Aer Lingus has told unions it is halting payment of all wage increases, including increments, until the long-running dispute over the massive deficit in its pension fund is resolved.

The airline was due to resume paying increments in April following a three-year pay freeze.

The deficit in the joint Aer Lingus-Dublin Airport Authority scheme, known as the Irish Aviation Superannuation Scheme, stood at over €770m in December.

A process involving the Labour Court has been trying to finalise mechanisms to close the existing Irish Aviation Superannuation Scheme, liquidate its €1.4bn in assets and purchase sovereign bonds to deliver cash to cover past service accrued by staff.

Future pension entitlements would be covered by new separate defined contribution schemes for Aer Lingus and the DAA, which would transfer risk from the employer to staff.

However, Aer Lingus has consistently insisted that it must obtain cost-offsetting productivity concessions from staff in return for any contributions to address the deficit.

Unions categorically refuse to accept any such productivity measures.

In a letter to staff bearing today's date, Aer Lingus Director of Change and Engagement Sean Murphy says Aer Lingus must achieve cost moderation and stabilisation to facilitate funding of the pension proposal to the required level.

Mr Murphy says Aer Lingus hopes to achieve this through the "moderation of pay increases" rather than through pay reduction.

He says Aer Lingus is proposing that for four years, normal incremental progression would be replaced by an annual "stabilisation payment", totalling €16m over that period.

It puts forward two mechanisms for structuring this payment.

A "Gainsharing Type Approach" would involve the €16m stabilisation payment being used to produce a one-off and "off-scale" (non-pensionable) payment in each of the four years to affected staff, excluding management.

The average annual payout would be likely to exceed €1,000 per person per annum, payable in October in each of the four years.

Mr Murphy notes that this approach would give higher weighted payments to those on lower pay.

The second mechanism is entitled "Weighted On Scale Payments".

Under this approach, pay scales would remain unchanged, but those below the maximum of a scale would move up the scale, not by full increments, but by a "fixed value".

The document proposals that the annual increase would be around €600, which is less than a worker would have received under the traditional incremental arrangements.

Employees at the top of their scale or on long-service increments would not receive the €600 per year payment.

Mr Murphy says that in the context of the above proposals "Aer Lingus will not make any increases to pay, including increments, pending resolution of this issue".

In a statement to RTÉ, Aer Lingus said that in its interim recommendation of 3 January, the Labour Court had requested the airline to engage in discussions with unions on cost stabilisation.

It said that given that discussions on the funding shortfall in the pension scheme were ongoing, Aer Lingus has simply informed the unions that increments will not be paid pending completion of the Labour Court process.

Aer Lingus has now requested the Labour Court to intervene in order to advance its interim recommendation.