Directors Report of Kingfisher Airlines Ltd.

Mar 31, 2013

To The Members,

The Directors present the 18th Annual Report along with the Audited Accounts of your Company for the year ended March 31, 2013.

Operations

Your Company''s operations during the year ended March 31, 2013 have resulted in:

(Rs. in million) Year ended Year ended March March 31, 2013 31, 2012

Gross Income 6,834.61 58,239.08

Earnings before financial (8,294.07) (259.90) charges, lease rentals, depreciation & amortization and taxes (EBITDAR)

Less:

Depreciation & Amortization 2,387.82 3,418.66

Lease Rentals 7,100.81 10,584.54

Financial charges 14,361.55 12,763.35

Profit / (Loss) before taxes (32,144.25) (27,026.45)

Provision for taxes 11,180.85 (including FBT)

Net Profit / (Loss) from (32,144.25) (15,845.60) ordinary activities after tax

Exceptional Item 10,866.95 7,434.48

Net Profit /(Loss) after tax (43,011.20) (23,280.08)

Operations

During the year under review, in view of the difficult operating environment as well as the engine problems, your Company''s airline operations and finances were severely affected. United Breweries (Holdings) Limited has filed a suit in the City Civil Court at Bangalore against International Aero Engines AG, its shareholders / joint venture partners and your Company being O.S. No. 6406 of 2012, alleging that the IAE V-2500 A5 engines supplied to your Company were inherently defective, both in design and manufacture, and has claimed damages of USD 210,400,000 plus Rs. 1621,000,000 (aggregating to approximately Rs.14,771 million as per the current exchange rate of approx Rs. 62.5 per US Dollar) and has reserved liability to claim further damages. No relief is sought against your Company in the said suit. Your Company discontinued international operations with effect from April 1, 2012. Thereafter for the reasons mentioned above, coupled with coercive action by the tax authorities who attached your Company''s accounts as well as the sources of revenue to your Company, your Company defaulted in its payments to several creditors and also delayed payment of salaries to its employees. Certain sections of employees resorted to sudden absence from work periodically, making it impossible for your Company to maintain its schedule integrity. The Director General of Civil Aviation ("DGCA") suspended your Company''s Scheduled Air Operator''s Permit ("SOP") on October 5,

2012 and the SOP expired by efflux of time on December 31, 2012. As per civil aviation regulations, your Compnay has a period of 2 years to renew the SOP. Your Company has submitted its application for renewing your Company''s SOP as also a revival plan for renewing the SOP and reviving the operations of your Company in a phased manner, which is under consideration of DGCA.

The revival plan has also been shared with the Lenders to your Company who however have been generally unsupportive of your Company''s efforts to revive the airline causing further hardship to your Company. Nevertheless, your Company diligently continues its efforts to bring in fresh infusion of funds into your Company and discussions with various prospective investors are underway, despite the persistent negative media statements being made by the Lenders about your Company as well as the hostile recovery action initiated by the Lenders proving to be a major concern for these investors.

United Breweries (Holdings) Limited ("UBHL"), Dr.Vijay Mallya and Kingfisher Finvest (India) Limited have filed a suit in the Hon''ble Bombay High Court, being Suit No. 311 of 2013 ("the Suit") against the consortium of bankers (Bombay Suit) who have advanced loans to your Company, inter alia, seeking the following reliefs:-

(a) For a declaration that the Corporate Guarantee dated 21st December, 2010 given by UBHL, the Personal Guarantee dated 21st December, 2010, given by Plaintiff 3 (Dr. Vijay Mallya), the Pledge Agreement dated 21st December, 2010, are void ab-initio and non-est;

(b) For a permanent order and injunction restraining the Defendants 1 to 18, their servants, agents or assigns, or any other person claiming by, through or under them or any of them, from acting upon, in furtherance or in any manner giving effect to the impugned Notices dated 16th March, 2013, or from taking any other or further steps to act upon or in furtherance of the Pledge Agreement dated 21st December, 2010, save and except in accordance with the procedure set out in clause 8.1 of the MDRA, issuing a notice thereunder;

(c) For an order and declaration that the transfer of 26,46,155 and 1,00,00,000 equity shares in USL and MCFL respectively held by Plaintiff 1 (UBHL), from the DP Account of Plaintiff 1 to the DP Account of Defendant 18, done pursuant to the impugned Notices is without the authority of law and void;

(d) That Defendants 1 to 18 be ordered and directed by a mandatory order of this Hon''ble Court to restore status quo ante for all acts, deeds and things done pursuant to the said impugned Notices;

(e) For a permanent order and injunction restraining the Defendants 1 to 18, their servants, agents or assigns, or any other person claiming by, through or under them or any of them, from acting upon or in furtherance of the Corporate Guarantee dated 21st December, 2010 given by UBHL, the Personal Guarantee dated 21st December, 2010, given by Plaintiff 3 (Dr. Vijay Mallya) and the Pledge Agreement dated 21st December, 2010;

(f) That an order and decree of damages of the sum of Rs. 3199.68 crores as set out in the Particulars of Claim be awarded to the Plaintiffs;

(g) Pending hearing and final disposal of the Suit, for a temporary order and injunction restraining the Defendants 1 to 18, their servants, agents or assigns, or any other persons claiming by, through or under them or any of them, from acting upon, in furtherance or in any manner giving effect to the impugned Notices dated 16th March, 2013, or from taking any other steps to act upon or in furtherance of the Pledge Agreement dated 21st December, 2010, save and except in accordance with the procedure set out in clause 8.1 of the MDRA, including issuing a notice thereunder;

(h) Pending hearing and final disposal of the Suit, for a temporary order and injunction restraining the Defendants 1 to 18, their servants, agents or assigns, or any other persons claiming by, through or under them or any of them, from acting upon or in furtherance of the Corporate Guarantee dated 21st December, 2010 given by UBHL, the Personal Guarantee dated 21st December, 2010, given by Plaintiff 3 (Dr. Vijay Mallya) and the Pledge Agreement dated 21st December, 2010.

Your Company is a party defendant to the Suit, but no reliefs are sought against your Company. The Plaintiffs in the Suit

moved an application in the Suit seeking ad-interim relief and pressed for a temporary order and injunction restraining the consortium of bankers, their servants, agents or assigns, or any other person claiming by, through or under them or any of them, from acting upon, in furtherance or in any manner giving effect to the impugned Notices dated March 16, 2013, or from taking any other or further steps to act upon or in furtherance of the pledge agreement, save and except in accordance with the procedure set out in clause 8.1 of the MDRA, including issuing of a notice thereunder. By an order dated April 2, 2013 the Hon''ble Bombay High Court declined the interim relief to the extent pressed for by the Plaintiffs at the aforesaid hearing. The consortium of banks have sold the shares pledged but the said sale of shares is still under challenge as the order passed by the Hon''ble Bombay High Court was at an ad-interim stage, and therefore still sub- judice. The Suit is pending before the Hon''ble Bombay High Court.

