SUMMER TRAINING PROJECT REPORT

ON FINANCIAL PERFORMANCE OF N.A.C.I.L (AIR INDIA) BEFORE AND AFTER MERGER

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF THE DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION 2009-12 UNDER THE GUIDANCE OF Ms.Divya singh (Project Co-ordinator) SUBMITTED BY: ANKUR VATS Enrollment no - 12724401709 BBA SEM Vth E2

STUDENT UNDERTAKING This is to certify that I have completed the Project titled Financial Performance of N.A.C.I.L (Air India) before and after Merger under the guidance of Ms.Divya singh in partial fulfillment of the requirement for the award of degree of Bachelor of Business Administration at Institute of Institute of

Innovation In Technology and Management, janakpuri, newdelhi. This is an original piece of work & I have not submitted it earlier elsewhere.

ANKUR VATS
BBA Sem V e2 Enrollment No: 12724401709

CERTIFICATE

This is to certify that the project titled Financial Performance of N.A.C.I.L (Air India) before and after Merger is an academic work done by ANKUR
VATS

submitted in the partial fulfillment of the requirement for the award of the degree of Bachelor Of Business Administration from janakpuri, newdelhi Institute of Innovation In Technology and Management under my guidance & direction. To the best of my knowledge and belief the data & information presented by him in the project has not been submitted earlier.

Ms.Divya singh
Project Co-ordinator

ACKNOWLEDGEMENT This project has been done under the sincere guidance of ms. Divya singh without which I would not have been able to come to the conclusion of this project. He has guided me throughout the project from the beginning to the end. I am also thankful to Mr. lovelish Arora (Finance) NACIL, Northern Division to allow me to do my summer training in a prestigious company like Air India on project titled Financial Performance of N.A.C.I.L (Air India) before and after Merger and let me prove my excellence in this area.

ANKUR VATS
BBA Sem V E2

Enrollment No: 12724401709

TABLE OF CONTENTS

StudentDeclaration i Certificate from company Certificate from Guide Acknowledgement Executive Summary Chapter-1 Industry Profile Chapter 2 Company Profile Chapter 3 Research Methodology Chapter 4 Functioning of Finance Department in Northern Division Chapter 5 Amalgamation of Air India and Indian Airlines Chapter 6 Ratio Analysis Chapter 7 ii iii iv v

SWOT Analysis Chapter 8 Conclusion Chapter 9 Challenges and Issues Faced Chapter 10 Recommendations Bibliography... vi

CHAPTER 1 INDUSTRY PROFILE

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 n d 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 Ace 1953. Nationalization resulted in creation of two companiesIndian 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 Indias 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 s t 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. 3. Regional Air Services Which connect smaller towns, over small aircraft Non-Scheduled Services Which include air taxi, charters, shorter distances with

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-bywire 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.

CHAPTER - 2 COMPANY PROFILE National Aviation Company of India Limited

The National Aviation Company of India Limited (NACIL) was incorporated under the Companies Act 1956 on 30 March 2007 and is owned by the Government of India based at the Air India Building in Nariman Point, Mumbai. The Company was created to facilitate the merger of the two main state-owned airlines in India: Air India, with its subsidiary Air-India Express and Indian Airlines, together with its subsidiary Alliance Air. Whilst the merger and integration process has started, and a few routes have been rationalised, a lot remains to be done before the various units start functioning as a cohesive airline. The current structure is: National Aviation Company of India Limited o Air India Air-India Express Air India Cargo o Indian Airlines Air India Regional (formerly Alliance Air) Upon completion of the merger, there will be one primary airline, Air India, with two subsidiary carriers providing regional and low-cost, pointto-point services and a third subsidiary for cargo operations: Air India o Air India Express o Air India Regional o Air India Cargo NACIL carriers connect 93 destinations (60 domestic and 33 international) in 24 countries as of January 2010.

