Aer Lingus announces radical outsourcing plan
A large-scale outsourcing plan unveiled by Aer Lingus signalled a major change in the traditional industrial relations between the former state-owned airline and its main trade unions. As part of the plan, the airline sought to outsource more than a third of its total workforce, amounting to 1,500 jobs. However, after threatened strike action and tense negotiations, agreement was reached on alternative cost-cutting measures.
Need for cost cutting
Trade unions in Aer Lingus were locked in negotiations for a number of weeks in a bid to amend radical company proposals to outsource some 1,500 jobs out of a total of 4,000 posts at the airline. The unions were informed that agreement on cuts amounting to €50 million in staff costs was required by the end of November 2008, as part of a wider €74 million cost reduction programme due to rising fuel costs and the global economic downturn. A 15-month pay freeze was included in the plan.
Aer Lingus Chief Executive Officer (CEO), Dermot Mannion, called the plan ‘aggressive and radical’, insisting that it was crucial to ensure future viability. The company told the trade unions that, regardless of any fall in oil prices, the ‘board’s biggest concern is the macroeconomic environment and decline in consumer demand’. If any alternative plan delivering equal savings was not agreed by 30 November, ‘the board has agreed to proceed with implementation of (the) proposed plan from 1 December’.
Among the airline’s board members are the General Secretary of the Irish Congress of Trade Unions (ICTU), David Begg, and a nominee of the government, Colin Hunt; the state holds a 25% stake in the company.
The two main trade unions, the Services, Industrial, Professional and Technical Union (SIPTU) and the Irish Municipal, Public and Civil Trade Union (IMPACT), criticised the plan but agreed to cooperate with a process chaired by the Head of conciliation at the Labour Relations Commission, Kevin Foley. SIPTU members balloted in favour of industrial action in the event of management taking unilateral action.
Key elements of plan
The €50 million savings in staff costs were to be achieved through the outsourcing of 1,500 jobs in total. Some 1,300 of these would involve SIPTU ground staff, including categories such as baggage handlers, catering workers and check-in staff across all Aer Lingus ground operations in Dublin, Cork and Shannon airports.
Separately, the company proposed to outsource cabin crew – a majority of whom are members of IMPACT – who currently operate out of Ireland on three transatlantic routes: Boston, New York and San Francisco. American-based crew would, in future, staff these services.
To encourage existing full-time staff to voluntarily leave the airline, the company planned to offer either a severance option and/or allow staff to apply for a position with a new unionised external service provider. The employees concerned would be offered a choice of voluntary severance or early retirement and the opportunity to apply for a position with the new service provider, or they could transfer to the new provider under transfer of undertaking rules on the same pay and conditions.
New pension provisions would apply with the external service provider, as Aer Lingus envisaged securing its plan before a commitment to extend transfer of undertaking rules to company pensions – as proposed under the new national agreement (IE0810019I) – could be implemented.
The critical issue for the company was how to position its severance package. It opted for the same relatively attractive terms last offered in a 2004 redundancy scheme, when over 700 staff left the then state-owned company. A total of three options were offered to staff, ranging from a minimum lump sum of €40,000 to over €70,000 or nine weeks’ pay for each year of service.
It is believed that these terms would be attractive to the 60% of current Aer Lingus ground staff who have less than 10 years of service. One third of the affected staff are from other EU Member States, mainly from eastern Europe.
In a document entitled ‘Outsourcing – An indecent proposal’, SIPTU explained to its members the value of maintaining a job with Aer Lingus. However, if the airline had forced through its plan, that would have meant the virtual ending of SIPTU’s direct influence in Aer Lingus.
A critical feature of the company is its ability to pay substantial severance money at this time, because it holds cash reserves of over €800 million. This provides it with the cash to ‘lever’ enough employees out of the company and into alternative service providers. The company hoped that this would result in long-term savings as long as the contracts it agreed with new service providers – and the services it received in return – were cost effective and did not result in a decline in productivity.
After several tense weeks of threatened staff cuts, strikes, takeover bids and negotiations, an alternative plan was agreed averting the need for outsourcing. As part of the new deal, the number of staff will be reduced by 7% through early retirement or voluntary redundancy. Furthermore, half of the ground operations staff will have to leave the company and reapply for positions with Aer Lingus on lower terms and conditions.
Brian Sheehan, IRN Publishing