8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
1/55
FINANCE SYSTEM STUDY
AND
VALUATION OF THEIR UPCOMING IPO
SUBMITTED BY: KRITIKA SHARMA
1
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
2/55
TABLE OF CONTENT
1. INTRODUCTION HISTORY OF CIVIL AVIATION
2. COMPANY PROFILE
3. OBJECTIVES
4. SWOT ANALYSIS
5. FINANCIAL SYSTEM IN INDIAN AIRLINES
6. FUNCTIONS OF FINANCE DEPARTMENT7. VALUATION OF THEIR UPCOMING IPO
8. IATA & BSP
9. RECOMMENDATIONS
10. CONLUTION
2
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
3/55
ACKNOWLEDGEMENT
A PROJECT STARTS WITH AN OBJECTIVE BUT IT IS ACCOMPLISHED ONLY WITH
ENORMOUS EFFORTS AND TREMENDOUS SUPPORT AND GUIDANCE. IT HAS BEEN AN
UTMOST PLEASURE FOR ME TO WORK WITH INDIAN AIRLINES. THE CORDIAL
ENVIRONMENT HERE HAS ALWAYS MADE ME FEEL TO BE A PART OF THEORGANIZATION.
THE PROCESS OF COMPLETION OF PROJECT REPORT INVOLVES CREATION OF DEBT
TOWARDS INNUMERABLE PERSONS. FOR THIS I OWE A DEEP SENSE OF GRATITUDE
TO MR. A. JAYACHANDRAN-G.M. FINANCE (NORTHERN REGION) IAL WHO ALLOWED
ME TO PURSUE MY TRAINING. I AM GRATEFUL TO MR. DALEEP KUMAR (ASST.
MANAGER FINANCE) WHO GAVE ME TIME FROM HIS BUSY SCHEDULE & UNDER
WHOSE GUIDANCE THIS PROJECT HAS BEEN SUCCESSFULLY COMPLETED.
3
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
4/55
METHODOLOGY
THE ANALYSIS IS DONE IS BASED ON PRIMARY DATA. THE DATA WAS MADE
AVAILABLE BY THE REGIONAL FINANCIAL OFFICE AT PALAM. WE VISITED VARIOUS
SECTIONS OF FINANCE DEPARTMENT OF INDIAN AIRLINES AND TRIED TO
UNDERSTAND THEIR DAY TO DAY WORKING. THE VARIOUS SECTION HEADS HELPED
US A LOT IN GETTING FAMILIARIZED WITH THE WORKING OF THEIR SECTIONS.
WE ANALYZED THE FINANCIAL STATEMENTS OF INDIAN AIRLINES FOR
UNDERSTANDING THE WORKING CAPITAL MANAGEMENT IN THE ORGANIZATION.
AND WE HAVE DONE THE VALUATION OF THERE UPCOMING IPO.
4
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
5/55
INTRODUCTION
HISTORY OF CIVIL AVIATION
AIR TRANSPORT IS THE MOST MODERN, THE QUICKEST AND THE LATEST ADDITION
TO THE MODES OF TRANSPORT. BECAUSE OF SPEED WITH WHICH AERO
PLANES CAN FLY, TRAVEL BY AIR IS BECOMING INCREASINGLY POPULAR. AS FAR AS
THE WORLD TRADE IS CONCERNED IT IS STILL DOMINATED BY SEA TRANSPORT
BECAUSE AIR TRANSPORT IS VERY EXPENSIVE AND IS ALSO UNSUITABLE FOR
CARRYING HEAVY, BULKY GOODS. HOWEVER, TRANSPORTATION OF HIGH VALUE
LIGHT GOODS AND PERISHABLE GOODS IS INCREASINGLY BEING DONE BY AIR TRANSPORT.
IN 1929, NEVILLE VINCENT, A FORMER RAF PILOT CAME TO INDIA FROM BRITAIN,
JOINED TATA SONS AND MADE A SURVEY OF ALL POSSIBLE AIR ROUTES. HE
PRESENTED THE SCHEME TO DIRECTOR OF TATA SONS. IN OCT 1932 TATA SONS LTD,
WHICH LATER BECOME AIR INDIA INTERNATIONAL, COMMENCED WEEKLY AIRMAIL
SERVICES BETWEEN KARACHI AND MADRAS VIA ALLAHABAD AND MUMBAI.
LATER TWO MORE AIRLINES CAMETHE INDIAN NATIONAL AIRWAYS CAME INTO
EXISTENCE IN 1933 AND AIR SERVICES OF INDIA INTO 1937. AFTER THE 2 ND WORLD
WAR, THE GOVERNMENT OF INDIA ANNOUNCED A NEW POLICY FOR THE
5
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
6/55
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
7/55
(OPERATE FOR OVERSEAS SERVICES) & ASSETS OF ALL THEN EXISTING COMPANIES
TRANSFERRED TO THOSE COMPANIES.
FOREIGN AIRLINES CARRYING INTERNATIONAL PASSENGER TRAFFIC TO AND FROM
INDIA EXISTED LONG BEFORE INDEPENDENCE. THEIR OPERATIONS ARE GOVERNED
BY BILATERAL AGREEMENTS SIGNED FROM TIME TO TIME BETWEEN THE
GOVERNMENT OF INDIA AND THE GOVERNMENTS OF RESPECTIVE COUNTRIES. IN
1980-81, THE NUMBER OF SUCH AIRLINES WAS 35. IT ROSE TO 49 IN 1996-97.
THE SHARE OF FOREIGN AIRLINES IN INDIA'S SCHEDULED INTERNATIONAL TRAFFIC
HAS INCREASED. IN 1971, THEIR SHARE WAS 55.58 PER CENT WHICH WENT UP TO 65
PER CENT AND DECLINED TO 58 PER CENT DURING 1972-75. IT FELL TO 55.72 PER
CENT IN 1976 AND FURTHER TO 55.02 PER CENT IN 1977. BETWEEN 1978 AND 1990 IT
GRADUALLY INCREASED AND ROSE TO 75.93 PER CENT. IN 1996, THE SHARE WAS
NEARLY 72 PER CENT.
THE ACT PROHIBITED ANY OTHER THAN TWO COMPANIES TO OPERATE ANY
SCHEDULE AIR TRANSPORT TO OR ACROSS INDIA. THE REPEAL OF AIR
CORPORATION ACT FROM 1 ST MARCH 1994 ENABLED PRIVATE OPERATORS TO
PROVIDE AIR TRANSPORT SERVICES. EIGHT OPERATORS GOT THE NOD TO
COMMENCE OPERATION OUT OF WHICH ONLY TWO HAVE SURVIVED:
JET AIRWAYS
SAHARA INDIA
AVIATION SERVICES IN DEVELOPED COUNTRIES ARE CATEGORIZED INTO THREE
LEVELS:
7
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
8/55
TRUNK ROUTES- WHICH CONNECT MAJOR CITY PAIRS
REGIONAL AIR SERVICES - WHICH CONNECT SMALLER TOWNS, OVER SHORTER DISTANCES WITH SMALL AIRCRAFT
NON-SCHEDULED SERVICES - WHICH INCLUDE AIR TAXI, CHARTERS, CORPORATE OR
PRIVATE AVIATION
IN INDIA UNFORTUNATELY THE REGIONAL AND NON-SCHEDULED OR TIER 2 AND
TIER 3 SERVICES ARE ALMOST NON EXISTENT. EVEN THOUGH SUCH SERVICES
NORMALLY CONSTITUTE A SMALL PERCENTAGE OF DOMESTIC AIR SERVICES, THE
IMPORTANCE OF SUCH SERVICES SHOULD NOT BE UNDER-ESTIMATED, AS GENERAL
AVIATION FORMS THE ENTRY POINT FOR PERSONNEL TO ENTER THE INDUSTRY AND
GAIN GRASSROOTS EXPERIENCE.
IN 1953 A NEW DREAM TOOK SHAPE TO AIR LINK THE VAST SOUTH ASIAN
SUBCONTINENT BY A SINGLE, MODERN AND EFFICIENT AIRLINE. THE AIRLINE WAS
INDIAN AIRLINES. TODAY, INDIAN AIRLINES, TOGETHER WITH ITS FULLY OWNED
SUBSIDIARY ALLIANCE AIR, IS ONE OF THE LARGEST REGIONAL AIRLINES SYSTEM
IN ASIA WITH A FLEET OF 56 AIRCRAFTS, 8 WIDE BODIED AIRBUS A300S, 34 FLY-BY-
WIRE AIRBUS A320S, 11 BOEING 737S AND 3 DORNIER D-288 AIRCRAFTS.
INDIAN AIRLINES HAS BEEN SETTING THE STANDARDS FOR CIVIL AVIATION IN INDIA
SINCE ITS INCEPTION IN 1953. IT HAS MANY FIRSTS TO ITS CREDIT, INCLUDING
INTRODUCTION OF THE WIDE BODIED A300 AIRCRAFT ON THE DOMESTIC NETWORK,
THE FLY-BY-WIRE A320, DOMESTIC SHUTTLE SERVICE AND WALK-IN-FLIGHTS. ITS
UNIQUE ORANGE AND WHITE LOGO EMBLAZONED ON THE TAILS OF ALL ITS
AIRCRAFTS IS PERHAPS THE MOST WIDELY RECOGNIZED INDIAN BRAND SYMBOL
8
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
9/55
THAT, OVER THE YEARS HAS BECOME SYNONYMOUS WITH SERVICES, EFFICIENCY
AND RELIABILITY.
9
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
10/55
COMPANY PROFILE
INDIAN AIRLINES LIMITED
INDIAN AIRLINES HAVE BEEN CONSTANTLY INNOVATING AND UPGRADING ITS
FLEET AND TODAY IS ONE OF THE LARGEST DOMESTIC AIRLINES IN THE WORLD
WITH THE FLEET OF 55 AIRCRAFTS INCLUDING A320S A300S AND BOEING 737S.
INDIAN AIRLINES OPERATES 220 FLIGHTS EVERYDAY CARRYING MORE THAN 22,000PASSENGERS ON ITS NETWORK. IT CONNECTS 63 DOMESTIC AND 19 INTERNATIONAL
STATIONS LIKE SINGAPORE, KUALA LUMPUR, BANGKOK, KATMANDU, KUWAIT,
SHARJAH AND MUSCAT ETC.
THE AIRLINES HAVE GROWN FROM STRENGTH TO STRENGTH BY KEEPING AN
EXCELLENT TRACK RECORD OF MANPOWER AND INFRASTRUCTURE
DEVELOPMENT. ITS INTERNATIONALLY RECOGNIZED PILOTS TRAINING ACADEMY,
THE CENTRAL TRAINING ESTABLISHMENT (CTE) AY HYDERABAD IS TOTALLY SELF-SUFFICIENT IN TRAINING PILOTS, ENGINEERS, CABIN CREW AND OTHER
PERSONNEL. IN ADDITION TO THIS INDIAN AIRLINES IS SELF SUFFICIENT IN
AIRCRAFT MAINTENANCES TO KEEP ITS AIRCRAFT IN TOP FLYING CONDITION.
