COST BENEFIT ANALYSIS AT NACIL(I)

YOUR HOME IN THE SKY

Industry guide Submitted by

Mr. Daleep Malhotra

Khushboo Pathak
Roll no. -0550381135 BBA(B&I)

Asst. Manager Finance NACIL(I) (Delhi)

ACKNOWLEDGEMENT
A project starts only with with an objective but efforts it is and

accomplished

enormous

tremendous support and guidance. It has been an utmost pleasure for me to work with NACIL(I). The cordial environment here has always made me feel to be a part of the organization.

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) NACIL(I) 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 completed. this project has been successfully

TABLE OF CONTENT
1. INTRODUCTION HISTORY OF CIVIL AVIATION 2. COMPANY PROFILE 3. OBJECTIVES 4. SWOT ANALYSIS
5.

FINANCIAL SYSTEM IN NACIL(I)

6. FUNCTIONS OF FINANCE DEPARTMENT

7.

FINANCIAL STATEMENT OF NACIL(I)

8. RATIOS ANALYSIS 9. ISSUES AND CHALLENGES FACED BY THE ORGANISATION 10. RECOMMENDATIONS 11. BIBILOGRAPHY

METHODOLOGY
The analysis is done is based on primary data. The regional financial office at Palam made the data available. We visited various sections of finance department of NACIL(I) 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 NACIL(I) for understanding the Working Capital Management in the organization.

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 aeroplanes 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 becomes 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 2nd World War, the Government of India announced a new policy for the Development of Air Transport Services. In the first two years, it came into existence; the Government gave license to 11 companies to operate air services in different regions.

At the time of independence there were 9 airlines operating with and beyond the frontiers of the country carrying both air cargo and passengers. It was reduced to 8 with Orient Airways shifting to Pakistan. These were:

Airways India Ltd. Air Services India Ltd. Bharat Airways Ltd. Deccan Airways Ltd. Himalayan Aviation Ltd. Indian National Airways Ltd.

Kalinga Airlines.

Taking into consideration to deteriorating financial position of the conglomeration of private airlines, the Govt. nationalized the Airlines Industry in 1953 through Air Corporation Act 1953.

Nationalization resulted in creation of two companies Indian Airlines Corporation (operating domestic services and short range International services to adjacent countries) & Air India International (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 percent 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 1st 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:

1.

Trunk Routes- Which connect major city pairs

2.

Regional Air Services - Which connect smaller small aircraft

towns, over shorter distances with

3.

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 that, over the years has become synonymous with services, efficiency and reliability.

COMPANY PROFILE
NACIL(INDIAN AIRLINES) LIMITED

NACIL(I)

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.

On 1st April 2007 INDIAN AIRLINES and AIR INDIA merged into an entity called NATIONAL AVIATION COMPANY INDIA LIMITED (NACIL). But still some of the formalities of merger are in pipeline.

NACIL(I) operates 220 flights everyday carrying more than 22,000 passengers 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 recognized development. training Its internationally the Central pilots academy,

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 Corporation Act and NACIL(I) come into being. The Board of Directors conducts the affairs of the corporations.

NACIL(I) is one of the public sector corporations in India. A statutory corporation like NACIL(I) is formed with definite objectives in the interest of the public though based on pre-set principles.

The objective functions of NACIL(I) 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 NACIL(I) into a new environment of competition and gave rise to greater expectations of the passengers. NACIL(I) 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 to fulfill 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.

NACIL(I) operates a complement of 58 aircraft: 30 A320s, 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) takes 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 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.

NACIL(I) 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.

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 the 5-year plan period by securing the

during

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. Network The NACIL(I) Ltd. covers 60 domestic stations and 17 international stations out of which 16 are online and 1 is offline (Lahore). The NACIL(I) Ltd. International network covers Kuwait, Oman, UAE, Qatar, Bahrain, West Asia and

Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives in south Asia Sub Continent.

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. NACIL(I) 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 NACIL(I) 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). Where is this Complex (JEOC) Situated?

