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AIRLINE ALLIED SERVICES LIMITED(A wholly owned subsidiary of Air India Limited)

AASL

CONTENTS

Page No.

1. Board of Directors 1

2. Directors’ Report 2

3. Comments of the Comptroller & Auditor General of India 9

4. Statutory Auditor’s Report 10

5. Balance Sheet as at 31 March 2013 26

6. StatementofProfit&Lossfortheyearended31 March 2013 27

7. Cash Flow Statement 28

8. Notes forming part of the Financial Statements for the year 29 ended 31 March 2013

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BOARD OF DIRECTORS (AS ON 24.12.2013)

Shri Rohit Nandan Chairman

Shri S. Venkat

Shri Pankaj Srivastava

Shri Pankaj Kumar

Capt. S.P.S. Suri

Dr. (Smt.) Shefali Juneja

Smt. Puja Jindal

Auditor

M/s. Prasad Azad & Company Chartered Accountant 1207, Surya Kiran, 19, Kasturba Gandhi Marg, New Delhi-110 001.

Registered OfficeRoom No. 205, IInd Floor, G-5 Building, Terminal-I I.G.I. Airport, Palam, New Delhi-110 037.

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DIRECTORS’ REPORT

The Directors of your company have pleasure in presenting the Thirtieth Annual Report together with audited Statement ofAccountsofAirlineAlliedServicesLtd.fortheyearended31March2013.

During the year, the company incurred a net loss of Rs. 133.39 crores (previous year Rs. 114.74 crores). The main reasons for losses are mainly as follows :

• increasedoperatingcostduetoincreasedATFpricei.e.averagepriceincreasedby7.4%;• additionalcostofRs.7.94crores(17.19cr.)debitedtoAASLonaccountofhigherATFcostarisingdueto

longerpaymentperiodavailedforpaymentofATFinvoicesofPSUoilcompaniesbyAIL;• increaseinrateofexchangefromRs51.53toRs54.80of1US$(i.e.by6.35%),asabout50%ofoperating

cost towards aircraft lease, aircraft maintenance, pilot SIM training etc., was incurred in foreign currency (additionalimpactofRs.13cr.approx.);

• increase in aircraft maintenance (including CRJ aircraft engines refurbishment/ upgradation – approx. Rs.22cr.);

• withdrawalofexemptionoflandingchargesatDelhiforATR/CRJaircraft.

Passenger revenue at Rs.219.35 (Rs 220.33) crores was marginally lower due to lower passengers carried despite higher passenger yields of Rs 5592 (Rs. 4717).

Financial and Physical Performance

The Financial and Physical performance for the year under review vis-a-vis the previous year is given here under:

Financial Performance(Rupees in Crores)

Particulars 2012-13 2011-12 Operating RevenuePassenger Revenue (ATR & CRJ)B737- Freighter RevenueOthers

219.35-

61.79

281.14220.33

3.2271.66

295.21

OperatingExpenses 413.27 410.31OperatingProfit/(Loss) (132.13) (115.10)Prior period Adjustments (1.26) 0.36NetProfit/(Loss)fortheyearBeforeTax (133.39) (114.74)NetProfit/(Loss)fortheyearAfterTax (133.39) (114.74)Share Capital 2.25 2.25

Physical PerformanceParticulars 2012-13 2011-12ASKms (in millions) 401.440 517.947RPKms (in millions) 284.466 347.717Passengers Carried (in millions) 0.392 0.467SeatFactor(%) 70.9 67.1LoadFactor(%) 60.7 64.8

Share Capital :Authorised CapitalThe Authorised Share Capital of the company is Rs. 5 crores divided into 500,000 equity shares of Rs.100/- each.

Issued, Subscribed and Paid-up Capital

As on 31 March 2013, the Issued, Subscribed & Paid-up Share Capital of the Company is Rs.2.25 crores divided into 225,000 fully paid up equity shares of Rs.100/- each. The entire Share Capital of the Company is held by Air India Limited,theholdingcompany.

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Fleet Position

Thefleetpositionofthecompanyasattheyearendconsistedof11leasedaircraftasunder:-

Aircraft Type No. of AircraftATR-42-320 07 LeasedfromM/sAbricLeasingLtd,IrelandBombardier CRJ-700 04 Leasedfromdifferentoverseaslessors

NETwORk/ NEw LINkS

As at the year end, the network of the company consisted of 21 domestic stations and has been operating around 161 flightsperweek.

Technical Reliability

Aircraft-wise Technical Reliability during the year 2012-13 was as under :

a) ATR 42-320 99.02b) CRJ-700 99.32

Aircraft Utilisation

Aircraft utilization during the year 2012-13 was as under :

a) ATR 42-320 10526 : 47b) CRJ-700 6377 : 22

Thecompanyintroducedservicesonthefollowingnewroutes/additionalflightsduringtheyear2012-13:-

a) With ATR Aircraft :● Kochi/Madurai/Kochi–3times/week● Kolkata/Bhubneshwar/Kolkata–7times/week● Kolkata/Ranchi/Patna&Return–7times/week● Bangalore/Mangalore/Bangalore–3times/week

b) With CRJ Aircraft : ● AdditionalflightDelhi/ Jammu/ Delhi & v.v. - 5 times / week ● AdditionalflightDelhi/Srinagar/Delhi&v.v.–6times/week

Operations in the North East

Alliance Air has been operating air services in the North East with ATR aircraft since 2002 in terms of an MOU with the North Eastern Council (NEC). The arrangement of Viability Gap Funding (VGF) to cover operating losses on these NE operationswiththeNECwhichwasinitiallyfora5yearsperiodbeingextendedforfurtherperiodonyeartoyearbasis.Thelastextensionreceivedwastilltheendoftheyear2011.ThecompanyreceivedapprovalandpaymentofVGFfromNEC for its North East operation till 31 December 2011.

PendingapprovalofVGFbyNECfor2012,AllianceAircontinueditsNEoperationswhichhadputhugefinancialstrainon the company. The Company has been following up vigorously with the Ministry of Development of North Eastern Region (DONER) / NEC directly as well as through the Ministry of Civil Aviation for approval of VGF for 2012 by NEC. Since VGF was not approved for 2012 by NEC despite regular follow up, the company withdrew ATR aircraft from NE operations in mid January 2013 and deployed them on other sectors. Thereafter, Planning Commission constituted a Committee headed by its members to consider the VGF issues. The Committee vide its report dated 11 October 2013 recommended that MoCA could provide the VGF gap support for the year 2012 from its overall budget support to Air India. The Committee also recommended that, since the services were restarted effective 10 July 2013 NEC should pay for the same and in the event of non-payment by NEC, the VGF for the same may also be included in the annual budget support to Air India being provided by MoCA and the services may be discontinued. The matter has been taken up with MoCA.

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AtpresentAllianceAiroperatesfollowingflightstoNEregionwithATRaircraftKolkata/Silchar/Kolkata 7 Flights/weekSilchar/Imphal/Silchar 3 Flights/weekGuwahati/Silchar/Guwahati 4 Flights/weekKolkata/Shillong/Kolkata 5 Flights/week

Operations in the Lakshwadeep (Agatti)

Alliance Air resumed its services to Agatti from Kochi during March 2013 against VGF support from the Island Administration/MHAon‘NoProfitNoLoss’basisforMarch2013andtheFinancialYear2013-14.

Human Resources

The staff strength of the company at the close of the year was 1005 (872) including 25 (29) employees on deputation from the parent Company, Air India. Out of above, services of 497(417) employees were seconded to Air India. Therefore, effectively, the Company had 483 (455) employees at the close of the year for in its own operations. All the employees of theCompanyareonfixedtermcontractbasis.Outof the980contractualemployees,418(42.65%)were femaleemployees. Cadre wise as on 31 March 2013, there were 77 Pilots, 498 cabin crew, 101 Engineers, 72 Technicians and remaining 232 were other categories of employees. The Company has been supplementing cabin crew and other manpower as required by Air India.

AASLhadrecruited&deployed497cabincrewtill31March2013ondeputationtoAirIndia.

SincetheCompanycouldnotdevelopexpertiseinthefieldin-house,ithadrecruited5employeesoncontractwhoweresuperannuatedfromAIL,byvirtueoftheirknowledgeandlongexperiencetohandlesomekeypositions,tosatisfytheregulatory requirements.

Ason31March2013,therewere6(5)ex-patriatecommandersonATRand3(1)ex-patriatecommandersonCRJ.Outofthese4weretrainers,3forATRand1forCRJ.Thecompanyendeavourstokeepthenumberofexpatriatepilotstobareminimumtomaintainminimummandatorystrengthofcommandersvis-à-visaircraftfleet.Thereisnoexpatriatepilot in P2 category.

Engineering and Maintenance Activities

ATR-42-320 Aircraft

Kolkata is the main engineering base for maintenance activities on ATR 42-320 aircraft. The Scheduled LineMaintenance and Major Maintenance activities (upto ‘4C’ Check i.e. 16000 FH) are being carried out in-house including specialinspections,snagrectificationsaspertroubleshooting/maintenancemanualsforcontinuedairworthinessofthe aircraft. The base has capability of carrying out replacement of main elements of the aircraft i.e. engines, landing gears, propellers and structural repair etc. which are major maintenance tasks. Infrastructure and capability has been developed to carry out ‘1C’ Check (4000 FH), ‘2C’ Check (8000 FH), ‘4C’ Checks (16000 FH) & ‘8’ yearly check. The structural integrity of the aircraft is ensured by carrying out by Environmental Damage (Corrosions) and Fatigue Damage inspections.

ATR aircraft is being operated from Delhi and Bangalore also. Delhi base has the capacity to carry out maintenance upto ‘3A’ Check on ATR 42 -320 aircraft..

Bombardier CRJ 700 Aircraft

Delhi is the main engineering base for maintenance activities on CRJ 700 aircraft. The Main base has infrastructure and capability to carry out checks till ‘6A’ Check. Heavy maintenance (‘C’ check) of CRJ-700 aircraft is outsourced to a FAA/EASA approved MRO as per the requirements of lease arrangements.

Infrastructure at Outstations

Necessary Line Maintenance infrastructure particularly with reference to transit maintenance has been developed.NecessaryassistanceissoughtfromAirIndiaLimited,wheneverneeded.

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Technical Training

Type Refresher Course for Engineers both for ATR-42-320 and CRJ-700 are carried out in-house at Air India Engineering Training School.

Flight Safety

The company has an independent Flight Safety Department which functions as per the DGCA requirements in proactive manner. Flight Safety Department carries out preventive and investigative functions for the Airline. The preventive functions include, thecockpit voice recordermonitoring, flightdata recordermonitoringand internal safetyauditsofthe stations, being operated byAirlinewhich includes airfield inspection, spot checks, ramp inspection and cockpitsurveillance checks at regular interval. All reported incidents are investigated by the Permanent Investigation Board (PIB) of the company and the recommendations of PIB are included in the operation procedures and policy to prevent recurrences. The investigations are carried out along with DGCA representatives.

AllianceAirduringthefinancialYear2012-13underreviewhadnooccurrenceclassifiedasseriousincidentonCRJ-700aircraft and on ATR-42-320 aircraft. To ensure safety of aircraft following are the activities being carried out on regular basis :

• TheFlightOperationQualityAssurance(FOQA)programmewithprimefunctionofflightsurveillance.• Theflightoccurrenceswhichareclassifiedas incidentsby the regulatorynormsare investigatedby the

Investigation Board of the Airline in coordination with the Air Safety Directorate of the DGCA.• TherecommendationsofInvestigationBoardarecirculatedtotherespectivedepartmentsfortheircompliance

to the applicable recommendations.• TheAirlinehasfacilityfordownloadingthedatafromtheflightdatarecorderandsameismonitoredbyFlight

Safety Department.• RegularInternalSafetyAuditisconductedforsafetyevaluationsoftheAirlineandthefindingsarereported

to the concerned departments and the DGCA.

Training

Thetrainingisanon-goingexerciseintheOperationsDepartment.TheCompanyconductsPilot/CabinCrewandFlightDispatcher,trainingcoursesin-houseforbothinitialandrecurrenttrainingsexceptsimulatortrainingforpilotswhichisoutsourced.

During the year, Alliance Air has converted 3 ATR co-pilots into Commanders and 1 CRJ co-pilots into Commander. 1 CRJ co-pilot is under different stage of up-gradation to commander. With our planned training measures and conversion ofsomeco-pilotsintocommander,wewereabletokeepthenumberofforeigners(Expatriates)pilotstobareminimumlevelconfinedtocommandercategoryincludingtrainer/examiner.

During the year, the Company had also undertaken the specialized type rating training of cabin attendants of third parties aircraft and earned revenue.

Inventory Control

Aircraft inventory consisting of aircraft spare parts and consumable items has been monitored and controlled through computerizedOASISsoftwareofAILwhichisusedforbothAirIndiaLimitedandAirlineAlliedServicesLimitedinventories.AILexerciseitsprocurementandcontrolproceduresforAASLinventoriesalso.TheaircraftinventorywasmigratedfromOASIStoRAMCOsystembyAILduringtheyear2012-13.

Future Perspective

Attheyearend,fleetoftheCompanyhas11aircraftonleasecomprising7ATR-42-320and4CRJ.Outof7ATRaircraft,2 ATR aircraft have been redelivered during the year till date.

Globaltenderhasbeenfloatedforleaseof8ATR-72turbopropaircraftforinductionandreplacementofexistingageingATRfleetandtomeetexpansiondemandinfuture,inlinewithTurnAroundPlan(TAP)ofAIL.Theextensionofleasefor4 aircraft has also been approved for 3-6 months.

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Use of Hindi

TofulfilltheobjectivesoftheOfficialLanguagepolicyoftheGovernment,theCompanyplayeditsroleinpromotingtheusage of Hindi at all levels. Staff were encouraged to work in Hindi. To promote Hindi, a Hindi Pakhwara is conducted every year, wherein employees participate in various competition categories like essay writing, poem reciting etc. Prizes and awards are distributed during the function.

