Indian Airlines - Finance System Study and Valuation of Thei

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FINANCE SYSTEM STUDY

AND

VALUATION OF THEIR UPCOMING IPO

SUBMITTED BY: KRITIKA SHARMA

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TABLE OF CONTENT

1. INTRODUCTION HISTORY OF CIVIL AVIATION

2. COMPANY PROFILE

3. OBJECTIVES

4. SWOT ANALYSIS

5. FINANCIAL SYSTEM IN INDIAN AIRLINES

6. FUNCTIONS OF FINANCE DEPARTMENT7. VALUATION OF THEIR UPCOMING IPO

8. IATA & BSP

9. RECOMMENDATIONS

10. CONLUTION

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ACKNOWLEDGEMENT

A PROJECT STARTS WITH AN OBJECTIVE BUT IT IS ACCOMPLISHED ONLY WITH

ENORMOUS EFFORTS AND TREMENDOUS SUPPORT AND GUIDANCE. IT HAS BEEN AN

UTMOST PLEASURE FOR ME TO WORK WITH INDIAN AIRLINES. THE CORDIAL

ENVIRONMENT HERE HAS ALWAYS MADE ME FEEL TO BE A PART OF THEORGANIZATION.

THE PROCESS OF COMPLETION OF PROJECT REPORT INVOLVES CREATION OF DEBT

TOWARDS INNUMERABLE PERSONS. FOR THIS I OWE A DEEP SENSE OF GRATITUDE

TO MR. A. JAYACHANDRAN-G.M. FINANCE (NORTHERN REGION) IAL WHO ALLOWED

ME TO PURSUE MY TRAINING. I AM GRATEFUL TO MR. DALEEP KUMAR (ASST.

MANAGER FINANCE) WHO GAVE ME TIME FROM HIS BUSY SCHEDULE & UNDER

WHOSE GUIDANCE THIS PROJECT HAS BEEN SUCCESSFULLY COMPLETED.

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METHODOLOGY

THE ANALYSIS IS DONE IS BASED ON PRIMARY DATA. THE DATA WAS MADE

AVAILABLE BY THE REGIONAL FINANCIAL OFFICE AT PALAM. WE VISITED VARIOUS

SECTIONS OF FINANCE DEPARTMENT OF INDIAN AIRLINES AND TRIED TO

UNDERSTAND THEIR DAY TO DAY WORKING. THE VARIOUS SECTION HEADS HELPED

US A LOT IN GETTING FAMILIARIZED WITH THE WORKING OF THEIR SECTIONS.

WE ANALYZED THE FINANCIAL STATEMENTS OF INDIAN AIRLINES FOR

UNDERSTANDING THE WORKING CAPITAL MANAGEMENT IN THE ORGANIZATION.

AND WE HAVE DONE THE VALUATION OF THERE UPCOMING IPO.

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INTRODUCTION

HISTORY OF CIVIL AVIATION

AIR TRANSPORT IS THE MOST MODERN, THE QUICKEST AND THE LATEST ADDITION

TO THE MODES OF TRANSPORT. BECAUSE OF SPEED WITH WHICH AERO

PLANES CAN FLY, TRAVEL BY AIR IS BECOMING INCREASINGLY POPULAR. AS FAR AS

THE WORLD TRADE IS CONCERNED IT IS STILL DOMINATED BY SEA TRANSPORT

BECAUSE AIR TRANSPORT IS VERY EXPENSIVE AND IS ALSO UNSUITABLE FOR

CARRYING HEAVY, BULKY GOODS. HOWEVER, TRANSPORTATION OF HIGH VALUE

LIGHT GOODS AND PERISHABLE GOODS IS INCREASINGLY BEING DONE BY AIR TRANSPORT.

IN 1929, NEVILLE VINCENT, A FORMER RAF PILOT CAME TO INDIA FROM BRITAIN,

JOINED TATA SONS AND MADE A SURVEY OF ALL POSSIBLE AIR ROUTES. HE

PRESENTED THE SCHEME TO DIRECTOR OF TATA SONS. IN OCT 1932 TATA SONS LTD,

WHICH LATER BECOME AIR INDIA INTERNATIONAL, COMMENCED WEEKLY AIRMAIL

SERVICES BETWEEN KARACHI AND MADRAS VIA ALLAHABAD AND MUMBAI.

LATER TWO MORE AIRLINES CAMETHE INDIAN NATIONAL AIRWAYS CAME INTO

EXISTENCE IN 1933 AND AIR SERVICES OF INDIA INTO 1937. AFTER THE 2 ND WORLD

WAR, THE GOVERNMENT OF INDIA ANNOUNCED A NEW POLICY FOR THE

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(OPERATE FOR OVERSEAS SERVICES) & ASSETS OF ALL THEN EXISTING COMPANIES

TRANSFERRED TO THOSE COMPANIES.

FOREIGN AIRLINES CARRYING INTERNATIONAL PASSENGER TRAFFIC TO AND FROM

INDIA EXISTED LONG BEFORE INDEPENDENCE. THEIR OPERATIONS ARE GOVERNED

BY BILATERAL AGREEMENTS SIGNED FROM TIME TO TIME BETWEEN THE

GOVERNMENT OF INDIA AND THE GOVERNMENTS OF RESPECTIVE COUNTRIES. IN

1980-81, THE NUMBER OF SUCH AIRLINES WAS 35. IT ROSE TO 49 IN 1996-97.

THE SHARE OF FOREIGN AIRLINES IN INDIA'S SCHEDULED INTERNATIONAL TRAFFIC

HAS INCREASED. IN 1971, THEIR SHARE WAS 55.58 PER CENT WHICH WENT UP TO 65

PER CENT AND DECLINED TO 58 PER CENT DURING 1972-75. IT FELL TO 55.72 PER

CENT IN 1976 AND FURTHER TO 55.02 PER CENT IN 1977. BETWEEN 1978 AND 1990 IT

GRADUALLY INCREASED AND ROSE TO 75.93 PER CENT. IN 1996, THE SHARE WAS

NEARLY 72 PER CENT.

THE ACT PROHIBITED ANY OTHER THAN TWO COMPANIES TO OPERATE ANY

SCHEDULE AIR TRANSPORT TO OR ACROSS INDIA. THE REPEAL OF AIR

CORPORATION ACT FROM 1 ST MARCH 1994 ENABLED PRIVATE OPERATORS TO

PROVIDE AIR TRANSPORT SERVICES. EIGHT OPERATORS GOT THE NOD TO

COMMENCE OPERATION OUT OF WHICH ONLY TWO HAVE SURVIVED:

JET AIRWAYS

SAHARA INDIA

AVIATION SERVICES IN DEVELOPED COUNTRIES ARE CATEGORIZED INTO THREE

LEVELS:

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TRUNK ROUTES- WHICH CONNECT MAJOR CITY PAIRS

REGIONAL AIR SERVICES - WHICH CONNECT SMALLER TOWNS, OVER SHORTER DISTANCES WITH SMALL AIRCRAFT

NON-SCHEDULED SERVICES - WHICH INCLUDE AIR TAXI, CHARTERS, CORPORATE OR

PRIVATE AVIATION

IN INDIA UNFORTUNATELY THE REGIONAL AND NON-SCHEDULED OR TIER 2 AND

TIER 3 SERVICES ARE ALMOST NON EXISTENT. EVEN THOUGH SUCH SERVICES

NORMALLY CONSTITUTE A SMALL PERCENTAGE OF DOMESTIC AIR SERVICES, THE

IMPORTANCE OF SUCH SERVICES SHOULD NOT BE UNDER-ESTIMATED, AS GENERAL

AVIATION FORMS THE ENTRY POINT FOR PERSONNEL TO ENTER THE INDUSTRY AND

GAIN GRASSROOTS EXPERIENCE.

IN 1953 A NEW DREAM TOOK SHAPE TO AIR LINK THE VAST SOUTH ASIAN

SUBCONTINENT BY A SINGLE, MODERN AND EFFICIENT AIRLINE. THE AIRLINE WAS

INDIAN AIRLINES. TODAY, INDIAN AIRLINES, TOGETHER WITH ITS FULLY OWNED

SUBSIDIARY ALLIANCE AIR, IS ONE OF THE LARGEST REGIONAL AIRLINES SYSTEM

IN ASIA WITH A FLEET OF 56 AIRCRAFTS, 8 WIDE BODIED AIRBUS A300S, 34 FLY-BY-

WIRE AIRBUS A320S, 11 BOEING 737S AND 3 DORNIER D-288 AIRCRAFTS.

INDIAN AIRLINES HAS BEEN SETTING THE STANDARDS FOR CIVIL AVIATION IN INDIA

SINCE ITS INCEPTION IN 1953. IT HAS MANY FIRSTS TO ITS CREDIT, INCLUDING

INTRODUCTION OF THE WIDE BODIED A300 AIRCRAFT ON THE DOMESTIC NETWORK,

THE FLY-BY-WIRE A320, DOMESTIC SHUTTLE SERVICE AND WALK-IN-FLIGHTS. ITS

UNIQUE ORANGE AND WHITE LOGO EMBLAZONED ON THE TAILS OF ALL ITS

AIRCRAFTS IS PERHAPS THE MOST WIDELY RECOGNIZED INDIAN BRAND SYMBOL

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THAT, OVER THE YEARS HAS BECOME SYNONYMOUS WITH SERVICES, EFFICIENCY

AND RELIABILITY.

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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 22,000PASSENGERS ON ITS NETWORK. IT CONNECTS 63 DOMESTIC AND 19 INTERNATIONAL

STATIONS LIKE SINGAPORE, KUALA LUMPUR, BANGKOK, KATMANDU, KUWAIT,

SHARJAH AND MUSCAT ETC.

THE AIRLINES HAVE GROWN FROM STRENGTH TO STRENGTH BY KEEPING AN

EXCELLENT TRACK RECORD OF MANPOWER AND INFRASTRUCTURE

DEVELOPMENT. ITS INTERNATIONALLY RECOGNIZED PILOTS TRAINING ACADEMY,

THE CENTRAL TRAINING ESTABLISHMENT (CTE) AY HYDERABAD IS TOTALLY SELF-SUFFICIENT IN TRAINING PILOTS, ENGINEERS, CABIN CREW AND OTHER

PERSONNEL. IN ADDITION TO THIS INDIAN AIRLINES IS SELF SUFFICIENT IN

AIRCRAFT MAINTENANCES TO KEEP ITS AIRCRAFT IN TOP FLYING CONDITION.

BEFORE 1953, I.E. BEFORE THESE AIRLINES MERGED TO FROM INDIAN AIRLINES

THERE WAS NO SET OF RULES AND STANDARDS OF OPERATIONS OF THE AIRLINES.