Your Company has also received recall notice dated April 2, 2013 from the State Bank of India ("Lender''s Agent"), calling upon your Company to forthwith pay the entire alleged principal and all accrued interest on and all other monies in respect of the various facilities aggregating to Rs. 6493.29 crores, failing which they would initiate steps for recovery.

Your Company also received Notice dated May 3, 2013, issued jointly by SBICAP Trustee Company Ltd. and State Bank of India as Lenders'' Agent to your Company purportedly under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI ACT"), calling upon your Company to discharge the alleged outstanding liability of Rs. 6,027.42 crores (Rupees Six Thousand Twenty Seven Crores and Forty Two Lacs only) together with interest from April 1, 2013 and all other incidental expenses, to the Lender Banks within 60 (sixty) days from the date of the Notice, failing which SBICAP Trustee Company Limited would exercise its rights under Section 13(4) of the SARFAESI Act with respect to the secured assets listed in Annexure 1 to the said Notice. United Breweries (Holdings) Limited and Dr. Vijay Mallya have also been served with similar notices as alleged Guarantors on behalf of your Company. Your Company has challenged the legality and validity of these notices and is in consultation with its legal advisers to take other steps as may be advised by the legal advisors to protect your Company''s interests.

Thereafter the Lenders have filed proceedings before the Debt Recovery Tribunal ("DRT") at Bangalore. Your Company is in the process of consulting its legal advisors to protect its interests in these proceedings.

Your Company''s immovable property viz Kingfisher House is subject matter of a Notice of Attachment from Service Tax authorities and Possession Notice by SBICAP Trustee Company Limited on behalf of the consortium of banks. Your Company is in the process of seeking legal advise in this regard.

In view of operating losses incurred during the year, your Directors do not recommend payment of any dividend.

Subsidiary

The statement of your Company''s interest in its only subsidiary, Vitae India Spirits Limited, as at March 31, 2013, prepared in accordance with the provisions of Section 212(3) of the Companies Act, 1956 is attached to the Balance Sheet.

Outlook

Your Company is confident that the persistent and committed efforts of the management to bring in fresh infusion of funds will be successful, provided that the Lenders show interest and commitment in reviving the operations of your Company instead of the current hostile and negative approach that is proving a major cause of concern to investors.

Capital

During the year under review, your Company''s Authorised Share Capital remained unchanged at Rs. 42,500,000,000/- comprising of 1,650,000,000 Equity Shares of Rs. 10/- each and 2,600,000,000 Preference Shares of Rs. 10/- each.

During the year under review, the Issued, Subscribed and Paid-up Share Capital of your Company has increased from Rs. 11,307,472,740/- divided into 577,647,274 Equity Shares of Rs. 10/- each and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs. 10/- each to Rs. 13,618,229,900/- divided into 808,722,990 Equity Shares of Rs. 10/- each and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs. 10/- each on account of the conversion of 50,956,985 8% Optionally Convertible Debentures of Rs. 100/- each into 231,075,716 equity shares of Rs. 10/- each.

Depository System

The trading in the equity shares of your Company is under compulsory dematerialization mode. As of date, equity shares representing 99.91% of the equity share capital are in dematerialized form. As the depository system offers numerous advantages, members are requested to take advantage of the same and avail of the facility of dematerialization of your Company''s shares.

Auditors'' Report

As regards the observations in point no. 1 of the Auditors'' Report, your 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. Your Company has extended the same treatment to costs incurred on major repairs and maintenance for engines pertaining to aircrafts acquired on Operating Lease.

As regards the observations in point no. 3 of the Auditors'' Report, the note numbers 34, 44, 46, 49, 52, 53 & 56 of Notes to Financial Statements are self explanatory.

As regards the observations in point no. 4 of the Auditors'' Report, your Company has come to the conclusion that no amount needs to be recognized in the financial statement for impairment loss based on information gathered, both internally as well as external sources, regarding the recoverable amount of assets.

As regards the observations in the Annexure to the Auditors'' Report, your Company has taken / is taking necessary steps to ensure improvement in certain procedures and also compliance with relevant laws.

Directors

Mr. Subhash R. Gupte, Director, retires by rotation and, being eligible, offers himself for re-appointment.

As informed to the Members in the last Annual Report, during the year under review, Mr. Manmohan Singh Kapur was appointed as an Additional Director with effect from April 24, 2012. He was appointed as a Director of your Company, liable to retire by rotation at the last Annual General Meeting of your Company, held on September 26, 2012.

The regulations of DGCA require that a person cannot be appointed as Director of an aviation company unless security clearance is obtained from the Government of India. Your Company had made applications for security clearance of the following persons for appointment as Independent Non-Executive Directors:

1. Mr. Shrikant Ruparel - who unfortunately passed away during the pendency of such application.

2. Mr. Subramaniam Santhanakrishnan who was nominated by State Bank of India in its capacity as the Lead Bank of the consortium of Lenders. However, during the pendency of such application, the Lenders suddenly commenced hostile enforcement action against your Company as mentioned hereinabove and rescinded the nomination of Mr. Subramaniam Santhanakrishnan.

3. Mr. Lalit Bhasin - whose application for security clearance is pending.

Your Company is in the process of identifying a few more reputed persons for nomination as Independent Directors subject to such regulatory clearances as may be required.

Auditors

M/s. B. K. Ramadhyani & Co., your Company''s Auditors have confirmed that they are eligible for re-appointment at the ensuing Annual General Meeting and it is proposed to re- appoint them and to fix their remuneration.

Listing of Shares of Your Company

All the equity shares of your Company are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The listing fee for the year 2013- 14 has been paid to these Stock Exchanges.

Corporate Governance

A report on Corporate Governance is annexed separately as part of this Report along with a certificate of compliance from a Company Secretary in Practice. Necessary requirements of obtaining certifications/ declarations in terms of Clause 49 have been complied with.

Management Discussion and Analysis

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Management Discussion and Analysis Report is annexed and forms an integral part of the Annual Report.

Human Resources

The information required to be provided in terms of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, have been included as an annexure to this Report.

