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It's official, Indian Airlines declared sick

Puja Mehra

Indian Airlines has become a BIFR (Board for Industrial & Financial Reconstruction) company. Massive losses of Rs 1.77 billion (revised estimates) during 2000-01 have completely wiped out the state-owned carrier's networth, which stood at Rs 1.42 billion at the end of 1999-2000, pushing it into bankruptcy.

Though Indian Airlines is yet to announce the results for 2000-01, simple back of the envelope calculations reveal it has become a sick company with its net worth turning negative. Deducting the losses for 2000-01 from the previous year's net worth yields a negative figure of Rs 347 million. IA's operating revenue however registered a six per cent growth to Rs 37.58 billion.

The huge loss of Rs 1.77 billion during the last fiscal is attributed to a 50 per cent escalation in fuel costs which shaved off Rs 3 billion from the bottomline. The airline also faced constraint in increasing its fleet size despite the Kelkar committee recommendations in 1996 of a Rs 3.75-billion fund infusion for fleet expansion. The government rejected the proposal in view of pending divestment and saying that all major decisions be taken only after a new management is in place.

The committee was appointed after the airline's networth had turned negative in 1996 subsequent to which the government infused equity of Rs 500 million.

The airline's net worth to be reported in its annual report for the year however, is likely be even lower, say officials in the ministry of civil aviation.

IA board has projected losses to the tune of Rs 2.51 billion for 2001-02. The carrier's networth is expected to get further eroded to (-) Rs 2.86 billion.

The government can avoid reporting the public sector unit to BIFR by infusing capital into the company.

With the airlines slated for divestment, the government has not lent any budgetary support to it for the last two years.

Top civil aviation ministry officials however, said that Indian Airlines will not be reported to BIFR, since it is a transport sector company. All transport sector companies are out of the ambit of BIFR and the Sick Industrial Companies Act, they said.

Under the provisions of Sica, a company becomes potentially sick when 50 per cent of its networth gets eroded. A company is declared sick when 100 per cent of its networth gets wiped off.

Officials in the department of company affairs however, said that it is mandatory that all sick companies including those in the transport sector be referred to BIFR. The DCA is the administrative department for the BIFR.

Curiously enough, the public sector unit has not tabled its annual reports in Parliament after 1998-99.

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