airline industry experienced in high losses over

$40 billion during 2001 to 2005, there were some airlines, especially low-cost carriers,

gained profitability over those years, and this made the industry still being attractive for

investors (Smyth and Pearce, 2006). The airline industry generated positive operating

profits during 1996 to 2004, however, the return for investors is not normal rate of return

and not sufficient to cover related risk, for example, the cost of capital. For low-cost

airlines, although they outperformed traditional airlines, only few of them can provide

investor return3 at the rate covering the cost of capital. International Air Transport

Association (IATA) joined McKinsey & Company working analysis of the financial

results for representative traditional airlines and low-cost airlines to examine the return

on investing capital for the period 1996 to 2004 (Smyth and Pearce, 2006). The analysis

showed that the airlines had the median average return on invested capital at 4.9% from

1996 to 2004, which is lower than the cost of capital of 7.5%. Only representatives of

European low-costs airlines can deliver the higher return on invested capital over the cost

of capital.

Financial Analysis

The Financial Analysis group guides senior management on key business decisions,

policymaking and long-term strategy development. Our Analysts act as internal

consultants and consider quantitative, qualitative and strategic factors in business

evaluations.

Financial Analysts are typically assigned to projects such as: aircraft reconfiguration

economics, analysis support for labor contract negotiations, M&A analysis, regional jet

and commuter economics, alliance partner negotiations, loyalty program economics,

corporate development and competitor analysis.

Performance Analysis

The Performance Analysis group directly affects the company's strategic decisions.

Performance Analysts provide timely, penetrating reports to senior management

regarding analysis of financial, operational and productivity results. Performance

Analysts typically report on competitive profitability and industry benchmarking and

evaluate current performance drivers.

Financial Planning and Analysis seeks talented individuals who ask hard questions and

challenge assumptions. We need qualified people that have broad-based financial skills

and a true understanding of effective leadership.

CHAPTER III

PROFILE OF AIR INDIA

Air India is the national flag carrier airline of India with a network of passenger and

cargo services worldwide. It is one of the two state-owned airlines in the country, the

other being Indian Airlines. Its main base is Chatrapati Shivaji International Airport,

Mumbai, with hubs at Indira Gandhi International Airport, New Delhi and Chennai

International Airport. The airline connects 44 destinations around the world, including 12

gateways in India.

AIR INDIA - HISTORY

Air India traces its history back to October 15, 1932 when its founder, J. R.

D. Tata flew a single engined De Havilland Puss Moth registered VT-ADN carrying air

mail (postal mail of Imperial Airways) from Karachi's Drigh Road Aerodrome to

Bombay's Juhu Airstrip via Ahmedabad. The aircraft continued to Madras via Bellary

piloted by a Royal Air Force pilot Neville Vincent. That same year, the airline was

formally established as Tata Airlines, a division of Tata Sons Ltd. (now Tata Group).

Following the end of World War II, regular commercial service was restored in India and

Tata Airlines became a public limited company on 29 July 1946 under the name Air

India.

1948 was a significant year in the history of the airline when 49% of it was acquired by

the Government of India, with an option to purchase an additional 2% at any time. In

return, the airline was granted status to operate international services from India as the

designated flag carrier under the name Air India International. On June 8, 1948 a

Lockheed Constellation L-749A named Malabar Princess and registered VT-CQP took

off from Bombay bound for London via Cairo and Geneva. This marked the airline's first

longhaul international flight, soon followed by service to Nairobi via Aden.

On 1 August 1953, the Government of India exercised its option to purchase a majority

stake in the carrier and Air India International Limited was born as one of the fruits of the

Air Corporations Act that nationalised the air transportation industry. At the same time all

domestic services were transferred to Indian Airlines. In 1954, the airline took delivery of

http://www.experiencefestival.com/a/Air_India/id/1905532




its first L-1049 Super Constellations and inaugurated services to Singapore, Bangkok,

Hong Kong and Tokyo.

Air India International entered the jet age in 1960 when its first Boeing 707, named

Nandadevi and registered VT-DJJ, was delivered. Jet services to New York via London

were inaugurated that same year. On June 8, 1962 the airline's name was officially

truncated to its current form of Air India. On June 11, 1962 Air India became the world's

first all-jet airline.

In 1970, Air India moved its offices into its own custom built skyscraper in downtown

Bombay. The next year, the airline took delivery of its first Boeing 747-200 named

Emperor Ashoka and registered VT-EBD. This coincided with the introduction of the

'Palace In The Sky' livery and branding. A distinctive feature of this livery is the

paintwork around each aircraft window, in the cusped arch style of windows in Mughal

palaces.

In 1986 Air India took delivery of Airbus A310s. The airline is the largest operator of this

type in passenger service. In 1988, Air India also took delivery of two Boeing 747-300s

in mixed passenger-cargo configuration.

