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TRANSCRIPT
AIESL
AIR INDIA ENGINEERING
SERVICES LIMITED
AIESL
CONTENTS
Page No.
1. Board of Directors 1
2. Directors’ Report 2
3. Comments of the Comptroller & Auditor General of India 16
4. Independent Auditors’ Report 18
5. Balance Sheet as at 31 March 2015 40
6. Statement of Profit & Loss for the year ended 31 March 2015 41
7. Cash Flow Statement 42
8. Notes forming part of the Financial Statements for the year ended 31 March 2015 43
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1
BOARD OF DIRECTORS (as on 28 DECEMBER 2015)
Shri Ashwani Lohani Chairman
Shri Vinod Hejmadi Director
Smt. Gargi Kaul Director
Shri B S Bhullar Director
Chief Executive Officer
Shri H.R. Jagannath
Auditors
M/s. Jhawar Mantri & Associates
Chartered Accountants
Registered Office
Airlines House
113 Gurudwara Rakabganj Road
New Delhi 110 001
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DIRECTORS' REPORT
The Directors take pleasure in presenting the Eleventh Annual Report of the Company, together with the Audited Accounts, Auditors' Report and Comments by the Comptroller and Auditor General of India, for the year ended 31st March, 2015.
OPERATIONALISATION:
The Board of Directors of Air India Limited, the parent company, at its Meeting held on 7 August 2010 approved operationalisation of Air India Engineering Services Limited. Cabinet Note for operationalisation was submitted to the Ministry of Civil Aviation. Cabinet had approved operationalisation of AIESL on 6 September 2012. It was proposed that the assets and manpower from Air India Limited will be transferred to Air India Engineering Services Limited as per the decision of the Cabinet. The Company will be treated as a separate profit centre for carrying out the Maintenance, Repair and Overhaul (MRO) activities of Airbus and Boeing fleet. The process of
stoperationalisation has accordingly started w.e.f. 1 February, 2013. Further, steps have been initiated to obtain/fulfil various Regulatory and Statutory approvals/compliances in order to start MRO activities. The company got DGCA approval CAR 145 effective January 2015.
During the year 2013-14, the company (AIESL) had entered into a Memorandum of Understanding (MoU) with its parent company viz. Air India Ltd. (AI) regarding the services to be provided on maintenance and repair and overhaul facilities to Air India. The MoU inter-alia also includes the following:-
1. AI has decided to transfer its MRO business (including infrastructure) to AIESL.
2. AIESL shall obtain all necessary approvals / licenses etc. from all concerned statutory and regulatory authorities / agencies including DGCA of India to carry out & perform MRO activities.
3. AI shall provide AIESL a total equity of Rs. 375 Cr. during first three years and support required for Capital expenditure to the extent of Rs.974 crores till FY 2017.
4. AI shall transfer all its movable assets pertaining to MRO and the value of movable assets to be transferred by AI to AIESL to constitute & form part of the initial equity / investment in AIESL.
5. AIESL to share 20% of its labour revenue from third parties from the fourth year of operations or as mutually agreed.
An MoU has also been entered into with Airline Allied Services Ltd. (AASL), a wholly owned subsidiary of AIL, wherein AASL has decided to transfer its MRO activities (including infrastructure) to AIESL and AASL agreed to commit its fleet in entirety for all MRO work to AIESL.
Similarly, an MoU has also been entered into during 2014-15 with Air India Charters Ltd. (AICL), a wholly owned subsidiary of AIL, wherein AICL has decided to transfer its MRO activities (including infrastructure) to AIESL and AICL agrees to commit its fleet in entirety for all MRO work to AIESL.
As such, AIESL shall be having committed business from Air India group along with infrastructure and other st
support. The company as of 1 January, 2015 as also obtained DGCA certificate for the repair and overhaul of its facilities. Certificate of facilities for EASA and FAA would be procured shortly.
MRO FACILITY AT NAGPUR
As a part of commitment in the Purchase Agreement for fleet of 68 aircraft comprising 18 B737s, 23 B777s and 27 B787s with Air India Ltd., Boeing has invested about USD 107 million towards the MRO facility including certain Equipment/Tooling required for Aircraft Maintenance and associated Overhaul Shops for maintenance of aircraft and components. Additional investment of at least USD 10 Million is being made by Air India Ltd. to make the facility functional.
The construction work commenced in March 2011 and the facility has been commenced and handed over to AI in December, 2014.
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The facility consists of two wide body Hangars (100mx100m each), Support Building (approx. 24000 sq. m), Ground Support Equipment building and other Miscellaneous buildings. Initially the proposal is to take up the task of B777 major check(C Check) along with certain back shop activities like Cabin Survival Equipment/ Compressed Gas Oxygen Shop.
The hangars are of international standard meeting NFPA 409 Fire standards (National Fire Protection Association) and equipped with facilities such as mechanised sliding door, underground utility pits, aircraft cabin cooling, hangar ventilation, Building Management System (BMS) etc.
There are other peripheral amenities like rain water harvesting, effluent treatment plant, solar water heaters/street lights that contribute towards green initiatives.
The necessary manpower to run the Nagpur facility has already been identified & transferred.
AIESL will get right of use to these hangars in order to service the fleet of AI & third parties.
Recently, the Nagpur MRO was approved for carrying out up to 'D' Check of B777 aircraft. All the major maintenance work of B777 aircraft shifted from January, 2016 to Nagpur. The process for seeking approval for A320 family aircraft has also been initiated.
SETTING UP OF GEnx / GE90 ENGINE OVERHAUL AND TESTING FACILITY
In order to supplement this MRO Facility at Mihan SEZ, Nagpur, Air India Ltd. has decided to set up an Engine Overhaul Facility for GEnx-1B Engine (powering B 787) and GE90 Engine (powering B 777), at an estimated cost of USD 89 Million.
The Project will comprise following 3 stages:
I Setting up GE90 Engine Testing Facility (Expected completion - May, 2016)
II Upgrade of above I for testing GEnx Engines. (Expected completion -February, 2017)
III Setting up GEnx / GE90 Engine Overhaul Workshop (Expected completion – December, 2017)
Approx. USD 64.5 Million will be provided by GE Aviation as MRO Credit Allowance, as per the agreements signed with Air India Ltd., towards setting up of GEnx Engine Overhaul Facility·
AIESL will get the right of use of these facilities.
Shamshabad – Hyderabad MRO
The MRO at Hyderabad was operationalised in May, 2015. Regular Checks of A319 and A320 aircraft of Air India are being carried out at this facility.
FINANCIAL PERFORMANCE:
The engineering activities of AI were hived off to the company as per the Cabinet approved TAP / FRP of AI and a MoU was executed for such hive-off indicating therein various supports from AI. In terms of the MoU, the parent company viz. AI shall transfer the movable assets (Workshop, Plant & Machinery and Tools etc.) to the company at its written down value (WDV) which shall form & constitute equity investment by AI. As per the MoU, the Company expects to receive Equity from AI to the extent of Rs 375 Crs. in the first three years of its operation in order to support its Capital acquisition program.
stDuring the financial year 2014-15, the company got the DGCA approval CAR 145 as an MRO effective 1 January, 2015, movable engineering assets were transferred from AI at the beginning of the financial year besides the payroll of engineering personnel was transferred w.e.f. October, 2014 from AI.
The Share application money (deemed) of Rs. 166.62 Crs. is from AI on account of the assets transferred at its WDV to AIESL during the year.
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The company made concerted efforts and spent on the infrastructure facilities, overheads and the manpower cost for its capabilities to acquire the DGCA approval CAR145. Based on the opinion from the Tax Consultants, an expenditure of Rs. 271.38 Crs. incurred for practically making ready the MRO Set up for obtaining DGCA License for its planned activities / work considered as directly attributable to DGCA License for future economic benefits has been capitalized as Intangible Assets.
The company incurred a Net Loss after Tax has been Rs. 242.57 crores for the year 2014-15 i.e. the initial year of start of its commercial activities.
The MRO is a Capital Intensive industry with high competitive environment with low returns and there is a long payback / cost absorption period in view of the fixed overheads on infrastructure facilities and high wage costs due to licensed manpower. Besides this, the Company has to depend on internally generated AI's business for substantial portion of its Revenue. However, with the expected growth in third party business and the incentives expected from GOI for the MRO industry, it is anticipated that AIESL will be operationally profitable in next few years.
OTHER FINANCIAL INFORMATION:
Share Capital :
The Authorised Share Capital of the Company is Rs.10,00,00,000/-. The entire Paid-up Share Capital of the Company, amounting to Rs.5,00,000/- (50000 Equity Shares of Rs.10/- each) has been subscribed and paid-up by Air India Limited. The company has increased during the year 2015-16 its authorized share capital from Rs. 10 Crores to Rs. 1000 Crores to enable the company to issue shares for transfer of engineering assets from Air India.
Share Application Money from Air India Ltd.
In terms of the MoU executed, Air India shall transfer its movable assets (engineering - Workshop equipment, Plant & Machinery and Tools) at written down value (WDV) to the company and the WDV of such asset transfer shall constitute & form part of the initial equity / investment in the company by AI. Accordingly, the amount of Rs. 166.62 Cr. has been shown under this head representing the cost (WDV) of assets transferred.
Market
Q CAPA (Centre for Asia Pacific Aviation) projects Indian MRO Market to reach USD 2 billion by 2020 from approximately US$800 million today.
Q India's scheduled airlines are expected to operate more than 1000 aircraft by 2020, up from 400 today.
Q Target customers are both from India and outside with in flying distance of 5 hours
Q It is prudent to tap the MRO market with the highly skilled manpower, vast infrastructure & wide spread network.
AIESL Initiatives
Q AIESL is aggressively pursuing its objective to establish itself as leading MRO in the region.
Q Several initiatives taken to strengthen Line Maintenance, Base Maintenance, Cabin Maintenance to provide better service to Air India to improve Aircraft Availability, OTP and Cabin ambience.
Q Some of the major initiatives by AIESL:
Q Obtained CAR 145 Approval to Operate as MRO w.e.f. 01 Jan, 2015
Q Worked to obtain Design Service Goal extension from Airbus to enhance the life of classic A320 aircraft by 3500 FH
Q Transferring All Contracts , FAA, EASA Approvals in the name of AIESL
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Q Dedicated marketing team formed to capture third party business. Process of hiring Management consultant is underway
Q 11 profit Centers have been identified. They are:
DEL-1 (Line & Major), DEL-2 (Engines) ,DEL-3 (Components)
BOM-1 (Line & Major WB), BOM-2 (Engines), BOM-3 (Components), NEC BOM (Line & Major NB)
CCU-1 (Line & Major NB)
HYD (Whole SR)
NAG MRO & TRV MRO
Q DGCA Approval of CAR 147 to operate as Aviation Maintenance Training Organisation – The approval granted by DGCA effective 16 Sept., 2015.
Q AIESL has training facilities at Delhi, Mumbai, Kolkata, Hyderabad and Thiruvananthapuram.
Action Plan
Q AIESL intends to give top class MRO service to its customers
Q Dedicated Cabin maintenance Team
Q Dedicated Tools Van setup – On the lines of International MROs (Tyre pressure, Fuel Drain)
FAA / EASA (Federal Aviation Administration / European Aviation Safety Agency) Approvals:
Q FAA / EASA approved Jet Engine overhaul shops at Delhi and Mumbai
Q FAA approved Component overhaul shops at Delhi and Mumbai
Q FAA approval for Mumbai hangar for B777 aircraft obtained
Q FAA approval Nagpur hangar expected shortly for B777 aircraft (as extention to Mumbai).
Q EASA approval for Component Overhaul Shops at Delhi & Mumbai obtained
Future Plans
Q To capture business of all airlines within flying distance of 5 hrs.
Q Completion of GEnx / GE90 Testing & Overhaul Facility
Q Third Party jobs at Jet Shops at DEL and BOM
Q Third Party handling for Overhaul Shops
Q ATEC (Automatic Test Equipment Complex)
DIRECTORS' RESPONSIBILITY STATEMENT:
The Board of Directors of the Company confirm:-
1. that in the preparation of the Annual Accounts, the applicable accounting standards have been followed and there has been no material departure.
2. that the selected accounting policies were applied consistently and the Directors made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 March 2015 and of the profit or loss of the Company for the year ended on that date.
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3. that proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities, and
4. that the annual accounts have been prepared according to the going concern basis.
5. Company being unlisted sub clause (e) of section 134(3) is not applicable.
6. The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
STATUTORY AUDITOR REPORT
M/s. Jhawar Mantri & Associates, Chartered Accountants, Mumbai, were appointed as Statutory Auditors for the year 2014-15 by the Comptroller & Auditor General of India.
stThe Statutory Auditors' Report on the Accounts of the Company for the Financial Year ended 31 March, 2015 along with observations/ Management's Replies thereon is attached.