National Aviation Company of India Limited

Type

Government-owned

Industry

Airlines & Aviation Airline Catering & Foodservice Hotels & Hospitality

Founded Headquarters Key people

30 March 2007 Air India Building, Nariman Point, Mumbai, India Arvind Jadhav, Chairman & Managing Director

Products

Airline Ground Handling Services Hotels Services

Revenue Net income Employees Subsidiaries

Rs 15257.47 Crores ($3.31 billion) (2007-08) Rs 1619.12 Crores ($351.98 million)(07-08) 32,000 (2009)

Hotel Corporation of India Limited Air India Air Transport Services Limited Air India Engineering Services Limited

Air India Charters Limited IAL Airport Services Limited Airline Allied Services Limited

Website

www.airindia.in

Founder Air India J.R.D.TATA

Air India is India's national flag carrier. Although air transport was born in India on February 18, 1911 when Henri Piquet, flying a Humber bi-plane, carried mail from Allahabad to Naini Junction, some six miles away, the scheduled services in India, in the real sense, began on October 15, 1932. It was on this day that J.R.D. Tata, the father of Civil Aviation in India and founder of Air India, took off from Drigh Road Airport, Karachi, in a tiny, light single-engined de Havilland Puss Moth on his flight to Mumbai (then known as Bombay) via Ahmedabad. He landed with his precious load of mail on a grass strip at Juhu. At Mumbai, Neville Vintcent, a former RAF pilot who had come to India from Britain three years earlier on a barn-storming tour, during which he had surveyed a number of possible air routes, took over from J.R.D.Tata and flew the Puss Moth to Chennai (then Madras) via Bellary.

CHAPTER 3 RESEARCH METHODOLOGY

Objectives of the Project

Firstly, to ascertain the Financial Performance of NACIL (Air India) before & after merger with the help of ratio analysis. Secondly, to ascertain the future outcome of merger of Indian Airlines & Air India.

Research Methodology
Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods or techniques but also the methodology.

Data Collection Source

Information was collected through both primary and secondary sources. The data collected for this project has been taken from the primary and secondary source. Primary Data: In some cases the researchers may realize the need for collecting the first hand information. As in the case of everyday life, if we want to have first hand information or any happening or event, we either ask someone who knows about it or we observe it ourselves, we do the both. Thus, the two method by which primary data can be collected is observation and questionnaire.

CHAPTER - 4 Functioning of the Finance Department in the Northern

Finance Department [A] Area Revenue Division, Safdarjung:
Agency Section Screening Section Bills Receivable Section

Region

[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 Indian Airlines in its books. The various components of Traffic Revenue are: 1. 2. 3. 4. 5. 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. 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 of passengers 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. 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 Indian Airlines 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 Indian Airlines and maintains records 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 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:

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. Agents are supposed to submit following Reporting Forms: AGT-1: Agents will prepare Reporting Form AGT-1 in duplicate incorporating the particulars of sale of tickets each day. In AGT-1, the value of tickets sold on Normal and Concessional Fare basis will be reported separately. In case tickets are voided, the reasons therefore will be mentioned on the voided document. Such documents will also be reported in AGT-1 with the remark 'voided' in the "Remarks" column. Agents will also prepare sheet-wise Summary of AGT-1.

The total number of voided coupons will also be mentioned in the Summary of AGT-1: Agents will forward the original copy of AGT-1 to ARD on daily basis. The audit coupons of the sold documents will be attached to each AGT-1 sheet in the order of reporting. AGT-2: Agents will prepare Form-AGT-2 in duplicate, consolidating the bookings made during a fortnight. This form will show the value of bookings reported through AGT-1. This form will also show the amount of commission due to the agent on the bookings made during that fortnight. Agents will forward the original copy of AGT-2 to ARD by the stipulated dates. AGT-3: Agents will prepare Form-AGT-3, in duplicate, incorporating the particulars of refunds affected during a fortnight. Agents will forward the original copy of AGT-3 to ARD by the stipulated dates. AGT-4: Agents will prepare AGT-4 in duplicate, consolidating the net booking reported through AGT-2 and the net refunds reported through AGT-3. This form will also show the particulars of Invoices/Debit Notes rose on the Agent and Credit Notes issued to the Agent. This form will also show the net amount payable by the agent in respect of the fortnight's transactions. Agents will forward the original copy of AGT-4 together with copies of Credit

Notes reported in AGT-4 and a Demand Draft for the net amount due to IAL, to ARD by the stipulated dates.

c. All

Disciplinary actions against agents: 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. 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 f. Rs. 330,000 /hr Rs. 550,000 /hr 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.

