1. COMPANY INFORMATION/ OVERVIEW
Jet Airways (India) Limited (the Company) is a public limited company incorporated in India. The Company commenced its operations on 5 May, 1993. The principal activities of the Company comprise scheduled air transportation which includes carriage of passengers & cargo and provision of related allied services. The Company’s registered office is at Siroya Centre, Sahar Airport Road Andheri (East), Mumbai-400 099.
2. BASIS OF PREPARATION
i. Statement of compliance
The Company has adopted Indian Accounting Standards (Ind AS) with effect from 1 April 2017, with transition date of 1 April 2016, pursuant to notification issued by Ministry of Corporate Affairs dated 16 February 2015, notifying the Companies (Indian Accounting Standards) Rules, 2015. Accordingly, the financial statements comply with Ind AS as prescribed under section 133 of the Companies Act, 2013 (the “Act”), read together with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015, relevant provisions of the Act and other accounting principles generally accepted in India. The financial statements upto and for the year ended 31 March 2017 were prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended), as notified under section 133 of the Act (“Previous GAAP”) and other relevant provision of the Act.
The financial statements for the year ended 31 March 2018 are the first financial statements of the Company prepared under Ind AS. A detail reconciliation on the impact of transition to Ind AS to the previously reported financial position, financial performance and cash flows of the Company is included in Note 37.
The financial statements were approved by the Board of Directors of the Company on 23rd May 2018..
ii. Functional and presentation currency
These financial statements are presented in Indian rupees, the functional currency of the Company. All amounts have been rounded off to two decimal places to the nearest lakh, unless otherwise indicated.
iii. Basis of measurement
The financial statements have been prepared on a historical cost basis, except certain financial assets and liabilities (including derivative instrument) that are measured at fair value or amortised cost.
iv. Going Concern Assumption
The Financial statement have been prepared on going concern basis (Refer Note 52).
v. Critical accounting estimates and judgements
The preparation of financial statements in accordance with Ind AS requires use of estimates and assumptions for some items, which might have an effect on their recognition and measurement in the balance sheet and statement of profit or loss. The actual amounts realised may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.
Information about significant areas of estimation/uncertainty and judgements in applying accounting policies that have the most significant effect on the financial statements are as follows:
- Note 3(b)(iv) - estimate of revenue recognition from “Forward Sales Account”
- Note 4 - measurement of useful life and residual values of property, plant and equipment and the assessment as to which components of the cost may be capitalized
- Note 22 - estimation of costs of redelivery and overhaul
- Note 39 - recognition of deferred tax assets
- Note 40 - recognition and measurement of defined benefit obligations
- Note 41 - judgement required to ascertain lease classification
- Note 43 - measurement of fair values and Expected Credit Loss (ECL)
- Note 45 - judgement is required to ascertain whether it is probable or not that an outflow of resources embodying economic benefits will be required to settle the taxation disputes and legal claim.
- Notes 50 - estimation of future engine maintenance plan
Carrying amount of approx Rs.48,800 Lakhs is Secured against borrowing. Further, the Company has restriction to sell certain portion of the property till September 2020.
Direct operating expenses Rs.418 Lakhs (excluding depreciation) related to investment property have been incurred during the year ended 31 March 2018.
Measurement of fair values
i The fair value of investment property has been determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The fair value measurement for all of the investment property has been categorised as a level 3 fair value based on the inputs to the valuation technique used.
ii Valuation technique : Valuation is done as per income approach (discounted cash flow) method. The following steps were performed to arrive at the value estimate:
- Developed projections for the Subject Property of potential gross revenue, rent losses and operating expenses during the holding period.
- Estimated available annual cash flows during the holding period and estimated a terminal value at the end of the holding period that represented the hypothetical sale of the property.
- Estimated the present value of the annual cash flows and terminal value as of the Estimate Date using a discount rate consistent with the inherent level of risk associated with the property.
- The main assumptions used for valuing are rental growth rate, rent abatement period, terminal yields and discount rates based on comparable transaction.
i. Security Deposits include deposits to Related Parties at amortised cost of Rs.148 Lakhs 31 March 2018 (31 March 2017: Rs.137 Lakhs, 1 April 2016: Rs.127 Lakhs) placed as deposit with private limited company in which the Company’s Director is a Director / Member.
ii. Loans to Related Party represents loan given to Jet Lite (India) Limited, a wholly owned subsidiary.
Customs duty and Integrated Goods and Service Tax (IGST) paid by the Company ‘under protest’ on reimport of repaired aircraft engines and certain aircraft parts aggregating to Rs.21,134 Lakhs. The Company has since filed appeals with the appropriate authorities based on the advice received from experts.
(a) 6,989 Non-Convertible Debentures (NCD) were issued in September’2015 at a face value of Rs.10,00,000 per debenture. These debentures are redeemable at the end of five years from the date of allotment at a premium of Rs.70,100 per debenture. These NCDs are unsecured and carry an interest rate of 20.64 % p.a. payable quarterly. This NCD has prepayment option at end of third and fourth year.
(b) Rupee Term Loans of Rs.161,306 Lakhs as on 31 March 2018 (Rs.149,417 Lakhs as on 31 March 2017, Rs.4,717 Lakhs as on 1 April 2016) and Foreign Currency Term Loan of Rs.7,239 Lakhs as on 31 March 2018 (Rs.10,324 Lakhs as on 31 March 2017, Rs.15,875 Lakhs as on 1 April 2016) which are secured by way of a first pari-passu charge on domestic credit card realization, both present and future. These loans are repayable in monthly instalments by September 2023. Interest rates are based on respective Banks MCLR / LIBOR plus Margin.