COMMENTS OF THE CONTROLLER & AUDITOR GENERAL
The Comments of CAG dated 30-05-2016, were received pursuant to Section 143 (6) (b) of Companies Act 2013. The comments along with Management Reply thereon are attached.
CHANGE IN NATURE OF BUSINESS
There is no change in nature of business of the company.
DIVIDEND
The directors are not recommending any dividend as the company has not earned any profits.
AMOUNTS TRANSFERRED TO RESERVES
The Board of the company has decided/proposed to carry no amount to its reserves.
CHANGES IN SHARE CAPITAL, IF ANY
During the Financial Year 2014-15, there is no change in share capital of the Company.
INFORMATION ABOUT SUBSIDIARY/ JV/ ASSOCIATE COMPANY
Company does not have any Subsidiary, Joint venture or Associate Company.
TRANSFER OF UNCLAIMED DIVIDEND TO INVESTOR EDUCATION AND PROTECTION FUND
Since there was no unpaid/unclaimed Dividend declared and paid last year, the provisions of Section 125 of the Companies Act, 2013 do not apply.
MATERIAL CHANGES AND COMMITMENTS
The particulars as required under the provisions of Section 134(3)(l), following changes have occurred which have affected the financial position of the company occurred between 31st March 2015 and the date of Board's Report.
“Authorised Share capital of the company has been increased from Rs. 10 Crores to Rs. 1000 Crores.”
MEETINGS OF THE BOARD OF DIRECTORS
During the Financial Year 2014-15, the Company held Four meetings of the Board of Directors as per Section 173 of Companies Act, 2013 which is summarized below. The provisions of Companies Act, 2013 was adhered to while considering the time gap between two meetings.
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S No. Date of Meeting Board Strength No. of Directors Present
1 09.07.2014 4 4
2 05.11.2014 4 3
3 26.11.2014 4 4
4 31.03.2015 3 3
DIRECTORS AND KMP
The following changes a have occurred in the constitution of directors of the company:
S.No Name Designation Date of appointment Date of cessation
1. Shri Rohit Nandan Chairman 13/09/2011 31/08/2015
2. Shri G Asok Kumar Director 11/02/2014 23/04/2014
3. Ms. M Sathiyavathy Director 26/02/2014 11/02/2015
4. Shri Arun Kumar Director 23/04/2014 01/01/2015
5. Shri S Venkat Director 27/12/2013 31/10/2015
6. Shri B S Bhullar Director 03/02/2015
EXTRACT OF ANNUAL RETURN
In compliance with the provisions of Section 92(3) of the Companies Act, 2013 read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, extract of Annual Return is annexed at Annexure-I.
STATEMENT SHOWING DETAILS OF EMPLOYEES
Section 197 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 in respect of employees of the Company is not applicable to Government Companies Vide Notification No. G.S.R.463(E) Dated 5th June, 2015.
INDEPENDENT DIRECTORS AND DECLARATION
AIESL is a wholly owned Subsidiary of Air India Limited. As per the provisions of 97 Article of the Articles of Association of the Company, the number of Directors of the Company shall not be less than three and not more than fifteen all of whom shall be appointed by Air India Limited, who will prescribe the period for which they will hold office as director and may remove them and appoint others in their places and fill in any vacancy that may occur.
Accordingly, the matter regarding appointment of Independent Directors on the Board of AIESL has been taken up by Air India Limited with the Ministry of Civil Aviation, Government of India.
NOMINATION REMUNERATION AND STAKEHOLDERS RELATIONSHIP COMMITTEE
As required under section 178, the Nomination and Remuneration Committee should consist of 3 or more Non Executive Directors out of which not less than one half should be Independent Directors.
Presently there is no Independent Director on the Board of AIESL and the matter has been taken up with the Ministry of Civil Aviation by Air India Limited.
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REMUNERATION POLICY
Remuneration to Executive Directors and Non Executive Directors:
Section 197 in respect of remuneration to directors of the Company is not applicable to Government Companies Vide Notification No.G.S.R.463(E) Dated 5th June, 2015
AUDIT COMMITTEE
The provisions of Section 177 of Companies Act, 2013 are not applicable on the Company. Therefore, the Audit Committee was not constituted during the year.
VIGIL MECHANISM
Section 177(9) relating to establishment of Vigil Mechanism for directors and employees to report a genuine concern is not applicable to the Company.
However, there is a separate Vigilance Department in Air India Ltd, Holding Company, which covers AIESL also.
ORDER OF COURT
No significant and material orders have been passed by the regulators or courts or Tribunals impacting the going concern status and company's operation in future during the year.
DETAILS OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS
The system for adequacy of Internal Financial Controls with reference to the Financial Statements is yet to be established as the company has been operationalised recently.
BOARD OF DIRECTORS:
stDuring the year, the Board of Directors held four meetings. As on 31 March 2015, the Board consisted of the following Members:-
Shri Rohit Nandan ChairmanChairman & Managing DirectorAir India Limited
Shri B. S. Bhullar DirectorJoint SecretaryMinistry of Civil Aviation
Shri S. Venkat DirectorDirector (Finance)Air India Limited
ACKNOWLEDGEMENTS:
The Board sincerely acknowledges the support and guidance received from the, Ministry of Civil Aviation, Comptroller and Auditor General of India, Ministry of Corporate Affairs and other agencies.
For & on behalf of the Board
(ASHWANI LOHANI)
CHAIRMANPlace : New DelhiDate : 19 June 2016
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Annexure to Directors' Report for the year 2014-15 Annexure
FORM NO. MGT 9 EXTRACT OF ANNUAL RETURN
As on financial year ended on 31.03.2015 Pursuant to Section 92 (3) of the Companies Act, 2013 and rule 12(1) of the Companies
(Management & Administration) Rules, 2014.
I. REGISTRATION & OTHER DETAILS:
II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY (All the business activities contributing 10 % or more of the total turnover of the company shall be stated) -
1.
CIN U74210DL2004GOI125114
2.
Registration Date 11/03/2004
3.
Name of the Company AIR-INDIA ENGINEERING SERVICES LIMITED (AIESL)
4. Category/Sub category of the Company
Company Limited by shares/Union Government Company
5. Address of the Registered office & contact details
AIRLINES HOUSE, 113 GURUDWARA RAKABGANJ ROA
No
D, NEW DELHI –110001, Ph.No : 011-.23422109
6 Whether listed company
7. Name, Address & contact details of the Registrar & Transfer Agent, if any.
N.A.
Sr No
Name and Description of main products / services NIC Code
of
the Product/
service
% to total
turnover of the
company
1
Technical Handling, MRO and other Services
9987
100%
III.
PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANY:
Sr. No.
Name and Address of the Company
CIN/GIN
Holding / Subsidiary / Associate
% of
Shares Applicable
Section
1
Air India Limited
113, Airlines House, Gurudwara Rakabganj Road, New Delhi, 110 001.
U62200DL2007GOI161431
Holding
100%
2 (46)
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IV. SHARE HOLDING PATTERN (Equity Share Capital Breakup as percentage of Total Equity) : Category-wise Share Holding
Category of Shareholders
No. of Shares held at the
beginning of the year
[As on 01-04-2014]
No. of Shares held at the end of the year [As on 31-03-2015]
% Change during
the year
Demat
Physical During
the year
% of Total
Shares Demat Physical Total
% of Total
Shares
A. Promoters
(1) Indian
a)
Individual/ HUF
b)
Central Govt
c)
State Govt(s)
d)
Bodies Corp.
-
50,000
50,000
100
-
50,000
50,000
100
0.00
e)
Banks / FI
f)
Any other
Total shareholding of Promoter (A)
50,000
50,000
100
-
50,000
50,000
100
0.00
B. Public Shareholding
1.
Institutions
a)
Mutual Funds/UTI
b)
Banks / FI
c)
Central Govt.
d)
State Govt.(s)
e)
Venture Capital
Funds
f)
Insurance
Companies
g)
FIIs
h)
Foreign Venture
Capital Funds
i)
Others (specify)
Foreign Banks
Sub-total (B)(1):-
-
-
-
-
-
-
-
-
-
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Category of Shareholders
No. of Shares held at the beginning of the year [As on 01-04-2014]
No. of Shares held at the end of the year [As on 31-03-2015]
% Change during
the year
Demat
Physical
Total
% of Total
Shares
Demat
Physical
Total
% of Total
Shares
2. Non-Institutions Not Applicable
a) Bodies Corp.
(Market Maker +
LLP)
i) I Indian ii) Overseas b)
Individuals
i)
Individual
shareholders
holding nominal
share capital upto
Rs. 1 lakh
ii)
Individual
shareholders
holding nominal
share capital in
excess of Rs.
1 lakh
c)
Others (specify)
i)
Non Resident
Indians
ii)
Non Resident
Indians -
Non
Repatriable
iii)
Office Bearers
iv)
Directors
v)
HUF
vi)
Overseas
Corporate Bodies
vi)
Foreign Nationals
vii)
Clearing
Members
viii)
Trusts
ix)
Foreign Bodies -
D R
Sub-total (B)(2):-
-
-
-
-
-
-
-
-
-
Total Public Shareholding (B) = (B)(1)+ (B)(2)
-
-
-
-
-
-
-
-
-
C.
Shares held by
Custodian for
GDRs & ADRs
-
-
-
-
-
-
-
-
-
Grand Total (A+B+C)
50,000
50,000
100
-
50,000
50,000
100
0.00
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B) Shareholding of Promoter-
C)
Change in Promoters' Shareholding (please specify, if there is no change)
Sr
No. Particulars
Shareholding at the
beginning of the year Cumulative Shareholding
at end of the year
No. of shares
% of total
shares of the company
No. of shares
% of total
shares of the company
At the beginning of the year
Air India Limited
50000
100%
50000
100%
At the end of the year
Air India Limited
50000
100%
50000
100%
D)
Shareholding Pattern of top ten Shareholders: (Other than Directors, Promoters
and Holders of GDRs and ADRs):
Sr.
No. Shareholder's
Name
Shareholding at the beginning
of the year Shareholding at the end
of the year % change
In
Share-
holding
during
the
year
No. of
Shares
% of total
Shares
of the
company
% of Shares
Pledged /
Encum-
bered to
total shares
No. of
Shares
% of total
Shares
of the
company
% of Shares
Pledged /
Encum-bered
to total shares
1 Air India Limited
along with
its
nominees
50,000
100
NIL
50,000
100
NIL
0.00
Sr No
For Each of the Top 10 Shareholders
Shareholding at the
beginning of the yearCumulative Shareholding
at end of the year
No. of shares
% of total shares of
the company
No. of shares
% of total shares of
the company
1
NOT APPLICABLE
2
3
4
5
6
7
8
9
10
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E) Shareholding of Directors and Key Managerial Personnel:
S. No.
Shareholding of each Directors and each Key Managerial Personnel
Shareholding at the beginning of the year
Cumulative Shareholding at the end
No. of shares
% of total shares of
the company
No. of shares
% of total shares of
the company
NIL
Total
V. INDEBTEDNESS -Indebtedness of the Company including interest outstanding/accrued but not due for payment.
(In Rs Crore)
Secured Loans
excluding deposits
Unsecured Loans
Deposits Total
Indebtedness
Indebtedness at the beginning of the financial year
- - - -
i) Principal Amount 1030423
ii) Interest due but not paid
iii) Interest accrued but not due
Total (i+ii+iii)
Change in Indebtedness during the financial year
- - - -
* Addition
* Reduction 1030423
Net Change
Indebtedness at the end of the financial year
- - - -
i) Principal Amount NIL
ii) Interest due but not paid
iii) Interest accrued but not due
Total (i+ii+iii) NIL NIL - NIL
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VI. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL A. Remuneration to Managing Director, Whole-time Directors and/or Manager:
(In figures)
Sr No
Particulars of Remuneration Name of MD/WTD/ Manager Total
Amount
1 Gross salary - - - - - -
(a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961
(b)Value of perquisites u/s 17(2) Income-tax Act, 1961
(c)Profits in lieu of salary under section 17(3) Income- tax Act, 1961
2 Stock Option
3 Sweat Equity
4 Commissionas % of profitothers, specify.
5 Others : (PF, DCS, House Perks tax etc)
Total (A) - - - - - -
Ceiling as per the Act - - - - - -
*There are no Managing, Whole Time Directors in the Company. B. Remuneration to other directors
Sr No.