Employee Stock Option Plan (ESOP)

Your Company had approved ESOP 2011 at the Annual General Meeting of your Company held on September 28, 2011. As on date, your Company has not granted any options under ESOP 2011.

ESOP 2005/06 have been discontinued effective September 28, 2011 and no further options have been granted in terms of ESOP 2006.

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars as prescribed under section 217(1)(e) of the Companies Act, 1956 and the rules framed there under are not applicable to your Company.

The relevant information relating to Foreign Exchange Earning and Outgo appears in the Note No. 31 (a) to (e) to the Financial Statements.

Directors'' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, in relation to the Financial Statements of your Company for the year ended March 31, 2013, the Board of Directors reports that:

- in the preparation of the Accounts for the year ended March 31, 2013, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- accounting policies have been selected and applied consistently and that the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at March 31, 2013 and of the Loss of your Company for the year ended March 31, 2013;

- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;

- the accounts for the year ended March 31, 2013, have been prepared on a going concern basis.

Thank You

Your Directors place on record their sincere appreciation for such of the stakeholders that have continued to support your Company.

For and on Behalf of the Board of Directors

Goa Dr. Vijay Mallya

August 14, 2013 Chairman & Managing Director

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Mar 31, 2012

The Directors present the 17th Annual Report along with the Audited Accounts of your Company for the year ended March 31, 2012.

Operations

Your Company's operations during the year ended March 31, 2012 have resulted in:

(Rs. in million)

Year ended Year ended March March 31, 2012 31, 2011

Gross Income 58,239.08 64,955.62

Earnings before financial 1,222.08 11,084.37 charges, lease rentals, depreciation & amortization and taxes (EBITDAR)

Less:

Depreciation & Amortization 3,418.66 2,410.38

Lease Rentals 8,684.52 9,839.96

Financial charges 12,763.35 13,129.40

Profit / (Loss) before taxes (23,644.45) (14,295.36)

Provision for taxes 11,180.85 4,933.85 (including FBT)

Net Profit / (Loss) from (12,463.60) (9,361.51) ordinary activities after tax

Exceptional Item 10,816.48 912.47

Net Profit / (Loss) after tax (23,280.08) (10,273.98)

Scheduled Airline Operations

During the year under review, your Company recorded a domestic market share of 15.6% and carried more than 10.5 million passengers across both domestic and international sectors. Fleet size of aircraft used in scheduled operations stood at 55 aircraft at year end. Despite significant downsizing measures in the second half of the year, your Company operated over 110,000 flights in the year and maintained connectivity to key destinations in the country through the year, including under-serviced stations such as Dharamsala, Shimla, Kulu, Hubli and Kandla.

During the first half of the year, your Company had been able to recover the Airbus A320 family aircraft in your Company's fleet which were grounded in 2010-11 due to V2500 engine related issues. This reflected in strong operating performance for both the quarters of the first half of 2011-12. Your Company had also made public its intent to exit the low-cost model and to reconfigure aircraft along with a phased transition to the Full-Service model. Your Company has been able to partially progress on this plan.

However, given the pressure on the cost front due to unabated increase of fuel prices, Rupee de-valuation, rising interest rate and continued downward pressure on yields, your Company decided to downsize operations starting November, 2011. Despite the operational downsizing, the cash losses continued, leading to discontinuation of services from IATA's Billing and Settlement Plan (BSP). Despite the additional disadvantage created, your Company designed alternate means to sell and distribute inventory.

As a part of the overall downsizing of operations during the year under review, your Company also temporarily shut down operations on its international network to contain operational losses.

Your Company continues to maintain a "member-elect" status with the oneworld Alliance. The 15 to 18 month complex integration process was successfully near completion for the February 10, 2012 integration date. However, in light of priorities centered around your Company's recapitalization efforts, the oneworld management team agreed with your Company to defer the joining date - a move that would give your Company more time to address the challenges. They agreed to work with your Company during this phase with an aim of setting a newjoining date.

Your Company continued to focus on major cost control initiatives during the year to reduce distribution costs, implement fuel optimization systems and processes, improve aircraft utilization, optimize headcount and re-negotiate general contracts in order to enforce cost competitiveness, which is reflected in an improvement in the non-fuel EBITDA cost index.

Your Company continued its focus on various marketing and commercial initiatives including tie-ups with corporate houses to get premium business and launch of the Business Mileage program targeted at Small Medium Enterprises (SME). During the year under review, your Company won the 'Best Indian Airline' Award from Business Traveller Magazine - London, 'Best Airline for Business Travel within India' and 'Best Airline for Leisure Travel within India' from Conde NAST READER Travel Awards and 'Best Loyalty Innovation' Award in the "Judge's Choice" category at Loyalty Awards 2012 hosted by Flight Global.

In view of operating losses incurred during the year, your Directors do not recommend payment of any dividend.

Subsidiary

The statement of your Company's interest in its only subsidiary, Vitae India Spirits Limited, as at March 31, 2012, prepared in accordance with the provisions of Section 212(3) of the Companies Act, 1956 is attached to the Balance Sheet.

Outlook

Your Company had successfully established itself as one of India's largest domestic carriers by passengers flown and cities served over the last decade. Your Company has long enjoyed market leadership with a wide network reach in India, an awarded frequent flyer program and wide distribution. Due to the current situation, your Company is operating as a "holding pattern" with limited operation, pending policy changes which are in the offing.

The Indian airline industry is currently exposed to one of the toughest operating environments and is expected to struggle with profitability pressures, with one of the highest prices for Jet Fuel across the world given tax structure, recent depreciation of the rupee, and the high cost of borrowing. The Government of India is in the process to usher in fiscal measures and reforms that will make the operating environment more conducive for profitable business, viz.

- Approved direct import of jet fuel by airlines.

- Allowed External Commercial Borrowings (ECB) to the extent of USD 1 billion to be used as working capital.

- Opened the international market to private carriers by taking away the right of first refusal from the national carrier.

- In the process of modifying the Foreign Direct Investment (FDI) policy that will allow foreign airlines to invest in Indian carriers.

Your Company will undertake a phased and pragmatic approach to re-induction of capacity as well as further market expansion. The focus will be on maximizing the nascent potential of the domestic Indian market and capitalizing on strategic international routes.

Your Company will continue to closely monitor key market trends as well as macro-economic environment in the Country from a global perspective linked to the recovery plan.

Optionally Convertible Debentures

Loans / Inter Corporate Deposits from certain business associates aggregating to Rs.7,093 million were converted into 70,931,985 8% Optionally Convertible Debentures of Rs.100/- each ("OCDs") which were convertible into equity shares within a period of 18 months from their issue, after which they were redeemable.