Contribution to Exchequer

TheCompanyhascontributedRs.4.88cores(Rs.5.96crores)toGovernmentexchequerbywayofSalesTaxandotherlevies on Aviation Turbine Fuel.

Industrial Relations

Industrial relations in the Company have been cordial during the year.

Particulars of Employees

Information pursuant to Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules,1975regardingemployeesisannexedwiththeReport.

Director’s Responsibility Statement

YourDirectorsconfirm:

i) thatinthepreparationoftheannualaccounts,theapplicableaccountingstandardshavebeenfollowed;

ii) that they have advised such accounting policies, and applied them consistently and 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 at end of thefinancialyearandoftheprofitorlossoftheCompanyforthatperiod;

iii) thattheyhavetakenproperandsufficientcareforthemaintenanceofadequateaccountingrecordsinaccordancewith the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detectingfraudandotherirregularities;and

iv) that they have prepared the annual accounts on a going concern basis.

Audit Committee

The provisions of Section 292A of the Companies Act, 1956 does not apply to the Company since it is applicable to the Companies having a paid-up Capital of above Rs 5 crores and the paid-up Capital of the Company is only Rs. 2.25 crores.

Statutory Auditors

The Comptroller & Auditor General of India (CAG), has appointed M/s. Prasad Azad & Co., Chartered Accountants as Statutory Auditors of the Company for the year 2012-13.

Auditors Report

The Statutory Auditors have made certain observations in their Audit Report on the accounts for the year ending 31March2013.TheManagement’srepliestotheirobservationsareannexedasaddendumtothisreport.

Comments of Comptroller and Auditor General of India

The comments dated 12 March 2014 of the Comptroller and Auditor General of India (C&AG) under Section 619 (4) of the Companies Act, 1956 on the accounts of the Company for the year ended 31 March 2013 have been received.

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Board of Directors

During the year under report, the Board of Directors held four meetings. As on 31 March 2013, the Board consisted of the following Members :

i) Shri Rohit NandanCMD,AirIndiaLtd.

Chairman

ii) Smt. (Dr.) Shefali JunejaDirector (Finance), Ministry of Civil Aviation

Director

iii) Smt. Puja JindalDirector, Ministry of Civil Aviation.

Director

iv) Shri S. VenkatDirectorFinance,AirIndiaLtd.

Director

v) Smt. Vineeta BhandariExecutiveDirector,NorthernRegion,AirIndiaLimited

Director

vi) Shri Vipin Kumar SharmaSBUHead-(Engine&Airframe),AirIndiaLtd.

Director

vii) Shri G D BraraDirector,Commercial,AirIndiaLtd.

Director

viii) Shri A S Soman,ExecutiveDirector-Operations,AirIndiaLimited

Director

ThemanagementofthebusinessoftheAirlineiscontrolledbyIn-charge/C.O.O.,AASL.ThepresentC.O.O,AASLisShriAnilMehta,ED(CA),AirIndiaLtd.

The Board placed on record its deep appreciation for the valuable services rendered by Shri Vipin K. Sharma, Shri G.D. Brara,Smt.VineetaBhandari,ShriL.R.S.ReddyandShriSyedNasirAliasmemberoftheBoardduringtheirtenure.

TheexistingBoardofDirectorsoftheCompanyason1January2014compriseofthefollowingmembers:-

i) Shri Rohit NandanCMD,AirIndiaLtd.

Chairman

ii) Smt. (Dr.) Shefali JunejaDirector (Finance), Ministry of Civil Aviation.

Director

iii) Smt. Puja JindalDirector, Ministry of Civil Aviation.

Director

iv) Shri S. VenkatDirectorFinance,AirIndiaLtd.

Director

v) Shri Pankaj SrivastavaDirectorCommercial,AirIndiaLtd.

Director

vi) Capt. SPS SuriExecutiveDirector-Operations,AirIndiaLtd.

Director

vii) Shri Pankaj KumarExecutiveDirector-NorthernRegion,AirIndiaLtd.

Director

Acknowledgment

TheBoardofDirectorswishtoexpressgratitudeforthecooperation,guidanceandsupportreceivedfromMinistryofCivilAviation,AirIndiaLtd.andotherGovernmentagencies.TheDirectorsarepleasedtoplaceonrecordtheirappreciationof the sustained and dedicated efforts put in by all the employees.

For and on behalf of the Board

Sd/-Rohit Nandan

ChairmanPlace : New DelhiDate : 19 Feburay 2014

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Statement of Particulars of Empoyees under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules 1975 and forming part of the Director’s Report for the year ended 31 March 2013.

“Employed throughout the year”

S.NO. NAME DESIGNATION AGE GROSS SALARY (Rs )

QUALIFICATION DATE OF JOINING

LAST EMPLOYER

1 CAPT. RAJ KUMAR RANA SR CAPT. - CRJ 47 6456785 MSC 29/11/2006 N.A.

2 CAPT. PRASHANT SHARMA SR CAPT. - CRJ 39 6849366 B.SC. 29/10/2005 N.A.

3 CAPT. NAVEEN SAROHA SR CAPT. - CRJ 36 5869110 B.A. 29/08/2006 N.A.

4 CAPT.SANDEEPSINGHGILL SR. CAPT.-ATR 48 6228255 BSC 01/06/2007 N.A.

5 CAPT. RAKESH KUMAR SR. CAPT.-ATR 49 6813887 B.A. 29/05/2007 N.A.

6 CAPT.SATYAVIR SR. CAPT.-ATR 40 5653670 B.A. 20/07/2007 N.A.

7 CAPT. PRADEEP SHARMA SR. CAPT.-ATR 59 7451421 M.SC.BE (AERO) 10/11/2008 N.A.

8 CAPT.VINAYKUMARSINGH SR. CAPT.-ATR 47 6112315 B.A. 07/05/2010 N.A.

9 CAPT.URMILAYADAV SR. CAPT.-ATR 51 5491976 M A 06/02/2011 N.A.

10 CAPT. BRAHM PRAKASH SR CAPT. - CRJ 56 6673553 N.A. 12/01/2008 N.A.

11 CAPT. GADDAM GIRIDHAR SR CAPT. - CRJ 52 5899645 B.SC. 06/12/2010 N.A.

12 CAPT.WILLIAMNKEENE COMMANDER 53 6654865 EX-PAT 07/12/2007 N.A.

13 CAPT. BIRAJ BIKRAM SHAH COMMANDER 46 7139441 EX-PAT 16/07/2007 N.A.

14 CAPT.SUNILOLI COMMANDER 51 6061524 EX-PAT 18/03/2010 N.A.

15 CAPTEDUARDOENRIQUEALVARADOPINEDA

COMMANDER 47 6487464 EX-PAT 10/12/2011 N.A.

16 CAPT JORGE ISAAC CANO GOMEZ


“Employed for the part of the year”

S.NO. NAME DESIGNATION AGE GROSS SALARY (Rs )

QUALIFICATION DATE OF JOINING

DATE OF LEAVING

LAST EMPLOYER

1 CAPT. HARDEEP SINGH MALHOTRA

SR CAPT. - CRJ 46 1306970 B.SC. 30/04/2009 25.05.2012 N.A.

2 CAPT.RAHULPURI SR CAPT. - CRJ 37 3073657 B.B.A(FLYING) 08/09/2008 16.09.2012 N.A.

3 CAPT.ROHITRIKHYE SR CAPT. - CRJ 33 3262494 B.COM ( P ) 17/09/2008 16.09.2012 N.A.

4 CAPT. AJIT SAROHA SR CAPT. - CRJ 34 5307667 N.A. 17/09/2008 31.01.2013 N.A.

5 CAPT.JOSEPHINEANCILDA SR. CAPT.-ATR 41 1436096 BSC 30/04/2010 09.08.2012 N.A.

6 CAPT. REENU SHEKHAWAT SR. CAPT.-ATR 38 990067 BSC 03/05/2010 24.05.2012 N.A.

7 CAPT.RAULABRAHAMALANIZARDON

COMMANDER 53 5889007 EX-PAT 23/01/2012 22/02/2013 N.A.

8 CAPT. SAMEER MEHTA SR. CAPT.-ATR 28 3896043 BSC 31/03/2009 N.A.

9 CAPT.RANDYSTEVENSCARBROUGH


10 CAPT. PRAMOD KHATRI COMMANDER 40 3784123 EX-PAT 08/08/2012 N.A.

11 CAPT.STEPHENMEYER COMMANDER 48 1881658 EX-PAT 05/12/2012 N.A.

12 CAPT. RAJU RAJBANSHI COMMANDER 50 4365966 EX-PAT 20/07/2012 N.A.

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COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 619(4) OF THE COMPANIES ACT, 1956 ON THE ACCOUNTS OF AIRLINE ALLIED SERVICES LIMITED FOR THE YEAR ENDED 31 MARCH 2013

The preparation of financial statements ofAirline Allied Services Limited for the year ended 31 March 2013 in accordancewiththefinancialreportingframeworkprescribedundertheCompaniesAct,1956istheresponsibilityofthemanagement of the Company. The Staturory Auditors appointed by the Comptroller and Auditor General of India, under Section619(2)oftheCompaniesAct,1956areresponsibleforexpressiongopiniononthesefinancialstatementsundersection 227 of the Companies Act, 1956 based on independent audit in accordance with the Standards on Auditing prescribed by their professional body, the Institute of Chartered Accountants of India. This is stated to have been done by them vide their Audit Report dated 19 February 2014.

I, on behalf of the Comptroller and Auditor General of India, have decided not to review the report of the Statutory Auditor’s on the accounts of Airline Allied Services Limited for the year ended 31 March 2013 and as such have no comments to make under Section 619(4) of the Companies Act 1956.

For and on behalf of the Comptroller and Auditor General of India

Sd/-Vimlendra Patwardhan

Principal Director of Commercial Audit &Ex-officioMember,AuditBoard-I,NewDelhi

Place : New DelhiDate : 12 March 2014

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REPORT OF THE AUDITORS TO THE MEMBERS OF AIRLINE ALLIED SERVICES LTD.

Wehaveaudited theaccompanyingfinancialstatementsofAIRLINE ALLIED SERVICES LIMITED (‘AASL’ or ‘the Company’),whichcomprisetheBalanceSheetasat31March2013,andtheStatementofProfitandLossandCashFlowStatementfortheyearendedandasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.

Management’s Responsibility for the Financial Statements

The Company’sManagement is responsible for the preparation of these financial statements that give a true andfair view of the financial position, financial performance and cash flows of the Company in accordance with theAccountingStandardsnotifiedundertheCompaniesAct,1956(“theAct”)readwiththeGeneralCircular15/2013dated 13 September 2013 of the Ministry of Corporate Affairs in respect of section 133 of the Companies Act, 2013. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentationofthefinancialstatementsthatgiveatrueandfairviewandarefreefrommaterialmis-statement,whetherdue to fraud or error.

Auditor’s Responsibility

Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.Weconductedourauditinaccordancewith theStandardsonAuditing issuedby the InstituteofCharteredAccountantsof India (“the ICAI”).Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assuranceaboutwhetherthefinancialstatementsarefreefrommaterialmis-statement.

Anaudit involvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material mis-statementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheCompany’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopiniononthe effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by management, as well as evaluating the overallpresentationofthefinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourqualifiedauditopinion and except to the extent these standards could not be applied in their entirety for want of adequacy of appropriate internal control system and accounting procedures followed by the Company.

Basis for Qualified Opinion

(i) The financial statements of the Company under report are drawn up on a going concern basis. In view of loss for the year of Rs. 13,338.56 lacs and accumulated losses of Rs. 83,101.84 lacs resulting in erosion of total share capital and negative Net worth to the tune of Rs. 82,876.84 lacs and liability of outstanding dues of the company to its holding company, Air India Limited of Rs. 56,387.28 lacs as on 31 March 2013, we have been given to understand that the assumption of going concern depends upon the continued adequate financial support from the holding company viz. Air India Limited and as informed, Air India Limited & AASL’s Turn Around Plan (TAP) approved by the GoM and the Government.

(ii) Statement of Profit and Loss includes Traffic Revenue of Rs. 22,213.19 lacs (other than grant from NEC Shillong and Agatti) accounted for on the basis of ledger account of Air India Limited and expenditure on Service charges of Rs. 269.99 lacs and Other Operating and Administration expenses of Rs. 35,890.36 lacs [which includes Rs. 793.78 lacs on account of delayed payments to oil companies] accounted for only on the basis of credit and debit notes raised by Air India Limited. In absence of basic records / vouchers / supporting documents and relevant details, the revenue and expenditure stated above remained unverified to that extent.

(iii) System of Inventory Accounting followed by the company is not proper / complete. In this respect our observations are as below -

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(a) In respect of ATR / CRJ aircraft inventories, procurement is made by Air India Limited and later on transferred to the company without any invoice and charging of applicable sales tax (VAT) - amount and its impact on accounts is unascertainable. Moreover, sufficient control does not exist to ensure that all inventory transactions are authorized, processed and accounted completely.

(b) Custom Duty and Freight on aircraft spare parts which form part of aircraft inventories, comprise of freight, duties, incidentals etc. on aircraft inventories owned by the company as well as those taken on lease from the manufacturers and also include freight, incidentals etc. on aircraft components and spares exported for repairs. In the absence of its item wise segregation and loading, the balance of custom duty and freight on aircraft spares amounting to Rs. 642.72 lacs lying at the end of the year under Current Assets and Rs. 7.49 lacs charged to material consumed during the year remained unverified and hence correctness of these amounts and their impact on financials could not be commented upon.

(c) The company is not maintaining any record of Inventories at its stores in Delhi, Hyderabad and Kolkata and the financial figures are incorporated in its books at the year end on the basis of abstract received from Air India Limited showing the values of different categories of inventories. In absence of details, correctness of Inventory could not be verified and its impact on accounts could not be commented upon.