Particulars of Remuneration Name of Directors Total
Amount
1 Independent Directors - - - - - -
Fee for attending board committee meetings
- - - - - -
Commission - - - - - - Others, please specify (Fees for attending Board Sub Committee Meetings)
- - - - - -
Total(1) - - - - - - 2 Other Non-Executive Directors - - - - - -
Fee for attending board committee meetings
- - - - - -
Commission - - - - - - Others, please specify - - - - - -
Total (2) - - - - - Total (B)=(1+2) - - - - - - Total Managerial Remuneration - - - - - -
Overall Ceiling as per the Act - - - - - -
- - - - - -
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C. REMUNERATION TO KEY MANAGERIAL PERSONNEL OTHER THAN MD/MANAGER/WTD
( figures in Rs)
Sr. No.
Particulars of Remuneration Key Managerial Personnel
CEO CS CFO Total
1 Gross salary Not
Applicable Not
Applicable Not
Applicable -
(a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961
- - - -
(b) Value of perquisites u/s 17(2)
Income-tax Act, 1961 - - - -
(c) Profits in lieu of salary under section
17(3) Income-tax Act, 1961 - - - -
2 Stock Option - - - -
3 Sweat Equity - - - -
4 Commission - - - -
- as % of profit - - - -
Others, specify. - - - -
5 Others: (PF, DCS, House Perks tax etc) - - - -
Total -
-
-
-
VII.
PENALTIES / PUNISHMENT/ COMPOUNDING OF OFFENCES:
Type
Section of the
Companies Act
Brief Description
Details of Penalty /
Punishment/ Compounding fees
imposed
Authority [RD / NCLT/
COURT]
Appeal made, if
any (give Details)
A. COMPANY
Penalty
-
-
-
-
-
Punishment
-
-
-
-
-
Compounding
-
-
-
-
-
B. DIRECTORS
Penalty
-
-
-
-
-
Punishment
-
-
-
-
-
Compounding
-
-
-
-
-
C. OTHER OFFICERS IN DEFAULT
Penalty
-
-
-
-
-
Punishment
-
-
-
-
-
Compounding
-
-
-
-
-
AIESL
16
COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 143(6)(b) OF THE COMPANIES ACT, 2013 ON THE FINANCIAL STATEMENT OF AIR INDIA ENGINEERING SERVICES LIMITED FOR THE YEAR ENDED 31 MARCH 2015.
The preparation of financial statement of Air India Engineering Services Limited for the year ended 31 March 2015 in accordance with the financial reporting framework prescribed under the Companies Act, 2013 is the responsibility of the Management of the Company. The Statutory Auditors appointed by the Comptroller and Auditor General of India under section 139(5) of the Act is responsible for expressing opinion on the financial statements under Section 143 of the Act based on independent audit in accordance with Standards on auditing prescribed under section 143(10) of the Act. This is stated to have been done by them vide their Audit Report dated 31 March 2016.
I, on the behalf of the Comptroller and Auditor General of India (CAG), have conducted a supplementary audit under section 143(6)(a) of the Act of the financial statements of Air India Engineering Services Limited for the year ended 31 March 2015. This supplementary audit has been carried out independently without access to the working papers of the statutory auditors and is limited primarily to inquiries of the statutory auditors and company personnel and a selective examination of some of the accounting records. On the basis of my audit nothing significant has come to my knowledge which would give rise to any comment upon or supplement to Statutory Auditor’s Report.
Balance SheetCurrent LiabilitiesOther Current Liabilities Note No.8 Rs. 173.57 Crore
A reference is invited to Note No.21(1) wherein disclosure regarding contingent liability of Rs.33.42 crore on account of 25 per cent balance payment of allowances to the employees from October 2014 has been made. As 75 per cent of the allowance payable to various categories of employees has already been paid and the revised pay structure has been implemented in respect of technical officers and aircraft maintenance engineers, the liability for service engineers should have been provided. Thus, non-provision has resulted in understatement of other current liability and understatement of loss for the year by Rs.33.42 crore.
Sd/-Parama Sen
Principal Director of Commercial Audit& ex-officio Member, Audit Board-II, Mumbai
Place : MumbaiDate : 30 May 2016
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MANAGEMENT REPLIES TO THE COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 143(6)(b) OF THE COMPANIES ACT, 2013 ON THE ACCOUNTS OF THE COMPANY FOR THE YEAR ENDED MARCH 31,2015
Audit Observation Management Reply
Balance SheetCurrent LiabilitiesOther Current Liabilities Note No.8 Rs. 173.57 Crore
A reference is invited to Note No.21(1) wherein disclosure regarding contingent liability of Rs.33.42 crore on account of 25 per cent balance payment of allowances to the employees from October 2014 has been made. As 75 per cent of the allowance payable to various categories, of employees has already been paid and the revised pay structure has been implemented in respect of technical officers and aircraft maintenance engineers, the liability for service engineers should have been provided. Thus, non-provision has resulted in understatement of other current liability and understatement of loss for the year by Rs.33.42 crore.
In terms of the rationalized Pay-Scales determined by the AI Management in line with the recommend-ations of the Justice Dharamadhikari Report (JDC), the AI Management has paid 75% of the allowances payable to various categories effective July 2012 so that any adjustments as a result of the implement-ation of the JDC Report could be made at the time of final settlement. The JDC recommendations are for AI as a whole prior to transfer of engineering payroll to AIESL effective Oct. 2014. Therefore, in respect of the remaining 25% of the allowances, the Company has provided for contingent liability to the extent of Rs.334.2 million from the date of transfer of Engineering Employees Payroll to the Company ie effective October-2014 on the basis of advice from the parent company.
Based on the JDC recommendations, the revised pay structure for Technical Officers (Support Service) and Aircraft Maintenance Engineers (AMEs) has since been implemented w.e.f. November-2014 and January 2015 respectively during the year under audit. The revised pay structure for Service Engineers was yet to be implemented.
It may be mentioned that effective the date of implementation of the new Pay Structure for AMEs, Technical Officers, there is no liability to pay 25% as the Revised Pay Structure is already in line with the JDC recommendations & DPE Pay Scale. In respect of the period prior to this, the calculation of amount of 25% is yet to be completed since there would be deductions in respect of certain allowances which has already been made during past period and discontinued under the new pay structure.
Unless the exercise of working out the arrears payable to all the employees is completed, the total quantum of liability on this account is not exactly ascertainable / quantifiable.
It is also disclosed in Note 21.1-3rd para- “....Unless the exercise of working out the arrears payable to all the employees is completed, the total quantum of liability on this account is not exactly ascertainable”.
AIESL
18
REPORT OF THE AUDITORS OF THE MEMBERS OF AIR INDIA ENGINEERING SERVICES LIMITED
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of Air India Engineering Services Limited ('the st
Company') which comprises the Balance Sheet as at 31 March 2015, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended and a summary of significant accounting policies and other explanatory information.
MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS
The Company's Board of Directors are responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation and presentation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
AUDITOR'S RESPONSIBILITY
Our responsibility is to express an opinion on these financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.
We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company's preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.
BASIS FOR QUALIFIED OPINION
Attention is drawn to point no. 9 and 11 (C) of note no. 21 of notes to accounts and particularly note no. 9 (b) regarding capitalization of revenue expenditure incurred during the period from October 2014 to December 2014 as “other intangible assets” of Rs. 271,38,28,069/- which in our opinion is not in conformity with the
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19
Accounting Standard -26 “Intangible Assets”, basic accounting assumptions, principles and qualitative characteristics of financial statements. Consequently expenses and losses are understated by Rs. 271,38,28,069, in the Profit & Loss account and Reserves and Surplus, negative balance in Profit & Loss Account is understated by Rs. 271,38,28,069 in the Balance Sheet.
QUALIFIED OPINION
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the Basis for Qualified Opinion paragraph above, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2015, and its loss and its cash flows for the year ended on that date.
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS
1. As required by the Companies (Auditor's Report) Order, 2015 ('the Order'), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure 1 a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. We are enclosing our report in terms of section 143(5) of the Act, on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure 2 on the directions issued by the Comptroller and Auditor General of India.
3. As required by section 143(3) of the Act, we report that :
a. We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;
b. In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;
c. The Balance Sheet, the Statement of Profit and Loss and Cash Flow Statement dealt with by this Report are in agreement with the books of account;
d. Except for the effects of the matters described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Account) Rules, 2014;
e. In our opinion there is no adverse effect on the functioning of the company.
f. On the basis of the written representations received from the directors as on 31 March 2015 sttaken on record by the Board of Directors, none of the Director is disqualified as on 31 March
2015, from being appointed as a Director in terms of Section 164 (2) of the Act;
g. Except for the effects of the matters described in the Basis for Qualified Opinion paragraph above, there is no qualification, reservation or adverse remark relating to maintenance of accounts and other matters connected therewith; and
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20
h. With respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
i) The Company does not have any pending litigations which would impact its financial position.
ii) The Company did not have any long-term contracts including derivative contracts for
which there were any material foreseeable losses; and
iii) There has not been an occasion in case of the Company during the year under report to transfer any sums to the Investor Education and Protection Fund. The question of delay in transferring such sums does not arise.
For Jhawar Mantri & Associates Chartered Accountants
(Firm Regn. No. 113221W)
Sd/-Place : Navi Mumbai B. P. MantriDate : 31 March 2016 Partner
M. No. 045701
AIESL
21
ANNEXURE 1 – TO INDEPENDENT AUDITOR'S REPORT
THE ANNEXURE REFERRED TO IN OUR INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF ST
THE COMPANY ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2015, WE REPORT THAT:
1. (a) The Company has maintained proper records of fixed assets showing full particulars including quantitative situation of Fixed Assets in the SAP system.
(b) All the fixed assets have been transferred to the company during the year from its parent
company. As informed to us the physical verification of major fixed assets has been conducted by the parent company for the biennial period of 2012-2014.
2. (a) The Company is not carrying on any trading or manufacturing activities. Accordingly clause relating to inventory is not applicable.
3. As informed to us, the Company has not granted any loans, secured or unsecured to the companies, firms and other parties covered in the register maintained under section 189 of the Companies Act, 2013.
(a) Since there are no such loans, question of regular in repaying the principal or interest amounts as stipulated does not arise.
(b) There are no overdue amounts of more than rupees one lakh in respect of the loans granted to the body corporate, firm and other parties listed in the register maintained under section 189 of the Act.
4. In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and for sale of goods and services. We have not observed any continuing failure to correct weakness in the internal control system during the course of our audit.
5. The Company has not accepted any deposits from the public covered under section 73 to 76 of the Companies Act, 2013.
6. The Central Government has not prescribed the maintenance of cost records under section 148(1) of the Act, for of the goods and services dealt in by the Company.
7. (a) The Company is not regular in depositing undisputed statutory dues including provident fund, income tax, service tax and any other statutory dues with the appropriate
stauthorities. There are no amounts in arrears as at 31 March 2015 for a period of more than six months from the date they became payable.
(b) According to the information and explanations given to us, there are no material dues of income
tax, sales tax, wealth tax, service tax, duty of customs, duty of excise, value added tax or cess which have not been deposited with the appropriate authorities on account of any dispute
(c) According to the information and explanations given to us, there are no amount which required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder.
8. The Company is having accumulated losses of Rs. 242,67,09,080/- which is more than 50% of its
net worth. During the year, the Company has incurred cash losses of Rs. 221,61,86,688/-. Cash Loss in the immediately preceding financial year was Rs. 31,059/-.
AIESL
22
9. The Company has not defaulted in repayment of dues to financial institution or bank or debenture holders.
10. In our opinion and according to the information and the explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.
11. In our opinion and according to the information given to us, the term loans have been applied for the purpose for which the loans were obtained.
12. To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the company was noticed or reported during the year.
For Jhawar Mantri & Associates Chartered Accountants
(Firm Regn. No. 113221W)
Sd/-Place : Navi Mumbai B. P. MantriDate : 31 March 2016 Partner
M. No. 045701
AIESL
23
ANNEXURE-2 TO THE INDEPENDENT AUDITORS’ REPORTAnnexure referred to in our report of even date to the members of Air India Engineering Services Limited on the accounts for the year ended 31 March 2015.
Directions under Section 143(5)of Companies Act 2013
S.No.
Auditor’s Comment Impact onFinancialStatement
1. If the Company has been selected for disinvestment, a complete status report in terms of valuation of Assets (including intangible assets and land) and Liabilities ( inc lud ing Commi t ted & Genera l Reserves) may be examined including the mode and Present stage of disinvestment process
2. Please report whether there are any cases of waiver/write off of debts/loans/interest etc., if yes, the reasons there for and the amount involved.
3. Whether proper records are maintained for inventories lying with third parties & assets received as gift from Govt. or other authorities.
4. A report on age-wise analysis of pending legal/arbitration cases including the reasons of pendency and existence/ effectiveness of a monitoring mechanism for expenditure on all legal cases (foreign an local) may be given.
