Annual Report 2007-08 - Kingfisher Airlines

Report of the Directors (Contd.)Your Company inducted 4 aircraft (3 Airbus A320s and 1ATR 72-500) and returned 4 aircraft (4 ATR 42-320s) duringthe period under review. The domestic aviation industry continuedto witness capacity expansion by all airline operators and thecompetition continues to be stiff among all operators puttingpressure on yields. The rising fuel costs during the period andincrease in other operating costs, combined to cause an operatingloss during the period. Individual items of the financial statementsare more fully discussed in the section titled “ManagementDiscussion and Analysis”.As a major step towards exploiting the synergies between thetwo groups, during the period under review, the brand “AirDeccan” was re-branded as “Deccan” with imagery identical tothe “Kingfisher” brand.Subsequent to the period under review, the brand “Deccan” wasphased out and your Company now offers the following classesof service:Kingfisher First – Premium Business class of serviceKingfisher Class – Premium Economy class of serviceKingfisher Red – Low fare basic class of serviceYour Company commenced international operations onSeptember 3, 2008 with daily flights on the Bangalore – Londonsector.For a predominant part of calendar year 2008, oilprices continued to shoot up and coupled with theexorbitant rates of taxes on Aviation Turbine Fuel in India, put theCivil Aviation industry in India under severe pressure. Recession ineconomies worldwide and the economic meltdown culminatingin the collapse of the financial markets and the slump in theaviation industry worldwide (with quite a few airlines filing forbankruptcy), has further aggravated the situation, with avenuesfor funding temporarily blocked.The Government of India has recognized the crisis the aviationindustry is facing and has initiated a dialogue with all the airlinesin India to discuss measures to enable the aviation industry to tideover the crisis and become substantially viable for the future.Charter ServicesThe Charter Services Undertaking of your Company has,subsequent to the period under review, been transferred on agoing-concern basis for a consideration of Rs. 69.10 crores, toDeccan Charters Limited in accordance with the Scheme. TheAppointed Date for the transfer is January 1, 2008.Accordingly, the report for the year under review on the CharterServices operations relates to the period July 1, 2007 to December31, 2007. During the said period, the Charter Services Operationscontinued to perform satisfactorily and increased its presence inoff shore flying for the oil sector.The operations of ferrying pilgrims at Sri Mata Vaishnodevi Templein Jammu based on an arrangement with the Temple Trust, whichcommenced four years back, yielded significant revenue for yourCompany. Your Company also commenced ferrying operationsfor the Amarnath Yatra. The customer base for and the revenuefrom the technical services offered by your Company increasedsignificantly. Your Company offered third party maintenance aswell as operational and maintenance services to large Indiancorporates. The avionics maintenance facility established tooffer maintenance of helicopter radio equipment commencedoperations. During the period under review, there has been anincreased focus on trading in Bell helicopter spare parts.SubsidiariesSubsequent to the period under review, your Company hasincorporated a "wholly owned" overseas subsidiary namedNorthway Aviation Limited for the purpose of financing predeliverypayments and aircraft acquisition.Subsequent to the period under review, your Company hasacquired the entire share capital of Vitae India Spirits Limited as aresult of which the said company has become a "wholly owned"subsidiary of your Company.OutlookThe integration of the entire commercial airline business into yourCompany pursuant to the Scheme has resulted in a consolidatedentity having a fleet size of 86 aircraft, network coverage of64 cities operating over 400 flights a day and a market shareof over 25%. The synergy benefits mapped out by Accentureare likely to be realized over a period of time and your Directorsare hopeful that this will reflect in the financial results of yourCompany once the economy emerges from this recessionaryphase and the Government of India takes necessary measures toboost the prospects of the aviation industry, particularly throughtax reforms.Given the slow-down in the air travel market, profitabilityremains a concern for airlines in the short term, given high costof operations. However, the UB Group has faith in the futureof the Indian aviation industry as Civil Aviation growth goes3

Report of the Directors' (Contd.)hand in hand with GDP growth. The Indian economy is a trilliondollar economy growing at 7% per annum, despite the currenteconomic situation. Civil Aviation is a key engine of this growthwhere there is no rail or surface transport alternative given the sizeand geography of the sub-continent. Passenger traffic in India hasgrown from 14 million in 2005 to over 43 million in 2008. YourCompany is well-poised to meet the dynamic challenges facedby the industry in the short term as well as to take advantage ofthe growth potential in the long term. The reduction of prices ofaviation fuel and reduction of sales tax on such fuel which is underactive consideration of the government together with introductionof stringent cost reduction and control measures will have positiveimpact on the working results of your Company and sufficientfuture taxable income will be available against which the deferredtax asset can be realized.In view of operating losses incurred during the year, your Directorsdo not recommend payment of any dividend.CapitalDuring the year under review, your Company’s Authorised ShareCapital was increased from Rs.150,00,00,000 (Rupees OneHundred Fifty Crores only) to Rs.500,00,00,000 (Rupees FiveHundred Crores only ) comprising of 40,00,00,000 (Forty Crores)Equity Shares of Rs.10/- each and 1,00,00,000 (One Crore)Preference Shares of Rs.100/- each.Subsequent to the period under review, pursuant to and interms of the Scheme, an aggregate of :1.130,033,350 Equity Shares of Rs. 10/- each of your Companywere allotted to the equity shareholders of Kingfisher Trainingand Aviation Services Limited (erstwhile Kingfisher AirlinesLimited) in the ratio of 3 equity shares of your Companyfor every 7 shares held by them in Kingfisher Training andAviation Services Limited (erstwhile Kingfisher AirlinesLimited); and2. 9,700,000 6% Redeemable Non-Cumulative PreferenceShares of Rs.100/- each of your Company were allotted to thepreference shareholders of Kingfisher Training and AviationServices Limited (erstwhile Kingfisher Airlines Limited) inthe ratio of 1 preference share of your Company for everypreference share held by them in Kingfisher Training andAviation Services Limited (erstwhile Kingfisher AirlinesLimited).Consequent upon the said allotment of equity shares asmentioned above, United Breweries (Holdings) Limited alongwith its subsidiaries holds 60.49% of the paid up share capitalof your Company and therefore your Company has become aSubsidiary of United Breweries (Holdings) Limited.Change of NamePursuant to and as envisaged in the Scheme, the name of yourCompany was changed from Deccan Aviation Limited to KingfisherAirlines Limited w.e.f. September 5, 2008. The Fresh Certificateof Incorporation consequent upon Change of Name has beenreceived from the Registrar of Companies, Karnataka.Depository SystemThe trading in the equity shares of your Company is undercompulsory dematerialization mode. As of date, equity sharesrepresenting 88% of the equity share capital are in dematerializedform. As the depository system offers numerous advantages,members are requested to take advantage of the same and availof the facility of dematerialization of your Company’s shares.Auditors’ ReportAs regards the observations in para 4 of the Auditors’ Report, therelevant Notes to Accounts are self-explanatory.In para 5 of the Auditors’ Report, the Statutory Auditors havequalified their report by remarking that the receipt of subsidyfrom aircraft manufacturers should be recognised as income onan systematic basis over the period necessary to match them withrelated costs which they are intended to compensate thoughthe accounting treatment does not appear to be covered by theAccounting Standard (AS)–19 (Accounting for Leases) issued bythe Institute of Chartered Accountants of India. In the opinion ofthe Directors:(1) The lessor of the Aircraft is a person other than the Aircraftmanufacturer and the lease contract is independent of thecontract with Aircraft manufacturer.(2) The termination, if any, of the lease contract does not in anyevent breach the conditions for the grant of subsidy by theAircraft manufacturer.(3) The subsidy value, referred to in Para 5 of the Audit Reporthave been received by the Company during the 15 monthsperiod ended June 30, 2006. As per Section 28 (iv) of theIncome Tax Act 1961, and precedents available under Income4

Report of the Directors (Contd.)Tax laws, including pronouncements of the Apex Court,the revenue arising out of support packages will betreated as income for taxation purposes and therefore,it would not be prudent for the Company to treat thesaid revenues differently in the books of Accounts and forTaxation purposes.(4) In the event of non compliance of the contract with theAircraft manufacturer, the resultant possibility of recoveryof subsidy granted by the Aircraft manufacturer hasbeen disclosed as contingent liability and this accountingtreatment adopted by the Company is also based on thewell established principle of differentiation of revenuereceipt and Capital receipt.In view of the above, in the opinion of the Company, theaccounting treatment of the support package, received from theAircraft manufacturer, as Income in the year of accrual and receiptis in order.As regards the observations in para 11(a) of the Auditors’ Report,the Note number 22 to Notes to Accounts (Schedule 22) is selfexplanatory.As regards the observations in the Annexure to the Auditors’Report, the Company has taken/is taking necessary steps to ensureimprovement in certain procedures and also for compliance withthe relevant laws.DirectorsCaptain K J Samuel, Mr. Vijay Amritraj and Mr. Anil KumarGanguly retire by rotation and, being eligible, offer themselvesfor reappointment.Subsequent to the period under review, the following Directorsresigned from the Board of Directors of your Company:Mr. Hitesh Patel w.e.f . July 07, 2008Ms. Bala Deshpande w.e.f. September 10, 2008Mr. S N Ladhani w.e.f. October 01, 2008Lt. Gen. N S Narahari w.e.f .October 14, 2008Prof. P N Thirunarayana w.e.f. October 14, 2008Col. Jayanth K Poovaiah w.e.f. October 15, 2008Capt. G R Gopinath and Capt. K J Samuel resigned fromtheir executive positions as Managing Director and ExecutiveDirector respectively w.e.f. October 16, 2008 and continue asNon-Executive Directors.Subsequent to the period under review, Mr. Piyush G. Mankad,Dr. Naresh Trehan, Diwan Arun Nanda and Mr. GhyanendraNath Bajpai were appointed as Additional Directors on October15, 2008 and hold office up to the date of the ensuing AnnualGeneral Meeting of your Company Notices in writing have beenreceived from Members signifying their intention to proposethe appointment of Mr. Piyush Mankad, Dr. Naresh Trehan,Diwan Arun Nanda and Mr. Ghyanendra Nath Bajpai asDirectors of your Company at the ensuing Annual GeneralMeeting.AuditorsM/s. B K Ramadhyani & Co., your Company's Auditors are eligiblefor re-appointment at the Annual General Meeting and it isnecessary to fix their remuneration.Listing of Shares of Your CompanyThe equity shares of your Company are listed on the BombayStock Exchange Limited and the National Stock Exchange of IndiaLimited. The listing fee for the year 2007-08 has been paid tothese Stock Exchanges.Subsequent to the period under review, 130,033,350 EquityShares of Rs. 10/- each of your Company issued and allottedto the equity shareholders of Kingfisher Training and AviationServices Limited (erstwhile Kingfisher Airlines Limited) pursuant tothe Scheme, have been listed on the Stock Exchanges where theexisting equity shares of your Company are presently listed.Annual General MeetingYour Company has obtained extension of time up to December 31,2008, from the Registrar of Companies, Karnataka, Bangalore, forholding the Annual General Meeting for the nine-month periodended March 31, 2008.Corporate GovernanceA report on Corporate Governance is annexed separately aspart of this Report along with a certificate of compliance froma Company Secretary in practice. Necessary requirements ofobtaining certifications/ declarations in terms of Clause 49 havebeen complied with.Management Discussion and AnalysisPursuant to Clause 49 of the Listing Agreement with theStock Exchanges, Management Discussion and Analysis Report isannexed and forms an integral part of the Annual Report.5

Report of the Directors (Contd.)Human ResourcesEmployee relations remained cordial. Particulars required underSection 217(2A) of the Companies Act, 1956 read with theCompanies (Particulars of Employees) Rules, 1975, as amendedfrom time to time forms part of this Report. However, as perprovisions of Section 219(1)(b)(iv) of the Companies Act, 1956,the Report and Accounts are being sent to all the Membersexcluding the Statement containing the particulars of Employeesto be provided under Section 217(2A) of the Act. Any Memberinterested in obtaining such particulars may inspect the same atthe Registered Office of your Company between 11:00 a.m. to1:00 p.m. on all working days till the date of the 13 th AnnualGeneral Meeting.Employee Stock Option Plan (ESOP)During the period from July 1, 2007 to March 31, 2008, theCompany allotted 328385 Equity Shares of Rs. 10/- each againstthe exercise of equivalent vested options. The said shares havebeen listed on the Bombay Stock Exchange Limited and TheNational Stock Exchange of India Limited. Considering the optionsforfeited and exercised, the outstanding stock options grantedunder ESOP 2005 were 1,084,065 and under ESOP 2006 were2,401,600 as on March 31, 2008.During the year 731,400 options have been grantedafresh under ESOP 2006 which will vest from September,2008 and February, 2009 over a period of four anniversariesthereof.Disclosures as required by Clause 12 of the SEBI (EmployeeStock Option Scheme and Employee Stock Purchase Scheme),Guidelines 1999 are annexed to this Report.Conservation of Energy, Research and Development,Technology Absorption, Foreign Exchange Earnings andOutgoThe particulars as prescribed under section 217(1)(e) of theCompanies Act, 1956 and the rules framed there under are notapplicable to your Company.The relevant information relating to Foreign Exchange Earningsand Outgo appear in the Note Nos. 9 to 11 of Schedule 22 to theFinancial Statements.Directors’ Responsibility StatementPursuant to Section 217(2AA) of the Companies Act, 1956,in relation to financial statements for the nine-monthperiod ended March 31, 2008, your Board of Directors reportthat:• in the preparation of the Accounts for the nine-month periodended March 31, 2008, the applicable accounting standardshave been followed along with proper explanation relating tomaterial departures;• accounting policies have been selected and appliedconsistently and that the judgments and estimates madeare reasonable and prudent so as to give a true and fairview of the state of affairs of your Company as at March31, 2008 and of the Loss of your Company for thenine-month period ended March 31, 2008;• proper and sufficient care has been taken for the maintenanceof adequate accounting records in accordance with theprovisions of the Companies Act, 1956, for safeguarding theassets of your Company and for preventing and detectingfraud and other irregularities;• the accounts for the nine-month period endedMarch 31, 2008, have been prepared on a going concernbasis.Thank YouYour Directors place on record their sincere appreciation forthe continued support from shareholders, customers, theGovernment of India especially the Ministry of Civil Aviationand the Directorate General of Civil Aviation, the various StateGovernments, Airports Authority of India, banks and financialinstitutions, suppliers, other business associates and employees.Your Directors also wish to place on record their appreciation ofthe continued co-operation and support received from the OriginalEquipment Manufacturers, financing and leasing companies andbanks for their continued support and understanding.BangaloreOctober 15, 2008For and on Behalf of the Board of DirectorsDr. Vijay MallyaChairman6

Report of the Directors (Contd.)StocK Options granted during the year under the ESOP 2005 & 2006Disclosures as required by Clause 12 of the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines1999Sl.No Particulars (ESOP 2006) (ESOP 2005)(a) Options granted 2,731,400 3,621,900(b) The Pricing formula Rs. 65/- Rs. 65/-(c ) Options vested Nil 632,840(d) Options exercised Nil 328,385(e) The total number of shares arising as a result of exercise of options Nil 328,385(f) Options lapsed 330,000 1,820(g) Variation of terms of options Nil Nil(h) Money realized by exercise of options Nil 21,345,025(i) Total no. of options in force 2,401,600 1,084,065(j) Employee wise details of options granted:(i) Senior managerial personnelAjay Bhatkal 50,000 -Anand Ramachandran 50,000 -Arun Kumar 30,000 -Arvind Saksena - 45,000Balakrishna Shabaraya K. 20,000 10,000Devesh Desai 50,000 50,000Jayanth K Poovaiah 2,20,000 154,000Preetham Phillip 1,00,000 136,000Ramki Sundaram 680,000 -N Srivatsa 50,000 -Navodit Mehra 25,000 23,000Vivek Agnihotri 50,000 -Nalin Gagrani 50,000 -Sagar Rathod 30,000 -(ii) Any other employee who received a grant in any one year of option amounting to 5% or more ofNilNiloption granted during the year.(iii) Identified employees who were granted options, during any one year, equal to or exceeding 1% ofNilNilthe issued capital (excluding outstanding warrants and conversions) of the Company at the time ofthe grant(k) Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of options calculated inN.Aaccordance with Accounting Standard AS-20(l) Method of accounting followed for value of charge on stock options (as per the Guidance Note on Intrinsic Value Intrinsic ValueStock Based compensation by ICAI)(m) Difference of amount of ESOP charge calculated as per the Intrinsic Value Method and the fair valueRs. 584,876,16(n)of the options (Black Scholes Method)Proforma Earning Per Share if the Charge have been accounted in accordance with fair value method(Black Scholes Method)(o) (i) Weighted-averaged exercise prices Rs. 65.00 Rs. 65.00and(ii) weighted-average fair values of options Rs. 137.93 Rs. 78.54for options whose exercise price either equals or exceeds or is less than the market price of the stock(p)A description of the method and significant assumptions used during the year to estimate the fairvalues of options :(i) risk-free interest rate (%) 8.00(ii) expected life (years) 5.19(iii) expected volatility (%) 51.60(iv) expected dividends (%) Nil(v)the price underlying share in market at the time of option grantMonth & year of grantIntrinsic value determined(Rs.)June 2005 62.97December 2005 62.97April 2007 49.90September 2007 83.80February 2008 91.95Note: 3,621,900 options have been granted under the ESOP 2005, which scheme has since been discontinued. With effect fromJanuary 1, 2006, your Company has adopted ESOP 2006 under which 731,400 options were further granted during the period endedMarch 31, 2008 in addition to 2,000,200 options which were granted during the year ended June 30, 2007.7