(d) The consumption of inventory is booked at the year end on the basis of balance arrived at from opening stock plus purchases made during the year less closing stock (advised by Air India Limited) at the end of the year instead of accounting on the basis of actual consumption and disclosing the shortages / excesses, if any, separately. Thus it is not in accordance with the accepted inventory accounting practices and AS-2 (revised) on valuation norms issued by the ICAI. Hence, the consumption of inventory amounting to Rs. 617.29 lacs could not be verified and impact on accounts for variance, if any, can not be commented.

(e) Non-compliance of Accounting Standard AS-2 (Revised) on “Valuation of Inventories”-

i. Inventories have been valued without complete identification and allocation of freight, duties, incidentals etc. with respect to individual items (also refer sub-para (b) above).

ii. Further, inventories have been valued at cost as against lower of cost and net realizable value.

Impact of the above on the accounts remained unascertained.

(iv) The accounts with the Airport Authority of India Ltd. and HPCL are un-confirmed and un-reconciled which may include elements of expenditure / income as well. In absence of confirmation and reconciliation as on 31 March 2013, we are unable to comment on their impact on the accounts.

(v) Accounting of certain transactions on settlement basis (Refer Accounting Policy disclosed in Note No. 1.4 and 1.10 (b) & (c)) are not in accordance with accrual method of accounting prescribed under the Act, Accounting Standard AS-1 on “Disclosure of Accounting Policies” and AS-5 (Revised) on “Net Profit or Loss for the period, prior period items and changes in Accounting Policies” issued by ICAI. Amount and impact on accounts unascertained by the Company.

(vi) Accounting policy of the company with respect to accounting of prior period items and prepaid / accrued expenses upto Rs. 10,000/- for individual items (refer Accounting Policy disclosed in Note No. 1.8 and 1.10 (a) in the year of receipt / payment is not in accordance with accrual method of accounting prescribed under the Act and Accounting Standards AS-1 and AS-5 (Revised) issued by the ICAI. Amount and impact on accounts unascertained by the Company.

(vii) The internal control system and accounting procedures are generally in-adequate and not implemented / enforced resulting in lack of regular, complete and correct flow of information, specially in the following areas :

AASL

12

Transactions relating to Traffic Revenue (except charter revenue); Expenditure on Service Charges; Expenditure relating to interrupted trips; Expenditure on SOD Tickets; Retrieval of catering dry stores; ATR / CRJ Aircraft Inventories; Delay in receipt and accounting of credits due from M/s ATR in terms of agreements and consequential

delay in adjustments of withholding tax; Employee leave record and encashment of leave;

(viii) The company has not provided liability for leave encashment to the employees for year-end leave balance as required by AS-15 (revised) issued by the ICAI (Refer Accounting Policy disclosed in Note No. 1.6). Amount and impact on accounts unascertained by the Company.

(ix) Non-accounting of advance passenger receipts, revenue from no show pax and income from cancellation fee, Income from refund administration fees and commission earned on PSF. Amount and impact on accounts unascertained by the Company.

(x) Mail revenue has been charged at a single rate per ton kilometer instead of billing at various rates in addition to the basic rate, viz. documentation charges, valuation charges, cartage charges, demurrage charges etc. (amount and impact on accounts not ascertained by the Company).

(xi) Non-confirmation of balances in respect of Other Long Term Liabilities, Trade Payables, Other Current Liabilities, Long Term Loans & Advances, Other Non-current Assets, Trade Receivables, Short Term Loans & Advances and Other Current Assets. We are unable to comment on the impact of adjustments arising out of non-confirmation of such balances on the financial statements.

(xii) The company has shown contingent liability amounting to Rs. 15,225.26 lacs in respect of income tax demands for which no provision has been made as these demands are said to be disputed by the company in appeals (refer Note No. 24(c)). In view of pending appeals and legal opinion obtained by the company, we are unable to comment upon the liability of the company and its impact on accounts currently is not ascertainable.

(xiii) Debtors include Rs. 2940.35 lacs recoverable from M/s Gati Limited outstanding since February 2009 for aircrafts operated by the Company. Air India Limited had invoked their bank guarantee and recovered Rs. 3000 lacs which was transferred to the Company and the same has been kept by the Company in a separate account of “Security Deposit - Gati” under ‘Other Long Term Liabilities’. The matter is stated to be in dispute between Air India Limited and M/s Gati Ltd. wherein the Arbitral Tribunal has given award of Rs. 2672.95 lacs (including interest etc.) against Air India Limited. An appeal has been filed by Air India Limited before the Honb’le Delhi High Court against the arbitral award which is pending. Accordingly, we are unable to express our opinion on the impact on the company’s accounts for non-recoverability of outstanding dues or amount to be refunded for guarantee invoked or payment of awarded amount.

(xiv) Transfer Pricing Documentation and Accountant’s Report for ‘Specified Domestic Transactions’ entered into by the Company with persons referred to in Section 40A(2)(b) of the Income Tax Act, 1961 for the year ended 31.03.2013 as required under Section 92 to 92E of the Income Tax Act, 1961 has not been obtained by the Company. Hence, we are unable to comment whether the specified domestic transactions were undertaken at Arm’s Length Price and also on impact of transfer pricing adjustments, if any, on the financial statements for the year.

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13

We are unable to comment on the impact on the financial statements referred to in this report for paras stated in ‘Basis for Qualified Opinion’ herein above for the reasons given in each para.

Qualified Opinion

Inouropinionandtothebestofourinformationandaccordingtotheexplanationsgiventous,except for the effect of the matters described in the Basis for Qualified Opinion paragraph,theaforesaidfinancialstatementsreadtogetherwith thesignificantaccountingpoliciesandnotes thereongive the information requiredby theAct in themannersorequired and give a true and fair view in conformity with the accounting principles generally accepted in India:

(a) inthecaseoftheBalanceSheet,ofthestateofaffairsoftheCompanyasat31March2013;(b) inthecaseoftheStatementofProfitandLoss,oftheLossoftheCompanyfortheyearendedonthatdate;

and(c) inthecaseoftheCashFlowStatement,ofthecashflowsfortheyearendedonthatdate.

Report on Other Legal and Regulatory Requirements

1. AsrequiredbytheCompanies(Auditor’sReport)Order,2003(“theOrder”)issuedbytheCentralGovernmentofIndiaintermsofSub-Section(4A)ofSection227oftheAct,wegiveintheAnnexureastatementonthemattersspecifiedinparagraphs4and5oftheOrder.

2. As required by section 227(3) of the Act, we report that:

(a) Except for the effects of matters described in the Basis for Qualified Opinion paragraphs (i), (ii), (iii), (iv), (vii), (ix), (xi) and (xiv) hereinabove,wehaveobtainedalltheinformationandexplanationswhichtothe best of our knowledge and belief were necessary for the purpose of our audit;

(b) Except for the effects of matters described in the Basis for Qualified Opinion paragraphs (ii), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii) and (xiv) hereinabove, in our opinion proper books of account as required by law have been kept by theCompany so far as appears fromour examination of thosebooks;

(c) TheBalanceSheet,StatementofProfitandLoss,andCashFlowStatementdealtwithbythisReportareinagreementwiththebooksofaccount;

(d) Except for the effects of matters described in the Basis for Qualified Opinion paragraphs (iii)(d) & (e), (v), (vi) and (viii) hereinabove,inouropinion,theBalanceSheet,theStatementofProfitandLoss,andtheCashFlowStatementcomplywiththeAccountingStandardsnotifiedundertheActreadwiththeGeneral Circular 15/2013 dated 13 September 2013 of the Ministry of Corporate Affairs in respect of section 133oftheCompaniesAct,2013;and

(e) InviewofGovernmentNotificationNo.GSR829(E)dated21October2003,GovernmentCompaniesareexemptfromtheapplicabilityofprovisionsofsection274(1)(g)oftheAct.

For and on behalf of PRASAD AzAD & CO.Chartered Accountants

FRN. : 001009N

Sd/-(K. M. Azad)

PartnerM. No.: 05125

Place : New DelhiDated : 19 February 2014

AASL

14

ANNEXURE TO THE AUDITOR’S REPORT

Referred to in paragraph ‘1’ of our report of even date

(i) (a) Therecordsmaintainedbythecompanyinrespectofitsfixedassetsarenotconsideredtobeproperinsofar as these do not give full particulars of quantitative details, asset identification nos. and situation of fixed assets.

(b) Accordingtotheinformationandexplanationsgiventous,physicalverificationofFixedassetshasnotbeenconducted on biennial basis as required by Accounting policy no. 1.2. However, we understand that the CompanyhadconductedphysicalverificationofFixedAssetsason31.03.2012anddiscrepanciesnoticedonthatverificationhavebeenaccountedforduringtheyearonly.Further,nophysicalverificationoffixedassets has been carried out during 2012-13.

(c) Subjecttocommentinpara(b)above,duringtheyear,nosubstantialpartoffixedassetshavebeendisposedoffbytheCompanyexceptRs.35.43lacswrittenoff/transferredduringtheyearonthebasisofphysicalverificationoffixedassetsason31.03.2012.Further,basedontheinformationandexplanationsprovided,in our opinion this written off / transfer does not affect the going concern of the Company.

(ii) (a) Accordingtoinformationandexplanationsgiventous,physical verification of inventory has not been conducted by the Company during the year. Accordingly, we are of the opinion that the frequency of verification is not reasonable.

(b) In view of sub para (a) above, we are unable to comment on the reasonableness and adequacy of procedures of verification followed by the Management in relation to the size of the company and the nature of its business.

(c) As explained to us, inventories for ATR / CRJ Aircraft are procured by Air India Limited and records relating to receipts, issues and closing stock are maintained by Air India Limited. Further, accounting entries by the Company are made for receipts on the basis of advice from Air India Limited which is delayed in almost all cases and accounting of entries for issues is done at the year end only. Accordingly, we are unable to comment whether the company has maintained proper records of inventory.

(iii) (a) According to the informationandexplanationsgiventous,thecompanyhasneithergrantednortakenanyloanssecuredorunsecuredto/fromcompanies,firmsorotherpartiescoveredintheregistermaintainedunder section 301 of the Act during the year.

It may however be mentioned that the company has granted an interest free unsecured loan of Rs. 2.61 lacs to an ex-deputationist from Government of India, which has not been recovered since long.

(b) Basedontheinformationandexplanationsprovided,sincethecompanyhasnotgranted/takenanyloansexceptasstatedabove,thesub-clauses(b)to(g)ofthisclausearenotapplicable.

(iv) Inouropinionandaccordingtotheinformationandexplanationsgiventous,internal control procedures are not commensurate with the size of the company and nature of its business with regard to purchase of fixed assets and inventory, recording of revenue, inventory control and certain expenditure and services (also refer paras (ii), (iii) and (vii) of ‘Basis of Qualified Opinion’ of our Audit Report). The weaknesses in internal control procedures have been observed and reported repeatedly due to continued failure and non improvement over the years.

(v) (a) Basedontheauditproceduresappliedbyusandaccordingtotheinformationandexplanationprovidedbythe management, we are of the opinion that there are no particulars of contracts and arrangements referred to in Section 301 of the Act that need to be entered into the register required to be maintained under that section.

(b) Accordingly, reporting under this clause is not required.

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15

(vi) Accordingtotheinformationandexplanationsgiventous,thecompanyhasnotacceptedanydepositsfromthepublic during the year, therefore, provision of Section 58A and 58AA or any other relevant provisions of the Act and the rules framed there under are not applicable to the company.

(vii) The internal audit function was carried out during the year by a firm of chartered accountants appointed by the management. In our opinion, the internal audit system needs to be strengthened and improved to make it commensurate with its size and nature of the company’s business in order to have adequate coverage of the transactions, specially in the areas like lease and other connected agreements for ATR / CRJ aircraft operations, revenue receipts, fuel upliftment / payments and inventory control and frequency of audit and compliance to the internal audit findings.

(viii) We have been informed that the Central Government has not prescribed for the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Act.

(ix) (a) Accordingtotheinformationandexplanationsgiventousandtherecordsofthecompanyexaminedbyus,undisputedstatutoryduesincludingProvidentFund,Employees’StateInsurance,IncomeTax,SalesTax,WealthTax,ServiceTax,CustomDuty,ExciseDuty,Cessandotherstatutorydues,asapplicable,havegenerally been regularly deposited with the appropriate authorities, however cases of delay in deposit were noticed in respect to tax deducted at source and significant delays in deposit in cases of service tax were observed. Custom duty payments are handled by Air India Limited but confirmation from Air India Limited was not made available to us as to whether there are any undisputed dues pending at the year end or not.

(b) According to the information and explanations given to us, as at 31st March 2013, there are no disputed dues for Wealth Tax, Service Tax, Cess, Sales Tax and other statutory dues etc. outstanding and unpaid at the year end except the following disputed dues for Income Tax as disclosed in Note No. 24(c) to the financial statements are as below:

Statute & nature of dues Amount(Rs. in lac)

Period to which the amount relates

Forum where the dispute is pending

IncomeTaxdemand Rs. 140.44 A.Y.1997-1998 Application for restoration of Appeal with ITAT is under process

IncomeTaxdemand Rs. 174.31 A.Y.2000-2001 Appeal pending with ITATIncomeTaxpenaltyu/s271(1)(c)

Rs. 31.99 A.Y.2004-2005 Appeal pending with CIT(A)

IncomeTaxdemand Rs. 4732.25 A.Y.2008-2009 Appeal pending with ITATIncometaxdemand Rs. 10146.27 A.Y.2010-2011 Appeal pending with CIT

Further, since the Custom duty payments are handled by Air India Limited, confirmation from Air India Limited was not made available to us as to whether there are any disputed dues pending at the year end or not.

(x) The company has accumulated losses at the year end and its net worth is in negative. The company has incurred cash losses during the year under report and also in the immediately preceding financial year.

(xi) Accordingtotherecordsofthecompanyandonthebasisofinformationandexplanationsgiventous,thereisnoamountduetofinancialinstitutionsorbanksordebentureholders.