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. The Reporting Forms in use in I.A.L. are as follows: a. Reporting Form-1: Issuance of Passenger Tickets, Excess Baggage Tickets and MCOs b. Reporting Form-2: Issuance of I.A.L. Air Waybills and carriage on other airlines AWBs on IAL routes c. Reporting Form-3, 4, 5, 6, I (Insert) & D (Delete): Adjustments in Sundry Parties (Computerized) Accounts d. Reporting receipts e. Reporting Form-8: Receipts form agents f. Reporting Form-9 & 9A: Cash & Credit Refunds Form-7: Outstanding Recoveries & Miscellaneous

g. Reporting Form - 10: Bank lodgment h. Reporting Form 11 and 11A: Cash and Credit Carriage of Mail

b.

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. 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 Indian Airlines thus the Indian Airlines 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. 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. 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. 2. Computer cell: It deals with the external parties Non-Computer Cell: It deals with the internal parties Cell: Indian Airlines issues tickets and provides

1. Computer

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. 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 However if the party fails to clear the bills within the stipulated time period the authority is

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 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. c. 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.

2. Bill Passing-Outstation
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 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 Imprest amounts for various outstations are as follows:Agra Bhopal Gwalior Jodhpur Leh Raipur Shrinagar Varanasi - Rs. 10,000 - Rs. 20,000 - Rs. 10,000 - Rs. 12,500 - Rs. 10,000 - Rs. 12,500 - Rs. 40,000 - Rs. 35,000 Amritsar Jammu Khajuraho Lucknow Udaipur - Rs.50,000 - Rs.30,000 - Rs.15,000 - Rs.40,000 - Rs.500 - Rs.20,000

Chandigarh - Rs.15,000

Bhillai

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

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: 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 Employee can withdraw maximum of 6 times of his/her Provident Refundable withdrawal can be availed for any religious ceremony, months reducing balance. Fund salary. 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 nonrefundable 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, 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. 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.

6. 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: 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 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".

7. Finance & Budget

Finance &Budget Section is responsible for maintaining the Journal, Subsidiary Books and General Ledger for facilitating reconciliation of the inter-region deprecation accounts, thereon maintaining keeping a record of of assets, providing from and record deposits revived

contractor and supplier etc. The section also compiles budget estimates and annual accounts relating to the region, which are submitted to the Head Quarters .

CHAPTER - 5
AMALGAMATION AIRLINES
The Government of India, on 1 March 2007, approved the merger of Air India and Indian Airlines. Consequent to the above, a new Company viz National Aviation Company of India Limited (NACIL) was incorporated under the Companies Act, 1956 on 30 March 2007 with its Registered Office at Airlines House, 113 Gurudwara Rakabganj Road,

OF

AIR

INDIA

&

INDIAN

New Delhi. The Certificate to Commence Business was obtained on 14 May 2007. Presently, the Board of NACIL consists of: Shri Raghu Menon, Addl Secretary & Financial Advisor, Ministry of Civil Aviation Shri R K Singh, Jt Secretary, Ministry of Civil Aviation Shri Rajiv Bansal, Director, Ministry of Civil Aviation

The most important development with respect to the company Indian Airlines has been the merger of both the Public Sector carriers of India namely Indian Airlines Ltd. And Air India Ltd With a new company namely National Aviation Company of India Ltd. After the approval to the scheme of merger by the government of India, the ministry of corporate Affairs vides their Order dated 22 n d August 2007 has approved the scheme of Amalgamation of Air India Limited and Indian Airlines Ltd With the National Aviation Company of India Ltd (NACIL) with effect from 1 s t April 2007. The merger of new company will enable the new company to generate further momentum, as the combined strength of two companies will give various synergy benefits resulting into financial benefits to NACIL. Some of the benefits which will accrue to NACIL are: Route Rationalization Fuel Procurement Engineering Stores & Inventory Purchase both aircraft and non aircraft Insurance benefits Handling of flights Employee Productivity