Fleets Strength: NACIL(I) 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 NACIL(I) Limited, the total fleet of all private airlines combined together is smaller than that of

NACIL(I) Limited. This clearly shows the superiority of NACIL(I) Limited over this factor.

Vast computerized Network: Each of the 55

domestic stations of NACIL(I) 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 NACIL(I) Limited has realized its potential.

Largest Network: Over the last 50 years, NACIL(I)

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 NACIL(I) Limited is within easy reach. In comparison of this each private airline operate it maximum of 30 Destinations, which is no ways near the 75 Destinations, which is no ways near the destinations provided by NACIL(I) Limited.

Most Modern Fleet: NACIL(I) Limited has been

regularly updating its fleet. Having started Vikings and Dakotas it now has Airbus A-320s, 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. NACIL(I) 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 aviation industry. Private airlines are quite dependent upon their foreign collaborations or the NACIL(I) to maintain their aircrafts, which is a costly affair.

Highly

modernized

Central

Training

Establishment (CTE, Hyderabad): CTE was

established as a profit center by NACIL(I). It provides training in all aspects of Airlines Management both for personnel of NACIL(I)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.

WEAKNESSES

Lack

of

personalized

and

customer

friendly services: This is one of the major findings

of our study. Almost all passengers feel that NACIL(I) Limited staff needs to be more customers 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 infect is a measure of quality of the product. NACIL(I)

Limited needs to take immediate steps in this regard to change the public opinion.

Overstaffing: As mentioned earlier the total staff

strength of NACIL(I) Limited is 18715 as on date. On the average 19300-19500 people travel on NACIL(I) 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. NACIL(I) 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 trim work force automatically.

Under Utilization of Capacity: NACIL(I) 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 NACIL(I) Limited daily to its passengers. It has been observed that NACIL(I) 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 NACIL(I) 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 NACIL(I) Limited must exploit this opportunity and take maximum benefits out of it.

Closing Down of Various Private Airlines:

Earlier NACIL(I) 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 NACIL(I) 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

NACIL(I) Limited has branched out to operate on 17 international sectors.

Profits after a long time: NACIL(I) 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 199798, 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 200506.

Creation of profit centers: Due to its size

NACIL(I) 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 NACIL(I) Limited created the following profit centers:

Central Training Establishment Jet Engine Overhaul Complex Alliance Air Ground support Cargo Auxiliary Power Unit Engineering

The

profit

centers

have

already

made

useful

contribution in the improved performance of NACIL(I) Limited.

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

THREATS
Competition Itself: Ever since the inception of
NACIL(I) Limited it had never tasted competition, as it was a protected monopoly. When the private airlines entered this field there was a panic in NACIL(I) 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 NACIL(I) Limited polices requires the approval of Govt. hence an uncertainty in the political circle hinders the decision making of NACIL(I) 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.

Industrial Unrest: Strikes are a familiar word for

NACIL(I) 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 NACIL(I) 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). Two

general managers oversee the expenditure division, while the CRA has one general Manager.

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 NACIL(I) 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). The region books all administrative expenditures incurred in the regions.

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:

[A]

Agency Section Screening Section Bills Receivable Section

[B]

Expenditure Division, Palam:

Bill Passing - Local Bill Passing - Outstation Provident Fund Payroll Cash & Bank Bill Raising & Realization Finance & Budget

[A]

AREA REVENUE DIVISION

The basic function of Area Revenue Division (ARD) is to book "Traffic Revenue" earned by NACIL(I) in its books. The various components of Traffic Revenue are:

1.

Mail Revenue: This is the revenue derived from

the carriage of Mail on the routes of the carrier.

2.

Airfreight Revenue: It is the revenue derived

from carriage of cargo on the routes of the carrier.

3.

Excess Baggage Revenue: It is the revenue

derived from carriage of excess baggage on the routes of the carrier.

4.

Passenger revenue: It is the revenue derived

from the carriage of passengers over the routes of the carrier.

5.

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.
6.

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".