(xii) Accordingtotherecordsofthecompanyandonthebasisoftheinformationandexplanationsgiventous,thecompany has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

(xiii) Inouropinion,consideringthenatureofactivitiescarriedoutbythecompanyduringtheyear,theprovisionsofanyspecialstatuteapplicabletochitfund/nidhi/mutualbenefitfund/societiesarenotapplicabletoit.Accordingly,the provisions of this clause are not applicable to the company.

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16

(xiv) Accordingtotherecordsofthecompanyandonthebasisofinformationandexplanationsgiventous,thecompanyhas no dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of this clause are not applicable to the company.

(xv) Accordingtotherecordsofthecompanyandonthebasisofinformationandexplanationsgiventous,thecompanyhasnotgivenanyguaranteeforloanstakenbyothersfrombankorfinancialinstitutions.

(xvi) Accordingtotherecordsofthecompanyandonthebasisofinformationandexplanationsgiventous,theCompanyhas not obtained any term loans during the year. Accordingly, the provisions of this clause are not applicable to the company.

(xvii) AccordingtotherecordsofthecompanyandonthebasisofinformationandexplanationsgiventousandonanoverallexaminationofthebalancesheetoftheCompany,we report that funds amounting to Rs. 13936.48 lacs raised on short term basis in the form of excess of current liabilities over current assets have been used for funding the operating losses of the Company.

(xviii)Accordingtotheinformationandexplanationsgiventous,thecompanyhasnotmadeanypreferentialallotmentof shares during the year. Accordingly, the provisions of this clause are not applicable to the Company.

(xix) Accordingtotheinformationandexplanationsgiventous,thecompanyhasnotissuedanydebenturesduringtheyear. Accordingly, the provisions of this clause are not applicable to the Company.

(xx) Accordingtotheinformationandexplanationsgiventous,thecompanyhasnotraisedanymoneybypublicissueduring the year. Accordingly, the provisions of this clause are not applicable to the Company.

(xxi) No details have been provided to us by Vigilance Department of the company as to whether any fraud on or by the company has been noticed or reported during the year. Further to above, during the course of our examinationofthebooksofaccountcarriedoutinaccordancewiththegenerallyacceptedauditingpracticesinIndia,andasperexplanationsfurnishedtousbythemanagement,wehaveneithercomeacrossanyinstancesoffraud on or by the company or noticed or reported during the year, nor have we been informed of such cases by the management.

For and on behalf of PRASAD AzAD & CO.Chartered Accountants

FRN. : 001009N

Sd/-(K. M. Azad)

PartnerM. No.: 05125

Place: New DelhiDate : 19 February 2014

AASL

17

MANAGEMENT’S REPLIES TO THE AUDITOR’S REPORT OF THE STATUTORY AUDITORS FOR THE FINANCIAL YEAR 2012-2013

Sr. No Audit Observation Management Comments(i) ThefinancialstatementsoftheCompanyunder

report are drawn up on a going concern basis. In view of loss for the year of Rs. 13,338.56 lacs and accumulated losses of Rs. 83,101.84 lacs resulting in erosion of total share capital and negative Net worth to the tune of Rs. 82,876.84 lacs and liability of outstanding dues of the company to its holding company, Air India LimitedofRs.56,387.28lacsason31March2013, we have been given to understand that the assumption of going concern depends upon thecontinuedadequatefinancialsupport fromtheholdingcompanyviz.AirIndiaLimitedandas informed,Air India Limited &AASL’s TurnAround Plan (TAP) approved by the GoM and the Government.

TheCompanyisawhollyownedsubsidiaryofAirIndiaLtd(AIL). The parent Company,AIL has been supporting theoperationsofAllianceAirtofullextentintermsofinfrastructure,manpowerandfinancialsinceitsoperationalisation.The Turn Round Plan (TAP) approved by the Govt (which entailsbothoperational&financialturnaround),coversAIL&itssubsidiaries includingAASLcovering10yearsperiodfrom 2011 to 2020. According to the TAP, the Govt. of India has already approved infusion of additional equity over the years and financialrestructuringofAIL to improve itsnetworth/liquidity,whichwouldalsohave impactoncontinuedfinancial support forthesubsidiariesincludingAASL.In view of the foregoing & the continued support of the GOI toAILandassuranceforoperational/financialsupportfromthe parent company, accounts are being prepared on going concern basis.

(ii) Statement of Profit and Loss includes TrafficRevenue of Rs. 22,213.19 lacs (other than grant from NEC Shillong and Agatti) accounted for on the basis of ledger account of Air India Limited and expenditure on Service chargesof Rs. 269.99 lacs and Other Operating and AdministrationexpensesofRs.35,890.36lacs[which includes Rs. 793.78 lacs on account of delayed payments to oil companies] accounted for only on the basis of credit and debit notes raisedbyAirIndiaLimited.Inabsenceofbasicrecords / vouchers / supporting documents and relevant details, the revenueand expenditurestated above remained unverified to thatextent.

IntermsoftheMOUbetweenAirIndiaandAASL,AirIndiaprovides sales marketing and booking facilities and other supportservicesfortheAASLoperations.Further, as explained in detail during audit the revenueaccounting computerized system introduced byAIL for itsandAASLflights,therevenueforpassengersflown,excessbaggage and cargo carried onAASL flights are capturedflight-wiseforAASLflightsbasedonflightcoupons,EBTs&AWBs.Therevenueearningsforpassengerrevenue,excessbaggage & freight are therefore captured and credited by AIL toAASL on the basis of flight wise monthly revenuereports generated on said elaborate computerized revenue accounting system. Therefore, revenue earnings ofAASLflights accounted as per Para 1.4 of Note 1 (Accounting Policy), are supported by monthly revenue reports. As per cooperation/understandingbetweenAIL&AASLoftheMoUs,AASL flights are captured on the said elaborate commonrevenue accounting system with segregated detailed reports forAASLflights,thusavoidingparallelsystem.The basic records for the debits / credits have been maintained by the holding company, which has its own controls & procedures and its records are subject to the audits.

(iii) System of Inventory Accounting followed by the company is not proper / complete. In this respect our observations are as below -

(a) In respect of ATR / CRJ aircraft inventories, procurementismadebyAirIndiaLimitedand later on transferred to the company without any invoice and charging of applicablesales tax(VAT)-amountandits impact on accounts is unascertainable. Moreover,sufficientcontroldoesnotexistto ensure that all inventory transactions are authorized, processed and accounted completely.

Air India only provides administrative support in procurement & stocking of the aircraft inventory in terms of MoU. However, the payments to the vendors are mostly made by the company, hence, no sale involved. Suitable disclosure made in Notes No. 26 (i) GRANs are issued and inventory statements are prepared and certified separately in respect of ATR/ CRJ aircraftinventory, which because of being unique to these aircraft type above & not common toAIL aircraft fleet of airbus /boeing,standout,captured&reportedseparatelyasAASLaircraft inventory transactions.

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18

Sr. No Audit Observation Management CommentsMonthly computerized statements of inventory showing item-wise opening & closing stock, consumptions, discrepancies i.r.o.AASLfleetarereceivedfromAILsystemwhichareusedfor accounting of inventory and consumption.AIL systems have elaborate and adequate control andinternal check procedures for procurement, issue, stocking, insurance segregation etc for all inventory which is subject tophysicalchecksbyinternalauditandstockverifies&suchcontrolsareappliedonAASLaircraftinventoryequally.

(b) Custom Duty and Freight on aircraft spare parts which form part of aircraft inventories, comprise of freight, duties, incidentals etc. on aircraft inventories owned by the company as well as those taken on lease from the manufacturers and also include freight, incidentals etc. on aircraftcomponentsandsparesexportedfor repairs. In the absence of its item wise segregation and loading, the balance of custom duty and freight on aircraft spares amounting to Rs. 642.72 lacs lying at the end of the year under Current Assets and Rs. 7.49 lacs charged to material consumed during the year remained unverifiedandhencecorrectnessoftheseamounts and their impact on financialscould not be commented upon.

Suitable disclosure made in Notes No. 26 (iii) Also refer to reply to para (a) above.

(c) The company is not maintaining any record of Inventories at its stores in Delhi, Hyderabad and Kolkata and the financial figures are incorporated in itsbooks at the year end on the basis of abstract received fromAir India Limitedshowing the values of different categories of inventories. In absence of details, correctness of Inventory could not be verifiedanditsimpactonaccountscouldnot be commented upon.

Suitable disclosure made in Notes No. 26 (i). Also refer reply to para (a) above.

(d) The consumption of inventory is booked at the year end on the basis of balance arrived at from opening stock plus purchases made during the year less closing stock (advised by Air India Limited) at the end of the year insteadof accounting on the basis of actual consumption and disclosing the shortages /excesses,ifany,separately.Thusitisnotin accordance with the accepted inventory accounting practices and AS-2 (revised) on valuation norms issued by the ICAI. Hence, the consumption of inventory amounting to Rs. 617.29 lacs could not be verified and impact on accounts cannot be commented.

Suitable disclosure made in Notes No. 26 (i). Also refer reply to para (a) above.

AASL

19

Sr. No Audit Observation Management Comments(e) Non-compliance of Accounting Standard

AS-2 (Revised) on “Valuation ofInventories”-

i. Inventories have been valued without complete identification and allocation offreight, duties, incidentals etc. with respect to individual items (also refer sub-para (b) above).

Suitable disclosure made in Notes No. 26 (iii)

ii. Further, inventories have been valued at cost as against lower of cost and net realizable value.

Impact of the above on the accounts remained unascertained.

Inventories are valued at weighted average cost, as disclosed in the Notes No. 12

(iv) The accounts with the Airport Authority of India Ltd. and HPCL are un-confirmed andun-reconciled which may include elements of expenditure / income as well. In absence ofconfirmationandreconciliationason31March2013, we are unable to comment on their impact on the accounts.

Suitable disclosures have been made in Notes No. 31. Reconciliation is an ongoing process with regular parties like HPCLandAAI.

(v) Accounting of certain transactions on settlement basis (Refer Accounting Policy disclosed in Note No. 1.4 and 1.10 (b) & (c)) are not in accordance with accrual method of accounting prescribed under the Act, Accounting Standard AS-1 on “Disclosure of Accounting Policies”andAS-5 (Revised)on “NetProfitorLoss forthe period, prior period items and changes in Accounting Policies” issued by ICAI. Amountand impact on accounts unascertained by the Company.

This policy is being consistently followed over the years.

(vi) Accounting policy of the company with respect to accounting of prior period items and prepaid / accrued expenses upto Rs. 10,000/- forindividual items (refer Accounting Policy disclosed in Note No. 1.8 and 1.10 (a) in the year of receipt / payment is not in accordance with accrual method of accounting prescribed under the Act and Accounting Standards AS-1 and AS-5 (Revised) issued by the ICAI. Amount and impact on accounts unascertained by the Company.

ThePriorperiodandpre-paidexpenseshavebeenaccountedfor as per Note No 1.8 & 1.10

(vii) The internal control system and accounting procedures are generally in-adequate and not implemented / enforced resulting in lack of regular,completeandcorrectflowofinformation,specially in the following areas :

Transactions relating to Traffic Revenue(exceptcharterrevenue);

ExpenditureonServiceCharges;

Theholdingcompany,AirIndiaprovidesflighthandling,salesmarketing and booking and other services to the Company in terms of MoU signed between the two. The holding companyappliestoAASLtransactionswhichareidentified,reported & accounted separately, its own inventory control system & accounting procedures and its records are subject to audit. The comments below, which are mainly arising out of transactions related to Air India, may be taken with this point in view. Revenue is accounted in terms of declared para 1.4 of Notes No. 1

Service Charges are reimbursed on debits Air India as per the MoU pertaining to transactions handled by their agents for which relevant records are maintained at their end.

AASL

20

Sr. No Audit Observation Management Comments Expenditurerelatingtointerruptedtrips;

ExpenditureonSODTickets;

Retrievalofcateringdrystores;

ATR/CRJAircraftInventories;

Delay in receipt and accounting of credits due from M/s ATR in terms of agreements and consequential delay in adjustments of withholdingtax;

Employee leave record and encashment ofleave;

The relevant records for interrupted trips are available. For expenditureincurredbyAirIndiaonbehalfofthecompany,adequate records and control & procedures exist at AirIndia. The SOD travel is as per SOD order issued from Alliance Air. TheexpenditureisbookedasperthedebitsfromAirIndia.The accounting for retrieval of dry stores is as per the advice from the respective regions.Theinventoryisspecifictoaircrafttype.TheprocurementonbehalfofAASLismadebyAirIndia.TheaccountingismadebyAASLasalreadydisclosedinNotesNo26(i). Also refer reply to para iii (a) above.Follow up with ATR is regular for issuance of credit notes. The delay in adjustment of credits is also due to delay in payments to ATR.

Noted.

(viii) The company has not provided liability for leave encashment to the employees for year-end leave balance as required by AS-15 (revised) issued by the ICAI (Refer Accounting Policy disclosed in Note No. 1.6). Amount and impact on accounts unascertained by the Company.

AASL employees are entitled to PL encashment up toa maximum of 15 days in a financial year subject to theprovisions of rule in this regard. It is further subject to prior approval of the Competent Authority and can not be claimed as a right. The employees are under FTEA and any unused balance at the time of cessation of the respective Agreement (including resignation) in this regard lapses automatically

(ix) Non-accounting of advance passenger receipts,revenuefromnoshowpaxandincomefrom cancellation fee, Income from refund administration fees and commission earned on PSF. Amount and impact unascertained by the Company.

Passenger revenue is accounted on the basis of flownpassenger in terms of declared Accounting Policy in para 1.4 of Notes No 1.

(x) Mail revenue has been charged at a single rate per ton kilometer instead of billing at various rates in addition to the basic rate, viz. documentation charges, valuation charges, cartage charges, demurrage charges etc. (amount and impact not ascertained by the Company).

Mail revenue is credited by AIL for mail carried (MTKM)based on single rate / MTKM awarded and approved by Dept.ofPosttoAIL.Alsorefertopara1.4 of Note No 1.