Corporate Gover nance1. Company’s Philosophy on Corporate GovernanceYour Company is committed to excellence in corporategovernance practices and recognizes that good corporategovernance is a continuous exercise. Your Company aimsat achieving transparency, accountability, equity and ethicsin all facets of its operations and in all interaction with itsstakeholders. Your Company believes that all its operationsand actions must result in enhancement of overallshareholder value over a sustained period of time withoutcompromising in any way compliance with laws andregulations.2. Board of DirectorsDuring the period under review, your Company’s Boardof Directors comprised of 12 directors out of which3 were Executive Directors and 9 were Non-ExecutiveDirectors.During the period under review, Seven Board Meetingswere held on August 20, 2007, September 27, 2007,October 31, 2007, December 19, 2007, January 31, 2008,February 21, 2008 and March 18, 2008.Attendance of each Director at the Board Meetings andthe last Annual General Meeting during the period underreview and details of number of outside Directorships andCommittee position held by each of the Directors as on dateare given below:Sl.No.Name of the Director Category of Directorship No. of BoardMeetingsattendedAttendance atlast AGM heldon December,19, 2007# No. of OtherCompanies inwhich DirectorNo. of Committees(other than yourCompany) in whichChairman/Member1. Dr. Vijay Mallya Non-ExecutiveNon-IndependentVice Chairman (from October 31, 2007)Non-ExecutiveNon-IndependentChairman (from April 22, 2008)Managing Director designated Chairman & CEO(from October 16, 2008)2. Capt. G R Gopinath Non-IndependentManaging Director (till October 15, 2008 ) andVice Chairman and Non-Executive Director(from October 16, 2008)3. Capt. K J Samuel Non-IndependentExecutive Director (till October 15, 2008) andNon-Executive Director (from October 16, 2008)4. Mr. A K Ravi Nedungadi Non-ExecutiveNon-Independent5 Yes 22 1(Chairman of 1)7 Yes 4 Nil5 No 2 Nil5 Yes 11 5(Chairman of 2)5 No Nil Nil5. Lt. Gen. (Retd.) N S Narahari Non-ExecutiveIndependent Director (from April 22, 2008) 1IndependentChairman (till April 22, 2008) andNon-Executive6. Mr. S N Ladhani Non-ExecutiveNon-Independent Director 2 7 Yes 14 Nil7. Mr. Vijay Amritraj Non-ExecutiveIndependent Director1 No 3 68. Col. Jayanth K Poovaiah ExecutiveNon-Independent Director 3 6 Yes 1 Nil9. Ms. Bala Deshpande Non-ExecutiveNon-Independent Director 4 1 No 12 5(Chairperson of 2)10. Prof P N Thirunarayana Non-ExecutiveIndependent Director 5 3 No 1 18

Corporate Governance (Contd.)Sl.No.Name of theDirectorCategory ofDirectorshipNo. of BoardMeetingsattendedAttendance atlast AGM heldon December19, 2007# No. of OtherCompanies inwhich DirectorNo. of Committees(other than theCompany) in whichChairman/ Member11. Mr. Anil Kumar Ganguly Non-Executive6 Yes Nil NilIndependent Director12. Mr. Hitesh Harshad Patel Non-Executive5 Yes Nil NilNon-Independent Director 613. Mr. Piyush Mankad* Non-ExecutiveIndependent DirectorN.A. N.A. 12 9(Chairman of 2)14. Dr. Naresh Trehan* Non-ExecutiveIndependent DirectorN.A. N.A. 12 2(Chairman of 1)15. Diwan Arun Nanda* Non-ExecutiveIndependent DirectorN.A. N.A. 12 3(Chairman of 2)16. Mr.Ghyanendra NathBajpai*Non-ExecutiveIndependent DirectorN.A. N.A. 17 10(Chairman of 5)NOTE:# The above details are in respect of their Directorship only inIndian Companies.a. Out of 22 other Companies in which Dr. Vijay Mallya is aDirector, 7 are Private Limited Companies and 2 Section 25Companies.b. Out of 4 other Companies in which Capt. G R Gopinath is aDirector, 3 are Private Limited Companies.c. Out of 2 other Companies in which Capt. K J Samuel is aDirector, 1 is a Private Limited Company.d. Out of 11 other Companies in which Mr. A K Ravi Nedungadiis a Director, 3 are Private Limited Companies and 1 Section25 Company.e. Out of 14 other Companies in which Mr. S N Ladhani is aDirector, 12 are Private Limited Companies.f. Out of 3 other Companies in which Mr. Vijay Amritraj is aDirector, 2 are Private Limited Companies.g. Out of 12 other Companies in which Ms. Bala Deshpande isa Director, 4 are Private Limited Companies.h. Out of 12 other Companies in which Dr.Naresh Trehan is aDirector, 8 are Private Limited Companies.i. Out of 12 other Companies in which Diwan Arun Nanda isa Director, 7 are Private Limited Companies.j. Out of 17 other Companies in which Mr.Ghyanendra NathBajpai is a Director, 6 are Private Limited Companies and 1Section 25 Company.1Ceased to be Director w.e.f October 14, 2008.2Ceased to be Director w.e.f October 1, 2008.3Ceased to be Director w.e.f October 15, 2008.4Ceased to be Director w.e.f September 10, 2008.5Ceased to be Director w.e.f October 14, 2008.6Ceased to be Director w.e.f July 7, 2008.* Appointed Additional Director on October 15, 2008.Mr. Vishnu Singh Rawal, Alternate Director to Mr. S N. Ladhanialso ceased to be director w.e.f. October 1, 2008 upon theresignation of Mr. S.N. Ladhani as Director.The current constitution of the Board of Directors of yourCompany is as follows:• Dr. Vijay Mallya – Chairman & Managing Director designatedChairman & CEO• Capt. G.R.Gopinath–Vice Chairman–Non–Executive Director• Capt. K.J.Samuel–Non–Executive Director• Mr. A. K. Ravi Nedungadi–Non–Executive Director• Mr. Vijay Amritraj–Non–Executive Independent Director• Mr. Anil Kumar Ganguly–Non–Executive Independent Director• Mr. Piyush Mankad–Non–Executive Independent Director• Dr. Naresh Trehan–Non–Executive Independent Director• Diwan Arun Nanda–Non–Executive Independent Director• Mr. Ghyanendra Nath Bajpai–Non–Executive IndependentDirectorDISCLOSURE REGARDING APPOINTMENT ANDREAPPOINTMENT OF DIRECTORSDirectors retiring by rotation and seeking re-appointmentCapt. K.J. Samuel, a Graduate from National DefenceAcademy is a recipient of the ‘Sena Medal’ for gallantry.After being commissioned into the Indian Army in 1971,he fought in the 1971 war against Pakistan. He is an experiencedhelicopter pilot. He took voluntary retirement in 1992 as aLieutenant Colonel. He is a qualified flying instructor and a DGCAExaminer. He was a Co-Promoter and co-founder of DeccanAviation Limited.9

Corporate Governance (Contd.)Details of Capt. K.J. Samuel’s Directorships in other IndianCompanies are as under:-Other DirectorshipsDeccan Cargo Private LimitedDeccan Charters LimitedPosition heldDirector & MemberDirectorCapt. K.J. Samuel holds 7,956,807 shares constituting 2.99% ofthe paid up capital in your Company.Mr. Vijay Amritraj was a recipient of the Padma Shri, adesignated United Nations Messenger of Peace and a recipient ofthe International Sportsman of the Year Award for the year 1987.He was the youngest player to play Davis Cup for any country. Hesubsequently served India in the Davis Cup for 20 years and ledIndia to Davis Cup finals twice in 1974 and 1987. He foundedthe BAT (Britannia Amritraj Tennis) Academy in India and alsoheld the position of President of the ATP (Association of TennisProfessionals).Details of Mr. Vijay Amritraj’s Directorships and CommitteeMemberships in other Indian Companies are as under:Other DirectorshipsLam Sports Group Private LimitedFirst Serve Entertainment (India) Private LimitedHotel Leela Venture LimitedPosition heldDirectorDirectorDirectorMr. Vijay Amritraj holds the following other Committee positions:Name of the CommitteeAudit CommitteeLam Sports Group Private LimitedFirst Serve Entertainment (India) Private LimitedHotel Leela Venture LimitedShareholders/Investors Grievance CommitteeLam Sports Group Private LimitedFirst Serve Entertainment (India) Private LimitedHotel Leela Venture LimitedPosition heldMemberMemberMemberMemberMemberMemberMr. Vijay Amritraj does not hold any shares in your Company.Mr. Anil Kumar Ganguly is a fellow member of the Instituteof Chartered Accountants of India. He has over four decadesof experience in various facets of corporate management, suchas finance, accounting, audit, taxation and corporate affairs.He also has rich experience in sales and marketing in India aswell as overseas and knowledge in areas of corporate finance,management, corporate governance, audit, taxation, internationalmarketing and project control. He was the Whole-time Directorof Britannia Industries Limited and was the Managing Director ofNabisco Brands (Malaysia). He was also the President of the IndiaBuilders Corporation group of companies. He is also aphilanthropist and is involved in social welfare activitiesrelating to education and child health.Mr. Anil Kumar Ganguly does not hold any Directorship/Committee Membership in other Indian Companies.Mr. Anil Kumar Ganguly does not hold any shares in yourCompany.New DirectorsMr. Piyush Mankad was appointed as an Additional Director(categorized as an Independent Director) of your Company onOctober 15, 2008 and holds office as Director upto the date ofthis Annual General Meeting.Mr. Piyush Mankad was a distinguished member of the IndianAdministrative Service and served in the Cabinet Committee inthe Ministry of Finance. He also serves on the board of variouscompanies as an Independent Director.Details of Mr. Piyush Mankad’s Directorships and CommitteeMemberships in other Indian Companies are as under:Other DirectorshipsTata International LimitedTata Elxsi LimitedTata Power LimitedM & M Financial Services LimitedMahindra Forgings LimitedUnited Breweries (Holdings ) LimitedMax India LimitedIcra LimitedMysore Cements LimitedSRF LimitedNoida Toll Bridge Company LimitedDSP Merrill Lynch Fund Managers LimitedPosition heldIndependent DirectorIndependent DirectorIndependent DirectorIndependent DirectorIndependent DirectorIndependent DirectorIndependent DirectorIndependent DirectorChairmanIndependent DirectorIndependent DirectorIndependent DirectorMr. Piyush Mankad holds the following other Committeepositions:Name of the CommitteeAudit CommitteeTata International LimitedDSP Merrill Lynch Fund Managers LimitedNoida Toll Bridge Company LimitedMysore Cements LimitedPosition heldMemberMemberMemberMember10

Corporate Governance (Contd.)Name of the CommitteeSRF LimitedShareholders/Investors Grievance CommitteeMysore Cements LimitedNoida Toll Bridge Company LimitedMax India LimitedTata Elxsi LimitedPosition heldMemberChairmanMemberMemberChairmanMr. Piyush Mankad does not hold any shares in your Company.Dr. Naresh Trehan was appointed as an Additional Director(categorized as an Independent Director) of your Company onOctober 15, 2008 and holds office as Director upto the date ofthis Annual General Meeting.Dr. Naresh Trehan is India’s leading Cardiothoracic andVascular Surgeon. Dr. Naresh Trehan trained in general surgeryand subsequently cardiac surgery at premier institutions in U.S.(NYU Medical Centre) and held important academic and clinicalpositions at the New York University Medical Center, BellevueHospital of the city of New York and Veterans AdministrationHospital (Manhattan), U.S.A. His pioneering work in the field ofcoronary artery bypass surgery was at the New York UniversityMedical Centre, New York, USA. In 1988, despite a successfulcareer in United States he returned to India and started EscortsHeart Institute and Research Centre - a pioneering state-of-theartheart institute in India. He is the Executive Director and ChiefCardiothoracic and Vascular Surgeon of Escorts Heart Instituteand Research Centre. He is the Chairman of Global Health PrivateLimited. He is a recipient of both Padma Bhushan and PadmaShree awards from the President of India for distinguished servicein the field of Surgery and Medicine. Dr. Trehan serves on theboard of several companies.Details of Dr. Naresh Trehan’s Directorships and CommitteeMemberships in other Indian Companies are as under:-Other DirectorshipsAfsan Health Resorts PrivateLimitedDabur Pharma LimitedDr. Naresh Trehan & AssociatesHealth Services Private LimitedGloberian India Private LimitedGlobal Health Private LimitedPosition heldDirector and holding more than2% of the paid up capitalDirectorDirector and holding more than2% of the paid up capitalDirectorDirector and holding more than2% of the paid up capitalOther DirectorshipsJubilant Organisys LimitedRaksha TPA Private LimitedTrasa Investments Private LimitedWah India Private LimitedPunj Lloyd LimitedPosition heldDirectorDirector and holding more than2% of the paid up capitalDirectorDirector and holding more than2% of the paid up capitalDirectorNaresh Trehan Holdings Private Limited Director and holding more than2% of the paid up capitalShrumps Real Estates Limited Director and holding more than2% of the paid up capitalDr. Naresh Trehan holds the following other Committeepositions:Name of the CommitteeAudit CommitteePunj Lloyd LimitedShareholders/Investors GrievanceCommitteePunj Lloyd LimitedPosition heldMemberChairmanHe is also a member of the Remuneration Committee of PunjLloyd Limited.Dr. Naresh Trehan does not hold any shares in your Company.Diwan Arun Nanda was appointed as an Additional Director(categorized as an Independent Director) of your Company onOctober 15, 2008 and holds office as Director upto the date ofthis Annual General Meeting.Diwan Arun Nanda is the Chairman and Managing Director ofRediffusion DY&R Pvt. Ltd, India and is also on the Global PartnersBoard of Y & R Advertising, USA. Diwan Arun Nanda holds aBachelors Degree in Commerce from Loyola College, ChennaiUniversity, and a Post Graduate Diploma in Management from theIndian Institute of Management, Ahmedabad. He was a memberof the Board of Directors of Air India, a member of the JawaharlalNehru Centenary Committee (a part of the Cabinet Secretariatof the Government of India) and President of the AdvertisingAgencies Association of India (1993-1995 and 1999-2000).Details of Diwan Arun Nanda’s Directorships and CommitteeMemberships in other Indian Companies are as under:-Other DirectorshipsRediffusion – DY & R Private LimitedRediff.com India LimitedRediffusion Holdings Private LimitedPosition heldDirector & ShareholderDirector & ShareholderDirector & Shareholder11

Corporate Governance (Contd.)Other DirectorshipsPosition heldWunderman India Private Limited DirectorEverest Brand Solutions Private DirectorLimitedShowdiff Worldwide Private Limited DirectorKlass Equipment Private Limited Director & ShareholderArion Horse Co. Private Limited Director & ShareholderClariant Chemicals (India) Limited DirectorEveready Industries (India) Limited DirectorMastek LimitedDirectorOriental Hotels LimitedDirectorDiwan Arun Nanda holds the following other Committeepositions:Name of the CommitteeAudit CommitteeClariant Chemicals (India) LimitedMastek LimitedShareholders/Investors Grievance CommitteeClariant Chemicals (India) LimitedPosition heldMemberChairmanChairmanDiwan Arun Nanda does not hold any shares in your Company.Mr. Ghyanendra Nath Bajpai was appointed as an AdditionalDirector of your Company (categorized as an IndependentDirector) on October 15, 2008 and holds office as Director uptothe date of this Annual General Meeting.Mr. Ghyanendra Nath Bajpai holds a Master’s Degree in Commercefrom the University of Agra and a Degree in Law (LLB) from theUniversity of Indore. He has been the Chairman of the Securitiesand Exchange Board of India (SEBI), the Life Insurance Corporationof India (LIC), and Non-Executive Chairman of National StockExchange of India Limited.He received among others the “Outstanding Contribution to theDevelopment of Finance” award from the Prime Minister of India,Dr. Manmohan Singh.Details of Mr. Ghyanendra Nath Bajpai’s Directorships andCommittee Memberships in other Indian Companies are asunder:-Other DirectorshipsFuture Generali India Life InsuranceCompany LimitedFuture Generali India Insurance Company LimitedEmaar MGF Land LimitedThe Dhanalakshmi Bank LimitedFuture Capital Holdings LimitedPosition heldDirectorDirectorDirectorDirectorDirectorOther DirectorshipsMandhana Industries LimitedKshitij Investment Advisory Company LimitedIndivision Investment Advisors LimitedFuture Ventures India LimitedDalmia Cement (Bharat) LimitedIntiuit Consulting Private LimitedInvent Asset Securitisation & ReconstructionCompany Private LimitedInfomerics Valuation & Rating Private LimitedNitesh Estates Private LimitedApnaloan.com Services Private LimitedInvent ARC Private LimitedIDE India (Section 25 Company)Position heldDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorDirectorMr. Ghyanendra Nath Bajpai holds the following other Committeepositions:Name of the CommitteePosition heldAudit CommitteeMandhana Industries LimitedMemberEmaar MGF Land LimitedMemberFuture Capital Holdings LimitedMemberDalmia Cement (Bharat) LimitedMemberFuture Generali India Life Insurance Company Limited ChairmanFuture Generali India Insurance Company Limited ChairmanFuture Ventures India LimitedChairmanShareholders/Investors Grievance CommitteeEmaar MGF Land LimitedFuture Capital Holdings LimitedThe Dhanalakshmi Bank LimitedChairmanChairmanMemberMr. Ghyanendra Nath Bajpai does not hold any shares in yourCompany.3. AUDIT COMMITTEEThe Audit Committee was constituted on December 21, 2005to meet the requirements under both the Listing Agreementand Section 292A of the Companies Act, 1956.During the period under review, Three meetings of theCommittee were held on September 27, 2007, October 29,2007 and January 31, 2008. The details of attendance bymembers of the Committee are as below:Members Category No. ofMeetingsAttendedMr. Anil Kumar Ganguly Non-Executive3IndependentLt. Gen. N. S. Narahari Non-ExecutiveIndependent212

