Aer Lingus reaffirms pension commitment

Tuesday 18 February 2014 22.02
Aer Lingus has reaffirmed it will contribute once-off funding of €140m as part of a proposed restructuring of a troubled pension scheme
Aer Lingus has reaffirmed it will contribute once-off funding of €140m as part of a proposed restructuring of a troubled pension scheme

Aer Lingus has reaffirmed it will contribute once-off funding of €140m as part of a proposed restructuring of the troubled pension scheme which it shares with the Dublin Airport Authority.

However, in a bulletin to the stock exchange, the airline stressed that it would not do so without shareholder approval, and it remains committed to implementing "cost stabilisation" or productivity measures from employees to offset the cost of contributions.

The airline also said that the renewed prospect of industrial action at the airline is not helpful to making progress towards reaching a solution in the interests of all parties.

Last Friday, the trustees of the Irish Aviation Superannuation Scheme issued a draft funding or restructuring proposal in a bid to resolve a long-running row over the €780m deficit in the scheme.

For the first time the scheme's pensioners will have their pensions cut under the terms of new legislation signed into law in December. 

Current and former employees who have not yet retired will have their benefits accrued to date reduced by 20%.

Statutory revaluation (index-linking) will cease, as will the entitlement to claim the State pension in addition to the aviation scheme pension. 

The existing defined benefit scheme will be wound up and replaced with separate defined contribution schemes for Aer Lingus and the DAA.

Aer Lingus has already pledged to contribute a lump sum of €110m to the new defined contribution scheme for current employees.

It tells the stock exchange that it believes this once-off funding remains adequate to meet benefit targets outlined in a Labour Court recommendation last year.

However, it says it will reassess the matter once it has sight of the actual draft funding proposal.

It reiterates the need for cost stabilisation or productivity measures to deliver cost predictability. 

The company has also pledged to make a once-off contribution of €30m to a new defined contribution scheme for deferred members (former employees who have not yet retired).

It notes the trustees' implementation target date of 31 December next, but calls for implementation to be accelerated.  

The airline urges the pension scheme trustees to submit the draft funding proposal to the Pensions Board as soon as practicable on the basis that it represents a viable solution which would result in a better outcome for the affected parties than the forced winding up of the scheme.

Aer Lingus notes that a number of steps must be completed before a deal can be finalised including approval from the Pensions Board, trade unions, the employers, and shareholders.  

The airline says that it will hold an Extraordinary General Meeting to seek approval for the one off contributions totalling €140m, and stresses that those contributions will not be made without shareholder approval. 

Aer Lingus cautions that the process is complex and there is no certainty that agreement can be reached - but it hopes the EGM will be held during 2014.

Meanwhile, a group representing deferred members has voiced anger that they have not been adequately consulted on the changes.

They say the proposed cuts in benefits will have a "drastic" impact on their pension benefits which could be cut by up to 50%.

They have criticised the €30m lump sum offered by Aer Lingus for the 3,687 deferred members as inadequate, compared to the €110m that will be shared by the 2,570 current employees.