AIR INDIA ENGINEERING SERVICES LIMITED - AIESL

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AIESL

AIR INDIA ENGINEERING
  SERVICES LIMITED
AIESL

                                           CONTENTS

                                                                                       Page No.

1.   Board of Directors                                                                   1

2.   Directors’ Report                                                                    2

3.   Comments of the Comptroller & Auditor General of India                               16

4.   Independent Auditors’ Report                                                         18

5.   Balance Sheet as at 31 March 2015                                                    40

6.   Statement of Profit & Loss for the year ended 31 March 2015                           41

7.   Cash Flow Statement                                                                  42

8.   Notes forming part of the Financial Statements for the year ended 31 March 2015      43
AIESL

                         BOARD OF DIRECTORS (as on 28 DECEMBER 2015)

Shri Ashwani Lohani                    Chairman

Shri Vinod Hejmadi                     Director

Smt. Gargi Kaul                        Director

Shri B S Bhullar                       Director

Chief Executive Officer

Shri H.R. Jagannath

Auditors

M/s. Jhawar Mantri & Associates

Chartered Accountants

Registered Office

Airlines House

113 Gurudwara Rakabganj Road

New Delhi 110 001

                                                  1
AIESL

                                           DIRECTORS' REPORT
The Directors take pleasure in presenting the Eleventh Annual Report of the Company, together with the
Audited Accounts, Auditors' Report and Comments by the Comptroller and Auditor General of India, for the year
ended 31st March, 2015.
OPERATIONALISATION:
The Board of Directors of Air India Limited, the parent company, at its Meeting held on 7 August 2010 approved
operationalisation of Air India Engineering Services Limited. Cabinet Note for operationalisation was submitted
to the Ministry of Civil Aviation. Cabinet had approved operationalisation of AIESL on 6 September 2012. It was
proposed that the assets and manpower from Air India Limited will be transferred to Air India Engineering
Services Limited as per the decision of the Cabinet. The Company will be treated as a separate profit centre for
carrying out the Maintenance, Repair and Overhaul (MRO) activities of Airbus and Boeing fleet. The process of
operationalisation has accordingly started w.e.f. 1st February, 2013. Further, steps have been initiated to
obtain/fulfil various Regulatory and Statutory approvals/compliances in order to start MRO activities. The
company got DGCA approval CAR 145 effective January 2015.
During the year 2013-14, the company (AIESL) had entered into a Memorandum of Understanding (MoU) with
its parent company viz. Air India Ltd. (AI) regarding the services to be provided on maintenance and repair and
overhaul facilities to Air India. The MoU inter-alia also includes the following:-
1.     AI has decided to transfer its MRO business (including infrastructure) to AIESL.
2.     AIESL shall obtain all necessary approvals / licenses etc. from all concerned statutory and regulatory
       authorities / agencies including DGCA of India to carry out & perform MRO activities.
3.     AI shall provide AIESL a total equity of Rs. 375 Cr. during first three years and support required for
       Capital expenditure to the extent of Rs.974 crores till FY 2017.
4.     AI shall transfer all its movable assets pertaining to MRO and the value of movable assets to be
       transferred by AI to AIESL to constitute & form part of the initial equity / investment in AIESL.
5.     AIESL to share 20% of its labour revenue from third parties from the fourth year of operations or as
       mutually agreed.
An MoU has also been entered into with Airline Allied Services Ltd. (AASL), a wholly owned subsidiary of AIL,
wherein AASL has decided to transfer its MRO activities (including infrastructure) to AIESL and AASL agreed to
commit its fleet in entirety for all MRO work to AIESL.
Similarly, an MoU has also been entered into during 2014-15 with Air India Charters Ltd. (AICL), a wholly owned
subsidiary of AIL, wherein AICL has decided to transfer its MRO activities (including infrastructure) to AIESL
and AICL agrees to commit its fleet in entirety for all MRO work to AIESL.
As such, AIESL shall be having committed business from Air India group along with infrastructure and other
                                     st
support. The company as of 1 January, 2015 as also obtained DGCA certificate for the repair and overhaul of
its facilities. Certificate of facilities for EASA and FAA would be procured shortly.
MRO FACILITY AT NAGPUR
As a part of commitment in the Purchase Agreement for fleet of 68 aircraft comprising 18 B737s, 23 B777s and
27 B787s with Air India Ltd., Boeing has invested about USD 107 million towards the MRO facility including
certain Equipment/Tooling required for Aircraft Maintenance and associated Overhaul Shops for maintenance
of aircraft and components. Additional investment of at least USD 10 Million is being made by Air India Ltd. to
make the facility functional.
The construction work commenced in March 2011 and the facility has been commenced and handed over to AI
in December, 2014.

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AIESL

The facility consists of two wide body Hangars (100mx100m each), Support Building (approx. 24000 sq. m),
Ground Support Equipment building and other Miscellaneous buildings. Initially the proposal is to take up the
task of B777 major check(C Check) along with certain back shop activities like Cabin Survival Equipment/
Compressed Gas Oxygen Shop.
The hangars are of international standard meeting NFPA 409 Fire standards (National Fire Protection
Association) and equipped with facilities such as mechanised sliding door, underground utility pits, aircraft
cabin cooling, hangar ventilation, Building Management System (BMS) etc.
There are other peripheral amenities like rain water harvesting, effluent treatment plant, solar water
heaters/street lights that contribute towards green initiatives.
The necessary manpower to run the Nagpur facility has already been identified & transferred.
AIESL will get right of use to these hangars in order to service the fleet of AI & third parties.
Recently, the Nagpur MRO was approved for carrying out up to 'D' Check of B777 aircraft. All the major
maintenance work of B777 aircraft shifted from January, 2016 to Nagpur. The process for seeking approval for
A320 family aircraft has also been initiated.
SETTING UP OF GEnx / GE90 ENGINE OVERHAUL AND TESTING FACILITY
In order to supplement this MRO Facility at Mihan SEZ, Nagpur, Air India Ltd. has decided to set up an Engine
Overhaul Facility for GEnx-1B Engine (powering B 787) and GE90 Engine (powering B 777), at an estimated
cost of USD 89 Million.
The Project will comprise following 3 stages:
I       Setting up GE90 Engine Testing Facility (Expected completion - May, 2016)
II      Upgrade of above I for testing GEnx Engines. (Expected completion -February, 2017)
III     Setting up GEnx / GE90 Engine Overhaul Workshop (Expected completion – December, 2017)
Approx. USD 64.5 Million will be provided by GE Aviation as MRO Credit Allowance, as per the agreements
signed with Air India Ltd., towards setting up of GEnx Engine Overhaul Facility·
AIESL will get the right of use of these facilities.
Shamshabad – Hyderabad MRO
The MRO at Hyderabad was operationalised in May, 2015. Regular Checks of A319 and A320 aircraft of Air
India are being carried out at this facility.
FINANCIAL PERFORMANCE:
The engineering activities of AI were hived off to the company as per the Cabinet approved TAP / FRP of AI and
a MoU was executed for such hive-off indicating therein various supports from AI. In terms of the MoU, the
parent company viz. AI shall transfer the movable assets (Workshop, Plant & Machinery and Tools etc.) to the
company at its written down value (WDV) which shall form & constitute equity investment by AI. As per the MoU,
the Company expects to receive Equity from AI to the extent of Rs 375 Crs. in the first three years of its
operation in order to support its Capital acquisition program.
During the financial year 2014-15, the company got the DGCA approval CAR 145 as an MRO effective 1st
January, 2015, movable engineering assets were transferred from AI at the beginning of the financial year
besides the payroll of engineering personnel was transferred w.e.f. October, 2014 from AI.
The Share application money (deemed) of Rs. 166.62 Crs. is from AI on account of the assets transferred at its
WDV to AIESL during the year.