Corporate Governance (Contd.)Members Category No. ofMeetingsAttendedProf. P. N. Thirunarayana Non-Executive1IndependentMr. S. N. Ladhani Non-Executive3Non-IndependentMs. Bala Deshpande Non-ExecutiveNon-IndependentNilThe terms of reference to the Audit Committee cover theareas mentioned under Clause 49 of the Listing Agreementand Section 292A of the Companies Act, 1956, (besidessome other functions as are referred to it by the Board ofDirectors) which are as follows:-• Regular review of accounts, accounting policies,disclosures, etc.• Review of the major accounting entries based onexercise of judgment by management and review ofsignificant adjustments arising out of audit.• Qualifications in the draft audit report.• Establishing and reviewing the scope of the independentaudit including the observations of the auditors andreview of the quarterly, half-yearly and annual financialstatements before submission to the Board.• The Committee shall have post audit discussions withthe independent auditors to ascertain any area ofconcern.• Establishing the scope and frequency of internal audit,reviewing the findings of the internal auditors andensuring the adequacy of internal control systems.• To look into reasons for substantial defaults in thepayment to depositors, debenture holders, shareholdersand creditors.• To look into the matters pertaining to the Director’sResponsibility Statement with respect to compliancewith Accounting Standards and Accounting Policies.• Compliance with Stock Exchange legal requirementsconcerning financial statements to the extentapplicable.• The Committee shall look into any related partytransactions i.e., transactions of your Company of amaterial nature, with promoters or management, theirsubsidiaries or relatives etc., that may have potentialconflict with the interests of Company at large.• Appointment and remuneration of statutory andinternal auditors.• Such other matters as may from time to time berequired by any statutory, contractual or otherregulatory requirements to be attended to by the AuditCommittee.Consequent upon the resignation of Directors andappointment of Additional Directors as mentionedhereinabove, the Audit Committee has beenreconstituted on October 15, 2008 and the currentcomposition of the Audit Committee is as givenbelow:• Mr. Anil Kumar Ganguly- Chairman• Diwan Arun Nanda• Dr. Naresh Trehan• Mr. A .K. Ravi Nedungadi4. SHARE ALLOTMENT, TRANSFERS AND INVESTORGRIEVANCE COMMITTEEThe Share Allotment, Transfers and Investor GrievanceCommittee was constituted on December 21, 2005 tooperate in terms of the provisions related thereto in theListing Agreements with the Stock Exchanges and/or theprovisions as prescribed or may be prescribed in this regardby the Companies Act, 1956.During the period under review, the Committee comprisedof the following Directors:• Mr. Anil Kumar Ganguly - Chairman• Lt Gen N S Narahari• Mr. S N Ladhani• Capt K J Samuel• Col. Jayanth K PoovaiahMr. N Srivatsa, Company Secretary, is the ComplianceOfficer.During the period under review, Nine meetings of theCommittee were held on August 20, 2007, August 27,2007, September 24, 2007, November 14, 2007, December14, 2007, January 4, 2008, February 8, 2008, March 3, 2008and March 18, 2008 respectively. The attendance of theDirectors at these Committee meetings is as below.Members Category No. of MeetingsAttendedMr. Anil Kumar Ganguly Non-ExecutiveIndependent9Lt Gen N S NarahariNon-ExecutiveIndependent713

Corporate Governance (Contd.)Members Category No. of MeetingsAttendedMr. S N Ladhani Non-Executive6Non-IndependentCapt K J Samuel Executive6Non-IndependentCol. Jayanth K Poovaiah ExecutiveNon-Independent8During the period under review, 26 complaints werereceived and replied/redressed to the satisfaction of theshareholders.Consequent upon the resignation of Directors andappointment of Additional Directors as mentionedhereinabove, the Committee has been reconstituted onOctober 15, 2008 and the current composition of theCommittee is as given below:• Mr. Anil Kumar Ganguly - Chairman• Mr. A K Ravi Nedungadi• Capt. K J Samuel5. REMUNERATION COMMITTEEThe Remuneration Committee was constituted on March16, 2005. The Committee is authorized, inter alia, to dealwith matters relating to framing policies and compensationincluding salaries and salary adjustments, incentives, bonuses,promotion, benefits, stock options and performance targetsof top executives, remuneration of Directors, strategies forattracting and retaining employees, employee developmentprogrammes and other key issues referred by the Board ofDirectors of your Company.During the period under review, the Committee comprisedof the following Directors:• Mr. S N Ladhani• Ms. Bala Deshpande• Lt Gen N S Narahari• Prof. P N Thirunarayana• Mr. Anil Kumar GangulyMr. N Srivatsa, Company Secretary, is the Secretary to theCommittee.During the period under review, no meetings of theCommittee were held.Consequent upon the resignation of Directors andappointment of Additional Directors as mentionedhereinabove, the Remuneration Committee and the ESOPCommittee were merged into one committee namely“Remuneration and Compensation Committee” on October15, 2008. The Committee is authorized, apart from thematters referred to above, to formulate and implementEmployee Stock Option Scheme(s).The currentbelow :composition of the Commitee is as given• Diwan Arun Nanda - Chairman• Mr. Anil Kumar Ganguly• Mr. A K Ravi NedungadiRemuneration of DirectorsThe details of remuneration paid to the Directors during the periodunder review are given below:a) Remuneration of Executive DirectorsName of the DirectorCapt. G R GopinathManaging DirectorCapt. K J SamuelExecutive DirectorCol. Jayanth K PoovaiahExecutive DirectorSalary payable(Rs.)b) Sitting fees of Non-Executive DirectorsActual Salarypaid (Rs.)22.50 lakhs 22.50 lakhs11.16 lakhs 11.16 lakhs18.00 lakhs 13.70 lakhsName of the Director Fees paid for attendingBoard/ CommitteeMeetings (Rs.)Dr. Vijay Mallya 1,00,000Lt. Gen. (Retd.) N S Narahari 2,00,000Mr. S N Ladhani` 2,30,000Mr. Vijay Amritraj 20,000Mr. A K Ravi Nedungadi 1,00,000Ms. Bala DeshpandeProf. P N Thirunarayana 70,000Mr. Anil Kumar Ganguly 2,50,000Mr. Hitesh Patel 1,00,000None of the Non-Executive Directors of your Companyhave any pecuniary relationship or transaction with yourCompany.c) Shareholding of Non Executive Directors during the periodunder reviewApart from Mr. S N Ladhani who held 798 equity shares ofRs. 10/- each of your Company, no other Non-ExecutiveDirector held shares in your Company as on March 31,2008.None of the Non-Executive Directors own any shares onbeneficial basis during the period under review.Nil14

Corporate Governance (Contd.)d) Employee Stock Option to DirectorsCol. Jayanth K Poovaiah - Executive Director was grantedoptions under the Employee Stock Option Plan of yourCompany as follows:SchemeNo. of options grantedESOP 2005 154,000ESOP 2006 220,0006. GENERAL BODY MEETINGSThe details in respect of the last three Annual GeneralMeetings are furnished as under:FinancialYear2004-2005 October 22,20052005-2006 December 11,20062006-2007 December 19,2007Date Time Venue10.00.a.m. Jakkur Aerodrome,Bellary Road,Bangalore - 560 06410.30.a.m. Dr. AmbedkarBhavan, Millers Road,Vasanthnagar,Bangalore -560 0524.00.p.m.Senate Hall,Hotel Capitol,3 Raj Bhavan Road,Bangalore - 560001All the resolutions set out in the Notices, includingSpecial Resolutions were passed by the Shareholders.Since the date of the last Annual General Meeting, oneExtra Ordinary General Meeting was held on March 18, 2008at which a Special Resolution was passed for the issue andallotment of shares under Section 81(1A) and other applicableprovisions of the Companies Act, 1956 for an amount notexceeding Rs.1600 crores (Rupees One Thousand Six HundredCrores).Meeting of the Equity Shareholders of your Company toapprove the Composite Scheme of Arrangement mentionedhereinabove convened and held by the Hon’ble High Courtof Karnataka on April 17, 2008 approved the CompositeScheme of Arrangement as modified.Postal BallotYour Company has not passed any resolution at the aboveAnnual General Meetings which was required to be passedthrough Postal Ballot as per the provisions of the Companies Act,1956 ("the Act") and the rules framed thereunder.During the period under review, pursuant to Section 192A of theCompanies Act, 1956, your Company conducted the Postal Ballotexercise following the provisions and rules framed under the Actfor conducting Postal Ballot.The details/ results of the Postal Ballot exercise so conducted areas under:Date ofNoticeof PostalBallotFebruary21, 2008Date ofScrutinizer’sReportApril 14,2008DescriptionSpecial Resolution underSection 372A of theCompanies Act, 1956for increase in limits formaking investments,loans, advances andguarantees upto anamount of Rs.1,000crores (Rupees OneThousand Crores only)ResultCarried withrequisitemajority.Number ofvotes cast infavour -1157Number ofvotes castagainst - 64The Postal Ballot exercise was conducted by Mr. G. Krishna,Company Secretary in practice, Scrutinizer appointed for thispurpose.7. DISCLOSURESDuring the period under review, there were no materiallysignificant related party transactions with your Company'spromoters, the Directors or the management, their subsidiariesor relatives etc., that may have potential conflict with theinterests of your Company at large. Details of related partytransactions form part of Notes to Accounts.Your Company has complied with all the statutoryrequirements comprised in the Listing Agreements/Regulations/Guidelines/ Rules of the Stock Exchanges /SEBI/other statutory authorities.There were no instances of non-compliance by yourCompany nor have any penalties, strictures been imposed byStock Exchanges or SEBI or any statutory authority sinceincorporation of your Company on any matter related tocapital markets.8. MEANS OF COMMUNICATIONThe unaudited quarterly and half-yearly results are sent to allthe Stock Exchanges where the shares of your Company arelisted. The results are normally published in Business Standardand Kannada Prabha.The results are displayed on your Company’s websitewww.flykingfisher.com.15

Corporate Governance (Contd.)9. MANAGEMENT DISCUSSION AND ANALYSIS REPORTManagement Discussion & Analysis Report forms part of this Annual Report.10. GENERAL SHAREHOLDERS’ INFORMATIONa) Annual General MeetingDate December 26, 2008Time2.45 p.m.Venue Dr. Ambedkar Bhavan, Millers Road, Vasanthnagar, Bangalore -560052b) Financial period July 1, 2007 to March 31, 2008c) Dates of Book Closure Tuesday, December 23, 2008 to Friday, December 26, 2008 (both days inclusive)d) Dividend Payment Date Your Company has not declared any divided for the period July 1, 2007to March 31, 2008e) Listing Fees The listing fees for the year 2008-09 have been paid to both the Stock Exchanges where yourCompany’s equity shares are listed.f) Registered Office UB Tower, Level 12, UB City, 24, Vittal Mallya Road, Bangalore - 560 001.( w.e.f June 2, 2008)g) Listing on Stock Exchanges in India Bombay Stock Exchange Limited,P J Towers, Dalal Street , Mumbai 400 001National Stock Exchange of India LimitedExchange Plaza, C/1, Block G, Bandra-Kurla Complex, Bandra (E), Mumbai 400 051h) Stock Code BSE- 532747NSE-SYMBOL-AIRDECCAN (upto October 5, 2008)NSE- SYMBOL- KFA (w.e.f October 6, 2008)i) ISIN No. INE438H01019The listing fees for the year 2007-08 have been paid to both the Stock Exchanges.j) Financial Calendar for the period April 1, 2008 to March 31, 2009 is as given below:First Quarterly Results By October 31, 2008Second Quarterly Results By October 31, 2008Third Quarterly Results By January 31, 2009Fourth Quarterly Results By April 30, 2009k) Market Price DataThe shares of your Company are listed on Bombay Stock Exchange Limited and National Stock Exchange of India Limited. Thetable below sets out the monthly high and low quotations of the shares traded during the period under review. Your Company’sManagement cautions the readers that the share price performance shown in the table below should not be considered to beindicative of the share price in the future.l) Share Price of your CompanyON BSE ON NSEMonth High (Rs.) Low (Rs.) Close (Rs.) Volume (Nos.) High (Rs.) Low (Rs.) Close (Rs.) Volume (Nos.)July, 2007 150.15 132.10 140.70 2985393 145.02 140.22 142.25 10103442August, 2007 146.25 130.20 140.90 4453383 141.15 135.75 138.10 12420935September, 2007 151.95 140.00 146.25 6110760 145.59 142.38 143.70 28664830October, 2007 168.50 135.00 152.70 8066245 157.67 146.43 152.45 20218583November, 2007 267.00 142.70 242.90 35434211 184.99 167.95 176.34 74153462December, 2007 335.00 243.50 276.90 29925085 293.45 264.82 276.49 84577905January, 2008 307.00 132.20 173.90 9670949 248.53 224.57 234.96 31672054February, 2008 206.70 154.55 169.70 5327075 185.86 171.51 177.78 18442918March, 2008 167.00 100.30 122.05 3788822 138.15 125.08 130.94 1364343516

Corporate Governance (Contd.)Your Company’s performance for the period from July 1, 2007 to March 31, 2008 vis-à-vis BSE SensexYour Company vis-à-vis BSEYour Company vis-à-vis NSE17

Corporate Governance (Contd.)m) Registrar and Share Transfer AgentsKarvy Computershare Pvt. Ltd.Plot No. 17-24, Vittal Rao Nagar,Madhapur, Hyderabad - 500 081Tel No. : 91-040- 23420816-824Fax No. : 91- 040- 23420814Email ID : einward.ris@karvy.comn) Share Transfer SystemThe power to consider and approve share transfers/ transmission/ transposition/ consolidation/ subdivision etc. has been delegatedto a Committee of Directors as indicated under the heading "Share Allotment, Transfers and Investor Grievance Committee". TheCommittee generally meets once a month. The requirements under the Listing Agreement/ Statutory regulations in this regard arebeing followed.o) Distribution of Shareholding as on March 31, 2008Equity Shares held Shareholders Shares held %1 - 5000 49559 5012117 3.695001 - 10000 1223 996089 0.7310001 - 20000 555 847786 0.6220001 - 30000 155 403745 0.3030001 - 40000 79 277475 0.2040001 - 50000 87 413324 0.3050001 - 100000 131 978423 0.72100001 & Above 161 126869544 93.42Total 51950 135798503 100.00p) Shareholding Pattern as on March 31, 2008Sl. No. Name of shareholder No. of shares % of holding1. Promoters 67572591 49.762. Mutual Funds/ UTI 13612587 10.023. Financial Institutions / Banks 4955 0.004. Venture Capital Funds 1081839 0.805. Insurance Companies 1254420 0.926. Bodies Corporate 11300689 8.327. Individuals 33240994 24.488. Trusts 647 0.009. Clearing Members 555461 0.4110. Foreign Institutional Investors 1894008 1.3911. Foreign Corporate Bodies 4453138 3.2812. Non Resident Indians 121374 0.0913. Foreign Nationals 705800 0.52Total 135798503 100.0018

Corporate Governance (Contd.)q) Percentage of Shares held in Physical & Electronic Form as on March 31, 2008Sl.No. Category Holders Total Shares % To Equity1. Physical 29 20672375 15.222. NSDL 38184 99382285 73.183. CDSL 13737 15743843 11.59Total 51950 135798503 100.00Your Company has not issued GDRs/ADRs/Warrants or any convertible instruments.r) Dematerialisation of Shares84.77% of the paid-up capital is held in dematerialized form as on March 31, 2008 and 87.66% as on date.s) Insider TradingAll the Directors and Senior Management Personnel have affirmed compliance of "The Code of Business Conduct and Ethics"as suggested under the SEBI (Prohibition of Insider Trading) Regulations, 1992 and have executed Indemnity Bonds thereof,individually.t) Address for CorrespondenceShareholder correspondence should be addressed to your Company’s Registrar and Share Transfer Agents:Karvy Computershare Pvt. Ltd.Plot No. 17-24, Vittal Rao NagarMadhapurHyderabad - 500 081Tel No.: 91-040- 23420816-824Fax No.: 91-040- 23420814Email ID : einward.ris@karvy.comInvestors may also write to or contact Mr. N Srivatsa, Company Secretary at:Kingfisher Airlines Limited(formerly Deccan Aviation Limited)35/2, Cunningham Road, Bangalore 560 052Tel.: 91- 080-41148190-99Fax : 91-080-22352645/41148849Email : N. Srivatsa@flykingfisher.comIn compliance with the provisions of Clause 47(f) of the Listing Agreement with the Stock Exchanges, an exclusive email id, vizinvestor.relations@flykingfisher.com has been designated for registering complaints by investors, which has been displayed on thewebsite of your Company www.flykingfisher.com.NON MANDATORY REQUIREMENTSa. Remuneration Committee Your Company has constituted a "Remuneration and Compensation" Committee.b. Shareholders Rights Your Company’s half-yearly results are published in English and Kannada newspapers. Hence thesame are not sent to the shareholders.c. Training of Board Members The Board of Directors comprises of well experienced and accomplished members and their formaltraining is considered not necessary.d. Whistle Blower Policy Your Company has a Whistle Blower Policy in place.19

Corporate Governance (Contd.)CERTIFICATE OF THE PRACTISING COMPANY SECRETARY IN RESPECT OFCOMPLIANCE OF CORPORATE GOVERNANCETo,The Members of Kingfisher Airlines Limited (formerly Deccan Aviation Limited)BangaloreI have examined the compliance of conditions of Corporate Governance by Kingfisher Airlines Limited (formerly Deccan Aviation Limited)for the nine-month period from July 1, 2007 to March 31, 2008 as stipulated in Clause 49 of the Listing Agreement of the said Companywith the Stock Exchanges.The compliance of the conditions of Corporate Governance is the responsibility of the management. My examination was limitedto procedures and implementation thereof adopted by the Company for ensuring the compliance with the conditions of CorporateGovernance as stipulated in the above mentioned Listing Agreement.In my opinion and to the best of our information and according to the explanations given to me, I certify that, the Company has compliedwith the conditions of Corporate Governance as stipulated in Clause 49 of the above mentioned Listing Agreement.I further state that such compliance is neither an assurance as to the future viability of the Company nor the efficiency or effectivenesswith which the management has conducted the affairs of the Company.BangaloreOctober 15, 2008G. KrishnaCompany SecretaryMembership No. ACS-9716CP-5793CEO / CFO CertificateIn terms of the requirement of the amended Clause 49, the Certificates from CEO / CFO have been obtained.On behalf of the Board of DirectorsBangaloreOctober 15, 2008Capt. G R GopinathVice Chairman & Managing DirectorDECLARATION REGARDING AFFIRMATION OF CODE OF CONDUCTIn accordance with Clause 49 I (D) under the Listing Agreement with the Stock Exchanges, I hereby confirm that all the Directors andSenior Management Personnel have affirmed compliance of the aforesaid Code of Conduct of the Company for the nine-month periodfrom July 1, 2007 to March 31, 2008 and a confirmation to that effect has been given by each of them.BangaloreOctober 15, 2008Capt. G R GopinathVice Chairman & Managing Director20