During the year under review, your Company, on February 18, 2012, allotted 79,868,051 Equity Shares of Rs. 10/- each of your Company pursuant to the conversion of 19,975,000 OCDs of Rs 100/- each.

Subsequent upon the said allotment of equity shares as mentioned above, United Breweries (Holdings) Limited (UBHL) along with its subsidiaries holds 47.89% of the paid-up share capital of your Company and therefore your Company ceases to be a subsidiary of UBHL.

Subsequent to the year under review, your Company further allotted to the then holders of the OCDs pursuant to the exercise of the conversion option by them:

1. 35,642,361 Equity Shares of Rs. 10/- each of your Company, pursuant to the conversion of 8,422,290 OCDs of Rs 100/- each on April 10, 2012.

2. 62,160,364 Equity Shares of Rs. 10/- each of your Company, pursuant to the conversion of 14,427,421 OCDs of Rs 100/- each on April 24, 2012.

3. 133,272,991 Equity Shares of Rs. 10/- each of your Company, pursuant to the conversion of 28,107,274 OCDs of Rs 100/- each on June 23, 2012.

As on date, all the OCDs have been converted into equity shares.

Capital

During the year under review, your Company's Authorised Share Capital remained unchanged at Rs. 42,500,000,000/- comprising of 1,650,000,000 Equity Shares of Rs. 10/- each and 2,600,000,000 Preference Shares of Rs. 10/- each.

During the year under review, the Issued, Subscribed and Paid-up Share Capital of your Company has increased from Rs. 10,508,792,230/- divided into 497,779,223 Equity Shares of Rs. 10/- each and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs. 10/- each to Rs. 11,307,472,740/- divided into 577,647,274 Equity Shares of Rs. 10/- each and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs. 10/- each.

Subsequent to the year under review, the Issued, Subscribed and Paid-up Share Capital of your Company has increased to Rs. 13,618,229,900/- divided into 808,722,990 Equity Shares of Rs. 10/- each and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs. 10/- each.

Depository System

The trading in the equity shares of your Company is under compulsory dematerialization mode. As of date, equity shares representing 99.91% of the equity share capital are in dematerialized form. As the depository system offers numerous advantages, members are requested to take advantage of the same and avail of the facility of dematerialization of your Company's shares.

Auditors' Report

As regards observations in para 4 of Auditors' Report, the Statutory Auditors have qualified their report with a remark that the receipt of subsidy from aircraft manufacturers should be recognized as income on an systematic basis over the period necessary to match them with related costs which they are intended to compensate though the accounting treatment does not appear to be covered by the Accounting Standard (AS)-19 (Accounting for Leases) issued by the Institute of Chartered Accountants of India. In the opinion of the Directors:

(1) The lessor of the Aircraft is a person other than the Aircraft manufacturer and the lease contract is independent of the contract with Aircraft manufacturer.

(2) The termination, if any, of the lease contract does not in any event breach the conditions for the grant of subsidy by the Aircraft manufacturer.

(3) The subsidy value, referred to in Para 4 of the Audit Report have been received by your Company during the 15 months period ended June 30, 2006. As per Section 28 (iv) of the Income Tax Act, 1961, and precedents available under Income Tax laws, including pronouncements of the Apex Court, the revenue arising out of support packages will be treated as income for taxation purposes and therefore, it would not be prudent for your Company to treat the said revenues differently in the books of Accounts and for taxation purposes.

(4) In the event of non compliance of the contract with the Aircraft manufacturer, the resultant possibility of recovery of subsidy granted by the Aircraft manufacturer has been disclosed as contingent liability and this accounting treatment adopted by your Company is also based on the well established principle of differentiation of revenue receipt and capital receipt.

In view of the above, in the opinion of your Company, the accounting treatment of the support package received from the Aircraft manufacturer, as Income in the year of accrual and receipt is in order.

The fair market value of these Aircraft is not easily ascertainable due to the unique specifications of the Aircraft. Therefore, the management has obtained the valuation report for Aircraft of similar type from a leasing company to ascertain the fair market value which is higher than the sale price of these Aircraft. This is also supported by the fact that the insurance value to be covered as per respective Lease Agreements is much more than the sale value of the Aircraft.

As regards the observations in para 5 of the Auditors' Report, your 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. Your Company has extended the same treatment to costs incurred on major repairs and maintenance for engines pertaining to aircrafts acquired on Operating Lease.

As regards the observations in paras 8, 9 & 10 of the Auditors' Report, the note numbers 36(b), 39 & 52 to Notes to Financial Statements are self explanatory.

As regards the observations in the Annexure to the Auditors' Report, your Company has taken / is taking necessary steps to ensure improvement in certain procedures and also compliance with relevant laws.

Directors

Mr. A. K. Ravi Nedungadi, Director, retires by rotation and, being eligible, offers himself for re-appointment.

During the year under review, the following Directors resigned from the Board of Directors of your Company:

1. Diwan Arun Nanda - with effect from

September 5, 2011

2. Mr. Piyush Mankad - with effect from

January 9, 2012

3. Mr. Ghyanendra Nath Bajpai - with effect from

January 9, 2012

4. Mr. Vjay Amritraj - with effect from

March 14, 2012

5. Mr. Anil Kumar Ganguly - with effect from

March 17, 2012

Subsequent to the year under review, Mr. Manmohan Singh Kapur was appointed as an Additional Director with effect from April 24, 2012 and holds office up to the date of the ensuing Annual General Meeting of your Company. Notice in writing has been received from a Member signifying intention to propose the appointment of Mr. Manmohan Singh Kapur as a Director of your Company at the ensuing Annual General Meeting.

Auditors

M/s. B. K. Ramadhyani & Co., your Company's Auditors have confirmed that they are eligible for re-appointment at the ensuing Annual General Meeting and it is proposed to re-appoint them and to fix their remuneration.

Listing of Shares of Your Company

All the equity shares of your Company are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The listing fee for the year 2012-13 has been paid to these Stock Exchanges.

Corporate Governance

A report on Corporate Governance is annexed separately as part of this Report along with a certificate of compliance from a Company Secretary in practice. Necessary requirements of obtaining certifications/ declarations in terms of Clause 49 have been complied with.

Management Discussion and Analysis

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Management Discussion and Analysis Report is annexed and forms an integral part of the Annual Report.

Human Resources

Employee relations remained cordial. The information as are required to be provided in terms of Section 217(2A) of the Companies Act, 1956 read with the amended Companies (Particulars of Employees) Rules, 1975, have been included as an annexure to this Report.