In 1989, to supplant its "Flying Palace" livery, Air India introduced a new livery that was

mostly white but had a golden sun on a red tail. Only applied to around a half of Air

India's fleet, the new livery failed to "take off" as the Indian flying public raised a hue

and a cry about the phasing out of the classic colours. The new livery was dropped after

two years and the old scheme was re-introduced. Since then, Air India has been hesitant

to radically change the paint scheme, instead opting for minor updates and facelifts.

In 1993, Air India took delivery of the new flagship of its fleet when the first Boeing 747-

400 named Konark and registered VT-ESM made history by operating the first ever

nonstop flight between New York and Delhi.

In 1994 the airline was registered as Air India Ltd. In 1996, the airline inaugurated

service to its second US gateway at Chicago’s O'Hare International Airport. In 1999, the

airline opened its dedicated Terminal 2-C at the newly renamed Chatrapati Shivaji

International Airport in Mumbai.

The 21st century has seen Air India introduce new services to Shanghai in China, as well

as two new US gateways at Newark Liberty International Airport and LAX.





Air-India has registered a profit of Rs 133.85 crores (Approx USD 30 million) in the

financial year ending March 31, 2003, after taking into account the deferred tax benefit.

In the year 2002, it recorded a net profit of Rs 15.44 crores. Air-India earned a total

revenue of Rs 5658 crores (Approx USD 1.26 billion) in 2002-03 as against Rs 5017

crores (Approx USD 1.1 billion) in the previous year. The airline has ambitious plans to

expand its network and acquire new aircraft. The newly elected Government of India has

appointed Mr.Praful Patel, as the Minister for Civil Aviation who plans to make the

airline "A Maharaja of the Skies ".

In March 2004, Air India started non-stop flights from Ahmedabad's Sardar Vallabhbhai

Patel International Airport to London, Heathrow, making it the 3rd station from India

(after Mumbai and Delhi). In December 2004, Air India leased three Boeing 777-222ER

aircraft from United Airlines. With these three new B777s, Air India was able to

introduce three new routes: Delhi-Frankfurt-Los Angeles, Delhi-Amritsar-Birmingham-

Toronto, and Delhi-Dhaka-Kolkata-London.

Furthermore, in the course of 2005, Air India announced interest of commencing service

linking Delhi and Mumbai to Houston, Washington, DC, and San Francisco. However,

the authorities of Dallas/Ft. Worth International Airport have attempted to lure the airline

to form its first direct air link to India. The addition of any new U.S. services have yet to

be announced.

Russell Peters, Air India destinations, Air-India Express, List of commercial airlines in

India

AIR INDIA - INCIDENTS AND ACCIDENTS

Since 1970, Air India has suffered the following events:

Air India Flight 855 crashed into the Arabian Sea after takeoff from Sahar

International Airport (now Chatrapati Shivaji International Airport) in Bombay

(now Mumbai) on 1 January 1978, killing everyone on board (213 - 190

passengers, 23 crew).

On 21 June 1982 a Boeing 707 crashed at Bombay airport while trying to land in

a heavy rainstorm. 2 crew and 15 passengers were killed.




Air India Flight 182 -Kanishka was blown up by Sikh terrorists on 23 June 1985.

The flight was on the first leg on its Montreal-London-Delhi-Bombay (Mumbai)

flight when it exploded off the coast of Ireland. The plane crashed into the

Atlantic Ocean. All 307 passengers and 22 crew on board died. After this incident

Air-India suspended all services to Canada,which resumed after 20 years in 2005.

On 19 December 2005 a Boeing 747-400 Air India Flight 136 with 273

passengers and crew members aboard made an emergency landing at LAX after

blowing a tire upon taking off from the airport.

AIR INDIA - PASSENGER OPERATIONS

Air India has 44 world-wide destinations. It also has code-sharing agreements with many

international airlines to expand coverage. The airline carried 3.39 million passengers

during the financial year ending March 2003 and achieved a load factor of 71.6 per cent,

substantially higher than the 66 per cent load factor recorded in the preceding year. The

airline has received a 4 star rating for cabin safety procedures from skytrax airline quality

review. Three classes of seats are offered - First class, Executive class and Economy

class. Flat bed seats are offered for first class passengers. The airline also offers a

frequent flyer programme alone and in collaboration with many of its alliances. The

airline also offers luxury lounges in its ground terminals for its First and Executive class

travellers in select destinations within India. Air-India has duty free sale on board its

flights effective June 1, 2003 named 'sky bazaar', meaning Market in the sky.