THE OPERATIONS MAINLY WERE COMPETITION ORIENTED AND THE RESULT OF

WHICH WAS THAT EVERY AIRLINES WANTED TO BE THE CHEAPEST ONE. THUS, ALL

MOST ALL THE AIRLINES DID NOT HAVE ENOUGH MONEY TO MAINTAIN THE

AIRCRAFTS. THEY PRESENTED AN EXCELLENT EXAMPLE OF UNHEALTHY

COMPETITION. ULTIMATELY THE GOVT. TOOK OVER BY PASSING THE AIR

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CORPORATION ACT AND INDIAN AIRLINES COME INTO BEING. THE BOARD OF

DIRECTORS CONDUCTS THE AFFAIRS OF THE CORPORATIONS.

INDIAN AIRLINES IS ONE OF THE PUBLIC SECTOR CORPORATIONS IN INDIA. A

STATUTORY CORPORATION LIKE INDIAN AIRLINES IS FORMED WITH DEFINITE

OBJECTIVES IN THE INTEREST OF THE PUBLIC TOUGH BASED ON PRE-SET

PRINCIPLES.

THE OBJECTIVE FUNCTIONS OF INDIAN AIRLINES ARE AS FOLLOWS :

IT SHALL BE THE FUNCTION OF THE CORPORATION TO PROVIDE SAFE, EFFICIENT,

ADEQUATE, ECONOMICAL AND PROPERTY CO-ORDINATE AIR TRANSPORT SERVICES

WHETHER DOMESTIC OR INTERNATIONAL OR BOTH.

CORPORATION SHALL SO EXERCISE THEIR POWER AS TO SECURE THAT AIR

TRANSPORT SERVICES ARE DEVELOPED TO THE BEST ADVANTAGE AND IN

PARTICULAR SO EXERCISE THEIR POWER AS TO SECURE THAT THE SERVICES ARE

PROVIDED AT REASONABLE CHARGES.

THE OPENING UP OF THE SKIES IN 1992-93 THRUST INDIAN AIRLINES INTO A NEW

ENVIRONMENT OF COMPETITION AND GAVE RISE TO GREATER EXPECTATIONS OF

THE PASSENGERS. INDIAN AIRLINES HAS FACED THE COMPETITION WITH APLOMB,

CATERING TO ENHANCED PASSENGERS NEEDS WITH VARIOUS PRODUCT UPGRADES

AND MARKETING INITIATIVES. AND AT THE SAME TIME, IT HAS CONTINUED TOFULFILL ITS SOCIAL OBLIGATIONS. THE AIRLINES HAVE AUGMENTED ITS FLEET OF

AIRCRAFT BY LEASING 5 BOEING 737 AND 2 A-320 AIRCRAFT. PLANS ARE ALSO

UNDERWAY TO PURCHASE NEW AIRCRAFT AND THEREBY STRIVE TO ESTABLISH

ITSELF AS A TECHNOLOGY AND MARKET DRIVEN ORGANIZATION.

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INDIAN AIRLINES OPERATES A COMPLEMENT OF 58 AIRCRAFT: 30 A-320S, 11 A-300S, 11

BOEING-737 AND 3 DORNIER-0228S.

MUMBAI IS THE MAJOR MAINTENANCE BASE FOR A-300 AIRCRAFT AVIONICS

(AVIATION ELECTRONICS) SHOPS AT ATEC (AUTOMATIC TEST EQUIPMENT COMPLEX)

TAKE CARE OF REPAIR AND CERTIFICATION OF ALL COMPUTERS ON BOARD.

ACCESSORIES OVERHAUL DIVISION MEETS THE NEEDS OF WHEELS, BRAKES AND

HYDRAULIC IS KNOWN DOES A COMPLETE OVERHAUL OF A-300 ENGINE, ONLY

DETAIL PARTS ARE SENT ABROAD FOR REPAIR.

DELHI IS THE MAJOR MAINTENANCE BASE FOR A-320 AND BOEING-737 AIRCRAFT.

THE A CHECKS FOR A-320 IS CARRIED OUT PRIMARILY IN HYDERABAD AND IF

NEED ARISES ALSO IN DELHI. C CHECKS, 5 YEARS AND 9 YEARS ARE CARRIED IN

DELHI TOO.

BOEING-737 4C/7C CHECKS ARE CARRIED OUT IN DELHI. DELHI AND KOLKATA BOTH

HAVE FACILITY TO CARRYOUT A, B AND C CHECKS ON BOEING-737 AIRCRAFT

BUT THIS JOB IS PRIMARILY CARRIED OUT AT KOLKATA. WELL EQUIPPED AVIONICS

OVERHAUL SHOPS AT DELHI AID IN-HOUSE REPAIR TO MAJORITY OF A320 AND

BOEING-737 COMPONENTS.

JET ENGINES OVERHAUL CENTERS A MULTI-MILLIONAIRE DOLLAR ENTERPRISE

UNDERTAKES REPAIRS TO BOTH V2500 AI ENGINES OF A-320 AS WELL AS JT8D-9A &

JT8D-17A ENGINES OF BOEING-737 AIRCRAFTS. ENGINES ARE DISMANTLED. PARTS

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REPLACED AND STATE OF ART TEST HOUSE. ONLY SOME MODULES AND BLADES

ARE SENT ABROAD FOR REFURBISHMENT.

A FULL-FLEDGE APU REPAIR CENTER AT KOLKATA TAKES THE ENTIRE WORK OF

APUS FROM ALL THREE AIRCRAFTS. SIX MAJOR STATIONS NAMELY DELHI,

MUMBAI, KOLKATA, HYDERABAD, CHENNAI AND BANGALORE ALSO EXTENDED

NIGHT HALT FACILITIES FOR ALL THREE TYPES OF JET AIRCRAFTS.

INDIAN AIRLINES IS A PUBLIC UTILITY UNDER THE INDUSTRIAL DISPUTE ACT 1947,

HAS TO WORK IN THE INTEREST OF PUBLIC. IN THE VIEW OF THIS, THE

CORPORATION IS ACCOUNTABLE TO PUBLIC THROUGH THE GOVERNMENT AND

PARLIAMENT FOR ITS ACTIVITIES. THE CONTROL IS TWO-FOLD:

TO SEE THAT CORPORATION DOES NOT DEVIATE FROM ITS OBJECTIVES.

TO HAVE FINANCIAL CONTROL BECAUSE THE FUNDS OF THE CORPORATION ARE

DERIVED FROM PUBLIC FUNDS.

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OBJECTIVES

TO MEET THE DEMAND FOR RELIABLE, ECONOMIC AND EFFICIENT TRANSPORT

SERVICE THROUGH HIGH STANDARDS OF SERVICE CUSTOMERS AND PASSENGERS.

TO MAXIMIZE THE ESSENTIAL AND STRATEGIC COMMUNICATION WITHIN INDIA IN

TIMES OF NATIONAL EMERGENCIES AND TO BE RELIABLE SECOND LINE OF

DEFENSE.

TO INCREASE PASSENGERS SATISFACTION BY IMPROVING PASSENGER/CARGO AND

AMENITIES.

TO ENHANCE THE CONTRIBUTION OF NATIONAL ECONOMY DURING THE 5 YEAR

PLAN PERIOD BY SECURING THE REASONABLE RETURN ON CAPITAL CONSISTENT

WITH THE SOCIAL OBJECTIVES.

TO FOSTER INTERNATIONAL TOURISM TO INDIA AND TO IMPROVE BALANCE OF

PAYMENTS.

TO STIMULATE DOMESTIC TOURISM AND TOURISM INTERNAL TRADE BI AIR IN

ORDER TO DEVELOP AIR MINDEDNESS AND BROADEN THE INDIAN MARKET.

TO SHARE IN THE PROMOTION OF THE SOCIAL, CULTURAL AND EMOTIONAL

INTEGRATION OF INDIA AND TO PARTICIPATE IN THE PROCESS REDRESSING

REGIONAL IMBALANCES.

TO ENCOURAGE SELF EXPRESSION AND PARTICIPATE IN THE ACTIVITIES OF THE

COMPANY BY ALL EMPLOYEES AND TO ENCOURAGE THEIR LEGITIMATE

ASPIRATIONS FOR GROWTH AND SELF DEVELOPMENT.

TO PARTICIPATE IN THE DEVELOPMENT OF NATIONAL AIRCRAFT AND ANCILLARY

INDUSTRY.

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SWOT ANALYSIS

FOR A COUNTRY OF CONTINENTAL SIZE LIKE INDIA, A STRONG, RELIABLE AND

EFFICIENT CIVIL AVIATION SECTOR 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 KEEP ITS EYES AND EARS OPEN TO

SURVIVE IN THE LIBERALIZED ECONOMY OF OUR COUNTRY, WHICH HAS PAVED A

WAY FOR ANY PRIVATE AIRLINES TO OPERATE ALONG WITH IT. THE INTERNAL AND

EXTERNAL ENVIRONMENTS CONTAIN VARIOUS STRENGTHS, WEAKNESSES,

OPPORTUNITIES AND THREATS WHICH NEED TO BE IDENTIFIED WELL IN AN

ADVANCE TO TAKE CARE OF VARIOUS SITUATIONS THAT MAY ARISE FROM TIME TO

MIME. WE SHALL NOW TRY TO FOCUS ON THE ABOVE MENTIONED FACTORS IN

CONTEXT WITH PRESENT SCENARIO ONE BY ONE.

STRENGTHS

INFRASTRUCTURAL SUPPORT: THE MOST NOTABLE STRENGTH OF INDIAN AIRLINES

LIMITED IS ITS VAST INFRASTRUCTURAL SUPPORT BUILT OVER FIVE DECADES. THIS

HAS HELPED IT REDUCE ITS COSTS AND AT THE SAME TIME INCREASE ITS

EFFICIENCIES. THE MOST NOTABLE AMONG ITS INFRASTRUCTURE ARE THE

CENTRAL TRAINING ESTABLISHMENT (CTE) AND JET ENGINE OVERHAUL COMPLEX

(JEOC).

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FLEETS STRENGTH: INDIAN AIRLINES LIMITED IS ONE OF THE LARGEST DOMESTIC

AIRLINES IN THE WORLD AND IS EQUIPPED WITH MODERN FLEET OF AIRBUS A-300,A-320, DORNIER, ATR-42 AND BOEING 737 AIRCRAFT. AS COMPARED TO THE FLEET OF

INDIAN AIRLINES LIMITED, THE TOTAL FLEET OF ALL PRIVATE AIRLINES COMBINED

TOGETHER IS SMALLER THAN THAT OF INDIAN AIRLINES LIMITED. THIS CLEARLY

SHOWS THE SUPERIORITY OF INDIAN AIRLINES LIMITED OVER THIS FACTOR.