(c) Foreign Currency Term Loans of Rs.87,657 Lakhs as on 31 March 2018 (Rs.82,176 Lakhs as on 31 March 2017, Rs.46,862 Lakhs as on 1 Apirl 2016) secured by way of a pari-passu charge on all the current and future international credit card realizations, received into a Trust and Retention Account maintained with the Banks together with a First hypothecation charge on the four flight simulators and an exclusive charge on Fixed Deposits aggregating to Rs.11,328 Lakhs as on 31 March 2018 (Rs.10,435 Lakhs as on 31 March 2017, Rs.10,435 Lakhs as on 1 April 2016) with maturity value of Rs.11,936 Lakhs.
These loans are repayable in monthly instalments by December, 2022. Interest rates are based on LIBOR plus Margin.
(d) Foreign Currency Term Loan of Rs.140,499 Lakhs as on 31 March 2018 (Rs.181,364 Lakhs as on 31 March 2017, Rs.89,196 Lakhs as on 1 April 2016) secured by way of First Charge on: (i) IATA BSP receivables from the Kingdom of Saudi Arabia, United Arab Emirates, Qatar, Oman, Bahrain and Kuwait (ii) Revenue Account, Debt Service Reserve Account and Receivable Collection Account, maintained with the lead Bank.
These loans are repayable in monthly instalments by August, 2021. Interest rates are based on LIBOR plus Margin.
(e) Rupee Term Loan of Rs.40,000 Lakhs as on 31 March 2018 (31 March 2017: Nil; 01 April 2016: Nil) secured by first charge on a portion of the investment property.
This loan is repayable in monthly instalments by August 2022. Interest rates are based on Corporate Prime Landing Rate (CPLR) less Margin.
(f) Foreign Currency Term Loan of Rs.91,245 Lakhs as on 31 March 2018 (Rs.90,790 Lakhs as on 31 March 2017, Rs.92,757 Lakhs as on 1 April 2016) is availed against a corporate guarantee given by one of the Shareholder to the lender. In return, the Company has hypothecated one of its B737 Aircraft in favour of that Shareholder; however, creation of pledge on 54,772 shares held in Jet Privilege Private Limited is pending.
The loan is repayable by way of a bullet payment in March 2019. Interest rates are based on LIBOR plus Margin plus Guarantors margin.
(g) Foreign Currency Term Loan repayable within 40 instalments starting March 2017. Interest rate is linked to LIBOR plus margin thereon payable on monthly basis.
(h) (i) Finance Lease obligation for six aircraft secured by Corporate Guarantees provided by the Subsidiary Company aggregating to Rs.66,668 Lakhs equivalent to USD 1,023 Lakhs as on 31 March 2018 (Rs.111,780 Lakhs equivalent to USD 1,724 Lakhs as on 31 March 2017, Rs.161,492 Lakhs equivalent to USD 2,437 Lakhs as on 1 April 2016).
(ii) Repayable in quarterly / half yearly instalments over a period of twelve years from the date of disbursement of the respective loans. Interest rate are linked to LIBOR plus margin.
Note: The Company had entered into an agreement with Godrej Buildcon Private Limited, Mumbai (GBPL) for the development of its plot of land, situated at Bandra-Kurla Complex, Mumbai, taken on long term lease from MMRDA. The development has since been completed during the previous year ended 31 March 2017. During the year ended 31 March 2018, the Company has recognised an amount of Rs.11,403 Lakhs in ‘Other income’ as its share of accrued profit from the said project upon final settlement with Godrej Buildcon Private Limited (GBPL). In the previous year ended 31 March 2017, consequent to the completion of the development, the advance received from the developer together with the profit accrued to the Company till 31 March 2017 aggregating to Rs.65,106 Lakhs has been adjusted against the carrying value of the leasehold land amounting to Rs.32,203 Lakhs and the balance of Rs.32,903 Lakhs has been accounted as ‘Other income’.
The Company has in its fleet certain aircraft on operating lease. Per the terms of the lease agreements, the aircraft have to be redelivered to the lessors at the end of the lease term in certain stipulated technical condition. Such redelivery conditions would entail costs for technical inspection, maintenance checks, repainting costs prior to its redelivery and the cost of ferrying the aircraft to the location as stipulated in the lease agreements.
The measurement of the provision for redelivery cost includes assumptions primarily relating to expected costs and discount rates commensurate with the expected obligation maturity schedules. An estimate is therefore made to ensure that the provision corresponds to the present value of the expected costs to be borne by the Company. Judgement is exercised by management given the long-term nature of assumptions that go into the determination of the provision. The assumption made in relation to the current year are consistent with those in the previous year.
Expected timing of resulting outflow of economic benefit is financial year 2018-2019 to 2025-2026.
(a) Loans aggregating to Rs.20,956 Lakhs as on 31 March 2018, Rs.25,252 Lakhs as on 31 March 2017, Rs.116,592 Lakhs as on 01 April 2016 are secured by way of hypothecation of Inventories (excluding Aircraft fuel), Debtors / Receivables [excluding (i) credit card receivables, (ii) IATA - BSP receivables from the Kingdom of Saudi Arabia, United Arab Emirates, Qatar, Oman, Bahrain and Kuwait, collectively called as Gulf receivables (iii) receivables from aircraft subleased but including claim receivables from aircraft lessors) Ground Support Vehicles / Equipment (excluding trucks, jeeps and other motor vehicles), Spares (including engines), Data Processing Equipment, other current assets excluding cash and bank balances and fixed deposits with bank both present and future, the residual Aircraft proceeds and all accounts of the borrower in which such aircraft proceeds are deposited in relation to existing fleet of 14 aircraft (out of which charge in respect of 3 aircraft is pending creation) on pari passu basis. The Company has escrowed the entire IATA collection excluding Gulf receivables with the lead bank for facilitating interest servicing and regularisation in case of any irregularity.
(b) Foreign Currency Loan of Rs. Nil as on 31 March 2018, Nil as on 31 March 2017 and Rs.185,514 Lakhs as on 01 April 2016 was availed against standby letter of credit issued by foreign banks backed by corporate guarantee provided by one of the Shareholders.
(c) The rate of interest for the loans listed in (a) & (b) are based on respective Banks’ MCLR / LIBOR plus Margin.
