corporate governance

AIR INDIAP r e s e n t a ti o n b y :A v i n a s h S i n h aS a y a n S a r k a rS a u m y a S h a r m a

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation or company is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.Corporate Governance is the system by which companies are directed and managed. It influences how the objectives of the company are set and achieved, how risk is monitored and assessed and how performance is optimized. Sound Corporate Governance is, therefore, critical to enhance and retain investor’s trust.

Report of SEBI Committee (India) on Corporate Governance defines corporate governance as “the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.

Definition of Corporate Governance

Corporate governance in India is evident from the various legal and regulatory frameworks and Committees set relating to corporate functioning comprising of the following :

1. The Companies Act, 1956

2. Monopolies and Restrictive Trade Practices Act, 1969 (replaced by new Competition Law)

3. Foreign Exchange Management Act, 2000

4. Securities and Exchange Board of India Act, 1992

5. Securities Contract Regulation Act, 1956

6. The Depositories Act, 1996

7. Arbitration and Conciliation Act, 1996

8. SEBI Code on Corporate Governance

Apart from these Acts many committees have been set up over the years to legislate the concept called ‘corporate governance’.

Indian, formerly Indian Airlines (Indian Airlines Limited from 1993 and Indian Airlines Corporation from 1953 to 1993) was a major Indian airline based in Delhi and focused primarily on domestic routes, along with several international services to neighboring countries in Asia. It was state-owned, and was administered by the Ministry of Civil Aviation. It was one of the two flag carriers of India, the other being Air India. The airline officially merged into Air India on 27 February 2011.

On 7 December 2005, the airline was rebranded as Indian for advertising purposes as a part of a program to revamp its image in preparation for an initial public offering (IPO). The airline operated closely with Air India, India's national carrier. Alliance Air a fully owned subsidiary of Indian, was renamed Air India Regional.

In 2007, the Government of India announced that Indian would be merged into Air India. As part of the merger process, a new company called the National Aviation Company of India Limited (now called Air India Limited) was established, into which both Air India (along with Air India Express) and Indian (along with Alliance Air) would be merged. Once the merger was completed, the airline - called Air India - would continue to be headquartered in Mumbai and would have a fleet of over 130 aircraft.

Indian Airlines – A Brief Introduction

Chronological events

year Phases events1932-1945 Early phase

1938

• The aviator Nevill Vintcent made effort with J.R.D Tata to run the flights from Bombay to Colombo in 1932.

• Tata Air services renamed as Tata Air Lines and services were provided to Delhi and Colombo.

1946-1999 Post war Expansion

1996

• Tata Airlines became a public limited company on 29 July 1946 under the name Air India under GOI.

• First Boeing 707–420, named Gauri Shankar, was delivered, thereby becoming the first Asian airline to induct a jet aircraft in its fleet.

• Took delivery of the Airbus A310-300; the airline is the largest operator of this type in passenger service.

• Airline was registered as Air India Ltd.

2000-2007 Proposed Privatization, expansion and merger

• Air India introduced services to Shanghai and to its third U.S. gateway at Newark Liberty International Airport in Newark, New Jersey.

• Air India launched a wholly owned low cost airline called Air-India Express.

Chronological events

year Phases events2007-2011 Financial

unrest • Around 2006–2007, the airlines began showing signs of

financial distress. • The combined losses for Air India and Indian Airlines in

2006–07 were 7.7 billion rupees. After the merger of the airlines, it went up to 72 billion rupees by March 2009.

• A report by the Comptroller and Auditor General (CAG) blamed the decision to buy 111 new planes as one of the major causes of the debt troubles in Air India;

• In addition, it blamed on the ill timed merger with Indian Airlines as well.

2011-present Financial restructuring and turnaround plans

• Development of new infrastructure. • Invited offers from banks to raise up $800 million

via external commercial borrowing.

Corporate identity

• Organization• Air India Building• Air India One

Subsidiaries• Air India Cargo• Air India Regional• Air India Express• Air India Charters Limited• Air India Air Transport Services

Involvement in sportsAir India football ClubAir India cricket teamAir India hockey team

Destinations• Short haul routes: mainly including Domestic

cities and south- east and south west Asian cities• Long Haul routes: covering east Asia, North

America Europe, Australia

Fleet status• In 2014 there are 101 fleets including Airbus: A-

319-100, Airbus 320-200, Boeing-747-400, Boeing 777-200, Boeing- 787 etc.

• 2006: There were 68 orders of Jets including 8 Boeing 777 LR.

• Air India livery Planes

Services• High class Cabins• In flight entertainment• Frequent flyer programmes• Online check-in• Premium lounges

I n s t i t u t i o n a l s t r u c t u re

CMD

JOINT MD

FUNCTIONAL DIRECTOR

EXECUTIVE DIRECTOR

GENERAL MANAGER

AGM

Personal dept. commercial dept., finance dept., medical dept., security dept., Material management dept., engineering dept., inflight services dept., Planning, Corporate affairs, and vigilance dept.