AIR INDIA - CARGO OPERATIONS

In 1954, Air-India started its freighter operations with a Douglas DC-3 Dakota aircraft,

giving Air-India the distinction of being the first Asian airline to operate freighters. The

airline operates regular cargo flights to many destinations of the world. The airline also

has ground truck-transportation arrangements on select destinations.

A member of IATA, Air-India carries all types of cargo including dangerous goods

(hazardous materials) and live animals, provided such shipments are tendered according





to IATA Dangerous Goods Regulations and IATA Live Animals Regulations,

respectively.

At the warehouse in Mumbai, Air India has developed an indigenous system of inventory

management for cargo handling of import/export functions. This takes care of the entire

management of cargo, supports Electronic Data Interface (EDI) messages with Indian

Customs and replaces to a great extent existing paper correspondence between Customs,

Airlines, and the custodians. This also replaces manual handling and binning of cargo at

the warehouse in Mumbai by Air India.

AIR INDIA – FLEET

As of November 2005, Air India's fleet consists of the following 41 aircraft:

21 Airbus A310-300

2 Boeing 747-200

2 Boeing 747-300

13 Boeing 747-400

3 Boeing 777-200

The Air India Board has recently approved an acquisition plan at its meeting held in

Mumbai on April 26, 2005. The acquisition plan envisaged procurement of the following

68 aircraft:

18 Boeing 737-800 aircraft for Air India's subsidiary Air India Charters Ltd.

under whose umbrella the low cost airline Air India Express would be run.

8 Boeing 777-200 LR Medium Capacity Ultra Long Range aircraft in three-class

configuration (including three options);

15 Boeing 777-300 ER Medium Capacity Long Range-350 seater, in three-class

configuration (including five options); and




20 Boeing 787-8 Medium Capacity Long Range-250 seater aircraft in two class

configuration (including seven options).

Total cost of this acquisition is estimated to be 35000 crores INR (7.5 billion USD). On

15 December, 2005 the Indian Government board approved the purchase of 68 jets from

Boeing Corporation. Price negotiations resulted in a $225 million rebate for Air India.

The Boeing 777's will have GE-90 engines and the Boeing 787 will have Genx engines.

Boeing will set up MRO along with training facilities. The aircafts will start arriving

from 2006 and will go until 2011.

AIR INDIA - LOGO AND MASCOT

As it symbolizes movement and speed, the Centaur, a stylized version of Sagittarius, was

selected as Air-India's logo. The choice of a constellation was also intended as an allusion

to the airline's original long distance routes with Lockheed Constellation aircraft.

Air India's mascot, the Maharaja, is a turban clad king with over-sized moustache and a

royal dress. "He may look like royalty, but he isn't royal" - these are the words of Bobby

Kooka, the man who conceived the Maharajah. This figure first made his appearance in

Air-India in 1946, when Bobby Kooka as Air-India's Commercial Director and Umesh

Rao, an artist with J.Walter Thompson Ltd., Mumbai, together created the Maharajah.

AIR INDIA - WOMEN PILOTS

There are 17 women pilots on Air India's rolls, including five

trainee pilots. On the occasion of the World Women's Day, March 3rd 2004, the airline

operated an "All women Flight" from Mumbai to Singapore. Capt. Rashmi Miranda, who

became Air-India's first woman Commander in November 2003 and Capt. Kshmata

Bajpai, piloted the flight, an Airbus A310 aircraft. The flight despatch activities relating

to this flight was also coordinated by a woman Flight Despatcher, Ms Vasanti Kolnad.

The Safety Audit on board was also conducted by another woman, Ms Harpreet D. Singh.





AIR INDIA - AWARDS AND RECOGNITION

The Airline entered the Guinness Book of World Records - The largest evacuation

by a civil airliner, involving evacuation of over 111,000 people from Amman to

Mumbai - a distance of 4,117 km, by operating 488 flights in association with

Indian Airlines, during August 13 - October 11, 1990, lasting a total of 59

days.The operation was carried out during Persian Gulf War in 1990 to evacuate

Indian expatriates from the region.

The airline received The Mercury Award for the years 1994 and 2003, from the

International Flight Catering Association, for finest in-flight catering services.

Air India's security department became the first aviation security organisation in

the world to acquire ISO 9002-1994 certification (January 31, 2001).

The Department of Engineering, Air India, has obtained the ISO 9002 for its

Engineering facilities for meeting international standards.