Employee Stock Option Plan (ESOP)

Your Company had approved ESOP 2011 at the last Annual General Meeting of your Company held on September 28, 2011. As on date, your Company has not granted any option under ESOP 2011.

Disclosures as required by Clause 12 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines 1999 are annexed to this Report.

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars as prescribed under section 217(1)(e) of the Companies Act, 1956 and the rules framed there under are not applicable to your Company.

The relevant information relating to Foreign Exchange Earning and Outgo appears in the Note No. 31(a) to (e) to the Financial Statements.

Directors' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, in relation to the Financial Statements of your Company for the year ended March 31, 2012, the Board of Directors reports that:

- in the preparation of the Accounts for the year ended March 31, 2012, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- accounting policies have been selected and applied consistently and that the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at March 31, 2012 and of the Loss of your Company for the year ended March 31, 2012;

- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;

- the accounts for the year ended March 31, 2012, have been prepared on a going concern basis.

Thank You

Your Directors place on record their sincere appreciation for the continued support from shareholders, customers, the Government of India especially the Ministry of Civil Aviation and the Directorate General of Civil Aviation, the various State Governments, Airports Authority of India, the Reserve Bank of India, lending banks and financial institutions, suppliers, other business associates and employees.

For and on Behalf of the Board of Directors

Mumbai Dr. Vjay Mallya

August 10, 2012 Chairman & Managing Director

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Mar 31, 2011

To The Members,

The Directors present the 16th Annual Report along with the Audited Accounts of your Company for the year ended March 31, 2011.

Operations

Your Company's operations during the year ended March 31, 2011 have resulted in:

(Rs. in million)

Year ended Year ended

March March

31, 2011 31, 2010

Gross Income 64,956 52,710

Earnings before financial 11,243 4,036

charges, lease rentals, depreciation & amortization and taxes (EBITDAR) Add/Less:

Depreciation & Amortization 2,410 2,173

Lease Rentals 9,840 10,938

Financial charges 13,129 11,026

Profit/ (Loss) before taxes (14,137) (20,100)

Provision for taxes (including 4,934 7,707 FBT)

Net Profit / (Loss) from (9,203) (12,393)

ordinary activities after tax Foreign exchange translation 158 502 difference

Exceptional Item 912 3,577

Net Profit / (Loss) after tax (10,274) (16,472)

Scheduled Airline Operations

During the year under review, your Company had a domestic market share of 19.8% and carried more than 12 million passengers across both domestic and international sectors. Fleet size of aircraft used in scheduled operations stood at 66 aircraft at year end, and an average schedule comprised of 366 domestic and 28 international flights daily over a route network (as on March 31, 2011) covering 59 domestic and 8 international destinations.

During the year under review, 14 of the Airbus A320 family aircraft in your Company's fleet which use the V2500 engines manufactured by IAE International Aero Engines AG ("IAE") had to be grounded due to technical problems relating to the engines. Your Company has made arrangements with IAE to perform maintenance and support work on its entire fleet of engines, including undertaking those measures identified by the United States Federal Aviation Administration and other support work to improve on- wing performance. By March 31, 2011, your Company had re-introduced ten aircraft back into service and the balance have also since been inducted into operations.

The grounding of aircraft resulted in a 10% (1,222 million seat kilometres) drop in domestic capacity. Despite the drop in domestic capacity by 10%, your Company's domestic passenger count increased by 2.6% demonstrating sharply improved productivity.

During the year under review, your Company undertook a further expansion in its international operations by introduction of a new wide-body route from Delhi to Hong Kong and narrow- body routes from Delhi to Kathmandu and from Delhi and Mumbai to Bangkok and Dubai.

Your Company is the only Indian airline to be a member- elect of oneworld, which is the premier global airline alliance. It brings strong brand recognition comprising leading airlines such as American Airlines, British Airways, Cathay Pacific, Qantas and Finnair. oneworld serves airports in 150 countries through 9,000 daily flights with member airlines based in every continent.

Kingfisher Airlines' code share arrangements with British Airways has accelerated the growth trajectory of your Company into key international markets providing enhanced connectivity and traffic. Your Company has achieved market share leadership in most of the international sectors where operations have been launched, within a short span of 1 to 2 years of launch. This resulted in your Company's combined domestic and international capacity increasing by 9.2% (1,365 million seat kilometers), while the total passenger count has increased by 8.9%.

Your Company has continued major initiatives during the year to reduce distribution costs, implement fuel management systems, improve aircraft utilization and re- negotiate general contracts in order to enforce revenue and cost competitiveness.

To enhance consumer connect, your Company continued its focus on various marketing and commercial initiatives including tie-ups with corporate houses to get premium business. Campaigns to leverage and promote your Company's network reach and product offerings were launched. During the year under review, your Company won the coveted award for the best frequent flyer program in category 'Best Promotion for Redemption' and 'Best Loyalty Credit Card' at Frequent Travellers Awards 2011.

In view of operating losses incurred during the year, your Directors do not recommend payment of any dividend.

Subsidiaries

The statement of your Company's interest in its only subsidiary, Vitae India Spirits Limited, as at March 31, 2011, prepared in accordance with the provisions of Section 212(3) of the Companies Act, 1956 is attached to the Balance Sheet.

Outlook

Your Company is one of India's largest domestic carriers by passengers flown and cities served. Your Company has continued to enjoy market leadership with a wide network reach in India, a growing international presence, an awarded frequent flyer program and wide distribution.

The country's economy continues to be strong with GDP growth estimates being maintained in the range of 8 - 8.5%. Passenger traffic has been buoyant in the current year as recovery continues on the back of a strengthening macro-economic environment. Domestic seat capacity is expected to expand lower than growth in demand, enabling improved revenue performance for the industry. In fact your Company has achieved load factors in excess of 80% in the current year. To further improve consumer franchise, various marketing initiatives and enhanced customer loyalty programs have been undertaken.

Your Company is optimistic of improved performance in the current year, primarily driven by improving domestic and international passenger revenue, the benefits of debt recast together with lowered interest burden, and various other initiatives taken by your Company to lower direct operating costs.

Debt Recast Package

During the year under review, your Company has implemented a Debt Recast Package with its consortium of bankers, salient features of which are:

1) (a) (i) Rs.7,501 million of Loan from the bankers was converted into 7.5% Compulsorily Convertible Preference Shares. The 7.5% Compulsorily Convertible Preference Shares were thereafter converted into equity shares in accordance with the pricing regulations of the Securities and Exchange Board of India (SEBI).

