Aer Lingus will not make additional funds available to plug pension fund deficitFriday 18 October 2013 20.39
Aer Lingus has confirmed to the trustees of its pension scheme that it will not make additional funds available to plug a deficit in excess of €750m.
Preliminary proposals to tackle the deficit, which would have included a lump sum injection of €140m by Aer Lingus, were rejected as inadequate by the Pensions Board during the summer.
On 7 October, the trustees of the Irish Aviation Superannuation Scheme, which covers employees of both Aer Lingus and the Dublin Airport Authority, presented revised proposals to staff and management.
Those proposals included working for extra years, cuts in benefits of between 11% and 25%, and transferring to a defined contribution pension scheme for future service.
In their presentation, the trustees also noted that a wind-up of the scheme could be the only alternative solution, though they were doing their best to avoid that.
Under current wind-up regulations there would be a "very substantial reduction in accrued benefits for active and deferred members".
The trustees asked all parties to respond with their observations on the proposals by today.
Unions want Aer Lingus to inject a larger amount of cash to underpin the restructuring of the pension scheme, and have calculated that the reduction in benefits could be even greater.
However, in today's response to the trustees, it is understood that Aer Lingus has again ruled out any additional injection beyond the €140m.
The company believes the €140m contribution remains adequate to achieve the target levels of pension benefit negotiated at the Labour Court.
The IASS has around 15,000 active, deferred and retired members between Aer Lingus and the DAA.
The preliminary proposal rejected by the Pensions Board would have seen the existing pension scheme frozen, with assets used to purchase long-term sovereign bonds.
It was forecast that the yield on those bonds would deliver sufficient returns to fund pension entitlements accrued to date.
However, bond yields have fallen in the interim, raising doubts about whether the target benefits could be delivered.
Future service would be funded through a defined-contribution scheme, which carries more risk for the employee.
Aer Lingus would also contribute a once-off lump sum of €110m to a new defined-contribution pension scheme, and a further €30m to help meet the entitlements of former staff who have not yet retired.
A separate arrangement was negotiated between DAA management and unions to cover their element of the joint pension scheme, under which the company would have injected around €60m to underpin the restructuring.
The DAA is not expected to issue its response today.
Unions at both companies have already threatened to take industrial action over the pension cuts.
The pension deficit has been viewed as a serious obstacle to the Government's plan to sell its 25% stake in Aer Lingus, as well as to the company's attempts to build alliances aimed at growing the airline.