Industrial Sickness In Air India Accounting Essay

Industrial illness is defined in India as “ an industrial company ( being a company registered for non less than seven old ages ) which has, at the terminal of any fiscal twelvemonth, accrued losingss equal to, or transcending, its full net worth and has besides suffered hard currency losingss in such fiscal twelvemonth and the fiscal twelvemonth instantly predating such fiscal twelvemonth ” .

Under the repealed Sick Industrial Companies ( Particular Provisions ) Act, 1985 ( the SICA ) , a moratorium period of five old ages was given before an industrial company could either embrace illness or declared to be ill. But under the new dispensation for turn toing industrial illness that is a portion of the Companies Act 1956 itself, no moratorium period whatsoever seems to hold been given as would be apparent from the definition of `sick industrial company ‘ given thereunder:

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Clauses for Sick Industrial Company

Harmonizing to Companies Act, 2002

“ `Sick Industrial Company ‘ means an industrial company which has

The Accumulated losingss in any fiscal twelvemonth equal to 50 per cent or more of its mean net worth during four old ages instantly predating such fiscal twelvemonth ; or

Failed to refund its debts within any three back-to-back quarters on demand made in composing for its refund by a creditor or creditors of such company. ”


The above definition state us that, one may state that moratorium period has after all non been done off with – if anything, it has been retained at the same degree of five old ages.

It is clear that the moratorium period has been wholly done away with. For, had the four-year moratorium period been intended that would hold been made a common factor for both clauses ( I ) and ( two ) .

In the event, every industrial company would necessarily and constantly have to press the panic button needlessly in huge bulk of instances and a trifle prematurely in others. This would go on because no industrial company can get down doing net income from twelvemonth one. Gestation period ranges from a twosome of old ages to a decennary.

Factors Caused Sickness in Air India

Amalgamation of Air India and Indian air lines

With crisis-ridden Air India on the brink of a partial closure due to simmering differences between pilots of the erstwhile AI and Indian Airlines, the authorities has eventually admitted that unifying these two air hoses five old ages back has non worked out good for the company. The amalgamation has non worked out as planned. Possibly some benefits were foreseen out of this move like synergism and economic systems of graduated table, but those did non go on. Both AI and IA were doing hard currency net incomes till financial 2006-07 but have seen losingss surging thenceforth asked if it made more sense to run AI and IA individually under one umbrella organisation, the curate said 70 % of the amalgamation procedure in countries like IT, accounting, flight codifications and selling were complete. Undoing that will once more take many old ages. Now 30 % amalgamation, chiefly on HR issues, is left and we are implementing the Dharmadhikari commission study for that. There will be more jobs in the manner as non everyone will be happy. We need to be steadfast and patient, Acknowledging that the epoch of national bearers has drawn to an terminal globally, the curate added that the air hose would necessitate to acquire its cost construction and work ethos closer to service industry norms to last. It is hard for authorities to run a service industry where client is king. But in authorities, everyone is the male monarch. Still some PSUs are profitable. Even AI and IA were profitable earlier amalgamation and there is no ground why that can non go on once more if everyone cooperates, In its current province, the authorities has no programs for selling or privatising AI. In fact the Cabinet meeting which discussed AI ‘s Rs 30,000-crore bailout from public money program saw many curates speak against the move. In the terminal the sense prevailed that the AI muss would foremost necessitate to be sorted out before a bailout can be announced. Our precedence is to convey AI back on path, The eventuality program drawn out by the air power ministry and air hose direction to undertake the work stoppage will see many international flights being withdrawn in the short term. Some of the biggest loss-making paths ( like Amritsar-Delhi-Toronto ) are being shut down. A survey done by AI tardily last twelvemonth had shown that merely two out of its 175 hebdomadal international flights were doing some money.

