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Aer Lingus Group PLC (AERL)

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Friday 27 June, 2014

Aer Lingus Group PLC

Aer Lingus response to Expert Panel Report

RNS Number : 6944K
Aer Lingus Group PLC
27 June 2014
 



Aer Lingus Group plc

 

ISE: EIL1                    LSE: AERL

 

Aer Lingus response to the Expert Panel report

 

Dublin & London, 27 June 2014:The Board of Aer Lingus Group plc ("Aer Lingus") and Aer Lingus Limited ("the Company") has now considered the detail of the report issued by the Expert Panel on 16 June 2014 (the "Expert Panel Report"). The Expert Panel was formed in March 2014 under the joint sponsorship of two Irish Government departments, the Irish Business and Employers' Confederation and the Irish Congress of Trade Unions ("ICTU"). The purpose of the Panel was to investigate how a final resolution of the industrial relations issues relating to the Irish Airlines (General Employees) Superannuation Scheme (the "IASS", the "Scheme") could be achieved following the inability of the parties to implement the recommendations issued by the Irish Labour Court in January and May 2013, respectively (the "Labour Court Recommendations").

 

Aer Lingus Chief Executive Officer, Christoph Mueller said: "The solution recommended by the Expert Panel involves a significant increase in payments from the Company. Aer Lingus and the Company reluctantly accept the recommendations of the Expert Panel as the only solution that is capable of acceptance by all the parties. Implementation of the solution will be very complex and will require a concerted effort by all of the parties. A significantly improved industrial relations environment is also a key requirement and a functioning internal dispute resolution mechanism must be established for this purpose. We strongly encourage all parties to work collaboratively to achieve these goals".

 

Summary of Expert Panel Report

The Expert Panel Report builds on the Labour Court Recommendations which set out targeted total pension levels (including any applicable Irish State pension) of at least two-thirds of final pensionable pay. The Labour Court also recommended staff cost stabilisation measures which involve the replacement of existing, cumulative annual increment payments to non-pilot employees with once-off, non-cumulative payments over the period to April 2017. The Labour Court Recommendations proposed that the Company make a once-off payment of €110 million in respect of current employees. In addition, the Company previously proposed €30 million in respect of former employees who are members of the IASS and who yet have to reach retirement age (the "Deferreds"). The Labour Court made analogous recommendations in respect of the other sponsoring employer, Dublin Airport Authority ("DAA"), in a parallel recommendation also issued in 2013.

 

There are some variations between the Expert Panel Report and the Labour Court Recommendations. These variations relate to the application of more conservative assumptions in relation to certain future pension benefits as well as the buy-out of certain trade union pension funding claims which would otherwise have an adverse impact on Aer Lingus' income statement. The effect of these variations is to increase the €110 million payment previously proposed to be paid by the Company in respect of current employees to a proposed payment of €146.7 million while preserving the staff cost stabilisation measures previously proposed by the Labour Court Recommendations.

 

The Expert Panel Report does not quantify a recommended amount in respect of Deferreds. Instead, the Panel has agreed a set of principles with the Company and DAA with regard to an increased payment to Deferreds. Based on this set of principles, the Company calculates that the €30 million once-off payment previously proposed to be paid by it in respect of Deferreds would increase by €14 million to €44 million. The Company has commenced discussions with the Trustee of the IASS and has received initial confirmation that the Trustee intends to proceed with the "freeze and de-risk" of the Scheme as proposed in the draft funding plan which it previously proposed to submit to the Irish Pension Regulator (the "Pensions Authority"). This initial confirmation by the IASS Trustee is based upon (i) the Expert Panel's recommendations in respect of current employees; and (ii) the Company's calculation of a €14 million increase in the once-off payment to Deferreds.

 

The aggregate effect of the variations recommended by the Expert Panel and discussed with the IASS Trustee is to increase the total once-off payment to be made by the Company from €140 million to approximately €191 million in addition to implementation costs.