(ii) Rs. 5,531 million of Loan from the bankers was converted into 8% Cumulative Redeemable Preference Shares redeemable at par after 12 years.

(iii) Repayment of the balance loans was rescheduled with a moratorium on repayment of principal of 2 years and step-up repayment over the subsequent 7 years.

(iv) Interest for the period July 1, 2010 to March 31, 2011 on loans from the banks was converted into a funded interest term loan repayable in 9 years including 2 years moratorium.

(v) Interest rate on loans reduced by over 300 bps.

(vi) Additional fund based loan facilities of Rs.7,683.2 million and non-fund based facilities of Rs.4,444 million sanctioned by the banks.

(vii) Part of the working capital limits of Rs.2,974 million converted into working capital term loans.

(b) Loans from Promoters of Rs. 6,480 million were converted into 7.5% Compulsorily Convertible Preference Shares and thereafter into equity shares, pricing as per SEBI regulations. Also, the terms of 6% Redeemable Preference Shares of Rs. 970 million issued to the Promoters were varied so that they became 6% Compulsorily Convertible Preference Shares which thereafter were converted into equity shares, pricing as per SEBI regulations.

Consequent to (a) and (b) above, your Company's paid-up equity capital stood increased from Rs. 2,659,088,830 to Rs. 4,977,792,230 on March 31, 2011.

2) Loans / Inter corporate deposits from certain business associates aggregating to Rs.7,093 million were converted into 7,09,31,985 8% optionally convertible debentures of Rs.100/- each ("OCDs") which are convertible into equity shares for a period of 18 months from their issue, after which they are redeemable. These OCDs are convertible into equity shares at the option of the holder, and at a conversion price to be determined as per applicable SEBI regulations with reference to the date of conversion. As a result, it is not presently possible to determine either the date of conversion of the OCDs, or the number of equity shares which may be issued and allotted if and when OCDs are converted.

It is proposed that the terms of the OCDs be varied such that, in the event the Board decides to undertake the Rights Issue which is to occur prior to 18 months from the date of allotment of the OCDs, the OCDs shall become redeemable, in part or in full and in one or more tranches, at the option of the Board, and in such quantity as may be mutually agreed by the Board and the holders of the OCDs. The redemption proceeds of OCDs along with accrued interest are to be appropriated towards subscription to equity shares in the rights issue. In the event the rights issue has not opened for subscription or after opening for subscription has not successfully closed during the period of 18 months from the date of allotment of the OCDs, the OCDs shall be governed by their original terms of issue. Approval of the Members is being sought at the Annual General Meeting for such variation in the terms of the said OCDs.

Capital

During the year under review, your Company's Authorised Share Capital was increased from Rs. 10,000,000,000/- comprising of 900,000,000 Equity Shares of Rs. 10/- each and 10,000,000 Preference Shares of Rs. 100/- each to Rs. 42,500,000,000/- comprising of 1,650,000,000 Equity Shares of Rs. 10/- each and 260,000,000 Preference Shares of Rs. 100/- each at the Annual General Meeting held on September 30, 2010. Subsequently, at the Extraordinary General Meeting held on December 20, 2010, the Authorised Share Capital was re-classified into 1,650,000,000 Equity Shares of Rs. 10/- each and 2,600,000,000 Preference Shares of Rs. 10/- each.

Consequent upon the implementation of the Debt Recast Package, the Issued, Subscribed and Paid- up Share Capital of your Company has increased from Rs. 3,629,088,830/- divided into 265,908,883 Equity Shares of Rs. 10/- each and 9,700,000 6% Redeemable Non-Cumulative Preference Shares of Rs. 100/- each to Rs. 10,508,792,230/- divided into 497,779,223 Equity Shares of Rs. 10/- each and 553,100,000 8% Cumulative Redeemable Preference Shares of Rs. 10/- each.

Depository System

The trading in the equity shares of your Company is under compulsory dematerialization mode. As of date, equity shares representing 90.49% of the equity share capital are in dematerialized form. As the depository system offers numerous advantages, members are requested to take advantage of the same and avail of the facility of dematerialization of your Company's shares.

Auditors' Report

As regards observations in para 4 of Auditors' Report, the Statutory Auditors have qualified their report by remarking that the receipt of subsidy from aircraft manufacturers should be recognized as income on an systematic basis over the period necessary to match them with related costs which they are intended to compensate though the accounting treatment does not appear to be covered by the Accounting Standard (AS)-19 (Accounting for Leases) issued by the Institute of Chartered Accountants of India. In the opinion of the Directors:

(1) The lessor of the Aircraft is a person other than the Aircraft manufacturer and the lease contract is independent of the contract with Aircraft manufacturer.

(2) The termination, if any, of the lease contract does not in any event breach the conditions for the grant of subsidy by the Aircraft manufacturer.

(3) The subsidy value, referred to in Para 4 of the Audit Report have been received by the Company during the 15 months period ended June 30, 2006. As per Section 28 (iv) of the Income Tax Act, 1961, and precedents available under Income Tax laws, including pronouncements of the Apex Court, the revenue arising out of support packages will be treated as income for taxation purposes and therefore, it would not be prudent for the Company to treat the said revenues differently in the books of Accounts and for taxation purposes.

(4) In the event of non compliance of the contract with the Aircraft manufacturer, the resultant possibility of recovery of subsidy granted by the Aircraft manufacturer has been disclosed as contingent liability and this accounting treatment adopted by the Company is also based on the well established principle of differentiation of revenue receipt and capital receipt.

In view of the above, in the opinion of the Company, the accounting treatment of the support package, received from the Aircraft manufacturer, as Income in the year of accrual and receipt is in order.

The fair market value of these Aircraft is not easily ascertainable due to the unique specifications of the Aircraft. Therefore, the management has obtained the valuation report for Aircraft of similarly type from a leasing company to ascertain the fair market value which is higher than the sale price of these Aircraft. This is also supported by the fact that the insurance value to be covered as per respective Lease Agreement is much more than the sale value of the Aircraft.

As regards the observations in para 6 of the Auditors' Report, 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 incurred on major repairs and maintenance for engines pertaining to aircrafts acquired on Operating Lease.

As regards the observations in para 13(a) of the Auditors' Report, the Note number 16 to Notes to Accounts (Schedule 19) is self explanatory.

As regards the observations in the Annexure to the Auditors' Report, the Company has taken/ is taking necessary steps to ensure improvement in certain procedures and also compliance with relevant laws.