Management Discussion and Analysis Report1. Industry structure and developmentsa. The Indian economy continued to be buoyant during2007-08, providing a positive framework for theaviation industry in the country. Economic momentum,positive demographics, an inherent ‘latent demand’for air travel as well as significant steps initiatedtowards development of airport infrastructure at majormetropolitan cities augur well for the industry.b. However, increase in crude prices during the periodunder review resulted in a surge in Aviation TurbineFuel (ATF) costs worldwide. In addition, input costs inIndia are also higher than other countries on accountof various duties, taxes and levies. Fare and surchargeincreases implemented by airlines as a result of thehigher input costs have resulted in a slow-down indemand for air travel.c. Capacity growth continued to be in excess ofgrowth in market demand during 2007-08. Faresbelow break-even levels in case of routes withmarked over-capacity along with the impact ofhigher input costs have significantly contributedtowards industry losses of around USD 1 billion during2007-08.d. Progressive policies implemented by the Governmentof India including liberalization of the Air ServicesAgreement with various countries have furtherstrengthened India’s place as a preferred globaldestination. Even as Indian carriers expanded theirfootprints worldwide, various international carriershave increased their operations into India. Apart frommajor metropolitan cities, international carriers havealso included various tier II and tier III cities as part oftheir India network.e. Marking the successful foray of public-privatepartnerships in the infrastructure segment in thecountry, state-of-the-art greenfield airports atHyderabad and Bangalore commenced commercialoperations. In addition, the planned modernization ofKolkata and Chennai airports, 35 non-metro airportshave been identified for development based on thepublic-private partnership format. This, in addition, toother significant policy measures by the Governmenthas provided a positive direction to the aviation industryin the country.2. Segment–wise or Product-wise performancea. During the period under review, your Company operatedin a single business segment, i.e. of providing scheduledand non- scheduled air transportation services.b. Further, during the period under report, your Companyoperated only in India and did not have operationsoutside India.c. Accordingly, no separate segment disclosures forprimary business segment and geographical disclosuresare required to be given.3. Outlooka. Given the slow-down in the air travel market, profitabilityremains a concern for airlines in the short term givenhigh cost of operations.b. From a long term perspective though, air travelcontinues to have immense growth potential in thecountry with regard to both domestic and internationalair traffic providing for increased opportunity to connectmetropolitan and regional centers across the country aswell as provide seamless connectivity between majorIndian destinations and the rest of the world.c. Your Company is well poised to meet the dynamicchallenges faced by the industry in the short term aswell as to take advantage of the growth potential in thelong term.4. Internal control systems and their adequacya. Your Company has a proper and adequate system ofinternal controls commensurate with its size and natureof operations to provide reasonable assurance that allassets are safeguarded, transactions are authorised,recorded and reported properly and applicable statutes,codes of conduct and corporate policies are dulycomplied with.b. The Internal Audit Department reviews the adequacyand efficacy of the key internal controls. The scope ofthe audit activity is guided by the annual audit plan,which is approved by the Audit Committee of theBoard.21

Management Discussion and Analysis Report (Contd.)c. Your Company’s Audit Committee comprises of fiveNon–Executive Directors: Mr A K Ganguly, Chairman,Prof. P N Thirunarayana, Mr. S N Ladhani, Ms. BalaDeshpande and Lt Gen N S Narahari. One of theobjectives of the Audit Committee is to review thereports submitted by the Internal Audit Departmentand to monitor follow-up and corrective actionby Management. The Audit Committee has beenreconstituted on October 15, 2008 and comprises ofMr. Anil Kumar Ganguly- Chairman, Diwan Arun Nanda,Dr. Naresh Trehan and Mr. A .K. Ravi Nedungadi.d. Your Company has a Corporate Compliance Procedureto ensure that all laws, rules and regulations applicableto our industry are complied with. A CorporateCompliance Certificate is placed at Board Meetingsperiodically.e. The Company Secretary is the designated ComplianceOfficer to ensure compliance with SEBI regulationsand with our Listing Agreement with National StockExchange of India Limited and Bombay Stock ExchangeLimited.f. Your Company has a process of both external andinternal safety audits for each area of operation. YourCompany is in compliance with all laws, rules andregulations relating to airworthiness, air safety andother statutory operational requirements.g. Your Company, as part of its Risk Managementstrategy, reviews, on a continuous basis, its strategies,processes, procedures and guidelines to effectivelyidentify and mitigate risks. Further, the Managementhas developed a procedure to ensure adequatedisclosures of key risks and mitigation initiatives to theAudit Committee of the Board.5. Consolidation of the scheduled airline business pursuantto the SchemeCompany, based on the advice of a reputed consultancyfirm, Accenture, decided to de-merge and transfer thecommercial ariline division undertaking of the erstwhileKingfisher Airlines into your Company to creat a morecompetitive business, both in scale and scope ofoperations.c. The UB Group initiated new branding strategiesand implementation of the new look for the fleet ofaircraft in place of the earlier "Air Deccan" branding.Most importantly the UB Group focused on providinga higher quality of care and service to its guests at allcustomer touch points and towards implementation ofbetter operational strategies.d. By adding Kingfisher Red to its service class, KingfisherAirlines provides passengers with three classes offares, Kingfisher First (business class); Kingfisher Class(premium economy class) and Kingfisher Red (low fareeconomy class).e. Kingfisher Airlines is now able to cater to the entirespectrum of the air travel market providing relevantservices to the ‘price-seeker’, the ‘value-seeker’ as wellas the ‘service-seeker’.6. Analysis of operational performance for thenine-month period ended March 31, 2008The current financial period is for nine months from July1, 2007 to March 31, 2008 and is, therefore, not strictlycomparable with the results of the previous financialperiod of 12 months from July 1, 2006 to June 30, 2007(Fiscal 2007). The Charter operations reflected are for a periodof six months from July 1, 2007 to December 31, 2007 andairline operations represent only scheduled airline operationsof former Deccan.Incomea. In June 2007, the UB Group, one of the India's largestconglomerates, acquired a controlling stake in yourCompany via preferential allotment of shares followedby open offer and market purchase from publicshareholders.b. In order to benefit from consolidation in terms ofsynergy benefits, the Board of Directors of your22

Management Discussion and Analysis Report (Contd.)a. Our total income stood at Rs. 15,454.43 million duringthe nine-month period from July 1, 2007 to March 31,2008. Income from operations formed 93.27% of totalincome at Rs. 14,413.95 million.b. Revenue from sale of tickets and related income atRs. 14,030.25 million formed 90.78% of total income.During the period July 1, 2007 to March 31, 2008,apart from expansion of our network as a group, wealso undertook intensive rationalization of routes thusreducing overlaps and optimizing fleet deploymentacross the network.c. Revenues from Helicopter charter and other servicesstood at Rs.349.56 million during the nine-monthperiod from July 1, 2007 to March 31, 2008.d. Other income stood at Rs.1,040.48 million during thenine-month period from July 1, 2007 to March 31,2008. This includes profit on transfer of aircraft/enginepurchase rights of Rs.249.70 million. We also earnedcertain credits from aircraft/engine manufacturersamounting to Rs. 366.72 million, which accrued duringthe period under review.ExpenditureTotal expenditure stood at Rs.22,524.93 million during thenine-month period from July 1, 2007 to March 31, 2008.a. Aircraft fuel expenses: Expenditure on fuel stood atRs. 8,892.96 million during the nine-month period fromJuly 1, 2007 to March 31, 2008. Average fuel pricesincreased progressively during the period under reviewand were up +28% during March 2008 as compared toJune 2007.b. Aircraft engine/lease rentals: Aircraft/engine leaserentals stood at Rs. 3,547.33 million during the ninemonthperiod from July 1, 2007 to March 31, 2008.During the period under review, we added 1 ATR and 3Airbus A320s on lease, which added to the lease rentalson our existing fleet.c. Employee remuneration and benefits (personnelcosts): Employee remuneration and benefits stoodat Rs.2,461.06 million during the nine-month periodfrom July 1, 2007 to March 31, 2008. The upswing inpersonnel costs is mainly on account of:• Increase in the number of employees as demandedby our expanding operations. Our total numberof employees as of March 31, 2008 was 3,178 ascompared to 3,099 employees as of June 30, 2007;• Increase in salaries, particularly those of pilots, copilotsand engineers, as a result of increased demandcaused by the deployment of additional aircraft byexisting and new airlines; and• Ramp up of personnel on account of plannedinternational expansion.d. Other operating expenses: Other operating expensesstood at Rs. 6,478.86 million during the nine-monthperiod from July 1, 2007 to March 31, 2008. Thesame is impacted by the increase in level of operationsduring the period under review as compared to previousyears.e. Interest and finance charges: Interest and financecharges were at Rs.778.78 million during thenine-month period from July 1, 2007 to March 31,2008. These expenses include the interest on two ATRsacquired on a hire purchase basis and one ATR obtainedon ownership basis and financed by a local financialcompany.f. Depreciation and amortization: Depreciationcharges were Rs.182.81 million during the nine-monthperiod from July 1, 2007 to March 31, 2008. Theseexpenses reflect principally the depreciation on two ATRsacquired on a hire purchase basis and one ATR obtainedon ownership basis and financed by a local financialcompany. Amortization charges stood at Rs.183.13million during the nine-month period from July 1, 2007to March 31, 2008.23

Management Discussion and Analysis Report (Contd.)g. Provision for tax: Our total tax expense, comprisingfringe benefit tax, was Rs.35.49 million during thenine-month period from July 1, 2007 to March 31,2008.h. Loss after tax expense for the period under review:Loss after tax during the nine-month period from July 1,2007 to March 31, 2008 was Rs. 1,881.36 million.7. Material developments in Human Resources /Industrial Relations front, including number of peopleemployeda. The total number of employees as of March 31, 2008was 3,178 as compared to June 30, 2007 was 3,099.b. There were no material developments as regards humanresources / industrial relations front during the periodunder review.8. Opportunities and Threats, Risks and Concernsa. Your Company has undertaken a phased approachtowards capacity additions as well as expansion inboth the domestic and international markets. We willbe closely monitoring market developments as wellas the macro-economic environment in the countryfrom a global perspective. We are well-placed to takeadvantage of emerging business and tourist destinationsin the country as well as augment services in case ofestablished routes in order to further strengthen ourdomestic network. Progressive policies initiated by theGovernment as regards new bilateral agreements withvarious countries provide conducive framework forexpansion of international operations.b. Your Company continues to be at the forefrontwith regard to undertaking measures to improveprofitability / reduce losses, including:• Planning for reduced / phased capacity induction• Deferring of aircraft deliveries• Rationalization of route structures• Optimization of human resources including crossutilization• Review of distribution channels and costs• Representations to the Ministry of Civil Aviationfor relief in case of ATF costs, reduction of landingand navigation charges, against levy of additionalairport charges, flexibility in case of Route DispersalGuidelines, permission for self-handling at allairports, etc.c. Your Company expects to optimize costs especiallyon account of the positive impact of synergies postconsolidation thus, reaping economies of scale.d. The intense volatility in the prices of Aviation TurbineFuel (ATF) as witnessed in the past few months continuesto have significant impact on airline profitability.Discussions are ongoing with the Ministry of CivilAviation for suitable reduction in the levy of taxes andduties on the ATF. Your Company is also seeking tomanage the adverse effects of steep increases in ATFprices by actively managing fuel consumption. Crudeprices have shown a downward trend in the postbalance sheet period from October 2008 which willimpact the next fiscal.e. The domestic market in the country continues to witnessovercapacity in case of certain routes. However, withslow-down in capacity expansion, airlines are expectedto rationalize capacity as well as pricing policies goingforward.f. Government initiatives remain on track as regardsaviation infrastructure development including efforts toreduce congestion at key airports such as Mumbai andDelhi. The public-private partnership format has beensuccessful in case of the design and development ofboth Bangalore and Hyderabad international airportsand the same is expected to be extended to otherairports.g. The slow-down in global economies could adverselyimpact air traffic in the country in case of both domesticand international routes. Besides, factors such aspolitical instability, weather conditions, bird hits,increased security measures and epidemics, forcemajeure events, terrorist attacks and other acts ofviolence or war involving India, or other countries andother acts or potential acts of violence or war or naturalcalamity (including epidemics and other events) couldadversely impact the aviation industry.24

Management Discussion and Analysis Report (Contd.)9. Awards and accoladesSignificant awards and accolades received by KingfisherAirlines during the period under review include:a. India’s only 5 star airline, and the worlds only 5 Stardomestic Airline rated by Skytrax.b. Awarded the 'NDTV Profit Business Leadership Awardfor Aviation'c. Rated as Asia Pacific’s “Top Airline Brand” in a surveyconducted by TNS on 'Asia Pacific's Top 1,000 Brands'for 2008 (2007 – Singapore Airlines).d. Voted India’s Second Most Buzziest Brand of 2007 insurvey conducted by agencyfaqs.com.Cautionary StatementStatements in the management discussion and analysisdescribing your Company’s objectives, projections, estimates,expectations may be ‘forward-looking statement’ within themeaning of applicable securities laws and regulations. Actualresults could differ materially from those expressed or implied.Important factors that could make a difference to yourCompany’s operations include economic conditions in thedomestic markets and overseas markets in which your Companyoperates, changes in the Government Regulations, tax laws andother statutes and incidental factors.25

AUDITORS’ REPORTTOTHE MEMBERS OF KINGFISHER AIRLINES LIMITED(FORMERLY KNOWN AS DECCAN AVIATION LIMITED)1. We have audited the attached Balance Sheet of KingfisherAirlines Limited (formerly known as Deccan AviationLimited) (“the Company”) as at March 31, 2008, theProfit and Loss Account and the Cash Flow Statement forthe period ended on that date, annexed thereto. Thesefinancial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinionon these financial statements based on our audit.2. We conducted our audit in accordance with auditingstandards generally accepted in India. Those standardsrequire that we plan and perform the audit to obtainreasonable assurance about whether the financialstatements are free of material misstatement. An auditincludes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles usedand significant estimates made by management, as well asevaluating the overall financial statement presentation. Webelieve that our audit provides a reasonable basis for ouropinion.3. As required by the Companies (Auditor’s Report) Order,2003 issued by the Central Government of India` in termsof sub-section (4A) of section 227 of the Companies Act,1956 (“the Act”), as amended by the Companies (Auditor’sReport) (Amendment) Order, 2004 (herein after collectivelyreferred to as the “Order”) we enclose in the annexure astatement on matters specified in paragraphs 4 and 5 ofthe Order.4. The working results for the nine months ended March31, 2008 are after charging off sums of Rs.28,270,478and Rs.2,628,571 towards amortization of training andpreoperative expenses respectively based on the Company’saccounting policy of amortizing the said expenditureover a period of 3 years.The corresponding amountsfor the year ended June 30, 2007 were Rs.86,443,502and Rs.16,358,447 respectively.We are of the opinionthat such accounting treatment is not in accordance with(AS) 26 on “Intangible Assets” issued by the Institute ofChartered Accountants of India and such expenses wererequired to be written off to the profit and loss account asand when incurred.5. Other Income for the fifteen months ended June 30,2006 included a sum of Rs.267,220,000 towards certainsubsidy provided to the Company by one of its suppliersin conjunction with lease of aircrafts on operating leasebasis. The previous auditors had reported that they wereof the opinion that such accounting treatment was notin accordance with Accounting Standard 19 on “Leases”and the subsidy should be recorded on a straight-linebasis over the period of the lease. Their audit report onthe financial statements for the fifteen months ended June30, 2006 was modified in this matter. We concur with theviews of the said auditors in principle that such subsidyshould be recognized on a systematic basis in the Profitand Loss Account over the periods necessary to matchthem with the related costs, which they are intended tocompensate although the matter does not appear to becovered explicitly by the said AS 19.6. We further report that, except for the effect, if any, ofthe matters stated in paragraph 11(a) below and para 4of the annexure, whose effect are not ascertainable, hadthe observations made in paragraphs 4 & 5 above beenconsidered, the loss after tax for the period ended March31, 2008 would have been Rs.1,814,834,524 (June 30,2007 – Rs.4,045,462,520) as against the reported loss ofRs.1,881,361,073 (June 30, 2007, – Rs. 4,195,761,015),the debit balance in profit and loss account as at March31, 2008 would have been Rs.9,845,694,445 (June 30,2007 – Rs.8,021,206,713) as against a reported figure ofRs.9,677,557,223 (June 30, 2007 – Rs.7,786,542,942),deferred revenue expenses as at June 30, 2007 wouldhave been Rs. 256,624,965 as against the reported figureof Rs.287,524,014 and other liabilities would have beenRs.680,362,049 (June 30, 2007 – Rs.982,925,507) asagainst the reported figure of Rs.512,224,827 (June 30,2007 – Rs.779,160,785).7. Without qualifying our opinion, attention of the membersof the Company is invited to note 15 of schedule 22,regarding purchase of goods and services during theperiod ended June 30, 2006 and year ended March 31,2005 amounting to Rs. 4,286,665 from certain parties inrespect of which the approval of the Central Governmentas required under sections 297 of the Act are yet to bereceived.26

AUDITORS’ REPORT (Contd.)Further to our comments in the annexure referred toabove, we report that:8. We have obtained all the information and explanations,which to the best of our knowledge and belief werenecessary for the purpose of our audit.9. In our opinion, the Company has kept proper books ofaccount as required by Law so far as appears from ourexamination of those books.10. The Balance Sheet, Profit and Loss Account and Cash FlowStatement dealt with by this report are in agreement withthe books of account.11 (a) Attention of the members is invited to note 22 of schedule22 regarding recognition of deferred tax credit during theperiod aggregating to Rs.4,984,997,384 by virtue of whichits loss for the period and debit balance in Profit and LossAccount each stand reduced by the said amount. In view ofexplanation 1 to clause 17 of Accounting Standard 22, wecannot express any independent opinion in the matter.(b) In our opinion, subject to the effect of the matters statedin paras 4 and 11(a) above, the Balance Sheet, Profit &Loss Account and Cash Flow Statement dealt with by thisreport comply in all material respects, with the mandatoryAccounting Standards referred to in sub-section (3C) ofsection 211 of the Act.12. On the basis of written representations receivedfrom Directors as on March 31, 2008 and takenrecord by the Board of Directors, we report thatonnone of the Directors of the Company, are disqualifiedas on March 31, 2008 from being appointed as a director,under clause (g) of sub-section (1) of section 274 of theAct.13. In our opinion and to the best of our knowledge andaccording to the information and explanations given to us,the said accounts subject to note 31 of schedule 22 andread with other notes on accounts, give the informationrequired by the Act in the manner so required and subjectto the effect of the matters stated in paras 4 to 6 & 11(a)above, our observations in para 4 of the annexure andnote 34 of schedule 22 regarding certain accounts beingunder review and reconciliation (effect thereof on revenuenot ascertainable) give a true and fair view in conformitywith the accounting principles generally accepted in Indiai. In the case of the Balance Sheet, of the state of affairsii.of the Company as at March 31, 2008;In the case of Profit and Loss account, of the loss forthe nine months ended on that date; andiii. In the case of Cash Flow statement, of the cash flowsBangaloreOctober 15, 2008for the nine months ended on that date.For B K RAMADHYANI & COChartered Accountants(R Satyanarayana Murthi)PartnerMembership No.2424827