BEFORE 1953, I.E. BEFORE THESE AIRLINES MERGED TO FROM INDIAN AIRLINES
THERE WAS NO SET OF RULES AND STANDARDS OF OPERATIONS OF THE AIRLINES.
THE OPERATIONS MAINLY WERE COMPETITION ORIENTED AND THE RESULT OF
WHICH WAS THAT EVERY AIRLINES WANTED TO BE THE CHEAPEST ONE. THUS, ALL
MOST ALL THE AIRLINES DID NOT HAVE ENOUGH MONEY TO MAINTAIN THE
AIRCRAFTS. THEY PRESENTED AN EXCELLENT EXAMPLE OF UNHEALTHY
COMPETITION. ULTIMATELY THE GOVT. TOOK OVER BY PASSING THE AIR
10
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
11/55
CORPORATION ACT AND INDIAN AIRLINES COME INTO BEING. THE BOARD OF
DIRECTORS CONDUCTS THE AFFAIRS OF THE CORPORATIONS.
INDIAN AIRLINES IS ONE OF THE PUBLIC SECTOR CORPORATIONS IN INDIA. A
STATUTORY CORPORATION LIKE INDIAN AIRLINES IS FORMED WITH DEFINITE
OBJECTIVES IN THE INTEREST OF THE PUBLIC TOUGH BASED ON PRE-SET
PRINCIPLES.
THE OBJECTIVE FUNCTIONS OF INDIAN AIRLINES ARE AS FOLLOWS :
IT SHALL BE THE FUNCTION OF THE CORPORATION TO PROVIDE SAFE, EFFICIENT,
ADEQUATE, ECONOMICAL AND PROPERTY CO-ORDINATE AIR TRANSPORT SERVICES
WHETHER DOMESTIC OR INTERNATIONAL OR BOTH.
CORPORATION SHALL SO EXERCISE THEIR POWER AS TO SECURE THAT AIR
TRANSPORT SERVICES ARE DEVELOPED TO THE BEST ADVANTAGE AND IN
PARTICULAR SO EXERCISE THEIR POWER AS TO SECURE THAT THE SERVICES ARE
PROVIDED AT REASONABLE CHARGES.
THE OPENING UP OF THE SKIES IN 1992-93 THRUST INDIAN AIRLINES INTO A NEW
ENVIRONMENT OF COMPETITION AND GAVE RISE TO GREATER EXPECTATIONS OF
THE PASSENGERS. INDIAN AIRLINES HAS FACED THE COMPETITION WITH APLOMB,
CATERING TO ENHANCED PASSENGERS NEEDS WITH VARIOUS PRODUCT UPGRADES
AND MARKETING INITIATIVES. AND AT THE SAME TIME, IT HAS CONTINUED TOFULFILL ITS SOCIAL OBLIGATIONS. THE AIRLINES HAVE AUGMENTED ITS FLEET OF
AIRCRAFT BY LEASING 5 BOEING 737 AND 2 A-320 AIRCRAFT. PLANS ARE ALSO
UNDERWAY TO PURCHASE NEW AIRCRAFT AND THEREBY STRIVE TO ESTABLISH
ITSELF AS A TECHNOLOGY AND MARKET DRIVEN ORGANIZATION.
11
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
12/55
INDIAN AIRLINES OPERATES A COMPLEMENT OF 58 AIRCRAFT: 30 A-320S, 11 A-300S, 11
BOEING-737 AND 3 DORNIER-0228S.
MUMBAI IS THE MAJOR MAINTENANCE BASE FOR A-300 AIRCRAFT AVIONICS
(AVIATION ELECTRONICS) SHOPS AT ATEC (AUTOMATIC TEST EQUIPMENT COMPLEX)
TAKE CARE OF REPAIR AND CERTIFICATION OF ALL COMPUTERS ON BOARD.
ACCESSORIES OVERHAUL DIVISION MEETS THE NEEDS OF WHEELS, BRAKES AND
HYDRAULIC IS KNOWN DOES A COMPLETE OVERHAUL OF A-300 ENGINE, ONLY
DETAIL PARTS ARE SENT ABROAD FOR REPAIR.
DELHI IS THE MAJOR MAINTENANCE BASE FOR A-320 AND BOEING-737 AIRCRAFT.
THE A CHECKS FOR A-320 IS CARRIED OUT PRIMARILY IN HYDERABAD AND IF
NEED ARISES ALSO IN DELHI. C CHECKS, 5 YEARS AND 9 YEARS ARE CARRIED IN
DELHI TOO.
BOEING-737 4C/7C CHECKS ARE CARRIED OUT IN DELHI. DELHI AND KOLKATA BOTH
HAVE FACILITY TO CARRYOUT A, B AND C CHECKS ON BOEING-737 AIRCRAFT
BUT THIS JOB IS PRIMARILY CARRIED OUT AT KOLKATA. WELL EQUIPPED AVIONICS
OVERHAUL SHOPS AT DELHI AID IN-HOUSE REPAIR TO MAJORITY OF A320 AND
BOEING-737 COMPONENTS.
JET ENGINES OVERHAUL CENTERS A MULTI-MILLIONAIRE DOLLAR ENTERPRISE
UNDERTAKES REPAIRS TO BOTH V2500 AI ENGINES OF A-320 AS WELL AS JT8D-9A &
JT8D-17A ENGINES OF BOEING-737 AIRCRAFTS. ENGINES ARE DISMANTLED. PARTS
12
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
13/55
REPLACED AND STATE OF ART TEST HOUSE. ONLY SOME MODULES AND BLADES
ARE SENT ABROAD FOR REFURBISHMENT.
A FULL-FLEDGE APU REPAIR CENTER AT KOLKATA TAKES THE ENTIRE WORK OF
APUS FROM ALL THREE AIRCRAFTS. SIX MAJOR STATIONS NAMELY DELHI,
MUMBAI, KOLKATA, HYDERABAD, CHENNAI AND BANGALORE ALSO EXTENDED
NIGHT HALT FACILITIES FOR ALL THREE TYPES OF JET AIRCRAFTS.
INDIAN AIRLINES IS A PUBLIC UTILITY UNDER THE INDUSTRIAL DISPUTE ACT 1947,
HAS TO WORK IN THE INTEREST OF PUBLIC. IN THE VIEW OF THIS, THE
CORPORATION IS ACCOUNTABLE TO PUBLIC THROUGH THE GOVERNMENT AND
PARLIAMENT FOR ITS ACTIVITIES. THE CONTROL IS TWO-FOLD:
TO SEE THAT CORPORATION DOES NOT DEVIATE FROM ITS OBJECTIVES.
TO HAVE FINANCIAL CONTROL BECAUSE THE FUNDS OF THE CORPORATION ARE
DERIVED FROM PUBLIC FUNDS.
13
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
14/55
OBJECTIVES
TO MEET THE DEMAND FOR RELIABLE, ECONOMIC AND EFFICIENT TRANSPORT
SERVICE THROUGH HIGH STANDARDS OF SERVICE CUSTOMERS AND PASSENGERS.
TO MAXIMIZE THE ESSENTIAL AND STRATEGIC COMMUNICATION WITHIN INDIA IN
TIMES OF NATIONAL EMERGENCIES AND TO BE RELIABLE SECOND LINE OF
DEFENSE.
TO INCREASE PASSENGERS SATISFACTION BY IMPROVING PASSENGER/CARGO AND
AMENITIES.
TO ENHANCE THE CONTRIBUTION OF NATIONAL ECONOMY DURING THE 5 YEAR
PLAN PERIOD BY SECURING THE REASONABLE RETURN ON CAPITAL CONSISTENT
WITH THE SOCIAL OBJECTIVES.
TO FOSTER INTERNATIONAL TOURISM TO INDIA AND TO IMPROVE BALANCE OF
PAYMENTS.
TO STIMULATE DOMESTIC TOURISM AND TOURISM INTERNAL TRADE BI AIR IN
ORDER TO DEVELOP AIR MINDEDNESS AND BROADEN THE INDIAN MARKET.
TO SHARE IN THE PROMOTION OF THE SOCIAL, CULTURAL AND EMOTIONAL
INTEGRATION OF INDIA AND TO PARTICIPATE IN THE PROCESS REDRESSING
REGIONAL IMBALANCES.
TO ENCOURAGE SELF EXPRESSION AND PARTICIPATE IN THE ACTIVITIES OF THE
COMPANY BY ALL EMPLOYEES AND TO ENCOURAGE THEIR LEGITIMATE
ASPIRATIONS FOR GROWTH AND SELF DEVELOPMENT.
TO PARTICIPATE IN THE DEVELOPMENT OF NATIONAL AIRCRAFT AND ANCILLARY
INDUSTRY.
14
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
15/55
SWOT ANALYSIS
FOR A COUNTRY OF CONTINENTAL SIZE LIKE INDIA, A STRONG, RELIABLE AND
EFFICIENT CIVIL AVIATION SECTOR GOES A LONG WAY IN PROMOTING AND
SUSTAINING TOURISM. INDIAN AIRLINES BEING A LEADER IN THIS INDUSTRY
CANNOT OPERATE IN A VACUUM. IT NEEDS TO KEEP ITS EYES AND EARS OPEN TO
SURVIVE IN THE LIBERALIZED ECONOMY OF OUR COUNTRY, WHICH HAS PAVED A
WAY FOR ANY PRIVATE AIRLINES TO OPERATE ALONG WITH IT. THE INTERNAL AND
EXTERNAL ENVIRONMENTS CONTAIN VARIOUS STRENGTHS, WEAKNESSES,
OPPORTUNITIES AND THREATS WHICH NEED TO BE IDENTIFIED WELL IN AN
ADVANCE TO TAKE CARE OF VARIOUS SITUATIONS THAT MAY ARISE FROM TIME TO
MIME. WE SHALL NOW TRY TO FOCUS ON THE ABOVE MENTIONED FACTORS IN
CONTEXT WITH PRESENT SCENARIO ONE BY ONE.
STRENGTHS
INFRASTRUCTURAL SUPPORT: THE MOST NOTABLE STRENGTH OF INDIAN AIRLINES
LIMITED IS ITS VAST INFRASTRUCTURAL SUPPORT BUILT OVER FIVE DECADES. THIS
HAS HELPED IT REDUCE ITS COSTS AND AT THE SAME TIME INCREASE ITS
EFFICIENCIES. THE MOST NOTABLE AMONG ITS INFRASTRUCTURE ARE THE
CENTRAL TRAINING ESTABLISHMENT (CTE) AND JET ENGINE OVERHAUL COMPLEX
(JEOC).
15
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
16/55
FLEETS STRENGTH: INDIAN AIRLINES LIMITED IS ONE OF THE LARGEST DOMESTIC
AIRLINES IN THE WORLD AND IS EQUIPPED WITH MODERN FLEET OF AIRBUS A-300,A-320, DORNIER, ATR-42 AND BOEING 737 AIRCRAFT. AS COMPARED TO THE FLEET OF
INDIAN AIRLINES LIMITED, THE TOTAL FLEET OF ALL PRIVATE AIRLINES COMBINED
TOGETHER IS SMALLER THAN THAT OF INDIAN AIRLINES LIMITED. THIS CLEARLY
SHOWS THE SUPERIORITY OF INDIAN AIRLINES LIMITED OVER THIS FACTOR.