                                                            3
AIESL

The company made concerted efforts and spent on the infrastructure facilities, overheads and the manpower
cost for its capabilities to acquire the DGCA approval CAR145. Based on the opinion from the Tax Consultants,
an expenditure of Rs. 271.38 Crs. incurred for practically making ready the MRO Set up for obtaining DGCA
License for its planned activities / work considered as directly attributable to DGCA License for future economic
benefits has been capitalized as Intangible Assets.
The company incurred a Net Loss after Tax has been Rs. 242.57 crores for the year 2014-15 i.e. the initial year
of start of its commercial activities.
The MRO is a Capital Intensive industry with high competitive environment with low returns and there is a long
payback / cost absorption period in view of the fixed overheads on infrastructure facilities and high wage costs
due to licensed manpower. Besides this, the Company has to depend on internally generated AI's business for
substantial portion of its Revenue. However, with the expected growth in third party business and the incentives
expected from GOI for the MRO industry, it is anticipated that AIESL will be operationally profitable in next few
years.
OTHER FINANCIAL INFORMATION:
Share Capital :
The Authorised Share Capital of the Company is Rs.10,00,00,000/-. The entire Paid-up Share Capital of the
Company, amounting to Rs.5,00,000/- (50000 Equity Shares of Rs.10/- each) has been subscribed and paid-
up by Air India Limited. The company has increased during the year 2015-16 its authorized share capital from
Rs. 10 Crores to Rs. 1000 Crores to enable the company to issue shares for transfer of engineering assets from
Air India.
Share Application Money from Air India Ltd.
In terms of the MoU executed, Air India shall transfer its movable assets (engineering - Workshop equipment,
Plant & Machinery and Tools) at written down value (WDV) to the company and the WDV of such asset transfer
shall constitute & form part of the initial equity / investment in the company by AI. Accordingly, the amount of Rs.
166.62 Cr. has been shown under this head representing the cost (WDV) of assets transferred.
Market
Q        CAPA (Centre for Asia Pacific Aviation) projects Indian MRO Market to reach USD 2 billion by 2020 from
         approximately US$800 million today.
Q        India's scheduled airlines are expected to operate more than 1000 aircraft by 2020, up from 400 today.
Q        Target customers are both from India and outside with in flying distance of 5 hours
Q        It is prudent to tap the MRO market with the highly skilled manpower, vast infrastructure & wide spread
         network.
AIESL Initiatives
Q        AIESL is aggressively pursuing its objective to establish itself as leading MRO in the region.
Q        Several initiatives taken to strengthen Line Maintenance, Base Maintenance, Cabin Maintenance to
         provide better service to Air India to improve Aircraft Availability, OTP and Cabin ambience.
Q        Some of the major initiatives by AIESL:
         Q      Obtained CAR 145 Approval to Operate as MRO w.e.f. 01 Jan, 2015
         Q      Worked to obtain Design Service Goal extension from Airbus to enhance the life of classic A320
                aircraft by 3500 FH
         Q      Transferring All Contracts , FAA, EASA Approvals in the name of AIESL

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AIESL

       Q       Dedicated marketing team formed to capture third party business. Process of hiring
               Management consultant is underway
       Q       11 profit Centers have been identified. They are:
               DEL-1 (Line & Major), DEL-2 (Engines) ,DEL-3 (Components)
               BOM-1 (Line & Major WB), BOM-2 (Engines), BOM-3 (Components), NEC BOM (Line & Major
               NB)
               CCU-1 (Line & Major NB)
               HYD (Whole SR)
               NAG MRO & TRV MRO
       Q       DGCA Approval of CAR 147 to operate as Aviation Maintenance Training Organisation – The
               approval granted by DGCA effective 16 Sept., 2015.
       Q       AIESL has training facilities at Delhi, Mumbai, Kolkata, Hyderabad and Thiruvananthapuram.
Action Plan
Q      AIESL intends to give top class MRO service to its customers
Q      Dedicated Cabin maintenance Team
Q      Dedicated Tools Van setup – On the lines of International MROs (Tyre pressure, Fuel Drain)
FAA / EASA (Federal Aviation Administration / European Aviation Safety Agency) Approvals:
Q      FAA / EASA approved Jet Engine overhaul shops at Delhi and Mumbai
Q      FAA approved Component overhaul shops at Delhi and Mumbai
Q      FAA approval for Mumbai hangar for B777 aircraft obtained
Q      FAA approval Nagpur hangar expected shortly for B777 aircraft (as extention to Mumbai).
Q      EASA approval for Component Overhaul Shops at Delhi & Mumbai obtained
Future Plans
Q      To capture business of all airlines within flying distance of 5 hrs.
Q      Completion of GEnx / GE90 Testing & Overhaul Facility
Q      Third Party jobs at Jet Shops at DEL and BOM
Q      Third Party handling for Overhaul Shops
Q      ATEC (Automatic Test Equipment Complex)
DIRECTORS' RESPONSIBILITY STATEMENT:
The Board of Directors of the Company confirm:-
1.     that in the preparation of the Annual Accounts, the applicable accounting standards have been followed
       and there has been no material departure.
2.     that the selected accounting policies were applied consistently and the Directors made judgments and
       estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the
       Company as at 31 March 2015 and of the profit or loss of the Company for the year ended on that date.