Hierarchy at Area Revenue Division

Senior Manager (ARD)

Dy. Manager(s) (Agency)

Dy. Manager(s) (Screening)

Dy. Manager(s) (B/R section)

Accounts Officer(s)

Accounts Officer(s)

Accounts Officer(s)

Staff

Staff

Staff

Sections at ARD:

1.

Agency: Deals with the agents of NACIL(I) and

maintain records of all the transaction or sales done by Agents through Reporting Forms.

2.

Screening: Performs the sequential screening of

all the Reporting Forms and execute Interline Billing.

3.

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.

1. Agency Section

This section deals with the agents of NACIL(I) and maintains records of all the transactions or sales done by the agents through the reporting forms. About 80% of NACIL(I) sales are through its agents & there are about 600 Indian Airlines agents in Northern Region. The Agency Section at ARD deals with all NACIL(I) 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 NACIL(I) 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 have sub-agent under him. NACIL(I) have their GSA's in U.K., U.S.A., Russia and Canada. GSA's are entitled to Special rates by NACIL(I) as per the contract.

Passenger Sales Agent (PSA): When various

Sales agents are appointed by NACIL(I) 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:

a.

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.
b.

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

c.

Disciplinary actions against agents: these forms are scrutinized and for any

All

discrepancies, disciplinary actions are taken against the agents. These actions are generally "legal" but due to growing complexities of legal procedures NACIL(I) is getting its transactions with agents insured. Thus, defaults if any are recovered by insurance agencies.

d.

Reconciliation:

Another major job of the Section is to prepare concealed summary of all 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.

e.

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 A-300 Boeing Rs. 330,000 /hr Rs. 550,000 /hr Rs. 260,000 /hr

f.

Foreign transactions:

For the NACIL(I) 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.

2. 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:

a. Reporting Forms b. Sales Records (JVs) c. Interline Billing

d. Mail Statements recovered from outstations

a.

Reporting Forms: Reporting Forms are standard formats designed to

report the sale of Cash Value Documents (CVDs) that is basically the air tickets.

b.

Journal Vouchers:

It confirms that the agents issue the tickets serially and that they report them along with the rates charged for the service along with details of any concession same amount. and discount offered. For any discrepancies Debit Notes are issued to agents for the

c.

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 NACIL(I) thus the NACIL(I) will raise the Bill on Bangkok Air for the transit. This is known as Interline Billing.

d.

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-Region Country-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. NACIL(I) 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.

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:

1. Computer cell: It deals with the external parties 2. Non-Computer Cell: It deals with the internal parties

1. Computer Cell: NACIL(I) 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 NACIL(I) 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 fails to clear the bills within the stipulated time period the authority is suspended.

2. 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 as to be recovered from the salary of the employee.

[B]

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 does not book any expenditure that is related to the aircraft in any way.

1. 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: a. Purchasing b. Deductions c. Security Deposits

a.

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: a) Initial proposal by vendor. b) Invoice by seller.

c) Confirmation by Receive & Dispatch Section.

The procedure for making a purchase is as under:

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.

b.

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 NACIL(I) logo on them for e.g. stationary, bags, tags, folders, batches etc. Thus the NACIL(I) 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 NACIL(I).

c.

Security Deposit: This is the sum of amount that

the vendors need to pay as a security for the transactions with NACIL(I). All the vendors have to

deposit a 10% amount of the order with NACIL(I) 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 NACIL(I).

2. Bill Passing-Outstation

The northern region of NACIL(I) has its dealings in 15 outstation of which 14 are online and 1(Bhillai) is offline. Bill Passing-Outstation is the 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 PassingOutstation

Concerned Accounting is done

All the vouchers should come along with monthly expenditure statement 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:

a) Hotel Bills: for the packs offered by Indian Airlines or stay over of packs, Cabin crew & Cockpit crew. b) Catering Bills: for the catering services provided onboard by various caterers like Taj Caterers, Shelf Air Catering and Ambassador etc. c) Medical bills: Bills of all the medical facilities provided to Indian Airlines employees by hospitals, doctors or chemists. d) Rent: All the land with Indian Airlines is on Lease, thus a monthly rent is given to the Leaser (owner).