VAST COMPUTERIZED NETWORK: EACH OF THE 55 DOMESTIC STATIONS OF INDIAN
AIRLINES LIMITED IS LINKED OVER A COMPUTERIZED NETWORK, WHICH PROVIDES
INSTANT RESERVATIONS AND UP TO DATE INFORMATION OF EACH STATION
INSTANTLY. THIS IS NO DOUBT A GREAT ACHIEVEMENT, WHICH PROVES THAT
INDIAN AIRLINER LIMITED HAS REALIZED ITS POTENTIAL.
LARGEST NETWORK: OVER THE LAST 50 YEARS, INDIAN AIRLINES HAS BUILT UP A
RELIABLE AND STABLE SCHEDULE THAT LINKS 75 DESTINATIONS - 57 WITHIN INDIA
AND 20 ABROAD. FROM THE GATEWAY CITIES OF DELHI IN THE NORTH, MUMBAI IN
WEST, KOLKATA IN THE EAST AND CHENNAI IN THE SOUTH, THE PASSENGER CAN
TAKE OFF IN AN INDIAN AIRLINES LIMITED IS WITHIN EASY REACH. IN COMPARISON
OF THIS EACH PRIVATE AIRLINES OPERATE IT MAXIMUM OF 30 DESTINATIONS,
WHICH IS NO WAYS NEAR THE 75 DESTINATIONS, WHICH IS NO WAYS NEAR THE
DESTINATIONS PROVIDED BY INDIAN AIRLINES LIMITED.
MOST MODERN FLEET: INDIAN AIRLINES LIMITED HAS BEEN REGULARLY UPDATING
ITS FLEET. HAVING STARTED VIKINGS AND DAKOTAS IT NOW HAS AIRBUS A-320S,
16
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
17/55
THE MODERN AIRCRAFTS HAVING A TECHNOLOGY OF FLY BY WIRE AND IS NOW IN
THE PROCESS OF PHASING OUT BOEING 737 AIRCRAFTS.
MAINTENANCE FACILITIES: IN AVIATION INDUSTRY, MAINTENANCE PLAYS A VITAL
ROLE. IT IS THE BACKBONE OF AN ORGANIZATION AND NO ORGANIZATION CAN
SURVIVE UNLESS AND UNTIL IT HAS GOOD MAINTENANCE FACILITIES. INDIAN
AIRLINES LIMITED HAS UNDERSTOOD THIS VERY WELL AND HAS MAINTENANCE
FACILITIES IN DELHI, HYDERABAD AND KOLKATA. THE ENGINEERS ARE WELL
QUALIFIED AND HOLD A REPUTATION OF BEING ONE OF THE BEST IN THE AVIATIONINDUSTRY. PRIVATE AIRLINES ARE QUITE DEPENDENT UPON THEIR FOREIGN
COLLABORATIONS OR THE INDIAN AIRLINES TO MAINTAIN THEIR AIRCRAFTS,
WHICH IS A COSTLY AFFAIR.
HIGHLY MODERNIZED CENTRAL TRAINING ESTABLISHMENT (CTE, HYDERABAD):
CTE WAS ESTABLISHED AS A PROFIT CENTER BY INDIAN AIRLINES. IT PROVIDES
TRAINING IN ALL ASPECTS OF AIRLINES MANAGEMENT BOTH FOR PERSONNEL OF
INDIAN AIRLINES AS WELL AS TO REPRESENTATIVES OF OTHER AIRLINES AS PER
DGCA, IATA, AND ICAO. IT HAS BEEN REGARDED AS THE BEST TRAINING FACILITY IN
INDIA AND IS RESPONSIBLE FOR PROVIDING EXPERT TRAINING FACILITIES TO AIR
INDIA, BLUE DART, ALLIANCE AIR. AIR SAHARA, SRI LANKAN AIRLINES ETC.
17
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
18/55
WEAKNESSES
LACK OF PERSONALIZED AND CUSTOMER FRIENDLY SERVICES: THIS IS ONE OF THE
MAJOR FINDINGS OF OUR STUDY. ALMOST ALL PASSENGERS FEEL THAT INDIAN
AIRLINES LIMITED STAFF NEEDS TO BE MORE CUSTOMER FRIENDLY AND
PROFESSIONAL IN ITS APPROACH. IN SERVICES INDUSTRY, IT IS THE KIND OF
SERVICES THAT ONE PROVIDES MATTERS AND LEAVES ITS IMPRESSION IN THE MIND
OF PASSENGERS. IT INFACT IS A MEASURE OF QUALITY OF THE PRODUCT. INDIAN
AIRLINES LIMITED NEEDS TO TAKE IMMEDIATE STEPS IN THIS REGARD TO CHANGE
THE PUBLIC OPINION.
OVERSTAFFING: AS MENTIONED EARLIER THE TOTAL STAFF STRENGTH OF INDIAN
AIRLINES LIMITED IS 18715 AS ON DATE. ON THE AVERAGE 19300-19500 PEOPLE
TRAVEL ON INDIAN AIRLINES LIMITED ON ITS 112 FLIGHTS DAILY. IT RECORDS
THREE HUNDRED DEPARTURES PER DAY (INCLUDING ALLIANCE AIR). THIS MEANS
THAT THERE IS ROUGHLY ABOUT ONE STAFF RECRUITED AGAINST EVERY
PASSENGER TRAVELING. THIS IS NO DOUBT A BAD SIGN. INDIAN AIRLINES LIMITED
HAS UNDERSTOOD THIS WEAKNESS NOW AND HENCE HAS NOT MADE ANY MAJOR
RECRUITMENT FOR LAST FEW YEARS. MOREOVER, THERE ARE AROUND TWO
THOUSAND EMPLOYEES RETIRING WITHIN NEXT TWO YEARS WHICH WILL TRIMWORK FORCE AUTOMATICALLY.
UNDER UTILIZATION OF CAPACITY: INDIAN AIRLINES LIMITED SELLS SPACE, WHICH
IS HIGHLY PERISHABLE. THIS IS BECAUSE IDLE CAPACITY WOULD IMPLY
OPPORTUNITY LOST. CAPACITY MEANS THE TOTAL NUMBER OF SEATS OFFERED BY
18
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
19/55
INDIAN AIRLINES LIMITED DAILY TO ITS PASSENGERS. IT HAS BEEN OBSERVED THAT
INDIAN AIRLINES LIMITED OFFERS AROUND 32000 SEATS DAILY WHERE AS ON
AVERAGE 19300 SEATS ARE UTILIZED MEANING AN AVERAGE SEAT FACTOR OF
ABOUT 60%. IT IS IMPERATIVE TO IMPROVE UPON THE SITUATION BEFORE IT IS TOO
LATE. MORE MARKETING EFFORTS ARE REQUIRED TO ATTRACT LARGER
PASSENGER.
OPPORTUNITIES
GROWTH OF AVIATION INDUSTRY: THE RECESSION IN THE WEST, THE GULF WARS,
SURAT OUTBREAK AND KARGIL WAR HAVE SLOWED TOURIST GROWTH AND
CONSEQUENTLY AFFECTED THE INDIAN AIRLINES LIMITED REVENUES. HOWEVER,
THESE WERE TRANSIENT SETBACKS AS HAS BEEN PROVEN BY RECOVERY OF
GLOBAL TOURIST ACTIVITY. AVIATION INDUSTRY IS GROWING AT THE RATE OF 10%
PER YEAR. THIS IS NO DOUBT A GOOD SIGN. AND INDIAN AIRLINES LIMITED MUST
EXPLOIT THIS OPPORTUNITY AND TAKE MAXIMUM BENEFITS OUT OF IT.
CLOSING DOWN OF VARIOUS PRIVATE AIRLINES: EARLIER INDIAN AIRLINES LIMITED
WAS NOT ALLOWED TO OPERATE ON INTERNATIONAL SECTORS, AS AIR INDIA TOOK
CARE OF IT. WITH THE LIBERALIZATION OF INDIAN ECONOMY, GOVERNMENT OF
INDIA GAVE INDIAN AIRLINES LIMITED A GREEN SIGNAL TO OPERATE IN THE
INTERNATIONAL ROUTES. IT IS ALWAYS ECONOMICAL TO OPERATE ON LONG
ROUTES AND IT IS ONLY BY THIS ATTRACTION INDIAN AIRLINES LIMITED HAS
BRANCHED OUT TO OPERATE ON 17 INTERNATIONAL SECTORS.
19
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
20/55
PROFITS AFTER A LONG TIME: INDIAN AIRLINES LIMITED HAD BEEN RUNNING IN
RED FROM THE YEAR 1989-90 TO 1996-97 FOR A NUMBER OF REASONS. IT STARTED
EARNING PROFIT IN 1997-98. IT EARNED A PROFIT OF RS. 47.27 CRORE IN 1997-98, RS.
14.17 CRORE IN 1998-99 AND RS. 51.42 CRORE IN 1999-00. BUT AFTER THAT IT AGAIN
STARTED MAKING LOSSES WITH A LOSS OF RS. 159.14 CRORE IN 2000-01. IT
REMAINED IN RED IN 2001-02 WITH A LOSS OF RS.246.75 CRORE FOLLOWED BY A
LOSS OF RS. 196.56 CRORE IN 2002-03. THEN IT CAME IN BLACK ONCE AGAIN IN 2003-
04 WITH A NET PROFIT OF RS. 44.17 CRORE WHICH CONTINUES IN 2004-05 AND 2005-06
WITH A PROFIT OF AROUND 64 CRORES IN 2005-06.
CREATION OF PROFIT CENTERS: DUE TO ITS SIZE INDIAN AIRLINES LIMITED IS
UNABLE TO BE AS NIMBLE AS IT OUGHT TO BE IN TERM OF DECISION MAKING,
CUSTOMER SERVICE AND EMPLOYEE MOTIVATION. CONSEQUENTLY, AN INTEGRAL
PART OF ITS STRATEGY WAS TO HYPE OFF CERTAIN ACTIVITIES INTO SEPARATE
PROFIT CENTERS, TO MAKE THEM MORE FOCUSED, FLEXIBLE AND ACCOUNTABLE.
IT WAS WITH THIS IN MIND THAT INDIAN AIRLINES LIMITED CREATED THE
FOLLOWING PROFIT CENTERS:
CENTRAL TRAINING ESTABLISHMENT
JET ENGINE OVERHAUL COMPLEX
ALLIANCE AIR
GROUND SUPPORT
CARGO
AUXILIARY POWER UNIT
THE PROFIT CENTERS HAVE ALREADY MADE USEFUL CONTRIBUTION IN THE
IMPROVED PERFORMANCE OF INDIAN AIRLINES LIMITED.
