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Notes to Accounts of Kingfisher Airlines Ltd.

Mar 31, 2013

1. Corporate Information

(a) Background

Kingfisher Airlines Limited (formerly known as Deccan Aviation Limited) ("the Company") is engaged in rendering scheduled and unscheduled aircraft passenger and cargo services, including charter services. The Company was incorporated on June 15, 1995 as a private limited company and converted itself into a public limited company on January 31, 2005. Consequently, the Company changed its name from Deccan Aviation Private Limited to Deccan Aviation Limited. On June 12, 2006, the Company''s shares were listed on the Bombay Stock Exchange Limited and the National Stock Exchange Limited, pursuant to the Company''s initial public offer of shares. The scheduled airline business of Kingfisher Training and Aviation Services Limited ("KTASL") (previously known as Kingfisher Airlines Limited) demerged on a going concern basis with the Company, with effect from April 1, 2008 as the demerger appointed date, vide scheme of arrangement approved by the honourable High Court of Karnataka vide its order dated June 16, 2008 under sections 391 to 394 of the Companies Act, 1956 (‘Scheme"). The helicopter charter division of the Company was also hived off pursuant to the Scheme. The Company changed its name from Deccan Aviation Limited to Kingfisher Airlines Limited, with effect from September 5, 2008.

(b) Demerger of the commercial airline division of KTASL

(i) Order of the Karnataka high court in form 42 of the Companies (Court) Rules, 1949 in respect of the Scheme is yet to be passed.

(ii) Documentation in respect of transfer of certain assets and liabilities taken over pursuant to Scheme, to the name of the Company are pending. The Company is in the process of transfer of charges created by KTASL to its name in respect of securities granted for loans so taken over by the Company, in consultation with the Registrar of companies.

2 Buildings constructed at a cost of Rs.865.86 Lacs are on land belonging to the Airport Authority of India. Such rental agreements are renewable on a periodical basis.

3 Employee Stock Option Plan [ESOP]

The Board of Directors of the Company are yet to formulate the stock option plan to the employees of the commercial airline division of KTASL taken over by the Company, pursuant to clause 11.1 of the Scheme.

4 Leases and Hire Purchase

The Company has entered into operating and finance lease agreements. Disclosures required under AS 19 on "Leases" is as given below:

(a) Operating leases

Operating lease arrangements comprise of leases of aircraft, helicopters, spare engines and office premises. The salient features of such lease agreements are as follows:

1) Lease periods range up to twelve years and are in certain cases non-cancellable.

2) Lease rentals are usually fixed over the term of the lease while some arrangements are subject to adjustments linked to the Libor rates movements.

3) The Company also has agreements for maintenance and lease of stores and spares for such aircrafts for which fixed and variable rentals are paid. Variable rentals are paid on a pre determined rate payable on the basis of actual flying hours / cycles. Such variable rentals are subject to annual escalations as stipulated in the agreements. However, the Company is eligible to claim reimbursement of maintenance costs to the extent eligible under the agreements.

4) The Company does not have an option to buy the aircraft or helicopters and spare engines or to renew the leases.

5) In case of default by the Company, in addition to repossession of the aircraft, penalties are stipulated in the agreements.

6) The Company is required to deposit a commitment fee and a security deposit with the lessor or provide a letter of credit for such amounts.

7) Office premises are subject to further renewal after the expiry of original non cancellable period as per the original agreement.

In addition to the above, the Company has entered into agreements to lease aircrafts / engines in respect of which the aircrafts / engines are pending delivery / the lease was yet to commence as at March 31, 2013. The above table of minimum lease payments does not include amounts that may become payable in respect of leases yet to commence as at March 31, 2013.

5 Segment disclosures

(a) Geographical segments

Considering the internal reporting framework, the Company has considered geographical segments as the primary segments. Such segments consist of domestic air transportation within India and international air transportation outside India.

The Company only had domestic operations during the year 2012 - 13 and hence segmental results have not been separately disclosed. The value of assets and liabilities, capital expenditure incurred during the year and depreciation on fixed assets segment wise cannot be segregated and identified to any reportable segment. The segmental results for the year 2011 - 12 is given below.

(b) Business segments

The Company operates in a single business segment, i.e. of providing scheduled and unscheduled air transportation services. Accordingly, no separate segment disclosures for business segments are required to be given.

6 Deferred tax credit earlier recognized up to March 31, 2012 aggregating to Rs. 404,586.77 lacs has been derecognized during the year by debit to surplus account (reserves and surplus) in the balance sheet.

7 Provisions

In accordance with Accounting Standard - 29 ‘Provisions, Contingent Liabilities and Contingent Assets'', following is the movement in provision towards cost for frequent flyer program.

(a) Frequent Flyer Program:

The Company has a Frequent Flyer Program (King Club), wherein passengers who fly frequently are entitled to accumulate miles to their credit. Passengers are eligible to redeem such miles in the form of tickets, either on the Company or its partners'' airlines. The cost of allowing free travel to members is accounted considering the members'' accumulated mileage on an incremental basis. However, in the light of inadequate historical data, the Company has not factored costs that would be incurred by it while estimating provisions required, in case eligible passengers redeem such miles for services/tickets of partners. The movement in the provision towards cost for frequent flyer program during the year is as under:

(b) Leave encashment / compensated absences

The movement in the provision towards cost of leave encashment / compensated absences during the year is as under:

8 The Company is not aware of the registration status of its suppliers registration under the MSME Act, 2006 ("Micro Small and Medium Enterprises Development Act 2006"). Accordingly, information relating to outstanding balances due have not been disclosed as it is not determinable. Similarly, interest payable if any, has not been computed and provided for.

9 Accounts of certain creditors, debtors, IATA, loans & advances, bank accounts, passenger service fees and charges payable to airport operators, service tax payable (including under reverse mechanism), input service tax credit recognized are subject to review / reconciliation / confirmation. Adjustments, if any will be made on completion of such review / reconciliation / receipt of confirmations/ identification of doubtful and bad debts/ advances.