 

 

This increase is summarised as:

 

Payment previously proposed in respect of current employees who are active IASS members

110.0


Increased payment recommended by the Expert Panel

36.7


Revised payment in respect of current employees who are active IASS members


146.7




Payment previously proposed in respect of Deferreds

30.0


Increased payment using set of principles agreed with the Expert Panel

14.0


Revised payment in respect of Deferreds


44.0




Total revised once-off payment  by the Company


190.7

 

 

The Expert Panel Report also contains recommendations regarding payments to be made by DAA relating to the IASS. The ratio of payments recommended by the Expert Panel Report in respect of both employers broadly aligns with the split of membership of Aer Lingus and DAA employees within the IASS.

 

Aer Lingus and Company response to the Expert Panel Report

The Company submitted to the Expert Panel that the parties should agree that the Labour Court Recommendations had to be used as a basis of definitively resolving the funding issues facing the IASS on the grounds that that the proposed funding of €110 million in respect of current employees is sufficient to deliver the targeted pension benefits set out in the Labour Court Recommendations. However, despite protracted negotiations with the trade unions, the Trustee of the IASS and other relevant parties, it has not been possible to conclude a deal on this basis. The Expert Panel was set up as a final attempt to achieve a resolution of the funding issues facing the IASS.

 

Aer Lingus and the Company recognises that the Expert Panel's recommendation, requiring an additional €50.7 million funding represents a very significant increase in the amount of once-off payment to be made by the Company. Notwithstanding this, Aer Lingus and the Company reluctantly accept the increase in payment recommended by the Expert Panel on the basis that the Panel's report represents a full and final solution capable of acceptance by all the parties and would definitively address the funding issues in the IASS.

 

Aer Lingus and the Company believe that this report represents a proposal which, if implemented in a full and timely manner, could mitigate the significant industrial relations and other risks related to the funding difficulties faced by the IASS. In addition, the recommendations contained in the Expert Panel Report would place pension provision for current and former employees on a significantly improved and more stable footing than would otherwise be the case if the Scheme were to be wound up in the absence of an agreed solution.

 

The recommendations contained in the Expert Panel Report would preserve the staff cost stabilisation measures previously proposed by the Labour Court. These measures mean that, based on current staff numbers and employment terms and assuming no structural changes to the Company's business, 2017 staff costs will be lower than would otherwise be the case if increments and other staff payments continued in the intervening period. This will deliver a long term benefit to Aer Lingus' income statement.

 

Aer Lingus and the Company also recognise the need to improve the current industrial relations environment in the Company and, against the backdrop of the Expert Panel Report, has agreed in principle with the trade unions representing staff who are members of the IASS, to establish an internal dispute resolution mechanism. This body will seek to resolve any future issues and secure a positive industrial relations environment. Detailed discussions on the proposed form of the internal dispute resolution mechanism will now commence. The establishment of such a body has also been recommended by the Labour Court in relation to the recent cabin crew rostering dispute. Once established, the body will assist the Company in mitigating the adverse effects related to potential future staff disputes and in protecting  future operational stability. Aer Lingus and the Company view it as important that such an internal dispute resolution mechanism should apply to all staff and not just to staff who are currently members of the IASS. The Company will therefore engage in discussions with the Trade Union representatives of all staff for this purpose. We recognise that the establishment of a functioning dispute resolution mechanism will be an important consideration for Aer Lingus shareholders at the point the proposed solution is put before them in an extraordinary general meeting.

 

Implementation of the Labour Court Recommendations as varied by the Expert Panel Report

Any implementation of the Labour Court Recommendations, as varied by the Expert Panel Report, is dependent on a series of further complex steps. These steps include (but are not limited to) the following agreements being reached and approvals being achieved:

 

·    Formal agreement with ICTU and the trade unions;

·    Formal agreement by the IASS Trustee with the sponsoring employers;

·    DAA Board and shareholder approval;

·    Trade union member ballot approvals;

·    Agreement between the parties on a comprehensive communications exercise with IASS members;

·    The successful conclusion of a range of implementation steps by the IASS Trustee amongst others;

·    Aer Lingus Board and shareholder approval to make the proposed once-off payments totalling €190.7 million; and

·    Approval by the Pensions Authority of the benefit funding proposal to implement the benefit reductions proposed by the IASS Trustee.