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AIESL

3.     that proper and sufficient care has been taken for the maintenance of adequate accounting records in
       accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company
       and for preventing and detecting fraud and other irregularities, and
4.     that the annual accounts have been prepared according to the going concern basis.
5.     Company being unlisted sub clause (e) of section 134(3) is not applicable.
6.     The directors had devised proper systems to ensure compliance with the provisions of all applicable
       laws and that such systems were adequate and operating effectively.
STATUTORY AUDITOR REPORT
M/s. Jhawar Mantri & Associates, Chartered Accountants, Mumbai, were appointed as Statutory Auditors for
the year 2014-15 by the Comptroller & Auditor General of India.
The Statutory Auditors' Report on the Accounts of the Company for the Financial Year ended 31st March, 2015
along with observations/ Management's Replies thereon is attached.
COMMENTS OF THE CONTROLLER & AUDITOR GENERAL
The Comments of CAG dated 30-05-2016, were received pursuant to Section 143 (6) (b) of Companies Act
2013. The comments along with Management Reply thereon are attached.
CHANGE IN NATURE OF BUSINESS
There is no change in nature of business of the company.
DIVIDEND
The directors are not recommending any dividend as the company has not earned any profits.
AMOUNTS TRANSFERRED TO RESERVES
The Board of the company has decided/proposed to carry no amount to its reserves.
CHANGES IN SHARE CAPITAL, IF ANY
During the Financial Year 2014-15, there is no change in share capital of the Company.
INFORMATION ABOUT SUBSIDIARY/ JV/ ASSOCIATE COMPANY
Company does not have any Subsidiary, Joint venture or Associate Company.
TRANSFER OF UNCLAIMED DIVIDEND TO INVESTOR EDUCATION AND PROTECTION FUND
Since there was no unpaid/unclaimed Dividend declared and paid last year, the provisions of Section 125 of the
Companies Act, 2013 do not apply.
MATERIAL CHANGES AND COMMITMENTS
The particulars as required under the provisions of Section 134(3)(l), following changes have occurred which
have affected the financial position of the company occurred between 31st March 2015 and the date of Board's
Report.
“Authorised Share capital of the company has been increased from Rs. 10 Crores to Rs. 1000 Crores.”
MEETINGS OF THE BOARD OF DIRECTORS
During the Financial Year 2014-15, the Company held Four meetings of the Board of Directors as per Section
173 of Companies Act, 2013 which is summarized below. The provisions of Companies Act, 2013 was adhered
to while considering the time gap between two meetings.

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AIESL

       S No.           Date of Meeting                   Board Strength              No. of Directors Present
       1               09.07.2014                                4                                4
       2               05.11.2014                                4                                3
       3               26.11.2014                                4                                4
       4               31.03.2015                                3                                3
DIRECTORS AND KMP
The following changes a have occurred in the constitution of directors of the company:
       S.No    Name                         Designation          Date of appointment        Date of cessation
       1.      Shri Rohit Nandan            Chairman             13/09/2011                 31/08/2015
       2.      Shri G Asok Kumar            Director             11/02/2014                 23/04/2014
       3.      Ms. M Sathiyavathy           Director             26/02/2014                 11/02/2015
       4.      Shri Arun Kumar              Director             23/04/2014                 01/01/2015
       5.      Shri S Venkat                Director             27/12/2013                 31/10/2015
       6.      Shri B S Bhullar             Director             03/02/2015

EXTRACT OF ANNUAL RETURN
In compliance with the provisions of Section 92(3) of the Companies Act, 2013 read with Rule 12(1) of the
Companies (Management and Administration) Rules, 2014, extract of Annual Return is annexed at
Annexure-I.

STATEMENT SHOWING DETAILS OF EMPLOYEES
Section 197 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel)
Rules, 2014 in respect of employees of the Company is not applicable to Government Companies Vide
Notification No. G.S.R.463(E) Dated 5th June, 2015.
INDEPENDENT DIRECTORS AND DECLARATION
AIESL is a wholly owned Subsidiary of Air India Limited. As per the provisions of 97 Article of the Articles of
Association of the Company, the number of Directors of the Company shall not be less than three and not more
than fifteen all of whom shall be appointed by Air India Limited, who will prescribe the period for which they will
hold office as director and may remove them and appoint others in their places and fill in any vacancy that may
occur.
Accordingly, the matter regarding appointment of Independent Directors on the Board of AIESL has been taken
up by Air India Limited with the Ministry of Civil Aviation, Government of India.
NOMINATION REMUNERATION AND STAKEHOLDERS RELATIONSHIP COMMITTEE
As required under section 178, the Nomination and Remuneration Committee should consist of 3 or more Non
Executive Directors out of which not less than one half should be Independent Directors.
Presently there is no Independent Director on the Board of AIESL and the matter has been taken up with the
Ministry of Civil Aviation by Air India Limited.

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AIESL

REMUNERATION POLICY
Remuneration to Executive Directors and Non Executive Directors:
Section 197 in respect of remuneration to directors of the Company is not applicable to Government
Companies Vide Notification No.G.S.R.463(E) Dated 5th June, 2015
AUDIT COMMITTEE
The provisions of Section 177 of Companies Act, 2013 are not applicable on the Company. Therefore, the Audit
Committee was not constituted during the year.
VIGIL MECHANISM
Section 177(9) relating to establishment of Vigil Mechanism for directors and employees to report a genuine
concern is not applicable to the Company.
However, there is a separate Vigilance Department in Air India Ltd, Holding Company, which covers AIESL
also.
ORDER OF COURT
No significant and material orders have been passed by the regulators or courts or Tribunals impacting the
going concern status and company's operation in future during the year.
DETAILS OF ADEQUACY OF INTERNAL FINANCIAL CONTROLS
The system for adequacy of Internal Financial Controls with reference to the Financial Statements is yet to be
established as the company has been operationalised recently.
BOARD OF DIRECTORS:
                                                                    st
During the year, the Board of Directors held four meetings. As on 31 March 2015, the Board consisted of the
following Members:-

       Shri Rohit Nandan                          Chairman
       Chairman & Managing Director
       Air India Limited

       Shri B. S. Bhullar                         Director
       Joint Secretary
       Ministry of Civil Aviation

       Shri S. Venkat                             Director
       Director (Finance)
       Air India Limited
ACKNOWLEDGEMENTS:
The Board sincerely acknowledges the support and guidance received from the, Ministry of Civil Aviation,
Comptroller and Auditor General of India, Ministry of Corporate Affairs and other agencies.
                                                                                For & on behalf of the Board

                                                                                        (ASHWANI LOHANI)
                                                                                              CHAIRMAN
Place : New Delhi
Date : 19 June 2016

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AIESL

                                                            Annexure to Directors' Report for the year 2014-15
                                                                                                     Annexure

                             FORM NO. MGT 9 EXTRACT OF ANNUAL RETURN
                                   As on financial year ended on 31.03.2015
             Pursuant to Section 92 (3) of the Companies Act, 2013 and rule 12(1) of the Companies
                                  (Management & Administration) Rules, 2014.

I.         REGISTRATION & OTHER DETAILS:

      1.   CIN                                   U74210DL2004GOI125114

      2.   Registration Date                     11/03/2004

      3.   Name of the Company                   AIR-INDIA ENGINEERING SERVICES LIMITED (AIESL)

           Category/Sub category of the
      4.                                         Company Limited by shares/Union Government Company
           Company

           Address of the Registered office &     AIRLINES HOUSE, 113 GURUDWARA RAKABGANJ
      5.
           contact details                       ROAD, NEW DELHI –110001, Ph.No : 011-.23422109

      6    Whether listed company                No
           Name, Address & contact details of
      7.   the Registrar & Transfer Agent, if    N.A.
           any.

II.        PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY (All the business activities
           contributing 10 % or more of the total turnover of the company shall be stated) -

                                                                                     NIC Code       % to total
     Sr             Name and Description of main products / services                     of        turnover of
     No                                                                             the Product/       the
                                                                                      service       company

      1              Technical Handling, MRO and other Services                        9987          100%

III.       PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANY:

                                                                         Holding /
     Sr.    Name and Address of the                                                      % of      Applicable
                                                                        Subsidiary /
     No.          Company                        CIN/GIN                                Shares      Section
                                                                         Associate
  1        Air India Limited
           113, Airlines House,           U62200DL2007GOI161431           Holding        100%        2 (46)
           Gurudwara Rakabganj
           Road, New Delhi, 110 001.