(xi) Non-confirmation of balances in respect ofOther Long Term Liabilities, Trade Payables,Other Current Liabilities, LongTerm Loans &Advances, Other Non-current Assets, Trade Receivables, Short Term Loans & Advancesand Other Current Assets. We are unable to comment on the impact of adjustments arising outofnon-confirmationofsuchbalancesonthefinancialstatements.

The reconciliation is a continuous process.

AASL

21

Sr. No Audit Observation Management Comments(xii) The company has shown contingent liability

amounting to Rs. 15,225.26 lacs in respect of income tax demands for which no provisionhas been made as these demands are said to be disputed by the company in appeals (refer Note No. 24(c)). In view of pending appeals and legal opinion obtained by the company, we are unable to comment upon the liability of the company and its impact on accounts currently is not ascertainable.

Disclosed as Contingent liability in Notes No 24 ( c ) & 25.

(xiii) Debtors include Rs. 2940.35 lacs recoverable fromM/sGatiLimitedoutstandingsinceFeb’2009for aircrafts operated by the Company. Air India Limitedhadinvokedtheirbankguaranteeandrecovered Rs. 3000 lacs which was transferred to the Company and the same has been kept by the Company in a separate account of “Security Deposit - Gati” under ‘Other LongTermLiabilities’.Thematter isstated tobe indisputebetweenAirIndiaLimitedandM/sGatiLtd.whereintheArbitrationTribunalhasgivenawardofRs.2672.95Lacs (including interestetc.) againstAir India Limited.Anappeal hasbeen filed by Air India Limited before theHonb’le Delhi High Court against the arbitral award which is pending. Accordingly, we are unabletoexpressouropinionontheimpactonthe company’s accounts for non-recoverability of outstanding dues or amount to be refunded for guarantee invoked or payment of awarded amount.

Disclosed in Note No. 35The agreement was between Air India & GATI and the matter is subjudice.

(xiv) Transfer Pricing Documentation and Accountant’s Report for ‘Specified DomesticTransactions’ entered into by the Company with persons referred to in Section 40A(2)(b) oftheIncomeTaxAct’1961fortheyearended31.03.2013 as required under Section 92 to 92EoftheIncomeTaxAct,1961hasnotbeenobtained by the Company. Hence, we are unable to comment whether the specified domestictransactionswereundertakenatArm’sLengthPrice and also on impact of transfer pricing adjustments,ifany,onthefinancialstatementsfor the year.

TheCompanyisawhollyownedsubsidiaryofAirIndiaLtd.IntermsoftheMoUbetweentwocompanies,AILprovidessupport towards collection & management of revenues for AASL flights through a common reservation system,providingfundstomeetoperationalexpenses,handlingonbehalf of the Company and claiming these amounts through debits / credits. The amount incurred exclusively for onecompany is re-imbursed / advised through debit / credit advicesexchangedbetween the twocompanies fromtimeto time. The charges are as per the MoU agreed upon as followed in the previous years. The year-end amount shows a net result and represents a running account. As such, the transactions being largely based on re-imbursements & transferred through debit / credit advices, it is, therefore, felt representing fair & reasonable charges / amount in respect of such transactions as being consistently followed. Themanagement is thus of the opinion that the specifiedregulationshallnothaveanysignificant impactparticularlyontheamountoftaxprovision.However,adjustmentaction,if any required, would be taken in the following financialyear.

AASL

22

ANNEXURE TO THE AUDITOR’S REPORT (REFERRED TO IN PARAGRAPH “1” FOR OUR REPORT OF EVEN DATE)

Sr. No. Audit Observations Management Comments(i) (a) The records maintained by the company in respect of

itsfixedassetsarenotconsideredtobeproperinsofaras these do not give full particulars of quantitative details, asset identification nos. and situation of fixed assets.

Noted.

(b) According to the informationandexplanationsgiven tous, physical verification of Fixed assets has not beenconducted on biennial basis as required by Accounting policy no. 1.2. However, we understand that the Company hadconductedphysical verificationofFixedAssetsason31.03.2012anddiscrepanciesnoticedonverificationhave been accounted for during the year only. Further, nophysicalverificationoffixedassetshasbeencarriedout during 2012-13.

Noted. However, as stated, the physical verification of assets as on 31.03.2012 wasconducted during 2012-13.

(c) Subject to comment in para (b) above, during the year, nosubstantialpartoffixedassetshavebeendisposedoffby theCompanyexceptRs.35.43 lacswrittenoff /transferred during the year on the basis of physical verification of fixed assets as on 31.03.2012. Further,basedontheinformationandexplanationsprovided,inour opinion this written off / transfer does not affect the going concern of the Company.

Statement of facts. Selfexplanatory

(ii) (a) According to information and explanations givento us, physical verification of inventory has not been conducted by the Company during the year. Accordingly, we are of the opinion that the frequency of verification is not reasonable

The aircraft inventory is procured, managed & controlled / warehoused by the parent company, AIL and is subject to physical verification bystock room personnel and internal audit.

(b) In view of sub para (a) above, we are unable to comment on the reasonableness and adequacy of procedures of verification followed by the Management in relation to the size of the company and the nature of its business.

Please refer reply to (a) above

(c) As explained to us, inventories for ATR / CRJ Aircraft are procured by Air India Limited and records relating to receipts, issues and closing stock are maintained by Air India Limited. Further, accounting entries by the Company are made for receipts on the basis of advice from Air India Limited which is delayed in almost all cases and accounting of entries for issues is done at the year end only. Accordingly, we are unable to comment whether the company has maintained proper records of inventory.

The aircraft inventory is maintained / controlled by Air India on OASIS (migrated to RAMCO during the year) system and adequate records for receipt and issue of material are generated / available.Since, inventory is maintained and controlled by AIL, action for discrepancies, if any, istaken after verifications of records/monthlystatementswithassistanceofAIL.

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23

Sr. No. Audit Observations Management Comments(iii) (a) According to the informationandexplanationsgiven to

us, the company has neither granted nor taken any loans securedorunsecuredto/fromcompanies,firmsorotherparties covered in the register maintained under section 301 of the Act during the year.

It may however be mentioned that the company has granted an interest free unsecured loan of Rs. 2.61 lacs to an ex-deputationist from Government of India, which has not been recovered since long.

Noted.

The matter is being followed up forrecovery / settlement.

(b) Based on the information and explanations provided,since the company has not granted/ taken any loans exceptasstatedabove,thesub-clauses(b)to(g)ofthisclause are not applicable.

Statement of fact.

(iv) In our opinion and according to the information and explanationsgiven tous, internal control procedures are not commensurate with the size of the company and nature of its business with regard to purchase of fixed assets and inventory, recording of revenue, inventory control and certain expenditure and services (also refer paras (ii), (iii) and (vii) of ‘Basis of Qualified Opinion’ of our Audit Report). The weaknesses in internal control procedures have been observed and reported repeatedly due to continued failure and non improvement over the years.

The company has its own internal control procedures with regard to the expenditure /purchases.Asexplained inpara2 (x)above,allmajorpurchasesaremadethroughAIL.AsexplainedrevenueforAASLflightsiscontrolledand captured through an elaborate revenue accounting system. The sale and marketing of AASL flights is also administered throughAIL common infrastructure. Thus, RevenueAccounting infrastructure maintained by Air India (the parent / holding company) is being utilized and relied upon by the company. The holding company handles primary transactions and maintains basic records. Same holds true for expenses / payments made by AILand debited toAASL.AIL has elaborate andadequate internal control and internal checks and subject to various audits. All these transactionsofAASLaresubjecttosaidcontrolprocedures.

(v) (a) Based on the audit procedures applied by us and according to the information and explanation providedby the management, we are of the opinion that there are no particulars of contracts and arrangements referred to in Section 301 of the Act that need to be entered into the register required to be maintained under that section.

Statement of fact.

(b) Accordingly, reporting under this clause is not required. Self-explanatory.(vi) According to the information andexplanations given to us,

the company has not accepted any deposits from the public during the year, therefore, provision of Section 58A and 58AA or any other relevant provisions of the Act and the rules framed there under are not applicable to the company.

Statement of fact.

(vii) The internal audit function was carried out during the year by a firm of chartered accountants appointed by the management. In our opinion, the internal audit system needs to be strengthened and improved to make it commensurate with its size and nature of the company’s business in order to have adequate coverage of the transactions, specially in the areas like lease and other connected agreements for ATR / CRJ aircraft operations, revenue receipts, fuel upliftment / payments and inventory control and frequency of audit and compliance to the internal audit findings.

Noted.

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24

Sr. No. Audit Observations Management Comments(viii) We have been informed that the Central Government has not

prescribed for the maintenance of cost records under clause (d) of sub-section (1) of section 209 of the Act.

Statement of fact.

(ix) (a) According to the informationandexplanationsgiven tous and the records of the company examined by us,undisputed statutory dues including Provident Fund, Employees’ State Insurance, Income Tax, Sales Tax,Wealth Tax, Service Tax, Custom Duty, Excise Duty,Cess and other statutory dues, as applicable, have generally been regularly deposited with the appropriate authorities, however cases of delay in deposit were noticed in respect to tax deducted at source and significant delays in deposit in cases of service tax were observed. Custom duty payments are handled by Air India Limited but confirmation from Air India Limited was not made available to us as to whether there are any undisputed dues pending at the year end or not.

Self-explanatory.

The delays in some cases of tax paymentswere due to fund shortages but amounts subsequently duly deposited with applicable interest. There no undisputed applicable statutory dues other than stipulated under contingent liabilities note no 24.

Aircraft spares imports are mainly not subject to custom duty. No undisputed dues in this regard have been advised by Air India.

(b) According to the information and explanations given to us, as at 31st March 2013, there are no disputed dues for Income Tax, Wealth Tax, Service Tax, Cess, Sales Tax and other statutory dues etc. outstanding and unpaid at the year end except the following disputed dues for Income Tax as disclosed in Note No. 24(c) to the financial statements are as below:

Statute & nature of dues

Amount(Rs. in lac)

Period to which the amount relates

Forum where the dispute is pending

IncomeTaxdemand

Rs. 140.44 A.Y.1997-1998 Application for restoration of Appeal with ITAT is under process

IncomeTaxdemand

Rs. 174.31 A.Y.2000-2001 Appeal pending with ITAT

IncomeTaxpenalty u/s 271(1)(c)

Rs. 31.99 A.Y.2004-2005 Appeal pending with CIT(A)

IncomeTaxdemand

Rs. 4732.25 A.Y.2008-2009 Appeal pending with ITAT

Incometaxdemand

Rs. 10146.27 A.Y.2010-2011 Appeal pending with CIT

Further, since the Custom duty payments are handled by Air India Limited, confirmation from Air India Limited was not made available to us as to whether there are any disputed dues pending at the year end or not.

Please refer to our replies as above.

Referreplyat(ix)(a)above

(x) The company has accumulated losses at the year end and its net worth is in negative. The company has incurred cash losses during the year under report and also in the immediately preceding financial year.

Statement of fact. Also refer reply at (i) above of audit report .

(xi) According to the records of the company and on the basis of informationandexplanationsgiventous,thereisnoamountduetofinancialinstitutionsorbanksordebentureholders.

Statement of fact.

(xii) According to the records of the company and on the basis of the informationandexplanationsgiven tous, thecompanyhas not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities.

Statement of fact.

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25

Sr. No. Audit Observations Management Comments(xiii) In our opinion, considering the nature of activities carried out

by the company during the year, the provisions of any special statuteapplicabletochit fund/nidhi /mutualbenefit fund/societies are not applicable to it. Accordingly, the provisions of this clause are not applicable to the company.

Statement of fact.

(xiv) According to the records of the company and on the basis of informationandexplanationsgiventous, thecompanyhasno dealing or trading in shares, securities, debentures and other investments. Accordingly, the provisions of this clause are not applicable to the company.

Statement of fact.

(xv) According to the records of the company and on the basis of informationandexplanationsgiventous, thecompanyhasnot given any guarantee for loans taken by others from bank orfinancialinstitutions.

Statement of fact.

(xvi) According to the records of the company and on the basis of informationandexplanationsgiventous,theCompanyhasnot obtained any term loans during the year. Accordingly, the provisions of this clause are not applicable to the company.

Statement of fact.

(xvii) According to the records of the company and on the basis of informationandexplanationsgiven tousandonanoverallexaminationofthebalancesheetoftheCompany,we report that funds amounting to Rs. 13936.48 lacs raised on short term basis in the form of excess of current liabilities over current assets have been used for funding the operating losses of the Company.

The Company is a wholly owned subsidiary of Air India Ltd (AIL). The parent Company,AILhasbeensupportingtheoperationsofthecompany. The company has incurred losses as per the statement of Profit & Loss. The increase inexcessofcurrentliabilitiesovercurrentassetsincludes increase of Rs. 11691.68 lacs on accountoftransactionswithAIL.Therefore, itlargely represents the support from the parent company. The balance represents the increase in difference of other items of current liabilities over current assets.

(xviii) Accordingtotheinformationandexplanationsgiventous,thecompany has not made any preferential allotment of shares during the year. Accordingly, the provisions of this clause are not applicable to the Company.

Statement of fact.

(xix) According to the information andexplanations given to us,the company has not issued any debentures during the year. Accordingly, the provisions of this clause are not applicable to the Company.

Statement of fact.

(xx) According to the information andexplanations given to us,the company has not raised any money by public issue during the year. Accordingly, the provisions of this clause are not applicable to the Company.

Statement of fact.

(xxi) No details have been provided to us by Vigilance Department of the company as to whether any fraud on or by the company has been noticed or reported during the year. Furthertoabove,duringthecourseofourexaminationof the books of account carried out in accordance with the generally accepted auditing practices in India, and as per explanations furnished tousby themanagement,wehaveneither come across any instances of fraud on or by the company or noticed or reported during the year, nor have we been informed of such cases by the management.

SelfExplanatory.