10 The Company has accumulated losses of Rs.1,602,346.91 lacs as at March 31, 2013 and its net worth as at that date is minus Rs.1,291,981.85 lacs. The scheduled operator''s flying permit (Permit) issued by the Director General of Civil Aviation (DGCA) has lapsed and is yet to be renewed. The consortium banks who had lent monies to the Company have recalled their debts in April 2013. Although these events or conditions may cast significant doubt on the Company''s ability to continue as a going concern, it has detailed plans for renewal of its operations. It has filed the necessary application to the DGCA to renew the Permit and is exploring various options to recapitalize and resume operations. The Company will also request the banks at an appropriate time for debt restructuring. Based on the detailed evaluation of the current situation, plans formulated and active discussions underway with prospective investors, management is confident of raising adequate finance, obtaining renewal of the Permit, rescheduling debt and receiving continued support from the group. Therefore, the management holds the view that the Company will realize its assets and discharge liabilities in the normal course of business. Accordingly, the financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities.

11 The Company''s centralized ticket reservation system (CRS) does not support capture of unearned revenue. Accordingly, such unearned revenue has been estimated by management by multiplying the estimated aggregate number of unflown tickets as on the reporting date by an overall average estimated ticket value. Management is taking continuing steps to streamline the process of determination of unearned revenue.

12 The Company''s Cargo Revenue Management (CRM) system is yet to stabilize. Mistakes noticed in revenue recognized, sundry debtors and other relevant accounts have been corrected to the extent identified. The Company is of the view that any unadjusted differences will not be material. Management is taking steps to further streamline the processes and stabilize the system.

13 Accounting of costs on major repairs and maintenance of its engines:

During the current and certain immediately preceding previous years, the Company has adopted the exposure draft on Accounting Standard - 10 (Revised) ''Tangible Fixed Assets'' which allows costs on major repairs and maintenance incurred to be amortized over the incremental life of the asset. The Company has extended the same treatment to costs and maintenance on engines pertaining to aircrafts acquired on operating lease. Such expenditure has been included in ‘Lease hold improvements- Aircrafts'' vide schedule of fixed assets. This accounting policy has been confirmed by an independent expert and in the opinion of the management, has resulted in a fair depiction of the working results and the state of affairs of the company. But for such accounting practice, the loss before & after tax for the year would have been lower by Rs. 14,298.07 lacs.

14 Use fees payable by the Company in respect of certain assets taken on operating lease aggregating to Rs. 1,132.52 Lacs ( previous year Rs 6,033.53 lacs) (aggregate amount as at March 31, 2013 Rs. 4,281.74 lacs after taking into account redeliveries) have in accordance with the Company''s understanding, been treated as maintenance reserves. In terms of the Company''s accounting policy, these fees are initially included under Loans and Advances and are expensed out to the Statement of Profit and Loss at the time of incurrence of major expenditure /termination of agreements. The Company is taking steps to formalize this understanding with the relevant lessor.

15 The Company has not prepared consolidated financial statements (CFS) as required by the AS 21, since the transactions of subsidiary during the year/its assets and liabilities were not material.

16 Fixed assets were physically verified by the management during the previous year. Pending completion of reconciliation, discrepancies, if any, have not been finalized and adjusted. As a matter of abundant caution, provision of Rs. 500 lacs has been made for the possible effect of any discrepancies.

17 Rs. 10,858 lacs representing withholding tax accrued as payable in the books of account upto March 31, 2011 on amounts paid/ provided as payable to certain non residents/interest thereon was withdrawn based on professional advice. Consequently, no provision is considered necessary for withholding tax for the years 2011-12 and 2012 - 13 on amounts paid/ provided as payable to certain non residents/interest thereon. The Company is in the process of completing a part of the pending documentation and complying with the requisite formalities under the Income Tax Act, 1961.

18 The consortium banks have sought to recall their entire outstanding in April 2013. The Company will be disputing such action before an appropriate forum. Accordingly, the borrowings outstanding to the consortium banks as at March 31, 2013 have been classified as long term and current liabilities without taking cognizance of the recall but as per the schedule of repayments stipulated in the MDRA. Consequently, the Company has also continued to amortize certain borrowing costs over the repayment period as per MDRA. Unamortized borrowings costs as at March 31, 2013 is Rs. 3,021.78 lacs.

19 The licenses for claims of duty free credits (amount recognized as at March 31, 2013 and included under ‘Other current assets'' Rs.12,740.56 lacs) are yet to be received from relevant authorities. The Company is taking necessary action on the matter.

20 Segregation between current and non current liabilities /assets as at end of current and previous reporting periods have been done on an estimated basis in certain cases due to non availability of precise data.

21 The Company has terminated certain agreements entered into with parties as a cost rationalisation measure. Certain parties have also terminated the agreements entered into with the Company in view of defaults by it. The Company is in discussion with the relevant parties to finalise the amount of compensation and other costs, if any payable by it,as well as to persuade the parties to desist from such cancellations. The same will be accounted on final determination of the matter. In the opinion of the management, this amount is not likely to be material.

22 Previous year''s figures have been regrouped / reclassified wherever necessary to conform to the current year''s presentation.


Mar 31, 2012

1 Corporate Information

(a) Background

Kingfisher Airlines Limited (formerly known as Deccan Aviation Limited) ("the Company") is engaged in rendering scheduled and unscheduled aircraft passenger and cargo services, including charter services. The Company was incorporated on June 15, 1995 as a private limited company and converted itself into a public limited company on January 31, 2005. Consequently, the Company changed its name from Deccan Aviation Private Limited to Deccan Aviation Limited. On June 12, 2006, the Company's shares were listed on the Bombay Stock Exchange Limited and the National Stock Exchange Limited, pursuant to the Company's initial public offer of shares. The scheduled airline business of Kingfisher Training and Aviation Services Limited ("KTASL") (previously known as Kingfisher Airlines Limited) demerged on a going concern basis with the Company, with effect from April 1, 2008 as the demerger appointed date, vide scheme of arrangement approved by the honourable High Court of Karnataka vide its order dated June 16, 2008 under sections 391 to 394 of the Companies Act, 1956 ('Scheme"). The helicopter charter division of the Company was also hived off pursuant to the Scheme. The Company changed its name from Deccan Aviation Limited to Kingfisher Airlines Limited, with effect from September 5, 2008.