20
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
21/55
OTHER OPPORTUNITIES: THE COMPANY STANDS TO BENEFIT FROM A VARIETY OF
OTHER OPPORTUNITIES DUE TO ITS INHERENT STRENGTHS AND EMERGING MARKET
TRENDS. SOME OF THESE ADVANTAGES ARE LISTED BELOW:
GOOD DOMESTIC MARKET GROWTH POTENTIAL IN THE EVENT OF UPTURNS IN THE
DOMESTIC MARKET
SYNERGY BETWEEN DOMESTIC AND INTERNATIONAL OPERATIONS
MODERN ENGINEERING INFRASTRUCTURE AND HIGHLY SKILLED MANPOWER
REVENUE POTENTIAL FROM HANDLING SERVICES RENDERED TO OTHER AIRLINE
THREATS
COMPETITION ITSELF: EVER SINCE THE INCEPTION OF INDIAN AIRLINES LIMITED IT
HAD NEVER TASTED COMPETITION, AS IT WAS A PROTECTED MONOPOLY. WHEN THE
PRIVATE AIRLINES ENTERED THIS FIELD THERE WAS A PANIC IN INDIAN AIRLINES
LIMITED, INSTEAD OF THINKING OF WAYS TO TACKLE, IT STATED CONDEMNING THE
GOVT. POLICY AND THOUGHT IT AS THREAT TO IT EXISTENCE. IT IS ONLY RECENTLY
THAT IT HAS REALIZED THAT PRIVATE AIRLINES WERE HERE TO STAY.
INSTABILITY IN THE POLICES OF INDIA: FOR THE LAST 4 OF 5 YEARS THERE HAS
BEEN A GREAT UNCERTAINTY IN THE POLITIES OF INDIA. SINCE MAJORITY OF
INDIAN AIRLINES LIMITED POLICES REQUIRES THE APPROVAL OF GOVT. HENCE AN
UNCERTAINTY IN THE POLITICAL CIRCLE HINDERS THE DECISION MAKING OF
INDIAN AIRLINES LIMITED. EVERY GOVT. HAS ITS OWN PERCEPTION ABOUT
AVIATION INDUSTRY RESULTING IN THE CHANGE IN THE POLICIES UNDER SHORT
INTERVALS. THIS NOT ONLY RESULTS IN THE LOW MORAL OF THE MANAGEMENT
BUT ALSO MAKES IT INDECISIVE WHICH IS NOT GOOD FOR AN ORGANIZATION.
21
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
22/55
INDUSTRIAL UNREST: STRIKES ARE A FAMILIAR WORD FOR INDIAN AIRLINES
LIMITED. EVERY NOW AND THEN THERE ARE STRIKES EITHER BY PILOTS,
ENGINEERS OR GROUND STAFFS THAT RESULT NOT ONLY IN HUGE LOSSES BUT
ALSO CAUSES LOT OF INCONVENIENCE TO THE PASSENGER RESULTING IN LOSS OF
IMAGE AND CREDITABILITY IN THE MARKET. AIRLINES LIMITED MUST TAKE A
SERIOUS VIEW ABOUT IT AND SORT OUT THE THINGS BEFORE IT IS TOO LATE.
FINANCIAL SYSTEM IN INDIAN AIRLINES
THE MANAGEMENT AT THE CENTER
THE INDIAN AIRLINES FOLLOWS A CENTRALIZED SYSTEM FOR REVENUE HANDLING
AND A DECENTRALIZED SYSTEM FOR BOOKING OF EXPENDITURES. THE
ORGANIZATION HAS TWO HEAD QUARTERS FOR FINANCE. ONE OF THE HEAD
QUARTERS DEALS WITH EXPENDITURES AND IS LOCATED IN THE AIRLINES HOUSE,
NEW DELHI. THE SECOND HEADQUARTER DEALS WITH REVENUE AND IS KNOWN AS
THE CENTRAL REVENUE ACCOUNTS (CRA). THE EXPENDITURE DIVISION IS
OVERSEEN BY TWO GENERAL MANAGERS, WHILE THE CRA HAS ONE GENERAL
MANAGER.
22
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
23/55
BELOW THE HEADQUARTERS ARE THE REGIONAL OFFICES WHICH AGAIN HAVE
SIMILAR STRUCTURE. HERE ALSO THERE IS AN EXPENDITURE DIVISION WHICH IN
CASE OF THE DELHI REGION IS IN PALAM. THE REVENUE PART IS HANDLED BY AN
AREA REVENUE DIVISION WHICH IN CASE OF DELHI REGION IS IN SAFDARJUNG.
EACH REGION IS FURTHER SUBDIVIDED INTO STATIONS WHICH ARE PLACES WHERE
INDIAN AIRLINES HAS AN OFFICE.
ALL REVENUES EXCEPT FOR THOSE THAT ARE INCIDENTAL IN NATURE ARE BOOKED
BY THE CRA. INCIDENTAL REVENUES ARE BOOKED BY RESPECTIVE ARDS. ALL
EXPENSES RELATED TO THE AIRCRAFTS ARE BOOKED BY THE HEAD QUARTERS
(EXPENDITURE). ALL ADMINISTRATIVE EXPENDITURES INCURRED IN THE REGIONS
ARE BOOKED BY THE REGION.
THE HEAD QUARTERS TRANSFER A FIXED SUM OF MONEY TO EACH REGION AT
PREFIXED DATES SO THAT THEY CAN MEET THEIR EXPENSES. THIS IS CALLED
SCHEDULED TRANSFER. IF DUE TO ANY REASON THE REGION NEEDS MORE FUNDS
THE HEAD QUARTERS CAN TRANSFER IT BY WAY OF SPECIAL TRANSFER.
FUNCTIONING OF THE FINANCE DEPARTMENT IN THE NORTHERN REGION
FINANCE DEPARTMENT
AREA REVENUE DIVISION, SAFDARJUNG:
AGENCY SECTION
SCREENING SECTION
23
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
24/55
BILLS RECEIVABLE SECTION
EXPENDITURE DIVISION, PALAM:
BILL PASSING - LOCAL
BILL PASSING - OUTSTATION
PROVIDENT FUND
PAYROLL
CASH & BANK
BILL RAISING & REALIZATION
FINANCE & BUDGET
AREA REVENUE DIVISION
THE BASIC FUNCTION OF AREA REVENUE DIVISION (ARD) IS TO BOOK "TRAFFIC
REVENUE" EARNED BY INDIAN AIRLINES IN ITS BOOKS. THE VARIOUS COMPONENTS
OF TRAFFIC REVENUE ARE:
MAIL REVENUE: THIS IS THE REVENUE DERIVED FROM THE CARRIAGE OF MAIL ON
THE ROUTES OF THE CARRIER.
AIRFREIGHT REVENUE: IT IS THE REVENUE DERIVED FROM CARRIAGE OF CARGO
ON THE ROUTES OF THE CARRIER.
24
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
25/55
EXCESS BAGGAGE REVENUE: IT IS THE REVENUE DERIVED FROM CARRIAGE OF
EXCESS BAGGAGE ON THE ROUTES OF THE CARRIER.
PASSENGER REVENUE: IT IS THE REVENUE DERIVED FROM THE CARRIAGE OFPASSENGERS OVER THE ROUTES OF THE CARRIER.
POOL REVENUE: POOL IS AN AGREEMENT ENTERED INTO BY TWO NATIONAL
CARRIERS OPERATING ON THE SAME ROUTE, TO POOL THEIR REVENUE IN A KITTY
AND THEN SHARE THE SAME ON A MUTUALLY AGREED BASIS. THE MAIN OBJECT OF
SUCH AGREEMENTS IS TO MAKE THE SERVICES OPERATED BY THE POOL PARTNERS
COMPLEMENTARY AND NOT COMPETITIVE. REVENUE GENERATED BY SUCH A POOL
IS POOL REVENUE.
CHARTER REVENUE: IT IS THE REVENUE DERIVED FROM THE CHARTERING
OPERATIONS. CHARTER IS A SPECIAL ARRANGEMENT, WHEREBY FOR AN AGREED
OPERATION, THE CARRIER PLACES THE ENTIRE CAPACITY OF AN AIRCRAFT AT THE
DISPOSAL OF THE PERSON REQUESTING FOR CHARTER SERVICES.
ALL THESE REVENUES ARE BOOKED BY ARD IN BOOKS OF INDIAN AIRLINES WITH
AN INSTRUMENT OF MAINTAINING RECORDS KNOWN AS "REPORTING FORM".
SECTIONS AT ARD:
AGENCY: DEALS WITH THE AGENTS OF INDIAN AIRLINES AND MAINTAIN RECORDS
OF ALL THE TRANSACTION OR SALES DONE BY AGENTS THROUGH REPORTING
FORMS.
SCREENING: PERFORMS THE SEQUENTIAL SCREENING OF ALL THE REPORTING
FORMS AND EXECUTE INTERLINE BILLING.
25
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
26/55
BILLS RECEIVABLES (B/R): IT MAINTAINS THE RECORDS OF ALL THE CREDIT PARTIES
OF INDIAN AIRLINES AND RAISE BILL OR DEBIT NOTES TO SUCH PARTIES FOR SERVICES RENDERED TO THEM BY INDIAN AIRLINES.
AGENCY SECTION
THIS SECTION DEALS WITH THE AGENTS OF INDIAN AIRLINES AND MAINTAINSRECORDS OF ALL THE TRANSACTIONS OR SALES DONE BY THE AGENTS THROUGH
THE REPORTING FORMS. ABOUT 80% OF INDIAN AIRLINES SALES ARE THROUGH ITS
AGENTS & THERE ARE ABOUT 600 INDIAN AIRLINES AGENTS IN NORTHERN REGION.
THE AGENCY SECTION AT ARD DEALS WITH ALL INDIAN AIRLINES AGENTS
MAINTAINS RECORDS, TAKE DISCIPLINARY ACTIONS AGAINST DEFAULTS IF ANY &
PREPARE CONCEALED SUMMARY OF ALL TRANSACTION THROUGH AGENTS FOR
THE HEAD QUARTERS.
AGENT: AN AGENT IS AN INDIVIDUAL OR AN ORGANIZATION AUTHORIZED TO ACT
FOR AND ON BEHALF OF AN AIRLINE, SUBJECT TO THE TERMS AND CONDITIONS
SPECIFIED IN THE AGENCY AGREEMENT. PASSENGER AGENTS OF INDIAN AIRLINES
ARE AUTHORIZED TO ISSUE PASSENGER TICKETS AND CARGO AGENTS ARE
AUTHORIZED TO ISSUE CONSIGNMENT NOTES/AIR WAYBILLS.
THERE ARE TWO KINDS OF AGENTS:
GENERAL SALES AGENT (GSA): A GSA IS ONE AND ONLY ONE AGENT AUTHORIZED
BY INDIAN AIRLINES TO OPERATE IN A PARTICULAR COUNTRY HOWEVER HE CAN
26
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
27/55
HAVE SUB-AGENT UNDER HIM. INDIAN AIRLINES HAVE THEIR GSA'S IN U.K., U.S.A.,
RUSSIA AND CANADA. GSA'S ARE ENTITLED TO SPECIAL RATES BY INDIAN AIRLINES
AS PER THE CONTRACT.
PASSENGER SALES AGENT (PSA): WHEN VARIOUS SALES AGENTS ARE APPOINTED BY
INDIAN AIRLINES FOR THE SAME REGION, THEY ARE KNOWN AS PSA'S. THE RATES
FOR ALL THE PSA'S ARE SAME AND FIXED IN ADVANCE.