High Ground Salary of Staff

Many pilots of loss doing Air India ( AI ) , which is lasting on repeated bailouts from taxpayers, earn more than the main executives of some of India ‘s most profitable companies. HT has obtained a list of the state-owned bearer ‘s highest paid employees for financial twelvemonth 2010-11. On the list of 335 were largely direction pilots ( who hold managerial stations ) and senior pilots who made between Rs. 60 hundred thousand to over Rs. 1 crore per annumA – a monthly wage of at least Rs. 5 hundred thousand. Many pilots are merely high school alumnuss. What ‘s more Air India ‘s pilots earn more than their opposite numbers in market leader Jet Airways and net income devising budget air hose IndiGo. This when Air India has a debt of over Rs. 50,000 crore and accrued losingss in surplus of Rs. 20,000 crore. The top four earners for the twelvemonth, whose salary crossed Rs. 1 crore each, were all from former Indian Airlines ( IA ) . They do non run long-haul international flights that typically entitle one to higher fringe benefits. This should be an oculus opener for the AI direction. Such high wages, Ranganathan said, indicate towards a clear use and link between Air India functionaries and pilots. More than 15 employees in the list obtained by Hindustan Times earned more than Rs. 90 hundred thousand a twelvemonth while there were more than 65 whose one-year compensation bundle was more than Rs. 80 hundred thousand. By comparing, the one-year bundle of SD Shibulal, CEO, Infosys Technologies was Rs. 83 hundred thousand in 2011-12 while its president emeritus, NR Narayana Murthy received Rs. 38.2 hundred thousand. RC Bhargava, president Maruti Suzuki India Ltd, earned Rs. 35.6 hundred thousand. Ranganathan said many direction pilots spend most of their clip in simulator preparation where allowances are much higher than existent flight.

Regular Strikes

National bearer Air India ( AI ) lost over Rs 26 crore after its pilots went on work stoppage since Tuesday midnight adding to its debt load that stands at over Rs 40,000 crore and push it to the No. 4 place. Besides, the work stoppage is assisting private bearers to foster consolidate their concern. The AI direction on Friday said the work stoppage is still on. It said none of the dramatic pilots, numbered at around 660, reported for responsibility despite its deadline and the disdain of tribunal proceedings against them. “ We are working out the future class of action. Industry experts feel that the operational losingss could be above Rs 100 crore as it includes fuel costs and other air power charges. Around 100 flights were grounded as isolated riders cried foul over the steep menus being charged by other bearers. In the past two old ages, AI pilots have struck work on three occasions – the current work stoppage being the 4th – ensuing in losingss of over Rs 700 crore to the cash-strapped bearer. The AI direction, harmonizing to striking pilots has violated the memoranda of colony signed in November 2009 on implementing the Sixth Pay Commission recommendations besides restricting the figure of flights by 30 to 40 per cent. Late last twelvemonth, the curate of province for wellness Dinesh Trivedi – a trained pilot – wrote a elaborate missive to Prime Minister Manmohan Singh, pulling his attending to the unstable status of Air India. He said AI ‘s domestic every bit good as international pilots were forced to describe to duty and wing even when they are ailing, in misdemeanor of responsibility hr regulations that are in topographic point to forestall “ fatigue ” . Until 2004, merely AI and Indian Airlines could wing to foreign finishs. Private air hoses had been pressing the Centre to let them to portion this moneymaking market. The air hoses is expected to post losingss of over Rs 7,000 crore during the current financial and lost Rs 3,450 crore in the first half of the 2010-11 financial entirely. Its losingss during 2007-08, 2008-09 and 2009-10 were Rs 2,226.16 crore, Rs 5,548.26 crore and Rs 7,200 crore severally. The authorities has already infused Rs 2,000 crore in two tranches last twelvemonth ( `800 crore and Rs 1,200 crore ) as equity but the AI direction has asked for Rs 17,500 crore more from the Centre to surge over its fiscal sufferings. This has besides been suggested by the planetary consultancy Deloitte, which is helping the air hose with its turnaround program. But despite the fiscal aid the air hose has mostly failed to run into the mark of the five-year ( 2010-14 ) turnaround program. Against the mark cut of Rs 2,000 crore in operational costs by March 2010 it could pull off merely Rs 900 crore. Unhappy about the pandemonium and agitation at AI besides and its failure to efficaciously implement the turnaround program, the higher- ups in the authorities have put in a strong word to the civil air power ministry to oversee its day-today operations owing to internal spat that late led to the issue of some if its top functionaries.