VAST COMPUTERIZED NETWORK: EACH OF THE 55 DOMESTIC STATIONS OF INDIAN

AIRLINES LIMITED IS LINKED OVER A COMPUTERIZED NETWORK, WHICH PROVIDES

INSTANT RESERVATIONS AND UP TO DATE INFORMATION OF EACH STATION

INSTANTLY. THIS IS NO DOUBT A GREAT ACHIEVEMENT, WHICH PROVES THAT

INDIAN AIRLINER LIMITED HAS REALIZED ITS POTENTIAL.

LARGEST NETWORK: OVER THE LAST 50 YEARS, INDIAN AIRLINES HAS BUILT UP A

RELIABLE AND STABLE SCHEDULE THAT LINKS 75 DESTINATIONS - 57 WITHIN INDIA

AND 20 ABROAD. FROM THE GATEWAY CITIES OF DELHI IN THE NORTH, MUMBAI IN

WEST, KOLKATA IN THE EAST AND CHENNAI IN THE SOUTH, THE PASSENGER CAN

TAKE OFF IN AN INDIAN AIRLINES LIMITED IS WITHIN EASY REACH. IN COMPARISON

OF THIS EACH PRIVATE AIRLINES OPERATE IT MAXIMUM OF 30 DESTINATIONS,

WHICH IS NO WAYS NEAR THE 75 DESTINATIONS, WHICH IS NO WAYS NEAR THE

DESTINATIONS PROVIDED BY INDIAN AIRLINES LIMITED.

MOST MODERN FLEET: INDIAN AIRLINES LIMITED HAS BEEN REGULARLY UPDATING

ITS FLEET. HAVING STARTED VIKINGS AND DAKOTAS IT NOW HAS AIRBUS A-320S,

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THE MODERN AIRCRAFTS HAVING A TECHNOLOGY OF FLY BY WIRE AND IS NOW IN

THE PROCESS OF PHASING OUT BOEING 737 AIRCRAFTS.

MAINTENANCE FACILITIES: IN AVIATION INDUSTRY, MAINTENANCE PLAYS A VITAL

ROLE. IT IS THE BACKBONE OF AN ORGANIZATION AND NO ORGANIZATION CAN

SURVIVE UNLESS AND UNTIL IT HAS GOOD MAINTENANCE FACILITIES. INDIAN

AIRLINES LIMITED HAS UNDERSTOOD THIS VERY WELL AND HAS MAINTENANCE

FACILITIES IN DELHI, HYDERABAD AND KOLKATA. THE ENGINEERS ARE WELL

QUALIFIED AND HOLD A REPUTATION OF BEING ONE OF THE BEST IN THE AVIATIONINDUSTRY. PRIVATE AIRLINES ARE QUITE DEPENDENT UPON THEIR FOREIGN

COLLABORATIONS OR THE INDIAN AIRLINES TO MAINTAIN THEIR AIRCRAFTS,

WHICH IS A COSTLY AFFAIR.

HIGHLY MODERNIZED CENTRAL TRAINING ESTABLISHMENT (CTE, HYDERABAD):

CTE WAS ESTABLISHED AS A PROFIT CENTER BY INDIAN AIRLINES. IT PROVIDES

TRAINING IN ALL ASPECTS OF AIRLINES MANAGEMENT BOTH FOR PERSONNEL OF

INDIAN AIRLINES AS WELL AS TO REPRESENTATIVES OF OTHER AIRLINES AS PER

DGCA, IATA, AND ICAO. IT HAS BEEN REGARDED AS THE BEST TRAINING FACILITY IN

INDIA AND IS RESPONSIBLE FOR PROVIDING EXPERT TRAINING FACILITIES TO AIR

INDIA, BLUE DART, ALLIANCE AIR. AIR SAHARA, SRI LANKAN AIRLINES ETC.

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WEAKNESSES

LACK OF PERSONALIZED AND CUSTOMER FRIENDLY SERVICES: THIS IS ONE OF THE

MAJOR FINDINGS OF OUR STUDY. ALMOST ALL PASSENGERS FEEL THAT INDIAN

AIRLINES LIMITED STAFF NEEDS TO BE MORE CUSTOMER FRIENDLY AND

PROFESSIONAL IN ITS APPROACH. IN SERVICES INDUSTRY, IT IS THE KIND OF

SERVICES THAT ONE PROVIDES MATTERS AND LEAVES ITS IMPRESSION IN THE MIND

OF PASSENGERS. IT INFACT IS A MEASURE OF QUALITY OF THE PRODUCT. INDIAN

AIRLINES LIMITED NEEDS TO TAKE IMMEDIATE STEPS IN THIS REGARD TO CHANGE

THE PUBLIC OPINION.

OVERSTAFFING: AS MENTIONED EARLIER THE TOTAL STAFF STRENGTH OF INDIAN

AIRLINES LIMITED IS 18715 AS ON DATE. ON THE AVERAGE 19300-19500 PEOPLE

TRAVEL ON INDIAN AIRLINES LIMITED ON ITS 112 FLIGHTS DAILY. IT RECORDS

THREE HUNDRED DEPARTURES PER DAY (INCLUDING ALLIANCE AIR). THIS MEANS

THAT THERE IS ROUGHLY ABOUT ONE STAFF RECRUITED AGAINST EVERY

PASSENGER TRAVELING. THIS IS NO DOUBT A BAD SIGN. INDIAN AIRLINES LIMITED

HAS UNDERSTOOD THIS WEAKNESS NOW AND HENCE HAS NOT MADE ANY MAJOR

RECRUITMENT FOR LAST FEW YEARS. MOREOVER, THERE ARE AROUND TWO

THOUSAND EMPLOYEES RETIRING WITHIN NEXT TWO YEARS WHICH WILL TRIMWORK FORCE AUTOMATICALLY.

UNDER UTILIZATION OF CAPACITY: INDIAN AIRLINES LIMITED SELLS SPACE, WHICH

IS HIGHLY PERISHABLE. THIS IS BECAUSE IDLE CAPACITY WOULD IMPLY

OPPORTUNITY LOST. CAPACITY MEANS THE TOTAL NUMBER OF SEATS OFFERED BY

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INDIAN AIRLINES LIMITED DAILY TO ITS PASSENGERS. IT HAS BEEN OBSERVED THAT

INDIAN AIRLINES LIMITED OFFERS AROUND 32000 SEATS DAILY WHERE AS ON

AVERAGE 19300 SEATS ARE UTILIZED MEANING AN AVERAGE SEAT FACTOR OF

ABOUT 60%. IT IS IMPERATIVE TO IMPROVE UPON THE SITUATION BEFORE IT IS TOO

LATE. MORE MARKETING EFFORTS ARE REQUIRED TO ATTRACT LARGER

PASSENGER.

OPPORTUNITIES

GROWTH OF AVIATION INDUSTRY: THE RECESSION IN THE WEST, THE GULF WARS,

SURAT OUTBREAK AND KARGIL WAR HAVE SLOWED TOURIST GROWTH AND

CONSEQUENTLY AFFECTED THE INDIAN AIRLINES LIMITED REVENUES. HOWEVER,

THESE WERE TRANSIENT SETBACKS AS HAS BEEN PROVEN BY RECOVERY OF

GLOBAL TOURIST ACTIVITY. AVIATION INDUSTRY IS GROWING AT THE RATE OF 10%

PER YEAR. THIS IS NO DOUBT A GOOD SIGN. AND INDIAN AIRLINES LIMITED MUST

EXPLOIT THIS OPPORTUNITY AND TAKE MAXIMUM BENEFITS OUT OF IT.

CLOSING DOWN OF VARIOUS PRIVATE AIRLINES: EARLIER INDIAN AIRLINES LIMITED

WAS NOT ALLOWED TO OPERATE ON INTERNATIONAL SECTORS, AS AIR INDIA TOOK

CARE OF IT. WITH THE LIBERALIZATION OF INDIAN ECONOMY, GOVERNMENT OF

INDIA GAVE INDIAN AIRLINES LIMITED 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 LIMITED HAS

BRANCHED OUT TO OPERATE ON 17 INTERNATIONAL SECTORS.

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PROFITS AFTER A LONG TIME: INDIAN AIRLINES LIMITED HAD BEEN RUNNING IN

RED FROM THE YEAR 1989-90 TO 1996-97 FOR A NUMBER OF REASONS. IT STARTED

EARNING PROFIT IN 1997-98. IT EARNED A PROFIT OF RS. 47.27 CRORE IN 1997-98, RS.

14.17 CRORE IN 1998-99 AND RS. 51.42 CRORE IN 1999-00. BUT AFTER THAT IT AGAIN

STARTED MAKING LOSSES WITH A LOSS OF RS. 159.14 CRORE IN 2000-01. IT

REMAINED IN RED IN 2001-02 WITH A LOSS OF RS.246.75 CRORE FOLLOWED BY A

LOSS OF RS. 196.56 CRORE IN 2002-03. THEN IT CAME IN BLACK ONCE AGAIN IN 2003-

04 WITH A NET PROFIT OF RS. 44.17 CRORE WHICH CONTINUES IN 2004-05 AND 2005-06

WITH A PROFIT OF AROUND 64 CRORES IN 2005-06.

CREATION OF PROFIT CENTERS: DUE TO ITS SIZE INDIAN AIRLINES LIMITED IS

UNABLE TO BE AS NIMBLE AS IT OUGHT TO BE IN TERM OF DECISION MAKING,

CUSTOMER SERVICE AND EMPLOYEE MOTIVATION. CONSEQUENTLY, AN INTEGRAL

PART OF ITS STRATEGY WAS TO HYPE OFF CERTAIN ACTIVITIES INTO SEPARATE

PROFIT CENTERS, TO MAKE THEM MORE FOCUSED, FLEXIBLE AND ACCOUNTABLE.

IT WAS WITH THIS IN MIND THAT INDIAN AIRLINES LIMITED CREATED THE

FOLLOWING PROFIT CENTERS:

CENTRAL TRAINING ESTABLISHMENT

JET ENGINE OVERHAUL COMPLEX

ALLIANCE AIR

GROUND SUPPORT

CARGO

AUXILIARY POWER UNIT

THE PROFIT CENTERS HAVE ALREADY MADE USEFUL CONTRIBUTION IN THE

IMPROVED PERFORMANCE OF INDIAN AIRLINES LIMITED.

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OTHER OPPORTUNITIES: THE COMPANY STANDS TO BENEFIT FROM A VARIETY OF

OTHER OPPORTUNITIES DUE TO ITS INHERENT STRENGTHS AND EMERGING MARKET

TRENDS. SOME OF THESE ADVANTAGES ARE LISTED BELOW:

GOOD DOMESTIC MARKET GROWTH POTENTIAL IN THE EVENT OF UPTURNS IN THE

DOMESTIC MARKET

SYNERGY BETWEEN DOMESTIC AND INTERNATIONAL OPERATIONS

MODERN ENGINEERING INFRASTRUCTURE AND HIGHLY SKILLED MANPOWER

REVENUE POTENTIAL FROM HANDLING SERVICES RENDERED TO OTHER AIRLINE

THREATS

COMPETITION ITSELF: EVER SINCE THE INCEPTION OF INDIAN AIRLINES LIMITED IT

HAD NEVER TASTED COMPETITION, AS IT WAS A PROTECTED MONOPOLY. WHEN THE

PRIVATE AIRLINES ENTERED THIS FIELD THERE WAS A PANIC IN INDIAN AIRLINES

LIMITED, INSTEAD OF THINKING OF WAYS TO TACKLE, IT STATED CONDEMNING THE

GOVT. POLICY AND THOUGHT IT AS THREAT TO IT EXISTENCE. IT IS ONLY RECENTLY

THAT IT HAS REALIZED THAT PRIVATE AIRLINES WERE HERE TO STAY.