AASL

26

Notes Referred to above form an integral part of the Accounts.As per our report of even date attached

For and on behalf of For and on behalf of the BoardPRASAD AzAD & CO. Chartered Accountants Sd/- Sd/-FRN : 001009N Rohit Nandan Puja Jindal Chairman Director

Sd/- Sd/- Sd/- K.M. Azad Anil Mehta Arun JainPartner COO,AASL Co-Ordinator&ChiefofFinanceM No.: 05125

Place : New Delhi Date : 19 February 2014

BALANCE SHEET AS AT 31 MARCH 2013(Amount in Rupees)

Particulars Note No. As at March 31, 2013 As at March 31, 2012A. EQUITY AND LIABILITIES:1. Shareholder’s Funds:

a) Share Capital 2 22,500,000 22,500,000 b) Reserves and Surplus 3 (8,310,184,143) (6,976,327,677)

2. Non-Current Liabilities:a)OtherLongtermliabilities 4 322,898,326 322,465,826 b)Longtermprovisions 5 412,886,824 477,649,315

3. Current Liabilities:a) Trade payables 6 2,429,197,729 2,041,808,595 b)OtherCurrentLiabilities 7 5,670,361,729 4,524,649,978 c) Short-term provisions 8 570,282,437 568,594,733

TOTAL 1,117,942,902 981,340,770 B. ASSETS:

1. Non-current assets:a)Fixedassets-TangibleAssets 9 4,721,336 11,063,802 b)Longtermloansandadvances 10 86,623,975 84,361,502 c) Other Non-Current Assests 11 11,372,981 11,831,425

2. Current assets:a) Inventories 12 92,166,149 110,236,075 b) Trade receivables 13 800,038,465 631,667,465 c) Cash and cash equivalents 14 792,348 1,188,520 d) Short-term loans and advances 15 122,131,648 130,991,981 e) Other Current Assets 16 96,000 -

TOTAL 1,117,942,902 981,340,770 SignificantAccountingPolicies 1

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27

Notes Referred to above form an integral part of the Accounts.As per our report of even date attached




STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31 MARCH 2013

(Amount in Rupees)Particulars Note No. 2012-13 2011-12

A. REVENUE:

Revenue from operations 17 2,604,940,183 2,724,065,807Other Income 18 206,476,103 228,009,487Total Revenue 2,811,416,286 2,952,075,294

B. EXPENSES:

OperatingExpenses 19 3,397,462,420 3,278,077,673Employeebenefitexpense 20 408,171,863 438,657,329Finance costs 21 9,141,994 10,910,580Depreciationandamortizationexpense 9 3,143,447 4,090,060Otherexpenses 22 314,725,241 370,597,264PriorperiodExpenses/(Income) 23 12,627,787 (3,632,240)Total Expenses 4,145,272,752 4,098,700,666

C. Profit/(Loss) for the year before Tax (1,333,856,466) (1,146,625,372)Less: Tax expenses(i)Currenttax - 749,000 (ii)Deferredtax - -

D. Profit/(Loss) for the year after Tax (1,333,856,466) (1,147,374,372)

Earning/(Loss)perequityshare:(Nominal value per Equity share Rs. 100/- each)(1) Basic (5,928) (5,099)(2) Diluted (5,928) (5,099)

SignificantAccountingPolicies 1

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28

As per our report of even date attached




CASH FLOw STATEMENT FOR THE YEAR ENDED 31 MARCH 2013(Amount in Rupees)

2012-2013 2011-2012A. CASH FLOw FROM OPERATING ACTIVITIES

a) Profit/(Loss)beforetaxfortheyearasperStatementofProfit&Loss (1,333,856,466) (1,146,625,372)b) Add:- Adjustment for :

1.Depreciationandamortisationexpenses 3,143,447 4,090,0602.Provisions/Un-claimedLiabilitiesWrittenBack (115,597,599) (37,743,140)3.FixedAssetsWrittenOff 3,194,401 -4. Interest Paid 5,660,722 7,607,7595. Interest Earned (1,644,009) -6. Prior Period Adjustments (Net) 12,627,787 (3,632,240)7. Provision for obsolescence of spares 161,281,768 151,088,5478. Provision for Doubtful debts & advances (Net ) - 68,666,517 3,026,256 124,437,242

c) OperatingProfit/(Loss)beforeChangesinworkingcapital: (1,265,189,949) (1,022,188,130) ADD: Adjustments for (increase) / decrease in operating assets:

Inventories (143,211,842) (125,301,451)Trade receivables (168,371,000) 145,375,425Short-term loans and advances 8,860,333 (68,071,814)Long-termloansandadvances (2,262,473) (12,035,946)Other current assets (96,000) -Other non-current assets 458,444 (11,831,425)

ADD: Adjustments for increase / (decrease) in operating liabilities:Trade payables 502,986,733 812,497,790Other current liabilities 1,145,711,751 (199,336,685)Other long-term liabilities 432,500 3,106,617Short-term provisions 1,687,704 356,458,529Long-termprovisions (64,762,491) 1,281,433,659 123,191,032 1,024,052,072

d) Cash generated from operations Prior Period Adjustments (Net) (12,627,787) 3,632,240e) Net Cash from Operating Activities 3,615,923 5,496,183

B. CASH FLOw FROM INVESTING ACTIVITESa) PurchaseofFixedAssets (343,371) (489,244)b) TransferofFixedAsetstoAirIndiaLimited 347,988 -c) Interest Income 1,644,009 1,648,626 1,648,626 - (489,244) (489,244)

C. CASH FLOw FROM FINANCING ACTIVITESa) Interest Paid (5,660,722) (5,660,722) (5,660,722) (7,607,759) (7,607,759) (7,607,759)

D. NET INCREASE IN CASH & CASH EQUIVALENTS (A+B+C) (396,173) (2,600,821)E. CASH & CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,188,521 3,789,341F. CASH & CASH EQUIVALENTS AT THE END OF THE YEAR (E+D) 792,348 1,188,521

Note:-TheaboveCashFlowStatementhasbeenpreparedunderthe‘IndirectMethod’assetoutintheAS-3(Revised1997)on“CashFlowStatements”issuedbyICAI.Previousyearfigureshavebeenregrouped/rearrangedwherevernecessary

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29

NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED ON 31 MARCH 2013

NOTE- ”1” SIGNIFICANT ACCOUNTING POLICIES

1.1 Accounting Convention and Basis of accounting

These Financial statements have been prepared in accordance with the generally accepted accounting principles in Indiaunderthehistoricalcostconventionasagoingconcernconceptonaccrualbasis.Thesefinancialstatementshavebeenpreparedtocomply inallmaterialaspectswiththeaccountingstandardsnotifiedundertheSection211 (3C) [Companies (Accounting Standards) Rules, 2006, as amended] and the other relevant provisions of the Companies Act, 1956.

Allassetsandliabilitieshavebeenclassifiedascurrentornon-currentaspertheCompany’snormaloperatingcycle and other criteria set out in the Schedule VI to the Companies Act’ 1956. Based on the nature of services, the Company has ascertained its normal operating cycle as 12 months for the purpose of current or non-current classificationofassetsandliabilities.

1.2 Fixed Assets

The company is having aircrafts on operating lease.

Assetshavebeenaccountedforontheacquisitionpricebasis.TheassetstransferredbyAirIndiaLtd.arebeingcapitalised on the charge debited.

Physicalverificationoftheassetsisdoneoveraperiodoftwoyearsi.e.onbiennialbasis.

1.3 Depreciation

DepreciationonfixedassetsisprovidedonStraight-linemethodattheratesprescribedunderScheduleXIVoftheCompaniesAct,1956.DepreciationontheassetscostingRs.5,000/-andbelowisprovided@100%intheyearofacquisition.DepreciationonGroundSupportEquipment(GSE)specifictoleasedCRJ&ATRaircraftisprovided based on the completed aircraft lease months over the total aircraft lease months from the date of use withrealisablevalueatendofleasetakenasNIL.

1.4 Revenue Recognition

Passenger revenue is accounted for on thebasis of flowncoupons report for passengers travelled, reflectingrealisedrevenue.RevenueforExcessBaggage,MailandCargoisaccountedforonthebasisofrevenuecreditedbyAirIndiaLtd.atratesapplicablethereat.FreighterandCharterrevenueisaccountedforonaccrualbasisaspertheFreighter/Charterhoursexceptforclaimsonpartieswhichareaccountedonsettlementbasis.

1.5 Provision for Doubtful Debts

Provision in respect to Trade Receivables pertaining to the Government, Government Departments and Public SectorUndertakingsisprovidedforonlywhenspecificallyknowntobedoubtful.AllotherTradeReceivablesareprovidedfor,iftheyareoutstandingforeithermorethanthreeyearsorspecificallyknowntobedoubtful.

1.6 Gratuity and Leave Encashment

Provision for gratuity is made on accrual/actuarial basis by the management for contractual employees on the basisof15daysbasicsalaryforeachcompletedyearofserviceorpartthereofexceeding6months.Employeesareentitledforencashmentuptoamaximumof30daysprivilegeleaveonceinafinancialyearforCockpitcrewandmaximumof15daysforotheremployees.

1.7 Training charges

Re-conversionandtrainingchargesarechargedtotherevenueintheyearofincurrenceofexpenditure.

1.8 Prior Period Transaction

Transactions above Rs. 10,000/- for individual items related to the earlier period are accounted for in the year of transaction as per Accounting Standard 5 of ICAI.

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30

1.9 Inventory

(a) Stock in hand as at the close of the year for Aircraft Spare Parts (Non Rotable) is stated at weighted average cost and Aircraft Spare Parts (Rotable), Tools, Goods-in-transit, consumables Stores items (Catering Dry stores, Printing and Stationery, Uniform, etc.) and Aviation Turbine Fuel are stated at cost.

(b) Provision for obsolescence of Aircraft Rotables and Special Tools is made annually on closing stock based on completed aircraft lease months over the total aircraft lease months from the date of stock held, and, on expiryoflease,chargedasconsumptionnetofrealisation,ifany.Besides,obsolescenceisalsoprovidedon closing stock of Aircraft non rotables including FDI thereon and on rotables, based on completed lease months over the total aircraft lease months.

1.10 Accounting on Settlement Basis.

Settlement basis of accounting has been followed in the following cases: -

(a) Forprepaid/accruedexpensesuptoRs.10,000/-forindividualitems.(b) ForarrearspayablearisingoutofwagesettlementsforemployeesofAirIndiaLtd.ondeputationandother

deputationists.(c) For interest and other claims on / from suppliers and other parties.

1.11 Foreign Currency Transactions :

(a) Foreign currency liabilities and assets have been accounted on the basis of average of Banker’s Selling Rate at the beginning and at the end of each month for subsequent month.

(b) AnydifferenceduetovariationinExchangerateonthedateofpaymentofrevenuenaturearetransferredtoStatementofProfit&LossasperAS-11(Revised).

(c) Liabilities of foreign currency are revalued at the year end ‘Bankers SellingRate’ Exchange differencearisingonrevaluationaretransferredtoStatementofProfit&Loss.

1.12 Accounting for Grants / Validity Gap Funding (VGF)

The Grants / VGF are accounted as Other Income on prorata basis over the agreed period of aircraft lease months.

1.13 Provisions, Contingent Liabilities and Contingent Assets

(a) Provisions involving a substantial degree of estimation in measurement are recognised when there is a presentobligationasaresultofpasteventsanditisprobablethattherewillbeoutflowofresources.

(b) Contingent liabilities in each case are disclosed in respect of possible obligations that arise from past events buttheirexistenceconfirmedbytheoccurrenceornon-occurrenceofoneormoreuncertainfutureeventsnot wholly within the control of the company.

(c) ContingentAssetsareneitherrecognisednordisclosedinthefinancialstatements.

1.14 Lease’ / Supplier’ credits

Lessors’/Suppliers’CreditsreceivedwhicharenotarisingoutofnormalLeaseandMaintenanceAgreementareaccounted as Income in the year of receipt.

1.15 Other Liabilities

Liabilities,whicharemorethanthreeyearsoldarewrittenbackunlesssuchliabilitiesarespecificallyknowntobepayable in the future.

1.16 Operating Lease

LeaseswherethelessoreffectivelyretainsalltherisksandrewardsofownershipoftheleasedassetsareclassifiedasoperatingleaseandleaserentalpayablefortheyearischargedtoStatementofProfit&Loss.

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31

Note “2” : SHARE CAPITAL:

Particulars As at March 31, 2013 As at March 31, 2012Number Amount (Rs.) Number Amount (Rs.)

Authorized CapitalEquity Shares of Rs.100/- each 500,000 50,000,000 500,000 50,000,000

Issued , Subscribed & Paid Up CapitalEquity Shares of Rs. 100/- each fully paid-up 225,000 22,500,000 225,000 22,500,000

TOTAL 225,000 22,500,000 225,000 22,500,000

2 (a) Reconciliation of the no. of Shares Outstanding

Particulars As at March 31, 2013 As at March 31, 2012Number Amount (Rs.) Number Amount (Rs.)

Fully paid-up Equity shares of Rs. 100 each outstanding at the beginning of the year

225,000 22,500,000 225,000 22,500,000

Fully paid-up Equity shares of Rs. 100 each outstanding at end of the year

225,000 22,500,000 225,000 22,500,000

2 (b) Equity Shares:Equity Shares: The company has only one class of equity shares having a par value of Rs. 100 per share. Each shareholder is eligible for one vote per share held. There is no restriction of payment of dividend. In the liquidation, the equity shareholders are eligible to receive the remaining assets of the company after distribution of all preferential amounts proportionate of their shareholding.