The Company has not been selected for disinvestment during the financial year 2014-15.
According to information and explanations given to us, there are no cases of waiver/write off of debts/loans/interest etc.
According to information and explanations given to us, there is no inventory lying with third parties and there is no assets received as gift from Govt. or other authorities.
According to information and explanations given to us, there are no legal/arbitration cases pending against the Company or filed by the Company.
Not Applicable
Nil
Nil
Nil
For Jhawar Mantri & AssociatesChartered Accountants
(Firm Regn. No. 113221W)
Sd/-B.P. Mantri
PartnerM.N. 045701
Place : Navi Mumbai
Date : 31 March 2016
AIESL
24
MANAGEMENT’S COMMENTS ON OBSERVATIONS OF THE STATUTORY AUDITORS
The management’s comments to the observations of the Auditors are as under :
Most of the points raised by the Auditors are self-explanatory/statement of facts. Additional information/explanation wherever required are furnished below :
Audit Observations Management’s Comment
Report on the Financial Statements
We have audited the accompanying financial statements of Air India Engineering Services Limited (’the Company’) which comprises the Balance Sheet as at 31st March 2015, the Statement of Profit and Loss, the Cash Flow Statement for the year then ended and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
The Company’s Board of Directors are responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (”the Act”) with respect to the preparation and presentation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgements and estimates that are reasonable and prudent; and design, implement-ation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these
Statement of fact
Statement of fact
Statement of fact
AIESL
25
Audit Observations Management’s Comment
financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder.
We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.
Basis for Qualified Opinion
Attention is drawn to point no. 9 and 11© of note no. 21 of notes to accounts and particularly note no. 9 (b) regarding capitalization of revenue expenditure incurred during the period from October 2014 to December 2014 as “other intangible assets” of Rs. 271,38,28,069/- which in
Any MRO prior to its operationalization has to take a certification from DGCA and other Regulatory authorities that it has the basic infrastructure and licensed manpower support to start the operations of the Company. Though the manpower of AI was transferred to the subsidiary company in February 2013, the Company could not commence business on a stand alone basis due to the various Court cases
AIESL
26
Audit Observations Management’s Comment
our opinion is not in conformity with the Accounting Standard-26 “Intangible Assets”, basic accounting assumptions, principles and qual i tat ive character ist ics of financial statements. Consequently expenses and losses are understated by Rs. 271,38,28,069, in the Profit & Loss account and Reserves and Surplus, negative balance in Profit & Loss Account is understated by Rs. 271,38,28,069 in the Balance Sheet.
and Company not possessing the requisite license from DGCA and other authorities. After the Company resolved its Court cases in May 2013 it took considerable time to comply with the various requirements of the licensing authorities before the CAR 145 certification was issued by DGCA. This required the Company to show that considerable trained, licensed and experienced manpower along with the infrastructure existed in the Company which qualifies the Company for a Certification as MRO. It is, therefore, proposed to Capitalize the expenditure incurred by the Company mainly on manpower at least three months before it obtained the license for certification as License Cost. In this connection Management had relied on an opinion from the tax consultants wherein the revenue expenditure incurred including manpower cost directly attributable to DGCA License for CAR-145 MRO with certification for practically making ready the MRO Set up for obtaining DGCA License for its planned activities / work has been capitalized as Intangible Assets.
The main conditions for capitalizing an internally generated asset as per As (Accounting Standard) 26 corresponding to IAS 38 (International Accounting Standard) as “Intangible Asset” is
l Assets will generate future Economic benefits.
l The Intangible asset is available for use
l Ability to measure the expenditure attribut-able to the Intangible Asset.
Since all these conditions are satisfied in the relevant case it has been decided to Capitalise the cost of obtaining a License under CAR 145.
(A separate explanatory note along with the Opinion of Tax Consultants attached)
Based on the clarifications given by the Management on the qualifications by the Auditors, the Manage-ment is of the view that there is no understatement of expenses, loss, Reserve & Surpluses and negative balance in Profit & Loss Account.
AIESL
27
Audit Observations Management’s Comment
Qualified Opinion
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matters described in the Basis for Qualified Opinion paragraph above, the aforesaid financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 2015, and its loss and its cash flows for the year ended on that date.
1. As required by the Companies (Auditor’s Report) Order, 2015 (’the Order’), issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, and on the basis of such checks of the books and records of the Company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure 1 a statement on the matters specified in paragraphs 3 and 4 of the Order, to the extent applicable.
2. We are enclosing our report in terms of section 143(5) of the Act, on the basis of such checks of the books and records of the Company as we considered appropriate and a c c o r d i n g t o t h e i n f o r m a t i o n a n d explanations given to us, we give in the Annexure 2 on the directions issued by the Comptroller and Auditor General of India.
3. As required by section 143(3) of the Act, we report that :
(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;
(b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;
(c) The Balance Sheet, the Statement of Profit and Loss and Cash Flow Statement dealt with by this Report are in agreement with the books of account;
Audit Comments are noted.
Statement of fact
Statement of fact
AIESL
28
Audit Observations Management’s Comment
(d) Except for the effects of the matters described in the Basis for Qualified Opinion paragraph above, in our opinion, the aforesaid financial statements comply with the Account-ing Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Account) Rules, 2014;
(e) In our opinion there is no adverse effect on the functioning of the company.
(f) On the basis of the written represent-ations received from the directors as on 31 March 2015 taken on record by the Board of Directors, none of the Director is disqualified as on 31st March 2015, from being appointed as a Director in terms of Section 164 (2) of the Act;
(g) Except for the effects of the matters described in the Basis for Qualified Opinion paragraph above, there is no qualified, reservation or adverse remark relating to maintenance of accounts and other matters con-nected therewith; and
(h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules 2014, in our opinion and to the best of our information and according to the explanations given to us:
(i) The company does not have any pending litigations which would impact its financial position.
(ii) The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses; and
(iii) There has not been an occasion in case of the Company during the year under report to transfer any sums to the Investor Education and Protec-tion Fund. The question of delay in transferring such sums does not arise.
AIESL
29
ANNEXURE 1 – TO INDEPENDENT AUDITOR'S REPORT
Audit Observations Management’s Comment
1. (a) The Company has maintained proper records of fixed assets showing full particulars including quantitative situation of Fixed Assets in the SAP system.
(b) All the fixed assets have been
transferred to the company during the year from its parent company. As i n f o r m e d t o u s t h e p h y s i c a l verification of major fixed assets has been conducted by the parent company for the biennial period of 2012-2014.
2. (a) The Company is not carrying on any trading or manufacturing activities. Accordingly clause relat ing to inventory is not applicable.
3. As informed to us, the Company has not granted any loans, secured or unsecured to the companies, firms and other parties covered in the register maintained under section 189 of the Companies Act, 2013.
(a) Since there are no such loans, question of regular in repaying the principal or interest amounts as stipulated does not arise.
(b) There are no overdue amounts of more than rupees one lakh in respect of the loans granted to the body corporate, firm and other parties listed in the register maintained under section 189 of the Act.
4. In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the company and the nature of its business with regard to purchases of inventory, fixed assets and for sale of goods and services. We have not observed any continuing failure to correct weakness in the internal control system
Statement of fact
Statement of fact
Statement of fact
Statement of fact
AIESL
30
Audit Observations Management’s Comment
during the course of our audit.
5. The Company has not accepted any deposits from the public covered under section 73 to 76 of the Companies Act, 2013.
6. The Central Government has not prescribed the maintenance of cost records under section 148(1) of the Act, for of the goods and services dealt in by the Company.
7. (a) The Company is not regular in depositing undisputed statutory dues including provident fund, income tax, service tax and any other statutory dues with the appropriate authorities. There are
stno amounts in arrears as at 31 March 2015 for a period of more than six months from the date they became payable.
(b) According to the information and
explanations given to us, there are no material dues of income tax, sales tax, wealth tax, service tax, duty of customs, duty of excise, value added tax or cess which have not been deposited with the appropriate authorities on account of any dispute
(c) According to the information and explanations given to us, there are no amount which requi red to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder.
8. The Company is having accumulated
losses of Rs. 242,67,09,080/- which is more than 50% of its net worth. During the year, the Company has incurred cash losses of Rs. 221,61,86,688/-. Cash Loss in the immediately preceding financial year was Rs. 31,059/-.
Statement of fact
Statement of fact
The Company has to rely on its Parent Company AI for funds for remittance as the third party revenue is in sufficient to pay the statutory dues. Since AI is facing liquidity issues, the payments are done as well funds are received from the Parent Company.
Statement of fact
Statement of fact
MRO is a Capital Intensive industry and at present the returns are low and there is a long payback period. Besides this, the wage costs are high due to licensed manpower. The Company has to depend on internally generated Ai’s business for substantial portion of its Revenue. However the Company has been able to get third party business which include the Private and foreign airlines as well as Government. With the incentives expected from
AIESL
31
Audit Observations Management’s Comment
9. The Company has not defaul ted in repayment of dues to financial institution or bank or debenture holders.
10. In our opinion and according to the information and the explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.
11. In our opinion and according to the information given to us, the term loans have been applied for the purpose for which the loans were obtained.
12. To the best of our knowledge and belief and according to the information and explan-ations given to us, no fraud on or by the company was noticed or reported during the year.
GOI for the MRO industry it is anticipated that AIESL will be operationally profitable in the next two or three years.
The engineering activities of AI were hived off to the company as per the Cabinet approved TAP/FRP of AI. An MoU was executed for such hive-off indicating therein various support from AI Share application money for equity investment by AI is part of the assets transferred to AIESL. The company got DGCA license w.e.f. Jan., 2015. The company expects its business to grow in future. The Company is expected to receive Equity from AI to the extent of Rs. 375 crs. in the first few years of its operation in order to support its Capital acquisition program.
Statement of fact
Statement of fact
The company has not taken any term loan during the year.
Statement of fact
AIESL
32
ANNEXURE-2 TO THE INDEPENDENT AUDITORS’ REPORT
Directions under Section 143(5)of Companies Act 2013
S.No.
Auditor’s Comment Impact onFinancialStatement
ManagementReplies
1. If the Company has been selected for disinvestment, a complete status report in terms of valuation of Assets (including intangible assets and land) and Liabilities (including Committed & General Reserves) may be examined including the mode and Present stage of disinvestment process
2. Please report whether there are any cases of waiver/write off of debts/loans/interest etc., if yes, the reasons there for and the amount involved.
3. Whether proper records are maintained for inventories lying with third part ies & assets received as gift from Govt. or other authorities.
4. A report on age-wise analysis of pending legal/arbitration cases including the reasons of pen-dency and existence/ effective-ness of a monitoring mechanism for expenditure on all legal cases (foreign and local) may be given.
The Company has not been selected for disinvestment during the financial year 2014-15.
According to information and explanations given to us, there a re no cases o f waiver/write off of debts/ loans/interest etc.
According to information and explanations given to us, there is no inventory lying with third parties and there is no assets received as gift from Govt. or other auth-orities.
According to information and explanations given to us, there are no legal/arbitration cases pending against the Company or filed by the Company.
Not Applicable
Nil
Nil
Nil
The Comp-any has not been selec-ted for dis-investment.
Statementof fact
Statementof fact
Statementof fact
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NOTE ON INTANGIBLE ASSETS - DGCA LICENSE CAR 145
1. In accordance with the Cabinet approved Turn Around Plan / Financial Restructuring Plan (TAP/FRP) for Air India Ltd. (AI) the entire engineering activities of Air India were hived off to Air India Engineering Services Ltd. (AIESL) which is a wholly owned subsidiary of AI.
2. It was agreed under MoU to give effect to above hiving off of engineering services, all equipment, tools, machinery etc. and also the personnel of the engineering services would be transferred to AIESL. The immovable properties connected with the Engineering Services e.g. Hangars, workshops, Buildings, offices etc. has not been transferred to AIESL but AI has provided requisite right to AIESL to use such Hangars, workshops etc.
However, it was also agreed that necessary / requisite licenses, approvals, accreditations from regulatory authority would be obtained by AIESL.
3. AIESL would be providing MRO services to Air India, its associate airlines and others.
4. Considering the proposed scope of activities of AIESL, MRO capability for various types of aircraft, engines, APUs, components including structural repair, landing gear repair etc. is required to be established at different major bases all over India in accordance with regulations of DGCA particularly keeping in view the Planned work of the new entity which included the fleet of AI & associate airlines.
5. “CAR 145” is the most essential requirement for MRO operation as no activities can be undertaken without obtaining the License from DGCA.
6. The DGCA India after inspection of requisite / prescribed / acceptable facilities (including work-place, equipment & machinery, manpower, Safety & Quality Policy & System and maintenance procedure) and being satisfied on its verification / inspection that the MRO operator has the requisite capabilities in place, grants license “CAR 145” to operate as an MRO to provide maintenance, repairs, overhaul and test of aircraft, engines and components as defined in its scope of approval.