3.

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: returned back within a

Withdrawal that is to be 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

Non-Refundable Withdrawal: Withdrawal, which need not be returned by the employee. An employee can avail such a non-refundable withdrawal 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.

4. 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, Station Name, Code, Designation Code, Designation,

Department Code, Date of Birth (DOB), and 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 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.

5.

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:

a. Payment of vouchers: They entertain and make

payments for the vouchers like Telephone Bills, Entertainment etc.

b. Salary Distribution: The cash payment of pay slips

and the corresponding accounting.

c. Advances for employees: Advancing money to the

employees, receiving back the left-out amount and accounting the same.
d. 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 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.

5.

Bill Raising & Realization:

NACIL(I) provide ground handling to various other airlines for which they charge them. NACIL(I) 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 NACIL(I) 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:

a. 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.

b. Credit

Parties: These parties avail the handling

services of NACIL(I) 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. Bill Raising & Realization Section also does billing for all private VIP flights i.e. chartered flights for President, Prime Minister, Vice President. Bills are raised to the

concerned thereafter.

ministries

and

settlement

is

done

Indian Airli7nes 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 "NonOperating Revenue".

6. 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.

FINANCIAL STATEMENT OF NACIL

Profit & Loss account of NACIL

Balance sheet of NACIL

Cash Flow Statement of NACIL

Ratio Analysis
By the help of ratio analysis we highlighted the content and importance of the Statements of changes in financial position (Funds and Cash Flow statement). Management, creditors, investors and others to form judgment about the operating performance and financial position of the firm use the information contained in these statements. Users of financial statement can get further about financial strengths and weakness of the firm if they properly analyze information reported in this statement. Management should be particularly interested in knowing financial strength of the firm to make there best use and to be able to spot out financial weakness of the firm to take suitable corrective action. The future plans of the firm should be laid down in view of the firms financial strengths and weakness. Financial analysis is the starting point of making plans, before using any sophisticated forecasting and planning procedures. Understanding the past is a prerequisite for anticipating the future. We have calculated the following ratios:

Liquidity ratios:
1. Current Ratio 2. Quick Ratio

Leverage ratios:

1. Debt Equity Ratio

Activity ratios

1. Debtors Turnover Ratio

2. 3. 4. 5. Fixed Assets Turnover Ratio Inventory Turnover Ratio Current Asset Turnover Ratio Working Capital Turnover Ratio

Profitability ratios 1. Operating profit ratio

2. Net Profit Ratio 3. Return on equity 4. Return on Investment

Current Ratio
The current ratio is the ratio of total current assets to current liabilities. It is calculated by dividing current assets by current liabilities. The ideal ratio varies according to the nature of the industry. Usually, firms in service industries do not need a high current ratio as most of their business takes place on the basis of cash consideration. The following is the current ratio position of Indian Airlines in the past three years:

Particulars Current Ratio

200 3-04 0.48 2

200 4-05 0.44 6

200 5-06 0.67 5

200 6-07 0.75 1

200 7-08 1.20 7

The following chart has been prepared on the basis of the above current ratio:

1.4 1.2 1 0.8 0.6 0.4 0.2 0 Current Ratio 2003-04 2004-05 2005-06 2006-07 2007-08

Current Ratio is considered satisfactory if it is 2:1. If the value of current assets becomes half, the organization will be able to meet its obligation. After analyzing the values we have found that current ratio of Indian Airlines is increasing but it is not quite satisfactory to meet its liability means the availability of current assets in rupees is not able to make one rupee for current liability, but as compared to other years the ratio is increasing which indicate good result in future.

Quick Ratio
The quick ratio measures the ability of the firm to meet its current obligations at a very short notice. Ideally one likes it

to be 1:1. However, again on the basis of the nature of the industry it may vary. Service firms do not have much need for inventories. Thus, in case of service industries it may even be less than 1:1. The following is the quick ratio position of Indian Airlines in the past three years:

Particulars Quick Ratio

200 3-04 0.44 2

200 4-05 0.40 8

200 5-06 0.64 1

200 6-07 0.71 0

200 7-08 1.01 5

The following chart has been prepared on the basis of the above quick ratio:
1.2 1 0.8 0.6 0.4 0.2 0 2003-04 2004-05 2005-06 2006-07 2007-08

Quick Ratio

It shows the liquidity position of company in this case the ratio is increasing but it is not satisfactory. The company has to pay its all current liabilities because it cant sell its

inventories. But as per increasing graph it will show best results in future.