THE VARIOUS FUNCTIONS PERFORMED BY AGENCY SECTION ARE AS FOLLOWS:
APPLICATIONS FOR NEW AGENCY:
NEW APPLICANTS APPLY TO THE COMMERCIAL DEPARTMENT, WHICH SCRUTINIZE
THE APPLICATIONS AT VERY STEP AND THEN FORWARD THE APPLICATIONS TO THE
FINANCE DEPARTMENT. FINANCE DEPARTMENT CHECKS THE FINANCIAL VIABILITY
OF THE APPLICANT AND CONFIRMS THE BANK GUARANTEE PROVIDED BY THE
APPLICANT. BANK GUARANTEE SHOULD BE AT LEAST OF RS. 2 LACS. ONCE THE
VERIFICATION OF DOCUMENTS IS COMPLETE THE AGENCY SECTION ALLOTS AN
AGENT WITH A UNIQUE CODE. BANK GUARANTEE IS TAKEN FROM THE AGENTS AND
TICKETS ARE ISSUED TO THE AGENT.
MAINTAINING RECORDS OF AGENTS:
AGENTS ARE REQUIRED TO SUBMIT DETAILS OF EACH AND EVERY TRANSACTION
OR SALE TO ARD, RECORDS OF WHICH ARE MAINTAINED BY AGENCY SECTION
DISCIPLINARY ACTIONS AGAINST AGENTS:
ALL THESE FORMS ARE SCRUTINIZED AND FOR ANY DISCREPANCIES, DISCIPLINARY
ACTIONS ARE TAKEN AGAINST THE AGENTS. THESE ACTIONS ARE GENERALLY
"LEGAL" BUT DUE TO GROWING COMPLEXITIES OF LEGAL PROCEDURES INDIAN
AIRLINES IS GETTING ITS TRANSACTIONS WITH AGENTS INSURED. THUS, DEFAULTS
IF ANY ARE RECOVERED BY INSURANCE AGENCIES.
27
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
28/55
RECONCILIATION:
ANOTHER MAJOR JOB OF THE SECTION IS TO PREPARE CONCEALED SUMMARY OFALL THE TRANSACTIONS BY EACH AND EVERY AGENT AND THE TOTAL REVENUE
ACCRUED. A TDS OF 2.05% IS TO BE DEDUCTED OUT OF THE COMMISSION OF THE
AGENTS AND TO BE SUBMITTED TO THE AUTHORITY BY STIPULATED DATES. THE
AGENCY SECTION IS ALSO RESPONSIBLE TO THE AGENTS FOR PROVIDING THE
CERTIFICATE OF TDS, FOR THEM TO FILE THEIR ANNUAL RETURN.
BILLING OF CHARTER:
CHARTER: IT IS A SPECIAL ARRANGEMENT, WHEREBY FOR AN AGREED OPERATION,
THE CARRIER PLACES THE ENTIRE CAPACITY OF AN AIRCRAFT AT THE DISPOSAL OF
THE PERSON REQUESTING FOR THE CHARTER.
FIXED CHARGES FOR CHARTER ARE:
AIRBUS-320 RS. 330,000 /HR
A-300 RS. 550,000 /HR
BOEING RS. 260,000 /HR
FOREIGN TRANSACTIONS :
FOR THE INDIAN AIRLINES AGENTS ABROAD, ALL THE TRANSACTIONS ARE CARRIED
THROUGH BSP WITH THE HELP OF IATA AGENT. SALE OF TICKETS, TRANSFER OF
REVENUE AND PAYMENT OF COMMISSION TO AGENTS, EVERYTHING IS DONE
THROUGH IATA AGENTS.
28
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
29/55
SCREENING SECTION
THIS SECTION PERFORMS THE SEQUENTIAL SCREENING OR CHECKING OF ALL THE
REPORTING FORMS AND EXECUTES INTERLINE BILLING. THE BASIC FUNCTION OF
THE SCREENING SECTION IS TO SCREEN:
REPORTING FORMS
SALES RECORDS (JVS)
INTERLINE BILLING
29
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
30/55
MAIL STATEMENTS RECOVERED FROM OUTSTATIONS
REPORTING FORMS:
REPORTING FORMS ARE STANDARD FORMATS DESIGNED TO REPORT THE SALE OF
CASH VALUE
DOCUMENTS (CVDS) THAT IS BASICALLY THE AIR TICKETS.
JOURNAL VOUCHERS:
IT CONFIRMS THAT THE TICKETS ARE ISSUED SERIALLY BY THE AGENTS AND THAT
THEY REPORT THEM ALONG WITH THE RATES CHARGED FOR THE SERVICE ALONG
WITH DETAILS OF ANY CONCESSION AND DISCOUNT OFFERED. FOR ANY
DISCREPANCIES DEBIT NOTES ARE ISSUED TO AGENTS FOR THE SAME AMOUNT.
INTERLINE BILLING:
SUPPOSE A DEALER AT BANGKOK WANTS TO DELIVER SOME GOODS TO JAIPUR, THE
TRANSIT WILL BE AS FOLLOWS:
BANGKOK ----- DELHI-------JAIPUR
THUS THE DEALER WILL DEPOSIT THE ENTIRE SUM AT BANGKOK AND THE TRANSIT
OF GOODS FROM DELHI TO JAIPUR WILL BE BY INDIAN AIRLINES THUS THE INDIAN
30
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
31/55
AIRLINES WILL RAISE THE BILL ON BANGKOK AIR FOR THE TRANSIT. THIS IS
KNOWN AS INTERLINE BILLING.
MAIL STATEMENT:
THIS IS TO KEEP A CHECK ON THE WEIGHTS TRANSITED AS MAILS AND CHARGE ON
THEM. THE VARIOUS MAIL TRANSITS ARE AS FOLLOWS:
STATE -TO-STATE
REGION -TO-REGIONCOUNTRY-TO-COUNTRY
SPEED POST ETC.
ANOTHER JOB FOR THE SECTION IS TO KEEP A CHECK ON THE MONEY RECEIVED
FOR THE TRANSACTIONS. IT NEEDS TO PREPARE ALL THE BANK DOCUMENTS
REGARDING RECEIPTS, REFUNDS AND CONCEALED NET RECEIPTS AND DISPATCH
THEM TO THE CRA OR EDP ALONG WITH THE BANK STATEMENTS CONFIRMING THE
DEPOSIT IN BANK.
3. BILLS RECEIVABLE SECTION
BILLS RECEIVABLE SECTION DEALS BASICALLY WITH THE RECOVERY OF THE
CREDIT FROM THE CREDIT PARTIES. INDIAN AIRLINES AS ITS POLICY, EVEN ISSUE
TICKETS OR PROVIDE SERVICE TO CERTAIN PARTIES ON CREDIT AND BILLS
RECEIVABLE SECTION DEALS WITH THE RECOVERY OF THIS CREDIT FROM THESE
CREDIT PARTIES.
31
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
32/55
BILLS RECEIVABLE SECTION DEALS WITH TWO KINDS OF RECOVERY:
RECOVERY FROM INTERNAL PARTIES: INTERNAL PARTIES REFER TO THE STATIONS
RECOVERY FROM THE EXTERNAL PARTIES: EXTERNAL PARTIES REFER TO THE
CREDIT PARTIES
TWO SUB-SECTIONS UNDER BILLS RECEIVABLE SECTION ARE:
COMPUTER CELL: IT DEALS WITH THE EXTERNAL PARTIES
NON-COMPUTER CELL: IT DEALS WITH THE INTERNAL PARTIES
COMPUTER CELL :
INDIAN AIRLINES ISSUES TICKETS AND PROVIDES SERVICES TO CERTAIN "CREDIT
PARTIES" LIKE GOVERNMENT DEPARTMENTS AND BIG BUSINESS HOUSES. IT
RECOVERS THE CREDIT AMOUNT DUE FROM THEM ON MONTHLY BASIS.
THESE PARTIES INITIALLY APPROACH TO THE COMMERCIAL DEPARTMENT FOR THE
AUTHORIZATION. ONCE THE TERMS & CONDITIONS ARE SIGNED A PERMANENT
CREDIT CODE IS ALLOTTED TO THE PARTY. NOW WITH THE AUTHORIZATION LETTER
AND THE CREDIT PARTY CODE INDIAN AIRLINES SERVICES CAN BE AVAILED ON
CREDIT AND THE BILLS ARE SENT TO THE PARTY DIRECTLY.
AUTHORITIES TO AVAIL SERVICES ARE GIVEN FOR A FIXED PERIOD KNOWN AS
"EXTENSION PERIOD". AFTER THE EXTENSION PERIOD, BILLS ARE DRAWN, PAYMENT
IS COLLECTED AND THE PARTIES ARE INTIMATED TO PAY. HOWEVER IF THE PARTY
32
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
33/55
FAILS TO CLEAR THE BILLS WITHIN THE STIPULATED TIME PERIOD THE AUTHORITY
IS SUSPENDED.
NON-COMPUTER CELL :
THE NON COMPUTER CELL RECOVERS ANY CREDIT DUE FROM INTERNAL PARTIES,
THAT IS, THE EMPLOYEES. THE COLLECTIONS FROM INTERNAL PARTIES CAN BE ON
ACCOUNT OF THE FOLLOWING:
CREDIT CARGO: IT IS WHEN CONSIGNOR AGREES TO PAY A BOOKING AMOUNT AND
CONSIGNEE IS SUPPOSED TO PAY THE CARGO/FREIGHT CHARGES AT THE
DESTINATION ON POINT OF RECEIVING THE CARGO. THUS, IT IS DUTY OF STATION
MANAGER TO RECOVER SUCH AMOUNT.
ISSUING RECOVERY SECTION: SOMETIMES DUE TO HUMAN ERROR THERE ARE
SHORT COLLECTIONS ON ACCOUNT OF BOOKING AMOUNT ON CARGO OR PACKS AT
THE STATIONS. WHEN THE SCREENING SECTION IDENTIFIES SUCH SHORT
COLLECTIONS IT EITHER ASKS THE EDP OR ITSELF RAISES THE BILL ON STATION.
THE STATION MANAGER FOLLOWS IT UP AND RECOVERS THE AMOUNT.
STAFF CLEARANCE: BILLS RECEIVABLE SECTION ALSO RECOVERS THE PENDING
CLEARANCES FROM THE STAFF. NON COMPUTER CELL MAINTAINS THE RECORDS OF
THE RECOVERY FROM THE EMPLOYEES AND RAISE THE BILLS ON STAFF
ACCORDINGLY WHICH ARE FURTHER DISPATCHED TO THE PAYROLL SECTION SO ASTO BE RECOVERED FROM THE SALARY OF THE EMPLOYEE.
33
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
34/55
EXPENDITURE DIVISION
EXPENDITURE DIVISION IS RESPONSIBLE FOR ACCOUNTING FOR THE EXPENSES
MADE IN THE REGION. THIS INCLUDES EXPENSES ON SALARY BILLS, PURCHASE OF
STATIONERY AND ANY OTHER ADMINISTRATIVE EXPENSES. THE DIVISION HOWEVER
34
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
35/55
DOES NOT BOOK ANY EXPENDITURE THAT IS RELATED TO THE AIRCRAFT IN ANY
WAY.