INSTABILITY IN THE POLICES OF INDIA: FOR THE LAST 4 OF 5 YEARS THERE HAS

BEEN A GREAT UNCERTAINTY IN THE POLITIES OF INDIA. SINCE MAJORITY OF

INDIAN AIRLINES LIMITED POLICES REQUIRES THE APPROVAL OF GOVT. HENCE AN

UNCERTAINTY IN THE POLITICAL CIRCLE HINDERS THE DECISION MAKING OF

INDIAN AIRLINES LIMITED. EVERY GOVT. HAS ITS OWN PERCEPTION ABOUT

AVIATION INDUSTRY RESULTING IN THE CHANGE IN THE POLICIES UNDER SHORT

INTERVALS. THIS NOT ONLY RESULTS IN THE LOW MORAL OF THE MANAGEMENT

BUT ALSO MAKES IT INDECISIVE WHICH IS NOT GOOD FOR AN ORGANIZATION.

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INDUSTRIAL UNREST: STRIKES ARE A FAMILIAR WORD FOR INDIAN AIRLINES

LIMITED. EVERY NOW AND THEN THERE ARE STRIKES 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 MARKET. AIRLINES LIMITED MUST TAKE A

SERIOUS VIEW ABOUT IT AND SORT OUT THE THINGS BEFORE IT IS TOO LATE.

FINANCIAL SYSTEM IN INDIAN AIRLINES

THE MANAGEMENT AT THE CENTER

THE INDIAN AIRLINES FOLLOWS A CENTRALIZED SYSTEM FOR REVENUE HANDLING

AND A DECENTRALIZED SYSTEM FOR BOOKING OF EXPENDITURES. THE

ORGANIZATION HAS TWO HEAD QUARTERS FOR FINANCE. ONE OF THE HEAD

QUARTERS DEALS WITH EXPENDITURES AND IS LOCATED IN THE AIRLINES HOUSE,

NEW DELHI. THE SECOND HEADQUARTER DEALS WITH REVENUE AND IS KNOWN AS

THE CENTRAL REVENUE ACCOUNTS (CRA). THE EXPENDITURE DIVISION IS

OVERSEEN BY TWO GENERAL MANAGERS, WHILE THE CRA HAS ONE GENERAL

MANAGER.

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BELOW THE HEADQUARTERS ARE THE REGIONAL OFFICES WHICH AGAIN HAVE

SIMILAR STRUCTURE. HERE ALSO THERE IS AN EXPENDITURE DIVISION WHICH IN

CASE OF THE DELHI REGION IS IN PALAM. THE REVENUE PART IS HANDLED BY AN

AREA REVENUE DIVISION WHICH IN CASE OF DELHI REGION IS IN SAFDARJUNG.

EACH REGION IS FURTHER SUBDIVIDED INTO STATIONS WHICH ARE PLACES WHERE

INDIAN AIRLINES HAS AN OFFICE.

ALL REVENUES EXCEPT FOR THOSE THAT ARE INCIDENTAL IN NATURE ARE BOOKED

BY THE CRA. INCIDENTAL REVENUES ARE BOOKED BY RESPECTIVE ARDS. ALL

EXPENSES RELATED TO THE AIRCRAFTS ARE BOOKED BY THE HEAD QUARTERS

(EXPENDITURE). ALL ADMINISTRATIVE EXPENDITURES INCURRED IN THE REGIONS

ARE BOOKED BY THE REGION.

THE HEAD QUARTERS TRANSFER A FIXED SUM OF MONEY TO EACH REGION AT

PREFIXED DATES SO THAT THEY CAN MEET THEIR EXPENSES. THIS IS CALLED

SCHEDULED TRANSFER. IF DUE TO ANY REASON THE REGION NEEDS MORE FUNDS

THE HEAD QUARTERS CAN TRANSFER IT BY WAY OF SPECIAL TRANSFER.

FUNCTIONING OF THE FINANCE DEPARTMENT IN THE NORTHERN REGION

FINANCE DEPARTMENT

AREA REVENUE DIVISION, SAFDARJUNG:

AGENCY SECTION

SCREENING SECTION

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BILLS RECEIVABLE SECTION

EXPENDITURE DIVISION, PALAM:

BILL PASSING - LOCAL

BILL PASSING - OUTSTATION

PROVIDENT FUND

PAYROLL

CASH & BANK

BILL RAISING & REALIZATION

FINANCE & BUDGET

AREA REVENUE DIVISION

THE BASIC FUNCTION OF AREA REVENUE DIVISION (ARD) IS TO BOOK "TRAFFIC

REVENUE" EARNED BY INDIAN AIRLINES IN ITS BOOKS. THE VARIOUS COMPONENTS

OF TRAFFIC REVENUE ARE:

MAIL REVENUE: THIS IS THE REVENUE DERIVED FROM THE CARRIAGE OF MAIL ON

THE ROUTES OF THE CARRIER.

AIRFREIGHT REVENUE: IT IS THE REVENUE DERIVED FROM CARRIAGE OF CARGO

ON THE ROUTES OF THE CARRIER.

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EXCESS BAGGAGE REVENUE: IT IS THE REVENUE DERIVED FROM CARRIAGE OF

EXCESS BAGGAGE ON THE ROUTES OF THE CARRIER.

PASSENGER REVENUE: IT IS THE REVENUE DERIVED FROM THE CARRIAGE OFPASSENGERS OVER THE ROUTES OF THE CARRIER.

POOL REVENUE: POOL IS AN AGREEMENT ENTERED INTO BY TWO NATIONAL

CARRIERS OPERATING ON THE SAME ROUTE, TO POOL THEIR REVENUE IN A KITTY

AND THEN SHARE THE SAME ON A MUTUALLY AGREED BASIS. THE MAIN OBJECT OF

SUCH AGREEMENTS IS TO MAKE THE SERVICES OPERATED BY THE POOL PARTNERS

COMPLEMENTARY AND NOT COMPETITIVE. REVENUE GENERATED BY SUCH A POOL

IS POOL REVENUE.

CHARTER REVENUE: IT IS THE REVENUE DERIVED FROM THE CHARTERING

OPERATIONS. CHARTER IS A SPECIAL ARRANGEMENT, WHEREBY FOR AN AGREED

OPERATION, THE CARRIER PLACES THE ENTIRE CAPACITY OF AN AIRCRAFT AT THE

DISPOSAL OF THE PERSON REQUESTING FOR CHARTER SERVICES.

ALL THESE REVENUES ARE BOOKED BY ARD IN BOOKS OF INDIAN AIRLINES WITH

AN INSTRUMENT OF MAINTAINING RECORDS KNOWN AS "REPORTING FORM".

SECTIONS AT ARD:

AGENCY: DEALS WITH THE AGENTS OF INDIAN AIRLINES AND MAINTAIN RECORDS

OF ALL THE TRANSACTION OR SALES DONE BY AGENTS THROUGH REPORTING

FORMS.

SCREENING: PERFORMS THE SEQUENTIAL SCREENING OF ALL THE REPORTING

FORMS AND EXECUTE INTERLINE BILLING.

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BILLS RECEIVABLES (B/R): IT MAINTAINS THE RECORDS OF ALL THE CREDIT PARTIES

OF INDIAN AIRLINES AND RAISE BILL OR DEBIT NOTES TO SUCH PARTIES FOR SERVICES RENDERED TO THEM BY INDIAN AIRLINES.

AGENCY SECTION

THIS SECTION DEALS WITH THE AGENTS OF INDIAN AIRLINES AND MAINTAINSRECORDS OF ALL THE TRANSACTIONS OR SALES DONE BY THE AGENTS THROUGH

THE REPORTING FORMS. ABOUT 80% OF INDIAN AIRLINES SALES ARE THROUGH ITS

AGENTS & THERE ARE ABOUT 600 INDIAN AIRLINES AGENTS IN NORTHERN REGION.

THE AGENCY SECTION AT ARD DEALS WITH ALL INDIAN AIRLINES AGENTS

MAINTAINS RECORDS, TAKE DISCIPLINARY ACTIONS AGAINST DEFAULTS IF ANY &

PREPARE CONCEALED SUMMARY OF ALL TRANSACTION THROUGH AGENTS FOR

THE HEAD QUARTERS.

AGENT: AN AGENT IS AN INDIVIDUAL OR AN ORGANIZATION AUTHORIZED TO ACT

FOR AND ON BEHALF OF AN AIRLINE, SUBJECT TO THE TERMS AND CONDITIONS

SPECIFIED IN THE AGENCY AGREEMENT. PASSENGER AGENTS OF INDIAN AIRLINES

ARE AUTHORIZED TO ISSUE PASSENGER TICKETS AND CARGO AGENTS ARE

AUTHORIZED TO ISSUE CONSIGNMENT NOTES/AIR WAYBILLS.

THERE ARE TWO KINDS OF AGENTS:

GENERAL SALES AGENT (GSA): A GSA IS ONE AND ONLY ONE AGENT AUTHORIZED

BY INDIAN AIRLINES TO OPERATE IN A PARTICULAR COUNTRY HOWEVER HE CAN

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HAVE SUB-AGENT UNDER HIM. INDIAN AIRLINES HAVE THEIR GSA'S IN U.K., U.S.A.,

RUSSIA AND CANADA. GSA'S ARE ENTITLED TO SPECIAL RATES BY INDIAN AIRLINES

AS PER THE CONTRACT.

PASSENGER SALES AGENT (PSA): WHEN VARIOUS SALES AGENTS ARE APPOINTED BY

INDIAN AIRLINES FOR THE SAME REGION, THEY ARE KNOWN AS PSA'S. THE RATES

FOR ALL THE PSA'S ARE SAME AND FIXED IN ADVANCE.