CHAPTER IV

ANALYSIS AND INTERPRETATION

TABLE 1.1


PARTICULARS AMOUNT %

PASSENGER TRAFFIC 32223.5 63

EXCESS BAGGAGE 668.0 1

MAIL 165.0 0

CARGO 3827.7 8

CHARTER 2853.9 6

POOL RECEIPTS 1443.4 3

BLOCK SEAT ARRANGEMENT 1522.9 3

HANDLING AND SERVICE REVENUE 4809.2 10

NON-OPERATING REVENUE 2815.8 6

SOURCE: ANNUAL REPORT

INFERENCE

From the above table it is seen that the total revenue of the

company consisting of passenger, excess baggage, mail, cargo, charter, and

miscellaneous revenue was rs.50329.4million as compared to rs.52788.5 million for the

year 2001,representing a decrease of 4.7%. The value indicates that 65% of the total

revenue of air India is earned from passenger traffic and 10% from handling charges and

8% from cargo and the remaining from various activities and the same is presented in the

chart below.

CHART 1.1

CHART SHOWING THE BREAK UP OF REVENUE EARNED BY AIR INDIA DURING THE YEAR - 2001-2002

REVENUE EARNED 2001-2002

63%

1%

0%

8%

6%

3%

3%

10%6%

PASSENGERTRAFFIC EXCESS BAGGAGE

MAIL

CARGO

CHARTER

POOL RECEIPTS

BLOCK SEATARRANGEMENT HANDLING ANDSERVICE REVENUE NON-OPERATINGREVENUE




MAIL 180.0 0

CARGO 4004.1 7

CHARTER 2524.4 4




NON-OPERATING REVENUE 3819.6 7TABLE 1.2



INFERENCE

In the above table it is shown that the total revenue of the company

consisting of passenger, excess baggage, mail, cargo, charter, and miscellaneous revenue

was rs.56578.4million as compared to rs.50329.4 million for the previous year 2002,

representing a increase of 12.4% which shows the efficiency of the organisation to

increase the profits.

CHART 1.2



63%

1%

0%

7%

4%

3%

4%

11%

7% PASSENGERTRAFFIC EXCESS BAGGAGE

MAIL

CARGO

CHARTER

POOL RECEIPTS





MAIL 201.0 0

CARGO 4232.7 7

CHARTER 2814.5 5




NON-OPERATING REVENUE 2484.6 4TABLE 1.3



INFERENCE

During the year under review the total revenue of the company consisting

of passenger, excess baggage , mail , cargo ,charter and handling

/servicing/miscellaneous revenue was Rs.62364.4million as compared to

Rs.56578.7million for the year 2002-2003, representing an increase of 10.2%.

CHART1.3



65%

1%

0%

7%

5%

3%

4%

11%4%

PASSENGERTRAFFIC

EXCESS BAGGAGE

MAIL

CARGO

CHARTER

POOL RECEIPTS

BLOCK SEATARRANGEMENT

HANDLING ANDSERVICE REVENUE

NON-OPERATINGREVENUE

TABLE 1.4

TABLE SHOWING THE BREAK UP OF REVENUE EARNED BY AIR INDIADURING THE YEAR - 2004-2005




MAIL 201.6 0

CARGO 5523.4 7

CHARTER 3106.1 4






INFERENCE

During the year under review , the total revenue of the company consisting of

passenger , excess baggage, mail , cargo , charter and handling /servicing/miscellaneous

revenue was Rs.76299.9 million as compared to Rs.62461.5 million for the year2003-

2004, representing an increase of 22.2%.

CHART 1.4

CHART SHOWING THE BREAK UP OF REVENUE EARNED BY AIR

INDIA DURING THE YEAR - 2004-2005


67%1%

0%

7%

4%

3%

4%

12%2% PASSENGER

TRAFFIC EXCESS BAGGAGE

MAIL

CARGO

CHARTER

POOL RECEIPTS


TABLE 1.5

TABLE SHOWING THE BREAK UP OF REVENUE EARNED BY AIR INDIADURING THE YEAR - 2005-2006




MAIL 247.6 0

CARGO 5759.8 6

CHARTER 4880.3 5



ROYALTY FROM AIR INDIA CHARTERS LTD 996.3 1


INCOME FROM UN-UTILISED SERVICES 4077.5 4



INFERENCE During the year under review , the total revenue of the company consisting

of passenger, excess baggage, mail, cargo, charter, pool , block seat arrangement, royalty

from air India charters limited and handling/servicing/miscellaneous revenue was

Rs.92449.5 million as compared to Rs. 77268.9 million in the year 2004-2005 ,

representing an increase of 19.6%.

CHART 1.5

CHART SHOWING THE BREAK UP OF REVENUE EARNED BY AIR

INDIA DURING THE YEAR - 2005-2006


63%

0%

0%

6%

5%

2%

4%

1%

11%

4% 4%

PASSENGERTRAFFIC EXCESS BAGGAGE

MAIL

CARGO

CHARTER

POOL RECEIPTS

BLOCK SEATARRANGEMENT ROYALTY FROM AIRINDIA CHARTERS LTD HANDLING ANDSERVICE REVENUEINCOME FROM UN-UTILISED SERVICESNON-OPERATINGREVENUE

CURRENT RATIO

TABLE 2.1TABLE INDICATING CURRENT ASSETS, CURRENT LIABILITIES AND

CURRENT RATIO FOR THE YEAR 2001-2006 (RS IN MIILIONS)

Source; Annual

report, Air India Limited

.