Disclosures relating to amounts payable as at the year end together with interest paid / payable to Micro and Small Enterprises have been made in the accounts, as required under the Micro, Small and Medium Enterprises Development Act, 2006 to the extent of information available with the Company determined on the basis of intimation received from suppliers regarding their status and the required disclosure is given below :
NOTE 3: TRANSITION TO IND AS
These are the Company’s first financial statements prepared in accordance with Ind AS.
The Company has adopted Indian Accounting Standards (Ind AS) as notified under section 133 of the Companies Act, 2013, read together with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015, with effect from 1 April 2016, transition date pursuant to notification issued by Ministry of Corporate Affairs dated 16 February 2015. Accordingly, the financial statements for the year ended 31 March 2018, the comparative information presented in these financial statements for the year ended 31 March 2017 and the opening Ind AS balance sheet as at 1 April 2016 have been prepared in accordance with Ind AS.
For the purposes of reporting as set out in Note 2, we have transitioned our basis of accounting from Indian generally accepted accounting principles to Ind AS. The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended 31 March 2018, the comparative information presented in these financial statements for the year ended 31 March 2017 and in the preparation of an opening Ind AS balance sheet at 1 April 2016 (the “transition date”).
In preparing the financial statements for the year ended 31 March 2017 and balance sheet as at 1 April 2016 (Date of transition), the Company has adjusted amounts reported previously in financial statements prepared in accordance with Previous Generally Accepted Accounting Principles (Previous GAAP). This note explains the principal adjustments made by the Company in restating its Previous GAAP financial statements, including the balance sheet as at 1 April 2016 and the financial statements for the year ended 31 March 2017. An explanation of how the transition from GAAP to Ind AS has affected our financial performance, cash flows and financial position is set out in the following tables and the notes that accompany the tables. On transition, we did not revise estimates made under previous GAAP except where required by Ind AS.
Exemptions and exceptions availed A Ind AS optional exemptions
Determining whether an arrangement contains a lease Ind AS 101 includes an optional exemption that permits an entity to apply the relevant requirements in Appendix C of Ind AS 17 for determining whether an arrangement existing at the date of transition contains a lease by considering the facts and circumstances existing at the date of transition (rather than at the inception of the arrangement). The Company has elected to avail of the above exemption. Company has elected to apply this exemption on the basis of facts and circumstances existing as at the transition date.
B Ind AS mandatory exceptions
1. Estimates
Under Ind AS 101, an entity’s estimates in accordance with Ind AS at ‘the date of transition to Ind AS’ (i.e. 1 April 2016) or ‘the end of the comparative period presented in the entity’s first Ind AS financial statements’ (i.e. 31 March 2017), as the case may be, should be consistent with estimates made for the same date in accordance with the Previous GAAP.
The Company’s Ind AS estimates as at the transition date are consistent with the estimates made as at the same date made under previous GAAP. Key estimates considered in preparation of the financial statements that were not required under the previous GAAP are listed below:
- Fair valuation of financial instruments
- Determination of the discounted value for financial instruments carried at amortised cost
- Discount rate for determining value of provision for redelivery cost and security deposit.
- Expected credit losses on financial assets.
2. Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exists at the date of transition to Ind AS.
3. De-recognition of financial assets and liabilities
As per Ind AS 101, an entity should apply the de-recognition requirements in Ind AS 109 prospectively for transactions occurring on or after the date of transition to Ind AS. However, an entity may apply the derecognition requirements retrospectively chosen by it, if the information needed to apply Ind AS 109 to financial assets and liabilties de-recognised as a result of past transactions was obtained at the time of initially accounting for those transactions.
The company has elected to apply the de-recognition requirements in Ind AS 109 from the date of transition i.e. 1 April 2016.
Effect of Ind AS adoption on the Statement of Cash Flow for the year ended 31 March 2017
No Impact on cash flow from operating activities, Investing activities and financing activities under Ind AS from previous GAAP
NOTES TO THE RECONCILIATION:
1 Security Deposit:
Under Previous Indian GAAP, security deposits were recorded at their transaction value. However, under Ind AS, such security deposit are required to be recognised initially at their fair value and subsequently at amortised cost. Difference between the fair value and transaction value of the security deposit has been recognised as deferred rent. The unwinding of security deposit is recognised as notional interest income in Statement of Profit and Loss at effective interest rate and the deferred rent gets amortised on a straight line basis over the term of the security deposit.
As a result of the above change, the amount of security deposit as on 31 March 2017 has decreased by Rs.3,890 Lakhs (1 April 2016 : Rs.4,809 Lakhs) with a creation of deferred rent of Rs.3,695 Lakhs (1 April 2016 : Rs.4,106 Lakhs) and retained earnings decreased by Rs.703 Lakhs as at 1 April 2016. The profit and retained earnings for the year ended 31 March 2017 increased by Rs.508 Lakhs due to amortisation of deferred rent of Rs.411 and increase in notional interest income of Rs.919 Lakhs recognised on security deposits.
2 Fair Value Through Profit and Loss (FVTPL) financial assets:
Under Previous GAAP, the Company accounted for investments in Mutual Funds as investment measured at lower of cost or fair value. However, under Ind-AS, such investments are measured at fair value with a change to be recorded in statement of profit and loss. At the date of transition to Ind-AS, difference between the instruments fair value and Previous GAAP carrying amount of Rs.66 Lakhs has been recognised in the Retained Earnings. Further, the profit and other equity for the year ended 31 March 2017 has decreased by Rs.66 Lakhs due to the fair value changes.
3 Property, Plant and Equipment:
Under Previous GAAP, the Company capitalised foreign exchange differences as part of property, plant and equipment (“PPE”). Under Ind AS such differences are recorded in statement of profit and loss. Consequently, the value of property, plant and equipment is decreased by Rs.268,730 Lakhs as on transition date. The profit and retained earnings for the financial year ended 31 March 2017 has been increased by Rs.71,391 Lakhs.