Inventory Turnover Ratio: Inventory ratio establishes

relationship between the cost of goods sold during a given period and the average amount of inventory carried during that period.

Years

Inventory Turnover Ratio The following chart has been prepared on the basis of the above Inventory Turnover Ratio:

200304 40.38

200405 54.34

200506 58.5

200607 62.5

200708

It indicates that how quickly the inventory is sold. High ratio is always better than low ratio as it shows good inventory management. Low ratio adversely affects the ability to meet customer demand which is bad for companys image. But here in our case the ITR is increasing in the last five years, it

shows that IA ltd. Is doing job in providing good quality services and meet its customers demand. The ITR is increasing due to increase in sales and current assets meets its current liability.

Working Capital Turnover

The working capital turnover ratio helps to measure the efficiency of the utilization of net working capital. It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in sales is contemplated, the working capital should be adequate and thus, this ratio helps management to maintain an adequate level of working capital. The following is the working capital turnover ratio position of Indian Airlines in the past three years:

Particulars Working Turnover

200 3-04 Capital 2.76 4

200 200 200 200 4-05 5-06 6-07 7-08 -3.13 -3.61 2.85 8

The following chart has been prepared on the basis of the working capital Turnover ratio.

Working Capital Turnover Ratio

0 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 -4 Working Capital Turnov Ratio er 2002-03 -2.632 2003-04 -2.762 2004-05 -2.858 2005-06 -3.13 2006-07 -3.61

Though the traffic revenue for the company has constantly improved yet the constantly reducing negative net working capital has led to a regularly falling working capital turnover ratio. So, the company may be increasing its revenue at the cost of its working capital. Thus, higher profits of the company may be coming at the cost of its liquidity.

Average Collection Period: Collection period indicates

the quality of debtors and the promptness of their payment.

Years Collection

2002- 2003- 200403 04 05 2.18 1.96 1.8

200506 2

200607 2.05

Period

Here the collection period has increased which indicates that the collection is more delayed. Thus the chances of bad debts are also increased i.e. Vayudoot Ltd. a subsidiary company of Indian Airlines owes 10 crore but is fully doubtful. The increase in debt collection period from 1.8months to 2 months may be due to change in the economic conditions and /or laxity in managing receivables.

Debtors

Turnover

Ratio: Debtors turnover ratio

establishes the relationship between net credit sales and average debtors of the year

Year

2002- 2003- 200403 04 05

2005- 200606 07

Debtors Turnover Ratio

5.41

6.81

6.13

5.8

6.69

D ebtorsT urnover Ratio

7 6 5 4 3 2 1 0 2002-03 2003-04 2004-05 2005-06 2006-07 5.41

6.81

6.13

6.69 5.8

DebtorsTurnover Ratio

The higher the value of DTR the more efficient is the management of credits. The ratio has increased from last year to 6.69 this indicates that IA is able to manage its credits efficiently. It has to concentrate upon the collection policies and debt collection period.

Fixed Asset Turnover Ratio: This ratio shows the

firms ability in generating sales from all financial resources committed to Total Assets. It is calculated to know the utilization of fixed assets.

Year Fixed Assets Turnover Ratio

200203 1.9

200304 2.6

200405 3.3

2005- 200606 07 4.4 3.84

F edAssetsT ix urnover Ratio

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2002-03 2003-04 2004-05 2005-06 2006-07 1.9 2.6 3.3 4.4 3.84

Fixed Assets Turnover Ratio

In this case the FATR of IA is increasing compared to last few year which indicates more and more utilization of fixed assets. Here IAL, to generate a sale of Re 1/- needs Rs 0.22/which is less than the previous years i.e. 0.29 and 0.38. It shows that the company is improving and would give good results.