AnneXure to the AUDITORS’ REPORT[AS REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVENDATE TO THE MEMBERS OF KINGFISHER AIRLINES LIMITED(FORMERLY KNOWN AS DECCAN AVIATION LIMITED,BANGALORE)]1. a. The Company has maintained proper records showing fullparticulars including quantitative details and situation offixed assets.b. We have been informed that a portion of the fixed assetshave been physically verified by the management duringthe period and that no material discrepancies wereobserved on such verification. However, a comprehensiveverification of all fixed assets and updating of locationparticulars in the asset records need to be carried out.c. There was no substantial disposal of fixed assets duringthe period except for slump sale of assets of charteroperations of the Company based on a Composite Schemeof Arrangement between the Company, Deccan ChartersLimited and their respective Shareholders/Creditorsunder Section 391 to 394 of the Companies Act, 1956as approved by the Honorable High Court of Karnataka.However, this has not affected the ability of the Companyto be a going concern2. a. Management has not conducted physical verificationof inventory at reasonable intervals during the period.However, the same has been verified as at June 30, 2008.b. The procedures of physical verification of inventoriesfollowed by the management are reasonable and adequatein relation to the size of the Company and the nature ofits business.c. No material discrepancies were noticed on physicalverification.3. a. As informed, the Company has not granted any loans,secured or unsecured to companies, firms or other partiescovered in the register maintained under Section 301 ofthe Act.b. As informed, the Company has not taken any loans,secured or unsecured from companies, firms or otherparties covered in the register maintained under Section301 of the Act.4. In our opinion and according to the information and explanationgiven to us, and taking into consideration management’srepresentation that a large number of items are of a specialnature for which alternative quotations cannot be obtained,there are adequate internal control procedures commensuratewith the size of the Company and the nature of its businessfor the purchases of inventory and fixed assets. However,internal control procedures in respect of sale of services (refernotes 36 and 37 of schedule 22) and payroll/employee benefitsneed to be strengthened to make the same commensuratewith the size of the Company and the nature of its businessand for the sale of services. During the course of our audit,no continuing failure to correct major weakness in internalcontrols has been noticed.5. a. According to the information and explanations given tous, we are of the opinion that transactions that need to beentered into the register maintained under section 301 ofthe Companies Act, 1956 have been so entered.b. Further, contracts or arrangements referred to in section301 of the Act and aggregating to Rs. 500,000 or more perparty have been entered into at prices which are reasonableas compared to similar services rendered by other partiesexcept in respect of cargo income of Rs. 34,137,161 wherewe are unable to make any comments on reasonabilityof rates since there are no similar transactions with thirdparties at the relevant time.6. The Company has not accepted any deposits from the public.7. The Company has an internal audit system commensuratewith the size and nature of its business.8. To the best of our knowledge and as explained, the CentralGovernment has not prescribed the maintenance of costrecords under Section 209(1) (d) of the Act for the productsof the Company.9. a. Undisputed statutory dues in respect of service tax,withholding taxes, provident fund, fringe benefit tax andemployees’ state insurance dues have not been regularlydeposited with the appropriate authorities, and there havebeen delays in many cases. Undisputed statutory dues inrespect of investor education and protection fund, customs,excise duty, cess and wealth tax as applicable, havegenerally been regularly deposited with the appropriateauthorities. Since to the best of our knowledge, the CentralGovernment has till date not prescribed the amount ofcess payable under Section 441A of the Act, no commentsin this respect have been made.b. According to the information and explanations given tous, there are no undisputed amounts payable as at theperiod end in respect of provident fund, employees’ stateinsurance, investor education and protection fund, incometax, wealth tax, sales tax, customs duty, excise duty, servicetax and cess for a period of more than six months from thedate they became payable.28

AnneXure to the AUDITORS’ REPORT (Contd.)c. According to the information and explanations given tous, there are no dues of sales tax, wealth tax, service tax,customs duty, excise duty and cess, which have not beendeposited on account of any dispute.10. The Company’s accumulated losses at the end of the financialperiod were more than fifty percent of its net worth. TheCompany has incurred cash losses during the financial periodand in the immediately preceding financial year.11. Based on our audit procedures and as per the informationand explanations given by the management, the Companyhas defaulted in repayment of loans and interest to banks andfinancial institutions. The unpaid overdue interest to banks asat March 31, 2008 was Rs.20,893,067. There were no duespayable to the debenture holders.12. According to the information and explanations given to usand based on the documents and records produced to us, theCompany has not granted loans and advances on the basisof security by way of pledge of shares, debentures and othersecurities. Accordingly, the provisions of the clause 4(xii) of theOrder are not applicable to the Company.13. In our opinion, the Company is not a chit fund or a nidhi,mutual benefit fund/society. Accordingly, the provisions of theclause 4(xiii) of the Order are not applicable to the Company.14. In our opinion the Company is not dealing in or tradingin shares, securities, debentures and other investments.Accordingly, the provisions of clause 4(xiv) of the Order arenot applicable to the Company.15. According to the information and explanations given to us,the Company has not given guarantees during the periodfor loans taken by others from banks or financial institutions.Accordingly, the provisions of clause 4(xv) of the Order are notapplicable to the Company.16. Based on information and explanations given to usby the management, term loans taken during theperiod have been applied for the purpose for which they wereobtained.17. According to the information and explanations given to usand on an overall examination of the balance sheet of thecompany, we report that no funds raised on short- term basishave been used for long term investment.18. The Company has not made any preferential allotmentof shares to parties or companies covered in the registermaintained under Section 301 of the Act. Accordingly, theprovisions of clause 4(xviii) of the Order are not applicable tothe Company.19. There were no debentures outstanding at any time during theperiod. Accordingly, the provisions of clause 4(xix) of the Orderare not applicable to the Company20. We have verified the end use of money raised by public issueduring the period ended June 30, 2006 and incurred duringthe current period under review and the same has beendisclosed in the notes to the financial statements (Refer note5 of schedule 22).21. As per the information and explanations furnished to us bythe management, no material frauds on or by the Companyand causing material misstatements to financial statementshave been noticed or reported during the course of our audit,except for charge backs received by the Company aggregatingto Rs.66.43 million from credit card service providers due tomisutilisation of credit cards by third parties (Refer note 37 ofschedule 22).BangaloreOctober 15, 2008For B K RAMADHYANI & COChartered Accountants(R Satyanarayana Murthi)PartnerMembership No.2424829

Balance Sheet as at March 31, 2008ScheduleAs atMarch 31, 2008(Rupees)As atJune 30, 2007(Rupees)SOURCES OF FUNDSShareholders’ FundsCapital 1 1,357,985,030 1,354,701,180Employee stock options outstanding (Net of deferred compensation cost) 100,878,940 110,136,854Reserves and surplus 2 10,207,416,756 10,168,677,17811,666,280,726 11,633,515,212Loan FundsSecured loans 3 5,923,827,595 7,167,092,683Unsecured loans 4 3,420,000,000 2,000,000,0009,343,827,595 9,167,092,683TOTAL 21,010,108,321 20,800,607,895APPLICATION OF FUNDSFixed Assets 5Gross block 3,223,346,285 3,407,716,141Less: Accumulated depreciation 435,531,097 337,407,916Net block 2,787,815,188 3,070,308,225Capital work in progress including capital advances 3,462,459,288 3,576,198,6126,250,274,476 6,646,506,837Investments 6 - 4,135,370Deferred Tax Asset (Refer Note 22 of Schedule 22) 4,984,997,384 -Current Assets, Loans and AdvancesInventories 7 486,435,481 616,226,308Sundry debtors 8 271,606,013 352,422,874Cash and bank balances 9 2,801,223,361 8,170,495,277Loans and advances 10 2,146,583,990 1,603,746,713Other current assets 11 890,145,440 157,717,3046,595,994,285 10,900,608,476Less: Current Liabilities and ProvisionsCurrent liabilities 12 6,569,976,348 4,755,353,226Provisions 13 95,177,231 69,397,0556,665,153,579 4,824,750,281Net current assets (69,159,294) 6,075,858,195Miscellaneous Expenditure(to the extent not written off or adjusted)Deferred revenue expenditure 14 166,438,532 287,564,014Preliminary expenses 15 - 537166,438,532 287,564,551Profit and Loss Account 9,677,557,223 7,786,542,942TOTAL 21,010,108,321 20,800,607,895Notes to Accounts 22As per our report of even dateFor B.K.Ramadhyani & Co.Chartered AccountantsFor and on behalf of the Board of Directorsper Satyanarayana Murthi Dr. Vijay Mallya Capt. G. R. GopinathPartner Chairman Vice Chairman &Membership No. 200/24248Managing DirectorBangalore Ramki Sundaram N. SrivatsaOctober 15, 2008 Chief Financial Officer Company Secretary30

Profit and Loss account for the nine months ended March 31, 2008ScheduleFor Nine monthsendedMarch 31, 2008(Rupees)For yearendedJune 30, 2007(Rupees)INCOMEIncome from Operations 16 14,413,948,838 16,221,266,262Other income 17 1,040,483,067 3,677,613,451Total 15,454,431,905 19,898,879,713EXPENDITUREDirect operating expenses 18 17,610,771,082 19,208,178,247Personnel, administrative and general expenses 19 3,348,541,716 3,610,981,950Employee stock compensation cost 11,420,490 40,728,801Advertisement and business promotion expenses 409,474,678 137,610,147Finance and banking charges 20 778,781,448 623,981,221Amortisation of deferred revenue expenditure 21 183,131,655 262,482,038Depreciation 182,807,412 176,688,023Preliminary expenses written off - 2,152Total 22,524,928,481 24,060,652,579Loss before extra ordinary items (7,070,496,576) (4,161,772,866)Profit on sale of charter services operations undertaking 244,598,527 -Loss before tax expense (6,825,898,049) (4,161,772,866)Deferred tax credit (4,980,026,734) -Provision for Fringe benefit tax 35,489,758 33,988,149Total tax expense (4,944,536,976) 33,988,149Loss after tax expense for the period / year (1,881,361,073) (4,195,761,015)Balance of loss brought forward from previous year (7,786,542,942) (3,590,781,927)Add: Provision for Gratuity and Leave Encashment as on July 1, 2007 in termsof transitional provisions of AS 15 (revised)9,653,208 -Loss carried to Balance Sheet (9,677,557,223) (7,786,542,942)Loss per share before extraordinary items, par value ofRupees 10 per share - Basic and DilutedLoss per share after extraordinary items, par value ofRupees 10 per share - Basic and Diluted(14.85) (42.24)(13.87) (42.24)Weighted average number of equity shares - basic and diluted 135,668,051 99,326,445Notes to Accounts 22As per our report of even dateFor B.K.Ramadhyani & Co.Chartered AccountantsFor and on behalf of the Board of Directorsper Satyanarayana Murthi Dr. Vijay Mallya Capt. G. R. GopinathPartner Chairman Vice Chairman &Membership No. 200/24248Managing DirectorBangalore Ramki Sundaram N. SrivatsaOctober 15, 2008 Chief Financial Officer Company Secretary31

Schedules to the Balance Sheet as at March 31, 2008As atMarch 31, 2008(Rupees)As atJune 30, 2007(Rupees)Schedule - 1CapitalAuthorised capital400,000,000 equity shares of Rupees 10/- each (June 30th, 2007 -150,000,000 equity shares of Rupees 10/- each) 4,000,000,000 1,500,000,00010,000,000 Preference shares of Rupees 100/- each (June 30th, 2007 - Nil) 1,000,000,000 -Total 5,000,000,000 1,500,000,000Issued and subscribed capital135,798,503 equity shares of Rupees 10/- each (June 30th, 2007 -135,470,118 equity shares of Rupees 10/- each) 1,357,985,030 1,354,701,180Paid up capital135,798,503 equity shares of Rupees 10/- each (June 30th, 2007 -135,470,118 equity shares of Rupees 10/- each) 1,357,985,030 1,354,701,180Notes:1,357,985,030 1,354,701,180(1) Out of the above, 27,284,390 equity shares of Rupees 10/- each (June 30th, 2007 - 27,284,390 equity shares of Rupees10/- each) have been allotted as fully paid up bonus shares by capitalisation of securities premium of Rupees 253,750,200(June 30th, 2007 - Rupees 253,750,200) and balance in Profit & Loss Account of Rupees 19,093,700 (June 30, 2007 -Rupees 19,093,700)(2) Also refer note 4 and note 18 in Schedule 22Schedule - 2Reserves and SurplusSecurities premium accountBalance at the beginning of the period/year 10,168,677,178 4,774,482,830Add: Received during the period/year 38,739,578 5,394,194,34810,207,416,756 10,168,677,178Note:(1) Also refer note 4 in schedule 2232

Schedules to the Balance Sheet as at March 31, 2008 (Contd.)Schedule - 3Secured LoansAs atMarch 31, 2008(Rupees)As atJune 30, 2007(Rupees)Term loans from banks (Rupee loans) 1,546,621,925 1,797,654,960Cash credit facility from banks 172,970,477 1,869,104,516Short Term loans from banks 2,485,281,100 1,526,360,863Vehicle loans from banks/financial institutions 10,300,130 16,320,442Interest accrued and due on term loans 20,893,067 50,303,165Finance lease obligations 12,451,329 22,408,143Hire purchase loan from others 1,045,765,757 1,142,869,803Term loans from financial institutions and others 629,543,810 742,070,791Notes:5,923,827,595 7,167,092,683(1) Term loans from banks and cash credit facility from banks are secured by a first charge on the current assets and fixed assets of theCompany, including hypothecation of the present and future goods and including book debts, and documents of title to goodsand collateral security of personal property of relative of directors. Further, Term loans of Rupees 1,541,088,068 (June 30, 2007 -Rupees 1,720,642,423) are secured by the assignment of the aircraft purchase agreement entered into for purchase of aircraft andby personal guarantee of directors.(2) Short term loans from banks during the year are secured by lien on fixed deposits and during the previous year secured by firstcharge on all stock in trade both present and future and all the present and future book debts of the company.(3) Vehicle loans are secured by the hypothecation of the respective assets.(4) Finance lease is secured by the hypothecation of the respective assets.(5) Hire purchase loans are secured by the hypothecation of the respective assets. Also refer note 20 in schedule 22.(6) Term loan of Rupees 542,252,163 (June 30, 2007 - Rupees 671,017,797) from a financial company is secured by the hypothecationof the aircraft and helicopter, assignment of documents of title to such asset and personal guarantee of one of the directors.(7) Term loan (foreign currency) of Rupees 87,291,648 (June 30, 2007 - Rupees 71,052,994) from a financial institution is secured bya second priority on the mortgage of the aircraft obtained on hire purchase.(8) Amounts repayable within one year Rupees 3,699,214,795 (June 30, 2007 - Rupees 1,695,569,439).SCHEDULE - 4Unsecured LoansFrom Banks 3,400,000,000 2,000,000,000From Others 20,000,000 -3,420,000,000 2,000,000,000Note:(1) Amounts repayable within one year Rupees 320,000,000 (June 30, 2007 - Rupees 2,000,000,000).33

Schedules to the Balance Sheet as at March 31, 2008 (Contd.)Schedule - 5Fixed AssetsClass of AssetsTangible AssetsAs at01 July2007Amount in RupeesGross Block Depreciation Net BlockAdditions Deletions As atMarch 31,2008As atJuly 01,2007Additions Deletions As atMarch 31,2008As atMarch 31,2008Freehold Land 501,059 - 501,059 - - - - - - 501,059Building on rented land 18,378,540 86,826,174 18,618,894 86,585,820 1,942,693 755,074 2,109,705 588,062 85,997,758 16,435,847Building on freeholdlandBuilding- leaseholdimprovementsAs atJune 30,20074,201,780 - 4,201,780 - 348,152 34,244 382,396 - - 3,853,62840,618,797 19,192,753 - 59,811,550 5,961,923 2,794,040 - 8,755,963 51,055,587 34,656,874Helicopters 496,814,811 - 496,814,811 - 50,657,068 12,673,566 63,330,634 - - 446,157,743Aircrafts 2,103,729,586 - - 2,103,729,586 147,149,488 88,918,597 - 236,068,085 1,867,661,501 1,956,580,098Plant & Machinery(others)81,864,251 31,120,955 2,999,460 109,985,746 6,050,803 3,102,769 592,342 8,561,230 101,424,516 75,813,448Tools and Equipments 209,650,374 24,661,023 13,278,143 221,033,254 20,042,111 8,500,917 2,480,362 26,062,666 194,970,588 189,608,263Computers 102,765,941 20,380,641 6,236,547 116,910,035 29,272,032 14,709,969 1,956,794 42,025,207 74,884,828 73,493,909Office Equipments 73,523,973 19,771,477 8,175,453 85,119,997 12,028,410 1,750,782 2,314,108 11,465,084 73,654,913 61,495,563Furniture & Fixtures 58,434,047 29,738,603 10,167,418 78,005,232 11,806,069 5,564,705 3,277,304 14,093,470 63,911,762 46,627,978Electrical Installations 14,667,964 12,067,167 - 26,735,131 1,384,684 865,895 - 2,250,579 24,484,552 13,283,280Vehicles 43,684,404 616,863 16,063,430 28,237,837 10,491,633 2,363,023 8,240,585 4,614,071 23,623,766 33,192,771Improvements to leasedaircraftsImprovements to otherleased assetsIntangible assets38,721,777 112,170,266 - 150,892,043 21,594,345 25,199,020 - 46,793,365 104,098,678 17,127,432- 24,762,585 - 24,762,585 - 3,444,496 - 3,444,496 21,318,089 -Softwares 53,351,727 11,378,633 - 64,730,360 11,693,423 9,756,937 - 21,450,360 43,280,000 41,658,304Leased AssetsPlant & Machinery 66,807,110 - - 66,807,110 6,985,082 2,373,378 - 9,358,460 57,448,650 59,822,028Total 3,407,716,141 392,687,140 577,056,995 3,223,346,286 337,407,916 182,807,412 84,684,230 435,531,098 2,787,815,188 3,070,308,225Previous year 2,473,320,252 1,017,441,127 83,045,238 3,407,716,141 164,012,632 176,688,023 3,292,739 337,407,916Notes:(1) Assets given on operating lease March 31,2008HelicoptersJune 30,2007Rupees RupeesGross Block 11,347,500 11,347,500Depreciation during the period/year 317,730 635,460Accumulated depreciation 2,409,615 2,091,885Less : Transferred to Deccan Charters Limited 8,937,885 -Net Block - 9,255,615(2) Exchange gain/(loss) (net) capitalised to Fixed assets during the period - Nil (June 30, 2007 Rs.88,898,284).(3) Additions and deletions do not include aircraft/engines in respect of which rights to purchase have been transferred. (Also refer note 17 of Schedule 22).(4) Deletions include assets transferred on slump sale to Deccan Charters Limited34