Under previous GAAP, Company recorded exchange differences relating to certain borrowings in the equity and amortised over a period of loan. Under Ind AS such exchange differences are recorded in the statement of profit and loss in the year to which it relate to. Consequently foreign exchange differences lying under Foreign Currency Monetary Item Translation Difference Account (FCMITDA) Rs.1,683 Lakhs has been reversed. The profit and retained earnings for the financial year ended 31 March 2017 has been increased by Rs.18,121 Lakhs.
The Company, in accordance with Ind AS 16 - Property, Plant and Equipment, has identified certain spare parts as they meet the definition of PPE, which were earlier presented as inventories in the Previous GAAP. As a result, such inventory amounting to Rs.57,679 Lakhs is reclassified as rotables and non-aircraft equipment as on transition date under PPE and depreciated over its remaining useful life.
4 Trade receivables and Loan to Subsidiary:
Under Previous GAAP, the Company has created provision for impairment of receivables and loan to subsidiary for specific amount based on the realisability assessment. Under Ind-AS, impairment allowance has been determined based on Expected Credit Loss model (ECL) following Ind AS 109. Accordingly the trade receivables and loans to subsidiary has decreased by Rs.3,764 Lakhs and Rs.212,532 Lakhs respectively and the corresponding impact is given to the retained earnings as on transition date. The profit and retained earning has been Increased by Rs.3,954 Lakhs for the year ended 31 March 2017.
5 Non-convertible Debenture (NCD) at Amortised cost:
Under Previous GAAP, interest were charged to statement of profit and loss on time proortion as per the terms of the NCD. However, under Ind-AS, the same is charged to statement of profit and loss using the EIR method. The profit / (loss) for the year ended 31 March 2017 decreased by Rs.605 Lakhs. Further, the impact on retained earnings as on transition date and as on 31 March 2017 are ‘ (246) Lakhs and Rs.619 Lakhs respectively.
6 Employee benefits :
Under Previous GAAP, actuarial gains and losses were charged to statement of profit and loss. However, under Ind AS actuarial gains and losses on defined benefit liability are recognised in Other Comprehensive Income. As a result of this change, the employee benefit expense to the extent of actuarial loss amounting to Rs.5,181 Lakhs (net of taxes Rs.5,181 Lakhs) for the year ended 31 March 2017 has been reduced and the same has been reclassified to Other Comprehensive Income. There is no impact on the other equity as at 31 March 2017.
7 Embedded Derivative:
Under Previous GAAP, there was no requirement to assess and measure embedded derivatives in a debt contract. However, under Ind AS, embedded derivative requires separation (if certain conditions are satisfied) from the host debt contract and measured at fair value at every reporting period and the changes to fair value are top be recorded in statement of profit and loss. This change has resulted in recording an embedded derivative asset amounting to Rs.804 Lakhs, out of which Rs.245 Lakhs credited to retained earnings and Rs.559 Lakhs is credited to debenture on transition date. Consequently, the profit and retained earning has been increased by Rs.454 Lakhs for the year ended 31 March 2017 due to fair valuation of embedded derivative.
8 Discounting of Redelivery provision:
Under the Previous GAAP, discounting of provisions was not required. However, under Ind AS, the provisions are measured at discounted amounts, if the effect of the time value of money is material. Consequent to this change, the provision for redelivery cost has decreased by Rs.7,037 Lakhs as on transition date. The profit and retained earnings for the year ended 31 March 2017 decreased by Rs.92 Lakhs (net) due to unwinding of discounted provision (included in other expense).
9 Recognition of financial guarantee contract:
Under Previous GAAP, there was no requirement to recognise any liability for financial guarantee extended to subsidiary. However, under Ind AS a guarantor is required to recognise the liability for financial guarantee initially at its fair value. Accordingly a deferred liability has been created with corresponding debit to retained earnings on the transition date amounting to Rs.1,118 Lakhs. Subsequently, this guarantee is to be measured as income in accordance with Ind AS 18, accordingly the Company has recognised income of Rs.513 Lakhs for the financial year ended 31 March 2017.
Similarly, Ind AS 109 also requires the entity guaranteed to recognise asset for financial guarantee initially at its fair value. Accordingly a deferred asset has been created with corresponding credit to retained earnings on the transition date amounting to Rs.773 Lakhs. Subsequently, this deferred asset is amortised through statement of profit and loss as expense over the period of guarantee contract. Accordingly, the Company has recognised expense of Rs.436 Lakhs for the financial year ended 31 March 2017.
10 Other financial liability : Advance from developer
Under, the previous GAAP, advance of Rs.13,500 Lakhs received from developer towards reimbusrement of expenses and cost of construction incurred till the date of entering into development agreement was credited to retained earning of (Rs.10,286 Lakhs) and adjusted against capital work in progress (Rs.3,214 Lakhs). Under Ind AS advance from developer is required to be carried as a liability till the completion of the project, accordingly liability of Rs.13,500 Lakhs has been recognised under Ind AS on the transition date. Further, profit and retain earnings has been increased by Rs.10,286 Lakhs for the year ended 31 March 2017.
11 Retained earnings :
Retained earnings as at 1 April 2016 has been appropriately restated consequent to the above Ind AS transition adjustments.
NOTE 4: EMPLOYEE BENEFITS
The Company contributes to the following post-employment defined benefit plans in India.
(i) Defined Contribution Plans:
The Company makes contributions towards provident fund to a defined contribution retirement benefit plan for qualifying employees. Under the plan, the Company is required to contribute a specified percentage of payroll cost to the appropriate government authorities.
Expenses recognised for defined contribution plans are summarised below:
(ii) Defined Benefit Plan:
The Company provides the annual contributions as a non-funded defined benefit plan for qualifying employees. The scheme provides for payment to vested employees as under :
(a) On normal retirement / early retirement / withdrawal / resignation :
As per the provisions of Payment of Gratuity Act, 1972 with vesting period of 5 years of continuous service.