7. It may be mentioned that the major facilities required for MRO would include:-
(i) Various structures/facilities e.g. Hangars, Workshop, Building and associated offices at various important bases in India, as per Business Plan submitted by AIESL.
(ii) Equipment, Tools and material used for maintenance of aircraft and
(iii) Requisite Personnel i.e. licensed / trained & experienced Aircraft Maintenance Engineers, Technicians and other support staff.
8. As such, MRO is a Capital Intensive industry and at present the returns are low and there is a long payback period.
9. Though the manpower of AI was transferred to the subsidiary company in February 2013, the Company could not commence business on a standalone basis due to the various Court cases and Company not possessing the requisite license from DGCA and other authorities. After the Company resolved its Court cases in May 2013 it took considerable time to comply with the various requirements of the licensing authorities before the CAR 145 certification was issued by DGCA.
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10. AIESL submitted its 1st application to DGCA for approval in December 2013. The application was resubmitted in February 2014 followed by presentation to the DGCA in June 2014. Modifications were made in accordance with discussion with DGCA and application was resubmitted in July 2014.
11. After inspection of MRO facilities, Personnel, Equipment & tools and records at all bases in India, DGCA granted approval to MRO facilities of AIESL w.e.f. 1st January, 2015.
12. Simultaneously with application to DGCA for the License, transfer of requisite assets, particularly specialized facilities meeting requirements of DGCA for planned work was made on 1st April, 2014.
13. However the requisite, sufficient and qualified personnel and payroll was transferred to AIESL only on 1st October, 2014 when the entire process of obtaining approval of DGCA was at a very advanced stage. Consequently, the whole set-up was practically ready for its planned activity and the company could demonstrate its ability to work to obtain DGCA License.
14. The business of AIESL was finally set up on 1st January, 2015 on receipt of DGCA License and AIESL could commence its business activities w.e.f. 1st January, 2015.
15. During the period upto 1st January, 2015 before the business of AIESL was set up, the expenses incurred on / cost of manpower, rent & related expenses on hangar-workshop facilities, maintenance of equipments, etc. incurred only to comply with stringent requirements of DGCA for issuing “License” (without which AIESL could not do any MRO work and bring its asset to commercial use) and directly attributable to it considered as pre-requisite to obtain such license and were capitalized as cost of License under “Intangible Assets” for its intended use to work as an MRO- as opined by the Tax Consultants (Copy of Opinion attached).
16. Had the cost of manpower been considered from the date of intended transfer in Feb., 2013, AIESL would have to incur huge cost without its commercial use.
17. The main conditions for capitalizing an internally generated asset as per AS (Accounting Standard) 26 corresponding to IAS 38 (International Accounting Standard) as “Intangible Asset” are :
1. Asset will generate future Economic benefits 2. The Intangible asset is available for use 3. Ability to measure the expenditure attributable to obtain the Intangible Asset
Since all these conditions are satisfied in the relevant case and DGCA License would be an asset enabling the company (AIESL) to receive economic benefits in future, all the expenses incurred for obtaining such License were considered to be directly attributable to obtaining the License. Hence, it has been decided to rely upon the opinion of the Tax Consultants and Capitalise the cost of obtaining a License under CAR 145.
The Opinion from the Tax Consultants is Attached.
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OPINION OF THE TAX CONSULTANT ON EXPENDITURE INCURRED PRIOR TO OBTAINING DGCA CAR 145 APPROVAL.
We are in receipt of above email seeking our views in respect of treatment of certain expenses incurred by Air India Engineering Services Ltd. (AIESL) prior to obtaining License “CAR 145” approval from Director General of Civil Aviation, India (DGCA)
The facts and background of the matter has been obtained from the email and other papers made available to us and also from discussion with Shri. S.N. Ojha, Executive Director (Engineering) of AIESL and Shri Arun Jain, General Manager (Finance) of AIESL. The background of the matter briefly stated is as under :-
1. In accordance with the Cabinet approved Turn Around Plan / Financial Restructuring Plan (TAP/FRP) for Air India Ltd. (AI) the entire engineering activities of Air India were hived off to Air India Engineering Services Ltd. (AIESL) which is a wholly owned subsidiary of AI.
2. It was agreed to give effect to above hiving off of engineering services, all equipment, tools, machinery etc. and also the personnel of the engineering services would be transferred to AIESL. The immovable properties connected with the Engineering Services e.g. Hangars, workshops, Buildings, offices etc. has not been transferred to AIESL but AI has provided requisite right to AIESL to use such Hangars, workshops etc.
However, it was also agreed that necessary / requisite licenses, approvals, accreditations from regulatory authority would be obtained by AIESL.
3. AIESL would operate as an independent Maintenance, Repairs and Overhaul facility (MRO) to provide maintenance, repairs, overhaul and test of aircraft engines and components.
4. AIESL would be providing MRO services to Air India and also certain foreign Airlines.
5. Considering the proposed scope of activities of AIESL, MRO capability for overhaul, repair and test of engines, APUs, components including structural repair, landing gear repair etc. is required to be established at different major bases all over India.
6. To carry on work as MRO providing services to various types of aircraft, such facilities have to be established in accordance with regulations of DGCA particulary keeping in view the “Business Plan” of the new entity.
7. After establishment of entire facility at various bases in India the MRO operator has to demonstrate its capabilities for carrying on the activities to the DGCA India.
8. The DGCA India after inspection of facilities and being satisfied that the MRO operator has the requisite capabilities in place, grants licence “CAR 145” to provide maintenance, repairs, overhaul and test of aircraft, engines and components as defined in its scope of approval.
9. AIESL has submitted that for obtaining DGCA License “CAR 145”, it is essential to submit the Business Plan of the applicant company and to demonstrate to DGCA that all necessary requirements/facilities for carrying on MRO activities are in place and available.
10. Only on all compliance with all requirements and setting up of all facilities as per DGCA specifications, DGCA carries out inspection and grants the License “Card 145”.
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11. “CAR 145” is the most essential requirement for MRO operation as no activities can be undertaken without obtaining the License from DGCA.
12. It is submitted that the major facilities required for MRO would include :-
(i) Various structures/facilities e.g. Hangars, Workshop, Building and associated offices at various important bases in India, as per Business Plan submitted by AIESL.
(ii) Equipment, Tools and material used for maintenance of aircraft and
(iii) Requisite Personnel i.e. Aircraft Maintenance Engineers, Technicians and other support staff.
13. The entire facility (physical and technical personnel) set up and available, commensurate with the ‘Business Plan’ presented to DGCA is a prerequisite for issue of licence.
14. After rigorous inspection of all facilities by DGCA, License CAR 145 is granted by DGCA.
15. AIESL submitted its 1st application to DGCA for approval in December 2013. The application was resubmitted in February 2014 followed by presentation to the DGCA in June 2014. Modifications were made in accordance with discussion with DGCA and application was resubmitted in July 2014.
16. After inspection of MRO facilities, Personnel, Equipment & tools and records at all bases in India, DGCA granted approval to MRO facilities of AIESL w.e.f. 1st January, 2015.
17. Simultaneously with application to DGCA for the License, transfer of requisite assets, particularly specialized facilities meeting requirements of DGCA for planned work was made on 1st April, 2014.
18. However the requisite, sufficient and qualified personnel and payroll was transferred to AIESL only on 1st October, 2014 when the entire process of obtaining approval of DGCA was at a very advanced stage.
19. The business of AIESL was finally set up on 1st January, 2015 on receipt of DGCA Licence and AIESL could commence its business activities w.e.f. 1st January, 2015.
20. During the period up to 1st January, 2015 before the busines of AIESL was set up, following expenses were incurred :-
Hangars, Workshops, Buildings (Rs. In Crores)
Rent, Rates & Taxes 5.24 Electricity & Water 9.26 Maintenance of Equipment 3.18
Personnel Expenses
Aircraft Maintenance Engineers, Technical Officers, Technicians etc. 248.19 Travelling & other expenses 4.33 Miscellaneous & Others 1.19 ========== Rs. 271.39 ==========
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37
Our views and opinion has been sought by AIESL on above expenses incurred up to 31st December, 2014 in connection with setting up of business of AIESL and treatment of the same in accounts for the year ended on 31.3.2015. It is also submitted by AIESL that entire expenditure prior to 01.01.2015 was incurred only to comply with stringent requirements of DGCA for issuing “Licence” without which AIESL could not do any MRO work. Considering the entire facts and background it is further submitted by AIESL that the entire expenditure incurred upto 31st December, 2014 should be capitalized as cost of licence. On the basis of above facts and background, we not proceed to submit our views in the matter.
OUR VIEWS :
(a) Till financial year 2007-08 in such a case expenses before starting of operations would have been dealt with in accordance with “Guidance Note on Treatment of Expenditure during Construction Period” “(Guidance Note)” issued by Institute of Chartered Accountants of India (ICAI).
(b) However, the said Guidance Note has been withdrawn pursuant to the decision of the Council of ICAI at its 280th Meeting held 7-9 August, 2008.
© In view of above, we will have to consider what expenses are directly attributable cost of bringing the asset to its working condition for its intended use.
(d) Normally, any expenditure incurred before the business is setup would be required to be adjudged to ascertain whether such expenditure could be attributed to bringing any asset to its working condition.
(e) Before considering what expenditure should be considered as directly attributable cost of an asset, we will have to consider what assets have been acquired and/or are required to be acquired for carrying on MRO activities in accordance with the proposed Business Plan.
(f) It is understood that most important requirement for commencing its activity of MRO, AIESL requires a Licence (CAR 145) from DGCA India, as without the licence the MRO unit would not be able to carry out any activities and would remain completely “idle”.
(g) To obtain the ‘Licence’ it is mandatorily required to obtain and put in place amongst other following:-
(i) Appropriate and specialized facilities like workshops, Hangars, Buildings etc. commensurate with the planned work.
(ii) Equipment, tools and material of prescribed standards
(iii) Sufficient, qualified, trained, technical staff and support staff for planned work as per norms of DGCA. This includes :
(a) Technical Staff having maintenance experience of at least six (6) months in preceding two (2) years on the aircraft type as per business plan.
(b) Licence, approvals, qualifications and training as may be prescribed / acceptable to DGCA.
(iv) Safety and quality policy and system and maintenance procedures appropriate to the planned work and meeting norms of DGCA.
(h) In the case of a new “Stand alone” venture, to establish MRO facilities of the size envisaged to cater to the Business Plan approved for AIESL, would take effort of atleast a few years to acquire the essential
AIESL
38
and requisite facilities and personnel. There would be huge expenses incurred on establishment which operates exclusively to acquire and put in place various immovable and movable assets for the purpose of the activity at the proposed scale of business. It would also require recruitment of personnel of different categories, qualifications and experience. Such recruitment to meet the requirements of DGCA would have to be made over a period of time and huge expenses would be incurred for recruitment and emoluments of such staff employed with the organization before starting the proposed activity.
(I) In this case of AIESL, practically all assets movable and immovable are to be transferred from Air India (the Holding Company) and hence the entire process could be completed in extremely short period of time.
(j) However inspite of all other facilities being made available to AIESL, it had to independently obtain all approvals and licences from Regulatory Authority.
(k) In view of above, availability of requisite personnel being one of the most important, difficult and time consuming requirement could be obtained by AIESL practically at the “last moment” before obtaining licence from DGCA. (The requisite personnel was transferred from AI only on 1st October, 2014).
(l) From the information made available to us it is seen that various expenses incurred by AIESL before the business of AIESL is setup on 1st January, 2015 includes expenses on rent, rates, taxes, electricity and water expenses in respect of Hangars, workshops etc. staff cost and expenses on maintenance of equipment.
(m) As the guidance note on treatment of expenditure during construction period has been withdrawn by ICAI, we have to now consider whether keeping in view Accounting Standard 10 (Fixed Assets) and Accounting Standard 26 (Intangible Assets) the expenses incurred prior to 1st January, 2015 were attributable to any of the “assets” of the business.
(n) In this case, all the assets except the DGCA licence have been directly acquired form AI in “working condition”.
(o) Under the circumstances, on the facts of the case, it is required to be considered to what extent various expenses incurred by AIESL after acquisition of Fixed Assets like Right to use Immovable Property, equipment and tools could be considered as directly attributable to acquisition of the asset.
(p) Reviewing the matter in totality, we are inclined to take a view that entire expenses incurred by AIESL for setting up the entire facilities are “Prerequisite” to obtain licence from DGCA for the proposed MRO activity.
(q) Accounting standard 26 (AS-26) deals with “Intangible Assets”.