2 (c) Equity Shares held by its Holding company:2,25,000EquityShares(PreviousYear2,25,000equityshares)areheldbyAirIndiaLimited,theholdingcompanyandits nominees (on behalf of holding company)

2 (d) Details of shareholder holding more than 5% of Equity Shares:

Name of Shareholder As at March 31, 2013 As at March 31, 2012No. of

Shares held%

of HoldingNo. of

Shares held%

of HoldingAirIndiaLimited,HoldingCompanyanditsnominees(onbehalf of holding company)

225,000 100.00% 225,000 100.00%

Note “3” : RESERVES AND SURPLUS:(Amount In Rupees)

Particulars As at March 31, 2013

As at March 31, 2012

SurplusintheStatementofProfitandLossAs at the begining of the year. (6,976,327,677) (5,828,953,305)(+)NetProfit/(NetLoss)Forthecurrentyear (1,333,856,466) (1,147,374,372)As at the closing of the year. (8,310,184,143) (6,976,327,677)

TOTAL (8,310,184,143) (6,976,327,677)

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32

Note “4” : OTHER LONG TERM LIABILITIES:(Amount in Rupees)



Others: - Security Deposits 322,898,326 322,465,826

TOTAL 322,898,326 322,465,826

Note “5” : LONG TERM PROVISIONS:(Amount in Rupees)


As atMarch 31, 2012

Provision for Employee Benefits: - Gratuity (unfunded) 31,169,913 29,219,920 - Bonus 428,699 428,699 Others:-AircraftLease&Handling 11,459,997 111,694,497 - Aircraft Redelivery 234,309,410 196,521,098 -AircraftLandingandNavigation 119,970,054 123,034,985 - Others 15,548,751 16,750,116

TOTAL 412,886,824 477,649,315

Note “6” : TRADE PAYABLES:(Amount in Rupees)



a) Trade Payables:

- Other than Acceptances 2,254,953,636 1,856,966,294

b) Others:

-HotelExpensespayable 6,299,822 9,777,102

- Dry stores payable 12,057,268 13,535,644

-TravellingExpensespayable 6,837,381 7,648,028

- Salaries Payable 113,957,238 89,470,568

-OtherExpensespayable 35,092,384 64,410,959

TOTAL 2,429,197,729 2,041,808,595

Note “7” : OTHER CURRENT LIABILITIES:(Amount in Rupees)



(a) Payable (net) to holding company 5,606,857,721 4,437,689,691

(b)Statutoryremittances-Taxespayable 59,975,296 84,624,277

(c) Other liabilities 3,528,712 2,336,010

TOTAL 5,670,361,729 4,524,649,978

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33

Note “9” : FIXED ASSETS:

(Amount in Rupees)Particulars Rate Gross Block Accumulated Depreciation Net Block

AS ON 1.4.2012

Addition during the

year

Deduction/ Adjustment during the

year

AS ON 31.03.2013

Upto 31.03.2012

for the year.

Deduction/ Adjustment during the

year

upto 31.03.2013

As on 31.03.2013

As on 31.03.2012

I Tangible Assets - Owned Assets

a) Plant & Equipment 4.75% 16,686,179 25,404 10,820,200 5,891,383 10,855,102 100,911 7,659,465 3,296,548 2,594,835 5,831,077

b) Furnitures & Fixtures

6.33% 11,066,870 14,400 5,250,054 5,831,216 9,602,531 188,711 4,556,947 5,234,295 596,921 1,464,339

c) Vehicles 9.50% 5,093,089 - 559,409 4,533,680 4,720,990 270,621 559,409 4,432,202 101,478 372,099

d) Data Processing Equipment

16.21% 11,187,922 303,567 2,777,029 8,714,460 10,811,800 432,831 3,123,298 8,121,333 593,127 376,122

e) Ground Support Equipment (ATR)

(As Per Policy)

15,261,819 - - 15,261,819 12,348,074 2,131,231 - 14,479,305 782,514 2,913,745

f) Medical Equipment

7.07% 392,480 - 120,980 271,500 286,060 19,142 86,163 219,039 52,461 106,420

g) FA Pending Disposal

- 981,016 - 981,016 - 981,016 - 981,016 - - -

Total (Current Year) - 60,669,375 343,371 20,508,688 40,504,058 49,605,573 3,143,447 16,966,298 35,782,722 4,721,336 11,063,802

(Previous Year) - 60,936,651 489,244 756,520 60,669,375 46,272,033 4,090,060 756,520 49,605,573 11,063,802 14,664,618

Note:

1.Vehiclesincludeonecar,originalcostRs.1,72,127/-andW.D.VRs.NILforwhichRegistrationisinthenameofIndianAirlines.

2. Gross Block as on 31.03.2013 includes Rs. 41,03,412/- (Rs. 84,15,184/- as on 31.03.2012) for the assets below Rs. 5,000/- each on which depreciation @100%hasbeencharged.

3.FixedAssetsincludeitemsprocuredbyAirIndiaLimited,accountedonthebasisofdebits.

4.Deductions/Adjustmentsincludesadjustmentmadeforfixedassetswhichareunserviceable/obsolete/scrapped/FAPendingDisposalduringtheyearasperphysicalverificationreportofFixedAssetsason31.03.2012.

Theestimatedvalueofscrappendingdisposalhasbeenreflectedundercurrentassets.

Note “8” : SHORT TERM PROVISIONS:(Amount in Rupees)



Provision for Employee Benefits - Bonus 2,239,693 1,495,045 - Gratuity (unfunded) 504,888 364,182 Others:-AircraftLeaseandHandling - - -AircraftLandingandNavigation 42,009,979 31,801,919 - Others 525,527,877 534,933,587

TOTAL 570,282,437 568,594,733

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34

Note “10” : LONG TERM LOANS AND ADVANCES:

(Amount in Rupees)



Unsecured, considered gooda. Security Deposit 1,359,724 1,721,564b.AdvanceIncometax(netofprovisionsofRs.1,64,40,335previousyear

Rs.1,64,40,335)84,438,851 81,814,538

c.AdvanceFringeBenefitsTax(netofprovisionsofRs.46,74,600,previousyear Rs.46,74,600 )

825,400 825,400

d. Other loans and advances (Maintenance Contribution Deposits) 1,181,795,265 910,294,841Less:Provisionformaintenanceexpenses (1,181,795,265) (910,294,841)

TOTAL 86,623,975 84,361,502

Note “11” : OTHER NON CURRENT ASSETS:

(Amount in Rupees)



I. Long Term Trade Receivables Unsecured, considered doubtful

-Outstandingforaperiodexceedingsixmonthsfromthedatetheywereduefor payment

326,200 326,200

Less:Provisionfordoubtfuldebts (326,200) (326,200)II. Balance with Banks in earmarked Current Accounts (Seized by I.T.

Deptt.) (Referred to in Note 25)

11,372,981 11,831,425

TOTAL 11,372,981 11,831,425

Note “12” : INVENTORIES (valued at weighted average cost): (AsTaken,ValuedandCertifiedbytheManagement)

(Amount in Rupees)



a. Stores and spares-Aircraft inventory 166,782,234 175,872,651

Goods-in transit-Aircraft inventory 3,304,091 4,227,250

Add : Custom duty and Frieght 64,271,948 62,652,250

Less:-ProvisionforObsolescence (161,281,768) (151,088,547)

b.LooseTools 19,089,644 18,572,471

Goods-in transit - -TOTAL 92,166,149 110,236,075

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35

Note “13” : TRADE RECEIVABLES:(Amount in Rupees)



I. Trade Receivables Unsecured, considered good-Outstandingforaperiodexceedingsixmonthsfromthedatetheyweredue

for payment294,035,465 294,035,465

II. Other Trade Receviable (Grant/VGF Receviable) Unsecured, considered good -Outstandingforaperiodexceedingsixmonths 370,643,000 103,541,000

- Others 135,360,000 234,091,000

TOTAL 800,038,465 631,667,465

Note “14” : CASH AND CASH EQUIVALENTS:(Amount in Rupees)



a. Balances with banksIn Current Accounts 792,348 1,188,520

TOTAL 792,348 1,188,520

Note “15” : SHORT TERM LOANS AND ADVANCES(Amount in Rupees)



Unsecured, considered doubtful 9,157,410 12,003,815

Less:Provisionfordoubtfulloansandadvances (9,157,410) (12,003,815)

- -

Unsecured, considered gooda.PrepaidExpenses 19,717,891 20,115,850

b. Others 102,367,126 110,195,499

c.AdvanceIncometax(netofprovisionsofNil,previousyearRs.NIL) 46,631 680,632

TOTAL 122,131,648 130,991,981

Note “16” : OTHER CURRENT ASSETS(Amount in Rupees)



Scrap for Disposal 96,000 -

TOTAL 96,000 -

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36

Note “17” : REVENUE FROM OPERATIONS:

(Amount in Rupees)

Particulars 2012-13 2011-12Sale of Traffic Services:

- Passenger Revenue 2,193,500,568 2,203,290,835- Charter Revenue - 32,160,000- Cargo Revenue 13,385,087 23,312,571-ExcessBaggageRevenue 11,789,007 18,289,231- Mail Revenue 2,644,521 4,672,103Other Operating Revenues:GRANT/VGF-NECSHILLONG 373,061,000 442,341,067GRANT/VGF - AGATTI 10,560,000 -

TOTAL 2,604,940,183 2,724,065,807

Note “18” : OTHER INCOME:(Amount in Rupees)

Particulars 2012-13 2011-12

Interest From Bank Deposits 284,621 -

InterestonIncomeTaxRefund 1,359,388 -

Maintenance Reserve Refund 73,695,770 179,402,181

UnclaimedLiabilitieswrittenback 115,597,599 37,743,140

Other non-operating income 14,881,833 6,963,381

Revenue from Ferry Flights 656,892 3,900,785

TOTAL 206,476,103 228,009,487

Note “19” : OPERATING EXPENSES:(Amount in Rupees)


AircraftLease,Handling&MaintenanceCharges 1,947,825,829 1,597,807,562

Fuel & Oil (Aircraft) 1,184,739,305 1,388,303,921

Landing,Housing,ParkingandOtherAirportFees 47,690,490 23,315,643

Navigational Charges 65,815,984 66,633,424

Consumption of stores and spares 61,729,452 76,043,125

Insurance 24,015,103 26,024,080

Food Services and Other Passenger Amenities 38,647,583 47,967,832

Service Charges 26,998,674 51,982,086

TOTAL 3,397,462,420 3,278,077,673

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37

Note “20” : EMPLOYEE BENEFIT EXPENSES:

(Amount in Rupees)Particulars 2012-13 2011-12

Pay & Allowances 393,806,771 421,649,852Employer’s Contribution to provident fund 6,218,084 6,474,547Gratuity 4,444,008 6,295,579StaffWelfareexpenses 3,703,000 4,237,351

TOTAL 408,171,863 438,657,329

Note “21” : FINANCE COSTS:(Amount in Rupees)


Bank Charges 3,481,272 3,302,821Interestexpense 5,660,722 7,607,759

TOTAL 9,141,994 10,910,580

Note “22” : OTHER EXPENSES:

(Amount in Rupees)


LegalandProfessionalexpenses 2,572,267 1,533,139

Petrol and Fuel - Vehicles 725,688 2,733,073

TrainingExpenses 25,121,021 21,895,421

TravellingExpenses

-TravellingExpenses 17,960,042 17,967,917

- Hotel Accommodation 14,449,041 18,629,154

- Hire of Transport for crew 14,916,552 15,490,540

Repairs and Maintenance

- others 9,441,395 1,036,049

Paymenttoauditor(includingServiceTax)

- as Statutory audit fees (Rs. 56,180 including for previous year) 561,800 449,440

- for other services - Cash Flow 56,180 56,180

-forreimbursementofexpenses 83,146 76,052

TechnicalServices(Expatriates) 75,703,555 78,262,797

AASL

38

(Amount in Rupees)


Rent 18,082,078 16,991,451

ElectricityExpenses 1,899,953 1,387,826

Water Charges 104,150 109,269

Housekeepingexpenses 26,336,341 24,803,352

Communicationexpenses 1,645,437 1,901,958

NetLossonForeigncurrencytransactionsandtranslations 38,766,135 19,606,211

Provision for Obsolescence of Spares 10,193,221 28,452,532

Provision for redelivery cost 37,788,312 98,745,809

Amount Written off 492,219 -

ProvisionforDoubtfulLoans&Advances - 3,026,256

FixedAssetsWrittenOff 3,194,402 -

Miscellaneousexpenses 14,632,307 17,442,838

TOTAL 314,725,241 370,597,264

Note “23” : PRIOR PERIOD EXPENSES/(INCOME):(Amount in Rupees)


Fuel &Oil (Aircrafts) (282,535) 111,376,408Landing&NavigationalCharges 1,658,906 1,229,226Food Services and Other Passenger Amenities - 63,362AircraftLease,Maintenance&HandlingCharges 6,936,924 (53,597,953)Service Charge - (61,049,627)Passenger Revenue - (7,325,160)Miscellaneousexpenses/(income) 4,314,492 5,671,504

TOTAL 12,627,787 (3,632,240)

AASL

39

24. I. CONTINGENT LIABILITY: (totheextentnotprovidedfor):-

(Rupees in Lacs)StandbyLetterofCreditsunderAircraftLeaseandMaintenanceSupportAgreementforATRand CRJ operations (BasedonguaranteegivenbyAirIndiaLtd.theparentcompany)

Rs. 1,582.39 (Rs. 1,627.74)

Claims against the company not acknowledged as debts :Miscellaneous claims (including for unsettled legal claims Rs. 18.55 lacs (Rs.18.93 lacs) and interest on delays in foreign remittances)

Rs. 421.28 (Rs. 293.66)

IncomeTaxdemandforA.Y.1997-98Appeal dismissed by ITAT in absence of COD approval(Totalamountdepositedunderprotest,applicationfiledforrestorationofAppeal).

IncomeTaxdemandforA.Y.2000-01UnderappealwithITAT.MiscellaneousApplicationfiledforreopen.

IncomeTaxdemandforA.Y.2004-05Under appeal before CIT (A)

IncomeTaxdemandforA.Y.2008-09Under appeal with ITAT

Rs. 140.44 (Rs. 140.44)

Rs. 174.31 (Rs.174.31)

Rs. 31.99 (Rs. Nil)

Rs. 4,732.25 (Rs.4,732.25)

IncomeTaxdemandforA.Y.2010-11Under appeal with CIT.