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AIESL

IV.      SHARE HOLDING PATTERN (Equity Share Capital Breakup as percentage of Total
         Equity) : Category-wise Share Holding

                                 No. of Shares held at the         No. of Shares held at the end of the    %
       Category of                beginning of the year                  year [As on 31-03-2015]        Change
      Shareholders                 [As on 01-04-2014]                                                   during
                                                                                                          the
                                                During    % of                                   % of    year
                         Demat     Physical      the      Total    Demat Physical Total          Total
                                                 year    Shares                                 Shares

A. Promoters

(1) Indian

a) Individual/ HUF
b) Central Govt
c)    State Govt(s)

d) Bodies Corp.              -         50,000   50,000       100       -   50,000    50,000       100     0.00

e) Banks / FI

f)    Any other

Total shareholding of
                                       50,000   50,000       100       -   50,000    50,000       100     0.00
Promoter (A)

B. Public Shareholding

1.    Institutions

a) Mutual Funds/UTI

b) Banks / FI
c)    Central Govt.

d) State Govt.(s)
e) Venture Capital
   Funds
f) Insurance
   Companies
g) FIIs
h) Foreign Venture
   Capital Funds
i)    Others (specify)
      Foreign Banks

Sub-total (B)(1):-       -         -            -        -         -       -         -        -           -

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AIESL

                          No. of Shares held at the beginning of       No. of Shares held at the end of the
                               the year [As on 01-04-2014]                   year [As on 31-03-2015]             %
                                                                                                              Change
      Category of
                                                          % of                                        % of    during
     Shareholders         Demat   Physical     Total                 Demat      Physical   Total
                                                          Total                                       Total     the
                                                         Shares                                      Shares    year

2. Non-Institutions                                                Not Applicable
a) Bodies Corp.
   (Market Maker +
   LLP)
i) I Indian
ii) Overseas
b) Individuals
i)   Individual
     shareholders
     holding nominal
     share capital upto
     Rs. 1 lakh
ii) Individual
    shareholders
    holding nominal
    share capital in
    excess of Rs.
    1 lakh
c) Others (specify)
i)   Non Resident
     Indians
ii) Non Resident
    Indians - Non
    Repatriable
iii) Office Bearers
iv) Directors
v) HUF
vi) Overseas
    Corporate Bodies
vi) Foreign Nationals
vii) Clearing
      Members
viii) Trusts
ix) Foreign Bodies -
      DR
    Sub-total (B)(2):-       -         -          -          -              -       -         -          -      -
Total Public
Shareholding (B) =           -         -          -          -              -       -         -          -      -
(B)(1)+ (B)(2)
C. Shares held by
   Custodian for             -         -          -          -              -       -         -          -      -
   GDRs & ADRs
Grand Total (A+B+C)                 50,000    50,000      100           -       50,000     50,000     100      0.00

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AIESL

B)       Shareholding of Promoter-

                              Shareholding at the beginning          Shareholding at the end
                                       of the year                         of the year                 % change
                                                      % of                                  % of           In
                                                     Shares                                Shares       Share-
 Sr.      Shareholder's               % of total                            % of total
                                                    Pledged /                             Pledged /     holding
 No.         Name            No. of    Shares                     No. of     Shares
                                                     Encum-                                Encum-       during
                             Shares    of the                     Shares     of the                       the
                                                    bered to                                bered
                                      company                               company                      year
                                                      total                                to total
                                                     shares                                shares

         Air India Limited
     1   along with its      50,000      100             NIL       50,000       100              NIL      0.00
         nominees

C)       Change in Promoters' Shareholding (please specify, if there is no change)

 Sr       Particulars                               Shareholding at the           Cumulative Shareholding
 No.                                               beginning of the year             at end of the year

                                                                  % of total                         % of total
                                                   No. of                             No. of
                                                                shares of the                      shares of the
                                                   shares                             shares
                                                                  company                            company

          At the beginning of the year
          Air India Limited                          50000            100%               50000          100%
          At the end of the year
          Air India Limited                          50000            100%               50000          100%

D)       Shareholding Pattern of top ten Shareholders: (Other than Directors, Promoters
         and Holders of GDRs and ADRs):

                                                 Shareholding at the                  Cumulative Shareholding
                                                beginning of the year                    at end of the year
 Sr       For Each of the Top 10 Shareholders               % of total                              % of total
 No                                              No. of     shares of                   No. of      shares of
                                                 shares        the                      shares         the
                                                            company                                 company
 1                                          NOT APPLICABLE
 2
 3
 4
 5
 6
 7
 8
 9
 10

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AIESL

E)       Shareholding of Directors and Key Managerial Personnel:

                                                        Shareholding at the                Cumulative
                                                       beginning of the year          Shareholding at the end
 S.        Shareholding of each Directors and                            % of total                      % of total
 No.        each Key Managerial Personnel                  No. of        shares of        No. of         shares of
                                                           shares           the           shares            the
                                                                         company                         company

                             NIL

                            Total

V.       INDEBTEDNESS -Indebtedness of the Company including interest
         outstanding/accrued but not due for payment.
                                                                                                       (In Rs Crore)

                                                Secured Loans
                                                                    Unsecured                          Total
                                                  excluding                   Deposits
                                                                      Loans                        Indebtedness
                                                   deposits
 Indebtedness at the beginning of the           -                    -                -            -
 financial year

 i)     Principal Amount                                             1030423
 ii)    Interest due but not paid
 iii)   Interest accrued but not due
 Total (i+ii+iii)
 Change in Indebtedness during the              -                    -                -            -
 financial year

 * Addition
 * Reduction                                                         1030423
 Net Change
 Indebtedness at the end of the                 -                    -                -            -
 financial year

 i)     Principal Amount                                                  NIL
 ii)    Interest due but not paid
 iii)   Interest accrued but not due
 Total (i+ii+iii)                               NIL                  NIL              -            NIL

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AIESL

VI.         REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL

A.          Remuneration to Managing Director, Whole-time Directors and/or Manager:

                                                                                                 (In figures)

 Sr                                                          Name of MD/WTD/ Manager              Total
                 Particulars of Remuneration
 No                                                                                              Amount

      1    Gross salary                                 -         -          -       -   -           -
            (a) Salary as per provisions contained in
            section 17(1) of the Income-tax Act, 1961
            (b)Value of perquisites u/s 17(2) Income-
            tax Act, 1961
            (c)Profits in lieu of salary under section
            17(3) Income- tax Act, 1961
      2    Stock Option
      3    Sweat Equity
      4    Commissionas % of profitothers, specify.

      5     Others : (PF, DCS, House Perks tax etc)
           Total (A)                                    -         -          -       -   -           -
           Ceiling as per the Act                     -        -       -             -   -           -
          *There are no Managing, Whole Time Directors in the Company.