Directors

Mr. Ghyanendra Nath Bajpai and Mr. Subhash R. Gupte, Directors, retire by rotation and, being eligible, offer themselves for re-appointment.

During the year under review, Dr. Naresh Trehan resigned from the Board of Directors of your Company effective August 11, 2010.

Subsequent to the year under review, Diwan Arun Nanda has tendered his resignation from the Board of Directors of your Company. His resignation will be effective September 5, 2011.

Auditors

M/s. B. K. Ramadhyani & Co, your Company's Auditors have confirmed that they are eligible for re-appointment at the ensuing Annual General Meeting and it is proposed to re-appoint them and to fix their remuneration.

Listing of Shares of Your Company

All the equity shares of your Company are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The listing fee for the year 2011-12 has been paid to these Stock Exchanges.

Corporate Governance

A report on Corporate Governance is annexed separately as part of this Report along with a certificate of compliance from a Company Secretary in practice. Necessary requirements of obtaining certifications/ declarations in terms of Clause 49 have been complied with.

Management Discussion and Analysis

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Management Discussion and Analysis Report is annexed and forms an integral part of the Annual Report.

Human Resources

Employee relations remained cordial. The information as are required to be provided in terms of Section 217(2A) of the Companies Act, 1956 read with the amended Companies (Particulars of Employees) Rules, 1975, have been included as an annexure to this Report.

Employee Stock Option Plan (ESOP)

Disclosures as required by Clause 12 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines 1999 are annexed to this Report.

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars as prescribed under section 217(1)(e) of the Companies Act, 1956 and the rules framed thereunder are not applicable to your Company.

The relevant information relating to Foreign Exchange Earning and Outgo appears in the Notes Nos. 6 to 8 of Schedule 19 to the Financial Statements.

Directors' Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, in relation to the Financial Statements of your Company for the year ended March 31, 2011, the Board of Directors reports that:

- in the preparation of the Accounts for the year ended March 31, 2011, the applicable accounting standards have been followed along with proper explanation relating to material departures;

- accounting policies have been selected and applied consistently and that the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at March 31, 2011 and of the Loss of your Company for the year ended March 31, 2011;

- proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;

- the accounts for the year ended March 31, 2011, have been prepared on a going concern basis.

Thank You

Your Directors place on record their sincere appreciation for the continued support from shareholders, customers, the Government of India especially the Ministry of Civil Aviation and the Directorate General of Civil Aviation, the various State Governments, Airports Authority of India, the Reserve Bank of India, lending banks and financial institutions, suppliers, other business associates and employees.

For and on Behalf of the Board of Directors

Mumbai Dr. Vijay Mallya

August 25, 2011 Chairman & Managing Director

---

Mar 31, 2010

The Directors present the 15th Annual Report along with the Audited Accounts of your Company for the year ended March 31, 2010.

Operations

Your Companys operations during the year ended March 31, 2010 have resulted in:

(Rs. in millions)

Year ended Year ended March 31, March 31, 2010 2009

Gross Income 52,710 53,026

Earnings before financial 3,976 (5,579)

charges, lease rentals,

depreciation & amortization

and taxes (EBITDAR)

Add / Less:

Depreciation & Amortisation 2,173 1,716

Lease Rentals 10,938 11,851

Financial charges 10,965 7,786

Loss before taxes (20,100) (26,932)

Provision for taxes 7,707 5,464

(incl. FBT)

Net Profit / (Loss) from (12,393) (21,468)

ordinary activities after tax

Foreign exchange translation (502) 2,447

difference

Exceptional Item (3,577) (2,375)

Effect of change in method

of accounting Maintenance

Rent upto March 31, 2008 - 5,308

Net Loss after tax (16,472) (16,088)

Scheduled Airline Operations

Your Company is the largest player in the Indian domestic aviation sector and during the year under review had the widest reach covering more destinations and carrying more passengers than any other domestic carrier.

During the year under review, your Company had a domestic market share of 22.9% and carried more than 11 million passengers across both domestic and international sectors, with a year ending overall fleet of 68 aircraft, having an average schedule of 366 domestic and 12 international flights daily and a route network (as on March 2010) covering 63 domestic and 7 international destinations.

Whilst your Companys operations has been reflective of the shift in capacity to the low fare model in line with economic environment, your Company continues to offer the following world class services :

* Kingfisher First - Premium Business class of service

* Kingfisher Class - Premium Economy class of service

* Kingfisher Red - Low fare class of service comparable to the Economy class of service in other full fare airlines

During the year under review, your Company returned 5 Airbus A320 aircraft, 4 ATR-42 aircraft and 1 ATR-72 aircraft consequent upon the route rationalization program initiated with a view to maximize operational synergies and cost savings. This resulted in a 17% (2.953 million seats) drop in capacity deployed over FY 2009. Despite the drop in capacity by 17% your Companys passenger count decreased by only 2%.

During the year under review, your Company undertook a gradual expansion in its international operations through introduction of new wide body routes to Hong Kong, Singapore and narrow body routes to Dubai, Bangkok and Dhaka. Your Company also achieved the highest market share on the Mumbai-Singapore and Mumbai-Hong Kong sector in less than one year of launch of these sectors.

Major initiatives were undertaken during the year in respect of distribution costs, fuel management system, aircraft utilization and general contracts in order to enforce cost competitiveness.

To enhance your Companys consumer connect, your Company also undertook various marketing and commercial initiatives including tie-ups with corporate houses to get premium business and launched campaigns like the "Onestop Connect" to leverage and promote your Companys network. During the year under review, your Company won coveted world airline awards including "Five Star" from Skytrax. Your Company is one of just six airlines worldwide to belong to the top tier Five Star airline ranking and continues to be Indias only Five Star Airline rated by Skytrax for three years in a row.

In view of operating losses incurred during the year, your Directors do not recommend payment of any dividend.

Subsidiaries

The statement of your Companys interest in its only subsidiary, Vitae India Sprits Limited, as at March 31, 2010, prepared in accordance with the provisions of Section 212(3) of the Companies Act, 1956 is attached to the Balance Sheet.

Outlook

Your Company is Indias single largest domestic carrier by passengers flown and cities served. Despite aggressive capacity reduction in the year under review, your Company has continued to enjoy leadership whilst having a wide network in India covering more than 90% of the addressable passenger base.

The countrys economy is showing signs of recovery with GDP growth estimates climbing back to over 8%. Passenger traffic is buoyant in current year backed by improvements in the macro-economic environment and revival in most industry sectors. The domestic seat capacity is expected to expand lower than the growth in demand enabling improved load factors for the aviation industry. Infact your Company has achieved seat factors in excess of 75% in the current year. Your Companys international operations are fast moving towards stabilization. To further improve consumer connect various marketing initiatives including enhanced customer loyalty programs have been undertaken by your Company.