(b) Demerger of the commercial airline division of KTASL

(i) Order of the Karnataka high court in form 42 of the Companies (Court) Rules, 1949 in respect of the Scheme is yet to be passed.

(ii) Documentation in respect of transfer of certain assets and liabilities taken over pursuant to Scheme, to the name of the Company are pending. The Company is in the process of transfer of charges created by KTASL to its name in respect of securities granted for loans so taken over by the Company, in consultation with the Registrar of Companies.

i Terms of repayment of term loans and others

(i) Secured Loans: Term loan from Banks

Represents the working capital term, rupee term, funded interest term and additional rupee loans funding granted by the banks as per the MDRA entered by the Company with the constortuim of banks led by SBI and repayable w.e.f October 2012 after a moratorium period of two years as per the laid down repayment schedule. Interest payable at certain % mark up above the Base rate and to be reset every 2 years.

In case of PDP loans, interest payable at certain % mark up above the Base rate and to be reset every 2 years and repayable over a period of six years with effect from September 2010.

Assets taken on Finance Leases

Loans taken for aircrafts purchased on finance leases are repayable over a period ranging between 9-12 years as per the relevant agreements entered into with the lessors and carries fixed interest rate ranging between 5.37% to 7.61% in some cases and variable interest rate @ LIBOR margins for the others.

(ii) Unsecured Loans:

Term loan from Banks

Represents working capital term, rupee term, funded interest term and additional rupee loans funding granted by certain banks as per the MDRA entered by the Company with the constortuim of banks led by SBI and repayable w.e.f October 2012 after a moratorium period of two years as per the laid down repayment schedule. Interest payable at certain % mark up above the Base rate and to be reset every 2 years.

Term loan from Others

Loan represents working capital funding by Corporate entities and group companies carrying interest rate ranging between 7% to 15% and repayable over a period of 2 to 3 years based on individual agreements entered with the parties. In certain cases there are no stipulation fixed for repayment.

d Terms of repayment of term loans and others

(i) Secured Loans from Banks

Cash credit facilities from banks repayable on demand, devolved letters of credit/guarantees and short term loan facility repayable in 6 months from the date of availment, which carry an interest rate of certain % mark up above the base rate at monthly rests.

(ii) Secured Loans from others

Second priority on mortgage of aircraft repayable on demand and carries an interest rate of 13%.

(iii) Unsecured Loans from Banks

Carries an interest rate of 11% and repayable on demand.

(iv) Unsecured Loans from others

Loan represents working capital funding by Corporate entities and group companies carrying interest rate ranging between 11% to 18% and repayable over a period of 2 to 3 years based on individual agreements entered with the parties.

Additional information:

In respect of following amounts there are repatriation restrictions:

* Includes Cash of Rs.2.87 Lacs (March 31, 2011 - Rs. 2.87 Lacs) on which restriction is placed by the High Court Of Karnataka.

Particulars As at As at March 31, 2012 March 31, 2011 Rs. In Lacs Rs. In Lacs

2 Contingent liabilities and Commitments: (to the extent not provided for)

a) Contingent Liabilities:

i) Claims against the Company 22,514.09 21,923.74 not acknowledged as debts

ii) Guarantees/ Letters of credit 65,952.82 128,636.99 given by banks on behalf of the Company

iii) Demands raised by Income Tax 1,393.42 1,399.71 authorities under appeal

iv) Demands and show cause 36,905.61 23,392.50 notices raised by service tax authorities

v) Show cause notices raised by - 14.37 entry tax authorities

vi) Lease rentals payable in respect 27,765.96 16,521.15* of assets taken on operating lease in the event of the Company not meeting certain contractual obligations

vii) Redelivery and other costs in Not Not respect of assets taken on ascertainable ascertainable operating lease at the end of the lease period

viii) Amounts payable, if any for Not Not breach of contractual ascertainable ascertainable obligations

ix) Liability for deduction of tax 35,401.55 21,178.55* at source on lease payments in respect of aircrafts and engines, where agreements were entered into with lessors on or before March 31, 2007 (excluding interest)

Remarks

Pertains to litigations filed against the Company which are pending with various authorities / arbitration, including National Consumer Disputes Redressal Commission, Consumers' Disputes Forums, Courts, Civil Court and invoices / claims of suppliers and service providers not accepted by the Company.

Pertains to guarantees and letters of credit given / issued by banks to Airport Authorities, lessors, suppliers of spares, stores & components and others.

An aggregate sum of Rs. 270.95 lacs paid has been included under 'Loans and Advances'.

The Company has preferred /furnished appeals/objections /is in the process of replying. Amount indicated does not include any demands that may be raised for other years, based on the stand taken by tax authorities in orders passed/show cause notices issued.

The Company has furnished objections.

The Company has taken certain assets from a lessor on operating lease. The lessor has undertaken to waive the lease rentals in the event the Company meets certain contractual obligations. The Company has requested for extension of time to meet certain obligations. The Company is confident that its request for extention of time will be accepted and that it will meet the obligations within the extended time.

In respect of operating leases, the Company is required to return the aircrafts as per prescribed terms. However, the lease periods are extendable for a longer period and considering on going maintenance of aircrafts, a reliable estimate cannot be made of the redelivery costs.

(a) Financial claims, if any, in respect of certain lease agreements terminated have not been received. Liability in this respect, if any, is not ascertainable.

(b) Certain creditors have claimed interest for late payment of dues. The Company is negotiating with these parties to waive such interest. The Company is confident that its request will be accepted and accordingly no provision is made for the same.

a) The Company has filed applications under section 10(15A) of the Income Tax Act, 1961 with the Central Board of Direct Taxes (CBDT) seeking exemption from deduction of tax, which are pending. These are being followed up by the Company.

b) In respect of agreements involving tax of Rs.9,730.67 Lacs up to March 31, 2011, applications made by the Company have been rejected. In respect of certain agreements, the Company has filed writs before the Delhi High Court. In respect of others, the Company will do so shortly.