Schedules to the Balance Sheet as at March 31, 2008 (Contd.)As atMarch 31, 2008(Rupees)As atJune 30, 2007(Rupees)Schedule 6InvestmentsLong Term (At cost)Trade (unquoted), fully paid upNil (June 30, 2007 - 960,000) equity shares of Srilankan Rupees 10/- each fullypaid up in Deccan Aviation (Lanka) Private LimitedOthers (unquoted)- 4,134,870National savings certificate - 500- 4,135,370Aggregate value of unquoted investments at cost - 4,135,370Schedule 7:Inventories(At cost or net realisable value, whichever is lower)Rotables, stores, spares and components 486,435,481 616,226,308486,435,481 616,226,308Schedule 8:Sundry Debtors (Unsecured)Debts outstanding for a period exceeding six months- Considered good 2,089,661 9,333,707- Considered doubtful - 17,605,011Other debts, considered good 269,516,352 343,089,167Less: Provision for doubtful debts - (17,605,011)271,606,013 352,422,874Schedule 9:Cash and Bank BalancesCash on hand 4,987,725 2,270,147Bank balances with scheduled banks- In current accounts 53,381,489 4,218,239,196- In fixed deposit accounts 2,405,760,098 3,629,004,782- Margin money deposit against bank guarantees and letters of creditissued by banks337,094,049 320,981,1522,801,223,361 8,170,495,27735

Schedules to the Balance Sheet as at March 31, 2008 (Contd.)SCHEDULE 10 :Loans and Advances(Unsecured - considered good)As atMarch 31, 2008(Rupees)As atJune 30, 2007(Rupees)Advances recoverable in cash or in kind or for value to be received 1,746,460,480 1,297,436,816Deposits with government bodies, customs authorities and others 115,516,880 133,589,146Advance income taxes, net of provisions 95,709,334 25,401,622Other receivables 38,031,944 10,688,680Interest accrued on fixed deposits 150,865,352 128,429,757Dues from Deccan Aviation (Lanka) Private Limited - 8,200,692[Maximum amount outstanding - Rupees 8,226,247 during the period(June 30, 2007 - Rupees 8,226,247)]Note:2,146,583,990 1,603,746,713(1) Advances recoverable in cash or in kind include Rupees 4,238,764 (June 30, 2007 Rupees 6,918,109) due from DeccanCargo Pvt Ltd., in which some of the directors of the company are interested as directors. Maximum amount outstandingRupees 20,760,269 (June 30, 2007 Rupees 6,918,109).(2) Maximum amount due at any time from directors Rupees Nil (June 30,2007 Rupees179,458)SCHEDULE 11 :Other Current AssetsReceivable from Deccan Charters LimitedOther assets 759,671,550 -130,473,890 157,717,304890,145,440 157,717,304SCHEDULE 12 :Current LiabilitiesSundry creditors for goods, services and expenses 4,064,512,996 2,451,070,946Advances from customers 1,540,127,091 1,235,701,252Training deposits, net of training expenses incurred(Also refer Note 25 of Schedule - 22)231,284,289 195,600,828Other security deposit - 20,000,000Book overdraft 154,024,950Unclaimed dividend 276,075 707,912Dues to directors - 14,437Interest accrued but not due on loans 67,526,120 73,097,066Other liabilities 512,224,827 779,160,785Notes:6,569,976,348 4,755,353,226(1) Training deposits are net of training expenses incurred amounting to Rupees 248,003,688 (June 30, 2007 -Rupees 225,580,872), less amortised during the period Rupees 61,280,041 (June 30, 2007 - Rupees 67,528,046)36

Schedules to the Balance Sheet as at March 31, 2008 (Contd.)As atMarch 31, 2008(Rupees)As atJune 30, 2007(Rupees)SCHEDULE 13 :ProvisionsProvision for wealth tax 175,795 64,000Provision for fringe benefit tax 17,107,945 11,714,850Provision for gratuity 38,434,073 35,115,726Provision for leave encashment 39,459,418 22,502,47995,177,231 69,397,055SCHEDULE - 14 :Deferred Revenue ExpenditureTraining expenses 243,442,624 243,442,624Preoperative expenses 48,933,164 48,933,164Share/debenture issue expenditure 364,052,302 363,326,170Less: Accumulated amortisation - Training expenses (243,442,624) (215,172,146)Less: Accumulated amortisation - Preoperative expenses (48,933,164) (46,304,593)Less: Accumulated amortisation - Share / debenture issue expenditure (197,613,770) (106,661,205)166,438,532 287,564,014Schedule 15 :Preliminary ExpensesOpening balance - 2,689Less : Accumulated amortisation - 2,152- 53737

Schedules to Profit and Loss account for the nine months ended March 31, 2008For Nine monthsendedMarch 31, 2008(Rupees)For yearendedJune 30, 2007(Rupees)SCHEDULE - 16:Income from OperationsSale of airline tickets and related income (Refer note 36 & 37 in Schedule 22) 14,030,252,225 15,574,125,656Helicopter charter and other services 349,559,452 647,140,606Cargo Income 34,137,16114,413,948,838 16,221,266,262Schedule 17:Other IncomeAdvertisement income 6,293,160 11,328,744Interest on bank deposits (gross) 189,755,634 172,455,086[Tax deducted at source Rupees 53,060,097 (June 30, 2007 Rupees 4,178,138)]Profit on transfer of aircraft/engine purchase rights [Refer note 9 in Schedule 22] 249,701,063 2,884,623,064Lease rentals received 1,943,778 4,221,360Foreign exchange gain, net 155,500,977 232,087,992Miscellaneous income (Also refer note 26 in Schedule 22) 437,288,455 372,897,2041,040,483,067 3,677,613,451SCHEDULE - 18:Direct Operating ExpensesAircraft fuel expenses 8,892,963,244 9,795,000,968Aircraft insurance 195,398,207 367,900,801Aircraft hire charges 18,300,093 6,025,908Aircraft/Engine repairs and maintenance 2,219,873,000 2,274,977,774Spares and components consumed (including amortisation of rotables) 437,856,573 459,417,260Aircraft/Engine lease rentals 3,547,325,084 4,030,487,825General crew expenses 105,596,584 41,363,623Training expenses 97,301,337 120,701,577Airport related charges 1,178,998,077 1,455,328,882Ground handling charges 423,492,727 445,831,035Discount and Commission to agents other than sole selling agents 27,986,599 41,358,779Other expenses 465,717,242 310,702,88517,610,808,767 19,349,097,317Excess provision written back (37,685) (140,919,069)17,610,771,082 19,208,178,247SCHEDULE - 19 :Personnel, Administrative and General ExpensesSalaries and allowances 2,408,366,016 2,437,258,208Contribution to provident and other funds 33,985,769 32,195,797Staff welfare expenses 7,285,495 7,698,972Traveling and conveyance 209,921,584 279,874,545Rent 87,979,633 84,714,66338

Schedules to Profit and Loss account for the nine months ended March 31, 2008 (Contd.)For Nine monthendedMarch 31, 2008(Rupees)For yearendedJune 30, 2007(Rupees)SCHEDULE - 19 :Personnel, Administrative and General Expenses (Contd.)Rates and taxes 50,562,806 37,144,155Insurance 11,222,087 18,049,487Professional and consultancy charges 307,498,379 467,467,093Repairs and maintenance- Machinery 3,755,757 2,441,903- Building 657,006 1,659,136- Others 41,479,693 17,006,329Telephone, communication and networking 110,383,825 165,921,584Miscellaneous expenses 66,878,731 48,952,061Director’s sitting fees 1,100,000 780,000Bad debts written off - 713,007Provision for doubtful debts 7,464,935 9,105,0103,348,541,716 3,610,981,950SCHEDULE - 20 :Finance and Banking ChargesBank charges (including other related transaction fees) 275,031,752 282,721,606Interest expense - fixed loans (also refer note 16 in schedule 22) 219,703,223 119,439,315Interest expense - other loans 284,046,473 221,820,300778,781,448 623,981,221SCHEDULE - 21 :AmortisationAmortisation of training expenses 89,550,519 155,748,843Amortisation of preoperative expenses 2,628,571 16,358,447Amortisation of share/debenture issue expenses 90,952,565 90,374,748183,131,655 262,482,038Note:(1) Includes Rupees 61,280,041 (June 30, 2007 - Rupees 67,528,046), pertaining to training expenses reflected net of deposits underSchedule 12.39

Schedules forming part of accounts for the nine months ended March 31, 2008SCHEDULE- 22Notes to the financial statements for the nine months ended March 31, 20081. BackgroundKingfisher Airlines Limited (Formerly known as Deccan Aviation Limited) (“the Company”) is engaged in rendering scheduled andunscheduled aircraft passenger services, including helicopter charter services. The Company was incorporated on June 15, 1995as a private limited company and converted itself into a public limited company on January 31, 2005. Consequently the Companychanged its name from Deccan Aviation Private Limited to Deccan Aviation Limited. On June 12, 2006, the Company’s shares werelisted on the Bombay Stock Exchange Limited and the National Stock Exchange Limited, pursuant to the Company’s initial publicoffer of shares. The Company changed its name from Deccan Aviation Limited to Kingfisher Airlines Limited, with effect fromSeptember 5, 2008.2. Statement of significant accounting policies(a) Basis of preparationThe financial statements are prepared in accordance with Indian Generally Accepted Accounting Principles (“GAAP”) underthe historical cost convention on the accrual basis. GAAP comprises mandatory accounting standards as specified in theCompanies (Accounting Standards) Rules, 2006, the provisions of the Companies Act, 1956 and guidelines issued by theSecurities and Exchange Board of India. Accounting policies have been consistently applied except where a newly issuedaccounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accountingpolicy hitherto in use. Further, the financial statements are presented in the general format specified in Schedule VI to theCompanies Act, 1956 (‘the Act’).(b) Use of estimatesThe presentation of financial statements in conformity with generally accepted accounting principles requires managementto make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.Although these estimates are based on management's best knowledge of current events and actions the Company mayundertake in future, actual results ultimately may differ from the estimates.(c) Revenue recognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenuecan be reliably measured. Revenue from charter services is recognized based on services provided and billed as per the terms ofthe contracts with the customers provided that the collection is reasonably certain. Revenue from sale of tickets of the airlineoperations is recognized in the period in which the service is provided, i.e. on flown basis. Such revenue is net of the statutoryfee to be collected from customers as per government regulations. Unearned revenue represents flight seats sold but not yetflown and is included under Advances from customers. The same is released to the profit and loss account as the servicesare rendered. Miscellaneous fees charged for reservation/changes/cancellation of flight tickets are recognised as revenuesimmediately on accrual basis to the extent the same are not refundable.Lease income from assets given under operating lease is recognised in the Profit and Loss account on a straight-line basis overthe lease term.Interest income is recognized on the time proportionate method when the right to receive income is established and thatcollection is reasonably certain. Income from sale of advertisement space is recognized on accrual basis over the period theadvertisements are displayed.The Company enters into barter arrangements with other parties for advertising in exchange for the Company's advertisingin the other party's media or in exchange for other services or goods. Such transactions are recorded at the fair value of theservices/goods received from the other party, or at the fair value of the services provided by the Company if it is not feasibleto determine the fair value of the services/goods received.40

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)(d) Fixed assets and Intangible assetsFixed assets and Intangible assets are stated at cost of acquisition less accumulated depreciation/amortization and impairmentlosses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for itsintended use and also includes cost of modification and improvements to leased assets. Borrowing costs relating to acquisitionof fixed assets are also included to the extent they relate to the period till such assets are ready to be put to use.Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date and the cost of fixed assets notready for intended use before such date are disclosed under capital work-in-progress.(e) DepreciationDepreciation on fixed assets, except software, leased assets and leasehold improvements, is provided on a straight line basis atthe rates prescribed under Schedule XIV to the Companies Act, 1956, which are estimated to be the useful life of fixed assetsby the management. Additions are depreciated on a pro-rata basis from the month following the date of installation till thedate the assets are sold or disposed.Leasehold improvements on operating leases are depreciated over the shorter of the period of the lease and their estimateduseful lives. Assets leased under finance lease are depreciated as stated below.Intangible assets comprise software, which is depreciated over a period of 3-6 years, based on estimated useful life asascertained by the management.Individual assets costing less than Rs 5,000 are depreciated in full in the year/period of acquisition.(f)Borrowing CostsBorrowing costs attributable to the acquisition or construction of a qualifying asset are capitalised as a part of the cost of theassets. Other borrowing costs are recognised as an expense in the period in which they are incurred.(g) LeasesWhere the Company is a lesseeFinance leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of theleased item, are capitalised at the lower of the fair value and present value of the minimum lease payments at the inception ofthe lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction ofthe lease liability based on the implicit rate of return. Finance charges are charged directly against income. Lease managementfees, legal charges and other initial direct costs are capitalised.If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, capitalised leasedassets are depreciated over the shorter of the estimated useful life of the asset and the lease term.Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the leased term, areclassified as operating leases. Operating lease payments including expenses incurred for bringing the leased asset to itsworking condition for intended use are recognised as an expense in the Profit and Loss account on a straight-line basis overthe lease term. Lease subsidy is recognized in the profit and loss account immediately, based on the Company’s entitlementsunder the terms of arrangement with the parties.Profit or loss on sale and leaseback arrangements resulting in operating leases are recognised immediately in case the transactionis established at a fair value, else the excess over the fair value is deferred and amortised over the period for which the asset isexpected to be used. In case of sale and leaseback arrangement resulting in a finance lease, any excess or deficiency of salesproceeds over the carrying value is deferred and amortised over the lease term in proportion to the depreciation of the leasedasset.41

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)(g) Leases (Contd.)Where the Company is a lessorAssets subject to operating leases are included in fixed assets. Lease income is recognised in the Profit and Loss accounton a straight-line basis over the lease term. Costs, including depreciation are recognised as an expense in the Profit andLoss account. Initial direct costs such as legal costs, brokerage costs, etc. are recognised immediately in the Profit and Lossaccount.(h) Impairment of assetsThe carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based oninternal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverableamount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, theestimated future cash flows are discounted to their present value at the weighted average cost of capital. After impairment,depreciation is provided on the revised carrying amount of the asset over its remaining useful life. A previously recognisedimpairment loss is increased or reversed depending on changes in circumstances. However, the carrying value after reversal is notincreased beyond the carrying value that would have prevailed by charging usual depreciation if there was no impairment.(i)(j)Maintenance costsIn respect of aircraft, aircraft engines and helicopters, the Company has entered into maintenance arrangements. Suchmaintenance expenses are charged to the profit and loss account on an accrual basis under the terms of the agreementsentered into by the Company. Such expenses are determined based on fixed monthly amounts including charges based onflight hours, cycles, etc.InventoryInventories are valued at lower of cost or net realisable value. Cost includes custom duty, freight and other charges asapplicable. Cost is determined on a weighted average basis at the scheduled aircraft passenger services division while it isdetermined based on the specific identification method at the helicopter charter services division In respect of reusable itemssuch as rotables, provision for obsolescence is made based on the estimated useful life of the aircraft as derived from ScheduleXIV to the Companies Act, 1956.(k) InvestmentsInvestments that are readily realisable and intended to be held for not more than a year are classified as current investments.All other investments are classified as long-term investments. Current investments are carried at lower of cost and fair valuedetermined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution invalue is made to recognise a decline other than temporary in the value of the investments.(l)Employee benefitsi. Defined Contribution PlanThe Company contributes on a defined contribution basis to Employee’s Provident Fund and Employee Pension Schemetowards post employment benefits, all of which are administered by the respective Government authorities and has nofurther obligation beyond making its contribution which is expected in the year in which it pertains.ii.Defined Benefit PlanThe Company has a defined benefit plan namely Gratuity for all its employees. The liability for the defined benefit planof Gratuity is determined on the basis of an actuarial valuation by an independent actuary at the year-end, which iscalculated using Projected Unit Credit Method.42

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)(l) Employee benefits (Contd.)iii. Other long-term employee benefitsThe employees of the Company are entitled to leave as per the leave policy of the Company. The Liability in respect ofunutilized leave balances is provided based on an actuarial valuation carried out by an independent actuary as at theyear-end and charged to the Profit and Loss Account.(m) Income taxesTax expense comprises current, deferred and fringe benefit tax. Current income tax and fringe benefit tax are measured atthe amount expected to be paid to the tax authorities in accordance with the Indian Income-tax Act, 1961. Deferred incometaxes reflects the impact of current period timing differences between taxable income and accounting income for the periodand reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enactedor substantively enacted as at the balance sheet date. Deferred tax assets are recognized only to the extent that there isreasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can berealized. Deferred tax assets are recognized on carry forward of unabsorbed depreciation and tax losses only if there is virtualcertainty that such deferred tax assets can be realized against future taxable profits. Unrecognized deferred tax assets of earlieryears are re-assessed and recognized to the extent that it has become reasonably certain that future taxable income will beavailable against which such deferred tax assets can be realized.(n) Foreign currency transactions(i)Initial recognitionForeign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount theexchange rate between the reporting currency and the foreign currency at the date of the transaction.(ii) ConversionForeign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms ofhistorical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction;and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency arereported using the exchange rates that existed when the values were determined.(iii) Exchange differencesExchange differences arising on the settlement of monetary items or on reporting Company's monetary items at ratesdifferent from those at which they were initially recorded during the period, or reported in previous financial statements,are recognized as income or as expenses in the period in which they arise.(iv) Forward exchange contractsThe Company uses forward exchange contracts to hedge its exposure to movements in foreign exchange rates. TheCompany does not use the forward exchange contracts for trading or speculation purposes. In respect of foreign currencymonetary assets or liabilities in respect of which forward exchange contract is taken, the premium or discount arising atthe inception of forward exchange contracts is amortised as expense or income over the life of the contract. Exchangedifferences on such contracts are recognised in the statement of profit and loss in the period in which the exchange rateschange. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income oras expense for the period. Pursuant to The Institute of Chartered Accountants of India’s announcement ‘Accounting forDerivatives’, the Company marks-to-market all such outstanding derivative contracts at the end of the period and theresulting mark-to-market losses, if any, are recognized in the Profit and Loss Account.43