(b) On death while in service :
As per the provisions of Payment of Gratuity Act, 1972 without any vesting period.
The most recent actuarial valuation of plan assets and the present value of the defined benefit obligation for gratuity was carried out on 31 March 2018 by an actuary. The present value of the defined benefit obligations and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.
Movement in net defined benefit (asset) liability
The following table shows a reconciliation from the opening balances to the closing balances for net defined benefit (asset) liability and its components
Plan assets
Since gratuity plan is non-funded, hence figures in respect of plan assets are NIL.
Actuarial assumptions
The following were the principal actuarial assumptions at the reporting date (expressed as weighted averages).
Assumptions regarding future mortality have been based on published statistics and mortality tables.
Sensitivity analysis
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.
The sensitivity analysis are based on a change in above assumption while holding all other assumptions constant. The changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting year) has been applied, as has been applied when calculating the provision for defined benefit plan recognised in the Balance Sheet.
The method and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous years.
Risk Exposure: The defined benefit plan is exposed to a number of risks, the most significant of which are detailed below: Change in discount rates: A decrease in discount yield will increase plan liabilities.
Mortality table: The gratuity plan obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in plan liabilities.
Based on the actuarial valuation obtained in this respect, the following table sets out the status of the gratuity plan and the amounts recognised in the Comapan/s financial statements as at balance sheet date:
(iii) Other long term employee benefits
The obligation of compensated absences (non-funded) for the year ended 31 March 2018, amounting to Rs.2,047 Lakhs (31 March 2017 Rs.3,894 Lakhs) has been recognised in the Statement of Profit and Loss, based on actuarial valuation carried out using the Projected Unit Credit Method.
NOTE 5: LEASES
The Company has entered into Finance and Operating Lease agreements. As required under Ind AS 17 on ‘Leases’, the future minimum lease payments on account of each type of lease are as follows:
The salient features of a Finance Lease Agreement are :
i. Option to purchase the aircraft either during the term of the finance lease on payment of the outstanding Principal amount or at the end of the term on payment of a nominal option price.
ii. In the event of default, the Lessee is responsible for payment of all costs of the Owner including the financing cost and other associated costs. Further a right of repossession is available to the Owner / Lessor.
iii. The Lessee is responsible for maintaining the Aircraft as well as insuring the same.
iv. The property passes to the lessee, on payment of nominal price at the end of the term.
B. Operating leases Leases as lessee
The Company has taken various residential / commercial premises under cancellable and non-cancellable operating leases. These lease agreements are normally renewed on expiry.
At 31 March the future minimum lease payments under non-cancellable leases are as follows:
The Salient features of an Operating Lease agreement are :
i. Monthly rentals paid in the form of fixed and variable rentals. Variable Lease Rentals are payable at a predetermined rate based on actual flying hours. Further, these predetermined rates of Variable rentals are subject to fixed annual escalation as stipulated in the respective lease agreements.
ii. The Lessee neither has an option to buyback nor has an option to renew the leases.
iii. In case of delayed payments, penal charges are payable as applicable.
iv. In case of default, in addition to repossession of the aircraft, damages including liquidated damages are payable.
v. The Lessee is responsible for maintaining the Aircraft as well as insuring the same. The Lessee is eligible to claim reimbursement of costs as per the terms of the lease agreement.
The Salient features of Dry Lease agreements are as under :
i. Aircraft are leased without insurance and crew.
ii. Monthly rentals paid are in the form of fixed and variable rentals. Variable Lease Rentals are payable at a pre-determined rate based on actual flying hours. Further, these predetermined rates of Variable rentals are subject to annual escalation as stipulated in respective lease agreements.
iii. The Lessee neither has an option to buyback nor has an option to renew the leases.
Details of owned Aircraft given on non-cancellable Dry Lease are as under:
e) The lease rentals recognised in the Statement of Profit and Loss for the year ended 31 March 2018 are Rs.358,823 Lakhs (31 March 2017 Rs.331,309 Lakhs).
Valuation Process:
(1) The Company’s borrowings have been contracted at floating rates of interest, which gets reset periodically based on the market movements. Accordingly, the carrying value of such borrowings approximates fair value.
(2) The carrying amounts of trade receivables, short term borrowings, trade payables, cash and cash equivalents, other current financial assets, and other current financial liabilities approximates fair value, being short-term in nature.
(3) The other non-current financial assets includes bank deposits (due for maturity beyond twelve months from the reporting date), interest accrued but not due on bank deposits and contribution receivable from lessors. The carrying value of these are approximately equal to the fair values as on the reporting date.
(4) Other Non-current financial asset also includes embedded derivative as regards the value of call option for prepayment of Debenture, created on the date of transition. The valuation of the same is arrived at after considering average of the following two approaches:
(i) Direct method - Differential analysis between the price of a hypothetical non-callable bond and the price of the callable bond as on the Value Analysis Dates
(ii) Cost Saving method - Cost saving analysis, based on the interest cost saved on account of the callability feature as on the Value Analysis Dates
(5) Current Investments represents investments in Mutual funds which are fair valued at year end NAV.
(6) Management uses its best judgement in estimating the fair value of its financial instruments. However, there are inherent limitations in any estimation technique. Therefore, for all financial instruments, the fair value estimates presented above are indicative of the amounts that the Company could have realised or paid in sale transactions as of respective dates. As such, fair value of financial instruments subsequent to the reporting dates may be different from the amounts reported at each reporting date.