* Recast

The Company has entered into agreements for purchase of aircrafts / engines under which the Company has commitments to purchase aircrafts / engines over a period stipulated in the agreements. Such agreements involve complex pricing arrangements wherein the Company receives discounts / credits on such purchases, which are based on the commitments to purchase, which the Company is confident to fulfil currently. Accordingly, amount of contingent liability, if any, as at the balance sheet date is not ascertainable.

In addition to the above, there are certain arbitration proceedings with customers / suppliers / contractors, in respect of which claims are currently not ascertainable.

The management believes, based on internal assessment and / or legal advice, that the probability of an ultimate adverse decision and outflow of resources of the Company is not probable and accordingly, no provision for the same is considered necessary.

3 (a) Buildings constructed at a cost of Rs. 88.74 Lacs are on land rented from the State Government, for which lease has been transferred to Deccan Charters Limited (DCL). Such rental agreement is renewable on an annual basis. The Company has in turn entered into a rental arrangement with DCL.

(b) Buildings constructed at a cost of Rs. 865.86 Lacs are on land belonging to the Airport Authority of India. Such rental agreements are renewable on a periodical basis.

An aircraft wise schedule of interest capitalized is under preparation and review. The Company is in the process of renegotiating the delivery terms of aircrafts with the relevant manufacturers. Any amounts to be decapitalized consequent to temporary suspension of work will be accounted after such renegotiation.

(b) Capital advances includes Rs. 2,402.51 lacs paid for purchase of a flight simulator. The Company is to pay the balance consideration and take delivery of the asset. The Company is exploring various options to fund the balance consideration payable. Management is confident that it will be in a position to fund the balance consideration & take delivery of the flight simulator. Accordingly, the said amount is considered good of recovery.

4 Employee Stock Option Plan [ESOP]

On March 16, 2005, the shareholders of the Company approved an employee stock option plan [ESOP 2005]. Further on December 21, 2005, the Board of Directors approved the ESOP 2006 scheme, which will govern issuance of options on or after January 1, 2006. Options issued under ESOP 2005 would continue to be governed under ESOP 2005. The shareholders have approved the issuance of 8,181,779 options in aggregate subject to a maximum of 10% of the aggregate number of issued and outstanding equity shares (calculated on an as converted basis), under both the options put together.

The Company has not issued any options during the year. Accordingly, the assumptions used in determination of the fair value of the Company's stock options for pro forma net loss per share disclosures using the Black-Scholes option-pricing model have not been furnished.

The Board of Directors of the Company are yet to formulate the stock option plan to the employees of the commercial airline division of KTASL taken over by the Company, pursuant to clause 11.1 of the Scheme.

* * UBIPL

# KFIL

@ KTASL

## UBSN Limited

% Bangalore Beverages Limited

$ conversion of interest & other dues payable as loan of Rs. 9,239.00 Lacs and Rs. 2,370.00 Lacs respectively.

$$ Dr. Vjay Mallya

& Excludes amortization of amounts paid in prior years of Rs. 221.69 Lacs

A Entitled to free use of Company car & telephone. Excludes accrued leave encashment and gratuity since the same have been recognized for the Company as a whole and cannot be determined at an employee level.

NA: Not applicable

In addition the Company has derived revenue from certain related parties from sale of tickets / cargo space in the normal course of business. These have not been quantified & shown separately.

b Rs. 2,678.50 lacs representing commission for the period from January 1, 2011 to March 31, 2011 earlier accrued as payable in the books of account to the guarantors for issuing guarantees at the request of the Company to its banker's / others has been withdrawn pursuant to directives of the consortium bankers pursuant to the Reserve Bank of India's Guidelines. Further, for the same reason, no provision has been made in the books of account for commission payable in respect of guarantees issued by the guarantors to the Company's bankers / others for the year, estimated at Rs.11,093.80 lacs. The Company has communicated the matter to the concerned guarantors and their response is awaited.

5 Leases and Hire Purchase

The Company has entered into operating and finance lease agreements. Disclosures required under AS 19 on "Leases" is as given below:

(a) Operating leases

Operating lease arrangements comprise of leases of aircraft, helicopters, spare engines and office premises. The salient features of such lease agreements are as follows:

1) Lease periods range up to twelve years and are in certain cases non-cancellable.

2) Lease rentals are usually fixed over the term of the lease while some arrangements are subject to adjustments linked to the Libor rates movements.

3) The Company also has agreements for maintenance and lease of stores and spares for such aircrafts for which fixed and variable rentals are paid. Variable rentals are paid on a pre determined rate payable on the basis of actual flying hours / cycles. Such variable rentals are subject to annual escalations as stipulated in the agreements. However, the Company is eligible to claim reimbursement of maintenance costs to the extent eligible under the agreements.

4) The Company does not have an option to buy the aircraft or helicopters and spare engines or to renew the leases.

5) In case of default by the Company, in addition to repossession of the aircraft, penalties are stipulated in the agreements.

6) The Company is required to deposit a commitment fee and a security deposit with the lessor or provide a letter of credit for such amounts.

In addition to the above, the Company has entered into agreements to lease aircrafts / engines in respect of which the aircrafts / engines are pending delivery / the lease was yet to commence as at March 31, 2012. The above table of minimum lease payments does not include amounts that may become payable in respect of leases yet to commence as at March 31, 2012.

Salient features of Finance Lease Agreement (Aircraft):

1) Monthly aircraft lease rentals are paid in the form of fixed rentals.

2) The Company is responsible for keeping the aircraft airworthy in all respects and in good condition and insuring the same throughout the lease period.

3) The Company has an option to purchase the aircraft either during the term of the lease on payment of the outstanding principal amount or at the end of the lease term on payment of a nominal option price.

4) In the event of default, the Lessee is responsible for payment of all costs of the Owner including financing costs, and other associated costs. Further, a right of repossession is available to the Owner / Lessor.