Current asset

Current ratio = *100

Current liabilities

INFERENCE

The average current ratio for the business is 1.5:1 in the year

2005-2006 .The ratios were low for but increasing gradually every year so the company

was able to achieve the normal standard during 2005-2006. A current liabilities is

gradually increasing every year over the current assets which reduces the ability of the

concern to meet its current obligation.

YEAR CURRENT

ASSETS

CURRENT

LIABILITIES

RATIO

2002 19170.6 18463.8 1.03:1

2003 18044.2 21481.4 0.83:1

2004 18875.5 24590.9 0.76:1

2005 21124.2 25182.4 0.83:1

2006 31625.0 21049.8 1.50:1

CURRENT RATIO CHART 2.1

CHART INDICATING CURRENT RATIO FOR THE YEAR 2001-2006

CASH POSITION RATIOTABLE 2.2

CURRENT RATIO

1.03

0.830.76

0.83

1.5

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

YEAR

RA

TIO

Series1

TABLE INDICATING CASH, CURRENT LIABILITIES AND CASH POSITION RATIO FOR THE YEAR 2001-2006

(RS IN MIILIONS)

Source; Annual report, Air India Limited

Cash position ratio= cash and bank balance

Current liabilities

INFERENCE

The above table shows the cash position of the firm. The cash position ratio

was 0.25 in the year 2001-2002 and its shows the decreasing trend in the following years.

The cash availability is low and is not able to meet the current liability in any of the

years. The ideal ratio is 0.75:1 which is used to measure firms liquidity position.

CASH POSITION RATIO

YEAR CASH CURRENT LIABILITIES

RATIO

2002 4660.7 18463.8 0.25

2003 1893.4 21481.4 0.08

2004 1872.8 24590.9 0.07

2005 2317.6 25182.4 0.09

2006 1879.1 21049.8 0.08

CHART2.2CHART INDICATING CASH POSITION RATIO FOR THE YEAR 2001-2006

CASH POSITION RATIO

0.25

0.080.090.070.08

00.05

0.10.15

0.20.25

0.3

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

YEAR

RA

TIO

Series1

DEBT EQUITY RATIO

TABLE 2.3

TABLE INDICATING LONG TERM DEBT, SHARE HOLDERS FUND AND

DEBT EQUITY RATIO FOR THE YEAR 2001-2006

(RS IN MIILIONS)

Source; Annual

report, Air India Limited

Total long term debts Debt –equity ratio = Share holders fund INFERENCE

The debt equity ratio for the year 2001-2002 is 7.3 and its fluctuating and shows

a highest ratio of 10.6 in the year 2005-2006. The standard ratio is ‘1’ but the company

always borrows more than five times of the owner’s capital. Due to the interest paid out

of the profit is increasing every year; the ratio is also increasing every year. This is not

safe for the organisation.

YEAR LONG TERM DEBT

SHARE HOLDERS FUND

RATIO

2002 28904.5 3916.6 7.3

2003 21602.7 3118.7 6.9

2004 14757.0 2458.5 6.0

2005 12616.9 3249.6 3.8

2006 36219.1 3398.0 10.6

DEBT EQUITY RATIOCHART 2.3

CHART INDICATING DEBT EQUITY RATIO FOR THE YEAR 2001-2006

DEBT EQUITY RATIO

7.3 6.96

3.8

10.6

02468

1012

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

YEAR

RA

TIO

Series1

PROPRIETARY RATIO

TABLE 2.4TABLE INDICATING PROPRIETORS FUND, TOTAL TANGIBLE ASSETS

AND CASH POSITION RATIO FOR THE YEAR 2001-2006

(RS IN

MIILIONS)


Share holders fund

Proprietary ratio= Total tangible assets

YEAR PROPRIETORS FUND

TOTAL TANGIBLE

ASSETS

RATIO

2002 3916.6 54252.3 0.07

2003 3118.7 51409.2 0.06

2004 2458.5 47845.7 0.05

2005 3249.6 46730.1 0.06

2006 3398.0 66303 0.05

INFERENCE The proprietary ratio for the year 2001-2002 shows 0.07 and it

shows an average of 50% in the following years. The ratio below 50% indicates to the

creditor that they may loose heavily .Due to the gradual fluctuation in the total tangible

assets the ratio also fluctuates.