The Scheme of Amalgamation of Air India Limited and Indian Airlines Limited with National Aviation Company of India Limited was approved by the Board of Directors of all the three Companies. Thereafter, the Meetings of Secured and Unsecured Creditors of Air India and Indian Airlines were held in New Delhi on 28 June 2007, in which the Scheme of Amalgamation was approved by the Creditors. The final hearing of the merger petition was held on 31 July 2007 wherein the last date for submissions of objections was fixed on 8 August 2007 and the Order of the Ministry of Corporate Affairs is awaited. The Authorized and Paid-Up Share Capital of the merged entity will be Rs.1500, 05, 00,000/- and Rs.145,00,00,000/- respectively. It has been decided that post merger, the new entity will be known as Air India while Maharaja will be retained as its mascot. The logo of the new airline will be a red colored flying swan with the Konark Chakra in orange placed inside it. The flying swan has been morphed from Air Indias characteristic logo The Centaur whereas the Konark Chakra was reminiscent of Indians logo. The Corporate Office of NACIL will beatMumbai. The Government has approved the appointment of Shri V Thulasidas and Dr V Trivedi as Chairman & Managing Director and Joint Managing Director, respectively, of the merged entity, with effect from the date of merger.

Result of Amalgmation
Transfer of assets :

As per the section 391-394 all the assets of both the companies are managed by the National Aviation Company of India Limited. It includes all intangible assets, land, buildings etc. As well as all the: Subsidiary companies Of Indian Airlines i.e, Airlines Allied Services Ltd. Vayoodoot Limited IAL Airports Services Limited& Subsidiary Companies of Air India i.e. Air India Engineering Services Limited Air India Air Transport Services Limited Hotel Corporation Of India Limited Air India Charters Limited

Shall become the subsidiaries of the NACIL.

Transfer of Liabilities
All loans raised and used and liabilities incurred by both the companies are transferred to the National Aviation Company of India Limited.

Contracts, Deeds, Approvals, Exemption etc

All the Contracts ,Deeds, Bonds, Agreements, Schemes, Arrangement, insurance policies ,indemnities ,guarantees ,and other instruments whatsoever in nature of both the companies shall be in full force of National Aviation Company of India Limited. All the rights and licenses of trademarks, know how, trade names, trading style, logos, emblem, label designs etc. shall be in full force of National Aviation Company of India Limited.

Employees state after merger

After merger all the employees of both the company will become the employee of National Aviation Company of India Limited. The services of

officers and other employees of both the companies when transfer to the National Aviation Company of India Limited shall not entitle such officer or employee to any compensation under any act or law for the time being in force. With regard to Provident Fund, Gratuity or any other funds created by any of the company will continued after merger and the National Aviation Company of India Limited act as substitute for both the companies The National Aviation Company of India Limited undertakes to continue to abide by any agreement/settlements with the labor unions / employees by both the companies.

Conduct of business after merger

Both the Companies shall be deemed to have been carrying on and to be carrying on all business and activities relating to both Indian Airlines and Air India, for and on behalf of National Aviation Company of India Limited. The profit or losses earned by both the companies are treated as a profit and loss National Aviation Company of India Limited.

Why only amalgamation?

The Indian aviation environment has changed significantly over the last few years with rapid increase in demand for domestic and international air services. Expansion of capacity by current airline players (domestic private and global) as well as entry of new players has helped meet this demand and at the same time significantly altered the competitive landscape. Rising fuel prices and shortages of skilled manpower as expected to put further pressure on all current airline operators. Both the companies i.e., Indian Airlines and Air India, which were operating in a largely protected environment, are now faced with the

fierce competition from domestic private and global airline companies. Market shares have declined substantially for both airlines. Significant increase in competitive activity has eroded historical advantage of both carriers. Leading international carriers have increased coverage and frequency to major cities in India. Domestic carriers too have significantly ramped up operations. Fleet renewal and expansion are imperative from a business perspective but the same will add further pressure on account of interest dues and depreciation expenses. Thus, the declining market operating and financial performance poses a serious threat to future survival of the two airlines on a standalone basis. Value for and entry into one of the global airline alliances, which control almost 70% of global passenger traffic, is best facilities through a single Flag carrier with an integrated international and domestic footprints. This is even more imperative given that both the companies, which historically had distinctive roles (air India focusing largely on international sectors and Indian airlines focusing largely on domestic sector), now have increasingly overlapping networks, as Indian airlines has expanded its foot prints to key international locations. Finally, in an increasingly consolidating global aviation environment where critical mass/size is a key success factor, combining the two state owned airlines into a single merged entity will better equip them to survive and proper amidst fierce global and domestic competition.