In addition, the Company has entered into cancellable leasing arrangements for office and residential premises which are renewable at mutual consent. Lease rentals of Rs.4,100.03 lacs (Previous year - Rs.4,854.44 Lacs) have been included under the head "Operating and Other Expenses - Rent" in the Statement of Profit and Loss.

The value of assets and liabilities, capital expenditure incurred during the year and depreciation on fixed assets segment wise cannot be segregated and identified to any reportable segment.

Note: All data in note 38(a) is as certified by management, since part of the data is drawn from non-financial records.

(b) Business segments

The Company operates in a single business segment, i.e. of providing scheduled and unscheduled air transportation services. Accordingly, no separate segment disclosures for business segments are required to be given.

6 Deferred tax asset on unabsorbed depreciation and business losses has been recognized on the basis of business plan prepared by the management, which takes into account certain future receivables arising out of contractual obligations. The management is of the opinion that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which the deferred tax asset can be realized.

7 Provisions

In accordance with Accounting Standard - 29 'Provisions, Contingent Liabilities and Contingent Assets', following is the movement in provision towards cost for frequent flyer program.

(a) Frequent Flyer Program:

The Company has a Frequent Flyer Program (King Club), wherein passengers who fly frequently are entitled to accumulate miles to their credit. Passengers are eligible to redeem such miles in the form of tickets, either on the Company or its partners' airlines. The cost of allowing free travel to members is accounted considering the members' accumulated mileage on an incremental basis. However, in the light of inadequate historical data, the Company has not factored costs that would be incurred by it while estimating provisions required, in case eligible passengers redeem such miles for services/tickets of partners. The movement in the provision towards cost for frequent flyer program during the year is as under:

(b) Contribution to defined contribution plans

Contribution to provident fund Rs.673.66 Lacs (Previous year - Rs. 641.76* Lacs).

Contribution to social security schemes Rs.214.71 Lacs (Previous year - Rs. 200.01 Lacs).

* Recast

8 The Company is not aware of the registration status of its suppliers registration under the MSME Act, 2006 ("Micro Small and Medium Enterprises Development Act 2006"). Accordingly, information relating to outstanding balances due have not been disclosed as it is not determinable. Similarly, interest payable if any, has not been computed and provided for.

9 Accounts of certain creditors, debtors, IATA, loans & advances, advances on capital account, bank accounts, passenger service fees and charges payable to airport operators, service tax payable (including under reverse mechanism), input service tax credit recognized are subject to review / reconciliation / confirmation. Adjustments, if any will be made on completion of such review / reconciliation / receipt of confirmations/identification of doubtful and bad debts/advances.

10 The Company has incurred substantial losses and its net worth has been eroded. The Company has initiated several cost savings schemes/ route rationalization programs and has prematurely terminated certain contracts etc. The Company has also drawn up plans for capital raising and will request banks at an appropriate time for debt restructuring. These plans are material to it continuing as a going concern. Since the Company is confident of raising capital and rescheduling its debt and in the light of continued group support, the financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities.

11 The Company's centralized ticket reservation system (CRS) does not support capture of unearned revenue. Accordingly, such unearned revenue has been estimated by management by multiplying the estimated aggregate number of unflown tickets as on the reporting date by an overall average estimated ticket value. Management is taking continuing steps to streamline the process of determination of unearned revenue.

12 The Company's Cargo Revenue Management (CRM) system is yet to stabilize. Mistakes noticed in revenue recognized, sundry debtors and other relevant accounts have been corrected to the extent identified. The Company is of the view that any unadjusted differences will not be material. Management is taking steps to further streamline the processes and stabilize the system.

13 Accounting of costs on major repairs and maintenance of its engines:

During the current and immediately preceeding previous two years, the Company has adopted the exposure draft on Accounting Standard - 10 (Revised) 'Tangible Fixed Assets' which allows costs on major repairs and maintenance incurred to be amortized over the incremental life of the asset. The Company has extended the same treatment to costs and maintenance on engines pertaining to aircrafts acquired on operating lease. Such expenditure has been included in 'Lease hold improvements- Aircrafts' vide schedule of fixed assets. This accounting policy has been confirmed by an independent expert and in the opinion of the management, has resulted in a fair depiction of the working results and the state of affairs of the Company. But for such accounting practice, the loss before & after tax for the year would have been higher by Rs. 59.33 Lacs and Rs. 40.08 Lacs respectively.

14 Use fees payable by the Company in respect of certain assets taken on operating lease aggregating to Rs. 6,033.53 Lacs (previous year Rs 5,576.45 lacs) have, in accordance with the Company's understanding, been treated as maintenance reserves. In terms of the Company's accounting policy, these fees are initially included under Loans and Advances and are expensed out to the Statement of Profit and Loss at the time of incurrence of major expenditure /termination of agreements. The Company is taking steps to formalize this understanding with the relevant lessor.

15 The Company has not prepared consolidated financial statements (CFS) as required by the AS 21, since the transactions of subsidiary during the year/its assets and liabilities were not material.

16 Fixed assets were physically verified by the management during the previous year. Pending completion of reconciliation, discrepancies, if any, have not been finalized and adjusted. As a matter of abundant caution, provision of Rs. 500 lacs has been made for the possible effect of any discrepancies.

17 Rs. 10,858 lacs representing withholding tax earlier accrued as payable in the books of account on amounts paid/ provided as payable to certain non residents/interest thereon has been withdrawn based on professional advice. Consequently, no provision is considered necessary for withholding tax for the year 2011-12 on amounts paid/ provided as payable to certain non residents/interest thereon. The Company is in the process of completing a part of the pending documentation and complying with the requisite formalities under the Income Tax Act, 1961.

18 In respect of certain aircrafts taken on finance lease (book value as at March 31, 2012 Rs.24,626.96 lacs) (finance lease obligation outstanding as at March 31, 2012 Rs.21,706.41 lacs), the concerned lessors have terminated the relevant lease agreements in the light of events of default by the Company and the aircrafts stand deregistered from its name in April 2012. The Company is in the process of negotiation with the concerned lessors to purchase the aircrafts. Pending finalization, no adjustments have been made in the financial statements.