High Outgo

Air India on Tuesday came in for terrible unfavorable judgment from CAG for “ uneconomical outgo ” of over USD 2.6 million ( Rs 15 crore ) on several counts, including its failure to give up leased premises at London Heathrow airdrome which remained fresh for nine old ages. The air hose had leased a 0.58 acre secret plan from the British Airport Authority ( BAA ) in 1968 for over 50 old ages till 2019 for usage as a warehouse to manage its lading at the airdrome. The lading handling was being done by Menzies Aviation Limited ( MAL ) since 1998, but due to hapless on the job conditions at the warehouse, MAL started making the occupation from its ain installation in 2004, the Comptroller and Auditor General ( CAG ) said in its study tabled in Parliament on Tuesday. MAL besides agreed to renovate the warehouse at its ain cost and pay minimal royalty of 30,000 lbs or 0.24 crore per annum, besides paying half of the electricity, H2O and warming costs, it said, adding that MAL did non pay 45,000 lbs ( Rs 0.35 crore ) worth of royalty. Subsequently, MAL ‘s regulated position was withdrawn by UK ‘s Department of Transport owing to security oversights and it could non utilize the warehouse for lading handling, CAG said. However, “ despite having an offer from BAA in 2003 for early expiration of rental at a market value of 3.35 million lbs ( Rs 26.23 crore ) , the Company ( Air India ) inexplicably preferred to keep the plus idle over the old ages, ” it said. CAG said it was imperative for Air India “ to move quickly for give uping or using the infinite ” , sing the one-year committedness towards rent and council revenue enhancements. In another case, CAG said Air India accepted “ abnormally higher rates ” for engaging conveyance for squads attach toing the Prime Minister in 2009, 2010 and 2011, therefore passing an excess sum of over Rs 75 hundred thousand.

Fiscal Crisis

Around 2006-2007, the air hoses began demoing marks of fiscal hurt. The combined losingss for Air India and Indian Airlines in 2006-07 were 770 crores ( 7.7 billion ) . After the amalgamation of the air hoses, this went up to 7,200 crores ( 72 billion ) by March 2009. This was followed by restructuring programs which are still in advancement. In July 2009, SBI Capital Markets was appointed to fix a route map for the recovery of the air hose. The bearer sold three Airbus A300 and one Boeing 747-300M in March 2009 for $ 18.75 million to last the fiscal crunch. As of March 2011, Air India has accumulated a debt of Rs. 42,570 crore ( about $ 10 billion ) and an operating loss of Rs. 22,000 crore, and is seeking Rs. 42,920 crore from the authorities. For the past three months ( June, July, August 2011 ) , the bearer has been losing salary payments and involvement payments and Moody ‘s Investor Service has warned that losing payments by Air India to creditors, such as the State Bank of India, will negatively impact the recognition evaluations of those Bankss. A study by the Comptroller and Auditor General ( CAG ) blamed the determination to purchase 111 new planes as one of the major causes of the debt problems in Air India ; in add-on it blamed on the ailment timed amalgamation with Indian Airlines every bit good, . Due to high fuel and loan costs, Indian authorities has already pumped 32 billion rupees into Air India since April 2009 and in March 2012 authorities bailed out Air India Ltd. with a 67.5 billion ruppes ( $ 1.4 billion ) which the sum about double of the federal authorities has spent on new infirmaries over the past three old ages.

Management Problems

The new Chairman and Managing manager wants to alter the order of some of the 111 planes ordered in 2006 to acquire narrow-body aircraft alternatively of the widebody aircraft aircraft. On May 4, 2012, the air hose was fined $ 80,000 by the U.S Transportation Department for neglecting to post client service and tarmac hold eventuality programs on its web site and adequately inform riders about its optional fees. On May 8, 2012 about 100 pilots went on medical leave as a grade of protest while their negotiations with the direction were still on. Later, the same twenty-four hours it sacked ten fomenting pilots and de-recognized their brotherhood after 160 pilots failed to fall in responsibility by the given deadline. On the 15th of May, the Union Civil Aviation Minister Ajit Singh stated that the Government was giving Air India one last opportunity and that it must execute in order to measure up for a bailout. On May 26, 2012 Aviation curate Ajit Singh announced that he would travel in front and engage new pilots if the work stoppage did non stop shortly. While, AI direction gave an confidence to Delhi High Court that it would look into the adversities of the pilots sympathetically, the striking pilots have decided to stop the 58 twenty-four hours old work stoppage instantly. Due to pilots ‘ work stoppage Air India suffered a loss of 500 crore ( US $ 90.5 million ) in 45 yearss. Finally, following the intercession of the Delhi High Court, the pilots called off their 58 twenty-four hours work stoppage on 4 July 2012.