(r) In accordance with AS-26, the DGCA Licence for MRO activity would be an “Intangible Asset”, as such “asset” would enable the enterprise to receive further economic benefits and all expenses incurred for obtaining such “licence” should be considered directly attributable to obtaining the “Licence”.
(s) The expenses incurred in this case before 1st Jan, 2015 could not be viewed as “general administrative expenses”, particularly when the “fixed assets” except the “DGCA Licence” have been transferred in a condition “ready to use” for the MRO business.
(t) However, unlike licence for any normal Engineering business, DGCA Licence for MRO would be issued only after verification of entire facilities and set up which is ready to commence work as soon as
“Licence” is granted. Under the circumstances on facts of this case all expenses incurred during the year (2014-15) could be claimed as “directly attributable” or “inextricably linked” with the issue of “Licence”. As a consequence all such expenses incurred before 1st Jan, 2015 could be added to the cost of DGCA licence.
(u) It is seen that 1st application for Licence was made to DGCA in December 2013 when AIESL had “only proposed Business Plan” and no assets were transferred to it. Considering the peculiar facts of the matter in our opinion, it may not be appropriate to capitalize all expenses incurred during the period 1st April, 2014 to 31st December, 2014. However, in our opinion it would be proper to consider that all expenses incurred during the period from 1st October 2014 when the whole set up was practically ready for its planned activity and AIESL could demonstrate its ability to work to DGCA for obtaining Licence should be considered as “Directly attributable” to acquisition of “DGCA Licence” and accordingly capitalized to “DGCA Licence”.
It should be noted that expenses incurred before 1st October, 2014 would not be considered as directly attributable to “any assets” of AIESL and expenses incurred on and from 1st January, 2015 would be revenue expenses incurred after the business of AIESL has been set up.
We hope above clarifies the matter fully.
Thanking you.
Yours faithfully,
Sd/-(D.J. SHUKLA & CO.)
Place : MumbaiDate : 12 January 2016
AIESL
39
AIESL
40
(Amount in Rupees)
Particulars Note No.
EQUITY AND LIABILITIES :Shareholders' Fundsa) Share Capital 2 500,000 500,000
b) Reserves and Surplus 3 (2,426,709,080) (1,033,349)
(2,426,209,080) (533,349)
Share Application Money Pending Allotment 4 1,666,165,000 - Non-current Liabilitiesa) Long Term Borrowings 5 - 1,030,423 b) Deferred Tax Liabilities (Net)c) Other Long Term Liabilitiesd) Long Term Provisions 6 4,223,733,048 -
4,223,733,048 1,030,423 Current Liabilitiesa) Short Term Borrowings -
-
b) Trade Payables 7 15,232,643
-
c) Other Current Liabilities 8 1,735,688,022
22,472
d) Short Term Provisions 9 7,019,251 -
1,757,939,916
22,472
TOTAL 5,221,628,884
519,546
ASSETS :Non-current Assetsa) Fixed Assets (i) Tangible Assets 10 1,485,339,841
-
(ii) Intangible Assets 10 2,713,828,069
- (iii) Capital Work-in-Progress -
-
(iv) Intangible Assets under development -
- 4,199,167,910 - b) Non-Current Investments -
-
c) Deferred Tax Assets (net) -
- d) Long Term Loans and Advances 11 454,674,201
-
e) Other Non-Current Assets - - 454,674,201
-
Current Assetsa) Current Investments -
- b) Inventories -
-
c) Trade Receivables 12 160,551,316
- d) Cash and Bank Balances 13 407,129,517
519,546
e) Short Term Loans and Advances -
- f) Other Current Assets 14 105,940
-
567,786,773
519,546
TOTAL 5,221,628,884
519,546
Significant Accounting Policies 1
Notes forming part of the Financial Statement 2-21
As per our report of even date attached
As at March 31, 2014As at March 31, 2015
BALANCE SHEET AS AT 31ST MARCH 2015
For and on Behalf of For and on behalf of the Board
Sd/- Sd/- Sd/-Jhawar Mantri & Associates Ashwani Lohani V.S. HejmadiChartered Accountants Chairman Director-FinanceFRN : 113221W Sd/- Sd/- Sd/-B.P Mantri Arun K. Jain H.R. JagannathPartner Chief of Finance Chief Executive OfficerM.No. 045701
Place : Navi Mumbai Place : New DelhiDate : 31 March 2016 Date : 31 March 2016
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(Amount in Rupees)
Note No. 2014-15 2013-14
Revenue
I Revenue from Operation 15 1,420,058,830 -
II Other Income 16 1,979 -
III Total Reveune (I+II) 1,420,060,809 -
IV Expenses
Cost of Material Consumed - - Purchase of Stock in trade - - Change in inventories - - Employee Benefit Expenses 17 2,940,208,061
- Finance Costs - - Depreciation and Amortization Expense 18 209,489,043
-
Other Expenses 19 696,039,436 31,059
Total Reveune 3,845,736,540 31,059
V Profit/ (Loss) before Exceptional and (2,425,675,731) (31,059) Extraordinary Items and Tax (III-IV)
VI Exceptional Items - -
VII Profit/ (Loss) before Extraordinary Items and Tax (V+VI) (2,425,675,731) (31,059)
VIII Extra Ordinary Items (Net) -
-
IX Profit/ (Loss) before Tax (VII+VIII) (2,425,675,731)
(31,059)
X Tax Expenses : - -
i) Current Taxii) Tax Adjustment relating to earlier year -
-
iii) Deferred Tax -
-
XI Profit/ (Loss) after Tax for the period (IX-X) (2,425,675,731)
(31,059)
XII Earning per Share of Rs. 10 eachBasic 20 (48,513.51)
(0.62)
Diluted 20 (48,513.51)
(0.62)
Particulars
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31ST MARCH 2015
Significant Accounting Policies 1
Notes forming part of the Financial Statement 2-21
As per our report of even date attached
For and on Behalf of For and on behalf of the Board
Sd/- Sd/- Sd/-Jhawar Mantri & Associates Ashwani Lohani V.S. HejmadiChartered Accountants Chairman Director-FinanceFRN : 113221W
Sd/- Sd/- Sd/-B.P Mantri Arun K. Jain H.R. JagannathPartner Chief of Finance Chief Executive OfficerM.No. 045701
Place : Navi Mumbai Place : New DelhiDate : 31 March 2016 Date : 31 March 2016
AIESL
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(Amount in Rupees)
Particulars
A. CASH FLOW FROM OPERATING ACTIVITIESNet (Loss) / Profit Before Taxes: (2,425,675,731) (31,059) Adjustment for :Depreciation and amortisation 209,489,043 - Provision for Employee Benefits 4,223,733,048 -
4,433,222,091 - Operating (Loss) / Profit Before Working Capital Changes 2,007,546,360 (31,059) Adjustments for :
(Increase) / Decrease in Trade and Other Receivables (615,331,457) - Increase / (Decrease) in Trade and Other Payables 1,756,887,021 50,605
1,141,555,564 50,605 Net Cash Flow (used in)/ from Operating Activities 3,149,101,924
19,546
B. CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of fixed assets (4,408,656,953) -
Acquisition of other non current assets -
Net Cash Flow used in Investing Activities (4,408,656,953) -
C. CASH FLOW FROM FINANCING ACTIVITIES
Issue of Shares, incl Share application money pending allotment 1,666,165,000 -
Net Cash Flow from/(used in) Financing Activities 1,666,165,000 -
Net increase/ (Decrease) in Cash and Cash equivalents 406,609,971 19,546
Cash and Cash equivalents (Opening balance) 519,546 500,000
Cash and Cash equivalents (Closing balance) 407,129,517 519,546
Notes
As at March 31, 2015 As at March 31, 2014
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2015
1. The Cash Flow Statement has been prepared under the “Indirect Method” as set out in the Accounting Standard 3 (AS-3) on “Cash Flow Statements” present cash flows by operating, investing and financing activities.
As per our report of even date attached
For and on Behalf of For and on behalf of the Board
Sd/- Sd/- Sd/-Jhawar Mantri & Associates Ashwani Lohani V.S. HejmadiChartered Accountants Chairman Director-FinanceFRN : 113221W
Sd/- Sd/- Sd/-B.P Mantri Arun K. Jain H.R. JagannathPartner Chief of Finance Chief Executive OfficerM.No. 045701
Place : Navi Mumbai Place : New DelhiDate : 31 March 2016 Date : 31 March 2016
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NOTES FORMING PART OF THE FINANCIAL STATEMENT FOR THE YEAR ENDED MARCH 31, 2015
NOTE “1”
A. CORPORATE INFORMATION
The company secured DGCA approval for providing MRO services effective 01 January 2015. The MOUs entered into by the Company with its parent company, Air India Ltd and subsidiary companies of Air India Ltd, viz. 'Air India Charters Ltd' and 'Airline Allied Services Ltd' for rendering their aircraft engineering related services.
B. ACCOUNTING CONVENTION
(i) These financial statements are prepared under historical cost convention on going concern concept on accrual basis and in accordance with the mandatory accounting standards prescribed under Section 133 of the Companies Act, 2013 ('Act') read with Rule 7 of the Companies (Accounts) Rules, 2014, the provisions of the Act (to the extent notified) and guidelines issued by the Institute of Chartered Accountants of India to the extent applicable.
(ii) The preparation of financial statements in conformity with generally accepted accounting principles in India requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Differences between the actual results and estimates are recognized in the period in which results are known / materialized.
(iii) The Company being in service sector, there is no specific operating cycle; 12 months period has been adopted as “the Operating Cycle” in-terms of the provisions of Schedule III to the Companies Act 2013.
C. SIGNIFICANT ACCOUNTING POLICIES
1. FIXED ASSETS
A) TANGIBLE ASSETS: Fixed Assets are stated at cost including incidental costs incurred pertaining to the acquisition and bringing them to the location for use and interest on loans borrowed where applicable, upto the date of putting the concerned asset to use.
B) INTANGIBLE ASSETS: DGCA License – all expenses incurred including man power cost prior to three months from the date of obtaining the License and directly attributable to DGCA License for CAR-145 MRO with certification has been capitalized.
2. DEPRECIATION / AMORTIZATION
a) Depreciation is provided on all assets on straight-line method over the useful life of assets as provided in Part C of Schedule II of the Companies Act 2013, keeping a residual value of 5% of the original cost.
b) 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.
c) Intangible assets which have a useful economic life are amortized over the estimated useful life.
d) Assets of small value not exceeding Rs.5000, in each case, are fully provided for in the year of Purchase.
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3. REVENUE RECOGNITION
a) Revenue is recognized only when it can be reliably measured and it is reasonable to expect ultimate collection. Revenue from operations includes technical handling revenue, MRO services revenue, & other servicing revenue.
b) Technical Handling Revenue is recognized on the basis of budgeted rate per block hours multiplied to actual per block hours. MRO services revenue other servicing revenue are recognized as shared by Holding company & other group companies.
c) Other operating revenue is related to training charges recovered from trainees and recognized as and when right to receive arises.
d) Income from Interest is recognized on a time proportion basis.
e) Gain or loss arising out of sale/scrap of Fixed Assets over the net depreciated value is taken to Statement of Profit & Loss as Non-Operating Revenue or Expenses.
4. EMPLOYEE BENEFITS
a) Short term employee benefits: All employee benefits falling due wholly within twelve months of rendering the services are classified as short term employee benefits. The benefits like salaries, wages, and short term compensated absences etc. and the expected cost of bonus, ex-gratia are recognized in the period in which the employee renders the related services.
b) Post-employment benefits:
Defined Contribution Plans consist of contributions to Employees Provident Fund and Employees State Insurance Scheme. The Parent Company, viz Air India Ltd, and subsidiary airlines of Air India Ltd, viz. 'Air India Charters Ltd' and 'Airline Allied Services Ltd' have created separate Trusts to administer Provident Fund contributions to which contributions are made regularly. ESI dues are regularly deposited with government authorities.
Defined Benefit Plans, which are not funded, consist of Gratuity, Leave Encashment including Sick Leave and Post Retirement Medical Benefits and other benefits. The liability for these benefits is actuarially determined under the Projected Unit Credit Method at the end of the year as per Indian Laws.
5. IMPAIRMENT OF ASSETS
At each Balance Sheet date, the carrying amount of assets is tested for impairment so as to determine:
a) the provision for impairment loss, if any; and
b) the reversal of impairment loss recognized in previous periods, if any,
Impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount.
6. TAXES ON INCOME
Provision for current tax, if any, is made in accordance with the provisions of Income Tax Act, 1961.
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Deferred tax is recognised on timing differences between book and taxable profit using the tax rates and laws that have been enacted or substantively enacted as on the Balance Sheet date. The Deferred tax assets are recognised and carried forward to the extent that there is a virtual certainty that the assets will be realised in the future.
7. PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS
a) Provisions involving a substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources.
b) Contingent liabilities exceeding Rs.0.1 million in each case are disclosed in respect of possible obligations that may 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.
c) Contingent Assets are neither recognized nor disclosed in the financial statements.
8. PREPAID EXPENSES/LIABILITY FOR EXPENSES
Pre-paid expenses / Liabilities for expenses recognized – Rs10,000/- and above in each case.
9. INVESTMENTS
Current investments are carried at lower of cost and quoted/fair value, computed category wise. Long Term Investments are stated at cost. Provision for diminution in the value of long-term investments is made only if such a decline is other than temporary.
NOTE "2" : SHARE CAPITAL(Amount in Rupees)
Particulars
a) AUTHORISED
10,000,000 Equity Shares (Previous Year : 90,00,000) of Rs.10 each
NIL Preference Shares (Previous Year : 100,000) of Rs.100 each
(During the year company has re-arranged its authorised capital byconverting 1,00,000 preference of Rs. 100/- each into 10,00,000 equity shares of Rs. 10/- each)
b) ISSUED, SUBSCRIBED AND FULLY PAID-UP SHARES50,000 Equity Shares of Rs. 10 each (Previous Year : 50,000 Equity Shares of Rs.10 each)
100,000,000
As at March 31, 2014
90,000,000
10,000,000
500,000
500,000
100,000,000
500,000
500,000
-
As at March 31, 2015
100,000,000
c)
Equity Shares at the beginning of the year 50,000 50,000 500,000 500,000 Add : Equity Shares Allotted during the year -
-
-
-
Equity Shares at the end of the year 50,000 50,000 500,000 500,000
Reconciliation of number of shares :(Number of Shares) (Share Value Rupees)
Particulars As at March
31, 2015 As at March
31, 2014 As at March
31, 2015 As at March
31, 2014
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e) Details of Shares held by the Holding Company, Subsidiary & Associates
f) Details of Shareholders holding more than 5%
Shares held by Holding CompanyAir India Limited 50,000 50,000 100% 100%
( % of Share Holding)(Number of Shares)
Particulars As at March
31, 2015 As at March
31, 2014 As at March
31, 2015 As at March
31, 2014
Air India Limited 50,000 50,000 100% 100%
( % of Share Holding)(Number of Shares)
Particulars As at March
31, 2015 As at March
31, 2014 As at March
31, 2015 As at March
31, 2014
d) Rights Preferences and restriction attached to equity shares
The company has single class of shares i.e. Equity Shares having a par value of Rs. 10 per share as per. Each holder of equity shares is entitled to one vote per share.
In the event of liquidation of the company, the holders of equity shares will be entitled to receive remaining assets of the company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders.
NOTE "3" : RESERVES AND SURPLUS(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
Surplus / (Deficit) as per Statement of Profit & LossOpening Balance (1,033,349) (1,002,290)
Profit / (Loss) for the year (2,425,675,731)
(31,059)
Closing Balance (2,426,709,080) (1,033,349)
TOTAL (2,426,709,080) (1,033,349)
NOTE "4" : SHARE APPLICATION MONEY PENDING ALLOTMENT(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
1,666,165,000 -
31-Mar-16 -
Share Application Money Pending Allotment(Share application money amount represents WDV of engineering assets transferred by the Holding Company Air India Limited as on 1st April 2014 towards capital infusion in terms of MoU entered between Air India Limited & Air India Engineering Services Limited dated 05th April, 2013)
(Also refer point no. 10(a) of Note 21)
Company will issue 16,66,16,500 equity shares of having face value of Rs. 10/- each at par.
Shares to be alloted tentatively byThe company has increased its authorised capital from Rs. 10 crore to Rs. 1,000 crore subsequent to balance sheet date towards allotment of shares against application money received as above.
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47
NOTE "5" : LONG TERM BORROWINGS
Loans & advances from related partiesFrom Holding Company:Air India Limited -
1,030,423
(Rate of Interest - Nil)
TOTAL -
1,030,423
NOTE "6" : LONG TERM PROVISIONS
Provision for Employee Benefitsa) Gratuity 2,367,422,020 -b) Leave Encashment 1,856,311,028
-
(In absence of proper details full amount of provision is classified as long term)
TOTAL 4,223,733,048
-
NOTE "7" : TRADE PAYABLES
Due to Micro and Small Enterprises - -Others 15,232,643 -(Refer Point no. '13' of Note No. 21)
TOTAL 15,232,643
-
NOTE "8" : OTHER CURRENT LIABILITIES
Advance towards EMD 600,000
-
Statutory Dues 596,951,921 -Other Payables 1,138,136,101 22,472
TOTAL 1,735,688,022
22,472
NOTE "9" : SHORT TERM PROVISIONS
Provision for Employee Benefits
a) Gratuity 2,926,483
-
b) Leave Encashment 1,802,546
-
Others
Travelling Expenses 2,290,222
-
TOTAL 7,019,251
-
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
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NOTE "10" : FIXED ASSETS(Amount in Rupees)
Sr. Particulars
No. As at Additions Deductions / As at As at For Deductions/ Total Upto As at As atApril 01, 2014 Adjustments March 31, 2015 April 01, 2014 the year Adjustments March 31, 2015 March 31, 2015 March 31, 2014
TANGIBLE ASSETS :
a) Land -
-
-
-
-
-
- - - -
b) Buildings -
-
-
-
-
-
- - - -
c) Plant & Equipment
Workshop Equipment, Instruments, -
1,584,941,145
-
1,584,941,145
-
191,639,016
- 191,639,016 1,393,302,129 -
Machinery and Plants -
109,887,739
-
109,887,739
-
17,850,027
- 17,850,027 92,037,712 -
d) Furniture & Fixtures -
-
-
-
-
-
- - - -
e) Vehicles -
-
-
-
-
-
- - - -
f) Office Equipment -
-
-
-
-
-
- - - -
TOTAL FOR TANGIBLE ASSETS -
1,694,828,884
-
1,694,828,884
-
209,489,043
- 209,489,043 1,485,339,841 -
INTANGIBLE ASSETS :
a) Goodwill -
-
-
-
-
-
- - - -
b) Brands/trademarks - - - - - - - - - -
c) Computer Software - - - - - - - - - -
d) Licenses & Franchise - 2,713,828,069 - 2,713,828,069 - - - - 2,713,828,069 -
TOTAL FOR INTANGIBLE ASSETS - 2,713,828,069 - 2,713,828,069 - - - - 2,713,828,069 -
TOTAL ASSETS - 4,408,656,953 - 4,408,656,953 - 209,489,043 - 209,489,043 4,199,167,910
PREVIOUS YEAR
GROSS BLOCK DEPRECIATION NET BLOCK
Note:1. As per MOU entered between Air India Limited (AIL) & Air India Engineering Services Limited (AIESL) dated 5th April, 2013 Air India Limited shall trasnfer all its movable assets such as machinery, equipment etc. pertaining to MRO unit of AIL to AIESL at a written down value of such moveable assets as on 01-04-2014. It was clarified by MOU that written down value of movable assets transferred from AIL to AIESL shall be the cost of these assets transferred and shall form part of initial equity contribution.
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
NOTE "11" : LONG TERM LOANS AND ADVANCES
A Loans & advance to related parties
Secured Considered Good - Unsecured Considered Good 452,963,444 Doubtful
452,963,444 -
B Loans and Advances to Employees
Secured Considered Good - -
Unsecured Considered Good 1,710,757 -
Doubtful1,710,757 -
TOTAL (A+B) 454,674,201 -
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NOTE "12" : TRADE RECEIVABLES
A Due for more than six months
Secured, Considered Good - -
Unsecured, Considered Good - -
Doubtful -
-
-
B Other Receivables
Secured, Considered Good -
-
Unsecured, Considered Good 160,551,316
-
Doubtful -
160,551,316
-
Total (A + B) 160,551,316
-
NOTE : "13" : CASH AND BANK BALANCES
Cash and Cash Equivalents
1 Balances with Banks
a) In Current Accounts 407,077,538
519,546
b) In Deposit Accounts (Maturity less than12 months) 1,979
-
2 Cheques, Drafts on Hand -
-
3 Cash on Hand (as certified by the Management) -
-
4 Margin Money/Security Deposit 50,000
-
TOTAL 407,129,517
519,546
NOTE : "14" : OTHER CURRENT ASSETS
Balances with Revenue Authorities
TDS Receivable 105,940
TOTAL 105,940
-
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
(Amount in Rupees)
Particulars As at March 31, 2015 As at March 31, 2014
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NOTE "15" : REVENUE FROM OPERATION(Amount in Rupees)
Sr. No. Particulars 2014-15 2013-14
1 Sales of ServicesTechnical Handling Services Reveune 1,351,319,149 - MRO Services Revenue 10,326,799 - Other Servicing Revenue 57,635,470 -
1,419,281,418 - 2 Other Operating Revenue
Engineering Training Reveune 777,412 -
777,412 -
Total reveune from operation 1,420,058,830 -
NOTE "16" : OTHER INCOME(Amount in Rupees)
Sr. No. Particulars 2014-15 2013-14
1 Interest Income 1,979 -
2 Dividend Income - -
TOTAL 1,979 -
NOTE "17" : EMPLOYEE BENEFIT EXPENSES(Amount in Rupees)
Sr. No. Particulars 2014-15 2013-14
1 Salaries and Wages 1,752,007,495 -
2 Contribution to Provident and Other Funds 74,089,112 - 3 Staff Welfare Expenses 370,557,420 - 4 Provision for Gratuity 402,120,708 -
5 Provision for Leave Encashment 341,433,326 -
TOTAL 2,940,208,061 -
NOTE "18" : DEPRECIATION AND AMORTIZATION EXPENSE(Amount in Rupees)
Sr. No. Particulars 2014-15 2013-14
1 Depreciation of Tangible Assets 209,489,043 - 2 Amortization of Intangible Assets - -
TOTAL 209,489,043 -
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NOTE "19" : OTHER EXPENSES(Amount in Rupees)
Sr. No. Particulars 2014-15 2013-14
1 Insurance Expenses 2,491,630 - 2 Communication Charges 2,724,717 - 3 Travelling Expenses 127,173,754 - 4 Rent 162,370,374 - 5 Rates and Taxes 801,054 - 6 Conveyance Expenses 2,780,074 7 Repair Maintenance:
i) Buildings 1,667,378 - ii) Others 78,030,292 -
8 Hire of Transport 7,224,257 -
9 Hire of Manpower 11,263,759 10 Fees to DGCA 1,593,592 11 Electricity & Heating Charges 274,034,917 - 12 Consumption of Gas & Fuel 3,147,524 13 Water Charges 468,680 -
14 Directors' Sitting Fees - -
15 Printing and Stationery 155,347 -
16 Professional & Legal Charges 2,275,145 19,169 17 Auditors' Remuneration and Expenses
i) Audit Fees 200,000 11,236
ii) Other Expenses 50,000 -
18 Bank Charges 4,175 654 19 Other Expenses 17,582,769 -
TOTAL 696,039,436 31,059
NOTE "20" : EARNING PER SHARE
Disclosure of Earnings Per Share (EPS) computation as per Accounting Standard -20 of the Instituteof Chartered Accountants of India:
2014-15 2013-14
Profit available for appropriation as per Profit & LossAccount (2,425,675,731) (31,059)
Weighted average No. of equity shares outstanding 50,000 50,000 during the year -
Basic and Diluted EPS (48,513.51) (0.62)
Face value per equity share 10 10
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NOTE 21
NOTES TO ACCOUNTS-
1. Contingent Liabilities not provided for: Claims against the Company not acknowledged as debts (excluding interest and penalty wherever likely to be applicable) and being contested to the extent ascertainable and quantifiable
In terms of the rationalized Pay-Scales determined by the AI Management in line with the recommendations of the Justice Dharamadhikari Report (JDC), the AI Management has paid 75% of the allowances payable to various categories effective July 2012 so that any adjustments as a result of the implementation of the JDC Report could be made at the time of final settlement. However, in respect of the remaining 25% of the allowances, the Company has provided for contingent liability to the extent of Rs. 334.2 million (Previous Year: Nil) from the date of transfer of Engineering Employees Payroll to the Company ie effective October-2014.
Based on the JDC recommendations, the revised pay structure for Technical Officers (Support Service) and Aircraft Maintenance Engineers (AMEs) has since been implemented w.e.f. November-2014 and January 2015 respectively. The revised pay structure for Service Engineers is yet to be implemented. Unless the exercise of working out the arrears payable to all the employees is completed, the total quantum of liability on this account is not exactly ascertainable.