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)(o) Earnings per shareBasic earnings per share are calculated by dividing the net profit or loss for the period attributable to equity shareholders(after deducting preference dividends and attributable taxes) by the weighted average number of equity shares outstandingduring the period. Partly paid equity shares are treated as a fraction of an equity share to the extent that they were entitledto participate in dividends relative to a fully paid equity share during the reporting period. The weighted average number ofequity shares outstanding during the period is adjusted for events of bonus issue; bonus element in a rights issue to existingshareholders; share split; and reverse share split (consolidation of shares).For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholdersand the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potentialequity shares.(p) ProvisionsA provision is recognised when an enterprise has a present obligation as a result of past event; and it is probable that anoutflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisionsare not discounted to their present value and are determined based on best estimate required to settle the obligation at thebalance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.(q) Preliminary expensesPreliminary expenses are written off over a period of ten years on a straight- line basis.(r)Deferred revenue expensesShare/debenture issue expenses, training expenses and pre-operative expenses are amortised over a period of three years ona straight- line basis following the year of incurring the expenses.(s)Stock option compensation expenseThe Company accounts for stock option compensation expense based on the intrinsic value of the options granted which isthe difference between the fair value of the share underlying the option and the exercise price of the option determined atthe grant date. Compensation expense is amortised over the period of vesting on a straight-line basis. The accounting valueof the options net of deferred compensation expense is reflected as Employee stock option outstanding.3. Slump Sale of the Non-Scheduled Air transport Services ( Passenger) (Charter Service Operations) to Deccan ChartersLimited (DCL)The Honorable High Court of Karnataka vide their order dated June 16, 2008 interalia approved the transfer of the charter servicesoperations to DCL pursuant to a composite scheme of arrangement between Kingfisher Airlines Limited (Currently known asKingfisher Training and Aviation Services Limited), DCL, the Company and their respective shareholders and creditors (“Scheme”).In terms of the Scheme, the appointed date is January 1, 2008 and the effective date being the later of the date on which certifiedcopies of the order of the High Court of Karnataka sanctioning the Scheme are filed with Registrar of Companies and DCL obtaininga non-scheduled operators permit in terms of the extant civil aviation rules. Since both the formalities have been completed beforethe date these financial statements (“FS”) have been approved by the Board of Directors of the Company, necessary effect hasbeen given in the FS for the same. The profit earned by the Company by virtue of the slump sale of Rs.244,598,527 has beenshown separately in the Profit and Loss Account.4. Share CapitalDuring the year, the Company has allotted 328,385 equity shares under the Employee Stock Option Plan at Rs. 10/- each at apremium of Rs. 55 per share.44

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)5. The Company raised an aggregate amount of Rs.36,328 lakhs through a public issue of shares during the period ended June 30,2006. The proceeds of the issue has been utilized as follows:Rs. in lakhsParticulars March 31, 2008 June 30, 2007Balance as per last Balance Sheet 16,712 21,833Less: Share issue expenses Nil 1,167Sub total (A) 16,712 20,666Utilization of proceedsRepayment of debts 1,345 200Capital Expenditure 500 645Setting up of infrastructure at airports 259 566General Corporate Expenses 13,143 236Marketing development initiatives Nil 2,307Total Out Flow (B) 15,247 3,954Unutilized balance (A – B) 1,465 16,712The Board of Directors of the Company at its meeting held on March 18, 2008 approved the transfer of Rs. 13,143 lakhs to thehead ‘General Corporate Purpose’ from savings in other heads, based on legal opinion.6. Commitments and contingent liabilities not provided for:ParticularsAs at March 31,2008 (Rs)As at June 30,2007 (Rs)RemarksEstimated amount of contracts 67,709,799,738 74,740,367,367remaining to be executed on capitalaccount and not provided for (net ofadvances)Guarantees given by Banks 2,946,740,641 2,469,332,785 Pertains to guarantees given by banks toAirport Authorities, lessors and others.Letters of credit outstanding Nil 46,628,930 Pertains to letters of credit issued by banks tosuppliers of spares, stores and components.Claims against the Company notacknowledged as debts (includingcivil and customer suits) in the normalcourse of businessRedelivery and other costs in respect ofassets taken on operating lease at theend of the lease periodAmounts payable, if any for breach ofcontractual obligations174,971,134 112,977,316 Pertains to litigations filed against theCompany which are pending with variousauthorities.Not ascertainableNot ascertainableNot ascertainable In respect of the operating lease agreements,the Company is required to return theAircrafts as per prescribed terms. However,considering on-going maintenance ofaircrafts, a reliable estimate cannot be madeof redelivery costs.Not ascertainableThe Company has entered into agreements for purchase of aircrafts/engines under which the Company has commitments topurchase aircrafts/engines over a period stipulated in the agreements. Such agreements involve complex pricing arrangementswherein the Company receives discounts/credits on such purchases, which are based on the commitments to purchase, whichthe Company is confident to fulfill currently. Accordingly, the amount of contingent liability, if any, as at the balance sheet date iscurrently not ascertainable.45

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)In addition to the above, there are certain arbitration proceedings with customers/suppliers/ contractors, in respect of which claimsare currently not ascertainable.The management believes, based on internal assessment and/or legal advice, that the probability of an ultimate adversedecision and outflow of resources of the Company is not probable and accordingly, no provision for the same is considerednecessary.7. Managerial remunerationParticularsSalaries and allowances*• Captain G R Gopinath• Captain K J Samuel• Mohan Kumar (resigned during the year 2006-07) **• Vishnu Rawal• Jayant PoovaiahNine months endedMarch 31, 2008(Rs)2,250,0001,116,000Nil1,800,0001,370,000Twelve months endedJune 30, 2007(Rs)3,000,0001,488,0001,750,0002,400,0001,662,750Directors’ sitting fees1,100,000780,000* Does not include provisions for gratuity and leave encashment, as the same are made on the basis of an actuarial valuationdetermined at the overall Company level.** Excludes Rs. 25 million paid as non compete fees after he resigned as a director8. Auditors’ remunerationParticularsNine months endedMarch 31, 2008(Rs)Twelve months endedJune 30, 2007(Rs)Statutory audit fees 4,000,000 3,500,000Tax audit fees* 575,000 250,000Other services, such as certification** 177,500 909,925Out of pocket expenses (including service tax) 587,409 574,026Total 5,339,909 5,233,951* Payable to another firm of chartered accountants.** Includes fees paid to the previous auditor.9. Earnings in foreign currency (on accrual basis)ParticularsCharter service feesLease rentalsMiscellaneous IncomeProfit on transfer of aircraft/engine purchase rightsNine months endedMarch 31, 2008(Rs)38,606,7051,921,600208,989,119249,791,344Twelve months endedJune 30, 2007(Rs)69,007,6674,221,360383,344,0312,884,623,06446

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)16. During the period, the Company has capitalized interest on borrowings for purchase of fixed assets amounting to Rs.148,604,879(June 30, 2007– Rs. 151,416,125) under AS 16 – Borrowing Costs.17. a) The Company has transferred aircraft/engine purchase rights to a third party and has simultaneously, leased the same on anoperating lease from such third party.b) Profit on transfer of aircrafts purchase rights includes a sum of Rs. Nil (Previous year Rs.2,705,700,000) arising out of aircraftpurchase contract for a consideration receivable by the Company in 4 trenches over a period of 15 months. The first andsecond trenches of consideration were recognized as income during the previous year.18. Employee stock option plan [ESOP]On March 16, 2005, the shareholders of the Company approved an employee stock option plan [ESOP 2005]. Further on December21, 2005, the Board of Directors approved the ESOP 2006 scheme, which will govern issuance of options on or after January 1,2006. Options issued under ESOP 2005 would continue to be governed under ESOP 2005. The shareholders have approved theissuance of 8,181,779 options in aggregate subject to a maximum of 10% of the aggregate number of issued and outstandingequity shares (calculated on an as converted basis), under both the options put together. The Plans cover all employees of theCompany including Directors other than promoter directors.During the period ended March 31, 2008 (June 30, 2007 – 2,000,200), the Company issued 731,400, options underESOP 2006 scheme at an exercise price of Rs. 65 per share [of Rs 10 par value], convertible into 731,400(June 30, 2006 - 2,000,200) equity shares of Rs 10/- each. These options vest over a period of 4 to 5 years. The options areexercisable within a period of 5 years from the vesting date.Details of number and weighted-average exercise prices of options are given below:ParticularsPeriod endedMarch 31, 2008Number ofoptionsWeightedaverageexerciseprice (pershare) (Rs)Year endedJune 30, 2007Number ofoptionsWeightedaverageexerciseprice (pershare) (Rs)Outstanding at the beginning of the period/year 3,414,470 65 3,289,700 65Granted during the period/year 731,400 65 2,000,200 65Exercised during the period/year 328,385 65 102,240 65Forfeited during the period/year 331,820 65 1,773,190 65Outstanding at the end of the period/year 3,485,665 65 3,414,470 65Exercisable at the end of the period/year 304,455 65 647,340 65The weighted average price of the share on exercise date was Rs. 176.04The weighted average contractual remaining life of the options is 7.33 years as at March 31, 2008.The Company determined an intrinsic value, based on the fair value of the shares on the date of grant, as follows:Month & year of grantIntrinsic valuedetermined(Rs.)June 2005 62.97December 2005 62.97April 2007 49.90September 2007 83.80February 2008 91.9548

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)The Company recorded a deferred compensation expense of Rs. 11,420,490 (June 30, 2007-Rs. 40,728,801) during the year, netof forfeitures for the options issued.Rs.Rs.Accounting value of stock options outstanding 215,183,132Less:Deferred stock compensation expense 125,724,682Amortized during the period 11,420,490114,304,192Employee stock option outstanding account 100,878,940The following table illustrates the effect on net loss per share if the Company had applied the fair value method under Black-Scholes model to measure stock-based compensation.Period endedMarch 31, 2008Rs.Year endedJune 30, 2007Rs.Net loss after tax as reported (after extraordinary item) 1,881,361,073 4,195,761,015Less: Compensation expense as recognized 11,420,490 40,728,801Add: Compensation expense under the fair value method (Black Scholes Method) 69,908,106 6,995,123Net loss after tax, pro forma (after extraordinary item) 1,939,848,689 4,162,027,337Loss per share as reported, basic and diluted (Rs 10 par value) 13.87 42.24Loss per share, pro forma, basic and diluted (Rs 10 par value) 14.30 41.90The following assumptions were used in determination of the fair value of the Company’s stock options for pro forma net loss pershare disclosures using the Black-Scholes option-pricing model.For optionsissued duringthe periodendedMarch 31, 2008For optionsissued duringthe year endedJune 30, 2007Risk free interest rate (%) 8.00 8.13Weighted average expected life (years) 5.19 5.21Expected volatility (%) 51.60 23.95Expected dividends - -19. a) Related party disclosuresNames of related partiesKey Management PersonnelAssociate companyEnterprises owned or significantly influenced bykey management personnel or their relativesor persons who have control or significantinfluence over the CompanyRelatives of Key Managerial PersonnelDr. Vijay Mallya, Capt. G.R Gopinath, Capt. KJ Samuel, Capt. VishnuRawal, Mr. Ramki Sundaram and Col Jayant Pooviaha) Deccan Aviation (Lanka) Private Limited (‘DAPL’) (till transfer ofthe relevant investments to DCL pursuant to Scheme)b) Kingfisher Radio Limiteda) Deccan Cargo Private Limitedb) Deccan Charters LimitedMr Joseph Samuel, son of Capt. K J Samuel49

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)19. a) Related party disclosures (Contd.)Transactions during the year/periodHelicopter lease rentals earned (DeccanAviation (Lanka) Private Limited )Rent Expense (Capt. G.R Gopinath)Investment by Kingfisher Radio Limited (*)Remuneration (Mr. Ramki Sundaram)Interest income on advances(Mr. Ramki Sundaram)Expenses incurred on behalf of Deccan CargoPrivate LimitedReimbursement of expenses incurred onbehalf of Deccan Cargo Private Limited.Consideration receivable on slump sale of thecharter services operations (DCL)Book value of assets transferred on SlumpSale (DCL)Liabilities transferred on Slump Sale (DCL)Assets given on lease (at gross block) (DeccanAviation (Lanka) Private Limited)Receivables for lease rentals and expensereimbursements (Deccan Aviation (Lanka)Private Limited)Reimbursements receivable from Deccan CargoPrivate LimitedDues by / (to) the CompanyNet amount receivable from DCLDues to the Company(Mr. Ramki Sundaram)KeymanagementpersonnelAssociatecompany(Amount in Rupees)Enterprises owned orsignificantly influencedby key managementpersonnel or their relativesor persons who havecontrol or significantinfluence over theCompanyMar-08 1,943,778Jun-07 4,221,360Mar-08 450,000Jun-07 674,623Mar-08 -Jun-07 352,222,310Mar-08 10,288,523Jun-07 N.A.Mar-08 2,000,000Jun-07NAMar-08 20,899,364Jun-07 6,918,109Mar-08 23,578,709Jun-07NilMar-08 690,000,000Jun-07Mar-08 807,793,919Jun-07 -Mar-08 331,404,752Jun-07 -Mar-08 -Jun-07 11,347,500Mar-08 -Jun-07 8,200,692Mar-08 4,238,764Jun-07 6,918,109Mar-08 -Jun-07 14,437Mar-08 752,947,510Jun-07 -Mar-08 25,000,000Jun-07N.A.* Excludes share premium of Rs. 5,107,223,495.Remuneration paid to directors is disclosed elsewhere in the notes to accounts.Salaries paid Rs. 1,903,548 (June 30, 2007 – Rs. 1,855,037) during the period ended March 31, 2008, to a relative ofone of the directors of the Company. Balance due to such person as at March 31, 2008 is Rs. 195,613 (June 30, 2007 –Rs. 174,474).Some of the key managerial personnel have given personal guarantees. In addition to key managerial personnel, their relativeshave offered collateral securities to banks and financial institutions against the loans taken by the Company from such banksand financial institutions.50

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)b) List of Associate Companies other than Related PartiesCity Properties Maintenance Company Bangalore LimitedDeccan Charters Limited(formerly Kingfisher Aviation Training Limited)H. Parsons Pvt. LimitedInversiones Mirabel, S.AKingfisher Aviation Training Limited(formerly Kingfisher Training Academy Limited)Kingfisher Training and Aviation Services Limited (formerly Kingfisher Airlines Limited)Kingfisher Finvest India Limited (formerly Kingfisher Radio Limited)Mangalore Chemicals & Fertilizer LimitedMcDowell Holdings LimitedMendocino Brewing Co.Inc, U.S.APixray India LimitedReleta Brewing Company LLCRigby International CorpRubic Technologies IncUB Electronic Instruments LimitedUB Engineering LimitedUB Infrastructure Projects LimitedUB International Trading LimitedUB Overseas LimitedUBHL (BVI) LimitedUBSN LimitedUnited Breweries (Holdings) LimitedUnited Breweries International (UK) LimitedUnited Breweries of America Inc, DelawareUnited Racing & Bloodstock Breeders LimitedUnited Spirits LimitedWIE Engineering Limited (Under Liquidation)20. Leases and Hire PurchaseThe Company has entered into operating and finance lease agreements. Disclosures required under AS 19 on “Leases” is as givenbelow:Operating leasesOperating lease arrangements comprise of leases of aircraft, helicopters, spare engines and office premises. The salient features ofoperating lease agreements for aircrafts, helicopters and spare engines are as follows:• Lease periods range up to twelve years and are usually non-cancelable. (Lease periods ranged up to 10 years as at March 31,2008).• Lease rentals are usually fixed over the term of the lease while some arrangements are subject to adjustments linked to theLibor rates movements.• The Company also has agreements for maintenance and lease of stores and spares for such aircrafts for which fixed andvariable rentals are paid. Variable rentals are paid on a pre determined rate payable on the basis of actual flying hours/cycles.Such variable rentals are subject to annual escalations as stipulated in the agreements. However, the Company is eligible toclaim reimbursement of maintenance costs to the extent eligible under the agreements.51

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)20. Leases and Hire Purchase (Contd.)• The Company does not have an option to buy the aircraft or helicopters and spare engines or to renew the leases.• In case of default by the Company, in addition to repossession of the aircraft, penalties are stipulated in the agreements.• The Company is required to deposit a commitment fee and a security deposit with the lessor or provide a letter of credit forsuch amounts.• Operating lease agreements for office & residential premises are mainly for a non cancelable period of three years. The leasedpremises can be renewed at terms mutually agreeable to the Company and the lessor.ParticularsLease and maintenance contributions for the period/yearMinimum Lease Payments and maintenance contributions:- Not later than one year- Later than one year but not later than five years- Later than five yearsNine MonthsendedMarch 31, 2008(Rs)4,296,865,1975,005,020,37314,804,893,9806,054,677,852Twelve monthsendedJune 30, 2007(Rs)4,059,020,3294,603,511,18915,065,145,7363,436,391,847In addition to the above, the Company has entered into agreements to lease aircrafts/engines in respect of which theaircrafts/engines are pending delivery/the lease is yet to commence as at March 31, 2008. The above table ofminimum lease payments does not include amounts that may become payable in respect of leases yet to commence as atMarch 31, 2008.Finance leasesFinance lease arrangements relate to ground handling and related equipments. The lease period is for three years with interestrates ranging from 10.5% to 12% per annum and the Company has an option to renew the lease at the end of the initial leaseterm. The Company pays fixed lease rentals over the period of the lease whereby the net present value of the minimum leasepayments amount substantially to the cost of the assets.ParticularsTotal minimum lease payments at the balance sheet date in case of balance fixednon cancelable lease term.Less : amount representing finance chargesPresent value of minimum lease payments (Rate of interest 11% p.a.)Nine monthsendedMarch 31, 2008(Rs.)13,224,748773,41912,451,329Twelve monthsendedJune 30, 2007(Rs)24,600,8682,192,72522,408,143Lease payments for the period/year 11,376,164 20,033,312Minimum Lease Payments :Not later than one year [Present Value Rs. 11,085,438as on March 31,2008(Previous Year Rs.13,297,664)]11,840,904 15,015,660Later than one year but not later than five years [Present Value Rs.1,365,891 as onMarch 31,2008 (Previous Year Rs. 9,110,479)] 1,383,844 9,585,20852