B.          Remuneration to other directors
 Sr                                                                                               Total
                  Particulars of Remuneration                    Name of Directors
 No.                                                                                             Amount
 1          Independent Directors                       -        -       -       -           -       -
            Fee for attending board committee
                                                        -        -       -       -           -       -
            meetings
            Commission                                  -        -       -       -           -       -
            Others, please specify (Fees for
            attending Board Sub Committee               -        -       -       -           -       -
            Meetings)
            Total(1)                                    -        -       -       -           -       -
 2          Other Non-Executive Directors               -        -       -       -           -       -
            Fee for attending board committee
                                                        -        -       -       -           -       -
            meetings
            Commission                                  -        -       -       -           -       -
            Others, please specify                      -        -       -       -           -       -
            Total (2)                                   -        -       -                   -       -
            Total (B)=(1+2)                             -        -       -       -           -       -
            Total Managerial Remuneration               -        -       -       -           -       -
            Overall Ceiling as per the Act              -        -       -       -           -       -
                                                        -        -       -       -           -       -

                                                            14
AIESL

C.     REMUNERATION TO            KEY       MANAGERIAL         PERSONNEL             OTHER    THAN
       MD/MANAGER/WTD
                                                                                                   ( figures in Rs)

 Sr.                                                               Key Managerial Personnel
            Particulars of Remuneration
 No.                                                   CEO             CS               CFO             Total
                                                       Not            Not               Not
  1    Gross salary                                                                                       -
                                                    Applicable      Applicable        Applicable
       (a) Salary as per provisions contained
           in section 17(1) of the Income-tax              -            -                 -               -
           Act, 1961
       (b) Value of perquisites u/s 17(2)
           Income-tax Act, 1961                            -            -                 -               -

       (c) Profits in lieu of salary under section
           17(3) Income-tax Act, 1961                      -            -                 -               -

  2    Stock Option                                        -            -                 -               -
  3    Sweat Equity                                        -            -                 -               -
  4    Commission                                          -            -                 -               -
       - as % of profit                                     -            -                 -               -
       Others, specify.                                    -            -                 -               -
  5    Others: (PF, DCS, House Perks tax etc)              -            -                 -               -
       Total                                               -            -                 -               -

VII.   PENALTIES / PUNISHMENT/ COMPOUNDING OF OFFENCES:

                                                                     Details of
                                    Section of                                                          Appeal
                                                                     Penalty /          Authority
                                       the             Brief                                            made, if
             Type                                                   Punishment/        [RD / NCLT/
                                    Companies       Description                                        any (give
                                                                   Compounding           COURT]
                                       Act                                                              Details)
                                                                   fees imposed
  A. COMPANY
       Penalty                               -                 -                 -                 -            -
       Punishment                            -                 -                 -                 -            -
       Compounding                           -                 -                 -                 -            -
  B. DIRECTORS
       Penalty                               -                 -                 -                 -            -
       Punishment                            -                 -                 -                 -            -
       Compounding                           -                 -                 -                 -            -
  C. OTHER OFFICERS IN DEFAULT
       Penalty                               -                 -                 -                 -            -
       Punishment                            -                 -                 -                 -            -
       Compounding                           -                 -                 -                 -            -

                                                      15
AIESL

COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF INDIA UNDER SECTION 143(6)(b)
OF THE COMPANIES ACT, 2013 ON THE FINANCIAL STATEMENT OF AIR INDIA ENGINEERING
SERVICES LIMITED FOR THE YEAR ENDED 31 MARCH 2015.

The preparation of financial statement of Air India Engineering Services Limited for the year ended 31 March
2015 in accordance with the financial reporting framework prescribed under the Companies Act, 2013 is the
responsibility of the Management of the Company. The Statutory Auditors appointed by the Comptroller and
Auditor General of India under section 139(5) of the Act is responsible for expressing opinion on the financial
statements under Section 143 of the Act based on independent audit in accordance with Standards on auditing
prescribed under section 143(10) of the Act. This is stated to have been done by them vide their Audit Report
dated 31 March 2016.

I, on the behalf of the Comptroller and Auditor General of India (CAG), have conducted a supplementary audit
under section 143(6)(a) of the Act of the financial statements of Air India Engineering Services Limited for the
year ended 31 March 2015. This supplementary audit has been carried out independently without access to
the working papers of the statutory auditors and is limited primarily to inquiries of the statutory auditors and
company personnel and a selective examination of some of the accounting records. On the basis of my audit
nothing significant has come to my knowledge which would give rise to any comment upon or supplement to
Statutory Auditor’s Report.

Balance Sheet
Current Liabilities
Other Current Liabilities Note No.8 Rs. 173.57 Crore

A reference is invited to Note No.21(1) wherein disclosure regarding contingent liability of Rs.33.42 crore on
account of 25 per cent balance payment of allowances to the employees from October 2014 has been made. As
75 per cent of the allowance payable to various categories of employees has already been paid and the revised
pay structure has been implemented in respect of technical officers and aircraft maintenance engineers, the
liability for service engineers should have been provided. Thus, non-provision has resulted in understatement
of other current liability and understatement of loss for the year by Rs.33.42 crore.

                                                                                                         Sd/-
                                                                                                Parama Sen
                                                                       Principal Director of Commercial Audit
                                                                 & ex-officio Member, Audit Board-II, Mumbai

Place : Mumbai
Date : 30 May 2016

                                                        16
AIESL

MANAGEMENT REPLIES TO THE COMMENTS OF THE COMPTROLLER AND AUDITOR GENERAL OF
INDIA UNDER SECTION 143(6)(b) OF THE COMPANIES ACT, 2013 ON THE ACCOUNTS OF THE
COMPANY FOR THE YEAR ENDED MARCH 31,2015
                 Audit Observation                                         Management Reply

Balance Sheet                                            In terms of the rationalized Pay-Scales determined
Current Liabilities                                      by the AI Management in line with the recommend-
Other Current Liabilities Note No.8 Rs. 173.57           ations of the Justice Dharamadhikari Report (JDC),
Crore                                                    the AI Management has paid 75% of the allowances
                                                         payable to various categories effective July 2012 so
A reference is invited to Note No.21(1) wherein          that any adjustments as a result of the implement-
disclosure regarding contingent liability of Rs.33.42    ation of the JDC Report could be made at the time of
crore on account of 25 per cent balance payment of       final settlement. The JDC recommendations are for
allowances to the employees from October 2014 has        AI as a whole prior to transfer of engineering payroll
been made. As 75 per cent of the allowance payable       to AIESL effective Oct. 2014. Therefore, in respect of
to various categories, of employees has already          the remaining 25% of the allowances, the Company
been paid and the revised pay structure has been         has provided for contingent liability to the extent of
implemented in respect of technical officers and          Rs.334.2 million from the date of transfer of
aircraft maintenance engineers, the liability for        Engineering Employees Payroll to the Company ie
service engineers should have been provided.             effective October-2014 on the basis of advice from
Thus, non-provision has resulted in understatement       the parent company.
of other current liability and understatement of loss
for the year by Rs.33.42 crore.                          Based on the JDC recommendations, the revised
                                                         pay structure for Technical Officers (Support Service)
                                                         and Aircraft Maintenance Engineers (AMEs) has
                                                         since been implemented w.e.f. November-2014 and
                                                         January 2015 respectively during the year under
                                                         audit. The revised pay structure for Service
                                                         Engineers was yet to be implemented.