THE VARIOUS FUNCTIONS PERFORMED BY AGENCY SECTION ARE AS FOLLOWS:

APPLICATIONS FOR NEW AGENCY:

NEW APPLICANTS APPLY TO THE COMMERCIAL DEPARTMENT, WHICH SCRUTINIZE

THE APPLICATIONS AT VERY STEP AND THEN FORWARD THE APPLICATIONS TO THE

FINANCE DEPARTMENT. FINANCE DEPARTMENT CHECKS THE FINANCIAL VIABILITY

OF THE APPLICANT AND CONFIRMS THE BANK GUARANTEE PROVIDED BY THE

APPLICANT. BANK GUARANTEE SHOULD BE AT LEAST OF RS. 2 LACS. ONCE THE

VERIFICATION OF DOCUMENTS IS COMPLETE THE AGENCY SECTION ALLOTS AN

AGENT WITH A UNIQUE CODE. BANK GUARANTEE IS TAKEN FROM THE AGENTS AND

TICKETS ARE ISSUED TO THE AGENT.

MAINTAINING RECORDS OF AGENTS:

AGENTS ARE REQUIRED TO SUBMIT DETAILS OF EACH AND EVERY TRANSACTION

OR SALE TO ARD, RECORDS OF WHICH ARE MAINTAINED BY AGENCY SECTION

DISCIPLINARY ACTIONS AGAINST AGENTS:

ALL THESE FORMS ARE SCRUTINIZED AND FOR ANY DISCREPANCIES, DISCIPLINARY

ACTIONS ARE TAKEN AGAINST THE AGENTS. THESE ACTIONS ARE GENERALLY

"LEGAL" BUT DUE TO GROWING COMPLEXITIES OF LEGAL PROCEDURES INDIAN

AIRLINES IS GETTING ITS TRANSACTIONS WITH AGENTS INSURED. THUS, DEFAULTS

IF ANY ARE RECOVERED BY INSURANCE AGENCIES.

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RECONCILIATION:

ANOTHER MAJOR JOB OF THE SECTION IS TO PREPARE CONCEALED SUMMARY OFALL THE TRANSACTIONS BY EACH AND EVERY AGENT AND THE TOTAL REVENUE

ACCRUED. A TDS OF 2.05% IS TO BE DEDUCTED OUT OF THE COMMISSION OF THE

AGENTS AND TO BE SUBMITTED TO THE AUTHORITY BY STIPULATED DATES. THE

AGENCY SECTION IS ALSO RESPONSIBLE TO THE AGENTS FOR PROVIDING THE

CERTIFICATE OF TDS, FOR THEM TO FILE THEIR ANNUAL RETURN.

BILLING OF CHARTER:

CHARTER: IT IS A SPECIAL ARRANGEMENT, WHEREBY FOR AN AGREED OPERATION,

THE CARRIER PLACES THE ENTIRE CAPACITY OF AN AIRCRAFT AT THE DISPOSAL OF

THE PERSON REQUESTING FOR THE CHARTER.

FIXED CHARGES FOR CHARTER ARE:

AIRBUS-320 RS. 330,000 /HR

A-300 RS. 550,000 /HR

BOEING RS. 260,000 /HR

FOREIGN TRANSACTIONS :

FOR THE INDIAN AIRLINES AGENTS ABROAD, ALL THE TRANSACTIONS ARE CARRIED

THROUGH BSP WITH THE HELP OF IATA AGENT. SALE OF TICKETS, TRANSFER OF

REVENUE AND PAYMENT OF COMMISSION TO AGENTS, EVERYTHING IS DONE

THROUGH IATA AGENTS.

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SCREENING SECTION

THIS SECTION PERFORMS THE SEQUENTIAL SCREENING OR CHECKING OF ALL THE

REPORTING FORMS AND EXECUTES INTERLINE BILLING. THE BASIC FUNCTION OF

THE SCREENING SECTION IS TO SCREEN:

REPORTING FORMS

SALES RECORDS (JVS)

INTERLINE BILLING

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MAIL STATEMENTS RECOVERED FROM OUTSTATIONS

REPORTING FORMS:

REPORTING FORMS ARE STANDARD FORMATS DESIGNED TO REPORT THE SALE OF

CASH VALUE

DOCUMENTS (CVDS) THAT IS BASICALLY THE AIR TICKETS.

JOURNAL VOUCHERS:

IT CONFIRMS THAT THE TICKETS ARE ISSUED SERIALLY BY THE AGENTS AND THAT

THEY REPORT THEM ALONG WITH THE RATES CHARGED FOR THE SERVICE ALONG

WITH DETAILS OF ANY CONCESSION AND DISCOUNT OFFERED. FOR ANY

DISCREPANCIES DEBIT NOTES ARE ISSUED TO AGENTS FOR THE SAME AMOUNT.

INTERLINE BILLING:

SUPPOSE A DEALER AT BANGKOK WANTS TO DELIVER SOME GOODS TO JAIPUR, THE

TRANSIT WILL BE AS FOLLOWS:

BANGKOK ----- DELHI-------JAIPUR

THUS THE DEALER WILL DEPOSIT THE ENTIRE SUM AT BANGKOK AND THE TRANSIT

OF GOODS FROM DELHI TO JAIPUR WILL BE BY INDIAN AIRLINES THUS THE INDIAN

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AIRLINES WILL RAISE THE BILL ON BANGKOK AIR FOR THE TRANSIT. THIS IS

KNOWN AS INTERLINE BILLING.

MAIL STATEMENT:

THIS IS TO KEEP A CHECK ON THE WEIGHTS TRANSITED AS MAILS AND CHARGE ON

THEM. THE VARIOUS MAIL TRANSITS ARE AS FOLLOWS:

STATE -TO-STATE

REGION -TO-REGIONCOUNTRY-TO-COUNTRY

SPEED POST ETC.

ANOTHER JOB FOR THE SECTION IS TO KEEP A CHECK ON THE MONEY RECEIVED

FOR THE TRANSACTIONS. IT NEEDS TO PREPARE ALL THE BANK DOCUMENTS

REGARDING RECEIPTS, REFUNDS AND CONCEALED NET RECEIPTS AND DISPATCH

THEM TO THE CRA OR EDP ALONG WITH THE BANK STATEMENTS CONFIRMING THE

DEPOSIT IN BANK.

3. BILLS RECEIVABLE SECTION

BILLS RECEIVABLE SECTION DEALS BASICALLY WITH THE RECOVERY OF THE

CREDIT FROM THE CREDIT PARTIES. INDIAN AIRLINES AS ITS POLICY, EVEN ISSUE

TICKETS OR PROVIDE SERVICE TO CERTAIN PARTIES ON CREDIT AND BILLS

RECEIVABLE SECTION DEALS WITH THE RECOVERY OF THIS CREDIT FROM THESE

CREDIT PARTIES.

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BILLS RECEIVABLE SECTION DEALS WITH TWO KINDS OF RECOVERY:

RECOVERY FROM INTERNAL PARTIES: INTERNAL PARTIES REFER TO THE STATIONS

RECOVERY FROM THE EXTERNAL PARTIES: EXTERNAL PARTIES REFER TO THE

CREDIT PARTIES

TWO SUB-SECTIONS UNDER BILLS RECEIVABLE SECTION ARE:

COMPUTER CELL: IT DEALS WITH THE EXTERNAL PARTIES

NON-COMPUTER CELL: IT DEALS WITH THE INTERNAL PARTIES

COMPUTER CELL :

INDIAN AIRLINES ISSUES TICKETS AND PROVIDES SERVICES TO CERTAIN "CREDIT

PARTIES" LIKE GOVERNMENT DEPARTMENTS AND BIG BUSINESS HOUSES. IT

RECOVERS THE CREDIT AMOUNT DUE FROM THEM ON MONTHLY BASIS.

THESE PARTIES INITIALLY APPROACH TO THE COMMERCIAL DEPARTMENT FOR THE

AUTHORIZATION. ONCE THE TERMS & CONDITIONS ARE SIGNED A PERMANENT

CREDIT CODE IS ALLOTTED TO THE PARTY. NOW WITH THE AUTHORIZATION LETTER

AND THE CREDIT PARTY CODE INDIAN AIRLINES SERVICES CAN BE AVAILED ON

CREDIT AND THE BILLS ARE SENT TO THE PARTY DIRECTLY.

AUTHORITIES TO AVAIL SERVICES ARE GIVEN FOR A FIXED PERIOD KNOWN AS

"EXTENSION PERIOD". AFTER THE EXTENSION PERIOD, BILLS ARE DRAWN, PAYMENT

IS COLLECTED AND THE PARTIES ARE INTIMATED TO PAY. HOWEVER IF THE PARTY

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FAILS TO CLEAR THE BILLS WITHIN THE STIPULATED TIME PERIOD THE AUTHORITY

IS SUSPENDED.

NON-COMPUTER CELL :

THE NON COMPUTER CELL RECOVERS ANY CREDIT DUE FROM INTERNAL PARTIES,

THAT IS, THE EMPLOYEES. THE COLLECTIONS FROM INTERNAL PARTIES CAN BE ON

ACCOUNT OF THE FOLLOWING:

CREDIT CARGO: IT IS WHEN CONSIGNOR AGREES TO PAY A BOOKING AMOUNT AND

CONSIGNEE IS SUPPOSED TO PAY THE CARGO/FREIGHT CHARGES AT THE

DESTINATION ON POINT OF RECEIVING THE CARGO. THUS, IT IS DUTY OF STATION

MANAGER TO RECOVER SUCH AMOUNT.

ISSUING RECOVERY SECTION: SOMETIMES DUE TO HUMAN ERROR THERE ARE

SHORT COLLECTIONS ON ACCOUNT OF BOOKING AMOUNT ON CARGO OR PACKS AT

THE STATIONS. WHEN THE SCREENING SECTION IDENTIFIES SUCH SHORT

COLLECTIONS IT EITHER ASKS THE EDP OR ITSELF RAISES THE BILL ON STATION.

THE STATION MANAGER FOLLOWS IT UP AND RECOVERS THE AMOUNT.

STAFF CLEARANCE: BILLS RECEIVABLE SECTION ALSO RECOVERS THE PENDING

CLEARANCES FROM THE STAFF. NON COMPUTER CELL MAINTAINS THE RECORDS OF

THE RECOVERY FROM THE EMPLOYEES AND RAISE THE BILLS ON STAFF

ACCORDINGLY WHICH ARE FURTHER DISPATCHED TO THE PAYROLL SECTION SO ASTO BE RECOVERED FROM THE SALARY OF THE EMPLOYEE.

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EXPENDITURE DIVISION

EXPENDITURE DIVISION IS RESPONSIBLE FOR ACCOUNTING FOR THE EXPENSES

MADE IN THE REGION. THIS INCLUDES EXPENSES ON SALARY BILLS, PURCHASE OF

STATIONERY AND ANY OTHER ADMINISTRATIVE EXPENSES. THE DIVISION HOWEVER

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DOES NOT BOOK ANY EXPENDITURE THAT IS RELATED TO THE AIRCRAFT IN ANY

WAY.

