Aer Lingus pay freeze may end

Ireland's state-owned airline, Aer Lingus, may find it impossible to maintain a pay freeze agreed in December 2001 beyond March 2003, following the announcement that it is on target to make a profit of almost EUR 40 million in 2002.

A pay freeze was included as a key element in an EUR 180 million cost-reduction/transformation plan agreed between Aer Lingus, the Irish state-owned airline, and its 4,500 employees as a response to the company's financial crisis in December 2001 (IE0111101F). The freeze is up for review on 1 March 2003. Given that the company is forecasting far better than expected results for 2002, the freeze is unlikely to last beyond that date. The transformation plan also included 2,000 voluntary redundancies and changes in work practices.

The company’s forecast for 2002, which suggests it will make an EUR 40 million profit during the year, surprised industry observers, given that the company had earlier predicted that it would lose EUR 27 million in 2002. However, the revised forecast, which was confirmed by the Aer Lingus chief executive, Willie Walsh, on 2 October 2002, indicates that rapid progress been made in achieving the targets of the transformation plan and that passenger volumes have exceeded expectations.

Under the 2001 transformation plan, the company succeeded in securing the backing of the Labour Relations Commission (LRC) for a pay freeze. However, the freeze was not as extensive as management had asked for, with the LRC proposing that it should run for 15 months, specifically until 1 March 2003. It would then be subject to a review.

However, the airline’s two main trade unions - the Services Industrial Professional and Industrial Union (SIPTU) and the Irish Municipal Public and Civil Trade Union (IMPACT) - are unlikely to pursue pay claims on a backdated basis, prior to the March 2003 review date. The total amount of pay frozen was the 9.5% due under the national pay agreement, the Programme for Prosperity and Fairness (IE0003149F), as well as a special 1% lump sum due under the so-called 'adjusted' PPF agreed in December 2000 (IE0012161F). Senior officials from both unions confirmed that they would look at the situation as it develops, but would not seek to end the freeze before the due date.

In the case of the company’s 550 pilots, all members of IMPACT, the situation is somewhat different. They agreed the transformation plan six months after the rest of the workforce (IE0205201N), and while affected by the pay freeze, they are likely to demand action on a separate independent pay report which offers them further pay rises.

The company’s stance is that it wants to keep its cost-base down, implying that any possible wage concessions – including a potential 'de-freezing' in 2003 – would have to come from further cost reductions. Further cost reductions of some EUR 130 million are already in the pipeline.

Aer Lingus’s current strategy is a twin-track one, namely to offer cheaper fares while maintaining its reputation as a 'full service' airline, where appropriate. In tandem with this, the company is continuing to drive down costs and is planning more fare offers, such as a planned EUR 65 million business class fares reduction plan, which it is to 'roll out' in mid-October 2002.

Meanwhile, final agreement on the Aer Lingus employee share ownership plan (ESOP) - agreed as part of the transformation plan - has almost been concluded. A final text was expected to be concluded in October 2002. As a trade-off for agreeing the transformation plan, the company and the Department of Transport and Communications agreed to the completion of the ESOP, worth 14.9% of the company. This is the norm for ESOPs in state companies. The Aer Lingus workers' 14.9% stake is to be made up of an existing 4.6% stake (agreed under the 1993 'Cahill plan') and a further 10.3% to compensate for transformation/change or pay foregone under the December 2001 transformation plan.