(7) There has been no transfers between Level 1, Level 2 and Level 3 for the years ended 31 March 2018 and 31 March 2017. NOTE 43: FINANCIAL RISK MANAGEMENT
In the course of its business, the Company is primarily exposed to fluctuations in foreign currency exchange rates, interest rates, Jet fuel rate, liquidity and credit risk, which may adversely impact the fair value of its financial instruments. The Company has a risk management policy which not only covers the foreign exchange risks but also other risks associated with the financial assets and liabilities such as interest rate & credit risks and Jet fuel rate movement. The risk management policy is approved by the Board of Directors. The risk management framework aims to:
(i) To set appropriate limits, controls and to monitor the risk and adherence to the means by reliable and up to date information
(ii) create a stable business planning environment by reducing the impact of currency and interest rate fluctuations on the Company’s business plan.
i. Credit risk
Credit risk is the risk of financial loss to the Company if a counterparty to a financial instrument fails to meet its contractual obligations. Financial assets that potentially exposes the Company to Credit risk primarily consist of deposit with banks and receivable from agents selling air tickets and cargo transportation. Company assesses credit quality based on the counterparty’s financial position, past experience and other related factors.
The carrying amount of following financial assets represents the maximum credit exposure:
Trade receivables
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers other factors that may influence the credit risk of its customer base viz. the default risk of the industry, country in which customers operate etc.
The sale of passenger and Cargo transportation is largely achieved through International Air Transport Association (IATA) approved sales agents and online sales. All IATA agents have to meet a minimum financial criteria applicable to their country of operation to remain accredited. Adherence to financial criteria is monitored on an ongoing basis by IATA through their Agency Programme. For receivables from the non-IATA agents, the Company manages its credit risk through credit approvals, seeking collaterals, establishing credit limits and continuously monitoring credit worthiness of them to which the company grants credit terms in the normal course of business. The Credit risk associated with such sales agents and the related balances within trade receivables is therefore low and further reduced by their diverse base.
On adoption of Ind AS 109, the Company uses expected credit loss model (under simplified approach) to assess the impairment loss or gain. The Company uses a provision matrix to compute the expected credit loss allowance for trade receivables. The provision matrix takes into account external and internal risk factors and historical data of credit losses from various customers.
The Company’s exposure to customers is diversified and no single customer contributes to more than 10 % of outstanding trade receivables as at 31 March 2018, 31 March 2017 and 1 April 2016.
The movement in the allowance for impairment in respect of trade receivables during the year was as follows.
Loans
The loans primarily represents security deposits placed with aircraft & engine lessors. Such deposits will be returned to the Company on redeliveries of the aircraft. The credit risk associated with such deposits is relatively low given the credit standing of these reputed lessors and the diversified lease portfolio.
* Financial assets for which credit risk has increased significantly and not credit-impaired Cash and cash equivalents
Credit risk on cash and cash equivalents and bank deposits is limited as such deposites are placed with banks for seeking credit lines.
Investments
Investments primarily include investment in liquid mutual funds.
Other financial assets
Other financial assets include fixed deposit with maturity date of more than 12 months including interest accrued on fixed deposits, contribution and claim receivables from the aircraft lessors, claims receivable from insurance vendors, unbilled revenue and derivative instrument. The risk associated with deposits placed with banks for seeking credit lines and reputed lessor are low.
Loan to subsidiary
Non current financial assets include loan to subsidiary Rs.240,838 Lakhs as at 31 March 2018 (Rs.235,838 Lakhs: 31 March 2017 and Rs.239,782 Lakhs : 01 April 2016) are fully impaired as per Ind AS 109 following ECLmodel.
The movement in the allowance for impairment in respect of Loan to subsidiary including interest accrued thereon during the year was as follows.
* Financial assets for which credit risk is originally credit impaired
ii. Liquidity risk
Liquidity risk refers to the risk that the Company cannot meet its financial obligations. The objective of liquidity risk management is to maintain sufficient liquidity and ensure that funds are available for use as per requirements.
The Company believes that its liquidity position, including total cash and cash equivalent, anticipated internally generated funds from operations (through various initiatives undertaken by the Company in relation to saving cost, optimise revenue management opportunity and enhance ancillary revenue), and its available, revolving credit facility from the Banks alongwith initiative to raise funds will enable it to meet its future known obligations in the ordinary course of business. Further, the Company believes it has access to financing arrangements, which should enable it to meet its ongoing capital, operating, and other liquidity requirements. The Company will continue to consider various leasing or borrowing options to maximize liquidity and supplement cash requirements as necessary.
The Company’s liquidity management process as monitored by management, includes the following:
- Day to day funding, managed by monitoring future cash flows to ensure that requirements can be met.
- Maintaining rolling forecasts of the Company’s liquidity position on the basis of expected cash flows.
- Maintaining diversified credit lines.
Exposure to liquidity risk
The following are the remaining contractual undiscounted cash flows of financial liabilities at the reporting date and includes estimated interest payments and excludes the impact of netting agreements.
iii. Market risk
Market risk is the risk that where the fair value or future cash flow of financial instrument fluctuate because of change in market prices - such as fuel price, foreign exchange rates and interest rates. We are exposed to market risk primarily related to fuel price risk, foreign exchange rate risk and interest rate risk.
Jet Fuel Price risk
The Company is exposed to Volatlity in the price of Jet fuel and closely moniteres the actual cost against the forecast cost. To manage the price risk, the Company evaluates its option to achieve control over its impact on profitibility.
Currency risk
Currency risk is the risk that the future cash flow of financial instruments will fluctuate because of changes in the foreign exchange rates. Currency risks are hedged by way of natural hedged between foreign currency inflows and outflows as well as by considering derivative option.
Sensitivity analysis
The impact of a possible strengthening/weakening of the Indian Rupee against below currencies as at 31 March which would affect the measurement of financial instruments denominated in foreign currency and equity and profit or loss are given in the table below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases.
Interest rate risk
Interest rate risk can be either fair value interest rate risk or cash flow interest rate risk. Fair value interest rate risk is the risk of changes in fair values of fixed interest bearing investments because of fluctuations in the interest rates. Cash flow interest rate risk is the risk that the future cash flows of floating interest bearing investments will fluctuate because of fluctuations in the interest rates.
