The operating profit or earnings before interest and tax (EBIT) is the difference between gross profits and operating expenses before deduction of interest and taxes. Under the airline’s turnaround plan, the company was expected to achieve operating profit from 2018. This will be first time that the airline is expected to come out with a positive operating profit for any fiscal, after its formation in 2007.
Air India and Indian Airlines were merged in 2007 to form a single entity to overcome their sub-optimal performance and in the hope the step would result in Rs.1,000 crore profit in the first year itself. Both the airlines had posted profits for 2005-06.
The airline had turned EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) positive in 2012-13, due to better yields, increased passenger revenue and seat factor. The information about the airline’s financial position was disclosed by the Civil Aviation Secretary Rajeev Nayan Choubey on the sidelines of a briefing on the draft civil aviation policy.
When asked about the issues regarding the financial position of the national passenger carrier Choubey said: “The airline’s matters were not included in the draft aviation policy, as an exhaustive turnaround (TAP) and financial restructuring plans (FRP) have already been approved for the airline.”
On April 12, 2012, the flag carrier got a new lease of life, when the government approved a Rs.30,000 crore TAP and FRP spanning around 10 years period. The multi-billion-dollar bailout package came with stringent riders like maintaining high on-time performance, healthy load factors and hiving-off maintenance, repair and overhaul, as well as ground handling businesses.
The company is expected to make cash profits from 2018, but it will take time to earn net profit or the actual profit.
“The airline’s performance is improving. In fact it will post a slim operating profit for this fiscal,” the secretary said.
The secretary revealed that the operating profit is expected to be around Rs.6 crore. “The airline is expected to achieve the operating profit this fiscal due to a dip in crude oil prices and operational efficiencies that have been brought in the functioning of the airline,” the secretary elaborated.
Global crude oil prices have plunged over 60 percent in the past year from levels of around $110-120 for a barrel last year to the present level of less than $50. In order to maintain a healthy balance sheet, Air India at the start of the calendar year 2015 started to cut its total expenses by Rs.1,400 crore. The flag carrier had stopped hiring all non-essential staff, curbing transfers, field visits and holding meetings and conferences in five star hotels.
Furthermore, the airline adopted industry best practices, cut loss making routes and rationalised its operations to achieve maximum efficiency. In July, the government had informed that Air India’s net loss has come down by over 26 percent since the implementation of TAP. TAP was implemented from 2012-13 and is being compared to the financial results of 2011-12.
Minister of State for Civil Aviation Mahesh Sharma in July had informed the Lok Sabha that the net loss of the company during 2014-15 stood at Rs.5,547.40 crore down from Rs.7,559.74 crore in 2011-12. “The company has achieved the targets set out in the TAP and has made substantial progress in both operational as well as financial areas,” the minister said in a written reply.
According to the minister, the operating losses reduced to Rs.2,171.40 crore in 2014-15 from Rs.5,138.69 crore in 2011-12. “The company has turned EBIDTA positive by Rs.541.60 crore as against the negative EBIDTA of Rs.2,236.95 crore in 2010-11,” the minister said. The minister added that the total revenue of the airline increased by 33.25 percent to Rs.4,026.31 crore as compared to levels of 2011-12.
“The total revenue during 2014-15 is Rs.19,718 crore as against Rs.14,713.81 crore in 2011-12,” the minister added.
The passenger load factor which is a key indicator of the airlines performance improved to 73.1 percent in 2014-15 from 67.9 percent in 2011-12. Air India had borrowed Rs.21,412 crore to buy new aircraft and Rs.22,368 crore as working capital. Its current losses stands at Rs.22,000 crore. (IANS)