MOTIVES BEHIND THE MERGER

The merger of both the companies with the National Aviation Company of India Limited, along with a comprehensive transformation program, is imperative to improve competitiveness. It will provide an

opportunity to leverage combined assets and capital better and build a stronger sustainable business, the merger will Create the largest airline in India and comparable to other airline in Asia Provide an integrated international/ domestic footprint which will significantly enhance customer proposition and allow easy entry into one of the three global airline alliances. Enable optimal utilization of existing resources through improvement in load factor and yields on commonly serviced routes as well as deploy freed up aircraft capacity on alternative routes. Provide an opportunity to fully leverage strong assets, capabilities and infrastructure. Provide potential. Provide a larger and growth oriented company for the people and same shall be in large public interest. Potential to launch high growth & profitability businesses (ground handling services, maintenance repair and overhaul etc.). Provide maximum flexibility to achieve financial and capital restructuring through revaluation of assets. Provide an increased thrust and focus on airline support businesses. and air India. Cost and capital for rationalizing overlapping Revenue synergy will be driven by integration of the complementary networks of both Indian airlines economies productivity synergies will be driven by opportunities for leveraging of scale and opportunities facilities and infrastructure. In addition to these synergies, the amalgamation will also provide an opportunity to initiate a comprehensive transformation program to improve the overall competitiveness of the merged airline i.e., Indian Airlines and Air India. This while improving the financial position would an opportunity to leverage skilled and experienced manpower available with both the companies to the optimum

help position and equip the merged entity to better face the current and future challenges arising out of intense competition and declining industry profitability.

WHAT PEOPLE SAY ABOUT THE MERGER?

On August 1, 2007 at the function 55 t h nationalized day of air corporation employees unions (ACEU) the former civil aviation minister Shanhnawaz hussain said If they had plans to merge the two airlines, then why did they change the logo? By what authority did they do so? They did not even discuss it in parliament. "It is only because they want to remove the identity of Indian. They just want to promote private airlines and want only players like Jet Airways and Kingfisher to remain in the business," he alleged. As per the news published in March 29, 2007: The amalgamation is indeed going to be one of the land marks in Indias aviation history. With Air India and Indian Airlines boasting of a combined fleet of 122 aircraft and over 34,000 employees, including 1,315 pilots, the merger will create one of the largest airlines in the world in terms of the number of aircraft. According to reports the government expects the merged entity to save around Rs 5,000 crore on an annual basis from synergies in operations and sharing common facilities. Meanwhile, a sticky issue is also being sorted out simultaneously as the two carriers speed ahead towards the merger. The Union government has assured airline employees that their interests, including employment conditions, wages, seniority and career progression, would be taken care of and a grievance redressal mechanism would be in place to protect their interests. The suggestion is that a careful integration of manpower needs be done

at various levels. Consultant Accenture has reportedly mooted a top-to bottom integration of the employees and has proposed that the pay scales be revised to bring parity in promotion procedures, according to a report. So with almost all issues now being sorted out, the runway is hassle free, well almost. The biggest airline will see more planes flying into its stables too. The two carriers have placed orders for more aircraft. Reports said that Air-India has ordered 68 Boeings, while Indian has finalized the acquisition of 43 Airbus aircraft. So by year 2011, these new planes will also be Air Indians own, making its stock soar high in the industry and service circles. Mr. kapil kaul , chief executive for South Asia for Centre for Asia Pacific Aviation, a leading airline industry think tank said 'The two state-owned carriers have both suffered from years of underinvestment in their fleet and products,''A combined Air India-Indian Airlines has the potential to become a major global player if the merger is completed quickly. A full restructuring must also follow to allow them to realise their potential, Finally, there must be partial sale of equity by way of an initial public offer to help induce professionalism and market dynamics, followed by privatisation over the next five years or so.'

AFTER MERGER SCENARIO Positive aspects

According to industry experts, the merged entity will have a fleet size of 125 new generation aircraft by 2010 after new aircraft are added and some of the existing ones are phased out to emerge

among the top 30 carriers globally. The turnover will also top Rs.150 billion. At a macro level, experts say the merger between the two state-run carriers will see the beginning of the process of consolidation in the Indian aviation space - the fastest growing in the world followed by China, Indonesia and Thailand. The merger to create an airline with 125-130 aircraft which is Asias biggest airlines and soon more aircrafts are to be purchase. The cost is also going to reduce because the new routes and timetables of flights are made according to the need and through which proper utilization of resources are made.