Current Assets Turnover Ratio: This ratio shows the

firms ability in generating sales from all financial resources committed to current asset. It shows the utilization of current assets.

Year Current Assets Turnover Ratio

2002- 200303 04 3.23 4

200405 3.86

2005- 200606 07 3 3.28

CurrentAssetT urnover Ratio

4 3.5 3 2.5 2 3.23 1.5 1 0.5 0 2002-03 2003-04 2004-05 2005-06 2006-07 4 3.86 3 3.28

Current Asset Turnover Ratio

Herein the CATR is decreasing as compared to last 5 year which shows less utilization and lack in management of

asset the decrease in ratio shows the current asset required more time to convert in cash. Herein IAL, to generate a sale of Re 1/- needs Rs0.33/- which is quite more than last two year Re 0.25/- it shows current asset required more time for sale which is bad for companies Goodwill. It increases the chances of bad debts.

Debt Equity Ratio: Debt equity ratio indicates the

proportion between shareholders funds and the long term borrowed funds.

Year Debt Equity Ratio

2003- 2004- 2005- 2006- 200704 05 06 07 08 1.025 0.64 0.33 1.34 2.29

Debt-Equity Ratio 2.5 2 1.5 1 0.5 0 Debt-Equity Ratio

2003-04 2004-05 2005-06 2006-07 2007-08

This ratio describes the lenders contribution of the owners contribution. Debt equity ratio of 1.34 indicates that the lenders have contributed less funds than owners. This ratio is satisfactory for the company as the ideal ratio is 2:1. Net Profit Ratio: Net Profit Ratio indicate management efficiency in manufacturing, administration and selling the products this ratio is the overall measure of firms ability to turn each rupees sales into net profit. It also indicates the firm capacity to withstand adverse economic condition.

Year Net Ratio

2002- 200303 04 Profit -4.77 0.93

200405 1.22

200506 0.85

200607 -3.3

2 1 0 -1 -2 -3 -4 -5 Net Profit Ratio

Net Profit Ratio

2002-03 -4.77

2003-04 0.93

2004-05 1.22

2005-06 0.85

2006-07 -3.3

The NPR of IAL has declined heavily in 2006-07 it is due to the increasing operating expenses it has to focus on increasing its NPR as it would really be difficult to a low net margin firm to withstand the adversities i.e. declining demand etc. Return on Equity: A return on shareholders equity is calculated to see the profit ability owners investment it indicated how well the firm has used the resources of owners.

Years Return Equity

2002- 200303 04 on -29.35 6.56

200405 9.75

200506 4.94

200607 -24.01

In this case ROE has increased in 2004-05 due to high net profits but it has sharply declined in 2005-06 to 4.94 due to decline in net profits and in 2006-07 it totally negative to -24.01 and also increase in net worth it also indicated that the owners resources are not optimally utilized to its potential

Comparative Analysis airlines and Jet Airways

Current Ratio: Jet Airways 1.61:1

between

Indian

Indian

Airlines 0.751:1

Current assets can be converted into cash more rapidly than current liabilities in the Jet Airways. The Current Ratio of Jet Airways is very near to the ideal ratio of 2:1 i.e. very good for the company. But, on the other hand Indian Airlines has very weak current ratio as its current liabilities are more than the current assets. Margin of Safety of Jet Airways is more than that of Indian Airlines. It is d

QUCIK RATIO: Indian Jet Airways 2.31:1

The liquidity position of Jet Airways is very sound as compared to Indian Airlines.

Airlines 0.71:1

Jet Airways can suffer from shortage of funds if it has slow paying doubtful debts and long duration outstanding debtors On the other hand, Indian Airlines is really prospering & paying its current obligation in time if it has been turning over its inventories efficiently.