19 Claims for duty free credits (amount recognized as at March 31, 2012 and included under 'Other current assets' Rs.12,740.56 lacs) are yet to be lodged with the relevant authorities. The Company will take necessary action in the matter.

20 Segregation between current and non current liabilities /assets as at end of current and previous reporting periods have been done on an estimated basis in certain cases due to non availability of precise data.

21 The Company has terminated certain agreements entered into with parties as a cost rationalisation measure. The Company is in discussion with the relevant parties to finalise the amount of compensation and other costs, if any payable by it. The same will be accounted on final determination of the matter. In the opinion of the management, this amount is not likely to be material.

22 Loans and advances include Rs 2,064.14 lacs ( Previous year 1,489.87 lacs) representing sums recovered by certain creditors on account of Company's delay in payment of tax deducted at source. The Company is in discussion with the relevant parties, to resolve the matter. In the opinion of the management, no adjustment are required to the financial statements on this account.

23 Previous year's figures have been regrouped / reclassified wherever necessary to conform to the current year's presentation.


Mar 31, 2010

1. Background

Kingfisher Airlines Limited (formerly known as Deccan Aviation Limited) ("the Company") is engaged in rendering scheduled and unscheduled aircraft passenger and cargo services, including charter services. The Company was incorporated on June 15, 1995 as a private limited company and converted itself into a public limited company on January 31, 2005. Consequently, the Company changed its name from Deccan Aviation Private Limited to Deccan Aviation Limited. On June 12, 2006, the Companys shares were listed on the Bombay Stock Exchange Limited and the National Stock Exchange Limited, pursuant to the Companys initial public offer of shares. The scheduled airline business of Kingfisher Training and Aviation Services Limited ("KTASL") (previously known as Kingfisher Airlines Limited) demerged on a going concern basis with the Company, with effect from April 1, 2008 as the demerger appointed date, vide scheme of arrangement approved by the honourable High Court of Karnataka vide its order dated June 16, 2008 under sections 391 to 394 of the Companies Act, 1956 ("Scheme"). The helicopter charter division of the Company was also hived off pursuant to the Scheme. The Company changed its name from Deccan Aviation Limited to Kingfisher Airlines Limited, with effect from September 5, 2008.

2. Demerger of the commercial airline division of KTASL

a) Pending payment of stamp duty, order of the Karnataka High Court in form 42 of the Companies (Court) Rules, 1949 in respect of the Scheme is yet to be passed.

b) Documentation in respect of transfer of certain assets and liabilities taken over pursuant to Scheme, to the name of the Company are pending. The Company is in the process of transfer of charges created by KTASL to its name in respect of securities granted for loans so taken over by the Company, in consultation with the Registrar of companies.

3. Share Capital

During the year, the Company has allotted Nil (year ended March 31, 2009 - 77,030) Equity Shares under the Employee Stock Option Plan.

4. Commitments and contingent liabilities not provided for:

(Rs. in Lacs)

Particulars As at As at Remarks March 31, 2010 March 31, 2009

a. Estimated 2,267,640.57 2,675,229.60 Pertains to amount of acquisition contracts of aircrafts remaining to & other be executed capital on capital assets in account and future. not provided for (net of advances) & as certified by management

b. Guarantees / 71,331.52 74,435.97 Pertains to letters of guarantees credit given and letters by banks on of credit behalf of the given / Company issued by banks to Airport Authorities, lessors, suppliers of spares, stores & components and others.

c. Claims against 33,346.51 40,550.16 Pertains to the Company litigations not filed against acknowledged the Company as debts which are (including pending civil and with various customer authorities / suits) in the arbitration, normal course including of business National (to the extent Consumer ascertainable) Disputes Redressal Commission, Consumers Disputes Forums, Courts, Civil Court and invoices / claims of suppliers and service providers not accepted by the Company. The Company has a claim against one of the parties to an extent of Rs.10,100.00 Lacs (as at March 31, 2009 Rs.10,100.00 Lacs).

d. Demands 1,336.84 2,721.55 Pertains to raised by tax disputes with authorities tax against which authorities. the Company The Company has preferred has filed appeals necessary appeals.

e. Claims by Nil 21,316.38 - ex-lessors not acknowledged as debt

f. Redelivery and other costs in respect of Not Not ln respect of assets taken ascertainable ascertainable operating on operating leases, the lease at the Company is required to return the end of the lease period aircrafts as per prescribed terms.However, the lease periods are extendable for a longer period and considering on going maintenance of aircrafts, a reliable estimate cannot be made of the redelivery costs.

g. (Amounts Not Not - payable, if ascertainable ascertainable any for breach of contractual obligations

h. Liability for 8,644.15 5,808.34 The Company deduction of has filed tax at source applications on lease under section payments in 10(15A) of respect of the Income aircrafts Tax Act, 1961 and engines, with the where Central Board agreements of Direct were entered Taxes seeking into with exemption lessors on from deduction or before of tax, which March 31, are pending. 2007 These are (excluding being followed interest) up by the Company. In respect of agreements involving tax of Rs.3,614.10 Lacs upto March 31,2010, applications made by the Company have been rejected. The Company has made represent ations to reconsider the matter.

i. True up 2,608.87 1,244.19 Based on legal charges advice, the payable Company to a service has disputed provider the amount (difference of the said between charges guaranteed payable as volume of computed by business and the service actual) provider and has sought refund of amounts paid, wherever applicable. The Company has also contended that the relief agreement executed is not binding. Amount paid so far has been included in loans and advances. Such claim of the Company has been disputed by the concerned service provider. The Company is in the process of examining options open to it in the matter.

j. Lease rentals 4,596.57 Nil Certain claimed by a aircraft vendor in engines respect of supplied by spare engines a vendor supplied not failed acknowledged prematurely as debt and the Company has incurred substantial amounts on repair and overhaul of the same. Pending repair and overhaul of the said engines, the Company has taken certain spare engines on lease from the said vendor. The Company has preferred claims against the said vendor and has requested the party to conclude arrangements to settle matter at zero cost to it. The party has submitted, without prejudice, a term sheet for settlement of the matter, which envisages waiver of the lease rentals payable.