                                                         It may be mentioned that effective the date of
                                                         implementation of the new Pay Structure for AMEs,
                                                         Technical Officers, there is no liability to pay 25% as
                                                         the Revised Pay Structure is already in line with the
                                                         JDC recommendations & DPE Pay Scale. In respect
                                                         of the period prior to this, the calculation of amount of
                                                         25% is yet to be completed since there would be
                                                         deductions in respect of certain allowances which
                                                         has already been made during past period and
                                                         discontinued under the new pay structure.

                                                         Unless the exercise of working out the arrears
                                                         payable to all the employees is completed, the total
                                                         quantum of liability on this account is not exactly
                                                         ascertainable / quantifiable.

                                                         It is also disclosed in Note 21.1-3rd para- “....Unless
                                                         the exercise of working out the arrears payable to all
                                                         the employees is completed, the total quantum of
                                                         liability on this account is not exactly ascertainable”.

                                                        17
AIESL

 REPORT OF THE AUDITORS OF THE MEMBERS OF AIR INDIA ENGINEERING SERVICES LIMITED

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of Air India Engineering Services Limited ('the
                                                    st
Company') which comprises the Balance Sheet as at 31 March 2015, the Statement of Profit and Loss, the
Cash Flow Statement for the year then ended and a summary of significant accounting policies and other
explanatory information.

MANAGEMENT'S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The Company's Board of Directors are responsible for the matters stated in Section 134(5) of the Companies
Act, 2013 (“the Act”) with respect to the preparation and presentation of these financial statements that give a
true and fair view of the financial position, financial performance and cash flows of the Company in accordance
with the accounting principles generally accepted in India, including the Accounting Standards specified under
Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014. This responsibility also
includes maintenance of adequate accounting records in accordance with the provisions of the Act for
safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities;
selection and application of appropriate accounting policies; making judgments and estimates that are
reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls,
that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant
to the preparation and presentation of the financial statements that give a true and fair view and are free from
material misstatement, whether due to fraud or error.

AUDITOR'S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We have taken
into account the provisions of the Act, the accounting and auditing standards and matters which are required to
be included in the audit report under the provisions of the Act and the Rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the
Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the
financial statements. The procedures selected depend on the auditor's judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal financial control relevant to the Company's preparation of the
financial statements that give a true and fair view in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an
adequate internal financial controls system over financial reporting and the operating effectiveness of such
controls. An audit also includes evaluating the appropriateness of the accounting policies used and the
reasonableness of the accounting estimates made by the Company's Directors, as well as evaluating the
overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion on the financial statements.

BASIS FOR QUALIFIED OPINION

Attention is drawn to point no. 9 and 11 (C) of note no. 21 of notes to accounts and particularly note no. 9 (b)
regarding capitalization of revenue expenditure incurred during the period from October 2014 to December
2014 as “other intangible assets” of Rs. 271,38,28,069/- which in our opinion is not in conformity with the

                                                         18
AIESL

Accounting Standard -26 “Intangible Assets”, basic accounting assumptions, principles and qualitative
characteristics of financial statements. Consequently expenses and losses are understated by Rs.
271,38,28,069, in the Profit & Loss account and Reserves and Surplus, negative balance in Profit & Loss
Account is understated by Rs. 271,38,28,069 in the Balance Sheet.

QUALIFIED OPINION

In our opinion and to the best of our information and according to the explanations given to us, except for the
effects of the matters described in the Basis for Qualified Opinion paragraph above, the aforesaid financial
statements give the information required by the Act in the manner so required and give a true and fair view in
conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at
March 31, 2015, and its loss and its cash flows for the year ended on that date.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

1.     As required by the Companies (Auditor's Report) Order, 2015 ('the Order'), issued by the Central
       Government of India in terms of sub-section (11) of section 143 of the Act, and on the basis of such
       checks of the books and records of the Company as we considered appropriate and according to the
       information and explanations given to us, we give in the Annexure 1 a statement on the matters
       specified in paragraphs 3 and 4 of the Order, to the extent applicable.

2.     We are enclosing our report in terms of section 143(5) of the Act, on the basis of such checks of the
       books and records of the Company as we considered appropriate and according to the information and
       explanations given to us, we give in the Annexure 2 on the directions issued by the Comptroller and
       Auditor General of India.

3.     As required by section 143(3) of the Act, we report that :

       a.      We have sought and obtained all the information and explanations which to the best of our
               knowledge and belief were necessary for the purpose of our audit;

       b.      In our opinion, proper books of account as required by law have been kept by the Company so
               far as it appears from our examination of those books;

       c.      The Balance Sheet, the Statement of Profit and Loss and Cash Flow Statement dealt with by
               this Report are in agreement with the books of account;

       d.      Except for the effects of the matters described in the Basis for Qualified Opinion paragraph
               above, in our opinion, the aforesaid financial statements comply with the Accounting Standards
               specified under Section 133 of the Act, read with Rule 7 of the Companies (Account) Rules,
               2014;

       e.      In our opinion there is no adverse effect on the functioning of the company.

       f.      On the basis of the written representations received from the directors as on 31 March 2015
               taken on record by the Board of Directors, none of the Director is disqualified as on 31st March
               2015, from being appointed as a Director in terms of Section 164 (2) of the Act;

       g.      Except for the effects of the matters described in the Basis for Qualified Opinion paragraph
               above, there is no qualification, reservation or adverse remark relating to maintenance of
               accounts and other matters connected therewith; and

                                                         19
AIESL

      h.     With respect to the other matters to be included in the Auditor's Report in accordance with Rule
             11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our
             information and according to the explanations given to us:

             i)     The Company does not have any pending litigations which would impact its financial
                    position.

             ii)    The Company did not have any long-term contracts including derivative contracts for
                    which there were any material foreseeable losses; and

             iii)    There has not been an occasion in case of the Company during the year under report to
                    transfer any sums to the Investor Education and Protection Fund. The question of delay
                    in transferring such sums does not arise.

                                                                         For Jhawar Mantri & Associates
                                                                                   Chartered Accountants
                                                                               (Firm Regn. No. 113221W)

                                                                                                       Sd/-
Place : Navi Mumbai                                                                            B. P. Mantri
Date : 31 March 2016                                                                                Partner
                                                                                             M. No. 045701

                                                     20
AIESL

                      ANNEXURE 1 – TO INDEPENDENT AUDITOR'S REPORT

THE ANNEXURE REFERRED TO IN OUR INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF
                                                               ST
THE COMPANY ON THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2015, WE
REPORT THAT:

1.   (a)    The Company has maintained proper records of fixed assets showing full particulars including
            quantitative situation of Fixed Assets in the SAP system.