BILL PASSING-LOCAL
ALL THE GOODS, PRODUCTS AND EQUIPMENT THAT ARE REQUIRED FOR THE DAY-
TO-DAY OPERATIONS BY THE SUPPORTING DEPARTMENTS ARE PURCHASED IN BULK
TO BE STORED IN ANTICIPATION OF FUTURE REQUIREMENT. THE BILL PASSING-
LOCAL PASSES ALL THE BILLS REGARDING PURCHASES LIKE CENTRALIZED
PURCHASING OF UNIFORM, CATERING, STATIONARY ETC. FOR ALL 5 REGIONS.
THE MAJOR FUNCTIONS OF THIS SECTION ARE:
PURCHASING
DEDUCTIONS
SECURITY DEPOSITS
PURCHASING: THE STORE & PURCHASE SECTION PLACES THE PURCHASE ORDER
FOR EVERY LOCAL PURCHASE (INCLUDING ALL CASH SALES). THREE DOCUMENTS
REQUIRED FOR THE PURCHASE ORDER ARE:
INITIAL PROPOSAL BY VENDOR.
INVOICE BY SELLER.
CONFIRMATION BY RECEIVE & DISPATCH SECTION.
THE PROCEDURE FOR MAKING A PURCHASE IS AS UNDER:
35
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
36/55
INDENTATION BY SECTION
STORE & PURCHASE SECTION PLACES THE ORDER
RECEIVE & DISPATCH SECTION RECEIVES THE GOODS
BILL PASSING-LOCAL PASSES THE BILL
THUS THE MAJOR JOB OF THIS SECTION IS TO MAINTAIN RECORDS FOR ALL THE
LOCAL, PURCHASES MADE AND TO PASS THE BILLS CONCERNED. THESE GOODS ARE
FIRST BROUGHT TO DELHI AND THEN DISPATCHED TO ALL 5 REGIONS AS PER THE
REQUIREMENT.
36
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
37/55
DEDUCTIONS: ANOTHER IMPORTANT JOB OF BILL PASSING-LOCAL IS TO DEDUCT
TDS FROM THE COMMISSION OR CHARGE PAID TO VENDORS FOR THE LABOR
SERVICES PROVIDED BY THEM. CERTAIN GOODS IN STORES ARE SUCH THAT THEY
POSSES THE INDIAN AIRLINES LOGO ON THEM FOR E.G. STATIONARY, BAGS, TAGS,
FOLDERS, BATCHES ETC. THUS THE INDIAN AIRLINES GETS THOSE GOODS PRINTED
FORM THE VENDORS. GENERALLY INDIAN AIRLINES PROVIDES GOODS TO THE
PRINTERS AND THUS A TDS OF 2.05% IS DEDUCTED FORM THE SERVICE CHARGES
PROVIDED TO THEM BY INDIAN AIRLINES.
SECURITY DEPOSIT: THIS IS THE SUM OF AMOUNT THAT THE VENDORS NEED TO PAY
AS A SECURITY FOR THE TRANSACTIONS WITH INDIAN AIRLINES. ALL THE VENDORS
HAVE TO DEPOSIT A 10% AMOUNT OF THE ORDER WITH INDIAN AIRLINES FOR ALL
CATERING PURCHASES. EVEN FOR THE ITEMS FOR PRINTING, THE VENDORS ARE
REQUIRED TO DEPOSIT A SUM EQUIVALENT TO 10% OF THE VALUE TO GOODS OR
MATERIAL ADVANCED TO THEM BY INDIAN AIRLINES.
BILL PASSING-OUTSTATION
37
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
38/55
THE NORTHERN REGION OF INDIAN AIRLINES HAS ITS DEALINGS IN 15 OUTSTATION
OF WHICH 14 ARE ONLINE AND 1(BHILLAI) IS OFFLINE. BILL PASSING-OUTSTATION ISTHE CONTROLLING AUTHORITY FOR THESE OUTSTATIONS. THEY ISSUE ADVANCE
IMPREST CHEQUES OF A PREDETERMINED VALUE TO ALL THE STATIONS ON WEEKLY
BASIS. THESE CHEQUES ARE ALWAYS IN NAME OF STATION MANAGER & HE IS THE
DESIGNATED PERSON WHO HAS THE AUTHORITY TO ENCASH IT.
THE PROCEDURE BY WHICH THE VARIOUS STATIONS MEET THEIR EXPENSES IS:
ISSUE OF IMPRESSED CHEQUES
STATION MANAGER GETS IT ENCASHED
MEET ALL THE EXPENSES
SEND MONTHLY EXPENSE STATEMENT TO BILL PASSING-OUTSTATION
CONCERNED ACCOUNTING IS DONE
38
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
39/55
ALL THE VOUCHERS SHOULD COME ALONG WITH MONTHLY EXPENDITURESTATEMENT AND STATION MANAGERS SHOULD SIGN ALL THE PETTY CASH
VOUCHERS. OUTSTATIONS CAN ASK FOR THE SPECIAL IMPREST CHEQUES
WHENEVER THERE IS A NEED FOR MEETING EXTRAORDINARY EXPENSES. AT THE
END OF EVERY FINANCIAL YEAR THE BANK SECTION IS SUBJECT TO MAKE A
RECONCILIATION STATEMENT. CLOSING BALANCES WITH THE OUTSTATIONS
SHOULD MATCH THE STATEMENT PREPARED BY BILL PASSING SECTION.
THE MAJOR EXPENSES FOR OUTSTATIONS ARE:
HOTEL BILLS: FOR THE PACKS OFFERED BY INDIAN AIRLINES OR STAY OVER OF
PACKS, CABIN CREW & COCKPIT CREW.
CATERING BILLS: FOR THE CATERING SERVICES PROVIDED ONBOARD BY VARIOUSCATERERS LIKE TAJ CATERERS, SHELF AIR CATERING AND AMBASSADOR ETC.
MEDICAL BILLS: BILLS OF ALL THE MEDICAL FACILITIES PROVIDED TO INDIAN
AIRLINES EMPLOYEES BY HOSPITALS, DOCTORS OR CHEMISTS.
RENT: ALL THE LAND WITH INDIAN AIRLINES IS ON LEASE, THUS A MONTHLY RENT
IS GIVEN TO THE LEASER (OWNER).
39
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
40/55
PROVIDENT FUND
THE FACILITY FOR PROVIDENT FUND IS AVAILABLE TO ANY EMPLOYEE ONLY AFTER THE COMPLETION OF ONE COMPLETE YEAR SERVICE. A 9% P.A. RATE OF INTEREST IS
PAYABLE TO EMPLOYEE ON THE AMOUNT IN PROVIDENT FUND. THE AMOUNT OF
PROVIDENT FUND IS CALCULATED AS FOLLOWS:
CONTRIBUTION TO PROVIDENT FUND: 10% OF PROVIDENT FUND SALARY
WHERE PROVIDENT FUND SALARY = BASIC SALARY + VDA + SPECIAL ALLOWANCES
(THERE IS A PROVISION FOR A SPECIAL PAY OR ANY TECHNICAL PAY FOR ENGINEERS
& TECHNICIANS ETC.)
EMPLOYEES HOWEVER HAVE THE OPTION OF WITHDRAWING THE AMOUNT FROM
THEIR PROVIDENT FUND IF EVER REQUIRED. THE PROVIDENT FUND AMOUNT CAN
BE WITHDRAWN IN TWO WAYS:
REPAYABLE WITHDRAWAL: WITHDRAWAL THAT IS TO BE RETURNED BACK WITHIN
A STIPULATED TIME SPAN, EXCEEDING MAXIMUM UP TO A PERIOD OF 33 MONTHS.
AN INTEREST OF 10.5% P.A. IS PAYABLE ON SUCH A WITHDRAWAL ON 6 MONTHS
REDUCING BALANCE
EMPLOYEE CAN WITHDRAW MAXIMUM OF 6 TIMES OF HIS/HER PROVIDENT FUND
SALARY
REFUNDABLE WITHDRAWAL CAN BE AVAILED FOR ANY RELIGIOUS CEREMONY,WHICH AN EMPLOYEE IS INCUMBENT TO PERFORM
40
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
41/55
NON-REFUNDABLE WITHDRAWAL: WITHDRAWAL, WHICH NEED NOT BE RETURNED
BY THE EMPLOYEE. AN EMPLOYEE CAN AVAIL SUCH A NON-REFUNDABLEWITHDRAWAL ONLY AFTER 15 YEARS OF SERVICE. IT IS AVAILABLE FOR THE
FOLLOWING PURPOSES:
FOR THE PURPOSE OF MARRIAGE OF SIBLINGS OR ANY FEMALE DEPENDENT
PURCHASE OF LAND, HOUSE ETC
CONSTRUCTION OF HOUSE- PAYABLE IN TWO EQUAL INSTALLMENTS
NON-REFUNDABLE WITHDRAWAL IS PAYABLE AFTER COMPLETION OF 15 YRS
SERVICE OR WITHIN 10 YR BEFORE THE DATE OF RETIREMENT.
INCOME TAX IS CHARGED ON PROVIDENT FUND AMOUNT AS PER THE TAXATION
NORMS EXISTING IN THE COUNTRY FROM TIME TO TIME.
41
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
42/55
PAYROLL
THIS SECTION IS RESPONSIBLE FOR MAKING THE SALARY SLIPS OF THE
EMPLOYEES. WHEN A PERSON IS APPOINTED THE PAYROLL SECTION RECEIVES HIS
JOINING LETTER AND THE VARIOUS TERMS AND CONDITIONS ON WHICH HE IS
APPOINTED. THE SECTION ISSUES THE PERSON A STAFF NUMBER. THUS EVERY
EMPLOYEE HAS A STAFF NUMBER AND IS RECOGNIZED BY THAT.
THE SALARY SLIP OF THE PERSON INCLUDES BASIC DATA ABOUT THE EMPLOYEE
LIKE THE STAFF NUMBER, NAME, DESIGNATION CODE, DESIGNATION, STATION
CODE, DEPARTMENT CODE, DATE OF BIRTH (DOB), DATE OF JOINING (DOJ), BANK
ACCOUNT NUMBER.
OTHER THAN THESE DETAILS IT INCLUDES BASIC PAY, DEARNESS ALLOWANCE (DA)
AND OTHER ALLOWANCES. EVEN IF THE GOVERNMENT INCREASES THE DA THE
COMPANY DOES NOT INCREASE IT, UNLESS DECIDED BY THEIR VARIOUS UNIONS.
SOME ALLOWANCES ARE COMMON TO ALL EMPLOYEES WHEREAS SOME VARY
ACCORDING TO THE AGREEMENTS WITH THE PERSON.
42
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
43/55
THE NEXT ITEMS IN THE SALARY SLIP ARE THE STATUARY DEDUCTIONS LIKE
PROVIDENT FUND, INCOME TAX AND EMPLOYEE STATE INSURANCE (ESI). SALARY
SLIP ALSO INCLUDES ANNUAL SALARY, TAXABLE SALARY, TAX AND REBATES ETC.
