(a) Background
Kingfisher Airlines Limited (formerly known as Deccan Aviation Limited) ("the Company") is engaged in rendering scheduled and unscheduled aircraft passenger and cargo services, including charter services. The Company was incorporated on June 15, 1995 as a private limited company and converted itself into a public limited company on January 31, 2005. Consequently, the Company changed its name from Deccan Aviation Private Limited to Deccan Aviation Limited. On June 12, 2006, the Company's shares were listed on the Bombay Stock Exchange Limited and the National Stock Exchange Limited, pursuant to the Company's initial public offer of shares. The scheduled airline business of Kingfisher Training and Aviation Services Limited ("KTASL") (previously known as Kingfisher Airlines Limited) demerged on a going concern basis with the Company, with effect from April 1, 2008 as the demerger appointed date, vide scheme of arrangement approved by the honourable High Court of Karnataka vide its order dated June 16, 2008 under sections 391 to 394 of the Companies Act, 1956 (`Scheme"). The helicopter charter division of the Company was also hived off pursuant to the Scheme. The Company changed its name from Deccan Aviation Limited to Kingfisher Airlines Limited, with effect from September 5, 2008.
(b) Demerger of the commercial airline division of KTASL
(i) Order of the Karnataka high court in form 42 of the Companies (Court) Rules, 1949 in respect of the Scheme is yet to be passed.
(ii) Documentation in respect of transfer of certain assets and liabilities taken over pursuant to Scheme, to the name of the Company are pending. The Company is in the process of transfer of charges created by KTASL to its name in respect of securities granted for loans so taken over by the Company, in consultation with the Registrar of companies.
2 Buildings constructed at a cost of Rs.865.86 Lacs are on land belonging to the Airport Authority of India. Such rental agreements are renewable on a periodical basis.
3 Employee Stock Option Plan [ESOP]
The Board of Directors of the Company are yet to formulate the stock option plan to the employees of the commercial airline division of KTASL taken over by the Company, pursuant to clause 11.1 of the Scheme.
4 Leases and Hire Purchase
The Company has entered into operating and finance lease agreements. Disclosures required under AS 19 on "Leases" is as given below:
(a) Operating leases
Operating lease arrangements comprise of leases of aircraft, helicopters, spare engines and office premises. The salient features of such lease agreements are as follows:
1) Lease periods range up to twelve years and are in certain cases non-cancellable.
2) Lease rentals are usually fixed over the term of the lease while some arrangements are subject to adjustments linked to the Libor rates movements.
3) The Company also has agreements for maintenance and lease of stores and spares for such aircrafts for which fixed and variable rentals are paid. Variable rentals are paid on a pre determined rate payable on the basis of actual flying hours / cycles. Such variable rentals are subject to annual escalations as stipulated in the agreements. However, the Company is eligible to claim reimbursement of maintenance costs to the extent eligible under the agreements.
4) The Company does not have an option to buy the aircraft or helicopters and spare engines or to renew the leases.
5) In case of default by the Company, in addition to repossession of the aircraft, penalties are stipulated in the agreements.
6) The Company is required to deposit a commitment fee and a security deposit with the lessor or provide a letter of credit for such amounts.
7) Office premises are subject to further renewal after the expiry of original non cancellable period as per the original agreement.
In addition to the above, the Company has entered into agreements to lease aircrafts / engines in respect of which the aircrafts / engines are pending delivery / the lease was yet to commence as at March 31, 2013. The above table of minimum lease payments does not include amounts that may become payable in respect of leases yet to commence as at March 31, 2013.
5 Segment disclosures
(a) Geographical segments
Considering the internal reporting framework, the Company has considered geographical segments as the primary segments. Such segments consist of domestic air transportation within India and international air transportation outside India.
The Company only had domestic operations during the year 2012 - 13 and hence segmental results have not been separately disclosed. The value of assets and liabilities, capital expenditure incurred during the year and depreciation on fixed assets segment wise cannot be segregated and identified to any reportable segment. The segmental results for the year 2011 - 12 is given below.
(b) Business segments
The Company operates in a single business segment, i.e. of providing scheduled and unscheduled air transportation services. Accordingly, no separate segment disclosures for business segments are required to be given.
6 Deferred tax credit earlier recognized up to March 31, 2012 aggregating to Rs. 404,586.77 lacs has been derecognized during the year by debit to surplus account (reserves and surplus) in the balance sheet.
7 Provisions
In accordance with Accounting Standard - 29 `Provisions, Contingent Liabilities and Contingent Assets', following is the movement in provision towards cost for frequent flyer program.
(a) Frequent Flyer Program:
The Company has a Frequent Flyer Program (King Club), wherein passengers who fly frequently are entitled to accumulate miles to their credit. Passengers are eligible to redeem such miles in the form of tickets, either on the Company or its partners' airlines. The cost of allowing free travel to members is accounted considering the members' accumulated mileage on an incremental basis. However, in the light of inadequate historical data, the Company has not factored costs that would be incurred by it while estimating provisions required, in case eligible passengers redeem such miles for services/tickets of partners. The movement in the provision towards cost for frequent flyer program during the year is as under:
(b) Leave encashment / compensated absences
The movement in the provision towards cost of leave encashment / compensated absences during the year is as under:
8 The Company is not aware of the registration status of its suppliers registration under the MSME Act, 2006 ("Micro Small and Medium Enterprises Development Act 2006"). Accordingly, information relating to outstanding balances due have not been disclosed as it is not determinable. Similarly, interest payable if any, has not been computed and provided for.