     (b)    All the fixed assets have been transferred to the company during the year from its parent
            company. As informed to us the physical verification of major fixed assets has been conducted
            by the parent company for the biennial period of 2012-2014.

2.   (a)    The Company is not carrying on any trading or manufacturing activities. Accordingly clause
            relating to inventory is not applicable.

3.   As informed to us, the Company has not granted any loans, secured or unsecured to the companies,
     firms and other parties covered in the register maintained under section 189 of the Companies Act,
     2013.

     (a)    Since there are no such loans, question of regular in repaying the principal or interest amounts
            as stipulated does not arise.

     (b)    There are no overdue amounts of more than rupees one lakh in respect of the loans granted to
            the body corporate, firm and other parties listed in the register maintained under section 189 of
            the Act.

4.   In our opinion and according to the information and explanations given to us, there is adequate internal
     control system commensurate with the size of the company and the nature of its business with regard to
     purchases of inventory, fixed assets and for sale of goods and services. We have not observed any
     continuing failure to correct weakness in the internal control system during the course of our audit.

5.   The Company has not accepted any deposits from the public covered under section 73 to 76 of the
     Companies Act, 2013.

6.   The Central Government has not prescribed the maintenance of cost records under section 148(1) of
     the Act, for of the goods and services dealt in by the Company.

7.   (a)    The Company is not regular in depositing undisputed statutory dues including provident
            fund, income tax, service tax and any other statutory dues with the appropriate
            authorities. There are no amounts in arrears as at 31st March 2015 for a period of more
            than six months from the date they became payable.

     (b)    According to the information and explanations given to us, there are no material dues of income
            tax, sales tax, wealth tax, service tax, duty of customs, duty of excise, value added tax or cess
            which have not been deposited with the appropriate authorities on account of any dispute

     (c)    According to the information and explanations given to us, there are no amount which required
            to be transferred to investor education and protection fund in accordance with the relevant
            provisions of the Companies Act, 1956 (1 of 1956) and rules made thereunder.

8.   The Company is having accumulated losses of Rs. 242,67,09,080/- which is more than 50% of its
     net worth. During the year, the Company has incurred cash losses of Rs. 221,61,86,688/-. Cash
     Loss in the immediately preceding financial year was Rs. 31,059/-.

                                                     21
AIESL

9.    The Company has not defaulted in repayment of dues to financial institution or bank or debenture
      holders.

10.   In our opinion and according to the information and the explanations given to us, the Company has not
      given any guarantee for loans taken by others from banks or financial institutions.

11.   In our opinion and according to the information given to us, the term loans have been applied for the
      purpose for which the loans were obtained.

12.   To the best of our knowledge and belief and according to the information and explanations given to us,
      no fraud on or by the company was noticed or reported during the year.

                                                                         For Jhawar Mantri & Associates
                                                                                   Chartered Accountants
                                                                               (Firm Regn. No. 113221W)

                                                                                                      Sd/-
Place : Navi Mumbai                                                                           B. P. Mantri
Date : 31 March 2016                                                                               Partner
                                                                                            M. No. 045701

                                                     22
AIESL

                       ANNEXURE-2 TO THE INDEPENDENT AUDITORS’ REPORT
Annexure referred to in our report of even date to the members of Air India Engineering Services Limited on the
accounts for the year ended 31 March 2015.
 S.       Directions under Section 143(5)                     Auditor’s Comment                  Impact on
 No.          of Companies Act 2013                                                               Financial
                                                                                                 Statement
1.      If the Company has been selected for          The Company has not been selected        Not Applicable
        disinvestment, a complete status report in    for disinvestment during the financial
        terms of valuation of Assets (including       year 2014-15.
        intangible assets and land) and Liabilities
        (including Committed & General
        Reserves) may be examined including the
        mode and Present stage of disinvestment
        process

2.      Please report whether there are any cases     According to information and                  Nil
        of waiver/write off of debts/loans/interest   explanations given to us, there are
        etc., if yes, the reasons there for and the   no cases of waiver/write off of
        amount involved.                              debts/loans/interest etc.

3.      Whether proper records are maintained         According to information and                  Nil
        for inventories lying with third parties &    explanations given to us, there is no
        assets received as gift from Govt. or other   inventory lying with third parties and
        authorities.                                  there is no assets received as gift
                                                      from Govt. or other authorities.

4.      A report on age-wise analysis of pending      According to information and                  Nil
        legal/arbitration cases including the         explanations given to us, there are
        reasons of pendency and existence/            no legal/arbitration cases pending
        effectiveness of a monitoring mechanism       against the Company or filed by the
        for expenditure on all legal cases (foreign   Company.
        an local) may be given.

                                                                             For Jhawar Mantri & Associates
                                                                                       Chartered Accountants
                                                                                   (Firm Regn. No. 113221W)

                                                                                                          Sd/-
Place : Navi Mumbai                                                                                B.P. Mantri
                                                                                                       Partner
Date : 31 March 2016                                                                              M.N. 045701

                                                        23
AIESL

         MANAGEMENT’S COMMENTS ON OBSERVATIONS OF THE STATUTORY AUDITORS

The management’s comments to the observations of the Auditors are as under :

Most of the points raised by the Auditors are self-explanatory/statement of facts. Additional
information/explanation wherever required are furnished below :
                  Audit Observations                                       Management’s Comment

 Report on the Financial Statements                        Statement of fact

 We have audited the accompanying financial
 statements of Air India Engineering Services
 Limited (’the Company’) which comprises the
 Balance Sheet as at 31st March 2015, the Statement
 of Profit and Loss, the Cash Flow Statement for the
 year then ended and a summary of significant
 accounting policies and other explanatory
 information.

 Management’s Responsibility for the Financial             Statement of fact
 Statements

 The Company’s Board of Directors are responsible
 for the matters stated in Section 134(5) of the
 Companies Act, 2013 (”the Act”) with respect to the
 preparation and presentation of these financial
 statements that give a true and fair view of the
 financial position, financial performance and cash
 flows of the Company in accordance with the
 accounting principles generally accepted in India,
 including the Accounting Standards specified under
 Section 133 of the Act, read with Rule 7 of the
 Companies (Accounts) Rules, 2014. This
 responsibility also includes maintenance of
 adequate accounting records in accordance with the
 provisions of the Act for safeguarding the assets of
 the Company and for preventing and detecting
 frauds and other irregularities; selection and
 application of appropriate accounting policies;
 making judgements and estimates that are
 reasonable and prudent; and design, implement-
 ation and maintenance of adequate internal financial
 controls, that were operating effectively for ensuring
 the accuracy and completeness of the accounting
 records, relevant to the preparation and presentation
 of the financial statements that give a true and fair
 view and are free from material misstatement,
 whether due to fraud or error.

 Auditor’s Responsibility                                  Statement of fact

 Our responsibility is to express an opinion on these

                                                          24
AIESL

                 Audit Observations                                        Management’s Comment
financial statements based on our audit. We have
taken into account the provisions of the Act, the
accounting and auditing standards and matters
which are required to be included in the audit report
under the provisions of the Act and the Rules made
thereunder.