Exposure to interest rate risk
Company’s interest rate risk arises mainly from borrowings and finance lease obligations carrying floating interest rate of interest. These obligations exposes to cash flow interest rate risk. The interest rate profile of the Company’s interest-bearing financial instruments as reported to the management of the Company is as follows.
Cash flow sensitivity analysis for variable-rate instruments
A reasonably possible change of 50 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant.
NOTE 44: CAPITAL MANAGEMENT
Equity share capital and other equity are considered for the purpose of Company’s capital management. The Company’s objective for capital management is to manage its capital to safeguard its ability to continue as a going concern, to provide returns to its shareholders, benefits to its other stakeholders and to support the growth of the Company. The capital structure of the Company is based on management’s judgement of its strategic and day-to-day needs with a focus on total equity so as to maintain investors, creditors and market confidence. The funding requirements are met through operating cash and working capital facilities availed from the banks.
The Company monitors capital using a ratio of ‘adjusted net debt’ to ‘adjusted equity’. For this purpose, adjusted net debt is defined as total liabilities, comprising interest-bearing loans and borrowings and obligations under finance leases, less cash and cash equivalents. Total equity comprises all components of equity.
The Company’s adjusted net debt to equity ratio as at 31 March 2018 is as follows.
* Adjusted Net debt to equity ratio is not calculated as the total equity value are (-)ve.
As at 31 March 2018, the company has complied with the financial covenants in all material respect in relation to its borrowings.
x. The Company is in receipt of favourable orders in relation to certain service tax, income tax, customs and octroi demands. However, respective tax departments have preferred an appeal against these orders before higher appellate authorities. The amounts involved (excluding interest and penalty thereon, if any, not included in such demands) in these appeals as on 31 March 2018, with respect to service tax, income tax (including FBT), customs and octroi aggregating to Rs.202,714 Lakhs (31 March 2017: Rs.179,511 Lakhs; 01 April 2016: Rs.179,511 Lakhs), Rs.14,917 Lakhs (31 March 2017 Rs.20,123 Lakhs; 01 April 2016: 27,982), 5 Lakhs (31 March 2017: Rs.5 Lakhs; 01 April 2016: Nil) and Rs.2,899 Lakhs (31 March 2017: Rs.2,899 Lakhs; 01 April 2016: Rs.2,899 Lakhs) respectively are not included above as there is no outstanding demand in relation to the same.
xi. The Company had acquired 100% of the shareholding of Sahara Airlines Limited (SAL) (now known as Jet Lite (India) Limited) in April 2007. As per the Share Purchase Agreement (SPA) as amended by the subsequent Consent Award, the mutually agreed sale consideration was to be paid to the Selling Shareholders Sahara India Commercial Corporation Limited (SICCL) in four equal interest free instalments by 30 March 2011. As a result of certain disputes that arose between the parties, both the parties had filed petitions in the Hon’ble Bombay High Court for breach of SPA as amended by the subsequent Consent Award. The Hon’ble Bombay High Court delivered its Judgment on 4th May, 2011 whereby SICCL’s demand for restoration of the original price of Rs.200,000 Lakhs was denied and the Purchase Consideration was sealed at the revised amount of Rs.145,000 Lakhs. However, in its judgment, the Hon’ble Bombay High Court has awarded interest at 9% p.a. on the delayed payments made to SICCL largely on account of ongoing legal dispute. In view of this Order, a sum of Rs.11,643 Lakhs became payable as interest which has been duly discharged by the Company. As a result of this discharge, the undertaking given by the Company in April 2009 for not creating any encumbrance or alienation of its moveable or immoveable assets and properties in any manner other than in the normal course of the business, stood released.
Though the Company had complied with the order of the Hon’ble Bombay High Court, based on legal advice, it filed an appeal with the Division Bench of the Hon’ble Bombay High Court contesting the levy of interest. SICCL also filed an appeal with the Division Bench of the Hon’ble Bombay High Court for restoration of the purchase consideration to Rs.200,000 Lakhs and for interest to be awarded at 18% p.a. as against the 9% p.a. awarded by the Hon’ble Bombay High Court.
The Division Bench of the Hon’ble Bombay High Court heard the matter and vide its order dated 17th October, 2011 dismissed both the appeals as being not maintainable in view of jurisdictional issue. The Company has since filed Special Leave Petitions (SLP) before the Hon’ble Supreme Court challenging both the orders of 4th May, 2011 and 17th October, 2011. SICCL had earlier filed a SLP before the Hon’ble Supreme Court for increased compensation and interest.
Both the SLPs, filed by Jet Airways as well as SICCL, came up for hearing before the Hon’ble Supreme Court. The Hon’ble Supreme Court directed the parties to file the Counter and Rejoinder which has since been filed. The Hon’ble Supreme Court also recorded that the statement made by Jet Airways, as recorded in the order dated 6th May, 2011 passed by the Hon’ble Bombay High Court, would continue till further orders.
The Company has filed its Counter Affidavit in the SLPs filed by SICCL and the Hon’ble Supreme Court has granted further time to SICCL to file their Rejoinder. The SLPs are still pending to be heard.
xii. Note : The Company is a party to various legal proceedings in the normal course of business and does not expect the outcome of these proceedings to have any adverse effect on its financial conditions, results of operations or cash flows. Further, claims by parties in respect of which the Management have been legally advised that the same are frivolous and not tenable, have not been considered as contingent liabilities as the possibility of an outflow of resources embodying economic benefit is highly remote.
B. Commitments
Estimated amount of Contracts remaining to be executed on capital account (net of advances), not recognised as liabilities are as follows:
NOTE 6: SEGMENT REPORTING
(a) Factors used to identify the entity’s reportable segments, including the basis of organisation
Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM).