 

The Company will commence a phase of intense engagement with the relevant parties with the objective of implementing the combined Labour Court Recommendations and Expert Panel Report on as timely basis as possible. The Company strongly encourages all parties to work collaboratively and constructively to implement the proposed solution.

 

Next steps

Prior to seeking shareholder approval, the Company will engage directly with ICTU and the trade unions to formalise an agreement reflecting the matters set out in the Labour Court Recommendations as varied by the Expert Panel Report, the establishment of an internal dispute resolution mechanism and related matters. The Company will also engage directly with the Trustee of the IASS in order to formally confirm its agreement to move forward on the basis of the Labour Court Recommendations as varied by the Expert Panel Report. The Company recognises that it will be necessary for DAA to undertake similar steps in order to implement its Labour Court Recommendation as varied by the Expert Panel Report.

 

Assuming the above formal agreements with the Trustee of the IASS and ICTU are concluded and other related implementation steps are progressed in a timely manner, Aer Lingus will issue a circular setting out full details of the proposed full and final solution and convene an extraordinary general meeting to seek approval from shareholders. While Aer Lingus and the Company are committed to seeking a full and final solution that can be implemented in the best interests of all parties, including shareholders and employees, the process is complex and there is no certainty that agreement can be reached between the various parties.

 

If the required agreements and approvals are achieved and other related implementation steps are progressed in a timely manner, the Company would then implement the proposed solution including:

 

·    A once-off payment by the Company of €146.7 million (based upon the Labour Court Recommendations as varied by the Expert Panel Report) would be deployed to existing employees of the Company as part of their acceptance of the terms of the arrangements. This deployment of funds would be principally achieved through a once-off payment by the Company to individual pension funds within a new defined contribution scheme. Each employee will have to confirm their formal written acceptance of the arrangements before any payment can be made to them. The pension solution can be considered full and final on an individual current employee basis only when an individual's formal written acceptance is received;

·    A once-off payment by the Company of €44 million would similarly be made available in respect of Deferreds. Each Deferred member will have to confirm their formal written acceptance of the arrangements before any payment can be made to them. Similar to current employees, the pension solution can be considered full and final on an individual Deferred basis only when an individual's formal written acceptance is received; and,

·    The Company would make the cost stabilisation payments outlined in the Labour Court Recommendation in respect of its own employees over the period to 2016.

 

The Pilots' Scheme

The Expert Panel Report does not relate to the Irish Airlines (Pilots) Superannuation Scheme (the "Pilots' Scheme") which had a minimum funding standard deficit of €167 million as of 31 December 2013. The issues relating to the Pilots' Scheme are being considered within a separate pilot pay tribunal process which is on-going. It remains unclear as to whether any recommendation will issue from the pilot pay tribunal regarding the Pilots' Scheme and further separate discussions may subsequently be required. The matter has also been complicated by changes to the taxation of pensions in Ireland in late 2013 which may have potential implications for certain members of the Pilots' Scheme.

 

It is possible that the convening of an EGM to seek Aer Lingus shareholder approval in relation to the IASS Labour Court Recommendations, as varied by the Expert Panel Report could be further complicated by the separate process and discussions required in relation to the Pilots' Scheme.

 

Further updates will be provided as and when appropriate.

 

ENDS

 

Note to editor:

"Freeze and de-risk" involves the closure of the IASS to new members; cessation of benefit accrual; a tiered reduction of 10% and 20% applied to pensions in payment; cessation of both employer and employee contributions to the Scheme and the adoption of a liability driven investment strategy for the Scheme.

 

 

For further information please contact:

Investors & Analysts




Catherine McGuinness

Aer Lingus Investor Relations

Tel:

+353 1 886 2892

Jonathan Neilan

FTI Consulting

Tel:

+353 1 663 3686





Irish Media




Declan Kearney

Aer Lingus Communications

Tel:

+353 86 617 2702

Sheila Gahan

Wilson Hartnell Public Relations

Tel:

+353 87 234 2409

[email protected]








International Media




Matthew Fletcher

Powerscourt

Tel:

+44 (0) 207 3240494

[email protected]

 



 

           


This information is provided by RNS
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