9 Accounts of certain creditors, debtors, IATA, loans & advances, bank accounts, passenger service fees and charges payable to airport operators, service tax payable (including under reverse mechanism), input service tax credit recognized are subject to review / reconciliation / confirmation. Adjustments, if any will be made on completion of such review / reconciliation / receipt of confirmations/ identification of doubtful and bad debts/ advances.
10 The Company has accumulated losses of Rs.1,602,346.91 lacs as at March 31, 2013 and its net worth as at that date is minus Rs.1,291,981.85 lacs. The scheduled operator's flying permit (Permit) issued by the Director General of Civil Aviation (DGCA) has lapsed and is yet to be renewed. The consortium banks who had lent monies to the Company have recalled their debts in April 2013. Although these events or conditions may cast significant doubt on the Company's ability to continue as a going concern, it has detailed plans for renewal of its operations. It has filed the necessary application to the DGCA to renew the Permit and is exploring various options to recapitalize and resume operations. The Company will also request the banks at an appropriate time for debt restructuring. Based on the detailed evaluation of the current situation, plans formulated and active discussions underway with prospective investors, management is confident of raising adequate finance, obtaining renewal of the Permit, rescheduling debt and receiving continued support from the group. Therefore, the management holds the view that the Company will realize its assets and discharge liabilities in the normal course of business. Accordingly, the financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities.
11 The Company's centralized ticket reservation system (CRS) does not support capture of unearned revenue. Accordingly, such unearned revenue has been estimated by management by multiplying the estimated aggregate number of unflown tickets as on the reporting date by an overall average estimated ticket value. Management is taking continuing steps to streamline the process of determination of unearned revenue.
12 The Company's Cargo Revenue Management (CRM) system is yet to stabilize. Mistakes noticed in revenue recognized, sundry debtors and other relevant accounts have been corrected to the extent identified. The Company is of the view that any unadjusted differences will not be material. Management is taking steps to further streamline the processes and stabilize the system.
13 Accounting of costs on major repairs and maintenance of its engines:
During the current and certain immediately preceding previous years, the Company has adopted the exposure draft on Accounting Standard - 10 (Revised) 'Tangible Fixed Assets' which allows costs on major repairs and maintenance incurred to be amortized over the incremental life of the asset. The Company has extended the same treatment to costs and maintenance on engines pertaining to aircrafts acquired on operating lease. Such expenditure has been included in `Lease hold improvements- Aircrafts' vide schedule of fixed assets. This accounting policy has been confirmed by an independent expert and in the opinion of the management, has resulted in a fair depiction of the working results and the state of affairs of the company. But for such accounting practice, the loss before & after tax for the year would have been lower by Rs. 14,298.07 lacs.
14 Use fees payable by the Company in respect of certain assets taken on operating lease aggregating to Rs. 1,132.52 Lacs ( previous year Rs 6,033.53 lacs) (aggregate amount as at March 31, 2013 Rs. 4,281.74 lacs after taking into account redeliveries) have in accordance with the Company's understanding, been treated as maintenance reserves. In terms of the Company's accounting policy, these fees are initially included under Loans and Advances and are expensed out to the Statement of Profit and Loss at the time of incurrence of major expenditure /termination of agreements. The Company is taking steps to formalize this understanding with the relevant lessor.
15 The Company has not prepared consolidated financial statements (CFS) as required by the AS 21, since the transactions of subsidiary during the year/its assets and liabilities were not material.
16 Fixed assets were physically verified by the management during the previous year. Pending completion of reconciliation, discrepancies, if any, have not been finalized and adjusted. As a matter of abundant caution, provision of Rs. 500 lacs has been made for the possible effect of any discrepancies.
17 Rs. 10,858 lacs representing withholding tax accrued as payable in the books of account upto March 31, 2011 on amounts paid/ provided as payable to certain non residents/interest thereon was withdrawn based on professional advice. Consequently, no provision is considered necessary for withholding tax for the years 2011-12 and 2012 - 13 on amounts paid/ provided as payable to certain non residents/interest thereon. The Company is in the process of completing a part of the pending documentation and complying with the requisite formalities under the Income Tax Act, 1961.
18 The consortium banks have sought to recall their entire outstanding in April 2013. The Company will be disputing such action before an appropriate forum. Accordingly, the borrowings outstanding to the consortium banks as at March 31, 2013 have been classified as long term and current liabilities without taking cognizance of the recall but as per the schedule of repayments stipulated in the MDRA. Consequently, the Company has also continued to amortize certain borrowing costs over the repayment period as per MDRA. Unamortized borrowings costs as at March 31, 2013 is Rs. 3,021.78 lacs.
19 The licenses for claims of duty free credits (amount recognized as at March 31, 2013 and included under `Other current assets' Rs.12,740.56 lacs) are yet to be received from relevant authorities. The Company is taking necessary action on the matter.
20 Segregation between current and non current liabilities /assets as at end of current and previous reporting periods have been done on an estimated basis in certain cases due to non availability of precise data.
21 The Company has terminated certain agreements entered into with parties as a cost rationalisation measure. Certain parties have also terminated the agreements entered into with the Company in view of defaults by it. The Company is in discussion with the relevant parties to finalise the amount of compensation and other costs, if any payable by it,as well as to persuade the parties to desist from such cancellations. The same will be accounted on final determination of the matter. In the opinion of the management, this amount is not likely to be material.
22 Previous year's figures have been regrouped / reclassified wherever necessary to conform to the current year's presentation.