Negative aspects
Despite the bullish growth potential, overseas experience shows that it is extremely difficult for a market to absorb this many new entrants, particularly in such a short space of time,' the study said, adding that the losses by airlines industry is expected to top $500 million in the current fiscal year. But experts said the merger would also pose some serious challenges in the months to come, especially in integration of two companies that have had completely divergent operations.

CONCLUSION
From the above brief discussion of the facts and figure we can easily conclude that the merger plays huge advantage not only for the growth and survival of the companies but also to be in market.

As we know, the merged entity will have a fleet size of 125 new generation aircraft by 2010 after new aircraft are added and some of the existing ones are phased out to emerge among the top 30 carriers globally. The turnover will also top Rs.150 billion. This will showing that both Indian airlines and air India going on right track and soon it will become the No.1 Airline player.

CHAPTER - 6
RATIO ANALYSIS OF N.A.C.I.L, AIR INDIA & INDIAN AIRLINES

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. Management should be particularly interested in knowing financial strength of the firm to make their 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. Following ratios have been calculated:-

Liquidity Ratios:
1. Current Ratio 2. Quick Ratio

Leverage Ratios:
1. Debt Equity Ratio

Activity Ratios:
1. Fixed Assets Turnover Ratio 2. Inventory Turnover Ratio 3. Debtors Turnover Ratio 4. Current Asset Turnover Ratio 5. Working Capital

Profitability Ratios:
1. Net Profit Ratio 2. Return on equity 3. Return on Investment

CURRENT RATIO
200304 200405 200506 200607 200708 200809

Year

Indian Airlines Air India NACIL

0.44 0.67

0.45 0.73

0.67 1.28

0.75 2.3 1.2 1.08

The current ratio is the ratio of total current assets to current liabilities. It is calculated by dividing current assets by current liabilities. 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. The current ratio of NACIL meets the bare minimum of 1.33, which is considered by banks as the minimum acceptable level for providing working capital finance. The ratio indicates that the company not enjoys a better financial health and would not be able to meet its immediate debts.

QUICK RATIO

Year Indian Airlines Air India NACIL

2003-04 0.4 0.54

200405 0.42 0.61

200506 0.64 1.09

200607 0.71 1.91

2008-09 2007-08

1.01

0.86

Quick ratio refers to current assets which can be converted into cash immediately or at a short notice. The quick ratio is the ratio between quick current assets and current liabilities and is calculated by dividing the quick assets by current liabilities . The Quick Ratio satisfactory. is quite

DEBT-EQUITY RATIO
200304 1.36 1.2 200405 1.11 2.3 200607 2.34 3.45 2.3 148.34 2008-09 2007-08

Year Indian Airlines Air India NACIL

2005-06 1.34 1.48

Debt-Equity ratio is a measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets .A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without the outside financing. The Debt-Equity ratio of NACIL is quite satisfactory.

FIXED ASSETS TURNOVER RATIO

200304 .0260 .0220 200607 .0320 .0130 .7 2008-09 2007-08

Year INDIAN AIRLINES AIR INDIA NACIL

2004-05 .0330 .0308

2005-06 .0440 .0.70

Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales Higher the ratio, the better, because a high ratio indicates the business has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the business is over-invested in plant, equipment, or other fixed assets. 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. Here we see that FATR for NACIL is very

high, the reasons for this high FATR is the fact that the combined assets of Air India & Indian Airlines which have been merged into NACIL have been booked at fair value i.e. their current values, hence high FTR for NACIL.

INVENTORY TURNOVER RATIO

200304 39.74 17.72 200405 54.04 21.46 200506 58.52 19.15 200607 50.35 11.48 15.23 200708 200809

Year Indian Airlines Air India NACIL

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. The ITR of NACIL is quite low.

DEBTOR TURNOVER RATIO

Year Indian Airlines Air India NACIL

2003-04 6.70 7.12

2004-05 6.10 6.28

2005-06 5.82 5.3

2006-07 5.56 4.2

200708

2008-09

5.83

This ratio is also known as Debtors velocity. The higher the value of DTR the more efficient is the management of credits. The ratio has declined for IA. Also DTR for Air India has declined. For NACIL DTR is decent if compared to DTRs of Air India & Indian Airlines.

