Unions back pay and pensions deal ahead of airline flotation

Trade unions in Aer Lingus accepted a detailed package on pay, changes in work organisation and pensions just prior to the partial flotation of the airline on 27 September 2006. The new agreement will include a wage increase of 3.5% on top of agreed productivity payments.

Trade unions in the now partially privatised airline, Aer Lingus, voted to accept a major agreement on a range of pay, change and pension issues just before the company was floated on the stock market on 27 ber 2006. Some months before, a draft industrial relations framework agreement – prepared by management with the aim of securing the support of the trade unions prior to moving ahead with the initial public offering (IPO) – had been leaked to the media (IE0605019I).

Flotation of airline

The shares were offered on the market for €2.20 a share, raising €531 million from the sale of over 52% of the airline’s shares, with the government expected to retain around 29% of the company. Aer Lingus is to use €400 million to help fund the purchase of new aircraft and has also put aside €104 million to offset a deficit in the pension fund. So far, the government had made about €142 million from the sale and was due to add to this in the coming weeks, as it planned to release a further 6.5% of the shares.

Details of agreement

The new agreement allows for a wage increase of 3.5% on top of agreed productivity payments, along with a once-off €104 million supplementary payment to the pension scheme. In addition, anti-dilution measures are to be granted to maintain the proportional share value of the employee share ownership plan (ESOP) at its current level. In return, the company has secured work practice changes and employees have agreed to increased contributions to the pension scheme.

However, it emerged that there was a difference of opinion between two pensions experts on whether the remedial measures taken to tackle the deficit in the pension fund are sufficient. Trade union advisors, Farrell Grants Sparks (FGS) separate advice from two pensions experts, Mercers and Buck Heissman. Mercers are actuaries for the scheme, so FGS sought additional independent advice on behalf of the unions from Buck Heissman.

Buck Heissman suggests that the €170 million deficit estimated by Mercers is an underestimate; the two advisors also disagree over issues such as projected salary increases, how well new entrants can be accommodated into the existing scheme and the rate of return for fund investments. Ultimately, however, the unions opted to be guided by the Mercers report, as they had confidence in Mercers’ longer-term association with the pension scheme.

Labour Court decision on pay

The new pay agreement is based on a Labour Court finding, which had recommended that the company should increase its original pay offer of 3%, to a total of 4%. The Court stated that it recommended the pay rise in the context of an increased staff contribution of 2% to the pension scheme. The pay increase is in addition to the payment of lump sums of between €400 and €4,400 per worker, depending on length of service.

Management and unions later agreed to 0.5% of the recommended pay increase being earmarked to help maintain the existing employee share ownership plan (ESOP) scheme at its overall level of 12.6% of company shares. Some €67 million will be needed in this regard. Most ESOPs in state sell-off situations have involved a 14.9% holding but, in the case of Aer Lingus, the ESOP holds 12.6%, with a further 2.3% of the company held by individual employees. The ESOP does not intend to aim towards 14.9%, and will concentrate instead on maintaining its 12.6% holding.

Change and productivity

The company secured certain changes in return for the pay and productivity increase; these are typified by the so-called ‘fly anywhere’ agreement negotiated with cabin crew. Such changes are needed to operate the work practice changes envisaged in the business plan originally prepared in 2004 by the former Chief Executive Officer (CEO), Willie Walsh, but which has been amended by the current CEO, Dermot Mannion, in accordance with his management team’s development plans.

The Labour Court, in what effectively amounted to a test case involving cabin crew in 2005, had ensured that a productivity based pay increase would be in accordance with the principles laid down in the national pay agreements. As the Court observed, the objective of the plan is to bring about further improvements in staff productivity and cost effectiveness, ‘thus underpinning the competitiveness of the company, and the security and quality of the employment which it provides’.

The company will be hoping that pilots follow the advice of their separate independent pay tribunal, chaired by Senior Counsel Gerry Durcan. In supporting the same pay increase as the Labour Court recommendation (4%), the Durcan tribunal stated that it would be reasonable that pilots also cooperate with this ‘fly anywhere’ policy.

Union reactions

Acceptance of the agreement across the entire workforce was expected, as the two main unions, the Services, Industrial, Professional and Technical Union (SIPTU) and the Irish Municipal Professional and Civil Trade Union (IMPACT), had recommended that the deal was the best on offer. This result was duly achieved, although not without some difficulty on the SIPTU side. In fact, three small SIPTU sections voted against the agreement, although they later revised their initial decision and backed the plan.

SIPTU, in recommending that the business plan be accepted, highlighted the difference between its opposition, in principle, to any privatisation and its negotiating stance on the industrial relations realities post privatisation. The union has underlined the new levels of permanent job numbers – a 15% ratio for non-permanent staff relative to permanent employees – resulting in 500 extra permanent jobs for ground staff immediately. In addition, outsourcing has been ‘abandoned’, the union states.

IMPACT and its affiliate, the Irish Airline Pilots’ Association (IALPA), had always taken a more pragmatic position. Although formally adopting the opposition of the Irish Congress of Trade Unions (ICTU) to the privatisation of commercial semi-state companies, IMPACT was aware of the fact that its pilots were strong supporters of privatisation.

Brian Sheehan, IRN Publishing