CASH & BANK SECTION
CASH AND BANK SECTION CONTROLS ALL PAYMENT AND RECEIPTS RELATING TO
THE PARTICULARS REGION. BANK BOOK MAINTAINS THE RECORDS OF
DISBURSEMENT ACCOUNTS AT THE OUTSTATIONS. CASH SECTION DEALS WITH AND
MAINTAINS ALL THE RECORDS CONCERNING THE CASH PAYMENTS AND BANK
SECTION PROVIDES THE CONCERNED BANKING TREATMENT. IT RECEIVES AN
ADVANCE SUM OF RS. 1 CRORE 20 LAKHS PER MONTH FROM THE HEAD QUARTERS
TO MEET ALL EXPENSES IN THE REGION.
THEY ARE ENGAGED IN THE FOLLOWING:
PAYMENT OF VOUCHERS: THEY ENTERTAIN AND MAKE PAYMENTS FOR THE
VOUCHERS LIKE TELEPHONE BILLS, ENTERTAINMENT ETC.
SALARY DISTRIBUTION: THE CASH PAYMENT OF PAY SLIPS AND THE
CORRESPONDING ACCOUNTING.
ADVANCES FOR EMPLOYEES: ADVANCING MONEY TO THE EMPLOYEES, RECEIVING
BACK THE LEFT-OUT AMOUNT AND ACCOUNTING THE SAME.
MISCELLANEOUS ITEMS: MAINTAIN TENDERS, CANTEEN SALES, SALE OF SCRAP
ETC.
ANOTHER JOB WITH THE SECTION IS TO HANDLE ALL THE CASH RECEIPTS,
ALTHOUGH BANK SECTION DOES THE CONCERNED ACCOUNTING. CASH SECTION IS
43
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
44/55
REQUIRED TO COMPILE A CONCEALED, SUMMARIZED MONTHLY REPORT FOR ALL
THE EXPENDITURE INCURRED BY THE CASH SECTION OR ALL THE CASH PAYMENTS
MADE BY IT. THIS REPORT IS TO BE FORWARDED TO THE "FINANCE AND BUDGET
SECTION" EVERY MONTH. THE RETENTION PERIOD FOR SUCH RECORDS IS ABOUT 5
YEARS.
BILL RAISING & REALIZATION:
INDIAN AIRLINES PROVIDE GROUND HANDLING TO VARIOUS OTHER AIRLINES FOR
WHICH THEY CHARGE THEM. INDIAN AIRLINES HAS ITS OWN INFRASTRUCTURE,
WHICH OTHER SMALL AIRLINES LACK. THUS IT PROVIDES VARIOUS
INFRASTRUCTURE FACILITIES TO OTHER AIRLINES ON A PREDETERMINED CHARGE.
FOR RECOVERING SUCH CHARGES DUE ON OTHER AIRLINES BILL RAISING &
REALIZATION SECTION RAISE BILLS ON SUCH AIRLINES. THUS THE MAIN JOB OF
THE SECTION IS TO RAISE BILLS ON OTHER AIRLINES FOR THE SERVICES PROVIDED
AND MAINTAINING RECORDS FOR THE SAME.
THE BUREAU OF CIVIL AVIATION SECURITY UNDER INDIAN AIRLINES PROVIDES
SECURITY TO OTHER AIRLINES ON CHARGE BASIS FOR WHICH SIMILAR BILLING IS
DONE BY BILL RAISING & REALIZATION SECTION. WHENEVER ANY SERVICE IS
PROVIDED, CORRESPONDING HANDLING FORMS LIKE GROUND HANDLING FORM,
SECURITY HANDLING FORM ETC. ARE TO BE FILLED AND ON BASIS OF THESE
HANDLING FORMS BILLS ARE RAISED ON OTHER AIRLINES.
There are two kinds of parties:
44
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
45/55
CASH PARTIES : THESE PARTIES ARE SUPPOSED TO MAKE CASH PAYMENT AT THE
TIME OF HANDLING ONLY, IN REGARD OF THE SERVICE PROVIDED TO THEM BY
INDIAN AIRLINES.
CREDIT PARTIES : THESE PARTIES AVAIL THE HANDLING SERVICES OF INDIAN
AIRLINES ON CREDIT AND TO THEM. THE BILL RAISING & REALIZATION SECTION
RAISES BILLS AND RECEIVES THE AMOUNT FROM THEM THEREAFTER.
ALL THE BILLS TO FOREIGN AIRLINES ARE RAISED AND SETTLED THROUGH IATA
CLEARANCE HOUSE. BILLING FOR ALL PRIVATE VIP FLIGHTS I.E. CHARTERED
FLIGHTS FOR PRESIDENT, PRIME MINISTER, VICE PRESIDENT, IS ALSO DONE BY BILL
RAISING & REALIZATION SECTION. BILLS ARE RAISED TO THE CONCERNED
MINISTRIES AND SETTLEMENT IS DONE THEREAFTER.
INDIAN AIRLINES PROVIDE ALL HANDLING & SECURITY SERVICES TO ALLIANCE AIR,
ITS SUBSIDIARY, FOR WHICH BILL RAISING & REALIZATION SECTION RAISES THE
BILLS ON ALLIANCE AIR. THESE BILLS ARE BOOKED UNDER THE HEAD "HANDLING
RECEIPT". THE REVENUE EARNED BY HANDLING IS BOOKED IN BALANCE SHEET
UNDER THE HEAD "NON-OPERATING REVENUE".
45
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
46/55
FINANCE & BUDGET
FINANCE &BUDGET SECTION IS RESPONSIBLE FOR MAINTAINING THE JOURNAL,
SUBSIDIARY BOOKS AND GENERAL LEDGER FOR FACILITATING RECONCILIATION OF
THE INTER-REGION ACCOUNTS, MAINTAINING A RECORD OF ASSETS, PROVIDING
DEPRECATION THEREON AND KEEPING RECORD OF DEPOSITS REVIVED FROM
CONTRACTOR AND SUPPLIER ETC. THE SECTION ALSO COMPILES BUDGET
ESTIMATES AND ANNUAL ACCOUNTS RELATING TO THE REGION, WHICH ARE
SUBMITTED TO THE HEAD QUARTERS.
VALUATION OF THEIR UPCOMING IPO
IPO MEANS THE FIRST TIME THAT COMPANY IS GOING TO PUBLIC TO RAISE FUNDS.
IT IS VERY COMMON TO SEE THAT THE COMPANY WHICH IS GOING TO RAISE FUNDS
THROUGH PUBLIC IS NOT LISTED ON ANY EXCHANGE SO VALUATION CAN ONLY
PROVIDE THE COMPANY WITH THE FAIR VALUE THAT AT WHAT PRICE OFFER
SHOULD BE MADE AND FROM PUBLIC POINT ON VIEW IT IS NECESSARY FOR THEM
TO CHECK THAT WHAT PRICE SHOULD THEY SUBSCRIBE FOR THAT ISSUE.
INDIAN AIRLINES IS PLANNING TO PURCHASE 43 NEW AIRCRAFTS FOR REPLACING
THE OLD PLANES FOR WHICH THEY NEED FUNDS OF ABOUT 10,000 CRORE RUPEES.
46
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
47/55
FOR RAISING THIS FUND THEY R PLANNING TO BRING IN THEIR IPO. HERE WE HAVE
TRIED TO VALUE THEIR COMPANY FOR GETTING THE AMOUNT AT WHICH THE
SHARES SHOULD BE ISSUED. THEY ARE GOING TO RECEIVE THESE PLANES FROM
SEPTEMBER 2006. THE PLAN IS TO RECEIVE ONE PLANE EACH MONTH AND
ACCORDINGLY THEIR PAYMENTS ARE DONE ON THIS BASIS.
IN THIS CHAPTER WE HAVE TRIED TO VALUE THE IPOS OF INDIAN AIRLINES BY
FOUR DIFFERENT METHODS. WE ARE WORKING ON CERTAIN ASSUMPTIONS FOR
THIS VALUATION WHICH ARE GIVEN BELOW.
ASSUMPTIONS MADE FOR VALUATION:
ALL THE FUNDS REQUIRED ARE RAISED BY TWO SOURCES I.E. 50% IS RAISED
THROUGH DEBT CAPITAL AND REST 50% IS RAISED THROUGH EQUITY THROUGH
THIS IPO.
CAPITAL EXPENDITURE ON THESE PLANES IS ALSO TAKEN AS AND WHEN WE
RECEIVE THE PLANE WHICH IS STARTING FROM SEPT. 2006.
AS BEING A GOVERNMENT COMPANY ALL THE FINANCIAL STATEMENTS ARE NOT
AVAILABLE TO US AS ALL THE STATEMENTS NEED APPROVAL OF THE PARLIAMENT
BEFORE GETTING PUBLISHED. OUR VALUATION IS DONE ON THE BASIS OF OLD
STATEMENTS AVAILABLE AND THE PRIMARY INFORMATION WE WERE ABLE TO
GATHER FROM THE SENIOR STAFF MEMBERS. AND ACCORDINGLY WE HAVE
ESTIMATED THE VALUES FOR FINANCIAL YEAR 2005-06 WHICH ARE USED IN OUR
VALUATION.
VALUATION METHODS USED:
FCFF GENERAL METHOD
47
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
48/55
BALANCE SHEET METHOD
RELATIVE VALUATION METHODS
I) VALUATION OF INDAIN AIRLINES WITH FCFF(GEN.) MODEL
FCFF MEAN FREE CASH FLOW TO FIRM, THIS METHOD IS USED WHERE FIRMS FREE
CASH FLOW CAN BE CALCULATED. THIS METHOD IS BASED ON THE EARNINGS OF
THE FIRM. HERE WE TRY TO ESTIMATE THE FUTURE EARNINGS OF THE FIRM AND
THEN CALCULATE ITS PRESENT VALUE ON BASIS OF THE MARKET DISCOUNT RATE.IT HELPS US TO KNOW THE FUNDS AVAILABILITY OF FIRM. WE HAVE USED THIS
MODEL BECAUSE INDIAN AIRLINES IS PRESENTLY IS AT GROWTH STAGE. EARLIER IT
WAS A LOSS MAKING COMPANY BUT FROM LAST THREE YEARS IS EARNING PROFIT
WITH A GROWTH IN ITS EARNING RATE, AND NOW WITH NEW INVESTMENTS PLANS
ITS GROWTH IS GOING TO INCREASE. INITIALLY IT IS INVESTING HEAVILY IN NEW
PLANES AND THEN IN FUTURE THEY WILL GENERATE HEAVY INFLOWS AS THIS WILL
HELP THEM TO DECREASE THEIR OPERATING EXPENSES AS ON MAINTENANCE AND
WILL ALSO HELP TO ATTRACT NEW CUSTOMERS. SO RIGHT NOW ALL ITS CAPITAL
EXPENDITURE, REVENUE GROWTH, TAX STRUCTURE, WORKING CAPITAL
REQUIREMENT ARE HIGHLY VOLATILE.
