A STUDY ON FINANCIAL PLANNING AND PERFORMANCE ANALYSIS

SUBMITTED BY: PARMESH KUMAR S 1TJ10MBA22 MBA(FINANCE) UNDER THE GUIDANCE OF: N. SATHYANARAYANA LECTURER DEPARTMENT OF MBA TJIT

INDUSTRY PROFILE

Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. The Government nationalized nine airline companies vide the Air Corporations Act, 1953. Accordingly it established the Indian Airlines Corporation (IAC) to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers. June15, 1953 Two Corporations - Air India International Limited and Indian Airlines Corporation (IAC) came into formal existence. The late P.V. NarasimhaRao in the year 1991 put in to force an 'open skies' policy as part of India's economic liberalization. This opened doors for privately owned 'air taxi' operators to start scheduled services. By 1995, several private airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic air traffic. These included Jet Airways Sahara, NEPC Airlines, East west Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways.

COMPANY PROFILE

Air India is India's national flag carrier. Although air transport was born in India on February 18, 1911 when Henri Piquet, flying a Humber bi-plane, carried mail from Allahabad to Naini Junction, some six miles away, the scheduled services in India, in the real sense, began on October 15, 1932. It was on this day that J.R.D. Tata, the father of Civil Aviation in India and founder of Air India, took off from Drigh Road Airport, Karachi, in a tiny, light single-engined de Havilland Puss Moth on his flight to Mumbai (then known as Bombay) via Ahmedabad Air India is the flag carrier airline of India. Airindia is a limited company fully owned by government of India. The airline operates a fleet of Airbus and Boeing aircraft serving Asia, Australia, Europe and North America. Its corporate office is located at the Air India Building at Nariman Point in South Mumbai. Air India has two major domestic hubs at Indira Gandhi International Airport and ChhatrapatiShivaji International Airport. Subsidiaries Hotel Corporation of India Limited. Air India Air Transport Services Limited. Air India Engineering Services Limited. Air India Charters Limited. IAL Airport Services Limited. Airline Allied Services Limited.

VISION AND MISSION

VISION To be among top five Asian airlines in terms of Yield, Profitability, Productivity, Size and Quality MISSION

Focus on customer satisfaction. Grow with emphasis on sustained profitability. Provide exciting and satisfying work environment to retain and develop employees committed to Corporate Vision Focus on social responsibility environment & community. Focus on social responsibility environment & community.

MC KINSEY 7S MODEL

STRATEGY: A Multi-pronged strategy. Product up gradation strategy. Operations Improvement strategy:(to reduce unit costs). SYSTEMS: Airline reservations systems. Human resource management systems. SKILLS: The Airindia ltd continuously trying to sustain the adequate levels of skills in its humans resources it conducts seminars to the all administration officers executive as well as managers. The challenges however is to mobilize develop well managed training outfits offering need based and high quality training programmers which are sustainable and enriching.

STYLE: Style refers to the leadership of the top management and the overall operating style of the organization. Style imparts the norms that people follow and the way they work and interact within the company and the customers. The leadership style depends upon the organizational culture that is in practice. Airindia ltd has the participative kind of the leadership style. The decision taken in the top management may be in co-ordination of the subordinates.

STAFF: Staff means that the company has hired able people, trained them well and assigned them to the right jobs. Selection, training, reward and recognition, retention, motivation and assignment to appropriate work are all key issues. The most praises asset of Airindia ltd is its more than 28,500employees. SHARED VALUES: Airindia ltd has always sought to be a value driven organization. These values continue to direct the groups growth and business. The 6 core values of Airindia ltd way of doing business are: Integrity. Excellence. Unity. Responsibility. Code of conduct.

SWOT ANALYSIS

STRENGTHS : Air India has been the largest air carrier in India in terms of traffic volume and company assets. It owns the most updated fleet and competent repairs and maintenance expertise. Its information systems are advanced and compatible with its operation and service. It has a good reputation in both international and domestic markets, quality service and the age-old Goodwill that has still kept it alive in the interests of the rescue operators. Has financial backing of the Government. WEAKNESSES : Air India is operating across broad international and domestic markets competing with world leading giant airlines as well as local small operators. This lack of clarity on the strategic direction largely dilutes its capabilities and confuses its brand within markets. Low profitability and utilization of capacity. Growing Competitor base and entry of Low-Cost Carriers (LCCs)

OPPORTUNITIES : India airline industry is growing faster and will continue to grow as the GDP increases, and the trend is predicted to continue once the slowdown recedes. Worldwide deregulations make the skies more accessible; the route agreement is easier to be achieved. The number of foreign visitors and investors to India is increasing rapidly. Complementary industry like tourism will increase demand for airline service. The Civil Aviation Ministrys strong regulation and protection provides opportunities for consolidation and optimization. Customers are getting wealthier, tend to be less price-conscious and prefer to choose quality service over cost. THREATS : Air India faces imminent aggressive competition from world leading airlines and price wars triggered by domestic players. The Indian Railway Ministry has dramatically improved speed and services in their medium/long distant routes, attracting passengers away from air service, with prices almost at par with the low cost carriers. Labor problems as legacies try to streamline in order to compete with LCCs. Flood of new capacity into the region from LCCs may trigger a competitive bloodbath among the legacies.