Present Condition of Air India

Air India is the flag bearer air hose of India. It is portion of the authorities of India owned Air India Limited ( AIL ) . The air hose operates a fleet of Airbus and Boeing aircraft functioning Asia, Europe and North America. Its corporate office is located at the Air India Building at Nariman Point in South Mumbai. Air India has two major domestic hubs at Indira Gandhi International Airport and Chhatrapati Shivaji International Airport. An international hub at Dubai International Airport is presently being planned. In 2000, Air India introduced services to Shanghai and to its 3rd US gateway at Newark Liberty International Airport in Newark. In May 2004, Air India launched a entirely owned low cost air hose called Air-India Express. Air India Express linking metropoliss in India with the Middle East, Southeast Asia and the Subcontinent. In 2004 Air India launched flights to its 4th US gateway at Los Angeles International Airport in Los Angeles ( which has since been terminated ) and expanded its international paths to include flights from Ahmedabad, Amritsar, Bangalore and Hyderabad. On 1 December 2009, Air India introduced services to its 5th US gateway at Washington Dulles International Airport in Washington, D.C. , accessed via a way station at JFK Airport in New York City. This service has been terminated. Air India has the 4th largest portion in India ‘s domestic air travel market, behind Jet Airways, IndiGo and SpiceJet, as of May 2012. Following its amalgamation with Indian Airlines, Air India has faced multiple jobs, including intensifying fiscal losingss, discontent amongst employees, and hapless client service. Between September 2007 and May 2011, Air India ‘s domestic market portion declined from 19.2 % to 14 % , chiefly due to stiff competition from private Indian bearers. In August 2011, Air India ‘s invitation to fall in Star Alliance was suspended due to its failure to run into the minimal criterions for the rank. In October 2011, negotiations between the air hose and Star Alliance have resumed. In April 2012, the Indian authorities granted another bailout bundle to Air India, including Rs300 billion ( $ 5.8 billion ) of subsidies.

Measures for Healthy Functioning of Air India

Cut in Expenditure

Assorted cost-cutting steps implemented by Air India have resulted in nest eggs of about Rs 800 crore during 2010-11, Civil Aviation Minister Ajit Singh said today.He was answering to a inquiry in the Lok Sabha and besides listed the steps which resulted in decrease of disbursals.

Rationalization of paths, phasing out of old fleet, closing of abroad offline offices, dismantlement of the Frankfurt hub and constitution of Integrated Operations Control Centres were some of the steps that Singh said had reduced Air India losingss. In response to another inquiry Singh said that Air India had issued a stamp for Computerised Face Recognition Biometrics system in 2006 which was scrapped three old ages subsequently. Singh said that the stamp was non pursued because the outgo was non bearing sufficent value to riders.

Change in Salary Structure

The civil air power ministry has decided to pass the wage construction of Air India employees by trashing the combative productivity-linked inducement ( PLI ) wage construction, which constitutes the majority of wage. The new construction, meant to cut down the salary measure, will be based on Public Enterprises Selection Board ( PESB ) guidelines. However, the would non take to a major salary decrease, as a pay alteration is due. The ministry has decided to reconstitute the air hose ‘s top direction by making a station of joint pull offing manager, who would be an Indian Administrative Services ( IAS ) officer, to supervise execution of the still uncomplete integrating of the former Air India and Indian Airlines. It has decided to snip the figure of executive managers ( 20 at nowadays ) and guarantee multitasking. Many of these determinations have been suggested by the Justice Dharmadhikari commission formed last twelvemonth to urge ways to incorporate the employees of the former Air India and India Airlines. Civil Aviation Minister Ajit Singh confirmed the execution of the commission study. “ We have accepted the recommendations of the Justice Dharmadhikari commission and the wages of Air India employees will be in conformity with PESB guidelines and will non represent PLIs. The execution of the study will get down shortly, ” he said. The determination to trash PLIs will impact approximately 27,000 employees. PLIs constitute over 60 per cent of Air India ‘s one-year pay measure of around Rs 3,000 crore and are 80-200 per cent of employees ‘ wages.

Re-allowing Air India to wing on Profitable Finish

Measures to control internal corruptness

Demerger of Air India & A ; Indian Air Lines

Barricading on Private Airlines

Policy Changes

Change in Management

Learning from the Article

Through this Article we learn that: –

Meaning of Industrial Sickness.

Causes of Meltdown in Air India.

Present Condition of Air India

Measures to control Sickness in Air India.


A Though Air India faced a immense loss in the past 10 old ages, because of many grounds like internal corruptness, higher wage, high outgo, purchasing of new aircrafts etc. , Air India taken many steps to control this illness like cut in outgo, alteration in policy & A ; direction etc, which helped it a batch in bring arounding of illness.


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