BILL PASSING-LOCAL

ALL THE GOODS, PRODUCTS AND EQUIPMENT THAT ARE REQUIRED FOR THE DAY-

TO-DAY OPERATIONS BY THE SUPPORTING DEPARTMENTS ARE PURCHASED IN BULK

TO BE STORED IN ANTICIPATION OF FUTURE REQUIREMENT. THE BILL PASSING-

LOCAL PASSES ALL THE BILLS REGARDING PURCHASES LIKE CENTRALIZED

PURCHASING OF UNIFORM, CATERING, STATIONARY ETC. FOR ALL 5 REGIONS.

THE MAJOR FUNCTIONS OF THIS SECTION ARE:

PURCHASING

DEDUCTIONS

SECURITY DEPOSITS

PURCHASING: THE STORE & PURCHASE SECTION PLACES THE PURCHASE ORDER

FOR EVERY LOCAL PURCHASE (INCLUDING ALL CASH SALES). THREE DOCUMENTS

REQUIRED FOR THE PURCHASE ORDER ARE:

INITIAL PROPOSAL BY VENDOR.

INVOICE BY SELLER.

CONFIRMATION BY RECEIVE & DISPATCH SECTION.

THE PROCEDURE FOR MAKING A PURCHASE IS AS UNDER:

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INDENTATION BY SECTION

STORE & PURCHASE SECTION PLACES THE ORDER

RECEIVE & DISPATCH SECTION RECEIVES THE GOODS

BILL PASSING-LOCAL PASSES THE BILL

THUS THE MAJOR JOB OF THIS SECTION IS TO MAINTAIN RECORDS FOR ALL THE

LOCAL, PURCHASES MADE AND TO PASS THE BILLS CONCERNED. THESE GOODS ARE

FIRST BROUGHT TO DELHI AND THEN DISPATCHED TO ALL 5 REGIONS AS PER THE

REQUIREMENT.

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DEDUCTIONS: ANOTHER IMPORTANT JOB OF BILL PASSING-LOCAL IS TO DEDUCT

TDS FROM THE COMMISSION OR CHARGE PAID TO VENDORS FOR THE LABOR

SERVICES PROVIDED BY THEM. CERTAIN GOODS IN STORES ARE SUCH THAT THEY

POSSES THE INDIAN AIRLINES LOGO ON THEM FOR E.G. STATIONARY, BAGS, TAGS,

FOLDERS, BATCHES ETC. THUS THE INDIAN AIRLINES GETS THOSE GOODS PRINTED

FORM THE VENDORS. GENERALLY INDIAN AIRLINES PROVIDES GOODS TO THE

PRINTERS AND THUS A TDS OF 2.05% IS DEDUCTED FORM THE SERVICE CHARGES

PROVIDED TO THEM BY INDIAN AIRLINES.

SECURITY DEPOSIT: THIS 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 10% AMOUNT OF THE ORDER WITH INDIAN AIRLINES FOR ALL

CATERING PURCHASES. EVEN FOR THE ITEMS FOR PRINTING, THE VENDORS ARE

REQUIRED TO DEPOSIT A SUM EQUIVALENT TO 10% OF THE VALUE TO GOODS OR

MATERIAL ADVANCED TO THEM BY INDIAN AIRLINES.

BILL PASSING-OUTSTATION

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THE NORTHERN REGION OF INDIAN AIRLINES HAS ITS DEALINGS IN 15 OUTSTATION

OF WHICH 14 ARE ONLINE AND 1(BHILLAI) IS OFFLINE. BILL PASSING-OUTSTATION ISTHE CONTROLLING AUTHORITY FOR THESE OUTSTATIONS. THEY ISSUE ADVANCE

IMPREST CHEQUES OF A PREDETERMINED VALUE TO ALL THE STATIONS ON WEEKLY

BASIS. THESE CHEQUES ARE ALWAYS IN NAME OF STATION MANAGER & HE IS THE

DESIGNATED PERSON WHO HAS THE AUTHORITY TO ENCASH IT.

THE PROCEDURE BY WHICH THE VARIOUS STATIONS MEET THEIR EXPENSES IS:

ISSUE OF IMPRESSED CHEQUES

STATION MANAGER GETS IT ENCASHED

MEET ALL THE EXPENSES

SEND MONTHLY EXPENSE STATEMENT TO BILL PASSING-OUTSTATION

CONCERNED ACCOUNTING IS DONE

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ALL THE VOUCHERS SHOULD COME ALONG WITH MONTHLY EXPENDITURESTATEMENT AND STATION MANAGERS SHOULD SIGN ALL THE PETTY CASH

VOUCHERS. OUTSTATIONS CAN ASK FOR THE SPECIAL IMPREST CHEQUES

WHENEVER THERE IS A NEED FOR MEETING EXTRAORDINARY EXPENSES. AT THE

END OF EVERY FINANCIAL YEAR THE BANK SECTION IS SUBJECT TO MAKE A

RECONCILIATION STATEMENT. CLOSING BALANCES WITH THE OUTSTATIONS

SHOULD MATCH THE STATEMENT PREPARED BY BILL PASSING SECTION.

THE MAJOR EXPENSES FOR OUTSTATIONS ARE:

HOTEL BILLS: FOR THE PACKS OFFERED BY INDIAN AIRLINES OR STAY OVER OF

PACKS, CABIN CREW & COCKPIT CREW.

CATERING BILLS: FOR THE CATERING SERVICES PROVIDED ONBOARD BY VARIOUSCATERERS LIKE TAJ CATERERS, SHELF AIR CATERING AND AMBASSADOR ETC.

MEDICAL BILLS: BILLS OF ALL THE MEDICAL FACILITIES PROVIDED TO INDIAN

AIRLINES EMPLOYEES BY HOSPITALS, DOCTORS OR CHEMISTS.

RENT: ALL THE LAND WITH INDIAN AIRLINES IS ON LEASE, THUS A MONTHLY RENT

IS GIVEN TO THE LEASER (OWNER).

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PROVIDENT FUND

THE FACILITY FOR PROVIDENT FUND IS AVAILABLE TO ANY EMPLOYEE ONLY AFTER THE COMPLETION OF ONE COMPLETE YEAR SERVICE. A 9% P.A. RATE OF INTEREST IS

PAYABLE TO EMPLOYEE ON THE AMOUNT IN PROVIDENT FUND. THE AMOUNT OF

PROVIDENT FUND IS CALCULATED AS FOLLOWS:

CONTRIBUTION TO PROVIDENT FUND: 10% OF PROVIDENT FUND SALARY

WHERE PROVIDENT FUND SALARY = BASIC SALARY + VDA + SPECIAL ALLOWANCES

(THERE IS A PROVISION FOR A SPECIAL PAY OR ANY TECHNICAL PAY FOR ENGINEERS

& TECHNICIANS ETC.)

EMPLOYEES HOWEVER HAVE THE OPTION OF WITHDRAWING THE AMOUNT FROM

THEIR PROVIDENT FUND IF EVER REQUIRED. THE PROVIDENT FUND AMOUNT CAN

BE WITHDRAWN IN TWO WAYS:

REPAYABLE WITHDRAWAL: WITHDRAWAL THAT IS TO BE RETURNED BACK WITHIN

A STIPULATED TIME SPAN, EXCEEDING MAXIMUM UP TO A PERIOD OF 33 MONTHS.

AN INTEREST OF 10.5% P.A. IS PAYABLE ON SUCH A WITHDRAWAL ON 6 MONTHS

REDUCING BALANCE

EMPLOYEE CAN WITHDRAW MAXIMUM OF 6 TIMES OF HIS/HER PROVIDENT FUND

SALARY

REFUNDABLE WITHDRAWAL CAN BE AVAILED FOR ANY RELIGIOUS CEREMONY,WHICH AN EMPLOYEE IS INCUMBENT TO PERFORM

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NON-REFUNDABLE WITHDRAWAL: WITHDRAWAL, WHICH NEED NOT BE RETURNED

BY THE EMPLOYEE. AN EMPLOYEE CAN AVAIL SUCH A NON-REFUNDABLEWITHDRAWAL ONLY AFTER 15 YEARS OF SERVICE. IT IS AVAILABLE FOR THE

FOLLOWING PURPOSES:

FOR THE PURPOSE OF MARRIAGE OF SIBLINGS OR ANY FEMALE DEPENDENT

PURCHASE OF LAND, HOUSE ETC

CONSTRUCTION OF HOUSE- PAYABLE IN TWO EQUAL INSTALLMENTS

NON-REFUNDABLE WITHDRAWAL IS PAYABLE AFTER COMPLETION OF 15 YRS

SERVICE OR WITHIN 10 YR BEFORE THE DATE OF RETIREMENT.

INCOME TAX IS CHARGED ON PROVIDENT FUND AMOUNT AS PER THE TAXATION

NORMS EXISTING IN THE COUNTRY FROM TIME TO TIME.

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PAYROLL

THIS SECTION IS RESPONSIBLE FOR MAKING THE SALARY SLIPS OF THE

EMPLOYEES. WHEN A PERSON IS APPOINTED THE PAYROLL SECTION RECEIVES HIS

JOINING LETTER AND THE VARIOUS TERMS AND CONDITIONS ON WHICH HE IS

APPOINTED. THE SECTION ISSUES THE PERSON A STAFF NUMBER. THUS EVERY

EMPLOYEE HAS A STAFF NUMBER AND IS RECOGNIZED BY THAT.

THE SALARY SLIP OF THE PERSON INCLUDES BASIC DATA ABOUT THE EMPLOYEE

LIKE THE STAFF NUMBER, NAME, DESIGNATION CODE, DESIGNATION, STATION

CODE, DEPARTMENT CODE, DATE OF BIRTH (DOB), DATE OF JOINING (DOJ), BANK

ACCOUNT NUMBER.

OTHER THAN THESE DETAILS IT INCLUDES BASIC PAY, DEARNESS ALLOWANCE (DA)

AND OTHER ALLOWANCES. EVEN IF THE GOVERNMENT INCREASES THE DA THE

COMPANY DOES NOT INCREASE IT, UNLESS DECIDED BY THEIR VARIOUS UNIONS.

SOME ALLOWANCES ARE COMMON TO ALL EMPLOYEES WHEREAS SOME VARY

ACCORDING TO THE AGREEMENTS WITH THE PERSON.

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THE NEXT ITEMS IN THE SALARY SLIP ARE THE STATUARY DEDUCTIONS LIKE

PROVIDENT FUND, INCOME TAX AND EMPLOYEE STATE INSURANCE (ESI). SALARY

SLIP ALSO INCLUDES ANNUAL SALARY, TAXABLE SALARY, TAX AND REBATES ETC.

CASH & BANK SECTION

CASH AND BANK SECTION CONTROLS ALL PAYMENT AND RECEIPTS RELATING TO

THE PARTICULARS REGION. BANK BOOK MAINTAINS THE RECORDS OF

DISBURSEMENT ACCOUNTS AT THE OUTSTATIONS. CASH SECTION DEALS WITH AND

MAINTAINS ALL THE RECORDS CONCERNING THE CASH PAYMENTS AND BANK

SECTION PROVIDES THE CONCERNED BANKING TREATMENT. IT RECEIVES AN

ADVANCE SUM OF RS. 1 CRORE 20 LAKHS PER MONTH FROM THE HEAD QUARTERS

TO MEET ALL EXPENSES IN THE REGION.