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)Hire purchase arrangementsDuring the period ended June 30, 2006, the Company entered into hire purchase agreements in respect of aircrafts. The salientfeatures of hire purchase agreements for aircrafts are as follows:• Term is for 10 years• Option to purchase the aircraft either during the term of the hire purchase arrangement on payment of the outstandingprincipal amount or at the end of the hire purchase term on payment of a nominal option price.• In the event of default, the Company is responsible for payment of all costs of the owner including the financing costs andother associated costs. Further a right of possession is available to the owner.• The Company is responsible for maintaining the aircraft as well as insuring the same.ParticularsTotal minimum hire purchase installments at the balance sheet date in case of balancefixed non- cancelable term.March 31, 2008(Rs)June 30, 2007(Rs)1,275,061,395 1,419,685,138Present value of minimum hire purchase installments 1,045,765,757 1,142,869,803Payments for the year /period 163,546,508 228,152,967Hire purchase payments:Not later than one year [Present value Rs. 104,782,068 as on March 31, 2008] (June30,2007 Rs. 103,068,176)]Later than 1 Year but not later than 5 years [Present value Rs. 472,942,105 as onMarch 31, 2008] (June 30, 2007 Rs. 465,206,316)]Later than 5 years [Present value Rs. 468,041,583 as on March 31, 2008](June 30, 2007 Rs574,595,311)Assets given on lease153,419,815 159,120,528614,182,513 625,982,190507,459,067 634,582,420The Company had given one helicopter to Deccan Aviation (Lanka) Private Limited under an operating leasearrangement. Lease rental income recognized in the Profit and Loss account amounts to Rs 1,943,778 (Previous year Rs.4,221,360).21. Segment disclosuresThe Company operates in a single business segment, i.e. of providing scheduled and unscheduled air transportation services.Further, the Company currently operates only in India and does not have operations outside India. Accordingly, no separatesegment disclosures for primary business segment and geographical disclosures are required to be given.22. Deferred taxesParticularsAs atMarch 31, 2008(Rs.)As atJune 30, 2007(Rs.)LiabilityOn account of depreciation on fixed assets 248,606,809 151,482,433On account of timing differences in recognition of expenditure 54,516,158 23,188,975Deferred tax liability 303,122,966 174,671,408AssetOn account of timing differences in recognition of expenditure 26,475,997 25,791,139On account of Unabsorbed losses and depreciation under the Income Tax Act, 5,261,644,353 148,880,2691961Deferred tax asset 5,288,120,350 174,671,408Net deferred tax asset 4,984,997,384 Nil53

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)Deferred tax asset on unabsorbed depreciation and business losses has been recognized on the basis of business plan preparedby the management, which takes into account certain future receivables arising out of contractual obligations. The reduction ofprices of aviation fuel and reduction of sales tax on such fuel, which is under active consideration of the government together withintroduction of stringent cost reduction and control measures, will have positive impact on the working results of the Company.The management is of the opinion that there is virtual certainty supported by convincing evidence that sufficient future taxableincome will be available against which the deferred tax asset can be realized.23. Loss per share (EPS)ParticularsNine months endedMarch 31, 2008Twelve monthsended June 30, 2007After extraordinary itemsLoss for computation of basic and diluted EPS (Rs) (1,881,361,073) (4,195,761,015)Before extraordinary itemsLoss before extraordinary items and tax expense (Rs) (7,070,496,576) (4,161,772,866)Add: Tax expense after reworking deferred tax credit on account of5,055,194,220 33,988,149extraordinary item (Rs)Loss for computation of basic and diluted EPS (Rs) (2,015,302,356) (4,195,761,015)Weighted average number of shares considered for basic EPS135,668,051 99,326,445(Rs 10 par value)Add: Effect of employee stock options* - -Weighted average number of shares considered for diluted EPS 135,668,051 99,326,445* The effect of employee stock options on weighted average number of shares for diluted EPS is not considered since their effectis anti-dilutive.24. The Company had entered into forward contracts for US dollars 5 million to hedge foreign currency liabilities (payables) as at June30, 2007. There were no forward contracts or derivative contracts outstanding as at March 31, 2008.The foreign currency exposures that have not been hedged by any derivative instrument or otherwise are as follows:ParticularsAssets ( Receivables)Liabilities ( Payables)Hire Purchase loan for aircrafts and other term loan from financial institutionAs at March 31,2008(Rs)603,401,8911,435,136,3661,135,759,325As at June 30,2007(Rs)447,555,250564,222,5191,219,272,43825. In respect of certain training costs which are initially funded by the employee, the Company has an obligation to reimburse theemployee such training costs in case the employee fulfills certain employment conditions under the terms of agreement withthe Company. The Company has made a provision of Rs. 61,280,041 for the period ended March 31, 2008 (June 30, 2007 –Rs. 67,528,046).26. Miscellaneous income for the period ended March 31, 2008 includes Rs. 148,900,000 (June 30, 2007 - Rs. 256,602,800) towardslease subsidy received by the Company.27. Other Direct Operating Expenses for the period ended March 31, 2008 is net of credit memorandum of Rs. 208,989,119 (June 30,2007 – Rs. 119,680,500 )54

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)28. Employee Benefits:a) Contribution to defined benefit plansI) Change in benefit obligation:Nine monthsended March31, 2008(Rs.)Gratuity Plan(Unfunded)Defined benefit obligation (DBO), at the beginning of the period (July 1, 2007) 35,115,726Excess provision as at July 1, 2007 credited to opening reserves credited as per transitionalprovision of AS 15 (Revised)(2,110,336)Service Cost 8,188,329Interest Cost 2,525,225Actuarial loss / (gain) 1,639,753Benefits paid (519,230)Liability pertaining to charter service operations transferred to DCL (6,405,394)Defined benefit obligation at the end of the period 38,434,073II) Components of cost for the period ended March 31, 2008:III)Service cost 8,188,329Interest on defined benefit obligation 2,525,225Expected return on plan assetsNet actuarial gain recognized in the year 1,639,753Net gratuity recognized in the Profit and Loss Account 12,353,307Actuarial assumptionsDiscount rate (p.a) 8.10%Salary Escalation Rate (p.a)Retirement Age (other than pilots)Retirement Age (pilots)Nil8% for first 3 yearsand 6% thereafter60 years65 yearsMortality Rates of LIC (1994-1996) mortality tableWithdrawal RateWithdrawal RatesAge (years)p.a. (%)21-30 15%31-34 10%35-44 5%45-50 3%51-54 2%55 & above 1%Note: This being the first period of implementation of AS 15 (revised), corresponding figures for previous year have not beenfurnished.b) 1 Contribution to Defined Contribution Plans1 Contribution to provident and other funds Rs. 21,743,735 (June 30, 2007 Rs. 17,404,229).55

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)29. As part of the rapid expansion plans, the Company incurred significant expenditure on in house trainers towards training of pilotsand technical engineers. Although, such in house training costs are not covered under bond or are not recoverable from theemployees, the Company has deferred such costs as management believes that the economic benefits of such training costs willflow to the enterprise over a period. Such training costs are being amortized over a period of three years following the year inwhich the expenses are incurred. As at March 31, 2008 and June 30, 2007 a net sum of Rs. Nil and Rs.28,270,478, respectivelyhave been reflected as ‘Training Expenses’ under Deferred Revenue Expenses.30. During the years ended March 31, 2004 and 2005, the Company incurred certain expenses prior to commencement/expansion ofoperations. The Company has deferred these expenses to be written off over a period of three years following the year in whichthe expenses are incurred. As at March 31, 2008 and June 30, 2007 a net sum of Rs. Nil and Rs.2,628,571, respectively have beenreflected as ‘Preoperative Expenses’ under Deferred Revenue Expenses.31. The Company has initiated the process of obtaining confirmation from suppliers regarding the registration under the MSME Act“Micro Small and Medium Enterprises Development Act 2006”. The suppliers are not registered wherever the confirmations arereceived and in other cases, the Company is not aware of their registration status and hence information relating to outstandingbalance or interest due is not disclosed as it is not determinable.32. Details of non-resident shareholdings:Particulars March 31, 2008 June 30, 2007Number of non resident share holders 451 444Number of shares held by non resident shareholders 16,936,357 14,394,20833. Discontinuing Operation: (In Rupees)Particulars March 31, 2008 June 30, 2007ContinuingOperationsTotal Assets 17,997,704,677DiscontinuingOperations-ContinuingOperationsDiscontinuingOperations16,999,779,618 839,035,616Total Liabilities 16,008,981,174 - 13,681,103,704 310,739,260Income 15,110,957,179 343,474,726 19,234,781,265 664,098,448Expenditure 22,158,125,096 366,803,385 23,496,400,883 564,251,696Profit/(Loss) after tax expense for the period /yearNet cash flow from / (used in)(1,856,732,414) (24,628,659) (4,261,619,620) 99,846,752a. Operating activities (5,590,405,275) 175,193,393 (5,705,885,665) 180,067,049b. Investing activities 141,924,096 (3,720,513) 1,327,545,624 (132,728,931)c. Financing activities 106,436,839 (198,700,456) 9,972,987,391 (36,237,387)34. Accounts with certain creditors, loans and advances are under review and reconciliation. Adjustments, if any will be made oncompletion of such review/ reconciliation.35. The Company has incurred substantial losses and a part of its net worth has been eroded. However, having regard to the Scheme byvirtue of which the Scheduled Air Transport Services (Passenger) Division of Kingfisher Airlines Limited (Currently called KingfisherTraining and Aviation Services Limited) has been de-merged with the Company with April 1, 2008 as the appointed date, thesynergies expected there from, the recently launched international operations and group support, the financial statements havebeen prepared on the basis that the Company is a going concern and that no adjustments are required to the carrying value ofassets and liabilities.56

Schedules forming part of accounts for the nine months ended March 31, 2008 (Contd.)36. The Company’s Centralized Ticket Reservation System (CRS) had not fully stabilized and there were certain errors and inconsistenciesin certain reports generated there from. The Company has migrated to a new system in August 2008. Working backwards fromthe data migrated to the new system, the Company believes that the revenue recognized during the period under review is true inall material respects. Adjustments if any to the revenue so recognized will be made after stabilization of new system and cleansingof data base.37. A large portion of the business has originated through usage of credit card as a form of payment of tickets by the passengers. TheCompany has received chargeback, aggregating Rs. 66.43 million, from credit card service providers due to misutilization of creditcards by third parties.38. Pursuant to the issuance of Companies (Accounting Standards) Rules, 2006 by Ministry of Corporate Affairs and withdrawal of theannouncement "Treatment on exchange differences under AS 11 (revised 2003), The effects of changes in Foreign Exchange Ratesvis-a-vis Schedule VI to the Companies Act, 1956", by ICAI, the Company has applied AS 11 for restatement of Capital Advancesand Foreign currency borrowings for acquisition of fixed assets. In view of the application of the new rules, the Company's lossfor the period is less by Rs. 83 lakhs.39. The previous year’s figures are for year ended June 30, 2007, while those of current period are for nine months ended March 31,2008. Hence the same are not comparable. The previous year’s figures have been regrouped / reclassified wherever necessary toconform to the current period’s presentation.As per our report of even dateFor B.K.Ramadhyani & Co.Chartered AccountantsFor and on behalf of the Board of Directorsper Satyanarayana Murthi Dr. Vijay Mallya Capt. G. R. GopinathPartner Chairman Vice Chairman &Membership No. 200/24248Managing DirectorBangalore Ramki Sundaram N. SrivatsaOctober 15, 2008 Chief Financial Officer Company Secretary57

Cash Flow Statement for nine months ended March 31, 2008For the nine monthsended March, 31 2008(Rs)For year endedJune, 30 2007(Rs)A. Cash flows from operating activitiesLoss before tax expense (6,825,898,049) (4,161,772,866)Adjusted for:Depreciation 182,807,412 176,688,023Provision for wealth tax 175,375 64,000Employee stock compensation cost 11,420,490 40,728,801Amortisation 183,131,655 262,482,038Interest expense 284,046,473 341,259,615Preliminary expenses written off - 2,152Profit on transfer of aircraft/engine purchase rights (249,791,344) (2,884,623,064)Profit from slump sale of Charter business undertaking (244,598,527)(Profit) / Loss on sale of assets 90,281 (4,479,468)Interest income (189,755,634) (172,455,086)Provision for Doubtful debts 7,464,935 9,105,010Operating loss before working capital changes (6,840,906,933) (6,393,000,845)Movement in working capital:Decrease/(increase) in sundry debtors 88,281,796 (230,890,373)Decrease/(increase) in inventories 129,790,827 (43,582,027)Decrease/(increase) in loans and advances (713,985,398) 314,349,993Decrease/(increase) in other current assets (42,428,136) (8,260,399)(Decrease)/increase in current liabilities & provisions 2,063,565,615 893,928,852Cash (used in)/generated from operations (5,315,682,229) (5,467,454,799)Direct tax paid including fringe benefit tax (net of refunds) (99,529,652) (58,363,817)Net cash (used in)/generated from operating activities (5,415,211,881) (5,525,818,616)B. Cash flows from investing activitiesPurchase of fixed assets and changes in capital work in progress (278,947,800) (1,829,765,711)Proceeds from sale/disposal of fixed assets 40,000 84,231,967Proceeds from transfer of aircrafts/engine purchase rights 249,791,344 2,884,623,064Interest received 167,320,039 53,475,650Deferred revenue expenses - 2,251,723Net cash used in investing activities 138,203,583 1,194,816,69358

Cash Flow Statement for nine months ended March 31, 2008 (Contd.)For the nine monthsended March, 31 2008(Rs)For year endedJune, 30 2007(Rs)C. Cash flows from financing activitiesProceeds from issue of share capital 21,345,024 5,760,637,405Share/debenture issue expenses paid (726,132) (188,424)Proceeds from term loans (including hire purchase) 413,537,401 1,144,040,756Repayment of term loans (including hire purchase) (880,221,774) (1,251,392,967)Change in overdraft facility (including book overdraft & short term loan) 958,920,237 1,010,688,744Change in cash credit facility (1,696,134,039) 1,586,449,478Finance lease obligation (9,956,814) (16,759,142)Unsecured Loans received 4,460,000,000 2,427,500,000Unsecured Loans repaid (3,040,000,000) (462,500,000)Interest paid (319,027,521) (261,725,846)Net cash generated from financing activities (92,263,618) 9,936,750,004Net change in cash and cash equivalents (A+B+C) (5,369,271,916) 5,605,748,081Cash and cash equivalents at the beginning of the period/ year 8,170,495,277 2,564,747,196Cash and cash equivalents at the end of the period/ year (Note below) 2,801,223,361 8,170,495,277Notes :Refer Schedule 9 for details of cash and cash equivalents.As per our report of even dateFor B.K.Ramadhyani & Co.Chartered AccountantsFor and on behalf of the Board of Directorsper Satyanarayana Murthi Dr. Vijay Mallya Capt. G. R. GopinathPartner Chairman Vice Chairman &Membership No. 200/24248Managing DirectorBangalore Ramki Sundaram N. SrivatsaOctober 15, 2008 Chief Financial Officer Company Secretary59

BALANCE SHEET ABSTRACTStatement Pursuant to Part IV of Schedule VI to the Companies Act, 1956BALANCE SHEET ABSTRACT AND COMPANY'S GENERAL BUSINESS PROFILEIRegistration DetailsRegistration Number L 8 5 1 1 0 K A 1 9 9 5 P L C 0 1 8 0 4 5Balance Sheet Date 3 1 - 0 3 - 2 0 0 8IICapital Raised during the period (Amount in Thousands)Public issue N I L Rights issue N I LBonus Shares N I L Private Placement 0 0 0 3 5 2 2 2 2IIIPosition of Mobilisation and Deployment of Funds (Amount in Thousands)Total Liabilities 0 2 1 0 1 0 1 0 8 Total Assets 0 2 1 0 1 0 1 0 8Sources of fundsPaid-up Capital 0 0 1 3 5 7 9 8 5 Reserves & Surplus 0 1 0 2 0 7 4 1 6Secured Loans 0 0 5 9 2 3 8 2 8 Unsecured Loans 0 0 3 4 2 0 0 0 0Application of FundsNet Fixed Assets 0 0 6 2 5 0 2 7 4 Investments 0 0 0 0 0 0 0 0 0Net Current Assets (-) 0 0 0 6 9 1 5 9 MISCELLANEOUS EXPENDITURE 0 0 0 1 6 6 4 3 9Accumulated Losses 0 0 9 6 7 7 5 5 7IVPerformance of Company (Amount in Thousands)Turnover 0 1 5 4 5 4 4 3 2 Total Expenditure 0 2 2 5 2 4 9 2 8PROFIT Before Tax (-) 7 0 7 0 4 9 6 PROFIT AFTER TAX (-) 1 8 8 1 3 6 1EARNING PER SHARE (In Rs.) (-) 1 4 . 8 5 Dividend rate % N I LVGeneric NameS of PrinciplE Products / Services of CompanyItem Code No. (ITC Code)N AProduct Description A I R C R A F T C H A R T E R SA I R L I N EO P E R A T I O N SFor and on behalf of the Board of DirectorsDr. Vijay MallyaChairmanCapt. G. R. GopinathVice Chairman &Managing DirectorBangalore Ramki Sundaram N. SrivatsaOctober 15, 2008 Chief Financial Officer Company Secretary60

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