The Company has entered into agreements for purchase of aircrafts / engines under which the Company has commitments to purchase aircrafts / engines over a period stipulated in the agreements. Such agreements involve complex pricing arrangements where in the Company receives discounts / credits on such purchases, which are based on the commitments to purchase, which the Company is confident to fulfill currently. Accordingly, amount of contingent liability, if any, as at the balance sheet date is not ascertainable.

In addition to the above, there are certain arbitration proceedings with customers / suppliers / contractors, in respect of which claims are currently not ascertainable.

The management believes, based on internal assessment and / or legal advice, that the probability of an ultimate adverse decision and outflow of resources of the Company is not probable and accordingly, no provision for the same is considered necessary.

5. a) Buildings constructed at a cost of Rs. 88.74 Lacs are on land rented from the State Government, for which lease has been transferred to Deccan Charters Limited (DCL). Such rental agreement is renewable on an annual basis. The Company is in the process of entering into an appropriate arrangement with DCL.

b) Buildings constructed at a cost of Rs. 865.86 Lacs are on land belonging to the Airport Authority of India. Such rental agreements are renewable on a periodical basis.

6. Employee Stock Option Plan [ESOP]

On March 16, 2005, the shareholders of the Company approved an employee stock option plan [ESOP 2005]. Further on December 21, 2005,the Board of Directors approved the ESOP 2006 scheme, which will govern issuance of options on or after January 1, 2006. Options issued under ESOP 2005 would continue to be governed under ESOP 2005. The shareholders have approved the issuance of 8,181,779 options in aggregate subject to a maximum of 10% of the aggregate number of issued and outstanding equity shares (calculated on an os converted basis), under both the options put together.

The weighted average contractual remaining life of the options is 6.69 years as at March 31, 2010.

The Board of Directors of the Company are yet to formulate the stock option plan to the employees of the commercial airline division of KTASL taken over by the Company, pursuant to clause 11.1 of the Scheme.

Remuneration paid to directors is disclosed in the note 6 above. Salaries paid during the year 2009-2010 Rs. 9.02 Lacs (Previous year- Rs. 15.15 Lacs), to a relative of a director of the Company.

Some of the key managerial personnel have given personal guarantees. In addition to key managerial personnel, their relatives have offered collateral securities to banks and financial institutions against the loans taken by the Company from such banks and financial institutions.

In addition the Company has derived revenue from certain related parties from sale of tickets / cargo space in the normal course of business. These have not been quantified & shown separately.

List of Fellow Associates*

City Properties Maintenance Company Bangalore Limited

DCL Holdings Private Limited

Inversiones Mirabel, S.A

Kingfisher Aviation Training Limited (formerly Kingfisher Training Academy Limited)

Kingfisher Training and Aviation Services Limited (formerly Kingfisher Airlines Limited)

Kingfisher Finvest India Limited (formerly Kingfisher Radio Limited)

Mangalore Chemicals & Fertilizer Limited

McDowell Holdings Limited

Mendocino Brewing Co. Inc, U.S.A

Pixray India Limited

Releta Brewing Company LLC

Rigby International Corp

Rubic Technologies Inc.

UB Electronic Instruments Limited

UB Engineering Limited

UB Infrastructure Projects Limited

UB International Trading Limited

UB Overseas Limited

UBHL(BVI) Limited

UBSN Limited

United Breweries International (UK) Limited

United Breweries of America Inc, Delaware

United Spirits Limited

WIE Engineering Limited (Under Liquidation)

* The above parties do not necessarily fall within the meaning of "Related Parties" in terms of Accounting Standard -18.

7. Leases and Hire Purchase

a) The Company has entered into operating and finance lease agreements. Disclosures required under AS 19 on "Leases" is as given below:

Operating leases

Operating lease arrangements comprise of leases of aircraft, helicopters and spare engines. The salient features of such lease agreements are as follows:

* Lease periods range up to twelve years and are usually non-cancelable.

* Lease rentals are usually fixed over the term of the lease while some arrangements are subject to adjustments linked to the Libor rates movements.

* The Company also has agreements for maintenance and lease of stores and spares for such aircrafts for which fixed and variable rentals are paid. Variable rentals are paid on a pre determined rate payable on the basis of actual flying hours / cycles. Such variable rentals are subject to annual escalations as stipulated in the agreements. However, the Company is eligible to claim reimbursement of maintenance costs to the extent eligible under the agreements.

* The Company does not have an option to buy the aircraft or helicopters and spare engines or to renew the leases.

* In case of default by the Company, in addition to repossession of the aircraft, penalties are stipulated in the agreements.

* The Company is required to deposit a commitment fee and a security deposit with the lessor or provide a letter of credit for such amounts.

In addition to the above, the Company has entered into agreements to lease aircrafts / engines in respect of which the aircrafts / engines are pending delivery / the lease was yet to commence as at March 31, 2010. The above table of minimum lease payments does not include amounts that may become payable in respect of leases yet to commence as at March 31, 2010.

Salient features of Finance Lease Agreement (Aircraft):

* Monthly aircraft lease rentals are paid in the form of fixed rentals.

* The Company is responsible for keeping the aircraft airworthy in all respects and in good condition and insuring the same throughout the lease period.

* The Company has an option to purchase the aircraft either during the term of the lease on payment of the outstanding principal amount or at the end of the lease term on payment of a nominal option price.

* In the event of default, the Lessee is responsible for payment of all costs of the Owner including financing costs, and other associated costs. Further, a right of repossession is available to the Owner / Lessor.

b) In addition, the Company has entered into cancelable leasing arrangements for office and residential premises which are renewable at mutual consent. Lease rentals of Rs. 5,477.55 Lacs (Previous year - Rs. 5,465.43 Lacs) have been included under the head "Operating and Other Expenses - Rent" under Schedule 18 in the Profit and Loss Account.

8. Segment disclosures

a) Geographical segments - Considering the internal reporting framework, the Company has considered geographical segments as the primary segments. Such segments consist of domestic air transportation within India and international air transportation outside India.

b) Business segments

The Company operates in a single business segment, i.e. of providing scheduled and unscheduled air transportation services. Accordingly, no separate segment disclosures for business segments are required to be given.