AT DEPARTMENT LEVEL

Senior Manger

Manger

Deputy Manger

Assistant Manger Asst. Manger Officer

Asst. OfficerSupervisorAsst. SupervisorEmployees

Policies and their impact on the management of the Company

Mr. Praful Patel became Civil and aviation minister in 2005.1. Order of 68 planes in year 2005.Past his governance, an order of 28 planes were made by AIR INDIA in Annual budget- 2004. In 2005, the order was increased to 68, without any detail report of financial resources. The annual turnover of AIR INDIA was 7000 crores and the Order made worth Rs 35000 crores. So, the company went under heavy debt. The company was not able to pay the installments and charged extra interest of Rs 300 Cr monthly.

Annual loss: from financial year 2006

Financial year Loss ( in Crore rupees)

2009 5000

2010 7200

2011 7500

2012 7800

2013 7900

Policies and their impact on the management of the Company

Mr. Praful Patel became Civil and aviation minister in 2005.2. Transfer of Flight Rights and international routes to private companies.• International Routes which were considered as “Profit Routes” of Air India,

Flight Rights shifted from Air India to other private companies like Jet Airways and Kingfisher Airlines.

• The company experienced huge loss due to the Flight Rights shift.

3. Agreement of Air India with Singapore Air Terminal Services regarding Ground Handling System.• The annual revenue of Air India at that time was 980 crore rupees.• According to the agreement with the SATS, whatever revenue would be

generated by the airline, 80% would be given to them.• This agreement affected Air India’s financial status adversely.

Policies and their impact on the management of the Company

Mr. Praful Patel became Civil and aviation minister in 2005.4. Non-Feasible economic and financial Decision making.• Purchasing of eight Boeing 777 planes at the phase of recession.• The planes were stacked at the air Terminals for six months after purchase and

those were not used by the company due to unavailability of the skilled pilots (according to Air India officials to the media).

• Company had to pay the fleet revenue (expected from the use of these eight planes) to the government even if they were not using those.

5. Special rejuvenation package by central governmentIn annual budget 2012, central govt. announced Rs 30,000 Crore for rejuvenating he company from recession up to year 2020. Air India received:Rs 12000 cr in 2013Rs 6000 cr in 2014

Policies and their impact on the management of the Company

Mr. Praful Patel became Civil and aviation minister in 2005.6. Membership of ‘star Alliance’• Star alliance is a union of twenty seven airlines all over the world.• The union was formed to increase the profit and flight sharing between

different airlines in the world.• On 11 April, 2014, Air India has become its 27th member of ‘star alliance’, which

is a major step of the company to increase its services and sharing at the world level.

Impact: • Before this membership, Air India covered only 37 destinations in 192 countries.

Now, its capacity has increased to 1312 destinations. Any passenger can travel to any of the destinations within the member airlines, having ticket from Air India.

• No. of passengers have increased from 37000 per day ,to 50,000 passengers per day.

Policies and their impact on the management of the Company

7. Infrastructural developments: purchase order of new airbuses.

• A mass purchase of 98 planes has been done from Boeing company and the rest thirteen planes are expected to be placed till 2020.

• In this purchase, twenty seven Boeing 787 – dream liners are currently in flight services. (Boeing 787 – dream liners are world’s latest technology and most fuel efficient planes . Also only three countries have owned them).

Impact: A significant growth in number of passenger per day, which has led to increase in the revenue of the company 900 Crore more in 2013.

Financial aspects and policies

• Air India is an autonomous body undertaken by the ministry of Civil Aviation, central government.

• All types of revenue generated will be the sole property of the company.• Central Government can provide funds to it for its development.• Air India received the govt. fund for the first time in financial year 2013 in its 61

years of services as a part of its future development up to 2020.

P r e s e n t P o l i c i e s :To manage the over all financial status in last two years:• Air India has deducted 25% of the salary of each & every employee.• All types of programs, ceremonies and functions has been declined.• Finance is being planned to be utilized on infrastructural developments. Such

as, construction of new airports within the country, renovation of old Airports, addition of special star rating lounges within the airports, technological advancements in surveillance and security.

Financial aspects and policies

f u t u r e P o l i c i e s :

1. Formulation of R. E. I. T • On September,2014 it was decided to form a trust called ‘ Real estate

investment trust’ which shall manage the all the static property of the Air India.

• Air India has property of worth Rs 18500 Crore spreader all over the world.

• R. E. I. T shall give its property on lease or rent to private owners to raise income on regular basis. According to Airport officials, it will certainly help to maximum utilization and regular maintenance of available resources ( and properties) and increase the revenue.

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