New Delhi : As airlines continue to find it tough to generate profits and raise funds, auditors of all three listed carriers – Jet Airways, Spicejet and Kingfisher have raised red-flags on their ‘going concern’ status.
In their latest quarter review reports, the auditors of all three airlines have said that the “appropriateness of the going concern basis” is dependent on the respective company’s ability to generate adequate finance to meet short-term and long-term obligations and to operate profitably. A company is typically known as a ‘going concern’ if it has sufficient resources to continue to operate indefinitely and to avoid any potential bankruptcy risks.
Troubled air carrier Kingfisher Airlines, part of Vijay Mallya-led UB Group, has faced the most stringent set of adverse auditor comments, while auditors for Naresh Goyal-led Jet Airways and Maran family-run Sun Group’s Spicejet have also commented on their ‘going concern’ status. However, the management of all three carriers have defended their decisions to prepare their respective financial statements on ‘going concern’ basis.
Announcing its latest quarter results for the period ended September 30, 2013, Kingfisher said its flying permit has lapsed and lenders have recalled their loans, but the “company has detailed plans for renewal of its operations”. Despite being grounded for over a year now, Kingfisher said it is confident of raising adequate finance, obtaining renewal of the permit, rescheduling debt and receiving continued support from the promoter group.
“Therefore, the management holds the view that the company will realize its assets and discharge liabilities in the normal course of business. Accordingly, the financial results have been prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value of assets and liabilities,” Kingfisher said. However, the auditors pointed out that Kingfisher has prepared its latest quarter results on going concern basis, “notwithstanding the fact that the company’s networth is completely eroded, the scheduled air operator’s permit issued by the Director General of Civil Aviation, Government of India, has lapsed and the consortium banks have recalled their debts to the company”.
“These events cast significant doubt on the ability of the company to continue as a going concern,” auditors said.