Capital Commitments are in respect of estimated amount of contracts remaining to be executed on Capital Account: Nil
2. Fixed Assets
a) In terms of MoU, the moveable engineering assets pertaining to 'Workshop Equipment' and 'Plant & Machinery' have been transferred from Air India at Written Down Value (WDV) of Rs 1,666.2 million as on 01 April, 2014 i.e. Gross block along with accumulated depreciation. The assets with WDV of Rs. 28.6 million also identified & transferred subsequently from AI.
b) The Fixed Assets detail (quantity / location / date of original purchase) available as per AI
records have been transferred to AIESL Fixed Assets record in SAP-ERP.
3. Accounting Practices Followed
a) In line with the consistent practice being followed by the Parent Company, the claims for reimbursements from employees availing medical, educational and other leave without pay, claims of interest from suppliers / other parties, if any, are accounted for on cash basis due to uncertainties involved. Other staff claims are recognized on cash basis.
b) Liability for amounts payable towards expenses are recognized to the extent of claims/ invoices received.
4. Confirmations/Reconciliations
a) The company has sought the confirmation of balances for most of the receivables and payables, however some of the parties only have responded. Wherever the balances confirmed by the parties are not in agreement, the reconciliation is under process.
b) The Service Tax including Input credit to be availed, Tax Deducted at source (TDS), Refunds to be received in respect of Income Tax, VAT, Employee Provident Fund (EPF), Employee State Insurance Scheme (ESIS), Profession Tax, Airport Tax and Revenue Related taxes are being reconciled to be in line with the Returns filed/ statutory records maintained.
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5. Internal Control
The Company is in the process of strengthening the internal control process in the company so as to ensure the coverage of all the areas as envisaged and ensure effective internal controls at stations, regional offices, user departments.
6. Revenue Related Matters:
Third party revenue includes revenue invoiced and collected by Air India and its associated companies and transferred to the Company during the year.
7. Segment Reporting :
The company is engaged in MRO (Maintenance, Repair & Overhaul of aircraft, engines & components) related business, which is its primary business segment.
8. Related Party Transactions:
“Related Party Disclosures” as required by Accounting Standard (AS-18) are given below:
st th Key Management Personnel & Relatives: (From 1 Apr 2014 to 7 Dec 2015)
Sr.No. Name Position on Designation Board
1 Mr. Ashwani Lohani Chairman CMD Air India Ltd. (Appointed w.e.f. 31/08/2015)
2 Mr. Rohit Nandan Chairman CMD Air India Ltd. (Ceased to be CMD w.e.f. 31/08/2015)
3 Mr. G. Ashok Kumar Director Joint Secretary, Ministry of Civil Aviation (Ceased to be Director w.e.f. 23/04/2014)
4 Ms M. Sathiyavathy Director AS & FA, Ministry of Civil Aviation (Ceased to be Director w.e.f. 11/02/2015)
5 Mr. Arun Kumar Director Joint Secretary, Ministry of Civil Aviation (Appointed w.e.f. 23/04/2014 &Ceased to be Director w.e.f. 01/01/2015)
6 Mr. S. Venkat Director Director Finance Air India Ltd. (Ceased to be Director w.e.f. 31/10/2015)
7 Mr. B. S. Bhullar Director Joint Secretary, Ministry of Civil Aviation (Appointed w.e.f. 03/02/2015)
8 Ms. Gargi Kaul Director JS & FA, Ministry of Civil Aviation ( Appointed w.e.f. 06/05/2015)
9 Mr. Vinod Hejmadi Director Director Finance Air India Ltd. (Appointed w.e.f. 07/12/2015)
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No loans or credit transactions were outstanding with Directors or Officers of the Company or their relatives at the end of the year which is required to be disclosed in accounts under the Companies Act, 2013.
The parent company and its subsidiaries are State Controlled enterprise as defined under AS-18 and hence transactions undertaken by the company with the parent company and its subsidiaries do not fall within the definition of related party transactions.
9. (a) AIESL was able to commence its commercial operations w.e.f. 1st Jan'15 since the DGCA certification was issued only effective on this day. Air India has entered into separate agreements defining the service level quality (SLA) and the rates to be paid for the services to be rendered by the Company. These rates have been determined taking into account the market rates as well as the cost of rendering these services. AIESL has commenced its billing only from the 1st Jan'15. The principle of arms length transactions has been reckoned by determining these rates. These rates will be reviewed on a yearly basis in order to align them with the market rates.
(b) Based on the opinion from the tax consultants, the revenue expenditure incurred during the period from October 2014 to December 2014 for practically making ready the MRO Set up for obtaining DGCA License for its planned activities / work considered as directly attributable to DGCA License and accordingly Rs. 271,38,28,069 is capitalized as Intangible Assets.
(c) Wherever the bills for technical handing revenue have been raised on estimated basis, the difference of actual shall be considered in next financial year.
(d) Third party revenue includes revenue invoiced and collected by Air India and its associated companies and transferred to the Company during the year and the applicable taxes have also been invoiced on third party by them.
10. Parent and its Subsidiary Companies
a) Air India Ltd
During the year 2013-14, the company entered into a Memorandum of Understanding (MoU) with its parent company viz. Air India Ltd. (AI) regarding the services to be provided on maintenance and repair and overhaul facilities to Air India. The MoU inter-alia also includes the following:-
1. AI has decided to transfer its MRO business (including infrastructure) to AIESL.
2. AIESL shall obtain all necessary approvals / licenses etc. from all concerned statutory and regulatory authorities / agencies including DGCA of India to carry out & perform MRO activities.
3. AI shall provide AIESL a total equity of Rs. 375 Cr. during first three years and support required for Capital expenditure to the extent of Rs.974 crores till FY 2017.
4. AI shall transfer all its movable assets pertaining to MRO and the value of movable assets to be transferred by AI to AIESL to constitute & form part of the initial equity / investment in AIESL, which will be over and above the cash infusion of Rs 375 Cr. as above.
5. AIESL to share 20% of its labour revenue from third parties from the fourth year of operations or as mutually agreed.
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st AIESL received the DGCA Certificate wef 1 January 2015, however, transactions relating to the company have been transferred by Air India as follows:
st st a) The related income has been transferred from 1 January 2015 to 31 March
2015
st st b) Employee costs has been transferred from 1 October 2014 to 31 March 2015
c) Staff Welfare Expenses and other related expenses have been accounted as transferred by Air India.
d) Total Accumulated Liability against Retirement Benefits (except Medical st
Benefits) of the Employees as on 31 March 2014 have also been transferred.
As per MOU between AIESL & AI as stated above, the written down value of the Assets st
transferred from Air India Ltd to the company as of 1 April 2014 was Rs 1,666.2 million. The Company has shown the cost of the transferred Assets, as Investment by the Parent company pending allotment of Shares. The assets with WDV of Rs. 28.6 million also identified & transferred subsequently from AI which does not form part of such equity investment.
b) Airline Allied Services Limited (AASL)
An MoU has also been entered into with Airline Allied Services Ltd. (AASL), a w h o l l y o w n e d subsidiary of Air India Ltd during 2013-14, wherein AASL has decided to transfer its MRO activities (including infrastructure) to AIESL and AASL agreed to commit its fleet in entirety for all MRO work to AIESL.
As per this MOU, AASL shall transfer its MRO business to AIESL besides transfer of engineering related assets & manpower and other supports etc. However, assets & employees continued in AASL books of accounts. AASL has billed / debited the company for its engineering manpower for the period Jan. to Mar. 2015 pending transfer of its engineering personnel to the company, besides other expenditure.
c) Air India Charter Ltd (AICL)
AnMoU has also been entered into during 2014-15 with Air India Charters Ltd. (AICL), a wholly owned subsidiary of Air India Ltd, wherein AICL has decided to transfer its MRO activities (including infrastructure) to AIESL and AICL agrees to commit its fleet in entirety for all MRO work to AIESL.
Consequent to the cabinet approval to operationlize AIESL as independent e n t i t y f o r M R O services, an MOU has been signed between AICL and AIESL on 07.08.2014to formalise the relationship. As per this MOU, AICL shall transfer its MRO business to AIESL besides transfer of engineering related assets & manpower and other supports etc. However, assets & employees continued in AICL books of accounts. AICL has billed / debited the company for its engineering manpower for the period Jan. to Mar. 2015 pending transfer of its engineering personnel to the company, besides other expenditure.
d) Air India Air Transport Services Ltd (AIATSL)
An amount of Rs 32.3 million (Previous Year: Nil) is receivable by the company from AIATSL as on 31st March 2015 representing revenue towards technical services.
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11. Employee Benefits
(A) General description of Defined Benefit Plan
a) Gratuity: Gratuity is payable to all eligible employees of the Company on superannuation, death, or permanent disablement, in terms of the provisions of the Payment of Gratuity Act.
b) Privilege Leave Encashment: Privilege Leave Encashment is payable to all eligible employees at the time of retirement upto a maximum of 300 days. However, lapsable Privilege Leave which was hitherto allowed to be encashed has been discontinued
steffective 1 April 2013 by AI (except the employees working in operational categories) and the employees have to avail the same.
c) Sick Leave Encashment: Sick Leave encashment is payable to all eligible employees at the time of retirement upto a maximum of 120 days subject to the condition that the employee should have at least 60 days of Sick Leave to his credit. It was also decided by the parent company that sick leave standing to the credit of all existing employees as on 01.07.2012 shall stand frozen and the employee would be allowed to encash the same only at the time of retirement provided that he/she has not exhausted that leave by the time of retirement. Further, it was decided by AI that encashment of sick leave which has accrued beyond 01.07.12 will not be allowed and the employee has to avail the same or the same will lapse.
(B) Defined Contribution Plan
Employees Provident Fund: The Company contributes to Air India and its subsidiary airlines Employees Provident Fund Trusts under the Provident Fund Act, which governs the Provident Fund Plans for eligible employees. The Company as well as the employees contributes 10% of the PF Pay to the Fund out of which Provident Fund is paid to the employees.
(C) Defined Benefit Plans Gratuity & Post Retirement Medical Benefits (Unfunded)
The payroll of the engineering employees has been transferred with effect from 01 Oct 2014. However though the entire liability on account of gratuity and leave encashment of these employees has been transferred as on 01 April 2014 to the Company, the parent Company will
stassume liabilities upto 31 March 2014 in respect of transferred employees.
The provision for Gratuity and Leave encashment has been provided based on the revised pay structure only for those employees for whom the JDC recommendations had been implemented
stby the company as on 31 March 2015. In respect of those categories i.e. Service Engineers for which recommendations are still to be implemented the actuarial liability has been provided on the old pay structure as the impact could not be ascertained.
For terminal dues of the transferred employees, an adhoc amount equal to two third of noncurrent provision as per actuarial valuation being gratuity Rs. 20,10,36,348/- and leave encashment Rs. 28,03,26,304/- has been transferred to Air India and the same is to be confirmed by AI.
The provision does not include provision for expenses on post-retirement medical benefits.
12. Deferred Tax Assets
In view of the recent losses of the Company and no virtual certainty that sufficient future taxable income will be available against which the deferred tax assets can be realized, the same have not been accounted for in the books.
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13. The Micro, Small and Medium Enterprises Development Act
The data related to Micro Small and Medium Enterprises is not available and is in process of compilation/ updating masters in SAP. However payments (due, if any) to such undertakings covered under the Micro, Small and Medium Enterprises Development Act (to the extent identified) have been made within the prescribed time limit/date agreed upon with the supplier and hence no interest is payable for delayed payments. In other cases, necessary compliance/disclosure will be ensured in due course.
14. Remuneration to Auditors
The details of the audit fees and expenses of the Auditors:- (Rupees)
Particulars 2014-15* 2013-14
Audit Fees - For the Year 200,000.0 10,000.0
Audit Fee - earlier years - -
Out of Pocket Expenses* 50,000.0 -
Total 250,000.0 10,000.0
* Provision
15. The parent company has implemented ERP-SAP in AIESL and the regular AMC expenses have been prorated to AIESL.
16. Previous Year figures have been re-grouped/re-arranged wherever considered necessary to be compatible with the Schedule III of the Companies Act 2013, to the extent of information being available and practicable of compilation.
Signatures to the schedules forming part of the Balance Sheet and Statement of Profit and Loss and to the above notes.
For and on Behalf of For and on behalf of the Board
Sd/- Sd/- Sd/-Jhawar Mantri & Associates Ashwani Lohani V.S. HejmadiChartered Accountants Chairman Director-FinanceFRN : 113221W
Sd/- Sd/- Sd/-B.P Mantri Arun K. Jain H.R. JagannathPartner Chief of Finance Chief Executive OfficerM.No. 045701
Place : Navi Mumbai Place : New DelhiDate : 31 March 2016 Date : 31 March 2016