PROPRIETARY RATIO

CHART 2.4CHART INDICATING PROPRIETARY RATIO FOR THE YEAR 2001-2006

PROPREITARY RATIO

0.070.06

0.050.06

0.05

00.010.020.030.040.050.060.070.08

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

YEAR

RA

TIO

Series1

NET PROFIT

RATIO

TABLE 2.5TABLE INDICATING NET PROFIT, TOTAL SALES AND NET PROFIT RATIO

FOR THE YEAR 2001-2006 (RS IN MIILIONS)


Operating profit

Net profit = *100

Net sales

YEAR NET PROFIT SALES RATIO

2002 (9186.8) 50329.4 (18.25)

2003 (7848.2) 56578.7 (13.87)

2004 (6924.9) 62364.4 (11.10)

2005 963.6 76299.9 1.26

2006 940.5 92449.5 1.01

INFERENCE

The net profit ratio for the first three years shows negative figure. In

2001-2002 a loss of 18.25% and decreases 4.38 in next year and further decreases 2.77 in

2003-2004 and from 2004-2005 earning a profit of 1.26 and 1.01. Due to the gradual

increase in operating expenses and interest paid the management profit is reduced

NET PROFIT RATIOCHART 2.5

CHART INDICATING NET PROFIT RATIO FOR THE YEAR 2001-2006

NET PROFIT RATIO

18.25

13.87

11.1

1.26 1.0102468

101214161820

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

YEAR

RA

TIO

Series1

RETURN ON SHARE HOLDERS FUND TABLE 2.6TABLE INDICATING NET PROFIT, SHARE HOLDERS FUND AND RETURN

ON SHARE HOLDERS FUND FOR THE YEAR 2001-2006

(RS IN MIILIONS)

YEAR NET

PROFIT

SHARE

HOLDERS

FUND

RATIO

2002 2270.5 3916.6 57.9

2003 1922.4 3118.7 61.6

2004 1322.0 2458.5 53.7

2005 911.1 3249.6 28.03

2006 116.5 3398.0 3.42


Net profit after tax

Return on shareholders fund= *100

Share Holders Fund

INFERENCE During the period of first 3 years shows return to the share holders is more

than 50%. In 2004-2005 it has come down to 28.03 and further decreases in 2005-2006 to

3.42

In the last 2 years the return decreases due to payment of fixed interest is increased

RETURN ON SHARE HOLDERS FUNDCHART 2.6

CHART INDICATING RETURN ON SHARE HOLDERS FUND FOR THE YEAR

2001-2006

RETURN ON SHARE HOLDERS FUND

53.7

28.03

3.42

61.657.9

0

10

20

30

40

50

60

70

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

YEAR

RA

TIO

Series1

INTEREST COVERAGE RATIO

TABLE 2.7

TABLE INDICATING NET PROFIT, FIXED INTEREST CHARGES AND

INTEREST COVERAGE RATIO FOR THE YEAR 2001-2006

(RS IN MIILIONS)

YEAR PROFIT INTEREST RATIO

2002 2270.5 1576.2 1.44

2003 1922.4 746.7 2.57

2004 1322.0 396.3 3.33

2005 911.1 323.8 2.81

2006 116.5 838.8 0.13


Profit before interest and tax

Interest coverage ratio =

Fixed interest charges

INFERENCE

During the period of 2002-2004 the trend is increasing and again

it has shown a decline in 2005-2006. Due to the increase in the long term borrowings by

the organisation the interest to be paid is also increased and the profit is declining which

is not safe for the organisation.


CHART 2.7

CHART INDICATING INTEREST COVERAGE RATIO FOR THE YEAR2001-2006

FIXED ASSETS TURNOVER RATIOTABLE 2.8

TABLE INDICATING SALES, FIXED ASSETS AND FIXED ASSET

TURNOVER RATIO FOR THE YEAR 2001-2006

(RS IN MIILIONS)


Cost of sales

Fixed assets turnover ratio =

Net fixed assets

INFERENCE The above figures show the fixed asset ratio seems to improve from

1.4 in the year 2001-2002 to 4.2 in the year 2005-2006. The efficient utilization of fixed

assets for making the sales is the cause for increase in ratio.

FIXED ASSETS TURNOVER RATIOCHART 2.8

CHART INDICATING FIXED ASSETS TURNOVER RATIO FOR THE YEAR

2001-2006

YEAR SALES FIXED

ASSET

RATIO

2002 50329.4 34397.0 1.4

2003 56578.7 32605.6 1.7

2004 62364.4 28202.3 2.2

2005 76299.9 24804.2 3.0

2006 92449.5 21954.5 4.2

FIXED ASSET TURNOVER RATIO

1.41.7

2.2

3

4.2

00.5

11.5

22.5

33.5

44.5

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

YEAR

RATI

O Series1

WORKING CAPITAL TURNOVER RATIOTABLE 2.9

TABLE INDICATING SALES, WORKING CAPITAL AND WORKING

CAPITAL TURNOVER RATIO FOR THE YEAR 2001-2006

(RS IN MIILIONS)


Sales

Working capital turn over ratio =

Net working capital

INFERENCE

During the period 2001-2002 the ratio was high which is the indication of

lower investment of working capital and more profit. But after that till the year 2005 the

trend is fluctuating and again in 2006 the ratio is increased which again shows the

company is earning profit.