THEY ARE ENGAGED IN THE FOLLOWING:

PAYMENT OF VOUCHERS: THEY ENTERTAIN AND MAKE PAYMENTS FOR THE

VOUCHERS LIKE TELEPHONE BILLS, ENTERTAINMENT ETC.

SALARY DISTRIBUTION: THE CASH PAYMENT OF PAY SLIPS AND THE

CORRESPONDING ACCOUNTING.

ADVANCES FOR EMPLOYEES: ADVANCING MONEY TO THE EMPLOYEES, RECEIVING

BACK THE LEFT-OUT AMOUNT AND ACCOUNTING THE SAME.

MISCELLANEOUS ITEMS: MAINTAIN TENDERS, CANTEEN SALES, SALE OF SCRAP

ETC.

ANOTHER JOB WITH THE SECTION IS TO HANDLE ALL THE CASH RECEIPTS,

ALTHOUGH BANK SECTION DOES THE CONCERNED ACCOUNTING. CASH SECTION IS

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REQUIRED TO COMPILE A CONCEALED, SUMMARIZED MONTHLY REPORT FOR ALL

THE EXPENDITURE INCURRED BY THE CASH SECTION OR ALL THE CASH PAYMENTS

MADE BY IT. THIS REPORT IS TO BE FORWARDED TO THE "FINANCE AND BUDGET

SECTION" EVERY MONTH. THE RETENTION PERIOD FOR SUCH RECORDS IS ABOUT 5

YEARS.

BILL RAISING & REALIZATION:

INDIAN AIRLINES PROVIDE GROUND HANDLING TO VARIOUS OTHER AIRLINES FOR

WHICH THEY CHARGE THEM. INDIAN AIRLINES HAS ITS OWN INFRASTRUCTURE,

WHICH OTHER SMALL AIRLINES LACK. THUS IT PROVIDES VARIOUS

INFRASTRUCTURE FACILITIES TO OTHER AIRLINES ON A PREDETERMINED CHARGE.

FOR RECOVERING SUCH CHARGES DUE ON OTHER AIRLINES BILL RAISING &

REALIZATION SECTION RAISE BILLS ON SUCH AIRLINES. THUS THE MAIN JOB OF

THE SECTION IS TO RAISE BILLS ON OTHER AIRLINES FOR THE SERVICES PROVIDED

AND MAINTAINING RECORDS FOR THE SAME.

THE BUREAU OF CIVIL AVIATION SECURITY UNDER INDIAN AIRLINES PROVIDES

SECURITY TO OTHER AIRLINES ON CHARGE BASIS FOR WHICH SIMILAR BILLING IS

DONE BY BILL RAISING & REALIZATION SECTION. WHENEVER ANY SERVICE IS

PROVIDED, CORRESPONDING HANDLING FORMS LIKE GROUND HANDLING FORM,

SECURITY HANDLING FORM ETC. ARE TO BE FILLED AND ON BASIS OF THESE

HANDLING FORMS BILLS ARE RAISED ON OTHER AIRLINES.

There are two kinds of parties:

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CASH PARTIES : THESE PARTIES ARE SUPPOSED TO MAKE CASH PAYMENT AT THE

TIME OF HANDLING ONLY, IN REGARD OF THE SERVICE PROVIDED TO THEM BY

INDIAN AIRLINES.

CREDIT PARTIES : THESE PARTIES AVAIL THE HANDLING SERVICES OF INDIAN

AIRLINES ON CREDIT AND TO THEM. THE BILL RAISING & REALIZATION SECTION

RAISES BILLS AND RECEIVES THE AMOUNT FROM THEM THEREAFTER.

ALL THE BILLS TO FOREIGN AIRLINES ARE RAISED AND SETTLED THROUGH IATA

CLEARANCE HOUSE. BILLING FOR ALL PRIVATE VIP FLIGHTS I.E. CHARTERED

FLIGHTS FOR PRESIDENT, PRIME MINISTER, VICE PRESIDENT, IS ALSO DONE BY BILL

RAISING & REALIZATION SECTION. BILLS ARE RAISED TO THE CONCERNED

MINISTRIES AND SETTLEMENT IS DONE THEREAFTER.

INDIAN AIRLINES PROVIDE ALL HANDLING & SECURITY SERVICES TO ALLIANCE AIR,

ITS SUBSIDIARY, FOR WHICH BILL RAISING & REALIZATION SECTION RAISES THE

BILLS ON ALLIANCE AIR. THESE BILLS ARE BOOKED UNDER THE HEAD "HANDLING

RECEIPT". THE REVENUE EARNED BY HANDLING IS BOOKED IN BALANCE SHEET

UNDER THE HEAD "NON-OPERATING REVENUE".

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FINANCE & BUDGET

FINANCE &BUDGET SECTION IS RESPONSIBLE FOR MAINTAINING THE JOURNAL,

SUBSIDIARY BOOKS AND GENERAL LEDGER FOR FACILITATING RECONCILIATION OF

THE INTER-REGION ACCOUNTS, MAINTAINING A RECORD OF ASSETS, PROVIDING

DEPRECATION THEREON AND KEEPING RECORD OF DEPOSITS REVIVED FROM

CONTRACTOR AND SUPPLIER ETC. THE SECTION ALSO COMPILES BUDGET

ESTIMATES AND ANNUAL ACCOUNTS RELATING TO THE REGION, WHICH ARE

SUBMITTED TO THE HEAD QUARTERS.

VALUATION OF THEIR UPCOMING IPO

IPO MEANS THE FIRST TIME THAT COMPANY IS GOING TO PUBLIC TO RAISE FUNDS.

IT IS VERY COMMON TO SEE THAT THE COMPANY WHICH IS GOING TO RAISE FUNDS

THROUGH PUBLIC IS NOT LISTED ON ANY EXCHANGE SO VALUATION CAN ONLY

PROVIDE THE COMPANY WITH THE FAIR VALUE THAT AT WHAT PRICE OFFER

SHOULD BE MADE AND FROM PUBLIC POINT ON VIEW IT IS NECESSARY FOR THEM

TO CHECK THAT WHAT PRICE SHOULD THEY SUBSCRIBE FOR THAT ISSUE.

INDIAN AIRLINES IS PLANNING TO PURCHASE 43 NEW AIRCRAFTS FOR REPLACING

THE OLD PLANES FOR WHICH THEY NEED FUNDS OF ABOUT 10,000 CRORE RUPEES.

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FOR RAISING THIS FUND THEY R PLANNING TO BRING IN THEIR IPO. HERE WE HAVE

TRIED TO VALUE THEIR COMPANY FOR GETTING THE AMOUNT AT WHICH THE

SHARES SHOULD BE ISSUED. THEY ARE GOING TO RECEIVE THESE PLANES FROM

SEPTEMBER 2006. THE PLAN IS TO RECEIVE ONE PLANE EACH MONTH AND

ACCORDINGLY THEIR PAYMENTS ARE DONE ON THIS BASIS.

IN THIS CHAPTER WE HAVE TRIED TO VALUE THE IPOS OF INDIAN AIRLINES BY

FOUR DIFFERENT METHODS. WE ARE WORKING ON CERTAIN ASSUMPTIONS FOR

THIS VALUATION WHICH ARE GIVEN BELOW.

ASSUMPTIONS MADE FOR VALUATION:

ALL THE FUNDS REQUIRED ARE RAISED BY TWO SOURCES I.E. 50% IS RAISED

THROUGH DEBT CAPITAL AND REST 50% IS RAISED THROUGH EQUITY THROUGH

THIS IPO.

CAPITAL EXPENDITURE ON THESE PLANES IS ALSO TAKEN AS AND WHEN WE

RECEIVE THE PLANE WHICH IS STARTING FROM SEPT. 2006.

AS BEING A GOVERNMENT COMPANY ALL THE FINANCIAL STATEMENTS ARE NOT

AVAILABLE TO US AS ALL THE STATEMENTS NEED APPROVAL OF THE PARLIAMENT

BEFORE GETTING PUBLISHED. OUR VALUATION IS DONE ON THE BASIS OF OLD

STATEMENTS AVAILABLE AND THE PRIMARY INFORMATION WE WERE ABLE TO

GATHER FROM THE SENIOR STAFF MEMBERS. AND ACCORDINGLY WE HAVE

ESTIMATED THE VALUES FOR FINANCIAL YEAR 2005-06 WHICH ARE USED IN OUR

VALUATION.

VALUATION METHODS USED:

FCFF GENERAL METHOD

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BALANCE SHEET METHOD

RELATIVE VALUATION METHODS

I) VALUATION OF INDAIN AIRLINES WITH FCFF(GEN.) MODEL

FCFF MEAN FREE CASH FLOW TO FIRM, THIS METHOD IS USED WHERE FIRMS FREE

CASH FLOW CAN BE CALCULATED. THIS METHOD IS BASED ON THE EARNINGS OF

THE FIRM. HERE WE TRY TO ESTIMATE THE FUTURE EARNINGS OF THE FIRM AND

THEN CALCULATE ITS PRESENT VALUE ON BASIS OF THE MARKET DISCOUNT RATE.IT HELPS US TO KNOW THE FUNDS AVAILABILITY OF FIRM. WE HAVE USED THIS

MODEL BECAUSE INDIAN AIRLINES IS PRESENTLY IS AT GROWTH STAGE. EARLIER IT

WAS A LOSS MAKING COMPANY BUT FROM LAST THREE YEARS IS EARNING PROFIT

WITH A GROWTH IN ITS EARNING RATE, AND NOW WITH NEW INVESTMENTS PLANS

ITS GROWTH IS GOING TO INCREASE. INITIALLY IT IS INVESTING HEAVILY IN NEW

PLANES AND THEN IN FUTURE THEY WILL GENERATE HEAVY INFLOWS AS THIS WILL

HELP THEM TO DECREASE THEIR OPERATING EXPENSES AS ON MAINTENANCE AND

WILL ALSO HELP TO ATTRACT NEW CUSTOMERS. SO RIGHT NOW ALL ITS CAPITAL

EXPENDITURE, REVENUE GROWTH, TAX STRUCTURE, WORKING CAPITAL

REQUIREMENT ARE HIGHLY VOLATILE.