Deferred tax asset on unabsorbed depreciation and business losses has been recognized on the basis of business plan prepared by the management, which takes into account certain future receivables arising out of contractual obligations. The management is of the opinion that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which the deferred tax asset can be realized.

9. Provisions

In accordance with Accounting Standard 29 Provisions, Contingent Liabilities and Contingent Assets, following is the movement in provision towards cost for frequent flyer program.

10. Employee Benefits:

b) Contribution to defined contribution plans

Contribution to provident fund Rs. 602.13 Lacs (Previous year - Rs. 647.97 Lacs).

Contribution to social security schemes Rs. 198.23 Lacs (Previous year - Rs. 157.79 Lacs).

11. The Company has initiated the process of obtaining confirmation from suppliers regarding the registration under the MSME Act, 2006 ("Micro Small and Medium Enterprises Development Act 2006"). The suppliers are not registered wherever the confirmations are received and in other cases, the Company is not aware of their registration status and hence information relating to outstanding balance or interest due is not disclosed as it is not determinable.

12. Accounts of certain creditors, debtors, loans & advances, passenger service fees and user development charges payable are subject to review / reconciliation / confirmation. Adjustments, if any will be made on completion of such review / reconciliation / receipt of confirmations.

13. The Company has incurred substantial losses and its net worth has been eroded. However, having regard to improved passenger and cargo load in recent months, improvement in economic sentiment and business prospects, cost savings schemes being implemented, premature termination of certain lease / purchase contracts, recently launched international routes, route rationalization programs, request made to banks to refix payment obligations and convert short term loans to long term loans, request made to the Reserve Bank of India by banks to provide a onetime dispensation from the prudential norms on income recognition, asset classification and provisioning on such refixing / conversion, group support, capital raising plans etc, the financial statements have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities. The Company has availed the services of an internationally renowned expert in aviation to assist it in the turnaround operations.

14. The Companys Centralized Ticket Reservation System (CRS) does not support capture of unearned revenue on a comprehensive basis. Accordingly, such unearned revenue has been computed by the management based on a statement of unflown revenue as at March 31, 2010 generated by the service provider, which has been corroborated broadly by multiplying the estimated aggregate number of unflown tickets as on that date by the average estimated ticket value prevailing in each of the months to which such unflown tickets relate to. In the opinion of the management, the effect of mistakes observed in the said statement is not material. Management is taking continuing steps to streamline the process of determination. of unearned revenue.

15. The Companys Cargo Revenue Management (CRM) system is yet to stabilize. Mistakes noticed have been corrected to the extent identified. The Company is of the view that any unadjusted differences will not be material. Management is taking steps to further streamline the processes and stabilize the system.

16. Change in the method of accounting costs on major repairs and maintenance of its engines:

During the year, the Company has adopted the exposure draft on Accounting Standard - 10 (Revised) Tangible Fixed Assets which allows such costs on major repairs and maintenance incurred to be amortized over the incremental life of the asset. The Company has extended the same treatment to costs and maintenance for engines pertaining to aircrafts acquired on operating lease. Earlier, the Company used to charge off the cost of such repairs and maintenance of its engines to the Profit and Loss Account as and when incurred. Had the Company not changed its method of accounting, the loss before and after tax for the year would have been higher by Rs. 16,390.25 Lacs and Rs. 10,945.82 Lacs respectively. This revised accounting policy has been confirmed by an independent expert and in the opinion of the management, this accounting treatment has resulted in a fair depiction of the working results and the state of the affairs ofthe Company.

17. The Company has not prepared consolidated financial statements (CFS) as required by the AS 21, since the transactions of subsidiary during the year/its assets and liabilities were not material.

18. Change in the method of accounting foreign exchange differences in respect of long term monetary assets and liabilities

a) Till the previous year, the Company complied with the procedures prescribed in Accounting Standard 11 in respect of foreign exchange differences by recognizing the same as income or expense in the period in which they arose. During the year, the Company has changed its accounting policy with regard to the treatment of foreign exchange differences in respect of long term monetary assets and liabilities by following the provisions prescribed in notification (No. G.S.R. 225(E), dated March 31, 2009) issued by the Ministry of Corporate Affairs. The Company has been legally advised that it is open to it to exercise the option provided by the said notification, during the current year. The underlying principle behind the issuance of the aforesaid notification is to allow recognition of an appropriate charge in financial statements for foreign exchange differences, by eliminating excessive fluctuation differences that arise in respect of long term monetary assets and liabilities.

b) Unrealized foreign exchange differences in respect of long term monetary liabilities on account of depreciable assets as at March 31, 2010 recognized in the Profit and Loss Account during the year ended March 31, 2009 has been adjusted in the cost of the relevant asset and the opening debit balance in the profit and loss account of the current year. Depreciation on the same has been prospectively adjusted over a period of three years.

c) Unrealized foreign exchange differences in respect of long term monetary assets and liabilities on account of non depreciable assets as at March 31, 2010 and recognized in the Profit and Loss Account during the year ended March 31, 2009 (net of amortization for the year 2008 - 2009) has been transferred to a Foreign Currency Monetary Items Translation Difference Account by adjusting the same against the opening debit balance in the profit and loss account of the current year.

d) No adjustments have been made in respect of foreign exchange differences in respect of long term monetary assets and liabilities as at March 31, 2008 in the absence of ready data.

e) The amount amortized to the Profit and Loss Account of the current year on account of Foreign Currency Monetary Items Translation Differences is Rs. 2,798.28 Lacs.

f) The amount remaining to be amortized in the Foreign Currency Monetary Items Translation Difference Account as at March 31, 2010 is Rs. 2,798.27 Lacs Debit.

g) But for the said change, the loss for the year before and after tax expense would have been more by Rs. 11.301.76 Lacs and Rs. 7,547.60 Lacs respectively.

19. Previous years figures have been regrouped / reclassified wherever necessary to conform to the current years presentation.

 
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