Rs. 10,146.27 (Rs. Nil)

DemandfromOilCompanies forwhichnodetailsavailableorunconfirmedamountsduringreconciliation

Rs. Nil (Rs. 116.07)

II. CAPITAL COMMITMENT Rs. NIL (Rs. 11.58)

Estimated amount of contracts remaining to be executedoncapitalaccountandnotprovidedfor

25. No provision has been considered necessary in respect of disputed demand of Income tax amounting Rs. 15225.26 Lacsinviewofcompany’sappealspendingwithappellateauthorities.However,thesameisshownaboveundercontingentLiabilities.Besides,bankbalanceamountingtoRs.113.73Lacsheldin6bankaccountshavebeenattachedbyIncomeTaxDepartmentagainstthedemandforA.Y.2008-09.

26. Aircraft Inventories:

i) The inventories mainly include Aircraft spares, rotables, consumables and tools of ATR and CRJ aircraft. The procurementismadebyAirIndiaLtd.onbehalfofthecompany.Inventoryofthecompanyaremaintained/controlledbyAIL.Upto25November2012,inventoryweremaintainedinthein-housedevelopedsoftware“OASIS’andthereafterw.e.f.26November2012theinventoryrecordsweremigratedto“RAMCO”systembyAir India Ltd.ThedifferenceofRs. 145.45 lacs in inventory onmigration, havebeen chargedoff toconsumption.

The consumption and closing stock therefore is on the basis of records and details derived from the store recordsmaintained/controlledbyAirIndiaLtd.atKolkata,DelhiandHyderabad.

ii) Goods in transit amounting to Rs 33.04 lacs (Rs. 42.27 lacs) include items at High Seas, items lying with CustomsanditemsunderinspectionbasedoncertificationbyAirIndiaLtd.

iii) Custom Duties, Freight & Incidentals have been allocated on pro-rata basis on year end value of closing Aircraft spares, rotables and consumption.

AASL

40

iv) Provision for Obsolescence of aircraft spares, rotables and special tools in respect of ATR and CRJ aircraft as on 31 March 2013 amounted to Rs. 1,612.82 lacs (Rs. 1,510.89 lacs) have been made considering total of 744 aircraft months for seven ATR aircraft and 336 aircraft months for four CRJ aircraft.

27. Other Current Liabilities:

i) Other Current Liabilities include Rs. 56,068.58 lacs (Rs. 44,376.90 lacs) due to Air India representing net of transfers/disbursements of funds to/for the company after adjusting revenue earnings from flightoperations.

ii) Based on the information available with the Company, the balances outstanding as at the Balance Sheet date Rs. Nil(Rs.Nil)with/toMicro,SmallandMediumEnterprisesasdefinedundertheMicro,SmallandMedium Enterprises Development Act, 2006.

28. The proportionate expenditure for redelivery cost for leasedATR and CRJ aircraft has been worked out for Rs. 2,343.09 lacs upto 31 March 2013 (Rs.1,965.21 lacs) on the basis of aircraft months in terms of the agreements executedwiththepartiesandprovisionmadeforthesameintheaccounts.

29. ThesalariesofdeputationistsfromAirIndiaLtd.areasperthetermsofdeputationandareaccountedonthebasisofthedebitsreceivedfromAirIndiaLtd.RetirementbenefitsincludingPFtothedeputationistsareaccountedbyAirIndiaLtd.ThedebitfromAirIndiaLtd.foritsemployeesondeputationincludechargeforProvidentFund&Gratuity.

30. For the employees on contract, the company has its own Employees Provident Fund Trust to which contributions are regular.

31. a) TheExpenses/LiabilitytowardsLandingandParkingcharges,Navigationcharges,LicenseFee,Electricityand other miscellaneous charges payable to Airport Authority of India (AAI) are provided on best possible estimates based on available information. The outstanding balance as per books is Rs. 1,903.82 lacs and a provision of Rs. 1,510.22 lacs(totalLiabilitybookedason31March2013isRs.3,414.04 Lacs).

(b) TheoutstandingbalanceswithOilcompaniesviz.IndianOilCorporationLtd.isRs.10,225.62lacs,BharatPetroleumCorporationLtd.Rs.2,116.48 lacs,HindustanPetroleumCorporationLtd.Rs.3,198.62 lacs,Reliance Industries Ltd. Rs. 71.40 lacs. and ShellMRPLAviation Ltd. Rs. 1.32 lacs. The IOCL, BPCLandShellMRPLAviation Ltd. &Reliance Industries Ltd., accounts have been reconciled, however thereconciliationwithHPCLisunderprocess/awaitingconfirmation.

32. a) The grant / VGF received/receivable from NEC for ATR North East operations is accounted for as income taking into account the operations of ATR for the year. NEC contested VGF support for the year 2012, however, the committee set up under Planning Commission to resolve the issue, has recommended that MoCA may provide budgetary support to meet the VGF for the year 2012.

b) TheUnionTerritoryofLakshdeep(UTL)hassanctionedVGFforAgattioperationseffectiveMarch13,2013and for 2013-14.

33. Segment Reporting (As required by the AS -17 of ICAI):

i) The company is engaged in airline business, which is considered as a single whole business segment. All incomes are incidental to the above business. Details of the revenue earned from various activities related to airline business are given in Note-1 to the Accounts.

ii) TheCompanyoperatesflightsondomesticroutesincludingchartersondemand.

iii) The revenue earning is from the aircraft, which are on operating lease. These are deployed in various sectors. There is no appropriate basis for allocating the assets and related liabilities in geographical segments.

iv) Presentation of the Annual Accounts read with Directors’ Report enables better understanding of the performance of the business, better assessment of risk and returns and makes more informed judgment about the activities of the Company as a whole.

AASL

41

34. ThecompanyoperatedleasedaircraftdirectlyleasedfromLessors.AirIndiaLtd.provideshandling,marketing,salesandreservationsandothersupportservicesforAllianceAirflights.Fortheseservices,thechargeshavebeenlaiddownintheMOUsignedwithAirIndiaLtd.on11February2013,applicablefortheyear2012-13.

35. TheCompanyhadundertakenfreightercharteroperationswithfreighterB737aircraftonleasefromAirIndiaLtd.under theagreements for the freighterchartersexclusivelybetweenAir IndiaLtd.andconcernedparties.TheagreementbetweenAirIndiaLtd.andM/sGATIwasterminatedbyGATIinMarch2009.Consequently,theBankGuaranteeofRs.30croresdepositedbyGATIwithAirIndiaLtd.undertheagreementhadbeeninvokedbyAirIndiaLtd.forfreighterdues.Accordingly,theamountrealizedfromBankGuaranteehasbeenkeptinaseparateaccount in thebooksof thecompany (AASL)withoutadjustingagainst freighterdue.Thematterhasbeen indisputebetweenGATIandAirIndiaLtd.TheArbitralTribunalhasgivenawardandanappealhasbeenfiledbyAirIndiaLtd.beforetheHon’bleDelhiHighCourtagainsttheArbitralAwardwhichispending.Theclaims/counterclaimsareexclusivelyfor/againstAirIndiaLtd.andM/sGATIbeingthepartiestotheagreement.

36. Related Party Disclosures (As required by the AS- 18 of ICAI):

a. Holding Company AIRINDIALTD.b. Subsidiaries/Fellow Subsidiaries/Associates Not applicablec. Key Management Personnel

(as on 31 March 2013)Chairman, (Shri. Rohit Nandan) CMD, AirIndiaLtdCOOAASL(Shri.AnilMehta)Director (Shri Vipin Kumar Sharma)Director (Shri S. Venkat)Director (Capt. A. S. Soman)Director (Shri Deepak Brara)Director (Ms. Vineeta Bhandari)Director (Dr. Shefali Juneja)Director (Ms. Puja Jindal)

d. Relatives of Key Management NIL

e. Transactions with related parties during the year

(i) AIR INDIA LTD.

Nature of Transactions 2012-13 (Rs./lacs)

2011-12 (Rs./lacs)

Balance payable as at year end*ExcludesprovisionmadeforRs.318.70lacs(Rs.58.72lacs)

56,068.58* 44,376.90*

Items pending acceptance by Air India (Debits) 97.05 NilItems pending acceptance by Air India (Credits) 8.37 NilPurchaseofFixedAssets 0.03 0.66TransferofFixedAssetsCredits for Services Rendered

4.262,309.99

Nil948.91

Debits for Services received 35,363.12 10,612.33Agency arrangements: TrafficRevenue(Gross) 22,213.19 24,187.35Less:-Servicecharges 269.99 519.82

Net Traffic

Revenue21,943.21 23,667.53

Leasingarrangements:AircraftLease,Handling&MaintenanceCharges 230.35 2910.71Management contracts including for deputation of employees (pay & allowances)Guarantees StandbyLetterofCreditsforATRandCRJoperationsHowever,AirIndiaLtd.hasalsoprovidedcorporateguaranteesfortheaircraft lease.

296.89

1,582.39

299.31

1,627.74

AASL

42

(ii) CMD,AirIndiaLtd.-Therewasnotransactionwiththeparty.

(iii) NoLoansorcredittransactionswereoutstandingwithDirectorsorofficersoftheCompanyortheirrelativesat the end of the year which are required to be disclosed.

37. Lease Accounting (As required by the AS- 19 of ICAI):

a) The company has taken aircraft on non-cancellable operating lease as under:

Aircraft Type Lessor Valid uptoATR 42-320CRJ 700

ABRICLeasingLimitedAmentumAircraftLeasingNo.TwoLimited,IrelandGladiatorLeasingLimited,MaltaRBSAerospaceIrelandLeasingLimited,IrelandCILANMSN10048Ltd.,Ireland

February 2014October 2014

January 2015July 2015

April 2014

(b) The minimum lease payment under non-cancellable lease in terms of the agreements with lessors for future are as follows:

AircraftLease rent*(Rs./lacs)

Rotable/EngineLease Charges*

(Rs./lacs)

Maintenance& Other charges*

(Rs./lacs)NotLaterthanoneyear 6,486.40

(7,183.02)1,018.78

(1,076.88)2,272.81

(3,012.74)Laterthanoneyearbutnotlaterthan5years

3,210.66(18,915.63)

827.38(3,183.21)

298.76(2,272.05)

Laterthan5years 0.00(0.00)

0.00(0.00)

0.00(0.00)

* These amounts are taken as per the prevailing rates and are subject to annual reconciliation. The conversion rate used for the above purpose is the closing USD rate as at 31 March 2013.

(c) AircraftLeaserental,otherleaseandmaintenancechargesrecognizedinStatementofProfitandLossinthe current year in respect of the aircraft lease:

Aircraft Lease & Maintenance chargesRs./lacs

Other ChargesRs./lacs

ATR 42-320 6,947.23(7,760.41)

228.47(90.34)

CRJ 700 12,264.73(8,064.40)

37.83 (62.92)

(d) TheleaserentalpayableforATRandCRJaircraftarefixedleaserentalspayablemonthly.Therearenooption for purchase of the aircraft at the end of the lease period. The aircraft are permitted to be subleased with prior consent of the lessors.

38. Earning per share :

(calculation of EPS - Basic and Diluted)

2012-13 2011-12i) NetProfit/(Loss)aftertaxfortheyear(Rs.) (1,333,856,467) (1,147,374,372)ii) Number of Equity Shares o/s at the end of the year 225,000 225,000iii) Nominal value per Eq. Share (Rs.) 100 100iv) EPS Basic and diluted (Rs.) (5,928.25) (5,099.44)

Since the company does not have any dilutive securities, the basic and diluted earning per share are the same.

AASL

43

39. Deferred Taxation Accounting (As required by the AS-22 of ICAI) :

InviewofthehistoryofrecentlossesoftheCompany,thereisnovirtualcertaintythatsufficientfuturetaxableincomewillbeavailableagainstwhichthedeferredtaxassetscanberealised.Hencethesamehavenotbeenaccounted for in the books.

40. Impairment of Assets (AS-28) : The company does not own any cash generating asset. The major revenue earning assetofthecompanyistheaircraftfleet,whichistakenonoperatinglease.Aspertheassessmentofthecompany,therehasbeennoimpairmentlossduringtheyear.InrespectofotherFixedAssets,thebiennialverificationofotherFixedassetsoutstandingason31March2012wasconductedduringtheyear2012-13andadjustmentsmade in the books.

41. InopinionoftheManagement,anyoftheassetsotherthanfixedassetshaveavalueonrealisationintheordinarycourseofbusinessatleastequaltotheamountatwhichtheyarestated,unlessspecifiedotherwise.

42. Theaccountswithpartiesaresubjecttoreconciliationandconfirmation.

43. Additional Information

Informationgivenbelow includeamountsdebitedbyAir IndiaLtd. andalso includedeemedexpenditureandearnings in foreign currency

Current Year(Rs. In lacs)

PreviousYear(Rs. In lacs)

A. ExpenditureonImports(CIF)duringtheyearended31March2013

- Aircraft Spares Parts & Tools 488.76 809.07

- Capital Items-Ground Support Equipment NIL Nil

B. ExpenditureonConsumptionduringtheyearended31March, 2013

- Imported Spares & Components (100%) 599.51

(100%)809.64

- Indigenous Spares NIL Nil

C. Earnings in Foreign Currency

- Interline Revenue 174.80 223.13

D ExpenditureinForeignCurrency

-AircraftLease&MaintenanceCharges 14,641.60 13,417.14

- Purchase of Stores & Equipments 488.76 809.07

-TechnicalLiterature 29.92 15.14

- Training & Travelling (including Ferry) 344.18 327.73

- Technical Services 757.04 782.61

- Interline Commission Not Available 9.50

E ForeigncurrencyexposureunderTradepayablesRs.4,735.60lacs(US$8.64million)havenotbeenhedgedbyaderivativeinstrument or otherwise.

[Theaboveinformation(AtoD)isascertifiedbytheManagementandrelieduponbytheAuditors]

AASL

44

44. Thefigureshavebeenroundedofftothenearestrupee.

45. The previous year figures have been regrouped/reclassified wherever considered necessary to make themcomparable.

46. PreviousyearfiguresareindicatedintheNoteswithinbrackets.

______________________________________________________________________________________________

As per our report of even date attached




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