Your Company is set to join oneworld, the worlds leading quality airline alliance, bringing together 11 of the worlds biggest and best names in the airline industry such as American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN, Malev, Mexicana, Qantas and Royal Jordanian.

Your Company is optimistic of improved performance in the current year, primarily driven by growth in premium traffic and significant reduction in costs.

Capital

During the year under review, your Companys Authorised Share Capital was increased from Rs. 500,00,00,000 (Rupees Five Hundred Crores only) to Rs. 1000,00,00,000 (Rupees One Thousand Crores only) comprising of 90,00,00,000 (Ninety Crores) Equity Shares of Rs. 10/- each and 1,00,00,000 (One Crore) Preference Shares of Rs. 100/- each.

The Issued, Subscribed and Paid-up Equity Share Capital of your Company remained unchanged at Rs. 3,629,088,830 divided into 265,908,883 Equity Shares of Rs. 10/- each and 9,700,000 6% Redeemable Non-Cumulative Preference Shares of Rs. 100/- each.

Depository System

The trading in the equity shares of your Company is under compulsory dematerialization mode. As of date, equity shares representing 97.62% of the equity share capital are in dematerialized form As the depository system offers numerous advantages, members are requested to take advantage of the same and avail of the facility of dematerialization of your Companys shares.

Auditors Report

As regards observations in para 4 of Auditors Report, the Statutory Auditors have qualified their report by remarking that the receipt of subsidy from aircraft manufacturers should be recognized as income on a systematic basis over the period necessary to match them with related costs which they are intended to compensate though the accounting treatment does not appear to be covered by the Accounting Standard (AS)-19 (Accounting for Leases) issued by the Institute of Chartered Accountants of India. In the opinion of the Directors:

(1) The lessor of the Aircraft is a person other than the Aircraft manufacturer and the lease contract is independent of the contract with Aircraft manufacturer.

(2) The termination, if any, of the lease contract does not in any event breach the conditions for the grant of subsidy by the Aircraft manufacturer.

(3) The subsidy value, referred to in Para 4 of the Audit Report have been received by the Company during the 15 months period ended June 30, 2006. As per Section 28 (iv) of the Income Tax Act, 1961, and precedents available under Income Tax laws, including pronouncements of the Apex Court, the revenue arising out of support packages will be treated as income for taxation purposes and therefore, it would not be prudent for your Company to treat the said revenues differently in the books of Accounts and for taxation purposes.

(4) In the event of non compliance of the contract with the Aircraft manufacturer, the resultant possibility of recovery of subsidy granted by the Aircraft manufacturer has been disclosed as contingent liability and this accounting treatment adopted by your Company is also based on the well established principle of differentiation of revenue receipt and capital receipt.

In view of the above, in the opinion of your Company, the accounting treatment of the support package, received from the Aircraft manufacturer, as Income in the year of accrual and receipt is in order.

The fair market value of these Aircraft is not easily ascertainable due to the unique specifications of the Aircraft. Therefore, the management has obtained the valuation report for Aircraft of similar type from a leasing company to ascertain the fair market value which is higher than the sale price of these Aircraft. This is also supported by the fact that the insurance value to be covered as per respective Lease Agreement is much more than the sale value of the Aircraft.

As regards the observations in para 6 of the Auditors Report, your 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. Your Company has extended the same treatment to costs incurred on major repairs and maintenance for engines pertaining to aircrafts acquired on Operating Lease.

As regards the observations in para 13(a) of the Auditors Report, the Note number 18 to Notes to Accounts (Schedule 21) is self explanatory.

As regards the observations in the Annexure to the Auditors Report, your Company has taken/ is taking necessary steps to ensure improvement in certain procedures and also compliance with relevant laws.

Directors

Mr. Vijay Amritraj, Mr. Anil Kumar Ganguly and Mr. Piyush Mankad, Directors, retire by rotation and, being eligible, offer themselves for reappointment.

During the year under review, Capt. G. R. Gopinath and Capt. K. J. Samuel, have resigned from the Board of Directors of your Company effective March 23, 2010.

Auditors

M/s. B. K. Ramadhyani & Co, your Companys Auditors have confirmed that they are eligible for re-appointment at the ensuing Annual General Meeting and it is proposed to re-appoint them and to fix their remuneration.

Listing of Shares of Your Company

The equity shares of your Company are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The listing fee for the year 2010-11 has been paid to these Stock Exchanges.

Corporate Governance

A report on Corporate Governance is annexed separately as part of this Report along with a certificate of compIiance from a Company Secretary in practice. Necessary requirements of obtaining certifications/ declarations in terms of Clause 49 have been complied with.

Management Discussion and Analysis

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, the Management Discussion and Analysis Report is annexed and forms an integral part of the Annual Report.

Human Resources

Employee relations remained cordial. The information as are required to be provided in terms of Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, have been included as an annexure to this report.

Employee Stock Option Plan (ESOP)

Disclosures as required by Clause 12 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines 1999 are annexed to this Report.

Conservation of Energy, Research and Development, Technology Absorption, Foreign Exchange Earnings and Outgo

The particulars as prescribed under section 217(1)(e) of the Companies Act, 1956 and the rules framed thereunder are not applicable to your Company.

The relevant information relating to Foreign Exchange Earning and Outgo appears in the Notes Nos. 8 to 10 of Schedule 21 to the Financial Statements.

Directors Responsibility Statement

Pursuant to Section 217(2AA) of the Companies Act, 1956, in relation to the Financial Statements of your Company for the year ended March 31, 2010, the Board of Directors reports that:

* in the preparation of the Accounts for the year ended March 31, 2010, the applicable accounting standards have been followed along with proper explanation relating to material departures;

* accounting policies have been selected and applied consistently and that the judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at March 31, 2010 and of the Loss of your Company for the year ended March 31, 2010;

* proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities;

* the accounts for the year ended March 31, 2010, have been prepared on a going concern basis.

Thank You

Your Directors place on record their sincere appreciation for the continued support from shareholders, customers, the Government of India especially the Ministry of Civil Aviation and the Directorate General of Civil Aviation, the various State Governments, Airports Authority of India, banks and financial institutions, suppliers, other business associates and employees.

For and on Behalf of the Board of Directors

Mumbai Dr. Vijay Mallya

July 22, 2010 Chairman & CEO