The principal activities of the Company comprises scheduled Air Transportation, which includes carriage of passenger and cargo in Domestic and International sectors. Accordingly, the Company has two reportable segments as follows:
Domestic (within India)
International (outside India)
Segment revenue and expenses:
Revenue and expenses directly attributable to segments are reported based on items that are individually identifiable to that segment, while the remainder of the expenses are categorized as unallocated which are mainly employee remuneration and benefits, other selling and distribution expenses, other expenses, aircraft and engine lease rentals, depreciation / amortisation and finance cost, since these are not specifically allocable to specific segments as the underlying assets / services are used interchangeably. The Company believes that it is not practical to provide segment disclosures relating to these revenue and expenses, and accordingly these expenses are separately disclosed as “unallocated” and directly charged against total revenues.
Segment assets and liabilitlies:
Assets and liabilitlies used in the Company’s business are not identified to any of the reportable segment as these are used interchangably between segments. Accordingly, no disclosure relating to total segment assets and liabilities are made.
C. Information about major customers
No single customer contributes more than 10% or more of total revenue
International revenue from Overseas point is attributed to the geographical area in which the respective overseas points are located. Other operating revenue is reported based upon the geographical area in which sales are made or services are rendered.
NOTE 47: RELATED PARTY RELATIONSHIPS, TRANSACTIONS AND BALANCES
In compliance with Ind AS 24 - “Related Party Disclosures”, as notified under Rule 3 of the Companies (Indian Accounting Standards) Rules, 2016 and Companies (Indian Accounting Standards) Amendment Rules, 2017 the required disclosures are given in the table below:
* Closing Balance of Corporate Guarantee given by Jet Airways (India) Limited represents uitilised amount against total guarantee amount of Rs.17,678 Lakhs (Rs.16,441 Lakhs 31 March 2017; Rs.22,045 Lakhs 1 April 2016).
# Closing Balance of Corporate Guarantee given by Subsidiary Company on behalf of Company as at 31 March 2018, represents uitilised amount against total guarantee amount of Rs.464,300 Lakhs (Rs.461,985 Lakhs 31 March 2017; Rs.471,994 Lakhs 1 April 2017). Equivalent to USD 7,124 Lakhs (USD 7,124 Lakhs 31 March 2017; USD 7,124 Lakhs 1 April 2017).
Loans to subsidiaries
Loan of Rs. Nil Lakhs (Net of provision Rs.240,838 Lakhs 31 March 2018; Rs.235,838 Lakhs 31 March 2017) is a loan given to the Subsidiary Company to support its operations and is repayable in March 2020.
Terms and conditions of transactions with related parties
All transactions with related party are made on the terms equivalent to those that prevail in the arm’s length transactions and within the ordinary course of business. Outstanding balances at the year-end are unsecured and settlement occurs in cash.
7. MERGER wITH JETLITE (INDIA) LIMITED
The Board of Directors at its meeting held on 2 September 2015 had approved a scheme of merger of Jet Lite (India) Limited, a wholly-owned subsidiary, with the Company (“The Scheme”) as per the provisions of Section 391 to 394 of the Companies ActRs.1956, subject to receipt of requisite approvals. The appointed date, per the terms of the Scheme was 1 April 2015. The Scheme was approved by the Shareholders and Creditors of both the Companies on 22 April 2016. The Hon’ble Bombay High Court had also approved “The Scheme” on 20 October 2016. The Company was awaiting the approval of Ministry of Civil Aviation to “The Scheme”.
The Ministry of Civil Aviation has communicated vide their letter dated 24 April 2018 that “The Scheme” has not been approved. Accordingly, “The Scheme” stands revoked, cancelled and shall have no effect on the financial statements of the Company for the year ended 31 March 2018.
8. Contribution receivable from lessor
The Company has entered into a “Power by the Houi” (PBTH) Engine Maintenance agreements with a Service providers for its Next Generation Boeing 737 Aircraft fleet, ATR Aircraft fleet and Boeing 777 Aircraft fleet for future engine shop visits. Subsequent to such arrangements, the Company expenses out the cost of PBTH at the rate specified in the contract with the service provider to the Statement of Profit and Loss and treats the variable rentals payable to the Lessors as receivables to the extent considered good of recovery for set off against future claims reimbursable by the Lessors on each engine shop visit. The Company has recognised such expected refunds of variable rentals from lessors towards future engine repairs based on joint validation of the Company’s maintenance plan with the service provider. Accordingly, such variable rent of Rs.64,033 Lakhs (31 March 2017: Rs.78,567 Lakhs; 01 April 2016: Rs.83,494 Lakhs) has been presented as “Contribution Receivable from Lessors” bifurcated into current and non-current based on expected engine shop visits in next 12 months and beyond.
9. Other income
Other Income includes gain of Rs.30,449 Lakhs (31 March 2017 Rs.31,155 Lakhs) for the Year ended 31 March 2018 consequent upon the satisfaction of the terms and conditions underlying the agreement for the transfer of ‘Jet Privilege Frequent Flyer Programme’ (JPFFP) undertaking to Jet Privilege Private Limited (JPPL) on 21 April 2014 as a going concern on a slump sale basis.
10. Going concern
The Company has incurred a loss during the year and has negative net worth as at 31 March 2018 that may create uncertainties. However, various initiatives undertaken by the Company in relation to saving cost, optimize revenue management opportunities and enhance ancillary revenues is expected to result in improved operating performance. Further, Company’s continued thrust to improve operational efficiency and initiatives to raise funds are expected to result in sustainable cash flows addressing any uncertainties. Accordingly, the financial statements continues to be prepared on a going concern basis, which contemplates realization of assets and settlement of liabilities in the normal course of business including financial support to its subsidiaries.
11. Particulars of loans, guarantees or investments under Section 186
The operation of the company are classified as “infrastructure facilities” as defined under schedule VI to the Act. Accordingly the disclosure requirements specified in sub section 4 of section 186 of the Act in respect of loan given, guarantee given or security provided and the related disclosures on purpose/utilization by recipient companies, are not applicable to the Company. Investments are disclosed under note 7.
Note 12. Other information
Information with regard to other matters, as required by schedule III to the act is disclosed to the extent applicable to the Company for the year.
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