ANALYSIS OF FINANCIAL STATEMENTS

The operating revenue is increasing consistently .i.e. in 2007 it was 88337.1 million and in 2011 it increased to 131022.7 million. The total revenue is having a decreasing trend in 2007 it was 92449.5 million it increased to 134022.7 million in 2011. The company has incurred loss for four years from 2008 to 2011 it has registered a profit of 940.5 million in 2007. The share holders fund is having a consistent increase. In 2007 it was 3398 million and in 2011 it increased to 10074.8 million. The loan fund has an increasing trend in 2007 it was 36219.1 million and in 2011 it increased to 250668.2 million the loan funds are increasing in a faster manner. The current liabilities are increasing in a faster manner in 2007 it was 21055.7 million and it increased to 55466.7 in 2011.

DESIGN OF THE STUDY

STATEMENT OF THE PROBLEM: The focus of all manufacturing industry and service industry is to increase the profitability of the company to survive in the current scenario. For this purpose the company needs a proper financial planning in order to maintain a balanced between the cash flows to different activities and its productivity. The financial performance analysis will provide a clear view of how the company is performing using various financial tools. During the past four decades Airindia ltd is suffering from loss due to lack of proper financial planning and optimum use of resources. The study aims at the review and analysis of the financial statements for the past five years, so as to afford a full diagnosis of the profitability and financial position of the firm concerned. NEED FOR THE STUDY: The study was focused on the comparative study of the financial performance of air India ltd for the past five years (2006-2011) which helps to measure the relative financial standing and profitability of the company. The scope of financial planning and performance analysis includes capital planning, profit planning, optimum use of financial resource and increase profitability.

METHODOLOGY OF DATA COLLECTION:

Primary data: This data were collected through discussion with concerned officers by sitting with them in free time. Secondary data: The data required for the study has been collected from secondary source .The relevant information are taken from annual reports, our journals and internet.

STATISTICAL TOOLS AND FINANCIAL TOOLS USED FOR DATA ANALYSIS

1.

Comparative financial statement:

a) b)

Comparative income statement: Comparative balance sheet:

2. 3. 4. 5.

Common-size financial statement: Cash flow statement analysis Trend Percentage Analysis: Correlation analysis

FINDINGS

There is an increase in cash flows used in operating activities in 2007 it was (10113.3) million and it increased to (18723.0) million in 2008. Cash flows used in investing activities has increased from (12872.4) million to (18112.9) million. Cash flows used in investing activities has increased as company has barrowed sufficient amount of funds to finance investing activities. The total revenue is having a decreasing trend in 2007 it was 92449.5 million it increased to 134022.7 million in 2011. The company has incurred loss for four years from 2008 to 2011 it has registered a profit of 940.5 million in 2007. This is not a good sign as it indicates that there is inefficiency in productivity. The loan fund has an increasing trend in 2007 it was 36219.1 million and in 2011 it increased to 250668.2 million the loan funds are increasing in a faster manner. There lot of external barrowings to finance the loss suffered which is not a good sign. The current liabilities are increasing in a faster manner in 2007 it was 21055.7 million and it increased to 55466.7 in 2011. The debt is increasing in a faster manner which has led to increase in borrowings. Total operating expenses has increasing trend the percentage increase in 2007,2008, 2009, 2010 are 95.53, 154.39, 149.71, and 148.32 respectively. This is mainly because of the fluctuations in fuel prices and maintenance of Aircraft. Another important element which has kept the total expenditure keep growing is labor cost. The pay scale for many unskilled labors are over coated which has made the labor cost more expensive. There exist a negative correlation between fixed assets and current assets.

SUGGESTIONS AND RECOMMENDATIONS

Air India ltd should try to match their Cash with the sales. In case of surplus cash, it should be invested either in securities or should be used to repay borrowings. The company has incurred loss for four years which is not a good sign. The company should make optimum use of the funds it should bring a balance between the cash used and the output from that cash flow. The pay scale for many unskilled labors are over coated which has made the labor cost more expensive. The company should follow proper remuneration policy in order to reduce the cost on labor. The company should try to follow a matching policy for financing fixed assets (i.e.) using long term sources of finances and current assets using short-term sources of finances. The company should determine the optimum cash balance to be kept. Proper training to be given to workers for increasing efficiency in production process. A frequent audit should be made with the team by the management. The idle cash should be utilized for the purchase of new technology or developing new technology or new solution, which will increase the customers satisfaction & meet the future competition.

CONCLUSION

The financial planning and performance Analysis done on the financial position of the company has provided a clear view on the activities of the company. The use of cash flow statement analysis, comparative statement analysis, trend analysis and correlation analysis has helped in determining the financial soundness of the company. The financial soundness of Airindia ltd is not satisfactory but the company has the capability to improve its present state. Airindia ltd is a huge organization with varied activities. The organization is growing very fast and diversifying its market with developing indigenous capabilities. The kindness, attention, and immense co-operation extended to researcher buy all the officials in the company made researcher project easy and comfortable. Really it was a very pleasant experience in Airindia ltd.