48
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
49/55
II) VALUATION OF INDAIN AIRLINES WITH BALANCE SHEET MODEL:
BALANCE SHEET METHOD IS A METHOD USED TO VALUE A FIRM ACCORDING TO THE
MARKET PRICES. MOSTLY WHENEVER A BALANCE SHEET IS MADE ALL THE ASSETS
ARE VALUED ON THEIR PURCHASE PRICE BUT THAT DOES NOT DEPICT THEIR TRUE
VALUE IN THE MARKET. MOST OF THE ASSETS LIKE LAND, BUILDING HAVE MUSH
HIGHER VALUE NOW IN MARKET COMPARE TO AT WHAT VALUE THEY ARE SHOWN IN
THE BOOKS. THEREFORE TO VALUE ANY FIRM WE NEED TO ESTIMATE THEIR ASSETS
MARKET VALUE. THIS METHOD IS VERY MUCH SUITABLE IN INDIAN AIRLINES ASMOST OF ITS ASSETS ARE PURCHASED BACK IN FUTURE AND NOW CAN BE SOLD IN
MARKET AT MUCH HIGHER PRICES. SO TO KNOW THE EXACT VALUE OF FIRM IT IS
VERY ESSENTIAL TO CONVERT THESE BOOK VALUES INTO THEIR PRESENT MARKET
VALUE WHICH WE HAVE TRIED TO DONE IN THIS METHOD. ALL ASSETS AVAILABLE
WITH THE FIRM ARE CONVERTED IN THEIR MARKET VALUE BASED ON CERTAIN
ASSUMPTIONS, THEIR INCREASE IN VALUE AND TIME OF PURCHASE AND THEN WE
HAVE CLUBBED THEM ACCORDING TO THE HEADS UNDER BALANCE SHEET. THIS
METHOD HELPS US TO GIVE THE EXACT VALUE OF EQUITY OF THE FIRM.
49
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
50/55
IATA AND BSP
IATA IS AN INTERNATIONAL TRADE BODY, CREATED SOME 60 YEARS AGO BY A
GROUP OF AIRLINES. TODAY, IATA REPRESENTS SOME 230 AIRLINES COMPRISING 93%
OF SCHEDULED INTERNATIONAL AIR TRAFFIC. THE ORGANIZATION ALSO
REPRESENTS, LEADS AND SERVES THE AIRLINE INDUSTRY IN GENERAL.
HISTORY
INTRODUCTION
IATA - THE INTERNATIONAL AIR TRANSPORT ASSOCIATION - WAS FOUNDED IN
HAVANA, CUBA, IN APRIL 1945. IT IS THE PRIME VEHICLE FOR INTER-AIRLINE
COOPERATION IN PROMOTING SAFE, RELIABLE, SECURE AND ECONOMICAL AIR
SERVICES - FOR THE BENEFIT OF THE WORLD'S CONSUMERS. THE INTERNATIONALSCHEDULED AIR TRANSPORT INDUSTRY IS NOW MORE THAN 100 TIMES LARGER
THAN IT WAS IN 1945. FEW INDUSTRIES CAN MATCH THE DYNAMISM OF THAT
GROWTH, WHICH WOULD HAVE BEEN MUCH LESS SPECTACULAR WITHOUT THE
STANDARDS, PRACTICES AND PROCEDURES DEVELOPED WITHIN IATA.
50
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
51/55
AT ITS FOUNDING, IATA HAD 57 MEMBERS FROM 31 NATIONS, MOSTLY IN EUROPE
AND NORTH AMERICA. TODAY IT HAS SOME 230 MEMBERS FROM 126 NATIONS IN
EVERY PART OF THE GLOBE.
THE MODERN IATA IS THE SUCCESSOR TO THE INTERNATIONAL AIR TRAFFIC
ASSOCIATION FOUNDED IN THE HAGUE IN 1919 - THE YEAR OF THE WORLD'S FIRST
INTERNATIONAL
AIRLINE AND AIRCRAFT OPERATIONS
IATA IDENTIFIES AND DEVELOPS SOLUTIONS FOR ALL AREAS AFFECTING
AIRCRAFTS AND AILINES, EITHER ON GROUND OR IN FLIGHT. THIS INCLUDES
ANALYSIS OF FLIGHT OPERATIONS DATA, QUALITY ASSURANCE MATTERS AND
MAINTENANCE OF THE AIRLINE OPERATIONAL INFORMATION EXCHANGE.
KEY OPERATIONAL ISSUES BEING ADDRESSED BY IATA:
ORGANIZATIONAL STRUCTURES AND PROCESSES
COST REDUCTION INITIATIVES
FLIGHT OPERATIONS MANAGEMENT
FUEL EFFICIENCY
OUR MISSION IS TO:
PROMOTE THE GLOBAL HARMONIZATION OF AIRCRAFT EQUIPMENT.
IDENTIFY AND MITIGATE PRIORITY OPERATIONAL COST ISSUES.
IDENTIFY REDUCTION OPPORTUNITIES IN FUEL CONSUMPTION.
REDUCE CONCERNS FOR ENVIRONMENTAL EMISSIONS.
51
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
52/55
BILLING AND SETTLEMENT PLAN (BSP)
BSP IS A SYSTEM DESIGNED TO FACILITATE AND SIMPLIFY THE SELLING, REPORTING
AND REMITTING PROCEDURES OF IATA ACCREDITED PASSENGER SALES AGENTS, AS
WELL AS IMPROVE FINANCIAL CONTROL AND CASH FLOW FOR BSP AIRLINES.
A TRULY WORLDWIDE SYSTEM FACILITATING THE SETTLEMENT OPERATIONS FOR
AIRLINES AND AGENTS, BSP OPERATES IN SOME 160 COUNTRIES AND TERRITORIES.
OVER 80% OF WORLDWIDE AIRLINE REVENUES ARE TICKETED VIA IATA TRAVEL
AGENCIES IN THE BSP SYSTEM.
BENEFITS OF A BSP
SIMPLIFICATION:
AGENTS ISSUE ONE SALES REPORT AND REMIT ONE AMOUNT TO A CENTRAL POINT
AIRLINES RECEIVE ONE SETTLEMENT COVERING ALL AGENTS
NEUTRAL STANDARD TRAFFIC DOCUMENTS (STDS) REPLACE DEDICATED AIRLINE
TICKET STOCKS
AGENTS SALES ARE REPORTED ELECTRONICALLY.
SAVINGS:
LESS RESOURCES REQUIRED FOR BILLING AND COLLECTION
REDUCED PRINTING FOR BOTH AIRLINES AND AGENTS WITH THE USE OF NEUTRAL
STDS AND STANDARD ADMINISTRATIVE FORMS
ELECTRONIC DISTRIBUTION OF BILLING REPORTS, AND GENERATION OF
DEBIT/CREDIT MEMOS (ADMS/ACMS) VIA BSPLINK .
ENHANCED CONTROL:
INCREASED FINANCIAL CONTROL THANKS TO CENTRALISATION AND GROUPING
52
https://www.bsplink.iata.org/https://www.bsplink.iata.org/https://www.bsplink.iata.org/8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
53/55
STORAGE, DISTRIBUTION, ISSUANCE AND REPORTING OF STDS UNDER BSP
CONTROL CONSOLIDATED DOCUMENT FLOW, PERMITTING ACCELERATED QUALITY
CONTROLS OVERALL PROCESS MONITORING BY A NEUTRAL BO
RECOMMENDATIONS:
AS SUCH THE COMPANY IS PLANNING TO BRING NEW PLANS TO REPLACE THE OLD
ONES, BUT ALL OLD PLANES ARE NOT ON LEASE SOME OF THEM ARE OWNED BY
THE FIRM TOO. SO IT HAS TWO OPTIONS NOW AVAILABLE THAT WHAT THEY CAN DO
WITH THESE PLANES. EITHER IT CAN SELL THEM IN OPEN MARKET WHICH WILL
HELP THEM TO RAISE FUNDS OR OTHER OPTION IS TO USE THEM FOR ANY OTHER
PURPOSE.
AS PER THE FIRST OPTION WE ALL KNOW THESE PLANES ARE VERY OLD PLANES
AND CANT FETCH MORE THAN THEIR SCRAP VALUE SO IT IS ADVISABLE TO GO FOR
THE SECOND OPTION.
AS PER THE SECOND OPTION THEY CAN FIND ANY OTHER USE FOR THESE PLANES.
THE BEST POSSIBLE USE WHAT WE CONSIDERED TO BE THE BEST IS TO USE THEM
FOR CARGO PURPOSE. AS WE SEE THEY INDUSTRY THE CARGO INDUSTRY IS FACING
A GREAT BOOM AND DEMAND FOR CARGO IS ALSO INCREASING. THE FIRM
ALREADY HAS ALL AVAILABLE RESOURCES ANT THERE WOULD BE NO EXTRA COST
IN OPERATING SUCH A FIRM. WHAT ALL IS REQUIRED IS FETCH ORDERS AND THIS IS
POSSIBLE FOR INDIAN AIRLINES AS THEY CAN EASILY ASK THEIR EXISTING CLIENTS
FOR IT AND ALSO AS NO EXTRA COST IS INVOLVED THEY CAN OFFER THIS SERVICE
AT A REASONABLE RATE AND ATTRACT MORE CLIENTS, ALSO THE POINT THAT
MANAGING CARGO PLANES THEN PASSENGER PLANES IS MORE EASY AND CHEAPFAVORS THIS OPTION MORE.
ALSO, WE CAN SEE FROM THE FIGURE THAT GOING INTO A CARGO BUSINESS IS NOT
AT ALL HARMFUL. IN PASSENGER FLIGHTS SAY FOR EXAMPLE IF WE TALK ABOUT A
53
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
54/55
FLIGHT FROM DELHI TO BOMBAY THE APPROXIMATE CHARGES ARE RS. 3000 PER
PERSON. TAKE THE WEIGHT OF THE PERSON IS AROUND 60 KG AND HE CAN ALSO
CARRY A WEIGHT IF 20KG. WITH HIM. SO NOW WE GAT THAT CARING 80 KG FROM
DELHI TO BOMBAY WILL MAKE A COMPANY EARN RS. 3000 WHICH IS
APPROXIMATELY SAY RS. 40 PER KG BUT WHEN WE TALK ABOUT CARGO FOR THE
SAME DISTANCE NORMALLY THE CHARGES ARE RS. 250 PER KG. I.E. WE CAN EARN A
LOT AND THIS WILL HELP US IN INCREASING COMPANIES PROFIT MANY FOLDS.
54
8/9/2019 Indian Airlines - Finance System Study and Valuation of Thei
55/55
CONCLUSION:
ACCORDING TO ME AND MY UNDERSTANDING THE SECOND OPTION IS BEST
POSSIBLE FOR THE COMPANY AS IT WILL NOT ONLY HELP IN INCREASING THE
EARNINGS OF THE FIRM WHICH IN RETURN WILL ALSO HELP IN INCREASING THE
SHAREHOLDERS WEALTH WHICH IS THE ULTIMATE AIM OF ANY COMPANY. AS SUCH
THE COMPANY HAS BEEN VALUED WITH THREE DIFFERENT METHODS AND FOR
DECIDING ON THE BEST PRICE THE COMPANY CAN CHOOSE ANY ONE OF THESE
METHODS OR CAN TAKE AVERAGE OF ANY COMBINATION OF METHODS.
Top Related