INVENTORY TURNOVER RATIO Indian Jet Airways 15.43:1 airlines 62.5:1

The ITR of Indian Airlines is quite high as compared to Jet Airways. It is nearly four times to the ITR of Jet Airways. It indicates that Indian Airlines is very good at inventory management. It also shows good liquidity position of the company. It is also good at providing good quality services and meeting its customers demand. Jet Airways should concentrate upon meeting customer demand otherwise it would adversely affect position of the company.

DEBTORS TURNOVER RATIO Indian Jet Airways 16.61:1 Airlines 6.69:1

The high Debtor Turnover Ratio of Jet Airways indicates that it is very sound at managing its credits efficiently. Jet Airways is good at collection policies. It has a shorter time lag between the credit and collection period. The Debtors Turnover Ratio of Jet Airways is 3 times higher than Indian Airlines as it is 3 times efficient in collection of debt.

FIXED ASSETS TURNOVER RATIO Indian Jet Airways 1.24:1

As Fixed Asset Turnover Ratio of Indian Airlines is higher than Jet Airways, it needs less of fixed assets i.e. for generating a sale of rupee one Indian airlines need 0.22 of fixed assets whereas Jet Airways need 0.80 of fixed assets. This indicates that Indian Airlines is utilizing its fixed assets more efficiently as compared to Jet Airways.

Airlines 3.84:1

CURRENT ASSETS TURNOVER RATIO: Indian Jet Airways 1.40:1

As current asset Turnover Ratio of Indian Airlines is higher than Jet Airways, it needs less of current assets for generating sales of one rupee.

Airlines 3.28:1

DEBT EQUITY RATIO

Indian Jet Airways 2.02:1

Airlines 1.34:1

The debt equity ratio indicates that the lenders contribution is more than the owners contribution in both the companies. Jet Airways is a high-levered firm as compared to Indian Airlines. These shows there are higher financial risk in Jet Airways as compared to Indian Airlines.

RETURN ON INVESTMENT Indian Jet airways 10.9:1

The higher return on investment is 10.9 which is more as compared to Indian Airlines. Which indicate the fact that, the EBIT of Jet Airways is much higher than Indian Airlines though the fixed assets are less. This also shows that Jet Airways is earning good return on its investment as compared to Indian Airlines.

Airlines 9.8:1

RETURN ON EQUITY: Indian Jet airways -24.01:1 12.61:1 Airlines

This ratio indicates that profitability of owners resources is much more in Jet Airways as compared to Indian Airlines. Higher ROE of Jet Airways indicate that how well the firm has used the resources of owner. Jet airways are meeting its objective of earning a satisfactory return. Jet Airways has comparatively more opportunity of attracting of future investment.

COLLECTION PERIOD Indian Jet airways 2.05 months 0.72 months Airlines

The average collection period of Jet Airways is less than that of Indian Airlines; it indicates that the collection policies of Jet Airways are very efficient as compared to Indian Airlines. The collection policy of Jet Airways is very tight which cut shorts the chances of bad debts losses but on the other hand Jet Airways has very restrictive credits and collection policy. On the other hand, the collection policy of Indian Airlines is very liberal as it has very inefficient credit and collection performance.

OPERATING PROFIT AND NET PROFIT RATIO Indian Jet airways Airlines

-2.4%/-3.3% 24.13%/7.93%
Jet Airways is converting each rupees sale more efficiently than Indian Airlines into net profit. Jet Airways is managing better return on shareholder funds as because of high net operating margins while Indian Airlines is failing on this ground. It would be advantageous position for Jet Airways to survive in the face off falling selling price rising COP or decline in demand also it would be really difficult for Indian Airlines to withstand such adversities. Jet airways is able to accelerate its profit at a faster pace than Indian Airlines. The sales turnover of both the firms is equal but the operating expenses of Indian airlines are higher than Jet Airways and on the other hand the resultant net profit of Indian Airlines is quite low as compared to Jet Airways.