CURRENT ASSET TURNOVER RATIO

Year Indian Airlines Air India NACIL

200304 3.54 4.6

2008-09 2004-05 4.88 5.1 2005-06 3 3.28 2006-07 4.6 2.34 2.42 2007-08

Current Assets Turnover ratio shows the productivity of the company's current assets. Here we see that the CATR was very high for both the companies, hence it shows that the companys current assets were highly productive. CATR for NACIL is also satisfactory which shows that companys current assets are highly productive.

NET PROFIT RATIO

200304 0.0094 .0147 200405 .0123 .0124 2008-09 2005-06 0.0085 0.0016 2006-07 -.04 -.053 -0.14 2007-08

Year Indian Airlines Air India NACIL

Net Profit Ratio indicates management efficiency in manufacturing, administration and selling the products. This ratio is the overall measure of firms ability to turn each rupees sale into net profit. It also indicates the firm capacity to withstand adverse economic condition. The NPR of both the airlines has declined sharply 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. Also NPR for NACIL has gone negative; the reasons for this declining demand are increase in fuel prices as well increase in taxes, which in turn has led to increase in price of

tickets. Also security threat has been a major reason for declining demands.

RETURN ON EQUITY
200405 .0975 .0062 200506 .0494 .0009 2008-09 2006-07 -.0240 -.0110 -.27 27.1 2007-08

Year Indian Airlines Air India NACIL

2003-04 .0656 .0060

Return on Equity measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every dollar of shareholders' equity. It shows how well a company uses investment dollars to generate earnings growth. ROE is equal to a fiscal year's net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage. Here the ROE for

Indian Airlines is much higher as compared to Air India. Return on Equity for NACIL is negative, it shows that investors will not really be interested in investing in NACIL.

RETURN ON INVESTMENT
200304 .0779 .0520 2008-09 2004-05 2005-06 .0470 .0610 .0440 .0479 2006-07 -.11 -.0210 -.098 2007-08

Year Indian Airlines Air India NACIL

It explains the relationship between EBIT (net of taxes) and Capital Employed. ROI has sharply declined due to decline in EBIT, after 200506. It shows that the investment is not yielding a satisfactory return due to increase in expenses and decline in EBIT. Return on Investment for

NACIL is also negative, which shows that investing in NACIL is not beneficial.

CHAPTER 7 SWOT ANALYSIS OF NACIL (AIR INDIA)

Air India is the leading airlines in the India. Air India is based on domestic enplaned passengers and scheduled domestic departures. Air India has shown a strong performance in revenues in 2008. Strong operating performance lends financial stability to the company which could be leveraged to seek more growth avenues of growth in future. However, the rising prices of aviation turbine fuel could adversely affect Air India operating margins.

STRENGTHS
Operational Performance

During fiscal year 2008, the companys revenue growth was driven by increase in passenger segment revenue and merger with Indian airlines. The increase in passenger revenues primarily was due to an increase in capacity, and an increase in load factor. In addition the revenue growth is backed by growth in freight and cargo revenues, which was a result of higher rates charged. This growth was also partly driven by improved efficiency in the companys operations. Strong operating performance lends financial stability to the company which could be leveraged to seek more growth avenues in the future. Market Leadership

Air India is the leading airlines in the India. The airline has been ranked the top in Indias domestic airline (in terms of number of passengers) by the bureau of transportation statistics (BTS) in 2005. Air India newly orders about 68 from Boeing and 43 from Airbus. Air India dominates the markets it serves, ranking first in market share in India. Its strong market position is driven not just by consistent delivery of low fares but also due to reliable service, frequent and convenient flights, comfortable cabins, in-flight experience, frequent flyer programs, hassle-free airports, and friendly customer service. Strong market position gives the company the advantage of scale and helps it in strengthening its brand image.

WEAKNESSES
High Dependence on Passengers Revenue Passenger revenues accounted for major part of the Air India total revenue. Cargo services allow airlines to generate additional revenues from existing passenger flights. In addition, cargo revenues are usually counter-cyclical to passenger revenues and have lower demand elasticity than passenger business, which allows airlines to pass on fuel price hikes to customers. Small cargo business exposes Air India to the demand fluctuations in passenger business. Under Utilisation of Capacity

NACIL 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 daily to its passengers.