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II) VALUATION OF INDAIN AIRLINES WITH BALANCE SHEET MODEL:

BALANCE SHEET METHOD IS A METHOD USED TO VALUE A FIRM ACCORDING TO THE

MARKET PRICES. MOSTLY WHENEVER A BALANCE SHEET IS MADE ALL THE ASSETS

ARE VALUED ON THEIR PURCHASE PRICE BUT THAT DOES NOT DEPICT THEIR TRUE

VALUE IN THE MARKET. MOST OF THE ASSETS LIKE LAND, BUILDING HAVE MUSH

HIGHER VALUE NOW IN MARKET COMPARE TO AT WHAT VALUE THEY ARE SHOWN IN

THE BOOKS. THEREFORE TO VALUE ANY FIRM WE NEED TO ESTIMATE THEIR ASSETS

MARKET VALUE. THIS METHOD IS VERY MUCH SUITABLE IN INDIAN AIRLINES ASMOST OF ITS ASSETS ARE PURCHASED BACK IN FUTURE AND NOW CAN BE SOLD IN

MARKET AT MUCH HIGHER PRICES. SO TO KNOW THE EXACT VALUE OF FIRM IT IS

VERY ESSENTIAL TO CONVERT THESE BOOK VALUES INTO THEIR PRESENT MARKET

VALUE WHICH WE HAVE TRIED TO DONE IN THIS METHOD. ALL ASSETS AVAILABLE

WITH THE FIRM ARE CONVERTED IN THEIR MARKET VALUE BASED ON CERTAIN

ASSUMPTIONS, THEIR INCREASE IN VALUE AND TIME OF PURCHASE AND THEN WE

HAVE CLUBBED THEM ACCORDING TO THE HEADS UNDER BALANCE SHEET. THIS

METHOD HELPS US TO GIVE THE EXACT VALUE OF EQUITY OF THE FIRM.

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IATA AND BSP

IATA IS AN INTERNATIONAL TRADE BODY, CREATED SOME 60 YEARS AGO BY A

GROUP OF AIRLINES. TODAY, IATA REPRESENTS SOME 230 AIRLINES COMPRISING 93%

OF SCHEDULED INTERNATIONAL AIR TRAFFIC. THE ORGANIZATION ALSO

REPRESENTS, LEADS AND SERVES THE AIRLINE INDUSTRY IN GENERAL.

HISTORY

INTRODUCTION

IATA - THE INTERNATIONAL AIR TRANSPORT ASSOCIATION - WAS FOUNDED IN

HAVANA, CUBA, IN APRIL 1945. IT IS THE PRIME VEHICLE FOR INTER-AIRLINE

COOPERATION IN PROMOTING SAFE, RELIABLE, SECURE AND ECONOMICAL AIR

SERVICES - FOR THE BENEFIT OF THE WORLD'S CONSUMERS. THE INTERNATIONALSCHEDULED AIR TRANSPORT INDUSTRY IS NOW MORE THAN 100 TIMES LARGER

THAN IT WAS IN 1945. FEW INDUSTRIES CAN MATCH THE DYNAMISM OF THAT

GROWTH, WHICH WOULD HAVE BEEN MUCH LESS SPECTACULAR WITHOUT THE

STANDARDS, PRACTICES AND PROCEDURES DEVELOPED WITHIN IATA.

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AT ITS FOUNDING, IATA HAD 57 MEMBERS FROM 31 NATIONS, MOSTLY IN EUROPE

AND NORTH AMERICA. TODAY IT HAS SOME 230 MEMBERS FROM 126 NATIONS IN

EVERY PART OF THE GLOBE.

THE MODERN IATA IS THE SUCCESSOR TO THE INTERNATIONAL AIR TRAFFIC

ASSOCIATION FOUNDED IN THE HAGUE IN 1919 - THE YEAR OF THE WORLD'S FIRST

INTERNATIONAL

AIRLINE AND AIRCRAFT OPERATIONS

IATA IDENTIFIES AND DEVELOPS SOLUTIONS FOR ALL AREAS AFFECTING

AIRCRAFTS AND AILINES, EITHER ON GROUND OR IN FLIGHT. THIS INCLUDES

ANALYSIS OF FLIGHT OPERATIONS DATA, QUALITY ASSURANCE MATTERS AND

MAINTENANCE OF THE AIRLINE OPERATIONAL INFORMATION EXCHANGE.

KEY OPERATIONAL ISSUES BEING ADDRESSED BY IATA:

ORGANIZATIONAL STRUCTURES AND PROCESSES

COST REDUCTION INITIATIVES

FLIGHT OPERATIONS MANAGEMENT

FUEL EFFICIENCY

OUR MISSION IS TO:

PROMOTE THE GLOBAL HARMONIZATION OF AIRCRAFT EQUIPMENT.

IDENTIFY AND MITIGATE PRIORITY OPERATIONAL COST ISSUES.

IDENTIFY REDUCTION OPPORTUNITIES IN FUEL CONSUMPTION.

REDUCE CONCERNS FOR ENVIRONMENTAL EMISSIONS.

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BILLING AND SETTLEMENT PLAN (BSP)

BSP IS A SYSTEM DESIGNED TO FACILITATE AND SIMPLIFY THE SELLING, REPORTING

AND REMITTING PROCEDURES OF IATA ACCREDITED PASSENGER SALES AGENTS, AS

WELL AS IMPROVE FINANCIAL CONTROL AND CASH FLOW FOR BSP AIRLINES.

A TRULY WORLDWIDE SYSTEM FACILITATING THE SETTLEMENT OPERATIONS FOR

AIRLINES AND AGENTS, BSP OPERATES IN SOME 160 COUNTRIES AND TERRITORIES.

OVER 80% OF WORLDWIDE AIRLINE REVENUES ARE TICKETED VIA IATA TRAVEL

AGENCIES IN THE BSP SYSTEM.

BENEFITS OF A BSP

SIMPLIFICATION:

AGENTS ISSUE ONE SALES REPORT AND REMIT ONE AMOUNT TO A CENTRAL POINT

AIRLINES RECEIVE ONE SETTLEMENT COVERING ALL AGENTS

NEUTRAL STANDARD TRAFFIC DOCUMENTS (STDS) REPLACE DEDICATED AIRLINE

TICKET STOCKS

AGENTS SALES ARE REPORTED ELECTRONICALLY.

SAVINGS:

LESS RESOURCES REQUIRED FOR BILLING AND COLLECTION

REDUCED PRINTING FOR BOTH AIRLINES AND AGENTS WITH THE USE OF NEUTRAL

STDS AND STANDARD ADMINISTRATIVE FORMS

ELECTRONIC DISTRIBUTION OF BILLING REPORTS, AND GENERATION OF

DEBIT/CREDIT MEMOS (ADMS/ACMS) VIA BSPLINK .

ENHANCED CONTROL:

INCREASED FINANCIAL CONTROL THANKS TO CENTRALISATION AND GROUPING

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STORAGE, DISTRIBUTION, ISSUANCE AND REPORTING OF STDS UNDER BSP

CONTROL CONSOLIDATED DOCUMENT FLOW, PERMITTING ACCELERATED QUALITY

CONTROLS OVERALL PROCESS MONITORING BY A NEUTRAL BO

RECOMMENDATIONS:

AS SUCH THE COMPANY IS PLANNING TO BRING NEW PLANS TO REPLACE THE OLD

ONES, BUT ALL OLD PLANES ARE NOT ON LEASE SOME OF THEM ARE OWNED BY

THE FIRM TOO. SO IT HAS TWO OPTIONS NOW AVAILABLE THAT WHAT THEY CAN DO

WITH THESE PLANES. EITHER IT CAN SELL THEM IN OPEN MARKET WHICH WILL

HELP THEM TO RAISE FUNDS OR OTHER OPTION IS TO USE THEM FOR ANY OTHER

PURPOSE.

AS PER THE FIRST OPTION WE ALL KNOW THESE PLANES ARE VERY OLD PLANES

AND CANT FETCH MORE THAN THEIR SCRAP VALUE SO IT IS ADVISABLE TO GO FOR

THE SECOND OPTION.

AS PER THE SECOND OPTION THEY CAN FIND ANY OTHER USE FOR THESE PLANES.

THE BEST POSSIBLE USE WHAT WE CONSIDERED TO BE THE BEST IS TO USE THEM

FOR CARGO PURPOSE. AS WE SEE THEY INDUSTRY THE CARGO INDUSTRY IS FACING

A GREAT BOOM AND DEMAND FOR CARGO IS ALSO INCREASING. THE FIRM

ALREADY HAS ALL AVAILABLE RESOURCES ANT THERE WOULD BE NO EXTRA COST

IN OPERATING SUCH A FIRM. WHAT ALL IS REQUIRED IS FETCH ORDERS AND THIS IS

POSSIBLE FOR INDIAN AIRLINES AS THEY CAN EASILY ASK THEIR EXISTING CLIENTS

FOR IT AND ALSO AS NO EXTRA COST IS INVOLVED THEY CAN OFFER THIS SERVICE

AT A REASONABLE RATE AND ATTRACT MORE CLIENTS, ALSO THE POINT THAT

MANAGING CARGO PLANES THEN PASSENGER PLANES IS MORE EASY AND CHEAPFAVORS THIS OPTION MORE.

ALSO, WE CAN SEE FROM THE FIGURE THAT GOING INTO A CARGO BUSINESS IS NOT

AT ALL HARMFUL. IN PASSENGER FLIGHTS SAY FOR EXAMPLE IF WE TALK ABOUT A

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FLIGHT FROM DELHI TO BOMBAY THE APPROXIMATE CHARGES ARE RS. 3000 PER

PERSON. TAKE THE WEIGHT OF THE PERSON IS AROUND 60 KG AND HE CAN ALSO

CARRY A WEIGHT IF 20KG. WITH HIM. SO NOW WE GAT THAT CARING 80 KG FROM

DELHI TO BOMBAY WILL MAKE A COMPANY EARN RS. 3000 WHICH IS

APPROXIMATELY SAY RS. 40 PER KG BUT WHEN WE TALK ABOUT CARGO FOR THE

SAME DISTANCE NORMALLY THE CHARGES ARE RS. 250 PER KG. I.E. WE CAN EARN A

LOT AND THIS WILL HELP US IN INCREASING COMPANIES PROFIT MANY FOLDS.

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CONCLUSION:

ACCORDING TO ME AND MY UNDERSTANDING THE SECOND OPTION IS BEST

POSSIBLE FOR THE COMPANY AS IT WILL NOT ONLY HELP IN INCREASING THE

EARNINGS OF THE FIRM WHICH IN RETURN WILL ALSO HELP IN INCREASING THE

SHAREHOLDERS WEALTH WHICH IS THE ULTIMATE AIM OF ANY COMPANY. AS SUCH

THE COMPANY HAS BEEN VALUED WITH THREE DIFFERENT METHODS AND FOR

DECIDING ON THE BEST PRICE THE COMPANY CAN CHOOSE ANY ONE OF THESE

METHODS OR CAN TAKE AVERAGE OF ANY COMBINATION OF METHODS.

Documents

Indian Airlines - Finance System Study and Valuation of Thei