WORKING CAPITAL TURNOVER RATIOCHART 2.9

CHART INDICATING FIXED ASSETS TURNOVER RATIO FOR THE YEAR

2001-2006

YEAR SALES WORKING

CAPITAL

RATIO

2002 50329.4 2338.4 21.52

2003 56578.7 6941.0 8.15

2004 62364.4 9215.9 6.76

2005 76299.9 7629.4 10.0

2006 92449.5 7002.8 13.2

WORKING CAPITAL TURNOVER RATIO

21.52

8.15 6.7610

13.2

0

5

10

15

20

25

2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

YEAR

RA

TIO

Series1

SUMMARY AND CONCLUSION

DESCRIPTION OF THE STUDY

The title of the project is ‘Revenue Model Analysis Of Passenger Traffic Versus Cargo

Traffic Of Air India Limited’ the main objective is to analyze the revenue model and find

the profitability position of air India limited. This study is purely on in house analysis.

Due to the merger of Air India and Indian Airlines as NACIL (National Aviation

Company Of India Limited) the annual report of the years 2006-2007 and 2007-2008 was

not published. So the study is restricted to the years from 2001-2002 to 2005-2006.

FINDINGS

The decline in revenue in the year 2001-2002 is primarily because of decline in

scheduled services revenue due to September 11 incidents, resulting in drop in

passenger and over load factors in September/October 2001 and cancellation of

scheduled flights.

It is found that the increase in revenue is due to gradual decrease in the oil prices

in the international market during the year 2002-2003.

It is found that the decline in the profitability during the year 2003-2004 is due

the upward spiral prices of ATF Aviation Turbine Fuel during the year from

US$ 104.34 to US$ 113.99.

The main factor attributed to the profitability in the year 2004-2005 is reduction

in the financing cost on borrowings.

.

It is found that during the year 2005-2006, the company launched Air India

Express under the banner of its subsidiary company, which was a low fare, no

frill, and low cost budget air line and transferred some of its routes to the gulf to

the subsidiary company. To this extent , the financial and physical parameters of

2005-2006 of the company are not strictly comparable with the earlier years

It is found that the current ratio has been decreased in the year 2005-2006 as

1.50:1when compared to other years and nearing the standard ratio of 2:1

The debt equity ratio is high as the company borrows more than five times of its

capital.

It’s found that the proprietary ratio shows an average of 50% which is safe for

the creditors.

The net profit shows a declining trend as 18.25 in the year 2002 to 1.01 in the

year 2006

It has been found that in the last two years the return on share holders fund is

decreasing as the payment of interest or fixed interest rate commitment is

increasing

It’s found that the interest coverage ratio is increased in the year 2006 which

gives ability to meet the company’s commitment in future

. .

The above figures show the fixed asset ratio seems to improve from 1.4 in the

year 2001-2002 to 4.2 in the year 2005-2006. The efficient utilization of fixed

assets for making the sales is the cause for increase in ratio

IMPLICATIONS

The profit can be increased by effective control of expenses.

Reduction in air fares compare to other air lines may yield high revenue to the

company by attracting more fliers.

The borrowing has to be reduced which in turn may reduce the payment of

interest which increases the profit.

The services has to be improved which attract customers which in turn generate

revenue to the company.

The company has to provide more facilities in Air India express which will lead to

earn more revenue

Current Assets has to be increased and utilized in the proper manner and to meet

current liabilities

The working capital has to be increased which will lead to increase in cash

position.

The borrowing has to be efficiently utilized and the revenue profit has to be

increased to meet the interest commitments.

The tangible assets has to be utilized in effective manner which will also lead to

more share holders contribution satisfaction for the creditors

The operating expenses have to be reduced and this will lead to increase in net

profit.

The revenue and profit has to be increased by minimizing the operating expenses

which will contribute to the payment of dividend to the share holders.

Revenue has to be increased by maximizing the facilities for which the loan has

been brought and efficient utilization of loans will yield profit inturn to meet

interest commitments

Air craft has to be maintained efficiently and equipments has to be utilized in a

proper way which will yield more profit.

CONCLUSION

On the review of the performance of the company the income is in the decreasing

trend because the organization is not yielding good return due to various factors during

the year. The performance of the organization can improve by the excersise of effective

control over the expenses and utilizing optimally the capital assets available.