OPPORTUNITIES
Growing Demand for Low Cost Airlines

In mature markets demand for air travel is increasingly being driven by ticket price and consumer confidence. A survey by the US Commerce Department shows that ticket price is the number one criterion for passengers when selecting a flight, well ahead of the availability of a nonstop service. As markets have progressively matured, the GDP elasticity of air travel demand has declined. In the US for example, a 1% growth in GDP will typically result in a 1.2% growth in domestic air travel, compared with a growth of almost 2% in air travel some 20 years ago. Growth in Freight Business

The Indian economy is one of the fastest growing in the world, but the boom is not without its stops, starts, and bottlenecks, all of which also make themselves felt in the countrys freight transport sector. Air India had also launched a major cargo incentive scheme for cargo agents of Air India and erstwhile Indian on the entire network. The scheme, which generated enormous response, entitled top producing agents of each region to become eligible for an all-inclusive incentive trip on Star Cruise. Expanding Passenger Trafic in Asia Pacific

The demand for air travel to the Asia Pacific is rising driven by increased economic activity in emerging Asian countries such as China and India. Traffic is projected to grow at 7% in China and India combined, above the world average of 5%. Further, the share of Asia Pacific region in world passenger traffic (revenue passenger kilometers) is forecast to rise from 25% in 2003 to 31% in 2023. Against this backdrop, Air India well positioned to benefit with its increasing emphasis on Asia-Pacific operations.

THREATS
Incresing Aviation Turbine Fuel Prices

The price of aviation turbine fuel (ATF) has soared to record highs in the past few years and continues to hold at that level. Last few years have once again clearly highlighted the highly cyclical nature of the Aviation industry worldwide. The ATF prices in India are substantially higher than its price in international markets. Aircraft fuel is a major contributor to Air India operating expenses. Moreover, the bonded price applicable for international flights ex-India is higher than the ATF price in the international markets. Priced 65% higher in India on an average, compared to international benchmarks. Therefore, this will need stronger revenue growth and greater cost controls in other areas to overcome the increase in fuel prices.

High Intresets Rates

The past few years have seen Central Banks impose higher interest rates to check inflation and the overheating of regional economies. The Reserve Bank of India has led the way raising interest rates. Inflation fears in the India may see another raise in the short-term. According to Economics times, the India real GDP growth is 9.20% in 2007 to 9.00% in 2008 and this downward trend is also seen in 2009. This in turn could depress

consumer spending and offset some of the positive trends in the India for the company. Intensifying Competetion

AIR INDIA is now competing against more credible low cost carriers such as Spice jet, Go air, Indigo Airline, and Jetlite etc. Indigo Airlines remains Air India strongest competitor because of its competitive cost structure, strong brand name and ambitious growth plans over the next seven years. Air India also faces increased competition from Air Deccan low-fares subsidiary, Song. Moreover, major legacy airlines have been focusing on restructuring costs, which has improved their competitiveness. With costs restructured, the legacy airlines are becoming more formidable competitors in terms of increasing capacity, matching prices and leveraging their frequent flier programs. Increasing competition could adversely affect the companys margins.

CHAPTER - 8 ISSUE AND CHALLENGES FACED

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 Competetion

There is increase in competition with private airlines entering this field. 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 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 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.

CHAPTER - 9 RECOMMENDATIONS
The Indian Aviation industry has hit an air pocket, forcing three largest airlines NACIL, Kingfisher and Jet Airways to scramble into salvage mode. In India, on the back of soaring fuel prices and dwindling passenger loads, there is need for cost cutting initiatives. Following are the recommendations: Slashing Employees 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 Flights 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 NACIL can change the schedules of flights to increase passenger loads. loses. Lowering Distribution Costs As NACIL is suffering from big loss there is need for lowering of distribution costs. Operating Different Size Aircraft NACIL can operate with small aircraft where passengers are low to avoid

Look for Increasing Average Seating 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 Maintainance 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

NACIL 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 are: Improving Collection and Payment Period

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 NACIL 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 are 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 Investment in Marketable Securities NACIL 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 NACIL can form a special team of investment managers who can manage both the long term and short term funds.

BIBLIOGRAPHY
Annual Reports / Financial Statements
Annual Report of NACIL Financial Statements of Air India Financial Statements of Indian Airlines

Books
Reddy Sumati, Introduction To Mergers & Acquisitions, 2007. Brigham & Eharhardt, Financial Management, Thomson South Western, 2002.

Websites
www.wikipedia.org www.google.com www.airindia.co.in

Magazine
Business Today

Newspaper
The Times of India