ISSUE AND CHALLENGES ORGANISATION

FACED

BY

THE

INCREASED OIL PRICES- Skyrocketing oil prices during 2004-08 were offset by efficiency gains and rising consumer confidence. The broadening impact of the U.S. credit crunch has brought buoyant consumer confidence to an abrupt end. Oil prices continue to rise. Now oil price is almost US$140 per barrel. AIRCRAFT DELIVERY CYCLE-The downturn in demand coincides with a stepping-up of aircraft deliveries from 1041 new aircraft in 2007 to an expected 1231 in 2008.while some of this will be offset by retiring less fuel-efficient aircraft, real yields are expected to drop 4.1% in 2008 as compared to 3.2% drop in 2007. INCREASED COMPETITION-There is increase competition with private airlines entering this field. in

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 trim work force automatically.

LACK OF PERSENALIZED 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 customers 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 in fact is a measure of quality of the product. Indian Airlines Limited needs to take immediate steps in this regard to change the public opinion. 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 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.

RECOMMENDATIONS
The Indian Aviation industry has hit an air pocket, forcing two largest airlines NACIL and JET AIRWAYS to scramble into salvage mode. At a daily operational loss of $2million (Rs.8.6crore) of JET AIRWAYS and Rs.10crores of NACIL, the situation has become especially alarming. In India, on the back of soaring fuel prices and dwindling passenger loads, there is need for COST CUTTING INITIATIVES. The following recommendations are:SLASHING EMPLOYEE ALLOWANCES As the magnitude of losses are very high there is need to reduce of employee allowances. REDUCING IN-FLIGHT CATERING EXPENSES

There is need for reduction in-flight catering expenses on short-haul flights and restructuring functional arms. AXING FLIGHT IN SOME SECTORS With the increase in losses there is need for axing the flights in those sectors where passengers are very less. CHANGING SCHEDULES To overcome the losses Indian airlines can change the schedules of flights to increase passenger loads. OPERATING DIFFERENT SIZE AIRCRAFT INDIAN AIRLINES can operate with small aircraft where passengers are low to avoid loses. LOWERING DISTRIBUTION COSTS As NACIL is suffering from big loss there is need for lowering of distribution costs.

LOOK FOR INCRESING AVERAGE SEAT FACTOR Twenty-Four airlines across the world have gone bankrupt on account of high and unsustainable fuel costs, thus they should look for increasing average seat factor. REDUCTION OF MAINTENANCE COST The airline can also look for reducing of maintenance cost by stationing officers at hubs instead of allowing them to travel at regular intervals. NO NEW RECRUITMENTS INDIAN AIRLINES is suffering from the problem of overstaffing so they should not do fresh recruitments unless it is essentially required.

Beside cost cutting initiative other recommendation to attain zero net working capital areImproving Collection and Payment Periods
The company should aim at reducing its collections period to around 25 to 30 days while bringing the payment period down to 35 to 40 days over the next three years. This will help it in increasing its debtor turnover resulting in a decrease in the collection period and increase in the availability of the funds with the organization. At the same time a fall in payment period will improve the working capital position of the company. Thus Indian Airlines would be able to decrease its creditors to a great extent and at the same time improve its creditworthiness.

Raising Long Term Funds

The company should raise long term funds either by issuing shares or debentures or any other long term credit. It may also raise debt by issuing External Commercial Borrowings (ECBs). As the rates of interest is lower in Japan, European Countries and America, it can raise low cost long term debt to partly replace the current liabilities that are being used to finance the fixed assets. Other than ECBs shares and debentures are also sustainable sources of long term finance.

Increasing securities

investments

in

marketable

Indian Airlines can cover a part of the increased financing costs due to resorting to long term finance by investing a part of its funds in short term marketable securities. This will serve the dual purpose of having productive and yet liquid funds. For more profitable short term funds Indian Airlines can form a special team of investment managers who can manage both the long term and short term funds. Moreover a large part of the current liabilities of the company are due to uncollected salaries of the employees. Though most of the salary payments in Indian Airlines Are done by the Electronic Clearance System (ECS) facilitated by Reserve Bank of India (RBI), yet there are some employees who due to different reasons cannot or do not opt for the ECS. Their reasons can be high mobility like in case of a pilot or unavailability of the facility which is the case for employees in some outstations.

BIBILOGRAPHY : -

Indian-airlines.nic.in www.businessweek.com