We conducted our audit in accordance with the
Standards on Auditing specified under Section
143(10) of the Act. Those Standards require that we
comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance
about whether the financial statements are free from
material misstatement.

An audit involves performing procedures to obtain
audit evidence about the amounts and the
disclosures in the financial statements. The
procedures selected depend on the auditor’s
judgement, including the assessment of the risks of
material misstatement of the financial statements,
whether due to fraud or error. In making those risk
assessments, the auditor considers internal financial
control relevant to the Company’s preparation of the
financial statements that give a true and fair view in
order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of
expressing an opinion on whether the Company has
in place an adequate internal financial controls
system over financial reporting and the operating
effectiveness of such controls. An audit also
includes evaluating the appropriateness of the
accounting policies used and the reasonableness of
the accounting estimates made by the Company’s
Directors, as well as evaluating the overall
presentation of the financial statements.

We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
audit opinion on the financial statements.

Basis for Qualified Opinion

Attention is drawn to point no. 9 and 11© of note          Any MRO prior to its operationalization has to take a
no. 21 of notes to accounts and particularly note          certification from DGCA and other Regulatory
no. 9 (b) regarding capitalization of revenue              authorities that it has the basic infrastructure and
expenditure incurred during the period from                licensed manpower support to start the operations of
October 2014 to December 2014 as “other                    the Company. Though the manpower of AI was
intangible assets” of Rs. 271,38,28,069/- which in         transferred to the subsidiary company in February
                                                           2013, the Company could not commence business
                                                           on a stand alone basis due to the various Court cases

                                                          25
AIESL

               Audit Observations                                  Management’s Comment
our opinion is not in conformity with the          and Company not possessing the requisite license
Accounting Standard-26 “Intangible Assets”,        from DGCA and other authorities. After the Company
basic accounting assumptions, principles and       resolved its Court cases in May 2013 it took
qualitative characteristics of financial            considerable time to comply with the various
statements. Consequently expenses and losses       requirements of the licensing authorities before the
are understated by Rs. 271,38,28,069, in the       CAR 145 certification was issued by DGCA. This
Profit & Loss account and Reserves and Surplus,     required the Company to show that considerable
negative balance in Profit & Loss Account is        trained, licensed and experienced manpower along
understated by Rs. 271,38,28,069 in the Balance    with the infrastructure existed in the Company which
Sheet.                                             qualifies the Company for a Certification as MRO. It
                                                   is, therefore, proposed to Capitalize the expenditure
                                                   incurred by the Company mainly on manpower at
                                                   least three months before it obtained the license for
                                                   certification as License Cost. In this connection
                                                   Management had relied on an opinion from the tax
                                                   consultants wherein the revenue expenditure
                                                   incurred including manpower cost directly
                                                   attributable to DGCA License for CAR-145 MRO with
                                                   certification for practically making ready the MRO
                                                   Set up for obtaining DGCA License for its planned
                                                   activities / work has been capitalized as Intangible
                                                   Assets.

                                                   The main conditions for capitalizing an internally
                                                   generated asset as per As (Accounting Standard) 26
                                                   corresponding to IAS 38 (International Accounting
                                                   Standard) as “Intangible Asset” is

                                                   l      Assets will generate future Economic
                                                          benefits.

                                                   l      The Intangible asset is available for use

                                                   l      Ability to measure the expenditure attribut-
                                                          able to the Intangible Asset.

                                                   Since all these conditions are satisfied in the relevant
                                                   case it has been decided to Capitalise the cost of
                                                   obtaining a License under CAR 145.

                                                   (A separate explanatory note along with the Opinion
                                                   of Tax Consultants attached)

                                                   Based on the clarifications given by the Management
                                                   on the qualifications by the Auditors, the Manage-
                                                   ment is of the view that there is no understatement of
                                                   expenses, loss, Reserve & Surpluses and negative
                                                   balance in Profit & Loss Account.

                                                  26
AIESL

                 Audit Observations                                        Management’s Comment
Qualified Opinion
In our opinion and to the best of our information and      Audit Comments are noted.
according to the explanations given to us, except for
the effects of the matters described in the Basis for
Qualified Opinion paragraph above, the aforesaid
financial statements give the information required by
the Act in the manner so required and give a true and
fair view in conformity with the accounting principles
generally accepted in India, of the state of affairs of
the Company as at March 31, 2015, and its loss and
its cash flows for the year ended on that date.
1.     As required by the Companies (Auditor’s
       Report) Order, 2015 (’the Order’), issued by
       the Central Government of India in terms of
       sub-section (11) of section 143 of the Act, and
       on the basis of such checks of the books and
       records of the Company as we considered
       appropriate and according to the information
       and explanations given to us, we give in the
       Annexure 1 a statement on the matters
       specified in paragraphs 3 and 4 of the Order,
       to the extent applicable.
2.     We are enclosing our report in terms of             Statement of fact
       section 143(5) of the Act, on the basis of such
       checks of the books and records of the
       Company as we considered appropriate and
       according to the information and
       explanations given to us, we give in the
       Annexure 2 on the directions issued by the
       Comptroller and Auditor General of India.
3.     As required by section 143(3) of the Act, we        Statement of fact
       report that :
       (a)     We have sought and obtained all the
               information and explanations which
               to the best of our knowledge and
               belief were necessary for the purpose
               of our audit;
       (b)     In our opinion, proper books of
               account as required by law have been
               kept by the Company so far as it
               appears from our examination of
               those books;
       (c)     The Balance Sheet, the Statement of
               Profit and Loss and Cash Flow
               Statement dealt with by this Report
               are in agreement with the books of
               account;

                                                          27
AIESL

         Audit Observations                           Management’s Comment
(d)     Except for the effects of the matters
        described in the Basis for Qualified
        Opinion paragraph above, in our
        opinion, the aforesaid financial
        statements comply with the Account-
        ing Standards specified under
        Section 133 of the Act, read with Rule
        7 of the Companies (Account) Rules,
        2014;
(e)     In our opinion there is no adverse
        effect on the functioning of the
        company.
(f)     On the basis of the written represent-
        ations received from the directors as
        on 31 March 2015 taken on record by
        the Board of Directors, none of the
        Director is disqualified as on 31st
        March 2015, from being appointed as
        a Director in terms of Section 164 (2)
        of the Act;
(g)     Except for the effects of the matters
        described in the Basis for Qualified
        Opinion paragraph above, there is no
        qualified, reservation or adverse
        remark relating to maintenance of
        accounts and other matters con-
        nected therewith; and
(h)     With respect to the other matters to
        be included in the Auditor’s Report in
        accordance with Rule 11 of the
        Companies (Audit and Auditors)
        Rules 2014, in our opinion and to the
        best of our information and according
        to the explanations given to us:
(i)     The company does not have any
        pending litigations which would
        impact its financial position.
(ii)    The Company did not have any long-
        term contracts including derivative
        contracts for which there were any
        material foreseeable losses; and
(iii)   There has not been an occasion in
        case of the Company during the year
        under report to transfer any sums to
        the Investor Education and Protec-
        tion Fund. The question of delay in
        transferring such sums does not
        arise.

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