Data are collected and various tools are applied to analyse the performance of the

company. Various findings and implications are given to the organization.

The company is optimistic about its growing plan in future year. So the company

may successfully grow in the future

BIBLIOGRAPHY

1. Annual Reports*(2004-2008) of AIR INDIA LTD limited.

2. Gupta S.P (1998). Statistical methods of techniques, New Delhi,

Sulthanchand & sons.

3. Khan H.Y & P.K .Jain (1992). Financial Management, New Delhi, Tata

McGraw Hill Publishing Company Limited.

4. Maheswari S.N (1999). Principles of Management

Accounting .New Delhi, Sulthan Chand & Sons.

,

5.Reddy T.S & V.Hariprasad Reddy (2002). Management accounting,

Margham Publication

ANNEXURES

CURRENT RATIO

Current assets

Current ratio =

Current liabilities

19170.6

For the year (2001-2002) = =1.03

18463.8

18044.2

For the year (2002-2003) = =0.83 %

21481.4

18875.5

For the year (2003-2004) = =0.76%

24590.9

21124.2

For the year (2004-2005) = =0.83%

25182.4

31625.0

For the year (2005-2006) = =1.50%

21049.8

CASH POSITION RATIO

Cash and bank balances

cash position ratio=

Current liabilities

4660.7

For the year (2001-2002) = = 0.25%

18463.8

1893.4

For the year (2002-2003) = = 0.08

21481.4

1872.8

For the year (2003-2004) = = 0.07

24590.9

2317.6

For the year (2004-2005) = =0.09

25182.4

1879.1

For the year (2005-2006) = =0.08

21049.8

DEBT EQUITY RATIO

Long term debt Debt equity ratio =

Share holders fund

28904.5For the year (2001-2002) = = 7.3 3916.6

21602.7For the year (2002-2003) = = 6.9 3118.7

14757.0For the year (2003-2004) = = 6.0 2458.5

12616.9

For the year (2004-2005) = = 3.8 3249.6

36219.1For the year (2005-2006) = = 10.6 3398.0

PROPRIETARY RATIO

Share holders fund Proprietary ratio = Total tangible assets

3916.6For the tear (2001-2002) = = 0.07

54252.3

3118.7

For the year (2002-2003) = = 0.06 51409.2

2458.5For the year (2003-2004) = = 0.05

47845.7

3249.6For the year (2004-2005) = = 0.06

46730.1

3398.0For the year (2005-2006) = = 0.05

66303

NET PROFIT RATIO

Operating profit

Net profit ratio =

Net sales

(9186.8)

For the year (2001-2002) = = (18.25)

10400

7848.2For the year (2002-2003) = =(13.87)

56578.7

6924.9For the year (2003-2004) = = (11.10)

62364.4

963.6For the year (2004-2005) = = 1.26 76299.9

940.5For the year (2005-2006) = =1.01

92449.5

RETURN ON SHARE HOLDERS FUND

Net profit after tax

Return on share holder’s fund = *100 Share holders fund

2270.5For the year (2001-2002) = *100 = 57.9 3916.6

1922.4 For the year (2002-2003) = *100 = 61.6

3118.7

1322.0For the year (2003-2004) = *100 = -11.9%

2458.5

911.1For the year (2004-2005) = *100 =28.03%

3249.6

116.5For the year (2005-2006) = *100 =3.42

3398.0


Profit before interest and taxInterest coverage ratio= Fixed interest charges

2270.5 For the year (2001-2002) = =1.44

1576.2

1922.4For the year (2002-2003) = =2.57 746.7

1322.0For the year (2003-2004) = =3.33 396.3

911.1For the year (2004-2005) = =2.81

323.8

116.5For the year (2005-2006) = = 0.13

838.8

FIXED ASSET TURNOVER RATIO

Cost of sales

Fixed asset turn over ratio =

Net fixed asset

50329.4

For the year (2001-2002) = = 1.4

34397.0

56578.7For the year (2002-2003) = = 1.7

32605.6

62364.4For the year (2003-2004) = =2.2

28202.3

76299.9For the year (2004-2005) = = 3.0 24804.2

92449.5For the year (2005-2006) = =4.2

21954.5

WORKING CAPITAL TURNOVER RATIO

Sales

Working capital turn over ratio =

Net working capital

50329.4

For the year (2001-2002) = = 21.52

2338.4

56578.7For the year (2002-2003) = = 8.15

6941.0

62364.4For the year (2003-2004) = =6.76

9215.9

76299.9For the year (2004-2005) = =10.0 7629.4

92449.5For the year (2005-2006) = =13.2

7002.8

air india

Documents

management of air india

profile of air india

project successful

cargo traffic of air

record of project work

list of chart table

list of tables table

current ratio